Category: Policy & Business

Budget Date

The date for the next Budget has been announced as the 6th November.  The Chancellor, Sajid Javid has stated that this will be ‘the first Budget after Brexit’.  We shall see.

UK Government’s Backstop Alternative

After weeks of speculation interspersed with non-papers, the UK Government formally tabled its proposals on an alternative for the Backstop on 2nd October.  In his accompanying letter, the Prime Minister stated that he believed the proposals were a ‘reasonable compromise’ and represented a ‘broad landing zone’ in which a deal could take shape.  Whilst a draft legal text of the new Protocol on Ireland / Northern Ireland was also presented to the EU Commission’s Task Force 50, this document was not made publicly available. Instead, a 7-page explanatory note has been published by the UK Government and is accessible via: https://www.gov.uk/government/publications/uk-proposals-for-a-new-protocol-on-irelandnorthern-ireland

Proposal Key Points:

  • EU-Aligned Regulatory Zone: covering both agricultural and industrial goods would be created on the island of Ireland.  This would include not just sanitary and phytosanitary (SPS) regulations and agri-food rules but would also include regulations relating to ‘all goods’.   The aim is eliminate regulatory checks for trade between Northern Ireland and Ireland.  Early indications suggest that this is being viewed positively by the EU as it directly addresses the problematic SPS issue which is relevant to over 40% of cross-border trade in Ireland.  It also means that there would be an expanded range of checks on goods shipped from GB to NI as currently it is mainly live animals, plant and fertiliser products which are checked.  However, the proposals also state that there would be ‘unfettered access’ for NI goods entering GB.
  • Regulatory Zone Contingent on Consent from NI Institutions:  the Northern Ireland Assembly (Stormont) would have to agree to the rules set out above.  Such assent would be required before the end of the Transition Period and every four years thereafter to overcome what the UK Government sees as a democratic deficit if significant sectors of the NI economy are governed by laws over which it has no say (i.e. EU-laws).  This would also include an ability to exit certain areas of regulatory compliance, or to withhold consent to laws becoming applicable.  In such cases, arrangements would not enter into force or would lapse (after 1 year), and arrangements would default back to existing rules.  However, it is currently unclear which rules these would be (UK rules?, previous EU rules?).  This provision presents significant problems to the EU as it could theoretically give the NI Assembly a veto over the application of EU rules – something which is not available to other non-EU entities.  Also, as the Northern Ireland Executive has now been suspended for over 1,000 days, it is not clear who will give consent.  Even if the Stormont assembly becomes functional again, what happens if gets suspended oncve more?  Do decisions then fall back to the Northern Ireland Office or both the UK and Irish Governments as co-guarantors of the Good Friday Agreement?  The EU is going to scrutinise this issue closely.
  • Northern Ireland to be fully part of the UK Customs Territory: it would no longer be part of the EU’s Customs Territory once the Transition Period is over.  This means that all Customs processes (including checks) to ensure compliance would need to take place on trade between Northern Ireland and Ireland.  That said, the British Government is keen to point out that the vast majority of Customs procedures (e.g. declarations) would take place electronically, with some simplifications, and any checks would be conducted at traders’ premises or other points in the supply chain, but not at the border.  It is seeking a commitment from the EU to never conduct checks at the border in the future.   As Customs checks would take place away from the border in both Northern Ireland and Ireland, this effectively establishes two customs border zones in each jurisdiction.  This is highly problematic for the EU, especially Ireland, as in some ways it puts a degree of separation between the customs regime in Ireland and that of the remainder of the EU. It also raises multiple other questions over how unscrupulous traders would be identified as any price differentials created by varying tariffs or differences in VAT and Excise would be quickly exploited by rogue traders, often with no registered business premises.  It raises the prospect of mobile customs units becoming visible in the border region which could prompt a negative reaction by local communities.
  • Special Provisions for Small Traders: linked with the previous point, simplifications in Customs procedures would have SMEs as a core focus in order to minimise the regulatory burden. This includes a trusted (authorised) traders’ scheme to make compliance easier when trading between NI and Ireland.  It envisages ‘temporary admissions’ to permit short-term movements of goods across the border (presumably to facilitate trade shows for instance).  In addition, some small traders would be exempted from certain procedures and may even be exempted from paying duty altogether.  There would also be additional support for traders in most need to assist them with compliance. These provisions present significant challenges. For instance, could larger firms simply create multiple companies so as to qualify for exemptions? From an EU perspective, particularly given difficulties that the UK has had in the past in dealing with VAT fraud, there would be major questions on whether such proposals are legally operable and would undermine the integrity of the EU Single Market. 
  • Future UK-EU Trading Relationship: is still envisaged to consist of a comprehensive Free-Trade Agreement (FTA).  Much of the detail not mentioned in the Government’s proposals (e.g. how Rules of Origin would be addressed) would be dealt with after the UK formally exits the EU. Again, the EU will have major difficulties with this as it is unlikely to view such arrangements as a legally operable insurance mechanism to prevent a harder border emerging in the future on the island of Ireland.

