Category: Policy & Business

The RPA has simplified the penalty process where an over-claim has been made for BPS in 2020.  In 2016, the EU introduced a ‘yellow card’ system for over-claims whereby first time offenders had their penalties reduced, but then increased if found to over-claim in another year.  The RPA deemed this too complicated for claimants to understand and for their IT systems to administer.  Therefore for 2020 where the over-claim is;

• Up to 2 hectares or 3% of the area determined, no penalty will be applied
• >2 hectares or between 3 and 10% of the determined area, the penalty will be 0.75 times the difference of the over-claim
• >10% of the area determined, the penalty will be 1.5  times the difference of the over-claim

The RPA has updated page 104 of the 2020 BPS Guidance to reflect this change https://www.gov.uk/government/publications/basic-payment-scheme-rules-for-2020?utm_source=edeac403-3ee5-4418-8f29-122329994f4a&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate#history

The Welsh Government has confirmed its intention to press ahead with the Sustainable Farming Scheme as the centre-piece of its post-CAP farm support.  However, the new system will be designed and introduced only slowly over the next few years.

The Government has published its response to the analysis of the ‘Sustainable Farming and Our Land’ consultation.  This can be seen at https://gov.wales/sites/default/files/consultations/2020-07/our-response-sustainable-farming-and-our-land.pdf.  It has outlined the next stages of development;

• economic analysis of the Sustainable Farming Scheme (SFS) will be undertaken.  The findings of this will be published next summer and no final decision on scheme design will be made before this analysis is available.
• there will be a transition period from the current BPS to the new arrangements.  The Government has already stated that the BPS will continue in its present form for the 2021 claim year (see December Bulletin).  There is no indication of when the transition will start and how long it will take.  
• a Agriculture White Paper will be published before the end of the year.  This will pave the way for an Agriculture (Wales) Bill which is due to be introduced during the sixth Senedd term.  As this is after the next national elections in May 2021, there is a chance that a new administration will be in place with different policy priorities.  

The RPA has announced that those struggling to get a Countryside Stewardship (CS) Mid-tier application submitted by 31st July deadline can ask for an extension.  It recognises that, in particular, agents working on a number of applications are finding it is taking them longer to gather all the information required because of Coronarvirus restrictions.  In such cases, it is possible to email the RPA at [email protected] by 31st July to request an extension.  The email subject heading should be ‘CS 2020 Mid-Tier application extension’ and details of the application, such as business name, SBI and application number should be included.  No specific evidence is required as to why the application cannot be completed on time.  It is possible to phone the RPA helpline (03000 200 301) if email is not possible.  Once the RPA have been informed, this will give the applicant until midnight on 31st August to get their Mid-tier submission in.  The extension does not include the four simplified CS Wildlife offers; the deadline for these remains 31st July.

The Government has announced a package of measures designed to assist with the recovery from the Coronavirus pandemic.  This ‘Second Phase’ is about stimulating the economy as it reopens after lockdown – it comes after ‘First Phase’ schemes such as furlough and business grants that were designed to limit the immediate damage of the lockdown.  There will be a Third, ‘rebuilding’, phase – likely to be the focus of the Chancellor, Rishi Sunak’s, autumn Budget, probably held in October.  The Government has made little mention of what might be the ‘Fourth Phase’ – paying for all these measures.  This package alone amounts to £30bn worth of spending promises.  

The measures, announced in a ‘mini Budget; on the 8th July, were targeted at jobs – particularly in the hard-hit hospitality sector.  They included the following;

• a reduction in VAT from the standard 20% to 5% for food and non-alcoholic drinks purchased in restaurants, bars, pubs cafes etc.  The reduction applies from 15th July to 12th January 2021.
• VAT on the provision of accommodation and entrance to attractions will also be cut to 5% for the same period.
• there will be a ‘Eat Out to Help Out‘ scheme.  Meals and non-alcoholic drinks will be subject to a 50% discount from Monday to Wednesday through the month of August at participating establishments – up to a limit of £10 per head.  The Government will reimburse restuarants, pubs etc. for the full cost of the 50% discount.
• a Job Retention Bonus of £1,000 will be paid to employers for every furloughed employee that is kept on until the end of January 2021
• a Kickstart Scheme will offer 16-24 year olds 6-month work placements.  The Government will fund 100% of the relevant minimum wage cost.  There will also be increased funding for Apprenticeships, the Careers Service, Traineeships and other job-support measures.
• a Green Home Grant will provide funding up to £5,000 per dwelling for homeowners and landlords to make energy-efficiency improvements.
• there will be a temporary increase in the nil-rate band of Stamp Duty Land Tax (England and NI only) from £125,000 to £500,000.  This runs from 8th July to 31st March 2021.
• there was the usual announcement of infrastructure spending (although, also as usual, it was difficult to work out how much was new and how much was the recycling of existing annoucnments).

Full details of many of these initiatives is awaited.  For any diversified farm business, the VAT reductions might be useful.  There may also be opportunities within the employment schemes to find new staff members at reduced cost and within the energy efficiency grants.   The Government’s full announcement can be found at – https://www.gov.uk/government/publications/a-plan-for-jobs-documents.

