Hit to Exchequer from lower investment and job losses will outweigh revenue uplift, warn economists
Source - Daily Telegraph
Rachel Reeves’s inheritance tax raid on family businesses and farms will backfire by costing the Treasury over £1bn more than it makes, economists have said.
A drop in investment caused by the Chancellor slashing tax relief risks outweighing the extra income the Exchequer expects to gain from the changes, according to analysis by CBI Economics.
Its report says the Treasury has “underestimated the impact” of changes to business property relief (BPR), with the majority of family businesses forced to cut investment because of the raid
Analysts estimate that 125,678 jobs will be lost as a result. Overall, the loss of economic activity will lead to a £2.6bn reduction in income from taxes such as corporation tax, income tax and national insurance over the next five years, the research suggests.
This is much more than the estimated £1.38bn in extra inheritance tax Ms Reeves hopes to raise from cutting BPR, meaning that the Exchequer will be £1.26bn worse off than under the status quo.
Kemi Badenoch, the leader of the Conservatives, will cite the research in a speech in London on Monday as she warns that “no one is safe” from Labour’s tax raid.
Speaking at the Business Property Relief Summit, Mrs Badenoch is expected to say: “Keir Starmer and Rachel Reeves spent months, years even, on a charm offensive to convince businesses they had nothing to fear from a Labour government.
“Within weeks of taking office, they unleashed the worst raid on family business in living memory. They promised to get growth going. Instead, growth is going backwards.
“Keir Starmer’s decisions will drain investment and growth out of the British economy. And no one is safe. Businesses small and large, rural and urban, whether they make goods or provide services.
“The warning from Family Business UK that Labour’s changes to BPR could lead to 125,000 job losses is chilling. For some context, that figure is equivalent to the entire population of Blackburn.”
The changes to BPR mean that a 20pc levy will be charged on inherited business assets over £1m when someone dies. Agricultural property relief (APR) is also being limited, meaning farmland will be taxed too.
Nigel Farage, the leader of Reform, said: “Rachel Reeves is no economist. Her Budget measures and total lack of understanding of the private sector is driving us into recession.”
Tim Farron, the Liberal Democrat environment spokesman, said: “Farmers have had to deal with botched trade deals, endless amounts of red tape and now this tax hike from the Chancellor will hit farmers even harder leading to the collapse of so many family farms and countless jobs.”
It comes amid fears that Ms Reeves’s record £40bn Budget tax raid has already damaged Britain.
The economy unexpectedly shrank for the second consecutive month in October, according to data released last week, and experts are bracing for a potential increase in the unemployment rate in jobs data due on Tuesday.
The boss of Reed, one of the UK’s largest recruiters, suggested that falling vacancies mean a recession could be looming after the Budget “spooked business”.
James Reed told the Sunday with Laura Kuenssberg programme that jobs advertised on his website were 26pc lower than a year ago and added: “That worries me because when I’ve seen that in the past, it’s been an indication that recession is around the corner.”
Sir Keir Starmer will this week face questions about the tax raid from senior MPs when he appears before the influential Liaison Committee in Parliament for the first time on Thursday.
Meanwhile, farmers will be joining Ms Badenoch for the summit at the London Palladium on Monday to demonstrate their opposition.
The Government has been accused of downplaying the impact of its inheritance tax changes.
Experts from the Central Association of Agricultural Valuers have suggested that 2,500 farmers will be hit every year by the overhaul, five times as many as official estimates.
Tom Bradshaw, president of the National Farmers’ Union (NFU), has warned that some elderly and ill landowners may commit suicide to pass assets on before the changes are introduced.
On Monday, trade groups representing 160,000 family-owned businesses will write to Ms Reeves calling for the Government to reconsider the changes by launching a consultation.
The letter, organised by Family Business UK and signed by groups including the National Farmers Union, British Independent Retailers Association and Hospitality UK, warns that the economy will be “starved of much needed investment leading to forced, premature business sales and the loss of jobs in constituencies across the country”.
It adds that BPR and APR “are not loopholes” but designed to encourage investment.
CBI Economics, a branch of the business group, surveyed family-owned businesses for an analysis of BPR, which applies to businesses’ buildings and machinery. Cutting BPR is expected to account for more than three quarters of the extra £1.8bn the Treasury expects to bring in by 2030.
It found that 85pc of family businesses plan to decrease investment and that more than half – 54pc – expect to cut jobs as a result of the changes.
CBI Economics forecast that these changes would lead to gross value added – a measure of economic output – falling by £9.4bn by 2030.
Neil Davy, the chief executive of Family Business UK, said: “Already, family business owners are taking decisions to withhold planned investments and are putting recruitment on hold. Those working for family businesses are also extremely concerned, worried about how these changes might impact them.
“We do not believe that these are the outcomes the Government envisaged. So, we are calling on the Chancellor to meet and run a formal consultation, to find a solution that will protect the long-term interests of family businesses and farms and, crucially, the jobs and investment they provide.”
A growing rebellion against the tax has led to suggestions the changes could be watered down, with the first Labour MPs coming out against the policy. Last week a key backer of the proposal, Arun Advani of the CenTax think tank, said the thresholds could be raised to spare family farms.
A Treasury spokesman said: “Our commitment to business is resolute – we have capped corporation tax at 25pc, confirmed full permanent expensing, and are committed to working together with business to unlock more growth opportunities for our country.
“With our public services crumbling, a £22bn inherited fiscal black hole, and only 158 estates benefitting from over half a billion pounds in business property relief in 2021-22– more than half the total value – we had to make difficult choices to fix the foundations of the country and restore economic stability so businesses can thrive.
“We have set out our modelling on the impacts of the changes to BPR at the Budget, and, as is standard practice, we will publish further analysis of the impacts alongside the draft legislation expected in 2025.”
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