Category: Policy & Business

The latest Farm Business Income figures released by Defra show a mixed picture for farm profitability.  The data relates the 2022/23 year – covering harvest 2022 and the 2022 BPS payment.  They are an update of the estimates released in the spring (see https://abcbooks.co.uk/farm-business-income-9/).  Although titled ‘income’ what the series shows is average profit at the farm level for a typical farm in each sector.  A summary of the results is included in the table below.

They key sectors of Cereals and Dairy both experienced an increase in profits – even on the high levels seen in the previous 2021/22 year.  Whilst costs were higher, sale prices for both grains and milk more than offset this.

General Cropping farm profits were pulled-down by lower outputs from potatoes and sugar beet.  Readers will remember the drought in the summer of 2022 which reduced yields of these two crops.

The grazing livestock sector, both in the lowlands and uplands, recorded lower profits.  Although sales prices for beef and lamb were reasonable, it was higher costs that really caught up with these type of businesses last year.

The Pigs figures are a little odd – showing a massive jump in profits when most businesses were struggling with high costs and only slowly increasing prices.  However, delving a little deeper into the data, a large amount of the increase in profit comes from a big jump in diversification income.  It is difficult to believe that pig farms really all started alternative enterprises in 2022/23.  What seems more likely is that there is a slightly different population of farmers being sampled.  Promar took over the Farm Business Survey for the 2022/23 year.  It has always been difficult to recruit certain categories of farmer to the survey, including pigs, due to the relatively small number of them.  It may well be that data from different businesses have been collected.

Looking to the current, 2023/24 year, first Defra estimates will be published in the spring.  These are likely to show sharp falls in the profits from Cereals and Dairy farms as output prices have fallen considerably.  General Cropping farms could well record a rise with better potato returns and high beet prices.  Grazing Livestock may well also show a small recovery, as a result of the high beef prices this year and also firm lamb markets.

More data is available at – https://www.gov.uk/government/statistics/farm-business-income .

The Chancellor, Jeremy Hunt, gave the Autumn Statement on the 22nd November.  The main points are;

• the Office of Budget Responsibility (OBR) released its latest economic forecasts alongside the Autumn Statement.  This shows the economy has been more resilient this year than initally forecast.  Economic growth in 2023 is now predicted to be 0.6% instead of a contraction of 0.2%
• this unexpected growth, coupled with high inflation bringing more people into top tax bands, has led to bigger-than-expected tax receipts.  This gave the Chancellor some room for tax cuts (see below).  However, the strength of the economy also means inflation will be more persistent.  The forecast is that CPI will increase 7.5% in 2023, with prices rising by 3.6% in 2024 and 1.8% in 2025
• the OBR has cut its forecasts for future UK growth.  The OBR now believes the economy will expand by 0.7% in 2024 (previously 1.8% was predicted).  For 2025, growth is put at 1.4% (previously 2.5%).   Worryingly, the OBR has revised down its estimate of the ‘medium-term potential growth rate of the economy’ to 1.6%, from its previous level of 1.8%
• as previously set out in last November’s Budget, Personal Allowances and Higher Rate Thresholds for Income Tax will be frozen until 2028.  This increases tax income because, as wages rise, the tax-free element does not rise in tandem
• although billed as a tax-cutting Statement, the measures announced, plus those already in the pipeline, will see tax as a share of the economy rise every year for the next five years to a post-war high of 37.7% of GDP
• probably the most important announcement for farming, especially those sectors employing large amounts of labour, is the increase in the National Living Wage.  This will rise by 9.8% to £11.44 per hour in April.  It will also be extended to 21 and 22 year olds who currently receive a lower rate.  The Living Wage rate has almost doubled since 2010
• there were cuts to National Insurance rates.  NI paid by employees will fall from 12% to 10% as from the 6th January 2024.  For the self-employed, the rate of Class 4 NI between £12,570 and £50,270 will be cut by 1% to 8%.  Class 2 NI is to be abolished.  Both the self-employed NI changes start on the 6th April 2024
• ‘full expensing’, whereby companies can claim 100% first-year capital allowance against Corporation Tax on capital investment, is to be made permanent.   The standard 100% Annual Investment Allowance (AIA) for sole traders, partnerships etc. will remain at £1m
• the discount on Business Rates for small retail, hospitality, and leisure businesses is to be extended for a further year
• £110m was pledged to a Local Nutrient Mitigation Fund for schemes to deliver nutrient neutrality and unlock housebuilding
• there were other measures to boost development.  These include a ‘fast-track’ Planning system where Local Authourities will be able to recover the full cost of dealing with applications, in return for faster responses.  There were also policies to boost renewables and the electricty transmission network, including a payment of up to £10,000 to those living near new transmission lines
• There were no changes to Inheritance or Capital Gains Tax, despite changes to the former being widely trailed before the Autumn Statement
• The previous Budget saw the launch of a consultation on the taxation of the ecosystems market.  The Autumn Statement indicated that an update on this would be provided in ‘the Spring’.

