Category: Policy & Business

Trade & Agriculture Commission Report

The Trade and Agriculture Commission (TAC), the body set up to advise the Government on future trade deals, has published its ‘final’ report on 2nd March.  However, as the TAC will soon move onto a statutory footing, giving it a greater role in evaluating future Free Trade Agreements (FTAs), we will be hearing more from this body in the future.  This report, therefore, is likely to be the first of several.

The report itself is a well-polished document and sets out how much UK consumers are currently spending on food and drink (£46.60 per person per week in 2018/19), the volume of food consumed by food group, and the origins of food being consumed (55% of food consumed is grown and produced in the UK).  It also outlines the implications of leaving the EU, highlighting the disruption caused to devolved regions from friction on UK-EU and GB to NI trade as well as the changes in regulatory authority from the European Food Safety Agency to UK agencies.  It urges that these issues need to be resolved quickly.

The TAC proposes an overarching vision for UK agri-food which centres on having an ambitious trade policy that ‘contributes to a global farming and food system that is fair and trusted by all its participants, including farmers, businesses and citizens, from source to consumption’.  It also calls for food to be ‘safe, healthy, affordable, produced in a way which does not harm the planet, respects the dignity of animals and provides proper reward for those involved.’

Linked with this, the TAC suggests six guiding principles to develop a value-generating and values-driven UK trade policy. These are;

  • Promote the liberalisation of trade, to positively influence innovation and productivity, and price and choice for consumers
  • Prioritise a thriving domestic agri-food sector supported by complementary domestic and trade policies
  • Ensure that agri-food imports meet relevant UK and international standards on food safety and biosecurity
  • Match tariff-free market access to relevant climate, environment, animal welfare and ethical standards, remedying competition issues arising where permitted imports do not meet relevant UK and international standards
  • Lead change, where needed, to the international framework of rules on trade and relevant standards, to address the global challenges of climate change and environmental degradation
  • Support developing countries in accessing the full benefits of the global trading system.

The guiding principles reveal the balancing act that the UK is trying to achieve by liberalising trade on the one hand but safeguarding standards on the other.  The ambition of matching tariff-free market access over time provided standards can reach relevant UK/international requirements is arguably the most complex.  It suggests some form of ‘nuanced’ tariff system which could potentially add (yet) another layer of bureaucracy to an agri-food sector already struggling to implement the requirements of the UK-EU Trade and Cooperation Agreement (TCA).  Much will depend on how these high-level principles are implemented in practice as they are open to differing interpretations. 

The report sets-out 22 recommendations for the UK Government. These can be grouped into five areas;

  1. Develop a bold, ambitious agri-food trade strategy: aligned to a broader UK Food Strategy that would seek to provide a unifying logic and direction for all UK devolved regions, Government departments and industry stakeholders . It would also strike and appropriate balance between liberalising trade and safeguarding key standards. This is certainly something that the UK should aspire to. However, it is especially challenging given that the interests of UK Devolved regions looks set to diverge further as each implements its own agricultural policy and Northern Ireland remains subject to EU Single Market rules for agri-food goods.
  2. Provide international leadership on key issues such as climate change: the opportunities arising from hosting the G7 summit and COP26 this year should be grasped to show the UK’s leadership credentials not just on climate change but on animal welfare, labour rights, ethical trading and combatting anti-microbial resistance. One of the UK’s key objectives from COP26 should be to develop a more robust methodology to accurate net emissions from each farming sector (i.e. gross emissions less on-farm sequestration). 
  3. Continue to strengthen the UK’s approach to negotiating and scrutinising trade agreements: lessons from the TCA should be applied elsewhere.  Future trade deals need comprehensive impact assessments considering both UK-wide and devolved issues. These should also consider qualitative impacts where quantitative measures are lacking. Presumably, the TAC would play a key role here once its Terms of Reference have been agreed. 
  4. Enhance export promotion, market access and marketing: the TAC highlights the UK’s food ‘offer’ being one of quality, traceability, heritage, safety and high environmental and welfare standards.  It urges that opportunities to grow exports beyond the negotiation of trade agreement need to be embraced energetically by the UK Government.  Arguably, the UK is behind the likes of New Zealand, Netherlands and Ireland in this regard and such initiatives need to be embraced at the highest levels in Government if they are to make an impact in key markets such as China.  The TAC rightly highlights the potential offered by ‘heritage’.  Globally, consumers are increasingly seeking ‘experiences’ and authentic British produce is highly-regarded in many regions.  In this era of Covid-curtailed travel, food is a key means to experience another culture. The strong country associations of iconic products such as Stilton, Welsh lamb and Scotch beef have the potential to be a major source of competitive advantage.
  5. Align trade, aid and climate change policies relating to agri-food: so that these work together to strengthen UK relationships with developing countries over time, to diversify Britain’s food supply, support its food security goals and overseas economic development. Aligning these policies is worthwhile, but arguably this policy alignment should be wider and include domestic agricultural policy which was not given much emphasis by the TAC but is a crucial part of the policy framework.

