Category: Policy & Business

Delinking & Lump Sum

Defra’s response to the Delinking and Lump Sum consultation which closed on 11th August (see article https://abcbooks.co.uk/lump-sum-and-delinking/) has been delayed.  Defra was due to report in October, however it has announced this has ‘been delayed so we can fully consider the comments made by respondents’.  It now expects to publish the report ‘by the end of 2021’.  As the Lump Sum exit scheme is expected to be open in 2022 and is only supposed to be a ‘one-off’ this will give prospective applicants and their advisors very little time to get to grips with the detail and understand the rules. 

BPS Rates 2021

The BPS payment rates for 2021 have been published by Defra.  This is rather earlier than normal and bodes well for the early payment to English farmers from the 1st December.  The gross rates have increased slightly but the effect of the agricultural Transition will see farmers receive less than last year.

The calculation of entitlement values is done from scratch each year.  The sum of money under the BPS is fixed so the payment per entitlement tends to rise as slightly fewer entitlements are claimed each year.  The table below summarises this year’s rates plus those for the past two years (it also includes our forecast for this year which was fairly accurate).

Of course, payments  are being reduced as 2021 is the first year of the Agricultural Transition.  To recap, the deductions are;

  • Up to £30,000 – 5%
  • £30,000 to £50,000 – 10%
  • £50,000 to £150,000 – 20%
  • Over £150,000 – 25%

The bands work like Income Tax, so all claimants ‘only’ get 5% deduction on the first £30,000 of payment.  The final column of the table below takes off the basic 5% to get to a net figure.  However, larger claimants will have a lower ‘per Ha’ BPS this year.

The Budget

In his second Budget of 2021, the Chancellor, Rishi Sunak set out the Government’s tax and spending plans with the twin aims of stabilising the Government’s finances post-Covid and also promoting the ‘levelling-up agenda’.  Ahead of COP 26 in Glasgow there were also some nods to environmental action.  Much to the annoyance of the Speaker of the House of Commons, a large number of the headline measures had been announced in the Press beforehand.

The speech was more significant than usual.  Not only did it contain the normal Budget-type measures, it also contains the results of the Comprehensive Spending Review (CSR).  This sets Government Department’s budgets for the next three years.

As usual, the Chancellor set out the latest economic forecasts from the Office of Budget Responsibility (OBR).   These predict economic growth in 2021 will be 6.5%.  This is a sharp increase on the 4% forecast at the time of the Spring Budget – the OBR has concluded that the economic ‘scarring’ from Covid has been less severe than expected.   Growth in 2022 is put at 6.0% before falling to 2.1% in 2023.  With the economy shrinking 9.8% in 2020 due to Covid, it will be the middle of next year before activity returns to its pre-Covid level.  The biggest economic issue in 2022 looks set to be inflation.  The forecast for CPI is a rate of 2.3% for the current year.  For 2022 the OBR has a central forecast of 4% and it states there is a strong chance it could be as much as 5% – the highest level in three decades.

The main items of interest from a farming perspective (including some of the policies announced pre-Budget) are;

