Category: Policy & Business

The Chancellor, Philip Hammond, delivered the Autumn Statement on the 23^rd November.  This was Mr Hammond’s first major chance to reset fiscal policy since becoming Chancellor and following the ‘Brexit’ vote in June.  It was thought in the months leading up to the Statement that we might see some sweeping expansionary spending plans to offset the effects of Brexit.  However, the measures announced are pretty small-scale – perhaps this was to be expected from a man with a fairly dull reputation who has the nickname ‘spreadsheet Phil’.  But probably of more importance was a fairly poor outlook for the UK economy which limited the Chancellor’s room to make grand gestures.

The Office for Budget Responsibility (OBR) estimates for the UK economy are all downgraded from those seen at the time of the spring Budget. The table below shows some of the main economic indicators both now and then.

ECONOMIC FORECASTS – Source: OBR
	GROWTH – %		DEFICIT – £bn		NATIONAL DEBT – £bn
	Spring	Now	Spring	Now	Spring	Now
2016 (2016/17)	2.0	2.1	-55.5	-68.2	1,638	1,725
2017 (2017/18)	2.2	1.4	-38.8	-59.0	1,677	1,840
2018 (2018/19)	2.1	1.7	-21.4	-46.5	1,715	1,904
2019 (2019/20)	2.1	2.1	+10.4	-21.9	1,725	1,945
2020 (2020/21)	2.1	2.1	+11.0	-20.7	1,740	1,950
2021 (2021/22)	–	2.0	–	-17.2		1,952

It can be seen that the George Osborne’s target to eliminate the deficit has been scrapped.  Closing the gap between government income and spending looks impossible in the short-term as a result of lower tax receipts due to lower growth, and higher government spending.  Of course, much of the change in forecasts is a result of Brexit.  In its outlook, the OBR has made the following assumptions;

• The UK will leave the EU in April 2019
• New trading arrangements will slow import and export growth in next ten years
• There will be a tighter migration regime in the UK and it will be a less attractive place for foreign workers
• EU-wide taxes, such as VAT, won’t change immediately

The OBR cautions that, with rising inflation (CPI is forecast to peak at 2.6% in spring 2018) and little productivity growth in the short-term, real wages will decline.  A number of specific policy announcements were made;

• There will be a £23bn National Productivity Investment Fund to boost house building, transport, communications and R & D.  As with many such announcements, it is not clear how much of the £23bn is new money, or whether this is just a re-packaging.  productivity does seem a subject close to Mr Hammonds heart however, he provided some damning statistics showing how the UK lags its major competitors in this respect
• Some of this fund will be spend on improving transport.  There were no ‘big ticket’ announcements such as HS3 or Crossrail 2, but funding for a Oxford-Milton Keynes-Cambridge ‘expressway’ was promised
• Lettings fees charged by Agents to Tenants will be outlawed
• Confirmed that for 2017-18 year Income Tax the Personal Allowance will rise to £11,500 and the Higher Rate threshold to £33,500.  The target is for the Allowance to reach £12,500 by 2020
• Also confirmed that the rate of Corporation Tax will fall to 19% for 2017, 2018 and 2019, before dropping to 17% for the financial year commencing on 1st April 2020.  However, there will be an review of the use of incorporation as a tax-avoidance measure
• National Living Wage to rise from £7.20 an hour to £7.50 from April
• Fuel Duty is frozen (again)
• Increase in insurance tax from 10% to 12% (probably offsetting any gains from a crackdown on fraudulent whiplash claims)
• Rural Rate Relief (for shops, Post Offices, pubs and petrol stations) will rise to 100% from April 2017
• Finally, this will be the last Autumn Statement.  Following next spring’s Budget this will move to an autumn date.  There will then be a ‘Spring Statement, but this will simply be a response to the OBRs latest economic forecast and not a policy announcement.

BPS 2016 Payments

We understand that the RPA are on track to start making payments on 1^st December.  Remember applications, whether made online or by paper, can be tracked by selecting ‘Applications’ from the Business Overview page on the Rural Payments website and clicking on ‘Apply for BPS’.  Once the status says ‘Preparing for Payment’ this means all the validation checks have been completed and the claim will be sent for payment.

The aim is to make payments to 90% of claimants by the end of December.  Some may wonder how this will be possible as a significant number of 2015 claims are still incorrect or outstanding.  Progress with these seems to have largely stalled as the RPA seems to have switched its attention from 2015 reconciliation work to meeting this 2016 deadline.  It appears that the 2016 BPS payment may still be made, even where there are 2015 issues still outstanding.  Payments will be calculated using the data that the RPA holds for the business; where entitlements or land area has not been updated the payment may still be made but will obviously be incorrect.  On the one hand this may help clients’ cashflow, but on the other it is just compounding 2015 errors.  To make matters worse, Claim Statements are not expected until February 2017 (by post) and once again, these are not expected to contain individual land parcel information.  It will therefore be necessary to check the maps on the Rural Payments service to see how payments have been calculated if they do not seem correct.

Those who haven’t received a payment in December will be contacted in January and told what is happening with their claim and whether they can expect payment before or after March.  From January those who haven’t been paid will have access to a Caseworker who will be able to provide updates on the claim.