The key difficulty for the TAC was that it was set-up in July. By then, negotiations with the US, New Zealand and Australia were already underway.  Recently, the TAC Chairman admitted that he had no visibility of how those negotiations are going.  This is a concern because what has already been negotiated with these countries, particularly the US, might contradict what the TAC is recommending.  The true litmus test will be the extent to which the UK Government and Parliament takes on board the TAC’s recommendations when concluding and ratifying FTAs with other countries.  Time will tell as to how much influence the TAC ultimately has in practice.  The report is accessible via:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/969045/Trade-and-Agriculture-Commission-final-report.pdf

SFI Pilot

Details have been published on the Pilot phase of the Sustainable Farming Initiative (SFI).  This gives a first indication of what this component of Environmental Land Management will look like in terms of payment rates and requirements.  However, this is just a stage in the development of the scheme and the final details may well alter.

Defra is looking for ‘several hundred’ farmers to take part in this Pilot phase.  The window to submit an Expression of Interest opened on 15th March and closes on 11th April.  Defra will select farms so that they get a representative sample across English agriculture.  Those selected will be notified by 24th May and will be asked to make a formal application from that date, with agreements set to begin in October.  Pilots are expected to run until 2024.  Details of how to register an Expression of Interest can be found via – https://www.gov.uk/government/publications/sustainable-farming-incentive-expression-of-interest.  The EOI is submitted through the Rural Payments system.

Those looking to apply must be currently claiming the BPS and have management control of the land until 2024.  The land to be entered into the Pilot must not be in an existing agri-environmental scheme (i.e. Countryside Stewardship – CS).  The idea seems to be to test the scheme with farmers who are not used to being in a scheme.  It also means there is no overlap with existing CS provisions.  It is intended that, when the SFI is launched in 2022 (see below) it will be available on land in existing CS agreements.   

For the Pilot there will be eight ‘Standards’, each with three ‘Levels’ – Introductory, Intermediate and Advanced.  The payments rise for the higher levels, but a greater level of intervention is expected.  The table below summarises payments and the actions required.  At present, payment levels are based on existing CS calculations.  These may change before the SFI 2022 is launched.  Payments will be monthly in arrears.  It remains to be seen whether this will be carried-over into the ‘proper’ SFI. 

 

It is possible to have more than one Standard operating on the same parcel of land (e.g. the Grassland Standard and the Grassland Soils Standard).  Different Levels can be chosen for different Standards – i.e. it is possible to enter as Introductory in one, whilst going for Advanced in another.  Other Standards are likely to be introduced in future – Peat soils, Unenclosed uplands (i.e. Moorland), Common land and Animal Health & Welfare.

Those looking at the actions in the table will see that there is still a degree of uncertainty on what is required.  Many of the prescriptions are currently vague e.g. ‘provide resources for birds and insects’, without giving details of what exactly needs to be provided and in what quantities.

