Direct Payment to Farmers (Reductions) (England) Regulations 2022
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Lord Goldsmith of Richmond Park
That the Grand Committee do consider the Direct Payment to Farmers (Reductions) (England) Regulations 2022.
Relevant document: 30th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for the Environment, Food and Rural Affairs and Foreign, Commonwealth and Development Office (Lord Goldsmith of Richmond Park) (Con)
My Lords, I hope it will be useful to your Lordships if I speak to all the instruments, beginning with the draft Direct Payment to Farmers (Reductions) (England) Regulations 2022, which were laid before this House on 3 February 2022. The matters in these instruments are closely related. Made using powers under the Agriculture Act 2020, they implement important aspects of our new agricultural policy, as set out in the agricultural transition plan published in November 2020 and updated in June 2021. The three instruments apply only in relation to England.
The Direct Payments to Farmers (Reductions) (England) Regulations 2022 apply progressive reductions to direct payments to farmers in England for the 2022 scheme year. By doing so, it continues the process of phasing out direct payments in England which began in the 2021 scheme year. The Government remain committed to phasing out direct payments in England over the seven-year agricultural transition period. We are doing so as area-based payments are unfair: they go primarily to larger landowners, artificially inflate land rents, stand in the way of new entrants to farming getting access to land, and offer little return for the taxpayer.
To help farmers plan, we initially committed in 2018 to phase out direct payments. The specific reductions provided for in this instrument were announced in November 2020. As was the case for 2021, higher percentage reductions will be applied to payment amounts in higher payment bands.
Although direct payments are reducing, total funding to farmers is not. We will make money from the reductions available to targeted schemes, which will increase farm productivity, improve the health and welfare of animals, and enhance the natural environment. In the coming year, that reallocated money will be used to meet the rising demand from farmers for countryside stewardship, our current environmental offer, which has seen a 40% increase in applications. That funding will also be used in the launch of the first of our new environmental land management schemes: the sustainable farming incentive. Further, we will also fund the initial wave of the landscape recovery scheme, with projects focused on supporting native species and restoring rivers.
We are also making available free business advice to farmers and will continue to offer a range of popular grant offers so that farmers can invest in their businesses and become more efficient and sustainable. We will also be offering a new suite of opportunities for farmers, supply chains and researchers to collaborate on researching and developing innovative but practical solutions to the challenges and opportunities that farming faces. This is an essential reform that puts England on track to meet its legally binding environmental and net-zero targets, while creating a thriving and self-reliant farming sector.
The Agriculture (Financial Assistance) (Amendment) Regulations 2022 amend the Agriculture (Financial Assistance) Regulations 2021, approved by this House on 22 March 2021. Those regulations put in place financial data publication and enforcement and monitoring requirements for four new financial assistance schemes established under the Agriculture Act 2020. This amending instrument extends the range of financial assistance schemes covered by the 2021 regulations to ensure that any new financial assistance scheme launched in 2022 and thereafter is subject to the same checking, monitoring and enforcement requirements that applied to the original schemes launched in 2021.
The 2021 regulations gave Defra the opportunity to test, refine and develop these new requirements. The amendments made by this instrument will now allow the Government to move on to the next stage of agricultural policy set out in the agricultural transition plan.
This instrument also strengthens the investigative powers in the 2021 regulations to ensure that where there are suspicions of offences in connection with financial assistance —for example, fraud offences—the Secretary of State can, where appropriate, fully investigate the matter. The amendment will allow the Secretary of State to investigate not only agreement holders but applicants, and in certain circumstances the employees or agents of an applicant or agreement holder. These investigative powers mirror powers Defra holds in relation to CAP schemes, while allowing Defra to use them in a more proportionate manner, reflecting the objectives of the Agriculture Act.
This instrument also removes a reference to grants in Regulation 13 of the 2021 regulations. The amendment will ensure that “financial assistance” is not limited to grants and can include other forms of assistance, as provided for in Section 2(1) of the Agriculture Act.
In drafting the 2021 regulations, Defra engaged with key stakeholders in a targeted consultation exercise between 4 August and 1 September 2020, giving stakeholders the opportunity to review Defra’s proposed approach and express their views. Feedback gathered during the consultation exercise was used to inform the content of the 2021 regulations and this amending instrument.