The Government has issued a ‘call for evidence’ on poor practices in the tenant farming sector.  This is a result of the Rock Review of the sector (see https://abcbooks.co.uk/rock-review-of-tenancies/).  Defra are seeking information on the extent and nature of poor practices, especially in the relationships between Tenants, Landlords and their Agents.  It asks whether existing dispute mechanisms are effective at dealing with bad practice and whether new arrangements are needed.  Specifically, it requests views on whether a new Code of Practice is required and if there is a role for a new Tenant Farming Commissioner to provide oversight.  The consultation can be found at – https://consult.defra.gov.uk/farm-tenancy-policy-team/da7bd616/.  The deadline for submissions is 8th February 2024.

 

Round 2 of the Slurry Infrastructure Grant (SIG) is now open in England.  This round of the scheme has £74m of funding – more than double the amount (£34m) that was eventually granted under the 1st round.  A third round has been promised in 2024 – likely to have similar funding to the current one.  There is no guarantee of the scheme continuing beyond that, as the agricultural budget has not been set beyond 2024.  Those that need to invest in slurry storage may wish to apply whilst funding is certain.  It does, however, seem likely that some support will be on offer for 2025 onwards, given the focus on water quality.  

Our article of 17th October gave a summary of the scheme including the rule changes from Round 1 (see https://abcbooks.co.uk/slurry-infrastructure-grant-2/).  Initially, those interested must apply via the Online Checker.  This will be available until 17th January 2024 and can be found via https://www.gov.uk/government/publications/slurry-infrastructure-grant-round-2-applicant-guidance/how-to-apply-for-a-slurry-infrastructure-grant-round-2

Once the Online Checker has closed, those shortlisted will be informed by the RPA.  They will receive a ‘slurry store location and design check form’.  This will need to be completed by 30th September 2024.  It will then be checked by the Environment Agency (EA) and if necessary RPA or EA may discuss changes to ensure the final project protects the environment, meets regulations and meets the needs of the applicant.  The full application including planning permission needs to be submitted by 27th June 2025 at the latest.

Defra and the Forestry Commission have announced improvements to the forestry grants available under the England Woodland Creation Offer (EWCO) and the Countryside Stewardship (CS).  Maintenance Payments will now be made for 15 years; previously these were only made for 10 years.  In addition, farmers carrying out capital works under the EWCO will now have three years to complete them.  Increasing this timeframe from two years means land owners will have two whole planting seasons to deliver the scheme, irrespective of when the agreement commences.  This gives more flexibility to plan work, secure trees and materials, and respond to weather conditions if they prevent planting from going ahead as planned.  More information on the EWCO can be found at https://www.gov.uk/guidance/england-woodland-creation-offer

 

Steve Barclay has been appointed Secretary of State for the Environment, Food and Rural Affairs.  This comes as Thérèse Coffey resigned during the Cabinet reshuffle on 13th November 2023.  Mr Barclay was previously Secretary of State for Health & Social Care between 25th October 2022 and 13th November 2023, having held the same post between 5th July 2022 and 6th September 2022.  He represents the Fenland constituency of North East Cambridgeshire and, unlike many Defra Secretaries, has shown a previous interest in farming and rural issues.  The junior Ministers in the Department, including Farming Minister Mark Spencer, remain largely unchanged.  However, Trudy Harrison has left her postion as Parliamentary Under Secretary of State.  She has been repalced by Robbie Moore, MP for Keighley and Ilkley.

The RPA has emailed all BPS claimants informing them that it will be sending out Delinked Payment Information Statements soon.  The Statements will be sent out in batches from early November; if claimaints have not received one by early December, they should contact the RPA.  The information in the Statement should be checked and any queries need to be raised with the RPA by 29th February 2024.

Delinked payments will replace BPS payments from 2024 – the 2023 claim was the last under the old Basic Payment Scheme.  The RPA will pay Delinked payments each year from 2024 to 2027.  The amount received will decrease each year as the progressive reductions apply under the Agricultural Transition.  Those in receipt of Delinked payments will not need any land or entitlements to receive the payments.

The Statements will show the ‘Reference Data’, this is based on BPS payments received in the ‘Reference Period’ – 2020, 2021 and 2022 BPS years.  The Reference Data determines the ‘Reference Amount’, basically the average yearly payment received over the three years.  This will be then be paid in each of the years from 2024 to 2027 to those that are eligible, minus the progressive reductions for that year.  Our Key Farm Facts contains details of the yearly reductions, although Defra has still not confirmed the percentages for 2025 – 2027.  To be eligible for a payment, the business must have made an eligible claim in 2023 and have a Reference Amount.  Those who received a payment under the Lump Sum Exit Scheme are not eligible. 

