Category: Policy & Business

Following the reports of Defra reviewing ELM and the potential re-introduction of area payments, which we reported on the last Bulletin, the Department has released a statement.  This confirms the new Government’s commitment to the environment.  It also provides (slightly lukewarm) support for ELM.  The statement sets out that ‘We’re not scrapping the schemes [ELM]‘, but goes on to say ‘it is only right that we look at how best to deliver the schemes to see where and how improvements can be made‘.  The full statement (in the form of a blog post) can be found at – https://deframedia.blog.gov.uk/2022/09/26/government-reiterates-commitment-to-environmental-protections/

With the Conservative leadership race taking centre-stage over the summer, Northern Ireland (NI) Protocol issues were put on the back-burner.  This hiatus was extended due to the death of Her Majesty.  Recent events appear to have resulted in reflection both in London and in Brussels as the new Prime Minister held introductory discussions with European leaders.  This change of tone suggests a window of opportunity to achieve a negotiated outcome to the NI Protocol wranglings, which have bedevilled UK-EU relations since the onset of Brexit.

There have also been notable changes on the ground over recent weeks which have helped to create a cautious sense of optimism;

• The UK authorities have developed a bespoke data system delivering near real-time visibility of goods’ movements between GB and NI.  This system pulls together data from five separate sources with a 15-minute delay.  Therefore, soon after a ship departs GB, regulatory authorities know what the ship contains.  They can then carry out risk assessments and identify any shipments that they wish to inspect.
•  The availability of real-time data was a key demand from the EU negotiators to allow greater flexibility on the implementation of the NI Protocol.  This, in addition to the EU Commission’s October 2021 suggestions, gives greater scope for compromise with its chief negotiator Maroš Šefčovič suggesting the physical inspections could be limited to ‘a couple of lorries a day‘.

Whilst recent developments have improved the mood music, significant hurdles remain.  Not least, the Northern Ireland Protocol Bill which is currently passing through Westminster is still on the table and its activation could scupper progress.  There is also the end of October deadline by when an NI Executive needs to have been formed, otherwise there will be another Assembly election, possibly by year-end.

On 6th October, there is an inaugural meeting, in Prague, of the European Political Community – an entity devised by French President Emmanuel Macron to bring together leaders from across the European continent, including both EU member states and non-EU countries.  Liz Truss is exploring the possibility of attending.  Several experts see this as a key opportunity to make political progress on the NI Protocol as some believe that negotiations thus far have been heavily focused on technicalities due to the EU Commission’s input.  If Liz Truss attends and political progress is achieved at the Prague meeting, this could then pave the way at the next European Council meeting on 20-21 October to give greater flexibility in the negotiating mandate of Maroš Šefčovič to reach a workable solution.

Whilst there are remaining issues around the role of the European Court of Justice, VAT and competition rules, the central stumbling block remains agri-food trade and its associated Sanitary and Phytosanitary (SPS) rules.  The resolution of this issue will likely require some form of SPS agreement between the UK and the EU.  Many have advocated a Swiss-style SPS agreement in the past, whereby the EU would permit frictionless access in return for the UK dynamically aligning with EU regulation.  The prospects for this sort of agreement are now remote, due to the Retained EU Law Bill announced by the UK Government which will end the special status of EU law in the UK statute book.  This Bill includes a sunset clause by when all remaining retained EU Law will either be repealed, or assimilated into UK domestic law.  This will create scope for divergence in the future and would render a Swiss-style SPS agreement unworkable.

It remains to be seen what form an eventual SPS agreement to manage the Protocol issues will take.  The UK would prefer a New Zealand-style arrangement, with physical checks rates being as low as 1% on meat.  The EU does not favour this, given the UK’s size and proximity to the EU Single Market.  Amongst all of this, a bespoke UK(NI)-style arrangement will need to emerge if this issue is to be truly resolved.

Rumours are circulating that the new Government is reconsidering its commitment to ELMs and may even be thinking about retaining a BPS-like direct payment.  The first indication was a tweet by Ben Goldsmith that stated ‘Rumours that the government is considering resuscitating an old subsidy scheme in which landowners across the country will be paid £80 of your money per acre of land that they own, no matter how well they care for it.’   A single tweet might usually be safely ignored, but Ben is the brother of Zac Goldsmith who was a Minister in Defra until a couple of months ago.  In addition, as the story was picked up by various news outlets, Defra failed to make a firm denial – which it would presumably do if the story was baseless.  Various meetings between the Department’s Civil Servants and landowners have also been cancelled – adding credence to the story.  It may all be a storm-in-a-teacup of course, but it is something we will be keeping a close eye on over the next few weeks as the new administration beds-in at Defra. 

Both consumers and businesses will receive significant help with their energy bills this winter.  It is estimated that this will cost £60bn over the next 6 months.  It will be paid for by additional Government borrowing rather than any ‘windfall’ tax on energy companies.

