Category: Policy & Business

The Finance Secretary, Shona Robinson, delivered the Scottish Budget for 2025/26 on the 4th December.  Much like its UK counterpart, this saw farm support maintained in nominal terms, which equates to a real-terms cut once inflation is considered.

The block grant from the UK to Scotland for revenue items actually increases by 1% in real terms for 2025/26.  The capital allocation goes up by 7% in real terms.  It can therefore be seen that other areas of spending have been prioritised ahead of agriculture.

General policy announcements that will have relevance to farming include;

• the Income Tax thresholds for the two lowest bands will be increased.  The Starter band will rise from £2,306 p.a. to £2,827.  The Basic band from £13,991 to £14,921.  There are no changes to the bands for the Higher, Advanced and Top rates and also no changes to any of the tax rates.  The tweaking of the lowest bands has enable the Scottish Government to state that over half of taxpayers will pay less in Income Tax than if they were elsewhere in the UK
• the level of Business Rates will be frozen for 2025/26
• increased funding will go into the Rural Tourism Infrastructure Fund (RTIF) with the aim of boosting visitor numbers and their spending.

Focusing on farm funding, the Budget announcement stated ‘£660 million for support’ – this actually appears to be £657.3m in revenue payments.  This compares with £663m estimated for the current 2024/25 year and the actual of £626.2m for 2023/24.  Thus, around the same budget in nominal terms, with no uplift for inflation.  The budget lines for BPS, Greening, Coupled payments and LFASS are all the same for 2025/26 as in 2024/25.  Spending on Agri-environment is forecast to drop from £25m to £21.5m next year.

The £657.3m will be topped-up by £23m of capital spending under an ‘Agricultural Transformation programme’.  This is part of the £43m previously taken from the agricultural budget.  The remaining £20m is due to be returned in 2026/27.  It is not currently clear how the Agricultural Transformation progamme will operate or what it will fund.

There is also funding in the wider Scottish Budget for forestry, advice, animal health & veterinary, land reform, the Islands, marine, natural resources, and research & analysis.  The full breakdown of spending for Rural Affairs, Land Reform and the Islands can be found at – https://www.gov.scot/publications/scottish-budget-2025-2026/pages/11/ .

The Government’s Spending Review is likely to be delayed until June.  This will extend the uncertainty over the budget allocation for agriculture after 2025.  When the Autumn Budget was presented, it was suggested that Departmental spending totals for the three years from 2026/27 would be set in the spring.  It is now reported in the Financial Times that this process is likely be delayed until the early summer.  Defra’s budget has been set for 2025/26 and this, in turn, has allowed the £2.6bn for the ‘Farming and Countryside Programme’ (essentially the successor to the Common Agricultural Policy) for 25/26.  However, there is no guarantee on funding beyond that – i.e. in around 15 months time.

Denmark will become the first country in the world to tax greenhouse gas emissions from livestock.

A ‘Green Tripartite Agreement’ has been struck between the government, the farming industry and environmental organisations.  This will see a number of measures enacted to reduce the environmental impact of agriculture including;

• a world-first tax on emissions of methane from livestock.  This will be based on CO2 equivalents and will start at 300 Kroner per tonne CO2e (around £34 per tonne) in 2030.  By 2035 this will rise to 700 Kroner (£84).  However, there is to be a 60% deduction on the tax, so the effective rates for farmers will be much lower.  Funds raised through the tax will be returned to the faming sector through support for environmental practices
• an agreement to reduce nitrogen emissions from agriculture by 13,780 tonnes by 2027 in an effort to improve water quality
• setting of a target that 10% of the land area of Denmark should be ‘forest and nature’ by 2045.  As part of this 140,000 Ha of low-lying drained peatland will be taken out of agriculture.  240,000 Ha of new tree planting is promised.  This will be voluntary with farmers paid to make the land use change.

Danish agriculture is intensive and very focused on livestock production, especially pigs and cattle.  This has created a number of environmental issues which this plan aims to address.  It will be interesting to see if any other countries take-up the option of a livestock tax now that Denmark has led the way.  

The Capital Grants scheme in England has been closed.  We wrote last month that the scheme, which provides funding for enviromental work (previously known as Countryside Stewardship capital grants), had seemingly been ‘paused’ as no agreements had been offered for a number of months.

The closure of the scheme was confirmed on the 26th November when a small notice was added to the relevant section of the Defra website stating ‘Capital Grants 2024 are currently closed‘.  Subsequently Defra has written a blog (see https://defrafarming.blog.gov.uk/2024/11/27/an-update-on-capital-grants/) in which it says, ‘due to an overwhelming demand for some capital grant items, the main capital grant offer will have closed to new applications – a total of 76 grant items.  This is being done to prioritise funds for areas that will have the greatest benefit for food security and nature conservation’.  According to Defra, the high demand for some grant items has led to spending levels that ‘aren’t sustainable’ for this year – it is forecast to spend 49% more on capital grants this year than in 2023/24 and 125% more than in 2022/23.