Entitlements and Land Transfers

The functionality to transfer land via the Rural Payments online service should be available from late January.  However, the ability to transfer entitlements will not be available until mid- February.  As we have said previously it is still probably better to wait until this functionality is available where possible as paper RLE1 forms are unlikely to be processed until after May15^th deadline, indeed some 2016 ones are still being worked through now!  Readers will also be aware that the ‘Entitlements’ section is currently not available online, whilst it is being ‘revamped’.  But it is possible to view a business’ entitlement position through the ‘Business Summary’ page located from the ‘Business Overview’ page.  Users can ‘Generate’ and ‘Download’ a summary of the business which includes the number of entitlements the RPA has registered to the business, plus a summary of each land parcel – quite a useful summary.

Leaflet, Inspections & Payment Reconciliation Letters

All 2016 claimants will be receiving a leaflet through the postgiving them an update on the scheme; most of the information contained within it has already been covered in the articles on this site.  Those claimants who have received a physical or a remote inspection this year should shortly be receiving their report.  These will be the first under the BPS, as last year they were unavailable.  Finally, around 13,600 claimants should have received a ‘reconciliation’ letter during November.  If claimants are still not satisfied that they have been paid correctly they need to contact the RPA by email at [email protected] with the subject heading BPS 2015 Payment Reconciliation or they can send a letter by post.

The NFU is calling for a continuation of direct payments on an area basis to all farmers after Brexit.  The Union has set out its lobbying position following its consultation with members over a future domestic agricultural policy (see our article in August /generalpolicy/nfu-brexit-consultation/ ).  According to the NFU, over 60% of respondents to the consultation supported some sort of direct payments, either coupled or decoupled to provide volatility mitigation.  it is claimed that the benefits of this type of support is that (if they are decoupled) then they are WTO compatible.  In addition the UK paying agencies already have systems designed to deliver such support.  The NFU also supports the introduction of some sort of Insurance & Risk Management Scheme which would allow farm businesses to manage volatility caused by weather events or poor markets.

For environmental protection it would like to see two instruments, one a broad scheme accessible to all, with another, more selective scheme for those in designated areas.  The NFU sees the Broad ‘Farmed Environment’ Scheme replacing current ‘Greening’ measures, although it would be voluntary.  It would be points-based and accessible to all aimed at protecting landscape features, biodiversity, climate mitigation, soil & water.  The Farmed Environment Scheme for Designated Areas  would be a selective scheme for those in designated areas such as SSSIs, AONBs, National Parks etc. for carrying out more specific environmental benefits.

The NFU would also like to see measures which would improve the productivity and competitiveness of farm businesses.  These would be by application and would include such things as, capital grants, knowledge transfer and benchmarking.  There should also be policies to promote British produce home and abroad through assurance schemes.  Animal & Plant Health issues should also continue to receive public funding.

NFU Scotland has also put forward its ideas in a new policy framework for Scottish Agriculture Beyond Brexit.  This includes direct support (subject to cross compliance) focused on active farmers and crofters, with an option to couple some support for vulnerable sectors such as suckler beef and hill farms.  Support for those in disadvantaged or Less Favoured Areas and new entrants to agriculture.  A three tier Rural Development Support package, with total spend weighted in favour of the first tier of smaller scale, lightly competitive measures.

Probably what stands out most from the policies set out above is the similarity to the schemes we have now or have previously had.  Considering there has been a lot of talk about a ‘blank sheet of paper’ to work from and being able to have a ‘bespoke domestic policy’ these all seem a little familiar and show a distinct lack of imagination. 

The Forestry Commission has launched a new grant scheme.  The Woodland Carbon Fund will provide grants for the creation of large-scale, predominantly productive woodland and which, where possible, also promotes public access and achieves wider environmental outcomes.  Maximum grants available range from £6,800 to £8,500 per hectare, the higher rates being for woodland which surrounds urban areas and allows public access.

The fund is for plantings of 30 hectares or more, with a minimum block size of 10 hectares.  The Woodland Carbon Fund is not part of the Countryside Stewardship Scheme (CSS).  However, funding through the Woodland Creation Planning Grant (part of CSS) can be used to complete a UKFS-compliant Woodland Creation Design Plan, a requirement under the new scheme.  Further information and guidance on how to apply can be found on the Forestry Commission website at http://www.forestry.gov.uk/england-wcf

The Rural Payments Agency has announced the Basic Payment Scheme entitlement values for 2016.  Payments will increase by 18.9% compared to the 2015 rates.

As most readers know by now, the calculation of entitlement values is undertaken from scratch each year and the rate can vary depending on how many entitlements are claimed in each region.  The fact that rates are slightly higher than our estimates suggests that fewer entitlements were claimed this year and the funds from them have been ‘recycled’ into the remaining entitlements.  The table below shows the published rates, our estimates and the actual payment that farmers will receive.  This is based on the 2016 conversion rate of €1 = £085228.