Those entering the Pilot will be expected to provide Defra with information about how the scheme works.  It is estimated that this might take 10-15 hours per month.  There will be an expectation that a Land Management Plan will be drawn up over the lifetime of the agreement and that participants will take part in workshops, interviews surveys etc.  There will be additional payments (not yet disclosed) on top of the Standards payments to compensate for this.  There are also likely to be Capital payments under the scheme.  Although not stated, it seems likely that these will be similar to those seen under the present CS Capital Grants Scheme.  

What is learnt from the Pilots will help design the full Sustainable Farming Incentive scheme.  More information on the SFI2022 is promised for summer 2021.  It should open for applications in ‘mid 2022’.

For more details see – https://www.gov.uk/government/publications/sustainable-farming-incentive-scheme-pilot-launch-overview/sustainable-farming-incentive-defras-plans-for-piloting-and-launching-the-scheme

 

Budget 2021

The Chancellor, Rishi Sunak, announced the latest Budget on the 3rd March.  This included continued support for the economy to cope with the effects of the Covid-19 pandemic whilst making the first, tentative, steps towards rebuilding the public finances and starting the mammoth task of paying back the debt built up over the last 12 months.

The economic outlook is set to improve later this year as lockdown measures are gradually unwound.  The UK economy is forecast to have shrunk by 9.9% in 2020 – the largest contraction for 300 years.  The latest forecast from the Office of Budget Responsibility (OBR) indicates that the economy will rebound with 4% growth in 2021 followed by an increase of 7.5% the year after.  The  economic support provided during the Covid outbreak has generated wartime-like levels of deficits.  The UK is set to borrow £355bn in the 2020/21 financial year.  Even in 2021/22 it is forecast that £234bn will be added to the national debt – equivalent to 10% of the UK’s GDP.  It will take years if not decades for the country to pay this back.  All parts of the economy, including agriculture, will be expected to play their part in this and there may be tougher fiscal times ahead.  Indeed, as it is seen as a relatively ‘wealthy’ industry, farming may see a bigger squeeze that others. 

Some key announcements as they affect the farming industry are set out below;

  • The headline tax announcement was an increase in the rate of Corporation Tax from the current 19% to 25% – but only in April 2023.  The Chancellor is unwilling to raise taxes too fast, too soon, in case it chokes-off any economic recovery.  This increase is only for larger businesses with profits of over £250,000.  A Small Companies rate (which was abolished some years ago) will return, with profits up to £50,000 continuing to be taxed at 19%.  There will be a taper between £50,000 and £250,000.  Most farming businesses are still Sole Traders or Partnerships so this measure will not affect them.  However, those farming businesses which have incorporated tend to be the larger ones, so they may get hit by the higher rates.  
  • A new ‘Super Deduction’ Capital Allowance is to be introduced.  This will provide tax relief at 130% for any qualifying investment in plant and machinery for two years from 1st April 2021 to 31st March 2023.  The rate is normally 18%  This is effectively paying firms to invest and the idea is to stop firms hoarding cash which happened after the Financial Crisis and slowed the economic recovery.  This allowance is only open to incorporated firms however, which makes it far less useful in farming.  Lobbying is taking place to reverse this issue.  The ‘normal’ first year 100% Capital Allowances that are open to all types of business will remain at £1m for 2021/22.
  • Under Income Tax, the Personal Allowance and the Higher Rate Threshold will be increased to £12,570 and £50,270 respectively for the 2021/22 tax year.  These rates will then be frozen until 2026.  This is effectively a ‘stealth’ tax rise as, over time, the real-terms value of the thresholds is gradually eroded. 
  • The Nil Rate Band for Inheritance Tax will be frozen at the current £325,000 until 2026 (the Residence nil rate band will also remain fixed).  Similarly, the Annual Exemption for Capital Gains Tax is to be frozen at £12,300 until 2026.
  • Duties on alcohol, tobacco and fuel are unchanged for 2021/22.
  • The National Living Wage will rise 2.2% from £8.72 per hour to £8.91 on the 1st April 2021.  This above-inflation increase is an unwelcome extra cost for those parts of farming and horticulture that employ significant quantities of labour.  
  • Furlough (the Coronavirus Job Retention Scheme  – CJRS) whereby employees receive 80% of their usual salary will be extended to September.  Employers will have to contribute 10% of wages in July and 20% in August and September.  The Self-Employment Income Support Scheme (SEISS) will be extended for two more ’rounds’, also taking it through to the end of September.  The criteria will change which will open the scheme to the recently self-employed.
  • Bounce-back loans are to be replaced with a new Recovery Loan Scheme.
  • The waiver of Stamp Duty Land Tax (SDLT) in England and NI on properties below £500,000 with be extended to 30th June.  The threshold will then drop to £250,000 until 30th September before reverting to its usual level of £125,000.  There will also be Government support to promote 95% mortgages.
  • Retail, hospitality and leisure businesses (which will include some farm diversifications) will continue to have full Business Rates relief until the end of June.  Then two-thirds relief will be available through to 31st March 2022 – subject to limits for larger businesses.  There will be re-opening grants for leisure and retail businesses.  Also, the 5% VAT rate for hospitality will continue until 30th September and then 12.5% through until March 2022.