Support for non-domestic users, which includes charities and the public sector as well as businesses, will be under the Energy Bill Relief Scheme.  This will apply from the 1st October until the 31st March 2022 and will cap prices for customers at 21.1ppkWh for electricity and 7.5ppkWh for gas.  It covers all those on variable and flexible tariffs as well as those that have signed new fixed contracts since 1st April 2022.  There is no requirement for businesses to do anything – the cap will be automatically applied.

The scheme will be reviewed after three months.  This will look at how effective it has been, but also which groups of customers remain vulnerable (by sector or geography) and may require further assistance beyond March next year.  There is no indication yet whether farming, any of its sectors, or parts of the wider food chain might be deemed ‘vulnerable’.  Those businesses not connected to either the gas or electricity grid – for example farms being heated by oil or LPG are promised ‘equivalent support’.  No details on this are yet available.  Further information on the scheme can be found at – https://www.gov.uk/guidance/energy-bill-relief-scheme-help-for-businesses-and-other-non-domestic-customers .

In terms of domestic customers, these are covered under the Households Energy Price Guarantee.  Prices will be capped for two years from 1st October at 34.0ppkWh for electricity and 10.3ppkWh for gas.  The £400 already promised under the Energy Bills Support Scheme will be paid in addition to this.  Those that do not heat their homes with either gas or electric will be given £100.  Given the huge rise in the cost of heating fuel, this seems a quite small amount and appears to penalise those not on the gas grid – i.e. farms and others living in the countryside.

For many farms, the cost of power has quickly gone from being an ‘incidental’ expense to one of the major business costs.  For high users such as poultry and protected crops the situation is even more extreme.  This support will be welcomed as providing some respite in the short-term.  What happens after March is now the big question.  The support for business is even more important in farming as many farmhouses are connected to a single ‘farm’ electricity supply.    

The Chancellor of the Exchequer, Kwasi Kwarteng, set out a clear statement of intent with a tax-cutting ‘mini-budget’ on the 23rd September.  In the new Government’s first ‘fiscal event’, there were a series of measures designed to boost economic growth, with a target of 2.5% in the medium term.

In summary, the measures include;

• The 1.25% increase in National Insurance (to pay for health and social care) that was introduced in April this year is to be revoked as from 6th November.  The associated rise in dividend taxation of 1.25% will not be reversed until April 2023 – it seemingly being too complex to change this mid-year
• The Basic Rate of Income Tax will be reduced to 19% from April 2023.  This is a year earlier than originally planned.
• The top, 45%, rate of Income Tax for those earning over £150,000 is to be scrapped from April next year (this does not apply to Scotland which sets its own Income Tax rates)
• The proposed increase in Corporation Tax from 19% to 25% next year has been cancelled
• The Annual Investment Allowance on Plant and Machinery will permanently remain at £1m (rather than defaulting back to £200,000 in April next year)
• Stamp Duty (SDLT) in England and Northern Ireland is to be cut.  The nil-rate band has been increased from £125,000 to £250,000.  For first-time buyers no SDLT will be paid up to £425,000 (previously £300,000) as long as the property is under £625,000 (previously £500,000)
• Planned increases in duty rates on beer, cider, wine and spirits are scrapped and an overhaul of the regime of alcohol taxes will take place
• The Office of Tax Simplification is to be wound-up, with the Chancellor stating that all Civil Servants need to be focused on simplifying the tax system.

A further Budget is planned for later in the autumn.  As well as the taxation measures, a series of announcements are planned over the coming weeks looking at further reforms to the economy to boost growth.  These include;

• Changes to the Planning regime – particularly to speed up the delivery of infrastructure projects.  This may see changes in the requirements on consultation, environmental assessments and habitat protection.   Whether a more fundamental reform of the Planning Regime, to address house building, as proposed and then dropped by the last Government, will be enacted remains to be seen
• Announcements on business regulation and child-care are also promised
• Legislation will be bought forward to remove all retained EU law by the end of 2023
• Investment Zones are to be set up around the country with easier Planning rules and tax incentives
• There was a specific reference to agricultural productivity.  The Growth Plan states that ‘the Government will rapidly review frameworks for regulation, innovation and investment that impact farmers and land owners‘.  Plans will be set out later this autumn.

It might be argued that the Government has correctly diagnosed the problem with the UK economy – low productivity and growth that dates back a number of years.  Therefore, not enough wealth is generated to pay for the public services that the population demands.  Whether the policies outlined are the correct cure for this is perhaps more debatable.  Cumulatively, the tax cuts  outlined are the largest since the ‘Barber Boom’ Budget of 1972 (and that didn’t end well, economically).  With no cuts in public spending outlined, the tax cuts will be funded by increased Government borrowing.  The markets have already reacted with the Pound weakening considerably and the cost of borrowing through Government Gilts rising.  

The idea is that increased growth in the future will allow the debts to be paid off.  However, after massive spending on Covid measures, plus recent support for energy consumers (see separate article) there is a sense that future generations are being saddled with large debts.  It is also unclear whether tax cuts will necessarily drive (enough) growth.  Many of the measures benefit the rich more than the poor, so will rely on ‘trickle down’ effects.