I turn to the Agriculture (Lump Sum Payment) (England) Regulations 2022. As part of our wider agricultural reforms, we want to support farmers who wish to leave the industry, as well as those who want to stay. We know that some farmers would like to retire or leave farming but have found it difficult to do so for financial reasons. That is why this instrument allows a scheme to be introduced in 2022 which provides lump sum payments to farmers in England who wish to leave the sector. These payments will be in place of any further direct payments to the recipient during the remainder of the agricultural transition. This is not new money and will not impact the funding of other schemes. This scheme should also free up land, creating more opportunities for new entrants and farmers who wish to expand.
These instruments implement provisions in the Agriculture Act 2020. They continue the transition away from the inefficient direct payments model of the CAP and they build upon the already implemented financial assistance framework to cover new schemes, in line with the agricultural transition plan. I beg to move.
Baroness McIntosh of Pickering (Con)
I thank my noble friend for introducing these regulations. I would like to put one or two questions about each in turn.
Could my noble friend the Minister clarify an issue that has been raised? The Secretary of State for Environment, Food and Rural Affairs said at Blackpool, if I have understood correctly, that farmers have more than made up for any income lost since these new provisions came in—or, in fact, since we left the European Union. My contacts told me over the weekend that is anything but the case. It would be welcome to know the basis for the Secretary of State’s remarks; perhaps there is something I am misunderstanding.
Regarding direct payments to farmers, the subject of the first regulation before us, as my noble friend said, this is putting us on the path to reducing the direct payments until we eventually come into ELMS. What has been identified, I think by the CLA especially, is that there will potentially be a 50% gap in the funding that farmers have been receiving between the regulations before us this afternoon and the end of the transition period. If that is the case, and I am sure my noble friend’s department will be aware of that, I would like to understand how that gap will be filled so that farmers do not lose out.
I am concerned that there is a lack of understanding. We are meant to be levelling up the economy and unleashing the rural economy. I think, at the moment, the rural economy is performing below par. One reason is that we simply do not have the tools.
I will take the North Yorkshire moors as an example, or the Yorkshire Dales, where my brother lives: we still have woeful broadband internet connections there and the mobile signal contacts are often potentially extremely dangerous. We learned at a recent meeting that masts have apparently been put in by two providers—I believe it is O2 and EE—but these have not been linked up in this rather broad area of North Yorkshire. My noble friend’s department is responsible for rural affairs—it is in its title—so perhaps he could use his good offices to ensure that, as we leave direct payments and move to an alternative form, farmers will be given the tools to do the job.
To conclude on the first regulations, there is also a lack of understanding that tenants are unable to qualify under the new schemes. I would be interested to know to what extent that is reflected in contacts that the department has had with tenants. I know that our honourable friend the Farming Minister in the other place, Victoria Prentis, is aware of this. I commend the work of the Rock review on tenant farmers, but tenants are being evicted as we speak. There simply will not be that many of them left, if we carry on at this pace, when we reach the end of the transitional stage for direct payments to farmers.
I make a plea to my noble friend: will he help me to understand how, when it is gone, the direct payments relief will be replaced for those tenants who cannot claim for anything other than farm schemes owing to the nature of their farm tenancy agreements? Those are enshrined in a great many agricultural Acts, not least the 1947 Act. Can he put my mind at rest on the plight of tenant farmers?
I add that on common land graziers and those with shooting rights are trying to compete side by side. I am sure my noble friend will be aware that there is currently an issue with food security, not least because we understand that Ukrainians have been picking most of our fruit and vegetables in the last two or three years. It appears that, added to the cost of wheat, we may perhaps soon have in this country a local shortage of such staples. I wonder how my noble friend expects to address that.
I turn briefly to the Agriculture (Financial Assistance) (Amendment) Regulations. Paragraph 7.6 of the Explanatory Memorandum says that the department will perhaps try to look more favourably and proportionately on how the offences are to be inspected; I think my noble friend alluded to this. However, the first sentence does not entirely fill me with confidence. It states:
“The instrument also expands the power of the Secretary of State to investigate suspected offences in connection with applications for, or receipt of financial assistance.”
