Direct Payment to Farmers (Reductions) (England) Regulations 2022

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Direct Payment to Farmers (Reductions) (England) Regulations 2022.

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.

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.

My Lords, I declare my interests as a farmer and landowner, as set out in the register. I am broadly supportive of the Agriculture Act and the introduction of the new system of public funds for public goods, but I need to hear what the Government have to say about the very different circumstances that apply today from when the Act was passed.

Like other noble Lords, and this was referred to by the noble Baroness, Lady McIntosh, I am most concerned with how the Secretary of State is reported to have said that rising input prices will be matched by rising output prices. This demonstrates a lack of understanding, particularly of businesses. The consultant Andersons has calculated that, whereas the average rate of inflation for consumers is 5.5%, it is 10% for farmers, when it is recognised that their principal inputs are fuel, feed, fertiliser, seeds and labour.

The Financial Times reported yesterday that the European Union is

“reviewing the bloc’s sustainable food strategy after a concerted push against the planned reforms by national governments, farmers and the agriculture industry.”

Is this debate happening here? Surely, in the unfolding circumstances of inflation and Ukraine it would be sensible, as a minimum, to delay the planned cuts in BPS payments for this year and maybe next. This would not involve additional government funding, only a delay to the introduction of the new schemes.

The new sustainable farming incentive support is, after all, a fraction of what farmers are due to lose in the BPS. This is important for smaller farmers with weaker balance sheets, as the stronger cash flow provided by the BPS would enable them to purchase inputs, such as fertiliser, on a more timely basis.

In this country, the Food and Drink Federation is now calling for a national food security council, which could work alongside the industry to enable a collective response to supply chain disruptions caused by immediate issues such as rising energy, CO₂ and fertiliser prices. Please could the Minister give us some indication of what the Government are doing to address all these important issues?

My Lords, I thank my noble friend the Minister for galloping us through these measures. The challenge for us in this Committee is not to detain him too long, so as to allow him to resume all the work he is doing. I echo much of what the noble Lord, Lord Carrington, said. I declare my peripheral interests; my agriculture and land are all in Scotland so I am not directly involved.

The rationale for this process of cuts is the same as when this was carried out in New Zealand. All input costs and other things—my noble friend the Minister mentioned rents—dropped in parallel with the cuts in government funding. In the current economic situation, there is no way that fertiliser companies have the slack to cut prices. They are being forced up, as my noble friend the Minister will know, by 200% or more. Will the Government be monitoring how this works out in practice and will they create powers to delay the introduction? It will stretch the lump sum payments if they are the only remedy that is available, and people are going to be forced out of business.

My noble friend the Minister has promised that there will be no reduction in payments to farmers, and I am sure he believes that, but what proportion are the Government expecting to go to conservation projects that are not related to farming? Will that considered to be part of the payment or are they going to be financed from elsewhere?

My Lords, I declare my agricultural interests as detailed in the register, although they are not particularly relevant to the point I want to make.

I do not think the Minister was in this House when we considered the Agriculture Bill in 2019—I cannot quite remember but I hope I am right about that. During the passage of that Bill, there was quite a lot of comment from many parts of the House about the position of smaller farmers, particularly hill and livestock farmers, most of whom are marginally profitable, if at all, and nearly all of whom depend wholly or almost wholly on the public subsidy that they receive. I made a plea at that point for the Government to consider not reducing the lowest band of the direct payments because those are directed only at the relatively small farmer.

I see in the regulations in front of us that, in fact, the smaller farmers—that is, those receiving £30,000 or less—are to receive a cut of 20%. That seems rather harsh. Although I am perfectly aware that there is no possibility of this regulation being amended, I wonder whether the two Ministers here would discuss with their ministerial colleagues the state of the small farms in this country. I do not believe that this Conservative Government really want to see small farms eased out of business. I am really worried about them.

The larger farms will get by. They have efficiencies, they are usually better capitalised; they will probably be all right under changed circumstances. But the small family farms, in many cases tenanted farms and/or livestock farms, are struggling and will struggle even more with these proposed cuts. I just do not feel that Ministers are sufficiently sympathetic to the position of small farmers at the moment. I would be grateful if the Minister could comment on that.

My Lords, I thank the Minister for his introduction to these three statutory instruments dealing with proposals for the transition to the new financial support payments for farmers in England post Brexit.

The first SI, which deals with direct payments and reductions, has been well publicised since Brexit and during the passage of the Agriculture Bill. Farmers’ payments under CAP have already started to decrease and this year will see a further reduction in their payments, from 20% for those on £30,000 up to 40% for those in receipt of more than £150,000. This sliding scale has been well trailed and there should be no surprise among farmers about its further reduction. What is more problematic for them is the lack of the implementation of ELMS to replace this lost income. Small farmers will be hit particularly hard.

Consultation on the transfer took place back in February to May 2018 and the new arrangement is now beginning to bite. Are the Government considering a further consultation on the actual effects of the sliding scale of reduction in direct payments, especially as the implementation of ELMS is only slowly coming into effect during the transition period? Meanwhile, food security is moving rapidly up the agenda.

