Category: Policy & Business

Welsh NVZ Plans

The Welsh Government has published draft legislation that would make the whole country a Nitrate Vulnerable Zone (NVZ).  The Water Resources (Control of Agricultural Pollution) (Wales) Regulations 2020 would impose new restrictions on the storage and spreading of slurry, manure and nitrogen fertiliser, including closed periods for applications.  The Welsh Rural Affairs Secretary, Lesley Griffiths, has stated that no final decision will be taken until the Covid-19 outbreak has passed, but that she is ‘minded’ to introduce the new regulations.  Further details can be found at – https://gov.wales/draft-water-resources-control-agricultural-pollution-wales-regulations-2020 .

 

Woodland Carbon

A new round of the Woodland Carbon Guarantee Scheme will open in June, worth £10m.  This is the scheme that allows those planting woodlands to sell carbon credits to the Government at a guaranteed price up to 2055.  This provides an additional income above the traditional planting grants and any timber sales.  The scheme is run as a reverse auction with the next round taking place between 8th and 19th June.  The closing date for applications is the 5th June.  All woods must be registered and managed in accordance with the Woodland Carbon Code.  At the first auction in January, eighteen contracts were offered to create 182 hectares of woods.   The prices achieved for the carbon credits have not been published.  For more details see https://www.gov.uk/guidance/woodland-carbon-guarantee .

 

No Brexit Delay?

The Government has stated that there will be no extension to the end of the Brexit Transition Period beyond 31st December 2020.  There had been much speculation that a delay would be necessary given that no negotiations have been able to take place over the past few weeks and that both businesses and Government are preoccupied with dealing with the Covid-19 outbreak.  However, speaking on the 16th April a Downing Street spokesman stated “we will not ask to extend the transition. And, if the EU asks, we will say no. Extending the transition would simply prolong the negotiations, prolong business uncertainty, and delay the moment of control of our borders.”

This is actually hardening of the UK Government’s position – previously it has stated that the UK would not ask for an extension, but has been deliberately vague on what would happen if the EU requested one.   The deadline for agreeing an extension to the Transition Period is the 1st July.

Entitlement Transfer in Wales

The entitlement transfer deadline in Wales has been extended from 30th April until midnight on 15th May 2020 for use on 2020 SAF applications.  This comes after the announcement that the SAF deadline will now be 15th June 2020 ( see earlier article).

Welsh BPS Update

The Welsh Government has extended the Single Application Form (SAF) deadline by one month to 15th June.  It has also announced the Crop Diversification requirements (3 crop rule) will be removed for BPS 2020.  The Welsh Government says the announcements are made in recognition of the ‘challenges facing the sector as a result of the Coronavirus and the recent flooding’.

In addition, to help with cashflow, £5.5m has been allocated to the BPS and Glastir 2019 Support Scheme which has re-opened from the beginning of April to support those farmers who have not yet received their 2019 BPS and/or Glastir payments.

 

Coronavirus and Sterling

Wise are those who know they can’t see into the future.

With the Pound at 35-year lows against the Dollar, the price of commodities will rise sharply in Sterling terms.  When the local currency shrinks (effectively what a currency weakening is), you get more Pounds per Dollar or Euros.  Thus, you also get more Pounds per good traded in Dollars or Euros – i.e. price rises.  The prices of commodities move continuously throughout the day.  Other farm inputs such as labour, machinery and rent for examples, are repriced annually or even less frequently,  This means the rise in prices is slower and staged.  This leads to a short term gain in agriculture.

It can be seen that a weak currency is inflationary to an economy.  Likewise, when a central bank such as the Bank of England lower base rates, it releases more liquidity into the market (as less is spent financing debt), encouraging people to spend more on goods.  Thus, this is also inflationary.  The Bank of England has also announced £200 billion of Quantitative Easing (QE).  This is £75bn more than was expected.  QE is when the bank releases liquidity into the capital markets by purchasing (usually) bonds.  Again, this liquidity provides support for the capital (largely stock) markets.  One side effect of this is inflation.  All this, coupled with the recent surge in sales of so many living costs, could fuel inflation.

Deflationary factors will be the reduction of spending of other goods such as air flights, fuel, new cars and so on, and the potentially large rise in under-utilisation of the UK workforce.  It is not clear how the furlough policy might offset this factor.