That will not go down well, particularly with the owners of small family farms, who have said at every turn how they are finding that, if anything, the administrative burdens are increasing. I would like to hear a little more detail from my noble friend about how these regulations will applied. How will the full force of Defra be applied more proportionately?
The third and final instrument before us states clearly that direct payments are to be replaced. My noble friend referred to a lump sum payment. This might seem very attractive, particularly to older farmers. I refer again to my experience of North Yorkshire in this regard. The difficulty they have asked me about is: if they apply for this lump sum grant, how will that affect their tax situation? Did I understand my noble friend to say that it could be up to £100,000?
We have a shortage of affordable homes in the countryside. Very few new houses being built across North Yorkshire—and, as far as I can see, in other rural areas of England—are one- or two-bedroom, which would be ideal for farmers who have moved off the farm and want to stay in a village. If we do not make it more attractive for them, we will prevent newer, younger farmers coming in, which is a desire of Defra. With those few remarks, I look forward to my noble friend’s responses.
Lord Goldsmith of Richmond Park (Con)
I thank all noble Lords who have contributed to the debate. I will do my best to answer the many questions that have been put to me without exceeding my time slot.
The noble Baroness, Lady Bakewell, asked a number of questions in relation to the reduction of direct payments. We do not plan to consult further on the reductions, but the Government have published an evidence paper, updated in September 2019, setting out the expected impacts of removing those direct payments, and that included an analysis by sector, location and type of land tenure. It provided an analysis of how farm businesses across all sectors can offset the impact of reductions in direct payments. An update to that analysis was due to be published shortly, and it has been delayed—only slightly, I hope—in light of what is happening in Ukraine and the impact this will have on farm business incomes; that point was made by a number of noble Lords. We are reviewing this to ensure that the analysis remains fit for purpose.
All funding released from reductions in direct payments in England is being reinvested into delivering other schemes for farmers and land managers in this Parliament. I hope that is some reassurance to the noble Baroness, Lady Jones, as well.
The noble Baroness raised other issues about reductions to direct payments. A small number of farmers leave the industry each year; that has been the case for some years now. They do so for a whole variety of reasons. According to the data we have from the Rural Payments Agency, in 2020 around 1,000 basic payment scheme claimants in England can be assumed to have exited the industry. It is too soon to produce equivalent data following the 2021 scheme year, but for the basic payment scheme 2021, the reductions for most farmers were modest. Around 80% of claimants would have received a reduction of around 5%, which is within the scope of the year-to-year variance experienced historically in any case due to currency fluctuations.
On the impact on the internal market from phasing out direct payments, these payments are largely decoupled from production and therefore they should not be trade distorting. Within the UK, there are already significant differences in the implementation of direct payment schemes, and while direct payments currently form an important contribution to farm income, as the noble Duke, the Duke of Wellington, said, in many cases it is critical—the reason they are still in business. They can nevertheless hamper productivity growth in the agriculture sector and drive up land rental prices. Removing them should raise our agriculture sector’s productivity across the board, leaving our farmers in a better position to compete.
The noble Baroness, Lady Jones, also asked what tests would have to be met before the Government agreed to deviate from the rollout of the basic payment cuts. Defra regularly gathers and publishes statistical data on the current state of the industry; for example, the results from the 2021-22 Farm Business Survey, which will cover the first year of progressive reductions, will be published this autumn. Data is also gathered through bodies such as the Animal and Plant Health Agency and the Rural Payments Agency, and that includes information on various aspects of the sector, such as the impact of reductions in direct payments. That allows the Government to monitor the sector and to make better decisions on the future of farming.
The Government are committed to phasing out untargeted direct payments. We do not believe that they are the best way to support farmers, as I tried to explain in my introductory remarks. The noble Baroness also asked about the savings being made from the first year of the basic payment reductions. For 2021, approximately £178 million was freed by reductions to the payments. This is being redirected into delivering other schemes for farmers.
The noble Baroness, Lady Jones, also asked for reassurance, as I think did my noble friend Lady McIntosh, that none of the allocated money from direct payment reductions has been reclaimed by the Treasury. All the funding released from reductions in the direct payments is being reinvested into delivering other schemes for farmers and land managers during this Parliament; it is not being hoarded for long-term future use. That amounts to an average of £2.4 billion a year over the period 2021-22 to 2024-25.