Farm Business Grant – Wales

The Farm Business Grant opened in Wales on 1st March.  This is the 8th Expression of Interest for the scheme which pays up to 40% towards the cost of specific capital items which have been pre-identified to improve the economic and environmental performance of the business.  Applications are made via RPW Online.  The deadline for EoI is 9th April 2021.

Further information is available via: https://gov.wales/farm-business-grant-rules-booklets

Welsh BPS

Applications

The 2021 Single Application Form (SAF) is available to complete via RPW online from 1st March in Wales.  The deadline for submission, without penalties, is 17th May this year as 15th falls on a weekend.  Applications can be submitted up to 11th June, but will attract penalties for each working day late.

Payments

The Welsh Assembly has announced it intends to make a BPS advance payment from 15th October.  This will be 70% of the anticipated final BPS 2021 claim value.  There will be no separate application for this.  Balance payments will be made from 15th December.

UK-EU TCA Implementation

The UK-EU Trade and Cooperation Agreement (TCA) is continuing to experience ‘teething problems’.  This is perhaps hardly surprising as the agreement (click here for summary) was only agreed on Christmas Eve, with implementation beginning just over a week later.  From an agri-food perspective, these difficulties primarily relate to the Northern Ireland (NI) Protocol and Sanitary and Phytosanitary (SPS) issues which are examined below. Rules of Origin have also caused upheaval, but this issue was examined in a previous article (click here).

NI Protocol

Goods shipped from GB to NI are now subject to EU customs and regulatory controls upon entry into Northern Irish ports (e.g. Belfast and Larne).  It was obvious that difficulties would emerge both in terms of logistics but also from a political perspective.  Although some grace periods are in place, varying from 3 to 12 months, many businesses were unprepared for the new regulatory requirements.  There were numerous reports of GB-based firms being simply unaware of the new customs and SPS requirements.  This caused substantial delays in some cases.  Given the difficulties which have arisen, there was a meeting on 18th February of the Joint Committee overseeing the implementation of the Protocol and NI business groups.  The UK Government was represented by Michael Gove whilst the EU Commission was represented by its Vice President, Maros Sefcovic.  NI business groups called for pragmatism and are seeking the following;

    • Grace period extensions: to permit traders to have a longer timeframe to adapt to the changes set out in the Protocol.  This, they claim, would help to reduce pressure on supply-chains and give greater certainty to businesses that trade between GB and NI.  
    • Veterinary agreement: between the UK and the EU to reflect the low risk involved as both parties’ standards are effectively the same, particularly on trade from GB to end-users in NI.

