Ministers in talks over shelving carbon tax on fertiliser to curb UK food inflation

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Exclusive: Package of measures discussed with farmers, including pause on duty due to come into effect next year

Ministers are in discussions about suspending a carbon tax on fertilisers, due to come into effect early next year, in an effort to curb food inflation.

The move would be part of a package of measures, including the suspension of import tariffs on a range of foods including bread, biscuits and bananas.

Government sources said they were looking at suspending tariffs on a range of fertilisers in order to discourage farmers from leaving fields fallow.

But, they added, there was tension between the Treasury and the Department for Business and Trade (DBT), because the Treasury did not want to amend the Finance Act 2026, which it would have to do to suspend the carbon tax.

The DBT is consulting on a range of ways to reduce the price of fertiliser for the agriculture sector and is working with farmers to assess all tariffs. Imports from some countries are currently subject to a duty of 6%.

Farmers have been considering leaving their fields fallow because rising costs mean they risk selling their 2027 crop at a loss. This would increase food inflation, which is already expected to rise sharply as the conflict in Iran raises fuel and fertiliser prices.

Sources at the National Farmers’ Union said a proposal was being discussed with the Treasury and DBT but nothing had been confirmed.

Fertiliser costs have soared since the beginning of the Iran conflict, during which the strait of Hormuz has been closed. About 35% of the world’s fertiliser passes through the waterway and, since the conflict broke out in February, about 1m tonnes of fertiliser have been stranded in the Gulf.

Fertiliser producers said they expected the new tariffs, which were being put in place to match an existing EU scheme, could add £100 per tonne to costs. According to the Agriculture and Horticulture Development Board, it is currently trading at £618 a tonne.

The proposed tax is a CBAM (carbon border adjustment mechanism), as introduced by the EU in 2023. It is a levy paid by importers on fertilisers based on the greenhouse gases emitted during their production. Most fertilisers are produced using fossil fuels, and the industry accounts for roughly 5% of global greenhouse gas emissions.

Ministers are also cutting fuel taxes for farmers. The rate for red diesel and rebated biodiesel has been cut by more than a third, which the Treasury said made it the lowest in more than two decades.

According to analysis from the Central Association for Agricultural Valuers, a 500-acre wheat farm could make a loss of £70,000 in 2027 because of higher costs caused by the Iran war. With farmers making decisions about 2027 cropping now, the economic outlook means they could be making difficult decisions such as leaving fields fallow.

Jeremy Moody, the secretary of the CAAV, told the Guardian: “This would stop us adding self-inflicted damage to an already difficult situation when we no longer produce fertiliser to justify such a tariff. We already have higher fertiliser prices and the prospect of more as the Gulf standoff continues. With the outlook in some arable areas already parlous, keeping this policy would just see more land uncropped.”

The UK is estimated to produce approximately 40% of its nitrogen fertiliser requirement, while the remaining 60% is imported.

The DBT has been contacted for comment. The Treasury declined to comment.

• Inflation
• Farming
• Food
• Tax and spending
• Carbon tax
• Strait of Hormuz
• UK cost of living crisis
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