As we are in a period of uncharted territory, it is difficult to know if the Government and Bank of England have done enough or too much.  Inflation might be considerable if it is not managed properly.

Brexit Update

As with everything else, the Brexit negotiations have been affected by the Covid-19 outbreak.  The EU Commission’s Chief Negotiator Michel Barnier recently tested positive for the virus.  However, there have been some developments over the past month which merit comment.

Firstly, both sides have been focusing on issuing their draft texts for a potential Free-Trade Agreement (FTA) between the UK and the EU-27.  The UK tabled its draft text on 18th March ‘in confidence’ as part of the negotiating process.  The EU also shared its draft with the UK on the same date, but has recently published its draft text (440 pages, accessible via: https://ec.europa.eu/info/sites/info/files/200318-draft-agreement-gen.pdf).

Unsurprisingly, the EU is pushing for the UK to have minimal divergence from EU State Aid rules.  The UK would also have to align closely with EU environmental, labour and quality standards (including sanitary and phytosanitary standards for food).  A ‘Specialised Committee’ on the Level Playing Field would also be set-up to oversee arrangements.  This would encompass 16 sub-committees to address specific issues.  If arbitration was required on the interpretation of EU law, then it would have to defer to the European Court of Justice for a ruling, something which will be hotly disputed by the UK.

From an agricultural perspective, the FTA draft texts would have minimal impact on future support as it is acknowledged that the UK would be free to pursue its own support system, as long as WTO limits were respected.

Both sides remain intent on agreeing a comprehensive future trading partnership which permits tariff-free and quota-free trade between the UK and the EU.  However, non-tariff barrier costs would inevitably increase, particularly in agri-food as sanitary and phytosanitary checks, customs checks and rules of origin would apply.

Although both sides have committed to studying the other party’s text in detail, large portions of the EU draft will be unacceptable to the UK, particularly in terms of the role of the European Court of Justice.  That said, these draft texts are very much the starting point in the trade negotiations and it is fairly standard at this point to have significant differences of opinion between both parties.

Looking ahead, whilst the UK’ had intended not to extend the Transition Period beyond December, with the Covid-19 situation, it is becoming increasingly likely that the negotiations will need to be extended.  Privately, some UK Ministers are already acknowledging this.  However, dealing with the pandemic is rightly at the forefront of both parties’ minds at present. 

More Covid 19 Business Support

As the Covid 19 outbreak continues to worsen, the Government’s financial response has moved to levels not seen in peacetime.  A third aid package was announced on the 20th March, to go along with the measures outlined in the Budget and those of the 17th March.

The main points of the package, announced on the 20th March, are as follows;

  • There will be a Wage Support Scheme.  This will be open to any employer in the country and will cover the wage costs of any worker that is  ‘furloughed’ – this is workers who have been laid-off (sent home) due to their being no work for them.  Up to 80% of their wages will be paid by the Government, up to a limit of £2,500.  The scheme will be open before the end of April and likely to be run through the PAYE system.  It will be backdated to the 1st March and run for an initial three months.  The measure is to encourage firms not to sack staff – they can now lay off staff, continue to pay them and recover 80% of that cost up to £30k per annum.
  • The requirement to pay VAT at the usual date of the 31st March is deferred until the 30th June.  Note that this is only a deferral (to help cashflow) and the money will still be due in 3 months.  It appears a VAT return will still need to be made – it is just the payment will not be required. Businesses will be given until the end of 2020/21 to settle outstanding VAT liabilities that have accumulated as a result of the 3-month deferral.  There is no need to apply for this deferral – it is automatic for all businesses
  • Self Assesment Income Tax payments due in July will be deferred until the ne3xt payment date – 31st January 2021.
  • The Coronavirus Business Interruption Loan Scheme is now open for business (as from 23rd March).  The interest-free period has been extended from 6 months to 12 months.  A list of financial institutions participating in the scheme can be found at – https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/accredited-lenders/

Further measures are forecast.  We will keep you updated on any developments.

Crop Diversification Scrapped

The Crop Diversification rule under Greening is to be removed for the 2020 year in England.  This was announced by Defra on the 20th March and follows intensive lobbying by the farming industry following the very wet autumn and spring.  The ‘Three-Crop Rule’ was written into UK law when EU regulations were imported wholesale.  Parliament will now be asked to approve a blanket derogation.  Farmers will be informed when this becomes law.