Rural Landlords and Land Letting: Reform

Lord Faulkner of Worcester Excerpts

Thursday 21st January 2021 Grand Committee

[Lord Carrington (CB) [V]]

My Lords, I declare my interests, as set out in the register. This debate enables the airing of some important considerations in relation to tenancies and taxation. However, with the huge number of uncertainties facing farming now that the Agriculture Act has been passed, the timing is not right for further legislation. The Government have succeeded in abolishing the old agricultural system but have not announced in any depth what is the replacement.

[The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)]

We have to stop for five minutes while a Division takes place in the House.

[Baroness Bloomfield of Hinton Waldrist (Con)]

That was not the Bell—it was the noble Lord’s phone.

[The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)]

I apologise to noble Lords—can the noble Lord resume, please?

[Lord Carrington (CB) [V]]

I was saying that the Government have not announced in any detail what happens next, so farmers are unable to plan. This could involve both tenancy and tax matters. For example, let us suppose that they want to enter a tree-planting scheme under the ELMS, and their tenancy excludes silviculture, or the ELM scheme that they enter has a 25-year life, whereas their tenancy is a 10-year FBT, and so on. Details of ELMS may be unavailable until 2024. Those are the real issues that must be resolved by the TRIG.

The introduction of ELMS may have adverse tax consequences, as current tax rules operate as a disincentive to diversification in how they treat investment and trading activities differently. Leaving aside that information gap, I congratulate the Government on the reform measures in the Act, which were agreed by the whole industry, rather than spending time on divisive old chestnuts such as reform of AHA succession provisions. These restrictive tenancies, designed for issues of a different age, do not satisfy either landowners or succeeding tenants, who want the flexibility of an FBT where consensual terms are agreed. Other mooted changes such as introducing reasonableness tests and minimum tenure FBTs are unlikely to secure widespread industry support. I urge all reform to be on a consensual basis.

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[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Gardiner of Kimble) (Con) [V]]

My Lords, I start by declaring my farming interests as set out in the register. With agricultural tenancy matters being devolved, I speak from an English perspective. I express my gratitude, along with other noble Lords, to my noble friend Lady Rock for raising this matter for debate as we start the transition towards a new domestic agriculture policy—a transition that we believe will help our farmers to stay competitive and produce high-quality food, for which they are renowned, while protecting and enhancing the environment, on which a sustainable and productive future depends.

To put the importance of the debate in context, as has been said, a third of all farmland in England is tenanted, with 13% of farms wholly tenanted and 33% with a mixed tenure, both owning and renting land. This variety in land tenure and the ability to rent land flexibly is important, because it enables tenants and owners to expand, responding to market changes by renting out additional parcels of land. It also provides a route into farming for new entrants, bringing new skills and ideas into the sector.

I say to the noble Lord, Lord Clark, and my noble friend Lord Inglewood that I am fully seized of the points made about Newton Rigg. I am in dialogue with the Department for Education and I understand that feelings are running high in Cumbria.

The Government believe that a vibrant and flourishing tenant farming sector is vital. The legislative framework for agricultural tenancies must enable the development of successful farm businesses for tenants and an appropriate rental return for owners. This is how we will maintain confidence in the let sector and ensure ongoing opportunities for tenants and new entrants to land.

As many will recall, we discussed during the passage of the Agriculture Bill the importance of new entrants and the role that renting land through the county farm system has played in facilitating that. In the agricultural transition plan, the Government have set out plans for a new funding scheme to create lasting opportunities for new entrants to access land, infrastructure and support to establish successful and innovative businesses, working with county farm estates and other landowners. We have started work to develop this new entrants scheme through a co-design process, with the aim to provide further details by September and introduce the scheme in 2022.

My noble friend Lady Rock highlighted the role of the Tenancy Reform Industry Group. Defra has regular meetings with TRIG to discuss tenancy policy and legislation. I express my personal thanks to all TRIG members for their work over many years in providing expert insights and advice, but it is the responsibility of government to decide policy.

I hope everyone would agree that developing consensus is the best way forward. A number of points have been made on this. I think the noble Lord, Lord Curry, raised partnership. No contractual arrangement flourishes if one or both parties are unhappy. That is why having the confidence to let more land is key to the route to getting more entrants into the let farming sector. If confidence is undermined, what is to prevent owners withdrawing let land and reducing the opportunities we all dearly want for existing and future tenants to come into the sector?

The tenancy reforms the Government delivered through the Agriculture Act 2020 had widespread support from TRIG and other respondents to our 2019 public consultation. These reforms have helped to modernise and update the Agricultural Holdings Act 1986. They give tenants greater flexibility on when to apply for succession on retirement, modernise the suitability test for incoming tenants, and provide a balanced dispute process for tenants who would be unreasonably prevented from varying outdated, restrictive terms that might be a barrier to entering into future schemes.

The focus of these tenancy reforms is specifically on the older, 1986 legislation, not on the more modern farm business tenancies. This is because agreements under the 1986 Act were negotiated more than 30 to 40 years ago in a very different commercial and policy environment. My understanding is that, with 19,400 AHA holdings and 17,600 FBT holdings, we are seeing a reduction in AHA holdings and an increase in FBT holdings. Of course, we want modern commercial agreements, which the FBTs can provide, negotiated more recently with freedom of contract. They are reviewed more regularly, giving tenants the opportunity to renegotiate terms if that is deemed necessary. That is why the responses to our public consultation, in terms of reform of dispute provisions, for example, were very much concentrated on AHA holdings tenancies.

