Ministers in talks over shelving carbon tax on fertiliser to curb food inflation | Inflation
Ministers are discussing suspending the carbon tax on fertilizers, due to come into force early next year, in a bid to reduce food inflation.
The move will be part of a package of measures that also includes suspending import tariffs on a range of foods, including bread, biscuits and bananas.
Government sources said they were considering suspending customs duties on various fertilizers to prevent farmers from leaving fields fallow.
But they added that there was tension between the Treasury and the Department for Business and Trade (DBT) because the Treasury did not want to make changes to the Finance Bill 2026, which it was supposed to do to suspend the carbon tax.
DBT advises on various ways to reduce fertilizer prices for the agricultural sector and works with farmers to evaluate any tariffs. Imports from some countries are currently subject to 6% duty.
Farmers are considering leaving their fields fallow as they face the risk of selling their 2027 crops at a loss due to rising costs. This will increase food inflation, which is already expected to rise sharply as conflict in Iran drives up fuel and fertilizer prices.
Sources from the National Farmers Union said the proposal had been discussed with the Treasury and DBT but nothing had been confirmed.
Fertilizer costs have increased since the beginning of the Iranian conflict, when the Strait of Hormuz was closed. About 35% of the world’s fertilizer passes through waterways, and nearly 1 million tonnes of fertilizer has been stranded in the Gulf since the conflict began in late January.
Fertilizer producers said they expected new tariffs introduced to match the current EU plan could add £100 per tonne to costs. It is currently trading at £618 per tonne, according to the Agriculture and Horticultural Development Board.
The proposed tax is a CBAM (carbon border adjustment mechanism) introduced by the EU in 2023. This is a tax that importers pay on fertilizers due to the greenhouse gases released during their production. Most fertilizers are produced using fossil fuels, and the industry is responsible for this. roughly 5% global greenhouse gas emissions.
Ministers are also reducing fuel taxes for farmers. The rate on red diesel and discounted biodiesel has been cut by more than a third, which the Treasury said was the lowest in more than two decades.
A 500-acre wheat farm could lose £70,000 in 2027 due to high costs caused by the Iran war, according to analysis by the Central Association of Agricultural Appraisers. The economic outlook as farmers make decisions about the 2027 crop means they may make difficult decisions, such as leaving fields fallow.
CAAV secretary Jeremy Moody told the Guardian: “This will prevent us adding to the damage we inflict on ourselves to an already difficult situation when we can no longer produce fertilizer to justify such a tariff. We already have higher fertilizer prices and are likely to be even higher as the crisis in the Gulf continues. With the outlook for some arable land already poor, continuing this policy will only lead to more land going uncultivated.”
It is estimated that the UK will produce Approximately 40% of nitrogenous fertilizer The remaining 60 percent is imported.
DBT has been contacted for comment. Treasury declined to comment.