We have been clear all along that we will spend money where it delivers for the environment, alongside food production, and we need to support changes across the entire farm landscape to deliver those broad and connected ambitions. That is why we have increased the countryside stewardship payments by an average of 30% and introduced the sustainable farming incentive. Direct payments are not about food production. The decoupling of payments from food production took place around 15 years ago. Our evidence suggests that the removal of direct payments in England would have only a marginal effect, if any, on overall food production.
With regard to the Agriculture (Financial Assistance) (Amendment) Regulations 2022, a shared enforcement framework was previously established by the Agriculture (Financial Assistance) Regulations 2021, ensuring that powers of entry will be exercised, and inspections carried out consistently across the schemes. This instrument extends that framework to cover additional new financial assistance schemes and broaden the investigative powers of the Secretary of State, in a manner consistent across the different schemes. Training and guidance will also be provided to those authorised with powers of entry or to carry out inspections to ensure that these are exercised in a consistent way.
The noble Baroness, Lady Bakewell, asked about the tree health pilot scheme and the annual health and welfare reviews being exempt from publication requirements; she wanted to know why that was the case. Specific location details and personal information identifying a land manager or landowner in relation to tree pest and disease findings will not be published. This information is considered to be sensitive and potentially damaging to the individuals or businesses concerned. It could also inhibit the reporting of future cases of pest and disease outbreaks. We will, however, publish aggregated data for these payments.
The noble Baroness, Lady Bakewell, also asked about the level of fraud in the farming community and overpayments. These regulations offer a range of enforcement measures to deal with fraud or breaches of scheme rules, including the withholding of financial assistance, recovering financial assistance previously awarded, and prohibiting a person from receiving financial assistance for up to two years. Appropriate sanctions will be available and applied where there are clear cases of misuse of public funds; for example, through neglect, serious cases of non-compliance or fraudulent behaviour. The noble Baroness asked for specific numbers but I am afraid I will have to get back to her on that because I do not have them, but the point she made, echoed by the noble Baroness, Lady Jones, will have been heard loud and clear.
The noble Baroness, Lady Bakewell, asked when the guidance will be published for each financial assistance scheme. I understand the importance of giving farmers as much time as possible to plan. Detailed guidance for stakeholders will be published in good time ahead of each scheme being launched, giving farmers support to implement the standards and understand the new rules. This guidance will be written in plain English, which will set out and explain the detailed scheme rules and requirements. Some schemes, such as countryside stewardship and landscape recovery, are already live and appropriate guidance has been published. For other schemes, guidance will be published in good time ahead of their launch. For example, for the SFI scheme, we will publish final details of the offer for 2022 and scheme information later this spring—some might say we are in spring now, so shortly—ahead of opening for applications later in the year.
Without the Agriculture (Lump Sum Payment) (England) Regulations 2022, we will not be able to meet our public commitment to offer farmers a lump sum exit scheme this year. This would limit the options we can provide farmers as direct payments are phased out; it would also limit structural change in the farming sector. We believe that the calculation of the lump sum payment is fair. Our calculation means that, for most farmers, the lump sum will be approximately equivalent to the amount they might otherwise receive in direct payments for the years 2022 to 2027, as these are phased out over the remaining years of the planned agricultural transition.
The noble Baroness, Lady Bakewell, asked about the rationale behind the stipulation to retain five acres. Well, farmers will be able to keep up to five hectares of agricultural land. This allows, for example, a farmer to keep some land around or near their farmhouse. We feel this flexibility will help with uptake of the scheme, which will create more opportunities for new entrants and expanding farmers. In relation to the question that she asked about trees, all publicly subsidised planting has to comply with the UK forestry standards. They are based on a UN-sanctioned approach to sustainable forest management. The UK forestry standards are, in effect, a live document that is being updated all the time. At the moment, the emphasis is placed heavily on the need to use public money to deliver the maximum possible public good. This means not just having monoculture conifer plantations, but ensuring we have a genuine yield in biodiversity and numerous other public benefits, such as flood management and flood prevention. As it happens, the overwhelming majority of woodland creation supported by the Nature for Climate Fund grant schemes will be native broadleaf. That can be judged by the applications coming in, even though this very new fund is in its first year.