Overall, the UK proposals represent a significant step forward, but it is highly questionable whether an agreement (definite landing zone) is in sight as a result of their tabling.  A formal response from the EU is expected on 3rd October (afternoon).  This will test the proposals against the three key objectives of the backstop: preventing a hard border re-emerging on the island of Ireland, preserving north-south cooperation and the all-island economy, and protecting the EU’s Single Market and Ireland’s place in it.  It is obvious that having separate Customs regimes in both jurisdictions would constitute a hardening of the border.  The proposals also raise questions for the competitiveness of the all-island economy and creates some discomfort for Ireland as part of the EU Single Market and Customs Union. Therefore, a lukewarm response is likely from the EU.  That said, it will be keen for talks to continue and is likely to state the UK proposals merit further discussion, not least because the EU is keen not to be blamed for the failure of negotiations any resulting ‘No-Deal’.

Ultimately, the EU is likely to call for closer Customs alignment between NI and Ireland/EU.  An indication by the UK that its tariff levels for sensitive products (particularly agri-food) would remain similar to the EU’s, but within an independent UK trade policy, would help.  This would also help UK farmers to safeguard against competitive pressures from the world market, if tariffs were suddenly reduced significantly.  Reaching an agreement will take time and it is increasingly unlikely that this will be done by 31st October, making yet another extension more likely by the day.

NFUS Joint Venture Hub

A land matching service has been launched in Scotland.  The Joint Venture Hub is aimed at bringing together young, enthusiastic farmers who cannot afford to buy land and those looking to take a step back from day-to-day farming, but with no successor to run the business and therefore faced with having to split up and sell off the farm.  The ‘platform’ is being run by NFU Scotland and both members and non-members can post an expression of interest from which joint ventures can be explored.  The site can be found at https://www.nfus.org.uk/policy/joint-venture-hub.aspx and includes information on tenancies, contract farming agreements and share farming arrangements.

Land Market Survey

The RICS and the Royal Agricultural University (RAU) have decided not to publish their latest edition of the Rural Land Market Survey.  Survey results for the first half of the year are usually released around now, showing land price data from actual sales (transaction-based measure) and also an ‘opinion based measure’ of land values.  However, such low feedback on the latter has led to the decision not to publish the results.  The opinion-based measure, is a hypothetical estimate from surveyors of bareland prices. The transaction-based measure is from actual sales and also includes a residential component where its value is estimated to be less than 50% of the total, and is therefore usually higher.  Results for the transaction-based measure have been released and are shown in the table below.

H1 2019 Average Farmland Value by Region – RICS/RAU
Region £/acre £/hectare
South East 15,133 37,394
Yorkshire/Humberside 13,478 33,304
South West 11,609 28,686
East 10,538 26,039
West Midlands 10,377 25,642
North West 9,230 22,807
Wales 8,508 21,023
East Midlands 8,091 19,993
North East 6,757 16,697
Average England & Wales 10,619 26,240

It can be seen there is a large variation in land values between the regions from £6,757 per acre (£16,697 per hectare) in the North East to £15,133 per acre (£37,393 per hectare) in the South East.  The overall average in England and Wales for farmland sold in January to June 2019 was £10,619 per acre (£26,240 per hectare).  This takes it back above the £10,000 per acre benchmark, the average price for H2 2018 was £9,571 per acre (£23,650).

The opinion-based measure was introduced back in 2004 due to the declining sales of agricultural land making the statistics less reliable and became the ‘preferred’ measure. 

BPS Conversion Rate 2019

BPS payments for 2019 will be converted at a rate of €1 = £0.89092.  This is very close to (-0.2%) last year’s rate of €1 = £0.89281.  The table below shows all the rates since the BPS was introduced in 2015.

BPS Conversion Rates – source Andersons
BPS Year

2015

 2016 2017 2018

2019
Rate, €1 =

£0.73129

 £0.85228 £0.8947 £0.89281

£0.89092

This does not quite allow the final calculation of 2019 payment rates.  Entitlement values change on a yearly basis depending on the number claimed.  Also, the final rate of Financial Discipline needs to be set at EU level.  None of these factors are likely to change payments a great deal however.  Therefore, the estimated rates set out in Key Farm Facts for 2019 are likely to be fairly close to the amounts actually paid

Euro Conversion Rate

The average £/€ exchange rate in September sets the conversion of the year’s BPS from Euros into Sterling.  At the time of writing there were still a few days of September left, but the rolling average had the conversion rate at €1 = 89.170p.  This is within a whisker of last year’s rate of €1 = 89.281, meaning payments will be similar too.  Once the final rate is available we will publish it on the Bulletin website.  

