Category: Policy & Business

Welsh BPS Loan Payments

The Welsh Government is to operate a BPS Loan Scheme for those not paid early in December.  The Welsh Farming Unions had been calling on the administration to take up the option offered by the EU of part-payments from October.  However, Lesley Griffiths, Cabinet Secretary for Rural Affairs has rejected this.  Instead, payments will be on the normal timetable which, for the past couple of years, has seen around 90% of claimants receive funds on the first day of December.  The Loan Scheme is for the remaining 10%.  They will be paid 70% of their estimated 2018 BPS in early December.  The Welsh Government will be providing an application form and fuller details (including, presumably, which businesses fall into the 10%) later in the autumn.

Government No Deal Brexit Notices

The Government has stepped-up its preparations for a ‘No Deal’ Brexit.  On 23rd August it published 25 notices setting out what UK businesses and other stakeholders need to consider in the event of the UK leaving the EU without a comprehensive agreement in place.  Over the coming weeks, additional technical notices will be published.  In total, over 80 notices are expected.  These can be found at; https://www.gov.uk/government/collections/how-to-prepare-if-the-uk-leaves-the-eu-with-no-deal

The documents cover a wide range of topics spanning medical science, research, taxation, and workers’ rights, in addition to farming and international trade.  The key points from a food and farming perspective are set out below.

Agri-Food Production (incl. Labelling) and Funding

  • Farm Payments – as previously communicated, the levels of cash funding will continue until the end of this Parliament (expected to be 2022) with all EU legislation as it currently stands being transposed into UK law.  All rules and processes will remain in place until Defra and the devolved administrations introduce new agricultural policies, either through the Agriculture Bill (due in Autumn) or via devolved legislation.  Click here for the Notice on farm payments.
  • Rural Development Funding – as outlined previously, Government funding agreed before the end of 2020 will be maintained over the lifetime of any agreement (i.e. after 2022 if applicable).  However, after 29th March 2019 under No Deal, Rural Development schemes would be funded directly by the UK Government via existing national and local arrangements.  Operationally, there would be no substantive change for farmers, land managers or rural businesses.  For more details, click here.
  • Producing and Processing Organic Food – from a UK perspective, the same processes would remain in place as currently exist.  This includes maintenance of existing standards on labelling and food production, UK organic control bodies certifying British organic produce, recognition of third countries currently equivalent to EU and continued acceptance of EU’s organic products “at the UK’s discretion.”  However, as the EU would treat the UK as a third country, there would be changes including;
    • logos and packaging – UK organic operators would no longer be permitted to use EU organic logo, but they could continue to use the UK control body’s own organic logo.  Defra is investigating the development of a new UK organic logo.
    • exporting as organic to the EU – could only be done if business is certified by an organic control body recognised and approved by the EU to operate in the UK.  This means UK organic control bodies will need to apply to the EU Commission for recognition.  However, they cannot do so until the UK becomes a third country (in March 2019) and the process is estimated to take 9 months.  Whilst efforts are underway to speed-up this process, including the introduction of an equivalency agreement with the EU and for the EU to accept applications before March 2019, this would present a major challenge to UK organic exporters.  More details available here.
  • Genetically Modified Organisms (GMOs) – no significant implications for UK stakeholders.  All current EU legislation would be transposed into UK law.  Regulatory decisions on GMO trials would be made as they are now on a devolved basis.  Any existing EU decisions authorising marketing of GMO products would be applicable on Brexit Day 1 until current expiry date.  Thereafter, any decisions on marketing of GMO products would be made by the UK authorities.  For UK exports of GMOs to non-EU countries the rules in EU Regulation 1946/2003 as converted to UK law would continue to apply. See here for more detail.