While it is to be welcomed that the Government are focused on biodiversity and carbon sequestration targets, the knotty issue of food production is somewhat ignored. The British farmer is very disillusioned at the trade deals with countries on the other side of the globe which have a very different landscape in which to produce their livestock and huge economies of scale that are not open to British farmers. They also have less stringent animal welfare rules than those which operate here. It is, therefore, much easier for Australian and New Zealand farmers to undercut our own hard-working farmers. Does the Minister agree that farmers are angry about the way they are being treated by the Government and undercut by cheaper imports?

Paragraph 11 refers to Defra planning to provide detailed guidance for each financial assistance scheme. Can the Minister say when this guidance will be published? No impact assessment has been produced, on the basis that participation in the Government’s financial assistance schemes is voluntary. This is insufficient reason for not producing an impact assessment. What will happen if farmers decide that they simply cannot make a living out the new schemes and vote with their feet? The country will still need to engage in biodiversity, and it will certainly still need to produce food, especially given the current situation with the decline in food being imported from Ukraine and the rising cost of energy and fuel supplies.

I regret to say that I think it would be more truthful if this SI were renamed the “Agriculture (Financial Assistance) (Prevention of Fraud) (Amendment) Regulations”. British farmers are not all dishonest and on the fiddle. They are committed and hard-working, diligently and desperately trying to make a living during a very difficult time when there is little certainly for them, in an industry which is under threat in the long term. I look to the Minister to give reassurance that the ethos of this SI is misplaced and not borne out by the evidence.

Lastly, we come to the Agriculture (Lump Sum Payment) (England) Regulations 2022. It is important that new, hopefully younger, people are able to enter agriculture. Encouraging farmers to retire is important as this releases land for new entrants. I note that the SI refers to releasing land for existing farmers to expand. Can the Minister give reassurance that farmers wishing to expand will not push out the interests of new entrants? While it is important for small farmers to be able to expand their holdings when land is released, it should be in proportion to those wishing to get a toe-hold on the farming ladder.

The regulations make it clear that farmers have to release the land before they can receive the lump sum payment but may retain five hectares of land. Can the Minister say what the rationale is behind retaining five hectares? This may be standard practice but, as I am not a farmer, nor come from a farming family, it would be useful to know just what is behind this.

Paragraph 7.8 of the EM indicates that applicants who are part of a woodland creation scheme would not have to transfer their land. Can the Minister give reassurance that the woodland creation schemes do not include rapid growing conifers but the type of trees that are slow growing and likely to increase the biodiversity of the land and the return of species which have previously abandoned the area?

The instrument contains a formula for calculating what the lump sum payment will be. I readily admit that algebra is not my strong point, but can understand how this will be calculated. The maximum amount payable is £100,000 and Defra calculates that 87% of farmers will not reach this cap. This does not seem a sufficient reward to encourage farmers to leave the land after a lifetime of desperately early mornings, slogging through all weathers and very late evenings in order to supply milk, meat, vegetables and grain, often for a poor monetary return. Perhaps I am overly simplistic in my view, but I am not sure this is going to make the room for new entrants which the Government were hoping for—the noble Lord, Lord Carrington, referred to this.

This suite of SIs work together to give a package of measures across the farming industry which should bring some certainty to the farming community but which I fear are not likely to do so. Together with the existing trade deals and those currently under negotiation, it is no wonder that the British farming industry does not feel that the Government have its back.

My Lords, I thank the Minister for his introduction to these SIs, which, as he said, follow on from the detailed debates we had during the passage of the Agriculture Act, and indeed previous SIs which began to roll out the detailed proposals.

First, addressing the SI which introduces year 2 of the basic payment scheme reduction, as has been said, this is not a surprise, as the plan for this reduction in 2022 has been set out in previous documents. Nevertheless, even for the lowest category of claimants, a drop from 5% to 20% is significant. Already the farming press is reporting significant cases of hardship, and the noble Lord, Lord Benyon, recently admitted in the Chamber that it was hard to see how many upland farmers could continue to make a living under the new regime. We know, for example, that pig farmers have been particularly badly hit by what Victoria Prentis, the Minister in the other place, has described as an “exceptionally challenging period.” I therefore share the concern that several noble Lords raised about the Secretary of State’s comments last week, in which he said that the reductions in the basic payment scheme for farmers would be more than recouped by their increased income from the sale of produce. I do not think anyone of us felt that that was a reality, and indeed I very much share the comment of Minette Batters, who said

“one of us is … living in a #ParallelUniverse”.

I think she summed up the views of many when she said that. Perhaps the Minister could comment on what seems to be an unrealistic comment of the Secretary of State and say whether he agrees with it.

Of course, the Welsh Government have de-risked the changes by postponing the basic payment cut for a year to allow the farming community to adjust to the new arrangements. Can the Minister say what the impact of this is, with farmers receiving different subsidies throughout the devolved nations, and what is the impact on the internal market from the phasing out happening at different timescales?