Mercosur Trade Deal

The Austrian Government has rejected the free trade agreement between the EU and Mercosur (a group of South American countries).  Back in July we wrote about the EU and Mercosur reaching a political agreement on a substantial free trade deal some 20 years to the day after negotiations started (see article https://abcbooks.co.uk/eu-agrees-mercosur-and-vietnam-trade-deals/).  But concerns over the effects on its agricultural industry, the lack of action over the fires in the Amazon and worries over workers rights in the South American countries has led the Austrian Parliament’s EU sub-committee voting to reject the draft free trade agreement.  This means the Austrian Government must veto the pact at EU level and the agreement cannot go through.  Last month both France and Ireland threatened not to ratify the agreement unless more was done by Brazil’s president to fight the fires in the Amazon.  For the deal to go through it must be ratified by all Member States and shows just how difficult it can be to get trade deals passed by the EU, something the UK needs to do in light of Brexit.

Brexit – The Tumult Continues

This past month has been one of, if not the most, tumultuous of the entire Brexit process.  It started off on a fairly promising note with EU leaders (most notably the German Chancellor) giving the UK Government 30 days to put forward its proposals on an alternative to the Backstop.  However, the mood has become more downbeat since then with the publication of the Government’s plans for a No-Deal Brexit (Operation Yellowhammer – see previous article), the prorogation of Parliament which the UK Supreme Court has judged to be unlawful, and the disclosure of the UK Government’s alternative Backstop arrangements (delivered by a ‘non-paper’) which the EU deemed to have failed each of Brussels’ three key criteria.  All the while, the Government’s preparations for a No-Deal continue apace with some notable updates of relevance to agri-food trade.

Prorogation of Parliament ‘Unlawful’

This was the unanimous verdict of eleven Supreme Court judges delivered on 24th September.  The prorogation has been rendered void and Parliament resumed on 25th September.  This is another major setback for the Prime Minister as the Government no longer has a majority in the House of Commons (HoC) as it removed the whip from 21 MPs for voting against the Government.  The PM also lost his bid to have a mid-October election and there appears to be very little appetite for MPs to agree on any long-term course of action on Brexit.   A summary of the current state-of-play is;

  1. Brexit could still be achieved by getting a deal with the EU ratified by Parliament: despite the embarrassment arising from the Supreme Court ruling, Brexit is still achievable if the UK Government can achieve a deal with the EU at the EU Council meeting on 17-18th October, and thereafter, getting a majority of MPs to back that deal.
  2. If a deal with the EU is not achievable, Article 50 would be extended again:  the ‘Benn Act’ (officially titled the European Union (Withdrawal) (No. 2) Act 2019) passed by MPs a few weeks back would result in another mandatory extension of Article 50, if a Brexit Deal cannot be reached during the EU Council.  Theoretically, the PM could choose to ignore the Benn Act.  Such a course of action would likely result in another Supreme Court case, with an unfavourable ruling again likely.  In such a scenario, it is possible that the Supreme Court could instruct another official to sign an Article 50 extension letter if the PM refused to do so.
  3. Agriculture Bill reinstated: the Agriculture Bill is currently at the Report stage ahead of a third reading at the House of Commons.  With the prorogation of Parliament the Bill had ‘fallen’  – i.e. as it had not been passed by the end of the Parliament, it would have to be re-presented from scratch in the next Parliament.  But, now the prorogation has been ruled illegal, the Bill has risen from the dead,  As Brexit is likely to take up the vast proportion of Parliamentary time for the foreseeable future, it is likely that further progress on this Bill is still several weeks, if not months, away.

In this volatile environment, a General Election is becoming more likely, potentially in November if another Article 50 extension takes effect.  However, there is also increasing talk of a Government of National Unity, led by one of the parental figures in the HoC (Harriet Harman or Ken Clarke).  This move would require approval from Labour in a no confidence motion.  However, its leadership would prefer that an alternative Government be led by Jeremy Corbyn.  He would then seek to negotiate an alternative Brexit Deal with the EU and put that before the British people in a confirmatory referendum (with Remain the other option).  So all of this effectively means that after three years, the three broad Brexit options (Deal, No-Deal, No Brexit) all remain in play, but it does make a No-Deal at the end of October less likely.  Little wonder then that many think the Brexit process is going round in circles.