The UK has nominated Liam Fox to head the World Trade Organisation (WTO).  Dr Fox was previously Trade Secretary and is a committed Brexiteer.  He famously stated that the trade deal between the UK and EU would be ‘one of the easiest in history’.  The WTO is looking for a new Director General to replace the Brazilian Roberto Azevedo.  The organisation is widely believed to need a new impetus as it has been damaged by the rise in global protectionism and especially the Trump administration’s hostility to it.  Other candidates have been put forward from Mexico, Kenya, Saudi Arabia, Nigeria, Egypt, South Korea and Moldova. Dr Fox is considered an outsider in the race.  With the UK embarking on an independent trade policy free of the protection/shackles [delete as appropriate – Ed] of EU membership, a strong, rules-based, international trading system is very much in our interest.  Having ‘one of our own’ in the top position would be no bad thing either.

 

A new body is to be set up to protect UK food standards under future trade deals.  Liz Truss, the Minister for International Trade, announced on the 29th June that the Government had agreed “in principle” to set-up a Trade and Agriculture Commission.  This would advise Ministers on the UK’s approach to post-Brexit trade agreements.  Whilst it must be highlighted that any recommendations this body puts forward would be advisory only, and is intended to be time limited, the development was widely welcomed in the agri-food sector.  The Commission’s key areas of focus include;

• Consider what policies the Government should adopt in free trade agreements to ensure that British farmers do not face unfair competition and that high animal welfare and production standards are not undermined.
• Consider how the UK should engage at WTO level to advance higher animal welfare standards more globally.
• Reflect consumer interests and those of developing countries.
• Develop trade policy to open up new export opportunities for UK agrifood which benefits the wider economy.

This is seen as a success for the lobbying activities of farming bodies such as the NFU.  It is also a win for Defra; despite the Commission being set up under the auspices of the DIT, Defra has been arguing strongly for the implications of trade policy on agri-food to be recognised in policy-making. The critical issue will be who will be participating in this body, its precise terms of reference, and the extent to which the Government takes its views into account.  Commissions have been set-up in the past to great fanfare but have a chequered record in terms of their influence.  That said, it is vital that the UK agrifood industry engages constructively with this body and to ensure that its voice is heard loudly when new agreements are being negotiated. 

A new farming qualification is being developed as part of the new T-Level qualification.  T-Levels will be one of the three major options available to students aged 16-19 alongside A-levels and Apprenticeships.  A consultation has been launched by the Institute for Apprenticeships and Technical Education focused on the content of the course, which is expected to include crop production and livestock husbandry as well as floristry, habitat management, horticulture, land-based engineering and forestry.   T-Levels will be for two years with 80% classroom-based learning and 20% industry placement and will be equivalent to 3 A-levels.  The aim of the course is to try and attract more young people into agriculture as the average age of farmers increases to 60 years.

Those who made a BPS claim in 2019 in excess of €2,000 should be receiving a reimbursement shortly via the Financial Discipline Mechanism (FDM).  The rate being used for 2019 is 1.371% (1.346% in 2018).  The RPA calculates the reimbursement by taking the 2019 payment, deducting the first €2,000 and any other reductions (i.e. for a late claim), but not cross compliance penalties.  This figure is then multiplied by 1.371% and any cross compliance penalties are deducted to give the final amount.  Payments will start hitting bank accounts from 1st July.  This is considerably earlier than the usual September payment date.  Remittance advice slips will be sent with ‘FDM Reimbursement’ on them once payment has been made.

Financial Discipline is the mechanism which the EU allows for a crisis reserve to be available to the farming industry if required for such things as a disease outbreak, but without exceeding the European budget.  Each year a percentage is removed from the BPS across all Member States, called Financial Discipline.  If the FDM fund is not all used to relieve a crisis it is paid back to those with an eligible claim in the following year.  This refund is being paid to eligible 2019 claimants from the 2018 FDM fund.  In the future, (post Brexit) Financial Discipline will not deducted from payments.

Recently we have received a few queries regarding future farm support in England and in particular how this might affect agricultural lettings.  We therefore thought it might help readers if we refreshed what we do know and also highlighted possible problem areas.

The Agricultural Bill has passed through the House of Commons and is now in the House of Lords.  It is expected to become law by the end of the summer, without many amendments, particularly surrounding the future support mechanisms contained within it.  The Bill, however, only sets out the Government’s ‘broad powers’, it does not give details of how the powers will be used.  A consultation on how changes in support will be enacted (especially the phase-out of the BPS) is expected in the Autumn, with some commentators expecting something from Defra by September.

Agricultural Transition

We do know direct support (the BPS) will be phased-out from 2021 to 2027 (Agricultural Transition) and replaced by the Environmental Land Management (ELM) scheme, together with other schemes to help increase farm productivity, animal welfare and support for Producer Organisations.  There has been quite a lot of lobbying to delay the start of the Transition by one year, but Defra appear to be resisting this and as this date is included in the Agriculture Bill it looks set to commence next year.  This will mean in 2021 we expect to have a direct payment scheme similar to the current BPS but payments will be reduced as follows:

Currently we only know the deductions for 2021.  It is hoped the consultation later in the year may shed some light on future % reductions.  Our view is that as the ELM scheme is not due to be launched until 2024, the deductions in the first few years could be relatively slow.  These could then increase more sharply as funds are redirected/required for the ELM scheme later in the Agricultural Transition.

