Category: Policy & Business

Base Rate Cut

On the 1st August the Bank of England cut Base Rates by 0.025% to 5%.  This is the first reduction in rates since March 2020.  It comes as the headline inflation rate (CPI) for both May and June was exactly on the BoE’s target level of 2%.  However, most commentators believe that further rate cuts are unlikely until well into the autumn as the Bank is still worried about underlying ‘core’ inflation.  The vote for the August cut was narrow, with a 5 to 4 majority.  A return to the ultra-low interest rates of the period 2009 to 2022 seems very unlikely.  The market has priced-in rates settling in an band between 3% and 4% in the next two to three years (barring any further economic shocks).  

SFI 2024 Rule Changes

The RPA has made some changes to the SFI 2024 rules.  The most controversial amendment will be the removal of the ability to annually ‘upgrade’ and ‘add land’ to an agreement.

The ability to amend an agreement was previously allowed and was seen as one of the ‘selling points’ of the scheme; giving agreement holders more flexibility to increase their ‘ambition’ each year via a relatively simple procedure and the agreement still finishing after the original length of time.  Under the new rules, if agreement holders wish to apply for new actions or additional land they will have to apply for a separate agreement.  Whilst this does not prevent agreement holders from increasing their ‘ambition’ it will mean having multiple agreements to manage which will end at different times.  It is probable that agreement holders will be less likely to increase the land and actions under the scheme until the 3-yearly renewal; it seems a real shame this facility has been removed.

One exception to this new rule is for rotational actions; for these, the rules will remain the same – where agreement holders move a rotational action they will be able to;

  • increase the area entered into the action
  • decrease the area as long as it’s no less than 50% of the area entered for the first year of the action’s duration.

Other amendments to the SFI rules deal with how agreements will work when they include actions for both 3-years and 5-years.  The new terms and conditions state ‘the agreement is for a period from the agreement start date until the latest Action End Date’.  But it qualifies this by saying ‘where the agreement document specifies actions of varying lengths the terms of the agreement shall apply in respect of the relevant action from the date the action starts until the date the action ends’.  It goes on to say ‘the action will expire after the action end date and the relevant land shall no longer form part of the land described in the agreement‘.  We understand this to mean that where an agreement has actions which run for 3-years and 5-years, the land which is subject to 3-year actions will be ‘free’ to put back into another agreement once the 3-years has completed.

The ‘Management Control’ conditions have also been updated – ‘Management control is for the duration of the agreement or until the action end date‘.  So where an action runs for 5-years, agreement holders must expect to have management control of the land for 5-years.  This is something that prospective scheme applicants need to bear in mind as it is not usually possible to transfer an agreement to another person if, for example some or all of the land is sold or the tenancy on the land ends, and there’s a new tenant.  However, where this does happen agreement holders will need to email or write to the RPA as soon as possible.  The land will then be removed from the agreement.  The holder may have to repay some, or all, of the payments already received during the agreement year in which the transfer of land took place if they:

  • have not completed their selected SFI actions
  • have submitted their annual declaration for that year

Unlike previous schemes, the RPA will not apply additional financial ‘penalties’.  Once the RPA has removed the land from the agreement, the new occupier should be able to apply for an SFI agreement on that land.

All the updated terms and conditions and SFI scheme information can be found via https://www.gov.uk/government/publications/sustainable-farming-incentive-scheme-expanded-offer-for-2024

 

RLE1 Changes

The e-mail RLE1 service in England ended on 31st July.  As from 1st August, those wanting to make mapping changes to their land on Rural Payments can either use the digital service, called ‘Rural Land Changes’ on their RPA accounts, or use a paper version of the RLE1.  Rural Land Changes was introduced at the beginning of year with the aim of reducing the turnaround time for getting mapping requests complete.  Our article in January gives futher information on what can and can’t be done via Rural Land Changes (see https://abcbooks.co.uk/rural-land-changes/).