International Trade

  • Trade Remedies – these enable WTO members to operate a trading safety net and protect domestic industry (usually via additional import duties) from injury caused by unfair trading practices (e.g. subsidised imports, dumping etc.).  As the UK adopts an independent trade policy after Brexit, responsibility for overseeing this area would transfer to the UK Trade Remedies Authority (TRA) which would be operational by March 2019.  After Brexit, UK businesses would need to contact the TRA instead of the EU Commission for any complaints relating to trade remedies.  In the lead-up to 29 March 2019, any new complaints raised by UK businesses would need to be lodged with the TRA in parallel with the EU Commission, and thereafter, with the TRA only.  Further detail on how the TRA would work is available here.
  • Trade with EU under No Deal – as one would expect, this is one of the more substantive Technical Notices (accessible here) and outlines the steps businesses should take before and during trade (import/export) with the EU under a No Deal scenario. The UK Government advises that businesses should take the following actions to prepare for a potential No Deal;
    • understand what the likely changes to Customs and Excise procedures will be to their businesses (more detail in link above)
    • take account of the volume of their trade with the EU and any potential supply chain impacts such as engaging with the other businesses in the supply chain to ensure that the necessary planning is taking place at all levels. The first part of this action should have been undertaken shortly after the Brexit vote. Supply chain planning is trickier and if No Deal occurs in March, there are limitations to what businesses can do at this stage to plan
    • consider the impact on their role in supply chains with EU partners.  If the UK and the EU do not have a Free Trade Agreement (FTA) in place in a ‘no deal’ scenario, trade with the EU will be on non-preferential, WTO terms.  This means that Most Favoured Nation (MFN) tariffs and non-preferential rules of origin would apply to consignments between the UK and EU
    • if necessary, put steps in place to renegotiate commercial terms (e.g. INCOTERMS) to reflect any changes in Customs and Excise procedures, and any new tariffs that may apply to UK-EU trade
    • consider how to submit customs declarations for EU trade in a ‘no deal’ scenario, including whether the services of a customs broker, freight forwarder or logistics provider are needed, or alternatively secure the appropriate software and authorisations
    • register for the HMRC’s EU Exit update service via the GOV.UK website
    • prepare to register for an UK Economic Operator Registration and Identification (EORI) number, although businesses do not need to do anything now as further information will be available later in the year
    • decide the correct classification of goods (i.e. appropriate HMRC commodity code) in advance of any shipments and when making customs declarations (after Brexit) ensure the correct value of goods is entered
    • check whether your business needs to apply for import or export licenses for trade with the EU (as a third country)
    • for carriers (e.g. hauliers, aircraft operators), ensure that the appropriate Safety & Security declarations can be made for UK-EU shipments
  • This notice also mentioned a series of mitigating actions that businesses could consider taking. These include;
    • customs warehousing – allows businesses to store goods with duty or import VAT payments suspended.  Once goods leave the warehouse, duty must be paid unless the business is re-exporting, or moving goods to another customs procedure. The warehouse must be authorised by HMRC.  This may be a worthwhile first step for businesses to take and further information on how to do this available here
    • inward processing – allows businesses to import goods from non-EU countries for work or modification in the EU.  Once this has been completed, any customs duty and VAT due must be paid, unless goods are re-exported or moved to another customs procedure, or released to free circulation. This could be particularly applicable for cross-border trade on the island of Ireland but will entail additional bureaucracy. (More detail here)
    • temporary admission – allows business to temporarily import and or/export goods such as samples, professional equipment or items for auction, exhibition or demonstration into the UK or EU.  As long as the goods are not modified or altered while they are within the EU, the business will not have to pay duty or import VAT
    • authorised use – allows a reduced or zero rate of customs duty on some goods when used for specific purposes and within a set time period.
  • Classifying Goods in the UK Trade Tariff – sets out the obvious point that anyone trading between the UK and the EU will be subject to customs procedures under No Deal, including the potential payment of duties. The detailed information is accessible by this link with key points below.
    • for imports into the UK, any tariff rates (i.e. under the UK Trade Tariff) will be based on the UK schedule that it submits to the WTO (a draft schedule is currently with WTO members for review).  Based on comments from those who have read this schedule, it appears that the tariff rates are essentially copied and pasted from the existing EU schedule (i.e. the EU’s Common External Tariff).  However, the UK will have the right to amend those post-Brexit or could choose to apply a lower tariff as long as it is applied fairly to all WTO members (i.e. under MFN terms)
    • for UK exports to the EU, the EU’s Common External Tariff (CET) will apply which as readers will know from previous articles is prohibitively high for some agri-food commodities
    • the UK intends to continue offering unilateral preferences to developing countries, and to seek to transition all EU Free Trade Agreements for Brexit Day 1 in order to ensure continuity for both goods imported to the UK, and for UK exports.  Further information on this point will be captured in a separate Trade Continuity Technical Notice
    • the UK does not immediately plan to change the classification of goods in a No Deal scenario meaning that UK 10-digit commodity codes for imports and 8-digit codes for exports will remain the same, except for a few exceptional standards where codes may need to change to ensure continued alignment with international standards for example
    • the Taxation (Cross-Border Trade) Bill provides the legislative powers for HM Treasury to establish a new UK trade tariff.

