Economic and planning policies: Impact on farming and rural communities

Approximate read time: 20 minutes

This briefing has been prepared for the 3 April 2025 House of Lords debate:

Lord Roborough (Conservative) to move that this House takes note of the impact of the government’s economic and planning measures on farming and rural communities.

1. Closure of the sustainable farming incentive scheme to new applicants

On 11 March 2025, the government announced it had stopped accepting new applications to the sustainable farming incentive (SFI) scheme because the fund’s maximum limit had been reached.^[1] The SFI—one of three schemes that make up the environmental land management scheme (ELMS)—was introduced by the Conservative government in 2022.^[2] It pays farmers to adopt sustainable practices that protect the environment and support farm productivity. ELMS is the main source of funding for farmers in England after Brexit. The Labour government has committed to retaining ELMS as the key form of support to farmers and other landowners in England.^[3] In the budget statement in October 2024, Labour committed £5bn to the farming budget over two years, including £1.8bn for ELMS in 2025/26.^[4]

The government attributed the success of the SFI scheme, which has over 37,000 multi-year live agreements, to its £5bn investment.^[5] Whilst new applications have been closed, the government has confirmed that existing agreements would continue and eligible pending applications would be processed. The government has also said it planned to reform the SFI scheme. Daniel Zeichner, minister for food security and rural affairs, said Labour planned to address issues like the scheme’s lack of spending cap and its ‘first come, first serve’ design which had meant there had been no fair allocation of resources.^[6] The minister said the revised scheme would focus on budgetary controls and more equitable distribution, especially for less productive land.^[7] He confirmed that details of the revised scheme and the date it would open for applications would be published following the spending review and after consultations with farmers in summer 2025.

1.1 Reaction from farming and rural communities

Farming groups have raised concerns about the government’s handling of the SFI scheme closure to new applicants. The National Farmers’ Union (NFU) criticised the government for delivering the news without warning or consultation.^[8] It described the impact the SFI closure had on the sector as “crushing”.^[9] It said this included “thousands of farmers” who had begun applications but were now unable to be paid for the work they had done to compile them, and in some cases for the environmental work they had already started in expectation of an agreement. NFU President Tom Bradshaw said that many farmers now faced the dilemma of whether they can afford to continue implementing environmental work. He stated this placed England’s food production and sustainability targets at risk. A recent NFU survey showed farmer confidence had reached an all-time low, with the SFI closure exacerbating cashflow problems and limiting investment capabilities.^[10]

The Country Land and Business Association (CLA) criticised the government’s messaging regarding the SFI closure, accusing it of being “disingenuous”.^[11] The CLA argued that the closure had been presented as a planned decision, contrary to the industry’s understanding. It also disputed the government’s claim that 37,000 live agreements was a success, noting that this was only a minority of the 102,400 farm holdings in England. The CLA, along with other industry bodies, has urged the government to support farmers who were still in the application process before the closure.^[12]

Martin Lines, CEO of the Nature Friendly Farming Network (NFFN), said the “completely unacceptable” sudden closure of the SFI had left many farmers in financial difficulty.^[13] He said many farmers felt “frustrated and let down”, with no clear path to being rewarded for their environmental efforts. The NFFN has urged the government to introduce an interim scheme to support farmers who are not currently enrolled in the SFI.

The government has defended its decision to close the SFI to new applications, noting that the scheme had been paused on two previous occasions when the funding had been used up and then subsequently restarted.^[14] Parliamentary Under Secretary of State for the Department of Environment, Food and Rural Affairs (Defra) Baroness Hayman of Ullock acknowledged that the quick closure had caused difficulties and concern amongst the farming community.^[15] The minister said the government aimed to produce a reformed scheme that was “more stable” to ensure farmers had certainty and security.

1.2 Views in Parliament

Conservative Party MPs have opposed the closure of the SFI scheme. Shadow Environment, Food and Rural Affairs Secretary Victoria Atkins criticised the government for a lack of prior notice and consultation with farming stakeholders.^[16] The shadow secretary of state also questioned the government’s commitment to farmers and raised concerns about the impact of the scheme’s closure on the government’s legally binding environmental targets.^[17]

Broader concerns have also been raised about the coherence of the government’s rural policy.^[18] For example, Alistair Carmichael (Liberal Democrat MP for Orkney), chair of the House of Commons Environment, Food and Rural Affairs Committee (EFRA committee), called for the government to urgently adopt a “strategic” approach to rural policy-making to address growing dissatisfaction amongst farming and fishing communities. Mr Carmichael said the government’s announcement would “only add to the uncertainty and insecurity of [farmers’] livelihoods and threaten their financial viability”.^[19]

2. Inheritance tax relief reforms

In the autumn 2024 budget, the government announced reforms to agricultural property relief (APR) and business property relief (BPR) from inheritance tax.^[20] APR reduces the inheritance tax farmers and landowners must pay when passing farmland to the next generation, whilst BPR applies to business assets that are part of the estate.^[21] Both reliefs currently offer 100% or 50% tax reduction, depending on eligibility, with no cap on the total relief amount. 100% relief would mean an asset is exempt from inheritance tax.

