Category: Policy & Business

Budget 2023

The Chancellor, Jeremy Hunt, delivered what he described as a ‘Budget for Growth’ on the 15th March.  The main points are;

  • the Office of Budget Responsibility (OBR) predicts that the UK will (narrowly) avoid a recession in 2023.  This is defined as two successive quarters of negative growth.  However, the economy is still forecast to shrink by 0.2% during 2023.  In 2024 growth is forecast to rebound to 1.8%, with 2.5% in 2025 and 2.1% in 2026
  • inflation (CPI) is predicted by the OBR to fall to 2.9% by the end of this year
  • as previously set out in the November 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.  In addition, the top 45% Additional Rate of Income Tax will be paid on earnings over £125,140, instead of £150,000
  • one of the headline measures in the Budget was reform to tax relief on Pension contributions.  The annual tax-free allowance is raised from £40,000 to £60,000 and the Lifetime Allowance is completely scrapped.  This is designed to encourage older workers (especially doctors) to remain in the workforce
  • There were no changes to Inheritance or Capital Gains Tax, beyond that announced in November (the annual CGT exemption being cut to £6,000 from April)
  • It was confirmed that the main rate of Corporation Tax on profits over £250,000 will increase from 19% to 25%.
  • The ‘Super-deduction’ under which companies could claim 130% tax allowance for investment in certain assets will end in April.  A 100% first-year allowance (‘full expensing’) will replace it – this will have no expenditure limit.  The standard 100% Annual Investment Allowance (AIA) for sole traders, partnerships etc. will remain at £1m
  • The Household Energy Price Cap will be extended for a further three months to June, but at a lower subsidy rate so that the average bill is capped at £2,500 per year rather than £3,000.  There is no change to business energy support
  • Fuel duty is frozen.  The duties on alcohol will go up in line with inflation from August, but there will be a reduction in duty on beer and cider sold in pubs
  • There were a number of measures introduced to get more people into the workforce including additional free childcare and extra programmes to get the over-50s back to work
  • One specific point for agriculture was the launch of a consultation on the taxation of the ecosystems market (see https://www.gov.uk/government/consultations/taxation-of-environmental-land-management-and-ecosystem-service-markets).  This has two parts.  The first is a call for evidence on the taxation of ecosystems services.  The second part looks at APR under IHT and whether the rules need to be changed to encourage ecosystem services.  This part is also being used to consult on a recommendation in the recent Rock Review of tenancies that APR on tenanted land should be restricted to situations where leases are for 8 years or more. 

BPS 2023

The 2023 Basic Payment Scheme (BPS) application window is now open.  The last day to submit a claim (without penalty), including Young and New Farmer applications and to transfer entitlements is 15th May.  Certain changes can still be made, to a previously submitted claim, until 9th June as long as the claim has been submitted by 15th May.  Claims can also be made up until 9th June, but will attract penalties.  All scheme rules and details on how to claim can be found via https://www.gov.uk/government/publications/basic-payment-scheme-2023

The 2023 BPS application will be the last under the present system, it is also important that a claim is made this year.  From 2024 Defra plans to De-link payments and to be eligible for De-linked payments from 2024-2027 an eligible claim must have been made in 2023.  As previously written, De-linked payments are based on a business’s average BPS payment, including any Young Farmer Payment and Greening for the years 2020, 2021 and 2022 – the reference payment.  When payments are De-linked, entitlements will not be required and it will not make a difference if a claimant increases or decreases their land area or even stops farming, the reference payment will be made annually, subject to the % deductions under the Agricultural Transition, until 2027.

If a claimant has applied and received the Lump Sum Exit Scheme payment they will not receive a De-linked payment.  For those who have applied for the Lump Sum, but have not yet completed their exit it would be prudent to claim for the 2023 BPS, to safeguard their position in case they find they are not eligible for the Lump Sum or cannot complete the land transfer by 31st May 2024.  If a BPS claim is made in 2023 and they subsequently meet the Lump Sum rules, the 2023 Basic Payment will simply be taken off the payment due under the Lump Sum.

As was the case last year, the BPS payment will be made in two instalments.  An advanced payment of 50% of the estimated total will be paid from 1st August 2023 with balance payment made from 1st December.

The revenue claim window for Countryside Stewardship and Environmental Stewardship is also now open and closes on 15th May.