Taxation and VAT

  • VAT for businesses – is one of the most complex areas associated with Brexit.  Under a No Deal scenario there would be significant changes for businesses (click here for more details).  The UK Government intends to manage this by;
    • introducing postponed accounting on import VAT on goods brought into the UK.  This means that registered businesses could account for import VAT via their VAT return as opposed to paying upon arrival of goods at the border.  Importantly, under WTO MFN principles, these rules would be equally applicable to imports from the EU and non-EU countries.  Customs declarations and payment of other duties would still be required as set-out elsewhere.  This is a significant measure by the UK Government in a bid to minimise the amount of bureaucracy required under No Deal.  However, it also opens-up the possibility of increased “missing trader” fraud where goods enter the UK and circulate freely, while traders go missing and never pay the VAT due.  VAT-related fraud is already a major challenge for UK authorities and this proposal potentially exposes the UK further.
    • keeping the NOVA system for notification of vehicle imports into the UK.
    • employ a technology-based solution for goods valued under £135 to collect VAT from overseas businesses when selling into UK.  For goods over £135 VAT will be collected from recipients in similar manner to present arrangements for collecting VAT from non-EU countries
    • For exports to EU businesses, as a third country, the UK would no longer need to complete an EC sales list, but would need to retain proof that goods have left the UK. The Government also advises that UK businesses check with individual EU Member States on VAT arrangements as value-added tax would become due at the border upon export into the EU as rules can vary between Member States.

State Aid and Workers’ Rights

  • State Aid – the existing provisions of EU law (as transposed into the UK Statute) would continue to apply.  However, the Competition and Markets Authority would take over state aid regulation within the UK and would apply to all businesses with operations in the UK (click here for more details).  This would mean that from that point;
    • UK public authorities will need to notify state aid to any undertaking, through either the block exemption or through a full notification to the Competition and Markets Authority instead of the European Commission
    • existing approvals of state aid, including block exemption approvals, will remain valid and will be carried over into UK law under the Withdrawal Act
    • any full notifications not yet approved by the Commission should be submitted to the Competition and Markets Authority
    • any complaints from businesses about unlawful aid or the misuse of aid should be made to the Competition and Markets Authority. Further guidance will be published by the Competition and Markets Authority in early 2019.
  • Workers’ Rights – all existing EU employment legislation will be transposed into UK law.  There may be changes to the protections afforded to UK employees working in the EU-27 due to variations in how EU law is applied in each Member State.  There could also be changes to European Works Councils if there is no reciprocal agreement between the UK and the EU.  See here for more information.

Whilst the above ‘summary’ is quite long, it illustrates that there are going to be major repercussions of leaving the EU without a deal.  For readers who have banking, insurance or financial services-related interests in the European Economic Area (EEA) or transact with companies based in the EEA, they should also review this guidance (accessible here).  The Horizon 2020 Technical Notice should also be reviewed by organisations receiving funding under this mechanism and there is also separate guidance for organisations receiving funding through other EU-funded programmes (separate to Horizon 2020 and farming-related programmes) which can be accessed here.  Further notices (50-60 expected) are anticipated in the coming weeks where problematic areas such as Port Health will be addressed.

If a No Deal comes to pass, there is little doubt that business costs will rise, particularly when trading with the EU and there is the potential for major disruption to supply chains.  In the medicines sector for instance, the UK Government is advising six weeks’ of contingency stocks to deal with possible bottlenecks. In agri-food, there is already increased pressure on storage and given the highly perishable nature of some products, the effect of a No Deal would be even more pronounced.

It may appear to some that the No Deal Notices are rather alarmist and that it is perhaps a ploy by the UK Government to steer people towards an arrangement similar to Chequers proposals of last month. That said, the threat of a No Deal is real and needs to be planned for.  Three years’ ago, the odds of voting for Brexit were 3:1 (i.e. one in four chance) and it occurred.  As mentioned previously, businesses and policy-makers need to prepare for the worst whilst striving for the best deal possible.  To that end, The Andersons Centre is hosting a webinar on 19th September which will provide further insights on how to prepare for a No Deal and steps that should be undertaken when making contingency plans.  This will include suggested practical actions that businesses should take now and what is required in terms of contingency planning. Further details are available via: http://theandersonscentre.co.uk/webinars/

UK Export Strategy Launched

On 21st August, the UK Government launched its Export Strategy which seeks to raise exports as a percentage of GDP from 30% to 35% as part of an initiative which seeks to make Britain ‘a 21st century exporting superpower’.  Key points include;

  • Establishment of a £50 billion UK Export Finance (UKEF) fund – to provide loans and insurance support to businesses as they seek to grow their export business.  However, thus far, the Government has committed £22 billion of this amount.
  • Suite of online tools to help businesses to export – including a tool enabling businesses to submit non-tariff barriers that they face.  It is planned to host such tools within “great.gov.uk” as a single digital platform in a bid to facilitate domestic growth as well as supporting export capacity-building across UK supply-chains.
  • Peer-to-peer learning – is to be put at the heart of the process in order to encourage and inspire more businesses to export as both the Government and trade associations (rightly) believe that more regional UK businesses have the capacity to export if the requisite support is available.
  • Alignment with the UK Industrial Strategy – this was launched earlier this year.  In the agri-food sector, there will also be a linkage with the sector deal for Food and Drink Manufacturing, which industrial representatives are currently negotiating with Government departments, in order to grow agri-food exports more generally.

