Sustainable Farming Incentive

Baroness Grender Excerpts

Tuesday 18th March 2025 Lords Chamber

[Lord Roborough (Con)]

My Lords, I first declare my interests as set out in the register, in particular as a dairy farmer. I thank the Minister for repeating this Statement in your Lordships’ House and for allowing an opportunity to scrutinise the decision to cap sustainable farming incentives in this manner.

We on these Benches are proud of the Environment Act 2021 and of the transition in farming support payments to environmental land management schemes. ELMS is a crucial step in fulfilling our legally binding commitment to achieve a 30% recovery in nature by 2030, as well as ensuring that farming payments are for public goods. To cap the sustainable farming incentives with no notice, despite the Government’s own website informing that up to six weeks’ notice would be given for withdrawal of SFIs, is a betrayal of our farmers and our natural environment. Many were already facing unexpected financial hardship from the massive reduction in delinked payments, planning for the reduction in IHT reliefs, the increased minimum wage and national insurance contributions. This adds more pressure to those who were expecting to transition to SFIs this year but had not yet applied. Fewer than half of farm holdings that were in the basic payment scheme have SFIs.

The NFU’s farmer confidence survey shows farmer confidence in England and Wales at its lowest level ever. Some 88% of farmers believe the phase-out of direct payments will negatively affect their business, and 51% of farmers were planning to use ELMS to mitigate that phase-out. These dramatic changes in government support with no notice upset any attempt at budgeting, with costs already largely set for this year based on revenue projections that have now been dramatically cut. This will cause significant further hardship and heartache.

What assessment has been made of the impact of the SFI announcement on the financial viability of the farming industry? How many farms are likely to be pushed beyond breaking point this year? Has the estimated £400 million being cut from delinked payments been fully reallocated to the environmental land management schemes? Do the Government still intend to open the Countryside Stewardship higher tier this summer as previously committed to? In regard to the environment, what impact will the SFI decision have on compliance with the legally binding commitment delivered in our Environment Act to deliver improvements in biodiversity and nature recovery, given the central importance of farmers and land managers in achieving this?

Government messaging about the timing of new SFIs has been muddled, mentioning both 2026 and 2025 and it being potentially contingent on the finalisation of the land use framework. Please could the Minister be clear today on exactly when farmers will be given access to new SFIs and how their emphasis will differ from existing SFIs? Can the Minister also confirm that the £5 billion budget settlement for farming remains intact and will be fully distributed over the years ending in 2025 and 2026?

Given this Government’s disappointing financial decisions relating to farming and the wider rural economy, it would also be helpful if the Minister could enable us to understand what role she sees for private sector finance in replacing the public purse in land management. ELMS is an important segue into that, identifying valuable natural capital activities in land management, which in turn can morph into quantified public goods. In order for the private sector to step in, we need to see financial incentives. What financial incentives would the Government consider appropriate to deliver this investment? Will the woodland carbon code and peatland carbon code be admitted into the emissions trading scheme, creating real market demand? Will tax incentives be considered, or public bidding rules? Finally, could the water industry play a greater role in financing nature-based projects for reducing peak flow rates and flood events, and improving water quality?

The farming community needs help to plan after so many blows; I hope that the Minister can help with her answers.

[Baroness Grender (LD)]

My Lords, I thank the Government for the Statement. They will no doubt by now be aware of the significant disappointment and dismay the sudden closure of this scheme, without consultation or warning, has caused. What analysis did the Government do before this announcement to establish the likely impact on smaller farmers such as family farmers and those on significantly less than the minimum wage? Were there impact assessments in respect of farmers losing their basic payment this year with the immediate removal of SFI, and without, as yet, any clear replacement scheme?

Can the Minister please share with us the expenditure implications? It is our understanding on these Benches that if the BPS cuts this year are taken into account, more than £400 million of the £2.5 billion farming budget will remain unspent. Given that this was a budget intended to reward farmers for nature restoration and sustainable food production, can the Minister reassure us that this will not damage both? Can she explain how the Government will ensure that key environmental work is rewarded, and carried out by farmers who can no longer get access to this funding?

Does the Minister accept that there is a danger that the larger landowners, the ones that are more corporate, are highly likely to have already taken up the SFI and be part of the 6,100 new entrants this year? What advice does she have for the smaller operators, some of Britain’s poorest farmers, who are now left behind? Is she further aware that only 40 hill farms were new entrants this year, and that the previous Government failed to provide sufficient support for hill farmers, which in turn led to an over 40% drop in hill farm incomes in just five years? Is there any plan to help the small farms, upland farmers and commoners affected by this sudden change?

Can the Minister share with the House any discussions with farming stakeholders in advance of this change? Stakeholders tell us there were none, and the NFU said that it had just 30 minutes’ notice.

Finally, will the Minister please share what steps the Government will now take to increase the farming budget to reflect the Government’s nature and climate targets? We would be very happy to share the suggestions in our own manifesto if that would be in any way helpful. These targets, we would argue, have been greatly damaged by this cut in SFI.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)]

My Lords, I thank noble Lords for their interest and questions on the Statement.