Tenancy Reform

A reminder that the succession rules under Agricultural Holdings Act (AHA) tenancies are changing as from the 1st September.  This is one of the changes brought in by the Agriculture Act 2020.  The previous ‘Commercial Unit’ test will be scrapped – this effectively meant someone could not take on the tenancy if they already had control of a large enough holding.  From the 1st September there will be three conditions for succession.  There are two ‘eligibility tests’ – firstly the potential successor must be a close relative to the previous tenant; secondly the successor must have derived their principal livelihood from the farm.  Then, the third condition is a ‘suitability’ test.  The person wishing to take over the tenancy must have the right level of experience, skills, financial standing and capability to take on the farm.  This test has been strengthened as a qui-pro-quo for the removal of the Commercial Unit test.

Budget Date & Spending Review

The Chancellor, Rachel Reeves, has set Wednesday 30th October as the date of the first Budget of the new Government.  There may well be some significant announcements on taxation and spending as the Labour administration has been keen to point out the poor state of the public finances it has inherited – with ‘hidden’ overspends seemingly now uncovered.

A comprehensive Spending Review has also been announced.  This will set Departmental Budgets for the next three years and, for Defra, includes the crucial decision on how much will be available for farming support.  Ms Reeves has stated that decisions for the first year of the Review, 2025-26 (i.e. 2025 farm payments) will be announced on the same day as the Budget.  This should start to provide some clarity on farm support for next year.  

UK-EU Relationship Under Labour

Following Labour’s election victory on 4th July, there has been a renewed focus on the UK-EU trading relationship and how it might evolve under the new Government. Whilst Labour has ruled out the UK rejoining the EU’s Single Market and Customs Union, below are a number of areas where, from an agri-food perspective, the UK-EU trading relationship could be improved.

  • Veterinary/SPS Agreement: since 2021, UK agri-food exports to the EU have faced stringent regulatory controls and checks, while similar checks on imports into the UK from the EU are gradually being implemented.  These controls, such as export health certificates and identity checks, are costly.  Labour has expressed a desire to pursue a Veterinary Agreement with the EU for over a year.  The impact of this agreement on reducing the regulatory burden depends on its nature.  If the UK dynamically aligns with EU legislation, most checks could be removed, but the UK would have no formal vote on the rules.  If the UK opts for equivalence, similar to New Zealand, checks would be reduced but still significant, and the UK would maintain control over its rules.  Importantly, a Veterinary Agreement would only cover a limited aspect of the wider Sanitary and Phytosanitary (SPS) requirements; issues such as plant health rules and phytosanitary requirements would not be included and would represent significant hurdles to trade.  Therefore, Labour is increasingly talking about a wider SPS Agreement with the EU, which has merit and should be pursued.  Again, there will be a trade-off between the degree of access to the EU Single Market and the control that the UK would have on the rules that apply to UK trade.  The EU will also have its own perspective and will be keen to avoid the UK ‘cherry-picking’ the parts of the EU Single Market that it would like unfettered access to.  An SPS deal would also benefit agri-food goods moving from GB to Northern Ireland.  Whilst a deal is achievable, its comprehensiveness and the extent of regulatory burden removal remain uncertain.
  • Mutual Recognition of Conformity Assessment: currently, UK products being exported to the EU (e.g. machinery) need EU-based certification to enter EU markets.  This can no longer be done by UK-based laboratories, and therefore, adds costs and complexity.  The UK could seek an agreement similar to those the EU has with countries like Australia and Canada, easing this burden.
  • Safety & Security Declarations:  post-Brexit, UK exporters must submit new export summary declarations to the EU to verify that such products do not pose risks.  The UK could negotiate an agreement to remove these requirements, similar to deals the EU has with Switzerland and Norway.  Again, this would require some alignment with EU rules and regulations.
  • Temporary Labour and Youth Mobility: new arrangements could allow UK performers and artists to work temporarily across the EU without complex visa requirements, addressing current bilateral challenges, but importantly, it would not be Freedom of Movement.  The UK could also establish reciprocal youth mobility agreements with EU countries, enabling young people to work temporarily in each other’s territories.  The EU had previously made labour mobility proposals but these were rejected by the Conservative Government.
  • Mutual Recognition of Professional Qualifications (MRPQs):  the UK and EU could encourage mutual recognition of professional qualifications, easing the movement of professionals between regions.  There will be difficulties here though as, within the EU, the competence for granting such recognition partly rests with Member States, so negotiations would be complex.
  • Linking Emissions Trading Schemes (ETS):  aligning the UK and EU’s carbon pricing systems could streamline processes and mitigate issues like the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes additional requirements on UK exports of carbon-intensive goods.  Whilst CBAM does not yet extend to agricultural goods, this could change in the future and from 2026, there is the potential to have charges levied on exports of certain industrial goods (e.g. fertiliser, steel and cement) to the EU.
  • Joining the PEM Convention:  the Pan-Euro-Mediterranean (PEM) Convention on preferential Rules of Origin (RoO) aims at establishing common RoO amongst member countries which currently include the EU, Turkey, the Ukraine and EFTA Member States.  This would allow the UK to consider inputs from other PEM members as ‘local’ for meeting RoO requirements in trade agreements, potentially simplifying trade processes.  However, there are difficulties as the UK-EU Trade and Cooperation Agreement (TCA) rules are different to the PEM Convention in some instances and these would require aligning.