There is no indication when the scheme might reopen, it does talk about being ‘temporarily closed’ to most new applications with a further update in ‘early’ 2025.  For those who have already applied and are waiting, it seems they will be put ‘on hold’ for now and applicants will be contacted in early 2025 with information about what happens next.

The following grants remain open;

• Woodland Tree Health Grants
• Capital Grant Plans and Management Plans
• Protection and Infrastructure Grants
• Higher Tier Capital Grants

Further details for these can be found via https://www.gov.uk/government/collections/capital-items-guidance-for-applicants-and-agreement-holders?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=571a361e-7871-4f0d-b943-318bffa13b5b&utm_content=daily

The Welsh Government released further details on the Sustainable Farming Scheme (SFS) on the 25^th November.  This sees significant changes made to the scheme since the consultation was issued last year (see https://abcbooks.co.uk/welsh-sfs-consultation/ ).  The most eye-catching move has been the dropping of the 10% tree-cover requirement.

The document that has been published (see https://www.gov.wales/sustainable-farming-scheme-proposed-scheme-outline-2024-html) is described as an ‘interim position’.  The Government is keen to point out that this is not the final scheme and consultations will continue.  Economic analysis and impact assessments will also be carried out.  The final scheme will be published in summer 2025 ahead of the 1^st January 2026 start date.  The current document also does not contain any payment rates.  The Welsh Government is likely waiting to see what it is allocated in Spring’s Spending Review before being able to make this decision. 

The main changes to the SFS are;

• removing the Scheme Rule to have 10% tree cover. This was one of the most contentious elements of the original plans. Universal Action 13 (UA13) has been re-written so that each farm will have to produce a plan to identify the opportunities for planting additional trees and creating new hedgerows across the farm.  There will be no specific farm-level percentage targets however; although there will be scheme-level targets on woodland creation.  There will be grants available for hedges and trees under the Optional Actions tier of the SFS.  The other ‘Scheme Rule’ of having 10% Habitat Area across the farm is being retained.  There is the option to create temporary habitat to meet this requirement, however
• the overall number of Universal Actions has been reduced from 17 to 12. UA4 – Multispecies cover crop; UA6 – Managing modified peatland; and UA10 – Ponds and scrapes, have all been dropped.  UA15 to 17 have been combined into a single, simplified, ‘Animal welfare’ Universal Action.  Most of the Universal Actions that have been dropped have been moved into the Optional Actions – the second tier of the scheme.  Many of the UAs that have been retained have also been revised – with 10 out of the remaining 12 being amended
• the Universal Baseline Payment will be available on Common Land – based on the number of grazing rights
• payments for Universal Actions will be available on Sites of Special Scientific Interest (SSSI)

Details of the changes were announced by the Welsh rural affairs minister Huw Irranca-Davies at the Royal Welsh Winter Fair.

Preparatory Schemes

Our article earlier in the month gave details of application windows for further SFS Preparatory Phase schemes see https://abcbooks.co.uk/sfs-preparatory-schemes-wales/

It has been suggested the the Higher Tier Environmental Stewardship scheme may not be open for applications until next summer.  Although not yet confirmed by Defra, the CLA stated at its Annual Conference that it had been informed that there would be a significant delay.  The scheme was orignally planned to be open in mid 2024.

Although there has been no formal notification from RPA, it appears that the Capital Grants schemes in England have been put on hold whilst a review of the schemes is carried out.  We have been made aware that no scheme offers have been made for a while now for applications to the stand alone (‘environmental’) capital grants which are open all year round.  Furthermore there has only been one round of the smaller Farming Equipment and Technology Fund (FETF) this year, after being told earlier in the year (albeit under the previous Government) there would be three.  It is believed budget pressures and an increase in applications has prompted the RPA to review its offering to ensure there is value for money.  An announcement regarding the schemes is expected shortly.

Defra has released its latest Farm Business Income (FBI) figures for England.  The data relates to the 2023/24 year – covering harvest 2023 and the 2023 BPS payment.  They are an update of the estimates released in the spring (see https://abcbooks.co.uk/farm-business-incomes/).  Although titled ‘income’ what the series shows is average profit at the farm level for a typical farm in each sector.    The chart below summarises the data for the past few years – all figures are in real terms at 2022/23 prices.

 

An average is first given for the five years 2015/16 to 2019/20.  The data for the four following years has been split into the contribution from each of four profit centres. It shows how important subsidy income (BPS and agri-environmental income) is to the profitability of some sectors of English farming.  The light blue columns are our initial forecasts for the current, 2024-2025 year.

The Cereals and Dairy sectors both experienced big decreases especially compared with the high levels seen in the previous two years.  Average FBI for Cereals farms fell by 73%, compared with the year earlier; to £39,400 due to lower farmgate prices resulting in a fall in crop output of 19% coupled with higher input costs.  Cereals farms actually made a £26,400 loss from its agricultural enterprise in 2023/24, requiring output from diversification (£26,500), the BPS (£26,100) and agri-environment payments (£13,200) to bring it back into profit.

