Category: Policy & Business

Trade Update

After a relatively quiet few months on the trade policy front, recent weeks have seen a resurrection of previous debates around the future long-term relationship that the UK should have with the EU as well as the impact of new trade deals that the UK is in the process of concluding.

Talk of a Swiss-Style Relationship

Following the Chancellor’s Autumn Statement, rumours emerged from Government circles of a change in approach towards the long-term relationship that the UK would have with the EU.  This would see it move towards something more akin to Swiss-style relationship.  This would mean accepting free movement, contributions to the EU budget, dynamic alignment with EU regulations for goods, and European Court of Justice (ECJ) oversight in return for being part of the Single Market.  Whilst some welcomed this, others claimed it was a betrayal of Brexit.

What many failed to acknowledge was that the EU is dissatisfied with how its relationship with Switzerland is structured as it requires more than 100 bilateral deals to replicate Single Market requirements and which constantly need to be renegotiated.  It is unlikely to want to replicate this with the UK.  In any event, the UK Government later denied that it was seeking to move to a Swiss-style relationship.

That said, and from an agri-food perspective, there is merit at looking at elements of the EU-Switzerland relationship and replicating aspects that make sense for both parties.  In previous articles, we have advocated a Swiss-style Sanitary and Phytosanitary (SPS) agreement with the EU, whereby the EU would permit frictionless access for UK agri-food goods in return for the UK dynamically aligning with EU regulations.  Whilst previous Tory administrations (i.e. under PMs Johnson and Truss) dismissed this approach, it would appear that the Sunak administration is at least considering it.

Such an SPS agreement would greatly assist UK exports to the EU, its biggest trading partner and it would also overcome key hurdles in the ongoing NI Protocol negotiations, which have shown some tentative signs of progress recently.  Whilst it would mean the UK mirroring EU laws, it would still leave scope, albeit more limited, for the UK to negotiate separate trade deals and trading arrangements, as the Swiss have done with the US.  The UK could also give notice (e.g. of one year) if it wanted to discontinue this arrangement. 

Overall, the talk of using existing templates in framing the future UK-EU relationship is becoming unhelpful.  The sooner a bespoke UK-style relationship emerges the better.  This could incorporate key aspects of other templates, but it will need to respect key EU principles, meaning that further negotiation is needed.  It will also need to incorporate the closer relationship that NI will have with the EU, as it is de-facto part of the Single Market for goods by virtue of the NI Protocol.

Eustice Attack on Recent Trade Deals

On 14th November, during a House of Commons debate on the Trade (Australia and New Zealand) Bill, the former Defra Secretary George Eustice severely criticised the UK Government’s negotiating strategy for both trade deals.  He singled out the then Trade Secretary, Liz Truss, for particular criticism, especially for imposing an arbitrary target of concluding negotiations with Australia ahead of the 2021 G7 summit.  He thought that this severely weakened the UK’s bargaining power.  Mr Eustice recalled that there were ‘deep arguments and differences in cabinet’, which were mirrored by friction between Defra and the Department for International Trade (DIT) during the negotiations.  He also claimed that the ‘Australia trade deal is not actually a very good deal for the UK’ and that he tried his best when Defra Secretary to address its shortcomings.  Specifically, he claimed that there was no need to give Australia (and New Zealand) unlimited access over the longer term for sensitive sectors such as beef and lamb.

From a farming perspective, it is all well and good to criticise the deal.  But during his time in Government, Mr Eustice defended it – his comments, therefore, offer scant consolation to farmers who perceive these deals to be a significant threat.  Both the Australian and New Zealand agreements will increase the competitive pressure on UK agriculture, particularly in grazing livestock.  However, recent studies looking at the impact of these trade deals projected that the impact may be lower than some fear.  That said, being the first new trade deals that the UK has negotiated from scratch since leaving the EU, they create an important precedent, and the cumulative impact of multiple trade deals can have a more significant impact. 

The UK-Australia trade deal was ratified by the Australian Parliament on 22nd November.  The Trade (Australia and New Zealand) Bill is making its way through Westminster.  It is currently at the Report Stage, where amendments can still be made to the Bill, before a final third reading and subsequent vote on the Bill in the House of Commons – the date of which has yet to be announced.  The House of Lords will also have to vote on the final Bill and they could delay it for up to a year before it would receive Royal Assent (assuming it is passed by the House of Commons).

Slurry Infrastructure Grant

The new Slurry Infrastructure Grant will open for applications in England on 6th December and close on 31st January 2023.  As previously reported, the grant will be available to livestock producers whose farming system already produces slurry i.e dairy, pigs or beef.  The grant is for replacing worn-out storage or expanding it so that six months’ worth of slurry capacity is available on the farm (based on existing livestock numbers).  It will also fund the fitting of impermeable covers on grant-funded stores – note, it is not possible to use this grant for covers only.  The types of slurry stores that are eligible include:

  • above-ground steel slurry stores
  • precast circular concrete slurry stores
  • earth bank lagoons without synthetic liner
  • earth bank lagoons with synthetic liner
  • stores using precast rectangular concrete panels
  • large volume supported slurry bags (over 2,500 cubic metres (m3))

New or expanded stores must be fitted with an impermeable cover unless a slurry bag is installed or acidification is used.  This will prevent rainwater from entering the store and reduce ammonia emissions.  Covers can be either fixed flexible covers or floating flexible covers.