Significant improvements to the UK-EU relationship are possible, but there will still be a trade-off between access to the EU Single Market and the UK’s control over its own rules.  Even with new arrangements, agri-food trade will face more friction than if the UK rejoined the EU Single Market and Customs Union, as some advocate.  Sir Keir Starmer is known for seeking incremental improvements and only considering radical changes if gradual measures fail.  Therefore, the Labour Government is likely to focus on the areas mentioned, leveraging the UK’s strengths in security and defence in negotiations with the EU.  A deal is achievable, though its comprehensiveness and alignment with EU regulations remain uncertain.

Defra Farm Viability Modelling

One criticism of Defra, from the National Audit Office (NAO), in the recent review of the Farming and Countryside Programme (see previous article) is the lack of transparency around farm viability modelling.  The NAO report makes public some of this modelling including the underlying assumptions.

The modelling is based on three scenarios;

  • Farm viability without direct payments
  • Without direct payments and with the introduction of new grant schemes
  • Without direct payments, with new grants schemes, and with productivity improvements.

The Defra scenario for productivity improvements assumes that less viable farms improve their productivity to match that of the 75th percentile of their peers with the same structural characteristics (e.g., the current top-25%).  These changes need to take place over seven years from 2021 to 2028.  Defra consider this to be a realistic scenario and assume that the reduction in BPS payments will be enough of a driver for farms to deliver a large proportion of the productivity improvement.  We would question whether these levels of productivity improvement are likely.  Our experience is that it is difficult for farms to make big jumps in productivity unless something fundamentally alters in the management of the unit.  

The modelling was conducted using data from the Farm Business Survey covering the 55% of farms which deliver 92% of agricultural output.  Very small farms are beyond the scope of the modelling

If all of the ‘less viable; farms achieve the productivity gains used in the scenario then 92% of farms are considered viable beyond 2028.  If only half of the ‘less viable’ farms make improvements in productivity in line with the top-25%, then 86% of farms would remain viable beyond 2028.

A table within the NAO document sheds more light on Defra’s modelling.

The Farming & Countryside Programme

The need to provide a clearer indication of the direction of travel with Environmental Land Management schemes, is one of seven key recommendations, made by the National Audit Office (NAO), to Defra.  The NAO is responsible for holding Government and the Civil Service to account over key policies.  The NAO published its value for money report on the Farming and Countryside Programme on 23rd July 2024.

The report assesses how the Programme is developed and managed, its ability to deliver environmental outcomes, food production, and secure a thriving farming sector, whilst assessing value for money.  The value for money metric is centred on value of the scheme to the taxpayer.  Providing good value for money will be imperative if the schemes are going to be supported by Government in the future.