The veterinary agreement issue is examined in further detail below.  It remains to be seen what the UK and the EU will be able to agree on the NI Protocol.  Michael Gove had already called for a grace period extension until 2o23.  The recent appointment of David Frost (previously Chief Brexit Negotiator) to the Cabinet to oversee UK-EU relations, a role which will also cover the NI Protocol, will add an uncertain dynamic as the Gove-Sefcovic working relationship had functioned quite well.  It remains to be seen what the EU will offer, but it is obvious that businesses need significantly more time to adapt and that rising political tensions need to be quelled.

Sanitary and Phytosanitary Issues

There were minimal easements in the SPS area within the TCA.  This, in addition to the EU implementing its border controls fully from January, meant that UK exporters were suddenly faced with a substantial increase in paperwork with only a few days’ notice.  Some have reacted by limiting the number of consignments being shipped to the EU until they get a greater understanding of how the procedures work.  There have been reports of hauliers being unwilling to depart warehouses, processing plants etc. until the paperwork for each shipment is in order.  As a result, port traffic volumes are lower than normal.  Holyhead-Dublin volumes are at 50% of normal levels.  Dover-Calais volumes are also down, but some recent evidence suggests they have been recovering in comparison with the drops witnessed in January.  As freight volumes increase during the spring, as is traditionally the case, border control systems are going to be tested.  Especially as additional certification and checks will be required on imports into the UK from April and will become fully operational in July.

Already there is evidence of insufficient veterinary capacity at ports. This creates backlogs for shipments needing to undergo physical checks.  These are effectively the same as the levels of checks that countries trading with the EU on WTO MFN terms experience.  Such checks, when coupled with sampling in some instances, can result in significant delays and create a major risk of product value deterioration.

To address this issue and the difficulties arising from the NI Protocol, the prospect of a UK-EU SPS (veterinary) agreement has been mooted. Here, there are two potential options:

  1.  ‘Swiss-style’ SPS agreement: where the UK would align with, and follow, the EU’s standards as they evolve in future.  The Ulster Farmers’ Union (UFU) has stated that it would support such an arrangement. 
  2. New Zealand-style agreement: where physical checks on red meat shipments for instance will be lowered from 15% to 1% to reflect the low risk levels and high alignment in standards.

The EU has stated that a veterinary agreement is ‘on the table’, however, they would envisage this being based on alignment with EU standards (i.e. Swiss-style).  Given the importance that the UK placed on sovereignty during the negotiations, it is unlikely to opt for this approach, particularly with David Frost at the helm.  However, a New Zealand-style agreement might be viewed more favourably.  Whilst this will not obviate the need for some border controls, particularly on GB-NI trade, if these could be moved in-land for ‘authorised (trusted) traders’, it would reduce the visibility of such regulatory checks to a significant degree. 

Whatever form a potential veterinary agreement between the UK and the EU would eventually take, the UK will insist on having the right to diverge in the future, if it so wishes (e.g. to do a trade deal with the US).  In such a scenario, the UK would give a notice period (e.g. the EU-NZ agreement has a 6-month notice period) and it would then be likely that SPS controls would revert back to the current default, with some additional arrangements under the NI Protocol.

What is increasingly clear is that the UK-EU relationship will be continually subject to negotiations.  In effect, the ‘teething problems’ are more like a permanent toothache and will require constant attention to keep their impact to ‘manageable’ levels.  The appointment of David Frost to the Cabinet confirms this.  Therefore, one should not see the ending of the Transition Period in January as the ‘end of Brexit’, perhaps it is more like the ‘end of the beginning’ of the new era of UK-EU relations. 

Relinquishment & Assignation

New provisions for relinquishment and assignation come into force in Scotland at the end of February 2021.  This will enable a Tenant with an Agricultural Holdings (Scotland) Act 1991 tenancy to relinquish it before the end of the term to the Landlord for a payment.  The compensation payable by the Landlord will be calculated using the methodology as set out in the Act.  This will be half the difference between vacant possession value of the holding and the value of the land if sold with the Tenant in occupation.  Added to this is any compensation due to the Tenant for improvements, minus any money due to the Landlord for dilapidations.  If the Landlord does not want to buy the tenancy, the Tenant can assign it for an agreed value to a new entrant or progressing farmer.