Certain accessories will also be eligible for a grant, these include:

  • a reception pit
  • electric-powered slurry transfer pump
  • powered take off (PTO) or hydraulically driven chopper pump
  • galvanised steel pipework 100mm or 150mm diameter
  • polyethylene (PE) or equivalent pipework 100mm or 150mm diameter
  • under-floor transfer channels
  • slurry store wall or in-situ mixers
  • inspection platform with ladder for above-ground concrete and steel slurry stores
  • safety fencing for stores constructed below ground level, earth-bank lagoons and slurry bags

A full list of the items funded, including specification and grant contribution can be found at: https://www.gov.uk/government/publications/slurry-infrastructure-grant/item-specification-and-grant-contribution

The Slurry Infrastructure Grant is part of the Farming Transformation Fund (FTF) and will have a two-stage application process similar to the previous themes under this grant.  Initially there will be an Online Checker to establish eligibility and the equipment required.  It will be able to give prospective applicants an estimate of the amount grant that will be available to them.  To complete the Online Checker, applicants will need to know their current and future slurry storage requirements.  If successful after this stage, applicants will be invited to make a Full Application.  These will be shared with the Environment Agency who will conduct a location and design check.  This is to ensure that storage plans meet regulations and will reach at least 6 months storage.  If the full application is accepted, RPA will offer the applicant a grant.

The minimum grant per business is £25,000 and the maximum is £250,000.  Grants will be paid in arrears and it will be possible to make a maximum of three claims over the lifetime of the project.  However, all items must be paid in full before making a claim.  The way the grant is calculated differs from other themes previously available under the FTF as Standard Costs will be used (rather than actual costs incurred).  Grants will be based on 50% of the current Standard Cost of items.  This should make the application process simpler as it will not be necessary to obtain three quotes for each item.  In addition, applicants will be able to get an estimate of their potential grant at the Online Checker stage once they have entered their requirements to reach 6 months capacity, including any supporting items.

The grant is expected to be popular.  If it is oversubscribed in the first round, the RPA will prioritise projects in areas that require urgent action to reduce nutrient pollution from agriculture and restore natural habitats.  To find out more how Defra will prioritise applications see https://www.gov.uk/government/publications/slurry-infrastructure-grant/check-how-applications-will-be-prioritised.  For those that aren’t successful in the first round, Defra has said there will be future opportunities.

For more information on the Slurry Infrastructure Grant got to https://www.gov.uk/government/publications/slurry-infrastructure-grant

 

ELM Change

Leaked reports suggest that Defra is looking to amend its plans for Environmental Land Management (ELM).  This comes following the review of policy instigated by the previous Defra Secretary, Ranil Jayawardena.  The results were communicated in confidence to stakeholders under the Future Farming and Countryside Programme, but details have been widely shared.

The largest change is that the Local Nature Recovery (LNR) scheme will not go ahead and, instead, the existing Countryside Stewardship scheme will be retained and amended to meet future policy requirements.  There may also be changes to some of the planned Standards included under the Sustainable Farming Incentive (SFI).

As when the review of Defra policy was originally announced, there has been a chorus of protest at the (alleged) plans.  This often comes from environmental groups who are quick to see any change in policy as evidence as ‘backsliding’ on the environment.  It can also be pointed-out that having something to criticise raises the profile of such lobbying groups.  From a farming perspective, this change, if true, probably makes little difference.  The direction of policy travel in England is clear – no more direct payments and payments for public goods instead.  What a scheme is called is rather immaterial.  The name Local Nature Recovery was set to be dropped anyway as the word ‘recovery’ was seen as pejorative – suggesting that land managers had broken the environment and it needed to recover.  There is an argument that, if a scheme is working reasonably well (as CS generally is), then it is better to amend what is there than start with a blank sheet of paper.

A formal announcement on any changes is expected by the end of the year.

