Treasury resistance stalls UK move to suspend fertiliser carbon tax amid food inflation fears

UK ministers are engaged in urgent discussions with the agricultural sector regarding a package of measures designed to mitigate rising food inflation, primarily focusing on the suspension of a carbon tax on fertilisers scheduled to take effect early next year. The proposed intervention aims to prevent farmers from leaving fields fallow for the 2027 crop cycle by addressing soaring production costs driven by the conflict in Iran and the subsequent closure of the Strait of Hormuz.

The Department for Business and Trade is consulting on ways to reduce fertiliser prices and is working with farmers to assess all tariffs, including a potential suspension of import duties on specific foods such as bread, biscuits, and bananas. Government sources indicate that ministers are also considering pausing tariffs on a range of fertilisers to discourage the abandonment of arable land. Currently, imports from some countries are subject to a 6% duty, a rate that could be exacerbated by the new carbon border adjustment mechanism.

Tensions have surfaced within the government over the implementation of these measures. The Treasury is reportedly reluctant to amend the Finance Act 2026 to facilitate the suspension of the carbon tax, creating a friction point with the Department for Business and Trade. While the Department for Business and Trade has been contacted for comment, the Treasury declined to comment on the internal deliberations.

The urgency of the situation is underscored by data from the Agriculture and Horticulture Development Board, which reports that fertiliser is currently trading at £618 a tonne. Fertiliser producers estimate that the new carbon border adjustment mechanism tariffs could add £100 per tonne to these costs. This financial pressure is compounded by the geopolitical crisis, with approximately one million tonnes of fertiliser stranded in the Gulf since the conflict began in February, disrupting a supply chain where about 35% of the world’s fertiliser passes through the Strait of Hormuz.

Analysis from the Central Association for Agricultural Valuers suggests the economic outlook for the 2027 season is dire, with a 500-acre wheat farm potentially incurring a £70,000 loss due to higher costs linked to the Iran war. Jeremy Moody, secretary of the Central Association for Agricultural Valuers, warned that maintaining the policy would add self-inflicted damage to an already difficult situation, noting that the UK produces only 40% of its nitrogen fertiliser requirement and relies on imports for the remaining 60%.