Returning to a question put to me by the noble Baronesses, Lady Bakewell and Lady Jones, which I realise I did not answer, we think that the lump sum exit scheme will free up land for new entrants and expanding farmers. It is about providing opportunities for farmers, rather than aiming for a particular balance between those entering the sector and existing farmers who wish to expand. We recognise the importance of providing additional support for new entrants alongside that lump sum exit scheme. Attracting new talent into food and farming is vital, if we want a sustainable and productive agricultural sector.
As set out in our agricultural transition plan for 2021 to 2024, we will provide funding to create lasting opportunities for new entrants to access land, infrastructure and support to establish successful and innovative businesses. In January this year, the Secretary of State announced the development of incubator pilots for new entrants, with council farms playing a key role. The details of the pilots are currently being designed and we hope to launch the pilot scheme later this year.
The noble Baroness, Lady McIntosh made a number of comments and raised questions, some of which overlapped with points made by the noble Duke, the Duke of Wellington, particularly on small and tenant farmers. At the end of January this year, the Secretary of State announced an independent review, chaired by the noble Baroness, Lady Rock, dedicated to looking at how Defra schemes can better support the tenanted sector, as farming in England is reformed to be more sustainable. The review period is expected to be six to nine months, and it will publish its findings and recommendations later this year. I will not go into all the details on the group of experts—who has been selected and how, or who they represent—but it is a broad range and I am happy to provide that information if the noble Baroness would like me to. I could tell her now, if she asks, but I am worried about the time.
Baroness McIntosh of Pickering (Con)
I have that already. I am just slightly disappointed that the working group will not now report for nine months; it was meant to report within six months.
Lord Goldsmith of Richmond Park (Con)
I said six to nine months; I am afraid that is the answer I received. I shall check on the timescale, but I assume six to nine months is correct, since that is what my colleague, my noble friend Lord Benyon, has told me.
The noble Duke, the Duke of Wellington, raised a broader point beyond tenant farmers, about small farmers. He is right: small farmers are the backbone of our countryside, and any policy that results in a reduction in the diversity, breadth and viability of our small farmers is not a good one. They are critical to the future sustainability of our countryside. Farmers will be supported throughout the seven-year transition period to the new system. We are reducing direct payments, as the noble Duke said, but that will be gradually over the seven years, which will give farmers time to adapt and take advantage of the new offer. Money saved by direct payment reductions will be reinvested directly into English farming and agriculture through our new schemes. The Government are committed to providing the same cash total to the sector in each year of this Parliament. Some £10.7 million of funding has already been awarded through the interim phase of the future farming resilience fund. That provides, among other things, free business support to farmers and land managers to help them navigate the changes during the early years of the agricultural transition period.
Upland farmers have a particularly important role to play in addition to that of food production, and that is in land management. In their contribution to alleviating the threat of floods, which blight so many communities in this country, there is almost no one in a more important position than those farmers. They are absolutely in the mix when it comes to the new system that has been designed.
I turn to the questions asked by the noble Lord, Lord Carrington, and my noble friend the Duke of Montrose. My noble friend asked what proportion of the money would be spent on schemes which are not related to farming and are purely conservation. Again, I cannot give him a direct number, but there are schemes beyond the system being described today which are designed to support, for example, natural regeneration or tree planting, most of the funding for which comes from the nature for climate fund. We are talking here about a slightly different system which the nature for climate fund supports, but ultimately this is all about good land management.
The Government published a paper, which was updated in September 2019—I may have mentioned it earlier—setting out the impacts of removing the direct payments. That paper is being updated as we speak. The delay is caused by the conflict in Ukraine.
My noble friend and the noble Lord, Lord Carrington, talked also about the impact on consumer food prices. The analysis that we have made in Defra suggests that any effect of direct payments on consumer food prices is limited. However, we are doing a full impact assessment on food security up to 2024, and the results will be made available and will inform future policy design.
It is important that we continue with the transition as planned. Applying reductions to direct payments frees up money which we can use to pay farmers and land managers to encourage environmental protection and enhancement, public access to the countryside, and the safeguarding of livestock and plants. We must also provide opportunities for farmers who wish to leave farming to do so in a managed way. These instruments will allow the Government to ensure that this can be done. I hope that I have answered the key questions put to me today. I beg to move.