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British farmersGDPYour browser does not support the element. are not usually ones for public protest. While their continental colleagues block roads with tractors and dump manure at the slightest provocation, they . But on November 19th farmers will gather in Westminster for a rally and a “mass lobby”, to protest against the Labour government’s first budget. A “good show” is promised. That is only one way in which the budget threatens to make Britain more European.There are plenty more. The minimum wage continues to climb: up from a little over half the median wage a decade ago to two-thirds now. Tax is ratcheting up as a share of , pushing the historically smaller British state closer to the norm on the continent. A European-style big state and Britain’s predilection for distortive taxes could be an especially troubling combination for businesses.By far the most significant tax measure was a £26bn ($34bn) annual increase to employers’ national insurance contributions. In the short run, that will deter hiring. Workers tend to object loudly to outright pay cuts, so companies will pass on the increase through slower wage growth or lower salaries for new hires. Smaller businesses may hold off hiring at all. The effect will be most pronounced at the bottom end of the labour market. The Institute for Fiscal Studies, a think-tank, reckons the change will raise labour costs by nearly 5% for the lowest-paid workers. Pulling up the minimum wage to two-thirds of median earnings compounds the hit.A generous Labour-whisperer might be able to discern a strategy here. Perhaps by making low-wage employment costlier, the government wants to push companies to train up existing workers and automate more. But even sympathetic policy wonks admit there are better ways to achieve that, like explicit tax breaks for investment. The core problem is that Labour chose to rule out better ways of raising the money needed for public services in order to make winning the election easier.The budget also worsened some of the distortions in the tax code that make firms and workers less productive. By only raising taxes on employers, Labour has further tilted the balance in favour of self-employment. The Resolution Foundation, a think-tank, calculates that someone earning £50,000 will now pay £15,000 in tax if they work for a company, whereas a sole trader or owner-manager will only pay around £10,000 (see chart 1). One consequence is that more firms will restructure as partnerships.The bigger problem is that workers will be nudged away from the helpful economies of scale that companies offer, like centralised facilities, finance, and human resources operations. The rise in employers’ national insurance penalises large firms more than small ones, since Labour also expanded the tax-free allowance each employer gets before they start paying. That will reduce the incentives for small businesses to grow, which again cuts against the aim of boosting productivity.The complaints from farmers have been louder. They are cross about many things, including rapid cuts to their subsidies. Worst, they say, are changes in inheritance tax. Since the 1990s farm property has been almost completely immune. In future, assets over £1m ($1.3m) will be taxed at 20%. Although that is a larger exemption and a lower tax rate than is applied to inherited cash or urban homes, it has set off a panic. “My phone has not stopped ringing,” says Jane Bassett, a dairy farmer in Derbyshire.A government that chooses to tax inherited wealth has no good reason to exempt farms. Doing so creates a loophole that encourages all sorts of people to buy agricultural land, pushing up the price (see chart 2). Savills, an estate agent, estimates that farmers account for just 43% of buyers, down from 66% at the turn of the century. Steve Meredith, a tax adviser with many rural clients, says that “big boys from the City” can easily outbid growers.According to the agriculture department, 38% of farmers are aged at least 65. They would probably be loth to hand over to the next generation in any event, since farming is an identity as much as it is a job. But the inheritance-tax breaks and the tax treatment of capital gains encourage them to keep farming as long as they can. That is undesirable. Farming is becoming more complicated, with subsidies giving way to finicky environmental schemes, so new blood would be good.In their calmer moments, farmers acknowledge the perverse consequences of the existing rules. They resent the suddenness of the reforms, though, and think that the government misunderstands its own tax system. The Treasury points out, soothingly, that only around a quarter of estates claim Agricultural Property Relief on more than £1m of assets. But Business Property Relief, which is also subject to the £1m cap, is more important to many farmers, especially those who have branched out into campsites, weddings and the like.And the changes will affect ordinary land-owning farmers. The agriculture department estimates that almost half of English farms have a net worth of at least £1.5m. Julie Butler, an expert on agricultural taxation, says that the great landed estates are skilled at passing on property. They tend to do it early, and make use of trusts. A 70-year-old with a few hundred acres is more likely to be caught out.Optimistically, the new rules will encourage farmers to hand property to their spouses and children sooner, prod the City boys to put their money somewhere more useful and drive down the price of farmland. Pessimistically, they could discourage farmers from investing, for instance in new equipment. They might fear that improvements would push the value of their land over the threshold, forcing their heirs to sell parts of it. Ms Bassett has heard mutterings to that effect already.Most likely, complaints from both businesses and farmers will fall on deaf ears. Labour’s majority runs through younger, urban voters who care most about getting better public services. But if the budget revealed that the government wants to make Britain more European, the prime minister may also need to be prepared for deposits of manure outside Downing Street.