De-Linking

This is a mechanism that breaks the link between receiving support and occupying agricultural land.  Once support is de-linked a farmer could double the size of their holding, or stop farming completely – they would still get the same future stream of income tapering-off to 2027.  It effectively gives the claiming business a right to the future support.  The key point is that it will be based on what the claimant received in a ‘reference year’ (or years).  The reference year is not yet known and this will determine who gets the support through to 2027.

De-linking will definitely happen, it is written in the Agricultural Bill, but it cannot happen before the 2022 claim year.  So we are expecting the 2021 scheme structure to be similar (or the same) as the 2020 scheme year with entitlements, which presumably can be traded.  

The closer the reference year is to de-linking the less ‘problems’ there will be due to changes in business structures or land occupation.  It would therefore seem logical for it to be 2021, but earlier dates or even a range of dates is possible.  The EU has usually used a date before any announcement has been made so that people cannot ‘profit’ from the system.  There is likely to be force majeure and business change provisions similar to those which operated when the Basic Payment was introduced – but details of these are also unknown.   

Any Tenancy Agreements written pre-2019 are unlikely to have any clauses in them which deal with de-linked payments.  If a Tenant has made a BPS claim which included the reference year, the right to the future income stream would become vested in the Tenant.  If the Agreement is brought to an end during the Agricultural Transition the Tenant would still have the right to receive the de-linked income stream and the land may not have any ‘support’ for the incoming Tenant.  Of course the incoming Tenant may have some ‘support’ to ‘bring’ with him, and so we can already see the problems with what rent level can be asked or what price Tenant’s will be prepared to pay – every situation could be different.

Those preparing agreements this autumn will need to ensure they contain clauses to try and protect the Landlord’s position in case 2021 is the reference year, so that he/she can offer the right to receive future support along with the land for incoming Tenants.  If 2019 or 2020 turns out to be the reference year then it may already be too late.

Lump-Sum

This must not be confused or ‘bundled-up’ with de-linking.  It is the idea that the future stream of income from de-linked payments is rolled-up into one single payment.  But it is separate from de-linking and is only an option in the Agriculture Bill; it may not be introduced in 2022, it may not be available to everyone, it may not even be introduced at all.  More information is (again) expected in the upcoming consultation.  The idea is that it could be used as a retirement sum or allows for investments to be made.  If it is introduced, it is unlikely to be available to everyone at the same time, as there just wouldn’t be enough budget if everybody took it up!  But there might be an age threshold for example.  For those Agreements which come to an end within the Agricultural Transition, the Tenant could potentially leave with a de-linked lump-sum.

Environmental Land Management

Once the BPS has been phased out, the main support for farmers will be the Environmental Land Management (ELM) scheme.   But in a Landlord and Tenant situation or Contract Farming Agreement how is it going to be dealt with? This looks like an area where they’ll have to be a lot of ‘sorting out’ over the next 5-10 years as a new normal gets established.  It certainly does not look like it is going to be as simple as the BPS.

For AHAs and existing long-term (whole farm?) FBTs it will likely be down to the tenant to decide whether to enter or not.  But the ability to pick up ELM payments will presumably be part of the earnings potential of the holding and would therefore come into consideration of the rent.  This might become a contentious area in rent reviews in the future – what if the Tenant had entered into a low-level, low income, ELM agreement, but the Landlord thought that he/she should have gone for a higher-paying one and be paying more rent?

For new/short term FBTs, we might well see situations where the Landlord wants to be the claimant, both so that they are in control of what happens and so they are guaranteed the income.  Of course, it depends on the detailed ELM rules – will Landlords even be able to apply if the land is let out?   The land would therefore be let ‘naked’ without any support and the rent would reflect this.

Any tenancy agreement would have to bind the Tenant to adhere to the ELM requirements – as has been done in the past for ES / CS agreements etc.  But this is not always the best approach, as the Tenant (the actual land manager) hasn’t got any financial stake in the ELM agreement.  This might become more of an issue if the payment methods become more sophisticated over time – e.g. payment by results, reverse auctions etc.  Perhaps some revenue-sharing model would be the answer – but with the Landlord still remaining the agreement holder?

There are also Contract Farming Agreements (CFAs) to consider.  There has been differing opinions in the past on whether BPS has been included in the ‘pot’ or not.  Often agri-environmental payments have been kept out of agreements and remain with the farmer (land provider).  Will ELM payments go in the pot or not?  Perhaps not – which might have an effect on first charges and divisible surpluses in some cases.  But where the ELM scheme requires a sophisticated on-the-ground management, it might have to go into the agreement to get buy-in from the contractor.

Unfortunately we are posing more questions than answers, but hopefully this article highlights key areas which will need to be kept abreast of over the coming months, especially ahead of autumn lettings.  The consultation in the autumn should help to answer a few questions as we adjust to the new arrangements over the next 5-10 years.