CS Capital Grants

Defra has lifted the grant limits for the Countryside Stewardship (CS) standalone Capital Grants scheme.  This means there are no limits on either the maximum amount for any application or the amount that can be applied for in each of the four groups (boundaries, trees & orchards; water quality; air quality; and natural flood management).  Previously, there was a limit of £20,000 per group (£80,000 total).  Going forward, Defra says each application will just be assessed for value for money.  The full (amended) guidance can be found at  https://www.gov.uk/government/publications/capital-grants-2023-countryside-stewardship/applicants-guide-capital-grants-2023

Windsor Framework Agreement

On 27th February, the UK Government and EU Commission reached an agreement on the implementation of the Northern Ireland (NI) Protocol – the ‘Windsor Framework’.  The deal emerged after months of, often arduous, negotiations and is heralded as a major breakthrough by both the UK and EU negotiators.  It is hoped that this framework will resolve the thorniest issue of the entire Brexit process and has been welcomed by most Northern Irish stakeholders, although the DUP have yet to give an official view on the Framework, which is not expected until April.

The key aspects of the agreement are:

  • Customs Procedures for Goods: there will be a ‘green lane’ for goods moving from Great Britain (GB) into NI which will be consumed in Northern Ireland and not deemed to be at risk of moving into the EU Single Market.  For such goods, nearly all customs procedures will be scrapped.  Goods deemed to be at risk of moving into the EU Single Market will be moved through a red lane, where EU border controls will apply.
  • Chilled Meats: products such as sausages which are sold in GB supermarkets will also be available in Northern Ireland, provided that they are shipped into Northern Ireland by trusted traders.  Chilled meats are usually prohibited from import into the EU Single Market or require arduous certification procedures (sometimes hundreds of certificates for a container with chilled meat and animal products for the retail sector).  This will now be replaced by a single document confirming that the goods will stay in Northern Ireland and are moved in line with the terms of the UK’s internal market scheme.  This is a significant concession from the EU.  It is also a sensible one on the basis that such products are for consumption in Northern Ireland and there is now real-time data on the movement of goods from GB to NI, giving the EU the visibility it needs to ensure that no fraudulent activity is taking place. Any physical or identity checks that do take place will be on a risk and intelligence-led basis, based on decisions by UK authorities.
  • Seed Potatoes, Plants and Trees: certain plant and crop products had been either prohibited from entry into NI from GB since January 2021, or required lengthy certification processes.  Such trade can now recommence under the provisions of the Windsor Framework.  This is seen as a big boost for the seed potato sector in particular.  However, seed potatoes will still be prohibited from being sold to the Republic of Ireland.
  • VAT and Excise Duties: the NI Protocol’s legal text has been amended so that the UK can set VAT and excise duties for the whole of the UK.  It means that the reforms to alcohol duties taking effect in the UK in the summer will now apply to NI, thus lowering the price of beer in NI pubs for instance.
  • Parcels and Online Shopping: no paperwork will be required for parcels moving from GB to NI.
  • Pet Travel: documentary requirements and associated treatments and inoculations that are usually required by the EU have been removed for travel between GB and NI.
  • Applicability of EU Law in Northern Ireland: has been reduced substantially (estimated by the NI Secretary to be 97%) and now only focuses on the ‘minimum necessary’ to avoid a hard border on the island of Ireland.  The EU notes that the European Court of Justice (ECJ) will still have a final say on Single Market issues.  However, it is envisaged that its role will be greatly reduced due to the provisions outlined above and also because of the data sharing, labelling and enforcement procedures within the Windsor Framework.  This will help to safeguard the Single Market whilst also giving opportunities to resolve differences without having to revert to the ECJ.
  • ‘Stormont Brake’: this new mechanism is designed to give the Northern Irish Assembly the opportunity to pull an emergency brake on EU legislative changes which would apply in Northern Ireland.  It is designed to address concerns, particularly amongst Unionists, on what they perceive to be a democratic deficit of the NI Protocol as agreed in 2020.

For the brake to activate, it would require cross-community support and would need a minimum of 30 Assembly MLAs from at least 2 parties to agree to its activation.  The EU stresses that this can only be activated in exceptional and emergency circumstances, where there is a significant impact specific to everyday life in Northern Ireland.  It is also planned to have greater consultation between the UK and the EU on new EU legislation so as to minimise instances of the Stormont Brake being activated.  Once triggered, the UK Government would notify the EU of its activation.  The rule in question would automatically be suspended from coming into effect.  It could only then be reapplied if the UK and EU jointly agree.  If the suspension remains, the EU reserves the right to respond with remedial action to protect its Single Market.  For the Stormont Brake to become an option, it requires a functioning NI Assembly and is seen as a bid to get the NI Executive back up and running.

