NFU concerned over future rural cuts in letter to Chancellor

NFU President Meurig Raymond has written to Chancellor George Osborne outlining how he thinks agriculture would benefit from next year's budget.

"Although faced with some short term challenges due to market volatility, the long term outlook for agriculture is positive," Raymond said in the letter.

The NFU outlined areas to promote investment, prioritise and deliver returns on government spend in relation to the industry. These were:

Taxation tools to improve farm business management of volatility

Raymond said building a cash reserve out of new profits is difficult, particularly for unincorporated businesses.

"The NFU is seeking new measures to enable farmers to retain profits in good years to meet the demands of bad years, such as when adverse weather conditions or market volatility affects their profitability for a prolonged period.

"The profits are then taxed when the monies are withdrawn to meet the farmer's business needs in poorer years. There are normally certain restrictions within schemes like this. For example, there are limits in the amounts that can be invested in Australia, whilst in France there are restrictions on the use of the funds."

Retain an appropriate and consistent level for the Annual Investment Allowance (AIA)

As part of the need to ensure UK businesses continue to invest in replacing equipment and embracing new developments, it is 'essential' that the Annual Investment Allowance is not allowed to return to a level of just £25,000 in 2016, the letter urged.

"This would result in capital intensive businesses having to reduce cyclical expenditure rather than investing more to match their competitors in other countries.

The NFU welcomed the initial increase in the level of the AIA in autumn statement in 2012 to £250,000 and its subsequent boost to £500,000.

"However, the transitory nature of this increase limits its usefulness. A great deal of capital expenditure is cyclical; the temporary nature and complex transitional rules when the level of the AIAI changes makes it virtually impossible for businesses to plan expenditure.

"For agriculture the temporary increase could not have come at a worse time as farm businesses have been experiencing significant financial pressures during this two year temporary period.

"Agriculture is a capital hungry sector and although we use specialist machinery, it has a limited lifespan. A permanent AIA level of £250,000 would encourage SMEs to increase their levels of investment in specialist plant and machinery and be able to plan investment cycles ensuring that UK farmers take advantage of technological developments and remain as efficient as their counterparts in other countries.

The introduction of an infrastructure investment allowance

"Most G20 countries support business capital infrastructure investment by providing some form of tax allowance. The lack of these allowances in the UK is creating a barrier to investment for many farm businesses because of the high marginal rates of tax suffered.

The letter urged the government to introduce an infrastructure allowance, which would deliver relief over a maximum of 25 years.

"This would send the right signal to businesses that the government wants to encourage them to invest in their businesses and grow, whilst delivering the relief in an affordable manner for the government."

Government spending and agriculture

The letter stressed many concerns over the impact of both current and future spending cuts on rural areas.

Many national projects have impacts on rural areas, but two that have a direct impact on the success of British farmers include broadband and flood protection.

The NFU said it was concerned over the level and criteria of funding for flood defences, and the impact of spending cuts on government agencies dealing with animal health and welfare costs.

The union said the government must better defend UK farmland and communities by investment sufficiently in the maintenance of watercourses and existing defences for flood protection.