The provisions were introduced as part of the Land Reform (Scotland) Act 2016 with the aim of assisting existing Tenants wishing to retire or quit the tenancy to do so whist at the same time help provide new opportunities for young people to enter farming.  The Tenant Farming Commissioner (TFC) must appoint a suitably qualified independent valuer to calculate the amount payable, to this end the TFC has drawn up a suitable panel from which Tenants and Landlords are able to nominate their preferred valuer.

Farming Innovation Pathways

UK Research and Innovation (UKRI) and Defra are launching the ‘Farming Innovations Pathways’ competition.  This is aimed at developing new and existing farm-focussed innovations to improve productivity, sustainability and address the challenges of delivering net zero emissions from UK agriculture.

The competition opens on the 1st March and will be delivered through the UKRI’s Industrial Strategy Challenge Fund; Transforming Food Production.  It will receive £12m of funding through Defra’s Future Farming and Countryside Programme.  Funding will be split two ways;

  • Feasibility projects (£5m) – to evaluate the potential of ideas and innovations a the early stages.
  • Industrial Research (£7m) – to develop and deliver transformative solutions to tackle problems that farmers are currently experiencing

Further information can be found via https://www.ukri.org/news/ukri-and-defra-to-launch-farming-innovation-pathways-competition/ 

Residential Evictions Ban

The ban on residential evictions has been extended for a further 6 weeks.  This means the the ban on bailiff evictions, which was introduced at the start of the pandemic to support renters during the lockdown, will be in place until 31st March and will be kept under review following this date.  Exemptions  to this remain in place for exceptional circumstances, such as illegal occupation, anti social behaviour and rent arrears of more than six months.  In addition landlords are currently required to give 6 month’s notice to tenant’s (usually 2 months) before starting possession procedures (except under the exceptional circumstances outlined above) meaning a notice served now will give renters until August to find new accommodation.

ELM Consultation Response

Defra has released an analysis of the responses it received to its consultation on the new Environmental Land Management (ELM) scheme.   In total there were 1,672 responses, giving a wide variety of viewpoints on how the scheme should be developed and in some cases amended.  The full analysis document can be found at https://www.gov.uk/government/consultations/environmental-land-management-policy-discussion-document#history.  Unsurprisngly, the biggest difference in responses was between farmers and stakeholders with an environmental and conservation focus.  The former being more concerned with ‘the importance of food production and ensuring the financial viability of farming in the UK’.

There were strong themes which came through in the responses including:

  • Widespread support for the design principles – but respondents would like to see enhancements in; environmental outcomes, inclusivity & fairness, flexibility & options and minimal complexity and admin
  • Scepticism as to whether the scheme as currently proposed will deliver the objectives – respondents said there was a lack of ambition and detail.  Areas which should be included within the principles or addressed by the objectives include; greater recognition of food production or of balancing environment and food production, ensuring sufficient financial support for participants and the inclusion of the principles of rewilding
  • The key barrier to participating – poor previous experience and the complexity and bureaucracy seen with past schemes
  • The main driver for participation – financial and easier application process.  There was evidence of a need for advice, particularly during the application process
  • Support for monitoring through self assessment – particularly for using photos and Apps for location and date tagging
  • Overwhelming support for testing and piloting the scheme – especially around payment & reward systems, outcomes and effectiveness, monitoring and ease of the application process.

Defra has also confirmed, in response to feedback, it is no longer using ‘tiers’ to describe the different parts of the scheme.  These will now be called ‘components’ and the full names will be used whenever possible;  Sustainable Farming Incentive, Local Nature Recovery and Landscape Recovery.  Likewise it will refer to ELM as Environmental Land Management as much as possible.