‘Productivity argument’ against family firm tax breaks, IFS director argues
There is a “productivity argument” against treating family businesses “generously”, the Institute for Fiscal Studies (IFS) director has argued, when asked about inheritance tax.
Economist Paul Johnson addressed the National Farmers Union (NFU) conference in Westminster on Tuesday, which saw environment secretary Steve Reed’s speech interrupted by farming protestors, as well as NFU president Tom Bradshaw being disrupted by PETA.
When asked about the impact of the Labour government, he joked to an audience of farmers and media attendees: “This is where I’ll lose the audience.”
Johnson said: “As an economist I talk to people from all parts of the economy.
“When I talk to people about education, about health, defence, justice and all of them think they’ve got the best possible argument for why they should get more money into their sector.
“I also talk to the pensions sector, big business, small business and so on, and all of them think they should be the ones to get tax breaks.
“I start from the position that you have to have a pretty strong argument for treating one group differently for tax than other groups.”
It comes after Confederation of British Industry (CBI) boss Rain Newton-Smith, the head of Britain’s largest business group, attacked Rachel Reeves’ tax raid on “foundational” farmers, arguing that it risks endangering food security and hampering “everyday” economic growth.
The conference also saw a large tractor presence outside the venue with farmers having driven their vehicles to Westminster to demonstrate against Labour’s plans to impose inheritance tax on farms worth more than £1m at an effective rate of 20 per cent from April 2026.
And Johnson continued: “Of course if one group pays less tax then another group pays more tax. So as a starting point, why treat inheritance of farms any differently from inheritance of houses and so on?”
The IFS boss also said: “I don’t know if there’s evidence of this on farms but I do know that there is evidence of businesses, more generally, that those businesses run by second and third generation owners tend to be less efficient than other businesses.
“Maybe the second or third generation versus the entrepreneur, the founder. Maybe they’re taking it relatively easy because they’ve got capital behind them.
“I think there is a productivity argument against treating them generously.”
And he suggested: “You also have to consider the impact of treating farming as generously as it has been up to now. You might also ask yourself, supposing your farm is worth £4m this might result in a tax burden of £200,000 over ten years.
“If you’ve got that level of capital and you’re really not making enough to pay £1,000 a month then clearly that’s a business that is incredibly uneconomic in the sense of the way that capital is generally spread across the economy.”