Finally, there is the tension between fiscal and monetary policy.  These tax cuts amount to a significant loosening of fiscal policy – effectively trying to get the economy to surge ahead.  At the same time the Bank of England is tightening monetary policy – damping-down the economy to control inflation.  On the 22nd September the Bank of England increased Base Rates by a further 0.5% to 2.25% – the highest level since 2008.  Further rises are expected, partly to counter the effects of the tax cuts announced.  Markets expect Base Rates to peak at 4.5-5.0% in mid-2023.

The new Government’s policy certainly seems a gamble given the present economic circumstances.  Time will tell whether it is inspired or insane.  

The NFUS is reporting that no 2022 BPS payments have yet been made in Scotland.  This is despite a Press Release in June from the Scottish Government stating that they would commence from 19th September.  There has been no announcement from the Government into the cause of the delay.

 

The 6th Woodland Carbon Guarantee (WCaG) auction will take place from midday on Monday 21st November to midday on Sunday 27th November 2022.  The application window to take part in the auction is open now and closes at 23:59pm on Sunday 6th November.  The budget available for the auction will be £10m.  Woodland creation projects accepted into the WCaG scheme have the option to sell Woodland Carbon Units (WCUs) to the government every 5 or 10 years for up to 35 years.  The government will buy the WCUs for an agreed guaranteed price that is index-linked for the life of the contract.  Prices have varied from £17.31 to £23.70 per WCU over the previous 5 auctions.  However, it is possible to sell the carbon credits on the open market at each verification point, meaning the scheme effectively puts a ‘floor’ in the market.  And after the 35-year contract ends, sales of WCUs will only be to the private sector.

In order to apply, applicants must first register their project with the Woodland Carbon Code (WCC).   The WCC verifies and records the amount of carbon, in the form of WCUs, a project will capture and have available to sell in the future.  The WCUs are recorded by the UK Land Carbon Registry and, although the code is UK-wide, the WCaG scheme is only available in England.  The WCaG scheme can be entered in to alongside woodland creation under Countryside Stewardship, the new English Woodland Creation Offer and the HS2 Woodland Fund, offering an additional income.  More information on the Woodland Carbon Guarantee scheme can be found at https://www.gov.uk/guidance/woodland-carbon-guarantee

The BPS payment rates for 2022 have been published by Defra.  The gross rates, which are now set in Sterling remain the same as in 2021, but the effect of the Agricultural Transition will see farmers receive less than last year.

The table below summarises this year’s rates plus those for the past two years.  It gives the gross amounts for 2021 and 2022 and also net amounts, which allow for the lowest Agricultural Transition ‘band’ (5% reduction in 2021 and 20% in 2022).  Larger payments will see higher reductions.  The % reductions have been increased again this year and are:

• Up to £30,000 – 20%
• £30,000 to £50,000 – 25%
• £50,000 to £150,000 – 35%
• Over £150,000 – 40%

Of course the majority of farmers in England will have already received a 50% advance on their payment, the remainder is due as normal in December.

The Agriculture Bill in Scotland (see other article) will not be introduced until the second half of the year at the earliest.  The Scottish Government has released its Programme for Government for 2022/23 (see https://www.gov.scot/publications/stronger-more-resilient-scotland-programme-government-2022-23/).  Neither the Agriculture Bill nor the Land Reform Bill is scheduled for the upcoming session – meaning that they will not appear until autumn 2023, or later.  There is no mention of an Environment Bill, which has also been promised, but legislation on Grouse Moor management will be introduced.  A freeze on rents (including lettings from private landlords) will also be part of the legislative package.  In agricultural terms, the Programme makes the statement that Government will ‘Explore capping and/or tapering base-level payments to release additional funding to meet the goals of our agricultural vision…‘.  It is unclear what this might mean in practice, but it suggests higher rates of capping could be introduced in the period to 2025.  The paper also reiterates the pledge that to ‘shift 50% of direct payments to climate action and funding for on-farm nature restoration and enhancement by 2025‘.

The new Prime Minister, Liz Truss, has chosen Ranil Jayawardena to be the Defra Secretary in her Cabinet.  He replaces George Eustice who held the post since February 2020 and was Farm Minister for some years before that.  Mr Jayawardena is the MP for North East Hampshire and has previously held a junior post in the Department for International Trade.  He appears to have little direct experience in farming or wider rural matters.  It is unlikely that the new Government will implement a significant policy change in farm policy – the shift from the BPS to public goods payments seems locked-in.  The new Defra Secretary’s past voting record shows he has not been a supporter of measures to reduce climate change.  This may see a change in emphasis in environmental policies. 

The junior Ministerial posts have also seen changes.  Mark Spencer replaces Victoria Prentis as Minister of State, with Ms Prentice moving to the Department of Work and Pensions.  It is assumed that Mr Spencer will take on the role of Minister for Farming but this had not been confirmed at the time of writing.  He comes from a farming background in Nottinghamshire and is the MP for the Sherwood constituency.  The two Parliamentary Under-Secretaries of State in Defra will be Trudy Harrison and Scott Mann.  The only person to remain from the team of a few months ago is Lord Benyon who retains his role as a Parliamentary Under-Secretary in the House of Lords.