When launching the Strategy, the Secretary for the Department of International Trade (DIT) Liam Fox noted that the food & drink sector has strong export potential and cited recent efforts in encouraging China to allow imports of British milk.  A noteworthy remark however that he made however was that “free trade agreements will give you greater market access, but so will unilateral liberalisation”.  Whilst it must be acknowledged that this was mentioned in the context of removing non-tariff barriers which he sees as a greater impediment to exports, there will be concern amongst some that agri-food sector could be sacrificed at the expense of other industries (e.g. automotive).  Indeed, looking through the Export Strategy document in further detail (link below) shows that the food sector was only mentioned once (automotive and artificial intelligence (AI) feature much more prominently).

Overall, the Export Strategy does represent a positive step forward with respect to developing exports in non-EU markets.  However, the big elephant in the room is Brexit and safeguarding the UK’s No. 1 export market (accounting for nearly 50% of goods trade) has to be a cornerstone of achieving 35% of GDP exporting target.  Rather disappointingly, no timeline was mentioned in conjunction with this target. Surely, one of the keys to a successful strategy is to have an ambitious (but achievable) timeline?  The Food Harvest 2020 and Food Wise 2025 strategic initiatives put forward by Ireland in recent years point the way in this regard.  However, the proof of any strategic initiative is in its implementation and only time will tell on that front.

Further information is available via; https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/735734/17814_Export_Strategy_brochure_web_v26.pdf  

Countryside Stewardship

Update

According to DEFRA and Natural England all CS Agreement holders have now received their first 2017 payment and 43% have also had their final payment.  The remaining 57% should all be paid by the end of November.

The delays in offering agreements which should have commenced on 1st January 2018 have been well documented, but all should be ‘live’ by the end of August.  In total there should be 3,650 2018 Mid-Tier Agreements, 435 Higher Tier with a further 213 Woodland-only Higher Tier Agreements.

There were also problems with issuing 2018 Mid-Tier application packs, resulting in the deadline being put back to the 31st August, but all these were issued by the end of June.  According to Natural England, 10,400 application packs have been requested; there has also been 2,000 requests for the new Wildlife Offers.  The 2018 Hedgerow and Boundary Grants scheme closed in the middle of April, 1,109 applications were received; offers will be made by the end of October.

2019

Looking forward to 2019, although there has not been any official announcement from Defra, there are strong indications that there will be another round of application windows.  There are reports that Defra, Natural England and Forestry Commission staff are all working towards improving the scheme administration with a number of IT improvements being made.  The aim is for the Woodland Creation Grant to be open all year round.  It should be possible to request all Mid-Tier application packs online through customers’ Rural Payments accounts.  All four Wildlife offers are expected to be open again, with all of them being available as online applications.  The application window is expected to be similar to 2018, with guidance available from mid-January, requests for applications will be possible once the 2019 PLCD (mapping) update has completed and the closing date reverting back to the end of July 2019.

Extending HLS

DEFRA and Natural England are currently applying to the EU Commission to vary the Rural Development Programme for England to allow a limited number of HLS agreements to be extended.  These agreements were originally for 10 years and provide tailored management for some of the most environmentally significant sites.

Cross Compliance Breaches

The RPA has released its latest report detailing the Cross-compliance statistics for 2017.  Although some areas show improvement, in the main the number of failures has risen.  The number of selected inspections which failed in 2017 was 14.7%, up from 8.7% in 2016.  SMR 7 – Cattle identification and registration remains the most common area of non-compliance, with 50.2% of inspections found to be breaching the rules (up from 49.5% in 2016).  The main issues leading to breaches are the failure to report cattle movements or report the death of an animal within the mandatory timescales.  SMR 4 – TB, has however seen a reduction from 882 failures in 2016 to 732 in 2017.  This SMR records an automatic failure if keepers fail to have their TB test undertaken within their specified window.  Pig identification and registration, SMR 6 has also seen a rise from just 1.7% of inspection failures in 2016 to 12% in 2017.  The table below shows the main areas of non-compliance;

