Rachel Reeves has insisted the nation cannot afford to let all farmers continue passing on their estates without paying inheritance tax.

The Chancellor’s defence of her controversial tax raid on farmers comes despite the policy being set to raise just half a billion pounds a year – the equivalent to one day and five hours of NHS spending.

In face-to-face talks with government ministers on Monday, the National Farmers Union (NFU), Britain’s biggest agricultural farming body, will demand that the inheritance tax rise be ditched.

Writing for The Telegraph, Tom Bradshaw, the NFU president, warned that the tax move was fuelling a mental health crisis among farmers that will force some to quit.

Mr Bradshaw revealed his team had been inundated with calls from elderly farmers who have been driven to tears and now feel they are a “burden” on their families.

Meanwhile, there are signs of a grassroots Labour backlash, with some of the party’s councillors telling The Telegraph they expect a rural voter revolt over the “tractor tax” in May’s local elections.

Last week, Ms Reeves used her Budget to end the practice of letting all farmers pass on estates without inheritance tax, instead placing a 20 per cent tax on assets worth more than £1 million.

The move was taken to stop wealthy people buying up agricultural land to avoid inheritance tax, but has led to fears that scores of ordinary farmers could be forced out of business.

Appearing on BBC One’s Sunday with Laura Kuenssberg, the Chancellor showed no sign of reversing as she argued that the public finances were too strained to keep the existing rules.

She said: “Last year, the benefits of agricultural property relief – 40 per cent of the benefit was felt by seven per cent of the wealthiest landowners. I don’t think that it is affordable to carry on with a relief like that when our public services are under so much pressure.

“And of course farmers as well rely on good public services, whether that’s our NHS, our roads or our schools. That money will be put back into improving our public services and putting our public finances on a firm footing.”

That argument has come under scrutiny from opponents, who noted that the tax change generates a fraction of the money raised and spent elsewhere in the Budget.

The inheritance tax change affecting farmers will raise just £520 million a year by 2030, according to the Treasury’s own official estimates. In comparison, the increase in employers’ National Insurance, the flagship tax increase in the Budget, will raise £25 billion by then – 50 times greater.

The Chancellor chose to spend on other priorities, such as £22 billion for the NHS across the next two years and £3 billion next year on keeping the 5p fuel duty cut.

With NHS annual spending reaching more than £150 billion, the amount raised by the farming inheritance tax change would be spent by the health service in a little more than a day.

Sir James Dyson, the inventor and designer, last night branded the changes an “ignorant swipe at aspiration”.

He wrote in The Times: “Rachel Reeves is killing off established family businesses, and any incentive to start new ones, with her 20 per cent Family Death Tax, levied each time a family business passes a generation.

“Every business expects to pay tax, but for Labour to kill off home-grown family businesses is a tragedy.

“In particular, I have huge empathy for the small businesses and start-ups that will suffer. Labour has shown its true colours with a spiteful budget.”

Tim Farron, the Liberal Democrats’ rural affairs spokesman, said: “This claim just doesn’t stand up to scrutiny. Rachel Reeves must be living in cloud cuckoo land. It just shows this Labour Government doesn’t understand rural communities. What we cannot afford is to drive farmers out of business and undermine the country’s food security.”

During the interview, Ms Reeves also defended the policy, which the Lib Dems have called a “tractor tax”, arguing that “only a very small number of agricultural properties will be affected”.

But the Treasury’s claim that a quarter of farms will be hit with the new inheritance tax limit is being contested by the NFU, which says the true figure will be half.

Mr Bradshaw, who will meet Steve Reed, the Environment Secretary, in Westminster on Monday, raised concerns about the mental health impact of the tax in his piece for The Telegraph.

He wrote: “Distressed elderly parents apologising to their children in tears for something that isn’t their fault and telling them they’re sorry because they feel they’re now a burden on the family.

“Families who can’t see any way they can now plan for the future that doesn’t mean losing their business. Men and women who’ve spent years building up businesses now wondering what’s the point in carrying on when it’s going to be ripped apart.

“I’ve heard numerous stories like this in the days since the Chancellor announced changes in the inheritance tax regime. The feelings of anger, betrayal and despair are palpable. The family farm tax is exacerbating the mental health crisis that farmers are already facing.”

The tax change kicks in from April 2026, meaning that the families of farmers who die before then will not pay the new charge.

During her appearance on the BBC, Ms Reeves was shown a video message from a fifth generation farmer in Yorkshire who said her family now faced a £1 million tax bill.

Rebecca Wilson said: “On paper, our farm is a valuable asset. But farmers like us often work very hard for very low returns and we rarely have surplus cash in the bank. Even using personal allowances, the Chancellor’s proposal could hit us with a tax bill of nearly £1 million when my parents die.

“How is the Chancellor going to ensure that my generation will keep on farming in light of the changes announced in the Budget?”

Ms Reeves argued that “only a very small number of farms” would have been hit by the new inheritance tax rules last year and urged Ms Wilson and her family to “look through the details”.

Labour councillors broke ranks to express anger on Sunday. Graham Morgan, a councillor in Gloucestershire, said: “I’m not happy with the bloody Government. They’ve scored the biggest bloody own goals in history as far as I’m concerned, with winter fuel and the Budget.

“What they’ve done with farming doesn’t surprise me. I know they kept saying to judge Starmer at the end of their term, but with their record so far I’m not very pleased, to be honest – and I’ve been Labour all my life.”

A second Labour councillor said they feared Reform UK could make gains in the local elections as they target the farming inheritance tax raid.

Feelings of anger, betrayal and despair are palpable

Distressed elderly parents apologising to their children in tears for something that isn’t their fault, and telling them they’re sorry because they feel they’re now a burden on the family, writes Tom Bradshaw.

Families who can’t see any way they can now plan for the future that doesn’t mean losing their business. Men and women who’ve spent years building up businesses now wondering what the point is in carrying on when it’s going to be ripped apart.

I’ve heard numerous stories like this in the days since the Chancellor announced changes to the inheritance tax regime.

The feelings of anger, betrayal and despair are palpable. The family farm tax is exacerbating the mental health crisis that farmers are already facing.

The vast majority of the people who will bear the brunt of this decision aren’t wealthy people with huge cash reserves hidden away. They are families that have often spent generations building up their farm businesses to provide food for the nation, often on very tight profit margins.

Their businesses have struggled through all the changes caused by Brexit; they’ve suffered years of being squeezed to the lowest margins imaginable, with costs of production skyrocketing; they’ve been battered by increasingly extreme weather conditions. They have nothing left to give.