  • Under the CSR, Defra’s budget will rise 5.3% in real terms between 2021/22 and 2024/25.
  • As announced in September, there will be a new Health and Social Care Levy.  From April 2022 this will see the rates of National Insurance rise by 1.25% for both employers and employees.  This will apply to both Class 1 and Class 4 contributions.  From April 2023, NI will return to its current rates and the 1.25% will be collected by a separate levy (which will also apply to the earnings of state pensioners who are still working).
  • The taxation of Dividends will also rise by 1.25% on each of the three rates in April 2022.
  • The National Living Wage will rise by 6.6% to £9.50 per hour from the 1st April 2022.  Rates for those aged 21-22 will increase to £9.18.  Clearly, the rise in the NLW plus that in NI will make employment costs much higher from next spring.
  • The Annual Investment Allowance (AIA) for plant and machinery will remain at its higher level of £1m for an extra year until 31st March 2023.
  • Business Rates (in England) will be frozen and there will be a 50% discount for retail, leisure and hospitality businesses.  The wholescale review of the Business Rates system has been postponed.
  • The Shared Prosperity Fund (SPF) which is designed to replace EU Structural Funds (and an element of Rural Development funding) will finally be launched in 2022.  However, funding in the first year of £0.4bn will be substantially less than that previously received from the EU(£1.5bn).  There will also be no ring-fencing of funds for rural areas.
  • There was no announcement on major rail schemes such as HS2 or Northern Powerhouse rail which would have a big effect on landowners in the midlands and the north.  Details will be announced in the forthcoming Integrated Rail Plan.
  • There will be reform of alcohol duties including extending the small-producers’ relief to other products apart from beer (e.g. cider).
  • Fuel Duty has been frozen and there is no change to the Red Diesel rebate.
  • Various announcements were made on housebuilding including a new 4% additional tax rate on the profits of large housebuilding firms.
  • In terms of the environment, many previous pledges were reiterated in the Budget.  This includes designating 30% of England’s area for nature by 2030 (’30 by 30′) and funds for tree planting and peat restoration.  Interestingly, as well as Government money, there is a new target to raise at least £500 million in private finance to support nature’s recovery every year by 2027 in England, rising to more than £1 billion by 2030.  This will be supported by a range of measures, including £30 million public investment in a Big Nature Impact Fund, as well as £140 million to assess the extent and condition of the country’s natural habitat.

More details are in the Budget documents available here – https://www.gov.uk/government/publications/autumn-budget-and-spending-review-2021-documents

Net Zero Strategy

Ahead of COP 26, the UK has set out how it will deliver on its commitment to reach net zero emissions by 2050.  The Net Zero Strategy:Build Back Greener sets out plans across all sectors of the UK economy and whilst the headline news was the £450m Boiler Upgrade Scheme, within it there are measures which will obviously affect agriculture.

Chapter 3vi- Natural Resources, waste and F-gases is the most significant for farmers, foresters and land managers.  But instead of measures to cut meat and dairy as previously recommended by the Climate Change Committee and the National Food  Strategy, the emphasis appears to be on getting farmers to sign up to the new ELM scheme, improve efficiencies in the sector, restore peatlands and increase the planting of woodlands.

A key commitment is to have 75% of farmers in England engaged in low carbon practices by 2030, rising to 85% by 2035.  The main vehicle for this is seen as Environmental Land Mangement (ELM) with its three components.  Other proposals and policies in the Strategy refer to ‘a range of measures to decarbonise the agriculture’, many of which readers and farmers will be familiar with:

  • Animal Health and Welfare Pathway – to improve the heath and reduce emissions from animals, including action to eliminate bovine viral diarrhoea.
  • Farming Investment Fund – grants to invest in equipment, technology and infrastructure that will improve profitability.
  •  Grants for new slurry stores, equipment and other interventions – delivering reductions in nitrate and ammonia pollutants from slurry
  • Farming Innovation Programme – see earlier article
  • Support for agroforestry.

Perhaps something in the Strategy which has not been discussed as much as those measures above is  the Government working in partnership with the sector to develop new outcome-focused approaches to regulation and enforcement which supports Net Zero.   The Strategy uses the example of feed additives with methane inhibiting properties.  It says the Government is ‘actively investigating the promising role these products may have’ and is ‘assessing whether regulation could ensure maximised take up of such products’.

With regards to manufactured fertiliser, the potential of regulation to reduce and better target use is being explored, including whether new legislative powers are required to improve soil and nutrient management.  The recommendations from the Nutrient Management Expert Group, due to report in 2022, will influence this.

Also perhaps new, is the idea that the Government will ‘continue to review potential carbon pricing strategies for land use sectors, including the potential role for voluntary or compliance carbon markets’, is this suggesting carbon quotas?

Other policy proposals include, at least 35,000 hectares of peatlands in England being restored by 2025 rising to 280,000 hectares by 2050 and a new Biomass Strategy to be published in 2022 to see how best perennial energy crops and short-rotation forestry can be utilised to achieve net zero.