The net payments shown for 2016 are after Financial Discipline at 1.354%, also slightly better than last year (1.393%).  The rate for this year is compared to the payment for the last two years.  The final result is that payments in Lowland England are £34.84 per hectare more than last year, with SDA and Moorland payments up by £33.59 and £8.87 per hectare respectively. Moorland payments have more than doubled over the last two years.  The change is largely down to the weakening of the Pound and a more favourable conversion rate of €1=85.228p compared to 73.129p last year.

BPS ENTITLEMENT VALUES 2016
	Gross Payments – € per Ha				Net BPS/SPS Payments – £ per Ha
	2016 Standard	2016 Greening	2016 Total	2016 Est.	2014	2015	2016
Lowland	175.27	77.71	252.98	248.5	£192.87	178.85	212.69
SDA Non-Moor.	174.01	77.15	251.16	246.7	£154.45	177.57	211.16
Moorland	45.97	20.39	66.36	65.2	£27.05	46.92	55.79
Source: RPA    *converted at €=£0.85228, 1.354% Financial Discipline

Appointments for the first Scottish Land Commission have been made.  Dr Bob McIntosh CBE will be the Tenant Farming Commissioner; he is a retired civil servant but was the Scottish Government’s Director for Environment and Forestry between 2012 and 2015.  Mr McIntosh has also had a number of roles within Forestry Commission Scotland, and he is currently a Board member of Highlands and Islands Enterprise.  There will be five Land Commissioners; Professor David Adams, Megan MacInnes, Lorne MacLeod, Dr Sally Reynolds and Andrew Thin who will chair the Commission.  Mr Thin is currently the Government’s Independent Advisor on Tenant Farming and also is chair at Scottish Canals and serves as a Non-Executive Director in the Scottish Government.

The creation of a Tenant Farming Commissioner was part of the Scottish Government’s Land Reform Bill (see article in  May) which received Royal Assent in March of this year.  The aim of the Commissioner is to encourage good relations between the Landlord and Tenant.  He will be responsible for drawing up a Code of Practice and will have the powers to investigate breaches of that Code.

Much like the surprise felt on June 24^th, the world awoke on the 9^th November to the seismic news that Donald Trump is going to be the 45^th President of the USA.  With all that has been said during the most turbulent election campaign in years, a Trump Presidency is perceived by investors as unpredictable, risky and will give rise to a lot of uncertainty – very similar to Brexit.  Markets have already reacted globally with several stock markets posting declines.  Gold, a traditional safe haven, has risen by over 4%.  The Japanese Yen, another perceived safe haven, has strengthened.  Sterling has also strengthened against the Dollar overnight, although it has lost some of those gains as markets opened this morning and is now around 0.3% higher.

What does all this mean for UK agriculture?

Like Brexit, the most significant short-term implications arise from exchange rate movements.  Since June, Sterling has steadily declined against the Dollar.  Last night’s result should allay this trend as markets grapple to understand what a Trump Presidency might mean.  It is also noteworthy that oil prices have declined as a result of the election.  Taking these factors together, it should mean that the recent rises in the cost of fuel in the UK may halt or even decline.  It should also help mitigate further prices rises for other key agricultural inputs.

For UK agricultural outputs, it is the Sterling-to-Euro exchange rate which is the most critical.  As the Euro has also strengthened against the Dollar, Sterling remains relatively weak, thus supporting UK prices in the short to medium term.  However, the Pound-Dollar rate is important in the grains market, and any major shift in this relationship could bring crop prices under more pressure. 

Taking a more long-term perspective, it is worth examining what the implications of the election are for US farming.  Similar to other sections of rural America, farmers have become increasingly disgruntled with the status quo in US politics.  Trump’s promises of reduced regulation, restrictions on free trade and his support for the US Farm Bill are perceived as being positive for US farmers.  Trump has also been on record as supporting the US biofuels industry, which should maintain a floor on corn prices and perhaps even help the industry to expand further.  So the initial signs are that there will be a more pro-farmer environment for US agriculture.  However, what Trump says and what Trump does might be two very different things, and it remains to be seen how much extra support farmers receive.  It is also notable that US farming relies heavily on migrant labour.  Given Trump’s strong views on immigration as well as his promise to invest heavily in (labour-intensive) infrastructure and building projects, this is likely to create challenges for US agriculture in terms of access to labour.

From a European perspective, a Trump administration creates challenges with regards to the EU’s policy on GMOs and the increasing restrictions on the use of agro-chemicals that European farmers face.  It is also likely that the proposed US-EU trade deal (TTIP) will be ditched.  These issues will present challenges for the UK until it leaves the EU.  However, the prospect of a bilateral trade deal between the US and the UK perhaps increases.  This could create significant opportunities for UK farming, especially in terms of exporting high-end dairy and meat produce.  However, such a deal would also bring more competition from low-cost US agricultural commodities.

Generally, demand for commodities, including agricultural goods, depends on a strong global economy.  Most economist believe that Trump’s stated policies would do damage to the America’s, and the world’s, economy.  Even the uncertainty generated by the election may be enough to dent growth.  The question now arises as to what policies will actually be enacted by President Trump, and what their effect will be.  However, as with all significant changes, there may be opportunities generated, as well as threats.