Overall, the Windsor Framework strikes a pragmatic and careful balance between the concerns of the UK Government and Unionists who wish to ensure that Northern Ireland remains an integral part of the UK, and of the EU in ensuring that its Single Market is protected.  With hindsight, it was the sort of balance that should have been struck when the original Protocol was negotiated in late 2020, but which ended up being rushed and was negotiated without enough attention to the nuance needed for the unique circumstances of Northern Ireland.  Importantly, by giving NI unfettered access to both the UK Internal Market and the EU Single Market, the Windsor Framework gives Northern Ireland the potential for strong economic growth, not just in agri-food but across NI industry generally. Undoubtedly, the Protocol will need further refinements in the years ahead as will the UK-EU trading relationship more generally.  This is as it should be, as trading relationships between near neighbours are constantly fine-tuned.  The US-Canada relationship is a prime example of this.

Farm Business Income

Farm profits show a mixed picture for the year just ending.  This is the finding of the first forecasts from Defra’s Farm Business Income (FBI) for the year 2022/2023 (March to February).  These include the 2022 harvest and the 2022 Basic Payment.  The forecasts are derived from information available in early February 2023.  The actual Farm Business Survey results for this period will be published in November 2023.  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.

Only Cereal and Dairy farms are forecast to make a year-on-year increase in profits.  On Cereal farms this is expected to increase by 6% (in real terms) to average £134,000.  An increase in output due to higher crop prices and better yields is expected to more than offset the increase in input costs.  The Basic Payment is predicted to fall by about a quarter on the year to average £29,000; roughly 22% of the total income on cereal farms.

The profit on an average Dairy farm is forecast a substantial 69% rise for the 2022/23 year (in real terms).  This is almost entirely driven by an increase in milk price.  The Defra average farmgate milk price rose from 37.45p per litre in March to 51.51p per litre in December 2022 (see Key Farm Facts).  However, for the future, we are now seeing some significant falls in milk price.

For Grazing Livestock farms the picture is less rosy.  Profits on both Lowland and LFA Grazing Livestock farms are forecast to decline for the year just ending.  Lowland profits are forecast to halve compared with year earlier levels.  Inputs are expected to rise by 15%, primarily due to an increase in costs for fertiliser, feed and machinery.  In addition, output is forecast to decline by 1%.  Whilst finished cattle prices have risen, the output from store cattle and sheep is estimated to have fallen.  The Basic Payment reduces by 21% on this type of farm, but significantly it still equates to over 80% of the total Farm Business Income.  Many Grazing Livestock farms remain reliant on the Basic Payment.  Profits on LFA Grazing Livestock farms are forecast to decline by 65% in real terms.  The sheep enterprise tends to make up the biggest output on LFA farms and, as we have been reporting in other articles, prices have been lacklustre this year.  Both finished and store lamb prices are down, which will be reflected in lower closing values for trading stock, compared with opening.

Profit from General Cropping farms is forecast to be 18% lower on the year (in real terms), although still high compared to the recent past; in 2021/22 average profit more than doubled.  The recent declines are as a result of higher input costs, primarily fertiliser and machinery related costs (rental, repairs, depreciation, fuel and oil).  Output is expected to rise, but not by enough to offset the rise in input costs.  Higher output from cereals and OSR is partially offset by a decline from potatoes, peas and beans.  A reduction in the planted area of potatoes and the drought is expected to take its toll on yields.  The weather is also forecast to impact on sugar beet yields for the 2022/23 year.

No income forecasts have been produced for specialist Pig, Poultry or Horticulture farms.  There is only a relatively small sample of these farms in the Farm Business Survey and together with market uncertainties and extreme volatility, Defra has said it has not be possible to produce robust forecasts.  The full statistical release can be found at https://www.gov.uk/government/statistics/farm-business-income/farm-business-income-in-england-202223-forecast

 

NI Protocol Deal

At the time of writing (morning of 27th February), it is expected that a deal will be imminently reached between the UK Government and the EU on the implementation of the Northern Ireland (NI) Protocol.  The European Commission President (Ursula von der Leyen) is travelling to the UK today for high-level talks with the Prime Minister to address the final list of issues which are said to require top-level scrutiny by both leaders.

It is said that the remaining issues centre primarily around the role for the Northern Ireland Assembly in having a say around how EU Law is applied in Northern Ireland.  Some also suggest that there will be further discussion around the role of the European Court of Justice, although this is mainly seen as an issue for the European Research Group (ERG) within the Conservative Party.

Although both the UK Government and the EU have remained tight-lipped about the details of the deal, it is widely believed that the deal will remove checks for goods crossing from Great Britain (GB) into NI which are destined for Northern Ireland only.  Key to achieving this has been the real-time access to shipments’ data on goods crossing from GB to NI which has enabled the EU to adopt a more flexible approach.