Twice before, the SFI system has been paused when the funding had been used up from the applications and started up again. Although applications for the SFI 2024 scheme have closed, I want to reassure noble Lords that we plan to reopen the SFI application service once we have a reformed SFI offer in place. Ongoing ELM schemes are supporting farm businesses to remain viable as they adjust to the reduction of farm subsidies that noble Lords have referred to. The new figures published recently showed that the proportion of commercial farms with income from agri-environment schemes rose from 49% in 2021 to 70% in 2023-24. There is a success rate here.

The noble Lord, Lord Roborough, asked about funding from the delinked payments reductions. The money released from the reductions to subsidies is being reinvested through our other schemes for farmers and land managers. Every penny is staying within the sector.

Details of how the £5 billion for 2024-25 and 2025-26, which was secured in the last spending review as being spent, were published on our farming blog on 12 March, for noble Lords who are interested. This includes £1.05 billion on SFI and £350 million on other ELM schemes.

The noble Lord asked about the Countryside Stewardship higher tier. That is being rolled out in a controlled way by invitation, so that everyone will get the right level of support. Invited applicants will be asked to submit applications from this summer.

On the environment and environmental targets, which the noble Lords asked about, closing SFI for new applications will not have any impact on the environmental benefits that we are getting from the 37,000 SFI agreements that are already live, nor affect the outcomes we are getting from other agri-environment schemes. The Government are still committed to delivering on these environmental outcomes.

Some 4.3 million hectares of land are now in SFI agreements, which means that 800,000 hectares of arable land are being farmed without insecticides. We want to move further on this. This reduces harm to pollinators and improves soil health. Some 300,000 hectares of low-input grassland is being managed sustainably, which will help biodiversity and improve water quality. Some 75,000 kilometres of hedgerows are being protected and restored, and this provides essential habitats for wildlife, improves carbon storage and strengthens our natural flood defences.

Regarding the timing of the reformed SFI, we plan to reopen the online application process once we have finalised the offer. On the issue around small farms, upland farmers and commoners, we need to make it fit for purpose as it moves forward, so that we are talking to the right people and allowing the right kind of farms and communities to apply. We are considering what it needs to look like, taking those issues into consideration. Clearly, the spending review is also important. We expect to publish more information as to what it will look like and when it will come into play after that. We will work with stakeholders and farmers to review the scheme, to ensure that we are directing funding towards the actions that are most appropriate and have the strongest case for that investment.

We also want to align the SFI with our work on the land use framework and the 25-year farming road map that my colleague, the Farming Minister, is working on. We need to protect the most productive land and boost food security while we deliver for the environment and nature.

We are evolving the SFI offer and exploring ways to better target the money towards smaller farmers and the least productive land. We need to ensure that we get the outcomes that we need.

To confirm, the farming budget remains at £5 billion for this year and next year, as we previously announced. We are on track to spend all the funding that is available.

On private sector funding, which the noble Lord, Lord Roborough, asked about, the Government are committed to significantly increasing private investment in nature’s recovery. This will not only help us meet our environmental targets but will create opportunities for farmers and land managers to diversify their business revenues through the sale of services around nature and the environment. Those markets are small, but they are growing. We are going to consult on what additional action we need to take to strengthen those markets in the weeks ahead. In the recent land use framework publication, we announced a call for evidence to seek views on how we can better incentivise private investment in nature from the sectors that impact and depend on our shared natural capital. We intend to publish that later this year.

The noble Lord, Lord Roborough, asked specifically about the Woodland Carbon Code and the Peatland Code. The Government have launched a consultation on integrating greenhouse gas removals in the UK Emissions Trading Scheme—as the noble Lord knows, that was last summer. This included exploring the inclusion of the Woodland Carbon Code in the UK Emissions Trading Scheme. We are going to look at that consultation and respond in due course.

We are also exploring opportunities for expanding private investment in woodland creation. A few weeks ago, we launched the timber in construction road map, and we have an upcoming call for evidence on private investment for nature recovery. We also recently launched a tender to modernise the Woodland Carbon Code’s operations and the upcoming voluntary carbon and nature markets consultation, so there is quite a lot going on in that area.

On the water industry, we are aware of a number of water companies that are working to develop nature-based solutions and exploring actions to improve water quality and manage flooding. We are working with the industry to understand how we can promote the different benefits that come from this and to promote blended funding approaches. Through Ofwat, the Government are also supporting water companies to develop nature-based solutions—we have discussed this in other debates. It is an important focus for us. Mainstreaming nature-based solutions to deliver greater value is something we now have a grant to look at, so we can bring together multi- sectoral expertise and leadership, which is what we are going to need to facilitate and enable the proper, true transition to nature-based solutions.

I hope I have covered most things, but I will check and get back to noble Lords if I have not.