Tax breaks needed to encourage water management investment

Encouraging farmers to invest in water management will help combat climate change, the government has been told.

Better on-farm infrastructure and investment in technology is vital to mitigate the impact of increasingly unpredictable weather, said the Central Association of Agricultural Valuers in a submission to the Treasury ahead of this month’s Spring Budget.

Nine recommendations are included in the 16-page document. They urge Chancellor Jeremy Hunt to consider a number of options to make farming more productive, efficient and able to adapt to current and future demands.

Farmers need to be able to adapt to climate change, and its resulting droughts, floods, storms and extreme heat, says the submission. Investment in reservoirs, irrigation and rainwater harvesting systems are all essential, it adds.

Water storage

It follows another winter which has seen farmland flooded for weeks on end. Flood management works, power systems to support farm operations and controlled environment storage are urgently needed, says CAAV secretary Jeremy Moody.

“We ask that a class of capital allowance be created so that critical improvements that would ordinarily be within the Structures and Buildings Allowance be treated as plant and machinery, meaning such investment can be written off in the year of expenditure.”

Other recommendations include an income tax relief to encourage letting of land and changes to inheritance tax to remove a bar to environmental uses. The paper also urges a review of capital allowances to stimulate investment in buildings.

“Our fundamental concerns are that the tax system supports farming in achieving a renewed pace of productivity improvement, and so contributes to economic growth and resilience,” says Mr Moody.

“In practice, this means enabling the most proficient farmers to have use of the land and to support them in investing and innovating at this time of great technological advancement.”

While grant schemes are welcome, Mr Moody argues that longer-term changes to the tax structure will enable better use of private money to achieve the government’s aim of greater capital investment in businesses.

‘Simple changes could encourage investment’

A number of measures would encourage farming to be more productive – alongside investment in water management infrastructure, says the CAAV.

Its nine recommendations include allowing  partnerships and sole traders to benefit from full expensing – writing off investment in plant and machinery against profits – which companies can already do.

If not, the CAAV says the government should increase the Annual Investment Allowance in line with inflation. It has remained at 24.4% since 2019 – and limited to a maximum of £1m. It also argues that the Structures and Buildings Allowance (SBA) is unfit for purpose.

“Farm buildings are distinctive in the wear and tear they face, meaning they have shorter lives than found in other sectors,” said Mr Moody. “Obsolescence is also a factor with new technologies, increasing standards and regulation, and changing equipment.”

Rather than writing agricultural buildings off over 33 years, farmers should be able to write them off over seven years, as is the case in Ireland, he said.

Investment in environmental improvement works should also qualify, including covered slurry stores and silage clamps, as should pig and poultry buildings and greenhouses, which are highly automated and can become outdated very rapidly.

“The urgent challenge of improving productivity, the need to respond and adapt to the impact of advancing climate change, and the scale of required environmental improvement are such as to warrant a new approach,” said Mr Moody.

“Clear and simple stimuli within the tax system can be powerful levers for positive change.”