Rural Landlords and Land Letting: Reform

Question for Short Debate

Asked by

To ask Her Majesty’s Government, further to their discussions with the Tenancy Reform Industry Group, what plans they have to reform (1) legislation, and (2) taxation, related to rural landlords and the letting of land.

My Lords, I declare my interests as set out in the register as a director of Wrackleford Farms, a tenanted farming business. I thank all noble Lords taking part in this important debate today, and greatly look forward to their contributions. I also thank my noble friend the Minister, who so recently took the then Agriculture Bill through this House. I was most encouraged by his supportive comments on the vital importance of agricultural tenants.

The tenanted sector of agriculture brings together those with assets—landowners—and those with entrepreneurial flair—tenants—to create sustainable and profitable businesses while providing landowners with a return through the payment of rent. The landlord and tenant system also provides liquidity to the most fixed factor of production in agriculture: land. Farm businesses looking to expand or contract can use the flexibility of the landlord and tenant system to meet those objectives. Also, agricultural tenancies remain the only viable route for many aspiring farmers to enter the sector.

It is disappointing that this important sector is adversely affected by short-term thinking. The introduction of the Agricultural Tenancies Act 1995 represented a major deregulation of the legislative framework within which agricultural tenancies operate. A key change was to lengths of term. Prior to 1995, new tenancies could be let only for the lifetime of the tenant, whereas under the new legislation there was no minimum term. A major problem before 1995 was that landlords were reluctant to let farms, knowing that they would be let for a generation. As a result, the size of the tenanted sector was in decline. However, this legislation has allowed the pendulum to swing too far in the opposite direction and now the average length of term on new tenancies is, remarkably, under four years. This means that farm tenants cannot plan for the long term, either in relation to their agricultural activities or in their desire to take part in diversification and new agri-environment schemes such as the proposed ELM schemes.

The Tenant Farmers Association has long asserted that the best way to address this is through amendments to the taxation environment within which landlords make decisions about land use. To do this, it has proposed the following sensible changes to taxation: first, restricting the generous 100% relief from inheritance tax, currently available to all landlords regardless of the length of time they are prepared to let land, only to those prepared to let land for 10 years or more; secondly, restricting those landowners that use share farming, contract farming, share partnerships and grazing licences as thin facades of trading activity to gain tax advantage when in practice they take no risk, have no entrepreneurial input and lack any management control; thirdly, offering landlords who are prepared to let for 10 years or more the ability to declare their income as if it was trading income for taxation purposes; and finally, reforming stamp duty land tax to end the discrimination against longer tenancies. This is an area where there appears to be a consensus between those organisations representing landlords and those representing tenants. It seems odd that government policy is to encourage longer farm business tenancies on the one hand and then to penalise those long-term tenancies through the way that they are taxed through SDLT. I seek an assurance from the Government that this issue is reviewed. On taxation, while I appreciate that the Minister does not speak for Her Majesty’s Treasury, it would be instructive to hear whether his department supports these measures and whether he will discuss these matters with his Treasury colleagues.

I thank the noble Baroness, Lady Rock, for giving us this opportunity to debate this important issue. I began my working life on the fells of Cumbria and have maintained an interest in upland management ever since. The Government’s Agriculture Act 2020 potentially offers great opportunities for the upland, with public payment for public good—blending environmental, forestry and farming approaches —but there are challenges. In recent days, an issue has come to the fore in Cumbria that illustrates this.

For over a century, the Newton Rigg agricultural college has provided research, advice and education throughout the area, particularly in upland management as well as mixed dairy. Furthermore, it was the National School of Forestry for England—a highly respected college. About 10 years ago, Askham Bryan, a college in Yorkshire, acquired Newton Rigg for the token amount of, I believe, £1. Now, facing severe financial difficulties itself, it has put the assets of Newton Rigg up for sale. The tenants, Newton Rigg, obviously will lose their asset, which is their land. This is simply a piece of asset-stripping of the worst kind and it will remove a time-honoured source of advice to upland farmers in particular, when it is most needed. The move has caused great difficulties across Cumbria. Will the Minister heed our voices and, perhaps, help?