The full publication can be found at  https://www.gov.uk/government/publications/net-zero-strategy

Agricultural Wages Order Wales

The Welsh Government has launched a consultation into amendments to the proposed changes to the pay and conditions of agricultural workers.  The original proposed changes were consulted on in October 2020, but the Agricultural Advisory Panel for Wales has determined amendments should be made to these.  Futhermore, it has decided these amendments are sufficiently different to the ones originally consulted on so that a further consultation is required.  The amendments are to the wording of proposed grades in the new grading structure.  The new wording and the full consultation can be found via https://gov.wales/agricultural-wages-order-2021-2022-html   Responses to the consultation need to be submitted by 19th November 2021.

 

 

 

UK / New Zealand Trade Deal

The UK and New Zealand have announced an agreement in principle on a Free Trade Deal (FTA).  The deal, announced on the 20th October, is similar in nature to the UK-Australia trade deal announced back in June.  Like the Australian FTA, the UK-NZ FTA agreement-in-principle is subject to further negotiations on the legal text.  Whilst there is an eventual aspiration to fully liberalise agri-food trade, there are adjustment periods for several agri-food products which the UK deems to be sensitive.  These include;

  • Beef: access would be limited by tariff rate quota (TRQ) in the first 10 years. This would commence with access to a duty-free transitional quota of 12,000 tonnes in year 1, rising in equal instalments to 38,820 tonnes in year 10.  Any beef imports above the annual TRQ allowance would be subject to the UK Global Tariff (UKGT).  In the subsequent 5 years (year 11-15 after entry into force) a product-specific safeguard will be applied on any beef imports exceeding a further volume threshold rising in equal instalments to 60,000 tonnes.  All tariffs would be eliminated from year 16 onwards. 
  • Lamb: access would operate in a similar manner to beef although tariff-free TRQ access would be managed in a series of step-changes as opposed to annual incremental increases.  In years 1-5, an additional 35,000 tonnes per year could be imported tariff-free.  This, of course, is in addition to the 114,000 tonnes of the WTO TRQ that New Zealand has historically had available.  During years 5-15, the tariff-free access will increase to 50,000 tonnes per annum followed by unlimited access in year 16.  Importantly, trade via the FTA TRQ can only commence once utilisation of the WTO TRQ has reached 90%.  Any imports exceeding the FTA TRQ will be subject to the UKGT tariff rate. 
  • Dairy: similar structures will also operate for dairy products with unlimited access being phased in over 5 years.
    • Butter: initial duty-free TRQ of 7,000 tonnes rising to 15,000 tonnes in year 5.
    • Cheese: there will be an initial duty-free TRQ of 24,000 tonnes in year 1, increasing incrementally to 48,000 tonnes in year 5.
  • Fresh Apples: given the seasonal nature of production in both countries, tariffs on imports into the UK from 1st January to 31st July would be eliminated as soon as the deal comes into force.  Imports during August to December will be liberalised over 3 years.  During this time, there will be a tariff-free TRQ of 20,000 tonnes per year.  All fresh apple imports from NZ would then be tariff-free and quota-free from year 4 onwards. 

Elsewhere, the deal is ambitious with respect to trade facilitation and the minimising of customs procedures in particular.  There are ambitions to promote e-certification where possible.  Whilst Rules of Origin (RoO) for agri-food remain quite standard (i.e. a threshold of 15% of products traded can be non-originating from the country of origin (i.e. UK or NZ) in order to gain tariff-free access, the RoO for automotive vehicles (25% originating materials as opposed to the standard 55% threshold) will become much more liberalised.  This is seen as a big gain for the UK, given the extent of its integration with EU supply-chains.  The agreement also seeks to reduce barriers in the Sanitary and Phytosanitary (SPS) area.  Both countries are to recognise equivalence where both countries have similar standards. 

Overall, it is evident that the market access offered to NZ suppliers is significant and that agri-food has been used by UK negotiators as a means to open up access in other areas (e.g. automotive and services).  It can also be seen that the Australian FTA announced has become an important precedent for future trade deals.  Taking both the NZ and Australian trade deals together, significant competitive pressure will be exerted on domestic British producers and traditional suppliers from the EU, particularly Ireland.  Looking at beef for example, in year 1 both countries could theoretically export 47,000 tonnes of beef to the UK, rising to 148,820 tonnes in year 10.  By year 15, their tariff-free access will have reached 230,000 tonnes, significantly surpassing recent year’s imports from Ireland into GB (just over 200,0000 tonnes).