After meeting with Ursula von der Leyen, the Prime Minister will hold a virtual Cabinet Meeting to discuss the details of the deal (if agreed).  From there, Rishi Sunak will then brief the House of Commons in the evening.  Whilst the deal is imminent, there will still be significant hurdles to surmount including whether the DUP and the ERG wing of the Tory party will support it.  However, Labour has said that it will support the deal.  Many are hoping that this will be one of the last major moments in the Brexit saga.  With numerous other challenges to tackle, all key stakeholders, particularly agri-food businesses are keen for these issues to be resolved so that there can be some certainty on trading arrangements between GB, NI and the EU in the coming years.

As soon as the text of the deal emerges, we will update readers via an online article.

Biodiversity Net Gain

The Government has published its response to the consultation on the Biodiversity Net Gain (BNG) regulations and implementation which closed in January 2022.  As planned, this will become a legal requirement for new development in England from November this year.

To recap, BNG is a way of boosting habitats for nature.  It requires 10% more biodiversity after a development has taken place than was present beforehand.  This means developers must try to avoid any loss of habitat on a piece of land, and they must also create further habitat either on-site or off-site.  The latter could potentially open up a new income stream for land managers who may be able to increase the biodiversity on their land and sell the BNG ‘credits’.  BNG will apply from November 2023 for developments which fall within the Town and Country Planning Act.  For sites that are classed as small (less than 9 houses or 0.5 Ha, or for non-residential less than 1,000 square metres or 1 Ha) they will have until April 2024 before BNG is introduced.  The Defra response summarises the current policy position and can be found at https://www.gov.uk/government/consultations/consultation-on-biodiversity-net-gain-regulations-and-implementation.

The Government has also published some guidance for land managers who wish to sell to the BNG market.  This outlines what actions land managers can do ahead of the November to prepare for selling BNG units.  It also gives brief details on combining environmental payments with BNG, including Nutrient Mitigation Credits, ELM and voluntary carbon markets, such as woodland or peatland.  The guidance can be found at https://www.gov.uk/guidance/combining-environmental-payments-biodiversity-net-gain-bng-and-nutrient-mitigation.  In summary, it will be possible to sell BNG units and Nutrient Credits from the same land by stacking them.  For other schemes such as ELM or voluntary carbon markets, it will not be possible to sell an enhancement that has been funded by an agri-environment scheme as a BNG unit (or nutrient credit).  However,  it will be possible to use the same land to create further habitat enhancements on top of the existing agri-environment agreement or voluntary carbon codes which could be used to calculate BNG units and be sold.

To calculate the number of biodiversity units available, the Biodiversity Metric 4.0 will need to used.  This will calculate the biodiversity available at the start (the baseline) and then after the habitat enhancement has taken place to produce a ‘net’ amount of BNG credits available to sell.  The habitat must be managed for 30-years via a legal agreement such as a Planning obligation (Section 106) with the Local Planning Authority (LPA) or under a Conservation Covenant with a responsible body.  In addition a habitat management and monitoring plan (HMMP) will need to be agreed with the LPA or responsible body.  From November 2023 it will be a requirement to register land as a biodiversity site.  Defra has said it will be publishing further guidance in ‘phases’ throughout the spring.

AHDB Move

The AHDB is moving from its Stoneleigh Park headquarters to save money.  With the loss of the potatoes and horticultural sectors, its current office is now too big for its needs.  The Levy Board is moving to a new building on Middlemarch Business Park near Coventry Airport in April.  The exiting building has been re-let to a technology firm.  The move is said to save around £0.5m per year.

Productivity & Slurry Grants

Further to our article earlier this month (https://abcbooks.co.uk/farming-equipment-technology-fund/) it is now possible to apply for Productivity and Slurry grants.  These are part of the Farming Equipment and Technology Fund (FETF) and provide grants of between £1,000 and £25,000 towards the cost of items that have been pre-identified to improve productivity and sustainability.  A list of the items and the amount of grant available (circa 40%) can be found at https://www.gov.uk/government/publications/farming-equipment-and-technology-fund-fetf-2023/annex-3-fetf-2023-productivity-and-slurry-eligible-items .  Full scheme guidance can be found via https://www.gov.uk/government/publications/farming-equipment-and-technology-fund-fetf-2023/about-the-farming-equipment-and-technology-fund-fetf-2023#how-the-grant-works

The application window is open until 4th April.  The scheme is competitive; if successful, all items must be paid for and installed before a claim for grant is made, and ahead of the claim submission deadline. The claim submission deadline will be confirmed in the applicant’s Grant Funding Agreement, but is expected to be October 2023 for the Productivity & Slurry theme.  Applications must be made via an online portal this can be found at https://ps.fetf.org.uk/ .

The application window for Animal Health and Welfare grants via the FETF is due to open in March.