Carl Johnson, of agricultural asset finance lenders Anglo Scottish Finance, takes a look at the outlook for UK agriculture in 2025
The UK agriculture sector accounts for 70% of our total land area, contributing £13.7 billion to the UK economy in 2023 and employing 462,100 people. Despite this, UK farming continues to face several scalability issues and a reliance on a skilled, seasonal workforce.
October 2024’s budget put the farming sector in the limelight following dissatisfaction with inheritance tax changes, but the outlook for farmers in 2025 is significantly more varied. Here, I look at the outlook for UK agriculture in 2025.
Technology fuels agriculture advancement
Technological leaps in advanced manufacturing and research within the agricultural sector have exponentially increased the industry’s production capacity. However, the cost of this machinery is prohibitive for most farmers.
Cutting-edge technologies developed through the government-backed Agri-EPI Centre (Agricultural Engineering Precision Innovation) include drones, GPS-guided equipment and sensor networks – all of which are helping farms become more efficient.
“We have experienced a significant rise in the number of farmers looking to finance large-scale technological assets, spreading the cost over the asset’s lifetime to gain access to new tech,” says Johnson.
Seasonal agriculture workers set to remain vital
77% of respondents to a recent National Farmers’ Union survey expressed their difficulty in recruiting workers due to a lack of qualified applicants, reiterating the importance of proper training for domestic workers in 2025.
The UK 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. This is a win for UK agricultural production, considering the fact that a survey in 2024 revealed that 95% of seasonal workers expressed a desire to return in the future.
Agricultural 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 are key for agricultural support
Successful agricultural businesses are also expected to make greater use of external grants and schemes in 2025. Environmental land management schemes and productivity grants administered by the Department for Environment, Food and Rural Affairs (DEFRA) are supporting farmers to modernise and become increasingly sustainable.
The October 2024 budget confirmed £2.4 billion 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 for agriculture remain a strong concern
The October 2024 budget made headlines for significant changes around inheritance tax. The new rules specify that a farmer’s first £1 million of combined business and agricultural assets will continue to attract no inheritance tax at all. For assets over £1 million, however, inheritance tax will apply with 50% relief, at an effective rate of 20%.
A significant percentage of UK farms are family-run and inherited, meaning the increase in inheritance tax for assets over £1 million 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, comments: “Changes to Inheritance Tax and Agricultural Property Relief (APR) will affect the liquidity on succession for farms above the £1 million threshold set, hitting many family farms, regardless of size or type. Decisions to reinvest in these farming businesses will be shelved and the knock-on ramifications for the wider rural economy, as well as businesses both 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.”
Overall, though UK farmers will face challenges in 2025, several facilities are available to insulate themselves against broader economic issues. Increased access to government grants and third-party finance is helping farmers across the country become more efficient and more sustainable, while diversification remains a key source of income in the year to come.