From 6 April 2026, the full 100% relief from inheritance tax will be restricted to the first £1mn of combined agricultural and business property.^[22] Above this amount, the government said landowners will access 50% relief and will pay inheritance tax at a reduced effective rate up to 20% (rather than the standard 40%). The tax would be payable in instalments over 10 years interest free. The government has confirmed that the valuation of an estate would include non-residential agricultural buildings, farm vehicles, farm tools, livestock, chemicals and fertiliser stock.^[23]

The Treasury has confirmed that full exemptions for transfers between spouses and civil partners would continue to apply.^[24] There are also nil rate bands for inheritance tax which people would retain access to on top of the £1mn. A nil rate band is an amount of an estate that can be passed on free of inheritance tax. The tax-free allowance for residences is £175,000 per person. Each person also has a £325,000 tax-free allowance that can be applied to all types of assets.

The government said these reforms would make the current regime fairer. Daniel Zeichner, minister for food security and rural affairs, said that “sadly, [APR] has been used in some cases by wealthy landowners to avoid inheritance tax. That is why the government have announced plans to reform agricultural property relief”.^[25] Mr Zeichner said rural communities would benefit from “a better NHS, affordable housing and public transport, and we can provide that if we make the system fairer”.^[26]

HM Treasury has said the reforms are expected to affect around 2,000 estates each year from 2026 to 2027, with “almost three-quarters” of estates claiming APR and most estates claiming BPR expected to be unaffected.^[27] The government opened a consultation on the reforms in February 2025 to determine if the rules would work as intended.^[28]

Fiscal watchdog the Office for Budget Responsibility has forecasted that the policy could raise £500mn by 2029–30.^[29]

2.1 Reaction from farming and rural communities

The farming industry has argued the policy is a threat to the future of family farming. Several protests have been held in central London and across UK towns since November 2024 in response to the policy.^[30] The Countryside Alliance has argued that while the government has a “legitimate aim” in seeking to limit the purchase of agricultural land as part of plans to avoid inheritance tax, the policy will impact family farms.^[31]

The NFU said the government’s figures about the number of farms that would be affected by the policy were “misleading”.^[32] NFU President Tom Bradshaw argued that “very few viable farms would be worth under £1mn but lots of smallholdings and houses with a few acres let for grazing might be”. He said that the asset value of food-producing farms was high, while profitability was low. According to modelling by the CLA, it estimated a figure of 70,000 UK farms potentially being affected at the point of inheritance.^[33]

However, founder of Tax Policy Associates Dan Neidle and Associate Professor at the University of Warwick Arun Advani disagreed with the CLA’s assessment.^[34] They noted that the CLA had derived its total from Defra figures for farm size and had not used HMRC data on the estates which actually take up the relief.

The government has said the Defra data and HMRC data are “consistent” but “describe different things”.^[35] Using Defra data on farm asset values, the government said, does not take into account “who owns the business, the nature of that ownership, how many owners there are, any borrowing the business has, and how they plan their affairs”.

Farming groups, including the NFU, have also argued that the government’s policy poses a risk to food security.^[36] The NFU has expressed concerns that supply chains would be disrupted if productive farms have to be broken up or sold to pay inheritance tax. Around 60% of the food consumed in the UK is domestically produced.^[37] Defra has assessed the UK’s food supply as “broadly stable”.^[38] However, it highlighted that domestic food production is vulnerable to a range of factors, including flooding, increased energy costs and international supply chains.^[39]

Some think tanks have welcomed the reforms. The Resolution Foundation said APR and BPR were “significantly contributing to ‘horizontal inequity’, whereby estates with similar wealth levels faced different effective tax rates”.^[40] The Institute for Fiscal Studies (IFS) has also broadly agreed with the changes.^[41] However, the IFS said the policy could be tweaked.^[42] For example, it said farmers passing away in the next seven years will not have had the opportunity to avoid inheritance tax by making lifetime gifts. The IFS said the policy could therefore be brought in more slowly, or gifts of agricultural property made before a certain future date could be inheritance tax free, regardless of the timing of the death.^[43]

2.2 Views in Parliament

Leader of the Conservative Party Kemi Badenoch wrote on X that her party opposed the tax changes and would reverse them if it returned to government.^[44] Chair of the EFRA Committee Alistair Carmichael also criticised the government’s approach:^[45]

Agricultural property relief is not a loophole; it has been a deliberate policy of successive governments for the past 40 years, designed to avoid the sale and break-up of family farms. […] These changes will have a ripple effect across the whole rural community.