The Government are working with TRIG to develop the supporting regulations to implement the 1986 Act dispute reforms and to modernise the suitability test criteria for tenants who apply for succession. This will make sure that a fair dispute process is put in place that considers the interests of the tenant and the landlord and that incoming succession tenants show that they have the farming and business skills needed to build viable businesses in future. Following two recent constructive meetings with TRIG, we are making good progress with developing these regulations and, subject to parliamentary time, we intend to implement them later this year. When this focused work on the new tenancy regulations is completed, we will continue our engagement with TRIG to explore whether there is industry consensus on the need for further legislative reform and to consider whether non-legislative options might be effective.

I turn to taxation. One of the first things that I was told when I went on the Front Bench was, “Be very cautious if engaging in taxation matters and always say, ‘This is a matter for the Chancellor’”. I would say to noble Lords that, in my briefing for this debate, I was very pleased to be joined by, as well as my officials, Treasury officials. I will be passing back to the Treasury and assessing the points that have been made in this debate on taxation and I am grateful to all noble Lords for raising those matters. I recognise that the fiscal framework plays an essential role in owners’ decisions whether to let land and on the length of tenancy terms offered. However, I think that other factors are important, too, such as the size, quality and location of the land and personal motivations for owning it.

I am aware of the work that TRIG has done to investigate tax issues, suggesting that tax changes might help to incentivise the letting of agricultural land and encourage longer-term tenancies—for example, through limited income tax relief on farmland rents. The Government are committed to a fair and sustainable tax system and keep all taxes under review as a matter of course—that is the Treasury bit. The impact and potential unintended consequences of tax reform need careful analysis, as I hope everyone would agree.

For example, the proposal from the Tenant Farmers Association to limit the availability of agricultural property relief to owners who let land for 10 years or longer could result in owners instead using other ways—for instance, contract farming or taking the land back in hand—to retain the benefits of that relief. I am mindful of wanting to have the right climate for owners—I think particularly of smaller parcels of land. Unfortunately, there is a historical feeling that this is always about the big estates and small tenant farmers. I think that the opportunities for more land coming on to let will be from medium and smaller-size farmers who no longer want to farm and want to have someone, possibly a neighbour or a new entrant, coming into the industry. Relationships are again essential.

I understand the point made by many noble Lords about longer-term tenancies. It is recognised that they provide security for many tenants to invest and grow their businesses. It is also important to understand that shorter-term tenancies can sometimes be more suitable for businesses—I have heard that from certain quarters, including my noble friend Lord Taylor of Holbeach, who is engaged in a number of these matters. Short-term lets may be more appropriate for some new entrants looking to rent land on a short-term basis to gain experience without committing to long-term potential risks. Short-term lets can also be more suitable for some seasonal horticultural businesses. The flexibility over the length of tenancy and maintaining owners’ confidence in the let sector can only encourage more agricultural land into the let sector. However, I understand the points that have been made about longer tenancies and their dynamic.

Turning to ELM, raised by many noble Lords—my noble friends Lord Caithness and Lady McIntosh, the noble Lords, Lord Greaves and Lord Redesdale, and the noble Earl, Lord Devon, among others—what we are doing here is co-designing. It is essential that we work across the piece with tenant farmers and those working on common land. As part of our co-design process with industry, we are considering questions about the need for landlord consent to tenants entering schemes and the length of scheme agreements to ensure that our future schemes are broadly accessible, as well as providing the stability needed to support the delivery of public goods, such as environmental improvements. Indeed, one of the tests and trials includes six areas where landowners and tenants are working together. An example is an estate in County Durham and North Yorkshire covering an area of more than 7,000 acres. This is about a collaborative system of planning and delivering environmental management on land that encompasses a variety of farming systems and a tapestry of habitats. We want to ensure that the collaboration between tenants and owners can be supported and incentivised.

Many noble Lords asked about further legislation. I would not be straightforward with your Lordships if I did not say that the pressure on primary legislation at the moment across Whitehall is intense. Therefore, it would be wrong of me to make a promise to my noble friend Lady Rock on the timing of any further legislative proposals. We want to get through what we have said we will do with the Agriculture Act 2020 and see how that works. We want to work with TRIG and all interested parties to see how we can have a dynamic tenanted relationship and system. It would be wrong of me to say that I can promise primary legislation in the foreseeable future. I say that candidly because I simply do not have command of the legislative programme. We want to find ways to resolve the points that have been raised today so that there is a genuinely benign and dynamic relationship between owners and what I hope will be an increasing number of new entrants. That is why the work that we are doing with the county farms is so important.

A number of noble Lords raised the issue of trees. Obviously, we want to ensure, whether on owned or tenanted land, that it is the person engaged in the outcome of this, whether the tenant or the landlord, and the person who will be undertaking the work who should have the reward. Where tenants are undertaking that, of course they should be rewarded.

I am starting to get messages of concern from our gallant Whip about the time that I am taking. I assure all noble Lords that these matters are current and live. I am grateful to my noble friend for raising this important matter, as reflected by the considerable number of your Lordships who have participated in the debate, and I will follow it up with a letter in the usual manner to cover some of these important points in further detail.

[The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)]

As this debate has now concluded, the Grand Committee stands adjourned until 3.45 pm. I remind Members to ensure that they have sanitised their desks and chairs before leaving the Room.