November Budget

The latest Budget was delivered by the fourth Chancellor of 2022, Jeremy Hunt, on the 17th November.  It was designed to put the Government’s finances on a sounder footing and reassure financial markets after the disastrous ‘Mini-Budget’ of Liz Truss’s premiership.   There is a mix of tax increases and spending cuts.  The main points are;

  • The Office of Budget Responsibility (OBR) predicts that the UK is already in recession.  This is defined as two quarters of economic contraction.  The initial estimate of growth in Q3 was -0.2% and the OBR is assuming that growth will also be negative in the current, fourth, quarter of 2022.  The forecast for 2023 is that the economy will shrink by 1.4%.  It will return to growth of 1.3%, 2.6%, and 2.7% in 2024, 2025 and 2026 respectively.  The OBR estimates that inflation will be 9.1% in 2022 and will still be at 7.4% in 2024
  • 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  
  • Top 45% Additional Rate of Income Tax will be paid on earnings over £125,140, instead of £150,000
  • National Insurance and Inheritance Tax thresholds are also frozen until April 2028
  • The National Living Wage for those over 23 will increase from £9.50 to £10.42 an hour from 1st April 2023 (a 9.7% increase)
  • Pensions and Benefits will be increased by September’s inflation rate – 10.1%
  • The annual exemption for Capital Gains Tax is to be cut from the current £12,300 to £6,000 from April 2023.  It will then fall to £3,000 the following year
  • The Household Energy Price Cap will be extended for a further year after April 2023 but at a higher level (average bills capped at £3,000 a year instead of £2,500).  There will be specific help for those on low incomes.  No further details were provided on support for non-domestic energy users after the end of March – a review is meant to report on future proposals by the end of the year
  • Electric vehicles will be subject to Road Tax from April 2025
  • The budget for infrastructure has largely been protected with the Sizewell C nuclear power plant, HS2, Northern Powerhouse rail and East-West rail projects all going ahead
  • Most Departmental spending has been frozen in nominal terms for two years – meaning significant real-terms decreases with inflation at 10%.   Exceptions to the spending squeeze are the armed forces and the NHS.

Scottish Conditionality

The Scottish Government will enact legislation to allow it to impose ‘conditionality’ on support payments.  The proposed Agriculture Bill, currently the subject of consultation, would provide these powers.  However, with the Bill coming before the Parliament until late 2023, it is unlikely to be in place for the 2025 year.  The Scottish Government has previously stated that ‘50% of farm payments should be subject to conditionality by 2025’.  Interim legislation will be passed to amend the Agriculture (Retained EU Law and Data) (Scotland) Act 2020 to allow this to happen.  This seems to make it all-but-certain that the new Scottish policy will not be introduced until the 2026 year.  The current regime of BPS (and LFASS), albeit with some modifications, will be retained through to 2025.

Soil Test Claims

Scottish farmers can now claim for their soil analyses.  This is part of the National Test Programme: Preparing for Sustainable Farming (PSF).  Claims for carbon audits opened in July and now farmers can also claim the cost of undertaking soil sampling.

Interest Rate Rises

The Bank of England increased the UK base rate by 0.75% on the 3rd November – the largest single rise since 1989.  This brings the rate up to 3% – the highest level since late-2008.  The rise is designed to combat high inflation which is now above 10%.  The Bank is also forecasting a long recession in the UK economy with a prediction that it will shrink for eight quarters in a row – starting in Q3 2022, going right through 2023 and into 2024.  This would be the longest recession in at least a Century.   Interest rates are rising in many major economies in response to inflation.  The US Federal Reserve Rate, the most important in global financial terms, was also increased by 0.75% to 4% on the 2nd November.

Environmental Targets

The Government has failed to set environmental targets in the areas of air quality, water quality, biodiversity and waste reduction.  Under the Environment Act 2021, legally binding targets were meant to be in place by the 31st October 2022.  Defra consulted on the issue earlier in the year, but the Department has said that the volume of responses to the consultation has meant it has taken longer than planned to enact the necessary secondary legislation.  No timetable for implementing the targets has been set out.  The targets, when in place, will drive policy which, in turn, will directly impact on farming over the longer-term.  More details can be found at –  https://questions-statements.parliament.uk/written-statements/detail/2022-10-28/hcws347.

Countryside Stewardship Facilitation Fund

The latest round of the Countryside Stewardship Facilitation Fund opened for applications on 7th November.  The Fund supports facilitators to bring together groups of farmers, foresters and other land managers.  Bodies such as farming and nature groups, charities, and farm advisors provide advice, share knowledge and help design schemes.  Farmers and land managers in the area then have complimentary CS agreements, with activities taking place across a much larger area than would be the case with a single farm.  Under the latest round, £2.5m will be available; applications need to be submitted by 25th January 2023.

This is the 7th round of the fund, already 180 groups with over 4,000 members have benefitted from the funding.  A further 40 groups are expected to be successful under this round.  Further information can be found via https://www.gov.uk/government/publications/facilitation-fund-2023-countryside-stewardship.

Junior Defra Ministers

Following the appointment of Therese Coffey as Defra Secretary of State (see https://abcbooks.co.uk/new-minister/), there hasn’t been too much change with the other Ministers in the Department.  Rebecca Pow has been reinstated as Parliamentary Under Secretary as from 28th October, following her resignation in July under the Johnson administration.  The Rt Hon Lord Benyon has been promoted to Minister of State at Defra on 30th October after previously being Parliamentary Under Secretary at the Department.  The other Junior Ministers retain their positions from under Liz Truss; Mark Spencer remains Minister of State (Minister of Food – but which also covers farming) and Trudy Harrison Parliamentary Under Secretary (Minister for Environment).