There are seven key recommendations of the report;

  1. Ensure that the business case for the next phase (phase 3) of the programme includes a ‘comprehensive and realistic’ assessment of the funding needed to meet Defra’s objectives.  At present, the funding is based on what was available through EU CAP, not upon what Defra is trying to achieve.
  2. Use the business case to provide clearer direction of travel for support schemes.  The NAO especially highlights the need to provide detail on the split between funding for SFI versus other, more substantive schemes.  There is concern from the NAO that SFI could absorb too much of the budget whilst not delivering value for money to the same extent as schemes like Landscape Recovery.
  3. Strengthen the programmes’ environmental objectives, including setting targets for the ‘apex goal’ of delivering greater species abundance.  The report mentions that Defra have set objectives for the Programme.  However in some cases they lack sufficient data to assess progress against these objectives.
  4. Improve digital and data infrastructure to reduce reliance on legacy systems, which are due to expire in the coming years.
  5. Deliver a comprehensive and unified package of advice for farmers.  The report highlights the success of the Future Farm Resilience Fund in delivering business advice.  The advice has been valued by farmers.  However, the NAO feel there should be more advice targeted at delivering better environmental outcomes.
  6. Use existing feedback channels to understand better farmers’ capacity for, and response to, continued change.  This should centre on how change will impact engagement levels.
  7. Increase transparency to stakeholders around subjects like farm viability and land-use modelling.  More transparency is needed around Defra’s plans to increase the regulatory baseline and stop paying for certain actions as they become the industry standard. On the theme of value for money, the report points to the actions for IPM and Soil Management Plans, and the SFI Management Payment as delivering low value for money although it increases engagement with other actions.

The report also gives some key facts and figures about the Programme.

  • 35% of farmers don’t feel confident that Defra (and its ALBs) can deliver changes to its schemes and regulations
  • Only 48% of farms are not positive about their future in farming
  • 48% of farmers rate their satisfaction with SFI at 8/10 or higher; this figure rises to 81% for ratings of 6/10.  It will be interesting to see how this evolves for 2024, given further changes to the delivery
  • On average it takes 8 days to process an SFI application in 2024 (compared to several months for equivalent applications in 2021)

The full NAO report can be found at – https://www.nao.org.uk/reports/the-farming-and-countryside-programme/ .

 

 

New National Park: Scotland

The Scottish Government has selected Galloway as its preferred site for Scotland’s third National Park.  Galloway, which beat Lochaber, Loch Awe, Scottish Borders and Tay Forest, will be the subject of a consultation and if successful will become official by 2026.  If Galloway is approved, it will be the first UK National Park to be designated since the South Downs back in 2010.  There are currently 15 National Parks in the UK – 10 in England, 3 in Wales and 2 in Scotland; these are areas of countryside that also include villages and towns which have a separate Authority to help look after them, including responsibility for Planning.  Farming bodies have criticised the plan for the Galloway designation – fearing that recreation and conservation will be prioritised over farming and economic development.  

Nature-Friendly Farming Budget

A report commissioned by the RSPB, National Trust and the Wildlife Trusts reveals that the UK Government needs to significantly increase its ‘nature-friendly’ farming budget to meet climate and nature targets.  The report reveals that independent analysis has found that investment in nature-friendly farming needs to be £5.9 billion per annum if the UK is to meet its legally binding nature and climate targets and to improve the resilience of the UK farming sector.  The current agricultural budget is £3.5 billion of which the report estimates 20-25% is currently spent on agri-environment schemes.  The RSPB, National Trust and The Wildlife Trusts are now calling on the new Government to increase the overall agricultural budget and for  Defra and the devolved Governments to then increase investment in their ‘nature-friendly’ farming schemes.  The full report can be found at https://www.wildlifetrusts.org/sites/default/files/2024-07/Scale%20of%20Need%20Report%20July%202024%20FINAL.pdf