The House of Lords held a short debate on the future of farming families on 21 November 2024.^[46] Several members called for the government to reverse the policy decision or put in place protections for family farms. They highlighted the challenges of farming life and its mental health impacts. Baroness Northover (Liberal Democrat), who tabled the debate, said “a solution must be sought that does not cause further damage to this sector, which has suffered so much in recent years”.^[47] In response, Baroness Hayman of Ullock acknowledged concerns raised by the farming community about the policy and gave assurance that the measures had been designed to protect small farms.^[48]

3. Reforms to compulsory purchase process

The government’s ‘Plan for change’ includes a key milestone to build 1.5mn homes in England and fast-track planning decisions on at least 150 major economic infrastructure projects during this parliament.^[49] To reach these milestones, the government has announced an overhaul of the planning system.^[50] It has made various policy announcements as part of this overhaul, including provisions set out in the Planning and Infrastructure Bill that would amend the compulsory purchase process.

Compulsory purchase orders (CPOs) allow certain public bodies to acquire land without the owner’s consent.^[51] They are intended as a last resort to support the delivery of development, regeneration and infrastructure projects in the public interest.^[52] Affected landowners are entitled to compensation which is generally based on the land’s open market value and can include a ‘hope value’ which reflects the prospect of future planning permission being granted on the land. The Conservative government’s Levelling-up and Regeneration Act 2023 introduced changes to how land is valued for CPOs, allowing the hope value to be disregarded in certain cases such as for housing, education and NHS projects. The government’s factsheet ‘Compulsory purchase compensation: Power to remove hope value’ (3 October 2024) sets out how existing powers to disregard the hope value work.

The Labour government has said that it recognises the importance of making effective use of land to support the delivery of housing, growth and regeneration across the country.^[53] However, it said complex land purchasing processes and “unrealistic expectations on compensation” from landowners had caused delays in the assembly of land for housing and infrastructure by compulsory purchase. As such, the government’s Planning and Infrastructure Bill includes measures that would amend the CPO process in various ways. This would include extending existing powers to remove the hope value from the assessment of compulsory purchase compensation to town, parish and community councils that are using CPO powers to facilitate affordable or social housing provision, if there is a compelling case in the public interest. The bill would also ensure that market value, rather than hope value, would apply to home loss, basic or occupier loss (agricultural and other land) payments for compulsory purchase compensation.^[54] These loss payments are an additional amount of compensation paid to owners and occupiers of land or property to reflect the disruption caused by the compulsory purchase. Currently, loss payments are assessed by considering the market value of the person’s interest which is subject to compulsory purchase.

The government has said these reforms (amongst others) would reduce delays and reinforce the principle that landowners should not receive excessive compensation where compulsory purchase powers are used to deliver schemes in the public interest.^[55]

3.1 Reaction from charities, think tanks and farming groups

Some stakeholders have welcomed the government’s CPO reform provisions. CPRE, the countryside charity, said it supported the reforms because they would help to deliver more affordable and social rented homes.^[56] However, the CPRE argued that the powers should not be used to develop greenfield sites like farmland and local green spaces. The New Economics Foundation think tank said it supported the hope value reform because it would reduce the grant funding needed to deliver social housing projects.^[57]

However, the proposals have faced opposition. The CLA stated that removing the hope value would undervalue land and unfairly burden landowners.^[58] It argued that the removal of hope value would be “tantamount to placing the responsibility to deliver higher levels of infrastructure and affordable housing” onto landowners. Additionally, NFU Vice President Rachel Hallos has called for proper consultation and compensation for farmers and landowners amid concerns that farmland could be more frequently targeted by compulsory purchases.^[59]

Currently, the use of CPOs is rare. Data published by the Ministry of Housing, Communities and Local Government (MHCLG) showed there were 75 CPOs approved between 2019 and 2024.^[60]

The government has responded to concerns raised by some stakeholders about the impact of the reforms on farmers and rural communities.^[61] MHCLG said the reforms would “not come at the expense of the environment or food production” and that the government expected the powers to be used mostly on urban brownfield sites.

3.2 Views in Parliament

During the second reading of the Planning and Infrastructure Bill in the House of Commons, Shadow Secretary of State for Levelling-up, Housing and Communities Kevin Hollinrake raised concerns about the government’s plans to reform the compulsory purchase process. He described the proposals as “an extension of the government’s attacks on farmers”.^[62] Speaking about the bill more generally, the shadow secretary said the Conservative Party would seek to amend the bill in ways that would “not undermine the ambition to accelerate the delivery of new homes while ensuring that there are checks and balances that protect communities, rural areas, farmers and the environment”.^[63]

However, some parliamentarians welcomed the change. Liberal Democrat Spokesperson for Housing and Planning Gideon Amos argued the reforms would allow councils to assemble land more affordably to deliver more social homes.^[64]

Responding on behalf of the government, Secretary of State for Housing, Communities and Local Government Angela Rayner said reforming the compulsory purchase process would help to “unlock” land for housing and infrastructure.^[65] The secretary of state said this would ensure that important projects that deliver public benefits were “given the green light, and that compensation paid to landowners is not excessive”.