2017 Cross Compliance Failures – source RPA
SMR/GAEC No. of failures in 2017 % of failed inspections % failed ↑↓ 2016/2017
SMR 7 836 50.2 ↑
SMR4 – TB 732 N/A ↓
SMR 8 483 28.0 ↑
SMR1 433 34.5 ↑
SMR13 181 11.2 ↑
Gaec 7a 121 4.3 ↓
Gaec1 120 9.1 ↑
SMR 6 33 12.0 ↑

Sustainable Production Grant Wales

The fourth window of the Sustainable Production Grant (SPG) will open in Wales on 3rd September and will run until 26th October 2018.  Grants of up to 40% are available for investments which will improve water, soil and air quality, including covered slurry storage.  Funding ranges from a minimum of £12,000 to a maximum grant of £50,000 and will only be available where the investment exceeds compliance with slurry storage requirements.  A minimum storage capacity of 160 days and 190 days for pigs and poultry is required, regardless of any existing on-farm storage.

United Utilities Pay for Cover Crops

United Utilities has seen a rise in the number of farmers who have bid for funding to grow cover crops in the winter to help protect the water quality.  The water company holds a reverse auction, which allows farmers in Cheshire, who farm land over important water storage aquifers, to bid for the price they require United Utilities to pay them for growing a cover crop.  This year a total of 246 hectares was put into the auction with bids totaling nearly £30,000, this is expected to see a 30% rise in the total amount of nitrogen saved this winter; last winter 7,500kgs of nitrogen was saved.  Reverse auctions have been suggested as one way of getting best value for money for taxpayers under any post-Brexit land management scheme.   

Early Scottish BPS Payments

Scottish farmers could receive a large proportion of their 2018 BPS payments as soon as early October.   The Scottish Government has decided to continue the National Basic Payment Support Scheme (NBPSS) to help the sector deal with cashflow issues arising from the challenging weather of the last year. This nationally-funded scheme makes payments at an estimated 90% of a claimant’s expected BPS value, with the balance being paid the following year (April 2018 for the 2017 scheme year).  Farmers have to opt into the scheme and loan offers are expected to be sent out shortly.  Although BPS payments would not usually go out until December, Scotland has been using a nationally funded scheme for the last two years  (due to problems with its computer system) allowing earlier part payments.  So in fact, 2018 payments will not actually arrive much earlier than last year, when payments started around the end of October.  The cynical might suggest that the Scottish Government is making a virtue out of a necessity and indulging in a bit of ‘spin’.   With the Scottish CAP payments computer system a long way away from being fit for purpose, it was always likely that a national loan scheme would be needed for a third year in 2018.  But, by painting it as a response to the unusual weather, the Government seems to be trying to gain some political capital from it.    

Slurry Spreading During Drought

The Environment Agency (EA) has published new guidance on ‘preventing agricultural pollution in exceptional weather’ in England.  This is aimed at limiting the spreading of slurry (and milk) during the drought when the risk of pollution is stated to be ‘much greater than in more usual conditions’.  The spreading of slurry will only be allowed as a last resort, and after the EA has been notified.  More details can be found at – www.gov.uk/guidance/preventing-agricultural-pollution-in-exceptional-weather?utm_source=ff1dc064-ccd0-430c-91da-9c46463c6af5&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

Base Rate Rise

The Bank of England raised UK Base Rates by a quarter of a percent, to 0.75% on the 2nd August.  This is only the second increase in rates since July 2007, and the first time the base rate has been above 0.5% since March 2009.  The reaction in the financial markets was fairly muted as the increase had largely been priced-in to expectations.  It was widely believed that the change would have been made in May, but the Bank of England postponed it due to weak economic growth in the first quarter of the year.  UK growth projections are still fairly anaemic, with the annual rate for 2018 likely to be between 1% and 1.5% – much lower than both the US and the Eurozone.  This might beg the question of why the Bank decided to raise rates at all – especially as inflation now seems to be subsiding, and the UK housing market is already sluggish.  There appears to be a desire to get monetary policy back on a more ‘normal’ footing over the longer term.  The Bank may even be giving itself some room to manoeuvre in terms of cutting rates again if the Brexit process starts to go wrong.  However, the latest rise seems unlikely to herald the start of a series of increases.  Most commentators, and the Bank’s forward guidance itself, indicates there will be no more Base Rate increases in 2018, and probably not in the first half of 2019 either.  The Bank’s expected path for rates show they would not reach 1.5% until 2021.  For those businesses (and individuals) who have borrowed significant sums in the ‘cheap money’ era of the last decade, the cost of funds looks unlikely to rise drastically in the next few years.