The recent Lyons review into local government funding has proposed ending the 70-year-old business rate exemption for agricultural land and buildings.

An inquiry into local government funding by Sir Michael Lyons estimates the exemption is worth £450m a year and has recommended a review.

The exemption was initially introduced during economic difficulties in 1929 and Lyons said: "There would seem, in principle, to be little reason to maintain the special treatment, which gives agriculture a tax benefit that no other business sector enjoys.”

However, he has urged caution because of farmers' role in land stewardship as well as food production. He also highlighted current reductions in agricultural support and further reforms in coming years.

Lyons expects both the capital value and rental value of farm land to fall if rates are introduced. A tax liability of £300m - £450m a year would represent a substantial proportion of farm income so, he said, a period of transition would be essential.

Currently, rural homeowners pay no local business tax on adjoining fields or farm buildings, but under the Lyons proposals the buildings would be classified as composite and business rates would apply on the farm buildings or land. According to Lyons, the extra revenue raised by abolishing the exemption would be in the region of £300 million, but the Conservative MEP Neil Parish, who chairs the European Parliament’s agriculture committee, says the plans would once again put British farmers and growers at a significant disadvantage to counterparts on the continent.

“Farm incomes will be substantially reduced if these proposals are enacted,” he said. “The total income from UK farming has more than halved in the past decade and this new tax would be the straw that broke the camel’s back for many farms. “

“The Chancellor has clearly written off the rural vote at the next election, and he must be stopped from making a devastating smash and grab raid on farmers for the sake of a few hundred million pounds to plug his spending gap. “Ultimately, the Chancellor seems ambivalent towards negative headlines on rural issues and calls from rural folk like myself, so it falls to David Miliband to stand up to him and demand he publicly rules out these proposals.”