All family firms deserve our respect, says RUTH SUNDERLAND

Labour’s climbdown over its planned inheritance tax raid on family firms and farms is a step in the right direction, but it is not enough.

Most of the attention has been on farms but family companies are just as important. Ministers should be going all out to support family businesses and to foster a modern UK equivalent of the German Mittelstand: the owner-run firms that have for many decades formed the backbone of that country’s economy.

It is important not to romanticise these enterprises. One need only read Thomas Mann’s great novel Buddenbrooks for a study of a family business in decline, worn down by complacency, misjudged succession, and changing economic conditions.

For years Germany’s Mittelstand firms were hailed as a great source of strength. At the moment, they are far from immune from the nation’s economic woes, with the car industry in disarray and exports hit by global uncertainty and Donald Trump’s tariffs.

Many owners are ageing and struggling to find successors. The sputtering economy has fuelled a recent trend for Mittelstand firms to be sold to Czech and Polish buyers.

Yet even in tough times many such firms are resilient: they keep people in work for longer during downturns and continue to export, even if volumes fall. 

It is certainly arguable that without the Mittelstand, Germany would be in worse trouble.

There would be no point in the UK trying precisely to emulate a model that itself needs to adapt if it is to regain its glory days.

But owner-run businesses should be recognised as the cornerstone of the economy, not set up as a tax target.

We could do worse than emulate the respect shown for such firms and to channel some of the spirit and values behind the Mittelstand.

Reeves has backtracked on her proposed plan to slap inheritance tax at 20 per cent on family business assets over £1m.

That may sound like a large sum but it is less than the price of a fairly ordinary house in many parts of the South East and, in most cases, it represents decades of work and risk-taking.

The threshold has now been raised to £2.5million, or £5million when assets are transferred between spouses. Even so, some families will still face tax bills they cannot meet.

The likely result is firms being dismantled and sold off piecemeal, or flogged to private equity or foreign buyers.

It actively discourages founders from growing businesses beyond £2.5million in assets or from creating enterprises designed to last for generations. 

The UK already has a serious scale-up problem. We are good at launching innovative start-ups but owners often sell out rather than take companies to the next level.

At their best, Mittelstand firms in Germany are often centres of innovation, producing high-quality exports and supporting strong supply chains.

They are frequently based in smaller towns and cities, spreading prosperity. They provide stable employment and a steady flow of apprenticeships.

Because of their local roots, such firms invest in skills and education. Family ownership encourages long-term thinking.

Britain should not seek slavishly to imitate the German template – but encouraging family firms would help tackle some of the deep-seated weaknesses in the economy.

We have some great family companies in the UK, such as Rocco Forte Hotels group or Lord Bamford’s JCB digger empire.

The Government should be nurturing these bedrock businesses, not hounding heirs for tax.