The agricultural sector is one of the UK’s oldest and most treasured exports, but has faced some of the most significant challenges of any industry in recent years.

The UK agricultural sector accounts for 70% of our total land area – 17 million hectares. In 2023, agriculture contributed £13.7bn to the UK economy, employing 462,100 people. Despite these impressive figures, UK farming continues to face a number of scalability issues and a reliance on a skilled workforce which hinges on seasonal workers.

National Farming Union (NFU) president Tom Bradshaw had previously accused the government of “policy paralysis” on these issues, a plight felt by farmers who have struggled to make a long-term plan for growth and production thanks to instability within the sector.

On October 30^th 2024, the first budget of the new government was announced, putting the UK agricultural sector in a position to begin planning for future growth and find new ways to secure their future within the industry.

Important highlights within the budget for the agricultural sector include:

• £5 billion over 2024-25 and 2025-26 to support the transition towards a more productive and environmentally sustainable agricultural sector, £60 million of which will be spent this year supporting the Farming Recovery Fund for farms damaged by flooding.
• £400 million in capital across 2024-25 and 2025-26 for tree planting and peatland restoration to protect soils, rivers, and biodiversity.
• £2.4 billion over 2024-25 and 2025-26 to support flood resilience.

But what does this mean for UK agricultural companies going into the new year? And how does this fit into the sector’s other trends? Here, Anglo Scottish who provide asset finance for the agricultural sector, offer insight.

Technology fuels advancement

The vast technological leaps in advanced manufacturing and research within the agricultural sector has exponentially increased the industry’s production capacity. However, advanced manufacturing equipment is incredibly expensive, which can be seen as a definitive barrier to farmers who want to take advantage of innovative technologies to scale their productions.

The government-backed Agri-EPI Centre (Agricultural Engineering Precision Innovation) has developed cutting-edge technologies available through lease schemes, grants and funding. These technologies and precision tools include drones, GPS-guided equipment and sensor networks – as well as offering training and knowledge to transfer schemes to benefit the farming community.

When it comes to privately-backed innovation, farmers may find themselves making the decision to swap out their older equipment for newer, more efficient machines.

“Incremental updates in technology, especially when it comes to advanced manufacturing and agricultural equipment, can have huge effects on productivity,” says Carl Johnson, UK Sales Director at Anglo Scottish. “Switching to these new technologies can be expensive – we’ve experienced a significant rise in the number of farmers looking to finance large-scale assets to spread the cost over the asset’s lifetime.”

Seasonal workers set to remain vital

77% of respondents to a recent National Farming Union survey revealed that farmers continue experiencing difficulty in recruiting workers due to a lack of qualified applicants, reiterating the importance of proper training for domestic workers and reducing overreliance on overseas, seasonal workers.

A lack of qualified workers, increased public demand for locally sourced food, fluctuating prices and instability in international food markets have all affected the scalability and growth of UK agriculture in recent years. Farmers have expressed frustration with the lack of government guidance and foresight in terms of providing long-term solutions.

The government’s decision to extend the Seasonal Worker Scheme for 2025 provides some temporary relief, though further clarity is required on a longer-term solution. This scheme confirms 43,000 seasonal workers for 2025 for horticulture, a win for UK agricultural production considering a survey in 2024 revealed that 95% of seasonal workers expressed a desire to return in the future.

Diversification set to continue

Agricultural businesses are some of the most adaptable in the UK; 65% of all farm businesses in England have diversified into other areas, including farm shops, wedding venues, breweries and more. 

“Expanding operations into adjacent ventures enables farmers to operate year-round and offset seasonal payment cycles,” says Johnson. “Many are choosing to fund this growth through loans or finance, a secure and long-term way of investing in business growth without risking their cash flow during their farm’s off-seasons.”

External funding and grants key for agricultural support

Successful agricultural businesses are expected to make greater use of external grants and schemes in 2025, in line with increasing sustainability and modernisation.

Environmental land management schemes – intended to encourage sustainable farming practices, including soil quality improvement and reducing carbon emissions, the following grants are expected to be used by farmers to fund specific environmental projects, earning annual payments for meeting environmental standards: Sustainable Farming Incentive (SFI), Countryside Stewardship, and the Landscape Recovery grant.

UK Agricultural Productivity Grant – this grant helps fund projects that are aimed to enhance productivity on UK farms. Projects often involve developing precision agricultural technologies, like those backed by the Agri-EPI Centre, to help farmers optimise processes.

The Department for Environment Food & Rural Affairs updates a comprehensive list of funding opportunities broken down by sector. This is always worth monitoring, as funding information and deadlines are updated consistently.

The recent budget confirmed £2.4bn of funding for the next financial year, meaning farmers can maintain momentum through continued support of the environmental land management schemes. This will rise to the highest-ever level of funding by 2025/2026.

New tax changes remain a strong concern

The latest budget on October 30^th included significant changes around tax, predicted by the OBR to raise £2bn for public services. The new rules specify that the first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all, but for assets over £1m, inheritance tax will apply with 50% relief, at an effective rate of 20%.

Despite positive commitments to funding, the main concern for farmers is the changes to inheritance tax disproportionately affecting working farmers who have already struggled over the last decade. A significant percentage of UK farms are family-run and inherited, meaning the increase in inheritance tax for assets over £1m is likely to hit a vast majority of farming businesses due to the value of machinery, land, property and other business assets.

Tom Graham, Commercial Manager at the National Farmers Union Scotland, had this to say about the changes to inheritance tax:

“The devil will be in the detail, but it was made crystal clear to the Chancellor by all UK farming unions the significant impact that any changes around taxation will have on our farming sector. She has chosen to ignore that advice.

“Changes to Inheritance Tax and Agricultural Property Relief will affect the liquidity on succession for farms above the £1 million threshold set, hitting many family farms, regardless of size or type,” says Graham. “Decisions to reinvest in these farming businesses will be shelved and the knock-on ramifications for the wider rural economy, as well as businesses up and downstream, will be significant.

“This decision will generate only marginal benefits in filling a financial black hole but causes huge difficulties for some and will act as a barrier to those who wish to get a start in farming. The partial removal of APR and the threat of a considerable tax burden will see larger units being broken up and a major contraction of farmland being made available for tenancies or contracts.”

The Scottish government’s budget will be announced on 4^th December, so specific changes, investment and support for Scottish agriculture are yet to be announced.

“Rather than delivering a ring-fenced, multi-annual budget from DEFRA’s pot, it appears that Scotland’s share of the agricultural budget has been baselined against last year and will now be included in the Scottish block grant,” Graham explains. “Going forward, it appears that the agricultural funding package may have the Barnett formula applied to it, and we are seeking urgent clarification on that.”

The continued commitment to funding land management schemes and investing in sustainable farming practices is welcome. Inheritance tax changes in response to plugging the £40b black hole in public finances are worrying too many farmers, but this give-and-take approach from the government seems in line with their repeated commitment to “making the difficult choices” to reset public finances.