Kelly Hewson-Fisher explores the ongoing advantages of investment in land and how the diversity of land use can aid and support multiple needs
Whilst we navigate the impact of a general election, the Autumn Budget announcements and the aftermath of 2023 which saw one of the wettest winter-to-spring periods on record, there is no doubt that land and land management remains key to the government’s ability to achieve a wide range of objectives, from food production and environmental recovery to development and economic growth.
Fiscal challenges for the road ahead
The Budget announcements felt like a blunt hammer blow to the rural sector. The government remains firm in its stance that a £22 billion black hole must be addressed, and announced a significant reform of agricultural property relief and business property relief as part of its plan to reduce the deficit. Land as an asset class remains a good investment opportunity, offering several key advantages:
- It provides a reliable hedge against inflation.
- It plays a crucial role in helping the government to meet its commitments and targets.
- It remains a more favourable asset class for tax treatment compared to some others. Selling farmland and generating cash would have a worse IHT treatment under both current and post 6 April 2026 IHT rules.
Farmland supply and values
The amount of farmland marketed for sale across GB increased by 19% compared to 2023, reaching 187,500 acres. Land values softened in certain regions, with an average increase of less than 1% across GB. This trend has been driven by market uncertainty with the Budget review and the agricultural transition, but is also a response to the increase in supply.
The assumption is that the benefit of investing in land due to the tax reliefs has been diminished, which could affect land values. Ultimately, it will take a material change in supply and demand dynamics to significantly impact pricing – time will tell if that will be the case. Given the diverse range of demands from land, we will continue to see a variety of purchaser types in the market, each with their own reasons for investing in land – beyond just the tax benefit. Additionally, regional variations in supply and demand will continue to affect pricing.
Savills forecasts that GB farmland values are likely to remain stable over the next five years as businesses plan and adapt, the government shows leadership in its direction of travel, and confidence and stability increase in the rural sector. For this reason, we forecast supply will pull back over the next two to three years before steadily increasing to 172,000 acres in 2029.
Which road to take?
At the start of 2024, the Labour Party stated that a new deal for farmers had to be delivered as over 6,000 agricultural businesses had ceased trading since 2017. The Labour Party manifesto pledged to deliver economic stability with a range of commitments and a promise that food security was national security. Confidence in the future direction of government priorities is crucial for the sector to invest and progress.
What is clear, is that all roads lead to rural. The commitments pledged rely on land being available to deliver. As we rapidly progress through the agricultural transition, opportunities to review businesses widen. Without the constraints of direct payment subsidies to produce food (which previously made up 60–80% of farm income), landowners and managers now have the freedom to evaluate business performance and profitability, and seek options to achieve multifunctionality of land and maximise output. The government views the Land Use Framework (LUF) in England as essential, stating that ‘without it, it is difficult to take granular decisions and the need is to get the balance right on the demands of land’.
The road to nature recovery
A survey by Stack on behalf of The Conservative Environment Network found two-thirds of rural voters agreed that damage to the natural environment threatens our ability to produce food. Almost half (47%) said farmers should restore nature first, even at the expense of food grown in the UK. The Labour Party manifesto committed to delivering the Environment Act 2021 targets.
At the end of November, Defra announced a new Tree Planting Taskforce to oversee the planting of millions of trees across the UK which will help achieve the net zero targets and the Environment Act target of 16.5% tree cover in England by 2050. Currently this is at 13.2%. Savills reported that the 2024 forestry market remained subdued, with interest from potential investors increasing as the year progressed with the prospect of falling interest rates influencing investment decisions. We expect some recovery in buyer interest in 2025, along with more positive news around timber pricing, to stimulate activity and slightly reverse the negative pricing trends of the last 24 months.
Is food production the right road?
“Farming and food security are the foundations of our economy, our communities and our environment” Defra, 30 October 2024.
The government has reaffirmed its commitment to food production by appointing Daniel Zeichner as Minister of Food Security. In November 2024, the party announced the creation of a 25-year farming roadmap aimed at making farming and food production profitable, with its development being farmer-led.
The government recently announced it will develop a new national food strategy in 2025. The focus will be on four key areas:
- Food security
- Health
- Environment
- Economy
A key question for future food systems is whether the UK has the necessary skills and technology to increase productivity.
The road to clean power is not as long as you think
Last year we asked if a decarbonised power sector was possible by 2035. Now we must ask if it is possible by 2030. Fast-tracking the journey to clean power is one of Labour’s policy priorities highlighted in the recently published Clean Power 2030 Action Plan.
It will be difficult. But not impossible. Following a series of quick wins, such as boosting funding for Contracts for Difference and ending the effective ban on onshore wind, the government is now transitioning to longer-term strategies. The new, publicly owned, National Energy System Operator (NESO), brings power and gas planning under one roof and takes on a system-wide strategic role that did not exist before. One path is the faster deployment of renewables. How will government quadruple offshore wind, triple solar photovoltaics and double onshore wind? At the same time, how will it build 1.5 million more homes in the next four years? The answer does not lie solely in building more.
There are sizeable queues of projects seeking to connect both power-generating and consuming assets to the electricity grid. According to the Energy Networks Association, there are 27 GW of built environment projects waiting to connect to the grid and draw power from it. At the same time, Savills Research revealed 37 GW of unused demand capacity across the nation. These queues are a symptom of an infrastructure grid in transition.
A comprehensive Infrastructure Strategy is coming in 2025, but significant change is already underway. The previous one-step, first-come-first-served queue is being revamped. A new two-step process will place greater emphasis on securing land for new schemes and meeting milestones set out at the application stage, particularly in terms of planning and we await to see how the LUF will address this.
Road to development
Labour was explicit in its manifesto to reform planning for homes and infrastructure and aims to speed up brownfield site development and unlock land in the grey belt, with a target to build 1.5 million homes in England over the parliamentary period. The autumn Budget brought news of a commitment to hire 300 more planning officers and allocate £47 million for nutrient mitigation schemes, both aimed at removing barriers to development.
Which road next?
We can only focus on what we know, and what we know is that land is in demand. Never before has land been such a central topic of conversation as it is now.
The future for land managers and owners doesn’t have to focus solely on food, fuel and fibre. Instead, the goal should be to maximise and optimise land output by embracing environmental, energy and development needs. The days of siloed working are over, the government needs to collaborate across departments to unlock cross-sector benefits. The future of land management is evolving and with change comes new opportunities for both managers and investors.