4. Electricity bill discount scheme for transmission network infrastructure

The government’s ‘Plan for change’ includes a commitment for “clean power by 2030”.^[66] To support this aim, the Planning and Infrastructure Bill includes provisions that would introduce a financial discount scheme for communities living near new network transmission infrastructure such as pylons.^[67] This would see people living within 500 metres of new or upgraded electricity transmission infrastructure receive discounts off their electricity bills of up to £2,500 over 10 years, equivalent to £250 a year. The government said the discount scheme would be a “huge boost for rural communities” where residents would see “hundreds of pounds in their pockets for hosting infrastructure”. Bill discounts are expected to be in place from 2026.^[68]

In addition to its scheme for money off bills, the government has published new guidance on community funds for communities living near electricity transmission network infrastructure developments.^[69] ‘Community funds’ are monetary and non-monetary benefits provided by developers to communities to support projects such as sports clubs, educational programmes and leisure facilities. Some developers of electricity transmission network infrastructure already offer community funds; however, the government contended “this is often on an ad-hoc and inconsistent basis”.^[70] Given the increase in scale and pace of the need to roll out electricity infrastructure, the government said the new guidance sets out its expectations for how communities should benefit for hosting these infrastructure developments.

To meet its clean power commitment, the government said around twice as much new transmission network infrastructure would be needed by 2030 as has been built in the past decade.^[71] As such, it said ensuring community benefits would be “vital in speeding up the building of clean power infrastructure”. The government stated the plans would provide “particular benefit to rural communities, who will host a large amount of grid infrastructure”. Overall, it said community benefits would help the whole country by connecting more clean homegrown power to the grid, unlocking growth, jobs and investment.

4.1 Reaction from external stakeholders

Some stakeholders including National Grid and trade association RenewableUK have supported the government’s plans to ensure benefits for communities that host new or upgraded network transmission infrastructure.^[72] A spokesperson from the Energy Networks Association, which represents the UK’s energy network operators, said its members were “committed to working with local communities and providing community benefits to help ensure infrastructure development leaves a positive legacy” within host communities.^[73]

The CPRE argued that direct payments to individuals would “raise issues of fairness, potential legal challenges and the difficulty of pricing the loss of a landscape”.^[74] CPRE Campaigns Lead Jackie Copley argued “investing in local green spaces or improving community infrastructure would be a better way to spend this money”.^[75]

5. Government policies on support to farmers and rural economic growth

The government has said it is “focused on supporting our farmers, supporting rural economic growth and boosting Britain’s food security”.^[76] In August 2024, it set out a range of policies aimed at helping farming and rural communities.^[77] This included using the government’s purchasing power to back British produce, setting up a new British Infrastructure Council to channel private investment into rural areas and establishing a new flood resilience taskforce to coordinate flood preparation.^[78] Ministers also announced plans to introduce a land-use framework which the government said would balance long-term food security and nature recovery. The government subsequently launched a consultation on the framework which is set to close on 25 April 2025.^[79]

In January 2025, the government announced a series of reforms that would deliver the government’s “new deal for farmers” as part of the ‘Plan for change’.^[80] Policies included using planning reforms to make it quicker for farmers to build the infrastructure they need on their farms to boost food production. Additionally, the government said a ‘25-year farming roadmap’ would be published later this year. It stated this would involve government and farmers working together to identify solutions to challenges and to ensure support is in place for farm businesses.

In the latest set of announcements in February 2025, Environment Secretary Steve Reed set out  several new policies that would “boost farmers’ profitability” as part of the ‘Plan for change’.^[81] The announcements included:

• extending the ‘seasonal worker’ visa route for five more years^[82]
• introducing new requirements for government catering contracts to favour high-quality, high-welfare products that local farms and producers can provide
• investing £110mn in technology through the farming innovation programme and the farming equipment and technology fund to help fund research, development and purchase of agri-technologies
• upholding high environmental and animal welfare standards in future trade deals
• establishing a National Biosecurity Centre to help improve resilience against animal disease to protect farmers and food producers

6. Read more

• House of Lords Library, ‘Climate change: Supporting farmers and growers’, 20 January 2025
• House of Lords Library, ‘The rural economy’, 13 December 2024
• House of Commons Library, ‘Debate on housing targets in rural areas’, 28 January 2025

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