It will not be necessary to apply to receive Delinked payments – they will come automatically as long as the business is eligible.  The value of the  payments for 2024 to 2027 will not be affected if the farm size changes, or if there is a change in what the land is used for after BPS 2022.  Payments will be paid half from 1st August and the balance from 1st December from 2024 onwards.  Where a business receives Delinked payments, these will be taxed as income.

From 15th February to 10th May 2024, it may be possible to transfer some or all of a business’s Reference Data to another business.  This may be because there has been a change in business structure (mergers, scissions), land has changed hands, or the business may just wish to sell their ‘entitlement to the future support’.  The business receiving the Reference Data and hence the Delinked payment must have made an eligible 2023 BPS (except for some inherited land cases).  Those who have Reference Data (i.e made a claim in 2020-2022) but did not make a claim in 2023 would not be eligible to receive a Delinked payment but can still transfer their allocation to an eligible business.  More information on how to do this is expected later this year.  But RPA has made it clear that it is up to businesses if they want to transfer any of their Reference Data and it will not get involved in disputes between claimants. 

In some cases, it may only be possible to transfer the Reference Data if eligible land in England was transferred from the business transferring out the Reference Data to the business receiving the Reference Data.  The transfer of land must have happened after 15th May 2020 and before 16th May 2023.  A transfer of land is needed where the business:

• has a Reference Amount of more than £30,000 and the transfer is for only part of the Reference Data or is to more than one business – this rule is to stop Reference Data being artificially split between businesses to reduce the progressive reductions that apply
• wants to transfer out Reference Data that has been transferred to it from another business
• wants to transfer Reference Data from a business where the SBI has been closed – the SBI will be shown as ‘locked’ on the Rural Payments service and RPA will have written to the business to tell them it has closed the SBI

Further information on Delinked payment, including worked examples, can be found at https://www.gov.uk/guidance/delinked-payments-replacing-the-basic-payment-scheme

The Chancellor, Jeremy Hunt, will give his Autumn Statement on the economy on Wednesday 22nd November.  With Government finances stretched, there seems little fiscal room for new policies to be announced.  However, with a General Election in 2024 or early 2025, and the Government well behind in the polls, the Chancellor may wel be tempted to pull a ‘rabbit out of the hat’.

A few items relating to the SFI  to update readers on;

Expression of Interest (EoI)

The requirement to submit an EoI prior to a Sustainable Farming Incentive (SFI) application is no longer required.  Those who wish to apply for SFI can do so via their Rural Payments account.  However, those farming on Commons should continue to express their interest with RPA so it can help them with an application.  More information on applying can be found via https://www.gov.uk/guidance/apply-for-an-sfi-agreement .

SFI 2023 Payments

Defra has announced that those who were invited to take part early on in the ‘controlled rollout’ of SFI 2023 have received their first payment under the scheme.  Farmers whose agreement commenced on 1st October 2023 have received the ‘accelerated payment’.  This payment is worth 25% of the annual value and is paid in the first month of the agreement (see article https://abcbooks.co.uk/sfi-accelerated-payments/).  According to Defra, as of mid-October there has been over 14,000 EoIs made under the SFI and almost 1,000 agreements have been offered.

Closure Payments

All SFI 2022 agreements will be terminated and holders should all now have been informed when their agreement will end; this should coincide with a quarter end date.  Defra has said if anyone would like to leave their 2022 agreement even earlier they can contact RPA to discuss their options.  On termination, holders will receive a payment.  This could be made up of three different elements;

• a final quarterly payment
• a management payment (based on the length of time in the agreement)
• a closure payment – this is to cover any financial loss resulting from the transition from the SFI 2022 to SFI 2023.  This may not be due to all, our article https://abcbooks.co.uk/sfi-2022-closure/) detailed the closure payments.

When agreements are near their closure date, RPA will calculate the final 2022 payment due and it will write to all agreement holders detailing how to make a closure declaration.  If agreement holders have complied with their agreement requirements up to the point of closure they will not have to repay any money received.

 

A further round of the Countryside Stewardship Facilitation fund is now open for applications and will close on 15th January 2024.  The Fund supports groups of farmers and landowners in England to come together to share knowledge, coordinate action, support environmental priorities and join agri-environment schemes.  This is achieved by funding a facilitator to organise workshops and offer support, advice and training to the group.  The emphasis in this round will be on;

• increasing biodiversty and supporting priority species
• net zero
• water management (including beaver management)
• air quality

Defra has also announced some further changes to the scheme requirements, these include;

• a reduction in the minimum area per application from 2,000 Ha to 500 Ha
• removal of landlord consent
• increase in facilitator rates
• refreshment reimbursement (£10.50 per head)

There is also a new guide to help with the application process, this can be found via https://www.gov.uk/government/publications/facilitation-fund-2024-countryside-stewardship  .  The facilitator makes the application on behalf of the group.  The scheme is competitive, meaning all applications are scored and only those offering the highest scores will be offered funding.  Agreements are for three years and will commence on 1st June 2024.