Rachel Reeves is being warned that her so-called “tractor tax” will not just hit farms but also puts tens of thousands of family businesses at risk along with 125,000 job losses.
The main trade body representing building materials – the Builders Merchants Federation (BMF) – has become the latest of 32 trade bodies to sign an open letter to the chancellor warning about the consequences of changes to inheritance tax in the Budget.
It has raised serious questions over the Labour government’s hopes over a building revolution pushing forward economic growth.
The 32 trade bodies, representing 160,000 family businesses, made their intervention ahead of a major protest event at the London Palladium on Monday which will be addressed by Tory leader Kemi Badenoch.
The letter warns: “The changes to these policies will have a severe and long-lasting impact on these businesses and the livelihoods of the millions of people they employ. These businesses and 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.”
They pointed to the published data by CBI Economics which suggests the changes will reduce economic activity by £9.4 billion with a net loss to the Exchequer of £1.25 billion as well as 125,000 job losses.
They added: “Business property relief (BPR) and agricultural property relief (APR) are not loopholes. They exist for a purpose. Introduced by Labour in 1976, they allow profitable businesses to continue trading, without penalty, when the owner dies. Where a business is able to do so, a dividend covering the cost of the IHT bill can be paid. But this comes with an additional tax cost of 39.5 per cent – effectively double taxing family-owned businesses.”
Addressing the event, Ms Badenoch repeated her promise to scrap the changes to BPR and APR “at the earliest opportunity”. “It is absolutely essential that we go back to how things were,” the Tory leader told gathered business leaders.
Launching an attack on Labour’s so-called smoked salmon offensive, which saw Ms Reeves woo a host of business leaders over breakfast meetings in the City, Ms Badenoch said: “We won’t just have a charm offensive with you like other parties, telling you what you want to hear, we are going to show you that we understand and that we are going to deliver.”
The Labour government is banking on housebuilding and infrastructure construction for delivering the economic growth Labour promised in its manifesto. But the BMF has warned that tax changes now put that in doubt.
John Newcomb, chief executive of the BMF, warned: “Construction is absolutely critical to the lifeblood of the UK economy, but we are hearing across the industry that the changes in inheritance taxation could limit the future of the sector, with many private and family businesses across our membership reporting back that the impact of BPR will damage enterprise.
“Most BMF members are now reviewing their sales and trading forecasts for the next two years and looking at investment decisions, stock levels and staffing numbers.
“Early indications are that the proposed changes to BPR pose significant concerns to family-owned businesses.
“We suspect owners may choose to defer or cut back on investing in or expanding their operations in the near term, in areas such as upgrading production lines, replacing plant and machinery, adding to product ranges, opening new branches, or taking on more staff, especially apprentices. This is a retrograde step for each company, and our supply chain, as it diverts money away from operational needs.”
The inheritance tax changes were meant to tackle wealthy people trying to avoid it by buying agricultural land. However, The Independent recently revealed that even economists who backed the idea initially now believe Ms Reeves’ changes will not work and instead penalise family farms.