UK’s Alternative Backstop Proposals Not Legally Operable

Having been set the 30-day challenge by Angela Merkel a few weeks back to come up with a viable alternative to the Backstop, the UK’s proposals eventually emerged via a ‘non-paper’ (an unofficial document reflecting the ideas that the UK has put forward rather than concrete proposals representing a definitive UK Government view).  These were deemed by the EU to fall short on all of its three key tests on viability and were not legally operable. These key tests (objectives of the Backstop) are;

  1. Having no hard border on the island of Ireland
  2. Protecting the all-island economy
  3. Preserving North-South cooperation

The UK proposed an all-island Sanitary and Phytosanitary (SPS) zone for agri-food goods; thus expanding the regulatory frontier that already exists for live animals between Northern Ireland and Britain.  It would have only been applicable to some areas (e.g. animal health and food safety checks) and not others (e.g. labelling rules on ingredients, allergens and additives etc.).  Furthermore, industrial goods and customs procedures relating to Northern Ireland would remain within UK rules, and not the EU regulatory regime as proposed by the original (NI-only) Backstop.  From an EU perspective, this would potentially mean a gaping hole in the integrity of the Single Market as false declarations could potentially be made on what a consignment of goods contains, thus meaning that ineligible products would be smuggled into the EU market.  In such a context, the imposition of a hard-border between Northern Ireland and Ireland would eventually become necessary, as alluded to by EU Commission President Jean-Claude Juncker recently.

The UK proposals also referred once again to (frequently untried and therefore untrusted) technological solutions and trusted trader schemes which have already been rejected several times by the EU.  As we’ve argued previously, that is not to say that technology does not have a long-term role to play – it does – but given current capabilities, it cannot replace human intervention in undertaking physical checks to verify the eligibility of meat products and the like.  In the meantime, some form of insurance mechanism (Backstop) is required. 

In the coming weeks, it is likely that there will be an increased focus on finding a NI-only (or unique set of arrangements for NI’s circumstances) route to overcome the impasse.  As a minimum, this would have to encompass harmonisation with EU regulations on the entirety of agri-food-related regulations within Northern Ireland (and applicable to goods entering NI) whilst ensuring that the province’s constitutional status within the UK is not affected in any way.  Recently, the prospect of giving the Stormont Executive (currently suspended) a role in the acceptance of such regulations was mooted; however, the EU does not want NI to have a veto on the imposition of rules across the Single Market.  It is prepared to countenance a consultative role, similar to that offered to Norway and Switzerland in some areas. Perhaps one way to address this would be to give the NI Executive some voting rights in a qualified majority voting context, but no veto?  However, the extent to which that would be legally operable is questionable. 

More Brexit Preparation Notices Published

There has been a continued ramping-up of efforts by the Government to help businesses to prepare for post-Brexit trade with the EU.  Some of the key notices published recently are ;

Undoubtedly, the Government’s preparations for Brexit are accelerating but significant gaps remain, particularly when it comes to issues associated with Northern Ireland.  Furthermore, publishing guidance is one thing, ensuring that businesses and relevant competent authorities are operationally ready for the changes imposed is another matter entirely.  

Welsh Agricultural Wages

The Agricultural Advisory Panel for Wales has proposed a 1.8% pay increase across all grades for farmworkers in Wales.  The table below shows the existing rates and those proposed.

Agricultural Wages Order Wales  – Agricultural Wages Board
Grade – Minimum rates Current hourly rate excl. overtime Proposed new hourly rate
Grade 1 – under 16 3.54 3.60
Grade 1 – 16 to 24 7.70 7.84
Grade 1 – 25 & Over 8.21 8.36
Grade 2 – Standard 8.45 8.60
Grade 3 – Lead 8.70 8.86
Grade 3 – Craft 9.36 9.53
Grade 5 – Supervisor 9.88 10.06
Grade 6 – Management 10.64 10.83

The new rates if agreed will be included in the Agricultural Wages Board 2020 and would come into effect from next April.  The consultation also includes updates to other terms and conditions including Accommodation offset allowance, agricultural sick pay and holiday pay.  The full consultation can be found at https://gov.wales/consultation-changes-terms-and-conditions-agricultural-workers-1 responses need to be submitted by 16th October.

Countryside Productivity Large Grants Scheme

Defra has confirmed there will be extra funds made available so all eligible applications made to the Countryside Productivity Large Grants Scheme (CPLGS) can be approved.  The latest round of the scheme was for Improving Farm Productivity and closed to applications back in December 2018.  The scheme was significantly over-subscribed meaning it was not possible to fund all eligible applications.  This has led to some applicants still waiting to receive a response from the RPA as to whether their application has been successful or not.  But with the additional funding now confirmed, those with eligible applications should shortly be receiving a letter from the RPA finding out whether or not they have already started the project, that they still want to go ahead and if they would like to revise their application in light of the length of time since it was submitted.  The CPLGS provides capital grants of up to 40% to improve the productivity in farming, forestry and horticulture.  The minimum grant under this round was £35,000.