On Dairy farms the average FBI was 68% lower at £70,900 with a fall in the farmgate milk price being the main driver.  General Cropping farms also experienced a decline in FBI, but by a lessor extent; by almost a quarter to average £95,300.  On these farms, the lower ouput from cereals and OSR was partially offsett by increases in output from potatoes and sugar beet.

The grazing livestock sector continues to struggle even with strong farmgate prices.  The FBI on Lowland Grazing Livestock farms fell by 24% to £17,300.  Whilst livestock prices remain high, the revenue and closing valuations were lower for sheep enterprises meaning fewer animals sold and lower stocking densities.  On LFA Grazing Grazing Livestock Farms the FBI was down 12% to £23,500, with the rise in fixed costs more than offsetting an increase in agricultural output – general farming costs and net interest payments rose by 29% and 67% respectively.  It can be seen that Agri-environment and BPS payments at £14,700 and £17,100 respectively are important to these types of farm.

In contrast to the previous sectors, FBI rose for both Specialist Pig and Poultry producers.  The average FBI for Pigs increased by 87% to £135,800, mainly due to a 25% increase in pig output reflecting higher throughput and prices for both store and finished pigs.  These farms made a £40,100 profit from agricultural activities but notable is their £71,800 profit from diversification activities which includes food processing/retailing and renewable energy. There is always a note of caution around both the Specialist Pig and Poultry figures as the samples are relatively small meaning individual farms can have a large influence on the results, this is possibly what has happened here with the diversified enterprises.  Compared to 2022/23, the average FBI for Specialist Poultry Farms rose by nearly a quarter to £143,600.  Despite a fall in output from broiler enterprises of 15%, livestock output overall rose by 2%, driven by an increase in output from eggs of 33% which reflected both higher prices and volume produced.

Looking to the current, 2024/25 year, first Defra estimates will be published in the spring.  We have included our initial forecasts in light blue on the chart.   These are likely to show further falls in the profits from Cereals farms as cereals prices remain lacklustre and yields will be lower.  All other farm types are forecast to see an increase with a stronger recovery for Dairy Farms.  Livestock prices remain high, likewise potato and sugar beet and the milk price has made a good recovery.  The exception being Specialist Pigs which is forecast to experience a small decline as the pig price eases.  The full report can be found via https://www.gov.uk/government/statistics/farm-business-income .

Defra has opened a consultation on the regulatory approach and the use of civil sanctions for hedgerow management.  Readers will recall, following the end of cross-compliance last year, new rules to protect hedgerows were put in place (Management of Hedgerows (England) Regulations 2024).  These were effectively the same as the previous – 2m buffer strip and cutting ban from 1st March – 31st August (see our earlier article https://abcbooks.co.uk/hedgerow-legislation/ ‎).  Also required are new enforcement rules which the RPA will manage and it is these which are currently being consulted on.

The consultation says the RPA is proposing to take an ‘outcome focused regulatory approach’.  This means, except in cases of serious harm, it will look ‘to provide advice and guidance in the first instance before taking enforcement action’.  If enforcement is required the proposals include four civil santions to be available to the RPA under the Regulations:

• Stop Notice
• Compliance Notice
• Restoration Notice
• Variable Monetary Penalty up to a maximum of £250,000.

Views must be submitted by 10th December and the full consulation can be found at https://consult.defra.gov.uk/legal-standards/consultation-on-hedgerow-regulatory-approach/

The RPA has started to contact those that are due a Recovery Payment following the extreme wet weather last winter including Storm Babet in the autumn and Storm Henk in January 2024.  The Environment Agency and Met Office data has been used as follows, to identify which farm businesses will receive the recovery payment.

• Data from the Environment Agency was used to track high river levels during Storm Babet and Storm Henk and satellite imagery was used to confirm the land where the river flooding impacts were most severe.
• Rainfall data from the Met Office identified Local Authority areas in England where at least half of the area experienced exceptional rainfall of more than 70% above the 30-year average rainfall from the period October 2023 to March 2024.  Eligible land parcels were then identified in these areas.  However payment is only made for a ‘set proportion of total eligible farm area to take account of uncertainties in the precise extent of localised rainfall impacts across the country’.

RPA has then applied the following payment bands to areas identified for each affected business:

• 1 – 25 ha –  £2,895
• 25.01 – 50 ha –  £4,875
• 50.01 – 75 ha –  £8,125
• 75.01 – 100 ha –  £11,375
• 100.01 – 125 ha –  £14,625
• 125.01 – 150 ha –  £17,875
• 150.01 – 175 ha – £21,125
• 175.01 ha and above £25,000

Around 13,000 farm businesses will receive this one-off payment as a contribution towards the uninsured costs incurred from returning their land to its pre-flooding condition.  There is no need for farmers to submit an application or claim form.  The RPA will contact those who are eligible, usually via an email.  This will include a list of field numbers that have been deemed to be affected and notification of the payment due which will be made within 28 days of the email unless farmers notify RPA of any changes.