Chancellor Rachel Reeves’s planned inheritance tax overhaul on family businesses and agricultural land risks backfiring by leaving the Exchequer £1bn worse off than if no changes were made, according to new economic analysis.
A report by CBI Economics suggests that a forecasted fall in investment—resulting from tighter relief on inherited business assets—is likely to overshadow any additional inheritance tax revenue raised. The study warns that Britain could lose £2.6bn in revenue from other taxes such as corporation tax, income tax, and national insurance over the next five years, significantly overshadowing the estimated £1.38bn gain from the inheritance tax changes.
The findings indicate that the Treasury has “underestimated the impact” of reforms to business property relief (BPR). Analysts anticipate that more than half of family businesses will cut investment in the wake of the policy shift, with further economic damage predicted to include the loss of 125,678 jobs.
Collectively, these measures are expected to drive down economic activity, eroding the tax base far more than originally projected. Instead of improving the public finances, the analysis implies the changes could cost the government £1.26bn more than maintaining the status quo.
Kemi Badenoch, the Conservative Party leader, is set to spotlight these concerns in a speech at the Business Property Relief Summit in London on Monday. She will argue that Labour’s approach leaves “no one safe” from tax hikes, accusing the government of stifling investment and sabotaging growth.
Speaking to attendees at the London Palladium, Ms Badenoch is expected to say: “Keir Starmer and Rachel Reeves spent years telling businesses they had nothing to fear. Within weeks of taking office, they unleashed the worst raid on family businesses in living memory. They promised growth, but instead have driven it into reverse.”
She will add: “The warning from Family Business UK, that Labour’s changes to BPR could cost 125,000 jobs, is chilling—equivalent to the entire population of Blackburn.”
Under the proposed changes, inherited business assets above £1m will be subject to a 20% levy. Agricultural property relief (APR) will also be tightened, meaning farmers face new tax burdens on inherited farmland.
Nigel Farage, leader of the Reform Party, said: “Rachel Reeves is no economist. Her Budget measures and her total lack of understanding of the private sector are dragging the country into recession.”
Tim Farron, the Liberal Democrat environment spokesman, added: “Farmers have already endured botched trade deals and endless red tape. Now this tax hike from the Chancellor threatens the survival of family farms and countless jobs.”
The measures come amid broader fears that the Chancellor’s record £40bn Budget tax raid has already dented Britain’s economic prospects. October’s GDP figures showed an unexpected contraction for the second consecutive month, and rising unemployment data—due to be published on Tuesday—may confirm the downward trend.
James Reed, chief executive of the recruitment giant Reed, has warned that falling job vacancies could signal an impending recession. He told the BBC’s Sunday with Laura Kuenssberg programme that vacancies advertised on his platform were down by 26% year-on-year, describing the trend as a portent of tough times ahead.
Later this week, Labour leader Sir Keir Starmer will face scrutiny from senior MPs at the Liaison Committee, where questions over the inheritance tax changes are likely to loom large.
Meanwhile, farmers are expected to join Ms Badenoch at Monday’s summit to voice their opposition. Industry groups are accusing the government of underplaying the impact of its reforms. The Central Association of Agricultural Valuers estimates that 2,500 farmers will be affected annually—five times the Treasury’s official projection—while the National Farmers’ Union (NFU) president Tom Bradshaw has raised concerns over the extreme pressure the policy places on older landowners.
On Monday, 160,000 family-owned businesses—represented by trade bodies including the NFU, the British Independent Retailers Association, and Hospitality UK—will write to Ms Reeves. They will demand a formal consultation and emphasise that BPR and APR were never loopholes but legitimate incentives designed to encourage investment.
CBI Economics surveyed family-owned firms and concluded that 85% plan to scale back investment due to the changes, while 54% expect to cut staff. By 2030, the group forecasts a £9.4bn fall in gross value added (GVA), a key measure of economic output.
Neil Davy, chief executive of Family Business UK, said: “Owners are already pulling back on planned investment and putting recruitment on hold. We do not believe these outcomes were what the government intended. We urge the Chancellor to consult formally and find a solution that protects long-term investment, jobs, and growth.”
The mounting backlash against the tax shake-up has sparked speculation that the government may soften its stance. Arun Advani of the CenTax think tank, a previous supporter of the proposals, has suggested raising thresholds to spare family farms.
A Treasury spokesman defended the policy: “Our commitment to business is resolute. With a 25% corporation tax cap and full permanent expensing, we aim to unlock growth for Britain. But with a £22bn inherited fiscal hole and public services under strain, difficult choices had to be made. We have published our impact modelling and will provide further analysis alongside draft legislation expected in 2025.”
