Category: Policy & Business

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.

Farming Apprenticeships

Two new farming apprenticeships have been created by the AHDB.  The General Farm Worker and Livestock Unit Technician will be available at levels 2 and 3 respectively.  They join three other agricultural apprenticeship schemes already set up by the AHDB – Crop Technician, Stockperson and Packhouse Line Leader.  The General Farm Worker course, in particular, is a response to industry calls for trainees to have a wider set of skills.  The AHDB is looking to develop a sixth course at level 4 for Farm Managers.  For more details see – https://ahdb.org.uk/trailblazer-apprenticeships

English Farm Support

We have updated our English Agricultural Policy Summary leaflet.  The latest version can be found under the ‘Bulletins’ tab at the top of the page, titled Agricultural Policy Summary February 2021.  We will continue to update this as and when new information becomes available.