My Lords, I declare my interests as set out in the register. I own two tenanted farms in north Northumberland, in the Redesdale valley, both of which are governed under the 1986 Act. The farms are family-run businesses that have passed down through the generations and hopefully will do so in the future.

Upland hill farming at present does not make much money; incomes are low and therefore farm rents are not high. When the necessary and growing legal responsibilities of landlords are included, such as the recent electricity safety regulations, there is the real possibility that landlords can make a loss year on year. In my case, I calculated that if I rented out the farmhouses as holiday cottages, I would make far more than I do at present renting out the entire farm, although I should stress that I have no intention of doing this.

I raise this issue because upland farm incomes are moving from being based on traditional intensive stock rearing to environmental improvement schemes. While this is an important transition, understanding how these schemes will affect farm income in the long run will be vital, as many of the schemes, such as tree planting, will be funded in the short term, but there needs to be consideration and clarity on how this will be sustainable in the longer term when the schemes end. The Government’s target for tree planting, for capturing carbon, will require vast areas of woodland to be planted. I have planted thousands of trees, which is great for biodiversity, but it is taking land out of grazing and therefore income from the farms in the longer term.

Predicting future income sources when the entire funding of farming is changing is difficult and will cause many disputes between landlords and tenants. Any certainty that the Government can give in a post- CAP world, especially on the longer-term income from environmental stewardship schemes, will be vital for the take-up and sustainability of those schemes.

My Lords, I declare my interests as listed in the register. Interestingly, they include having been both a landlord and a tenant, so I see both sides of this argument. I endorse a lot of what the noble Lord, Lord Redesdale, has just said, particularly about finding more ground to plant trees. We have to approach these changes carefully. Noble Lords may recall the 1986 Act, which was intended to help young farmers. It was one of the best examples ever of the law of unintended consequences, in that no new farm tenancies were issued, as far as I know. However, I believe passionately that we need to make it easier for young people to get into farming. Unless you are very rich or you come from a landowning family, there is no chance whatsoever.

Looking at the whole question from the landowner’s point of view, again I think that we have to tread carefully, because people can be encumbered with families who do not farm well. If we extend things too far, you cannot get land back that you might want to use for your own family.

I would like to make one final point, which may not be raised by the other speakers. I feel, especially as we are now going to move to a new subsidy system, that we need to look carefully at how this is regulated and what clarity is given to it. For example, I have seen agreements where the landlord takes a subsidy and the tenant should pay slightly less, but it does not always work out that way. There have been problems on both sides—I am not blaming one or the other—but it would be useful to have clarity on this. That would help to remove issues that can cause conflict.

My Lords, it is a pleasure to follow the noble Lord, Lord Berkeley of Knighton, and to hear his interesting points. I also thank my noble friend Lady Rock for introducing this debate and setting out the important case for acting to help tenanted farms.

I want to express some concern about 1986 Act tenancies—that is, those granted before 1 September 1995 and hence still governed by the Agricultural Holdings Act 1986. About one-third of agricultural land is let. I am not sure what percentage is actually subject to the 1986 Act, and I hope that my noble friend the Minister, who is so adept in these areas, will be able to give that figure and also, perhaps, the number of farms in the country that we are talking about. But if he does not have that to hand—and I appreciate that these are relatively detailed points—perhaps he could write afterwards.

There often exists a problem with regard to succession rights for tenants under the 1986 Act. How can older tenants, with no immediate successor to whom they can transfer a tenancy, be encouraged to retire? I know that the Government considered extending succession rights to nieces, nephews and grandchildren but did not take up that proposal. Could my noble friend relook at that with the Government, because it seems a perfectly sensible proposal? I raise that point as there are limited options available to hand over to a new tenant when there are no immediate obvious successors.

I welcome much of what was done in the Agriculture Act 2020. However, as my noble friend Lady Rock pointed out, there are now problems with rather short leases. What are we doing to encourage landlords to let for longer periods? That is the only other issue that I wish to raise.

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.

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

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

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

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.

Please could the noble Lord draw his comments to a close, as there is a Division in the House?