That said, it must be acknowledged that both Australia and NZ are heavily focused on the Asia-Pacific market in recent years and imports of NZ lamb have been nowhere near their TRQ allowances of late.  Things could of course change in the future, particularly given the geopolitical tensions between Australia and China.  The UK will be seen by Antipodean suppliers as a high value and dependable market.  British agriculture needs to prepare for this increased competitive pressure which is likely to become more pronounced as future trade deals (e.g. an updated FTA with Canada) are agreed.  More information on the UK-NZ FTA is available via: https://www.gov.uk/government/publications/uk-new-zealand-free-trade-agreement-negotiations-agreement-in-principle/uk-new-zealand-fta-negotiations-agreement-in-principle

New Trade and Agriculture Commission

On 21st October, the Government announced a new Trade and Agriculture Commission (TAC) as part of its response to the previous TAC’s report recommendations in March (click here for summary). It will be chaired by Lorand Bartels, an International Law Professor. The other members of the new TAC are;

  • Robert Anderson
  • Gracia Marin Duran
  • Catherine McBride
  • Jim Moseley
  • Cedric Porter
  • Meurig Raymond
  • Kate Rowell
  • Shanker Singham
  • Sir Lockwood Smith
  • Andrew Swift
  • Nick Von Westenholz

Three of the members (Shanker Singham, Sir Lockwood Smith and Nick Von Westenholz) sat on the previous TAC.  The new TAC’s role will be to inform Parliament about the implications of each Free Trade Agreement (FTA) on UK laws (i.e. environmental protection, animal welfare and food standards) and for the wider agri-food industry.  It will also provide input into a Government report to be provided to Parliament ahead of the ratification of each trade deal.

In addition to the new Commission, the Government also announced a new cohort of international ‘agri-food attachés’ who will work around the world to promote UK food and drink export opportunities and provide market intelligence and technical expertise.  It also announced that there will be a new Food and Drink Export Council to work in collaboration with industry and the devolved governments to promote exports from all parts of the UK.

The Government claims in its response that it reconfirms the maintenance of the UK’s high standards as a red line in all trade negotiations, particularly in terms of environmental protection, animal welfare and food standards.  Any deal we sign with other countries will include protections for the agriculture industry, and we have a range of tools to defend British farming against any unfair trading practices.

Whilst the Government might claim that the new TAC is strengthened, it took several months for its response to the first TAC’s report to be published.  In the meantime, two free trade agreements-in-principle have been reached with Australia and New Zealand.  This has raised questions about how much influence the new TAC will have in practice.  In any case, the true litmus test will be the extent to which the UK Government and Parliament takes on board the new TAC’s recommendations when ratifying FTAs with other countries.  Many in the industry are skeptical on this.  Further information on the Government’s response to the previous Trade and Agriculture Commission’s report is accessible via;

https://www.gov.uk/government/publications/government-response-to-the-final-trade-and-agriculture-commission-report/government-response-to-the-final-trade-and-agriculture-commission-report

Early Welsh BPS Payments

The Welsh Government paid the vast majority of farmers an advance of 70% on their 2021 BPS payments on the 15th October.  Around 97% of claimants received the advance.  The balancing payments will be sent from the 15th December.

SFI Pilot

Defra received 938 applications for the SFI Pilot.  Whilst this is down on the 2,000 farmers who expressed an interest, Defra is pleased with the overall numbers which apparently provide a good spread of farm types, sizes and locations.  Applications will be contacted over the next few weeks once their agreements are ‘live’ on the RPA portal.  They will then have 15 days to accept them or request amendments.  Agreements will start from the 1st November (apart from those with land coming out of Stewardship, which will be 1st January).  Payments are being done on a quarterly basis so the first agreements will see initial payments in February.

CO2 (and Fertiliser)

It is reported that the fertiliser producer, CF Industries, will continue to operate its plants in the UK after buyers of carbon dioxide (CO2) agreed to pay higher prices.  The deal operates until January.  This means that ammonium nitrate manufacture will continue for at least the next couple of months (ironically as a by-product of Co2 production).  Although this eases some of the concerns about availability, fertiliser prices are likely to be high given gas prices.