Sustainable Farming Incentive

Statement

The following Statement was made in the House of Commons on Wednesday 12 March.

“With your permission, Mr Speaker, I would like to update the House on the sustainable farming incentive.

We stand on the edge of an unprecedented global transition for British farming. From leaving the European Union to the challenges of climate change and geopolitical events, we are asking more of farmers than ever before: to continue to produce the food that feeds the nation and to protect the environment on which our long-term food security depends. We are determined to create the conditions for farm businesses to be profitable and succeed. We are proud to have secured £5 billion for farming over two years: the largest budget for sustainable food production in our country’s history. That is £1.8 billion for customers already in agreements, £1 billion for farmers now in SFI agreements and a further £150 million for farmers in the SFI pilot.

Labour has got that money out of the door and into farmers’ pockets. We have invested it to bring thousands more farmers into environmental land management schemes, which were vastly underspent by the previous Government, to make a record number of capital items available for the coming year to help farmers carry out actions under the SFI and Countryside Stewardship, with £600 million available for productivity, animal health and welfare innovation, and other measures to support agricultural productivity, as well as 50 landscape recovery projects across the country. We have responded directly to calls from the sector to roll out a new higher- tier scheme, and to increase payment rates so that higher- level stewardship agreement holders—many of them upland farmers—are fairly rewarded for their work.

More than half of all farmers are now in schemes, with 37,000 live SFI agreements and 50,000 farmers in ELM agreements. Under the SFI, 800,000 hectares of arable land are being farmed without insecticides, 300,000 hectares of low-input grassland are managed sustainably, and 75,000 kilometres of hedgerows are being protected and restored, which is a huge success for nature. I thank all farmers involved and reassure them that all existing SFI agreements will be honoured.

Farmers will continue to be paid under the terms of their agreement for its duration. If they entered into a three-year SFI agreement earlier this year, they will be paid until 2028. If they submitted an SFI application but this has not yet started, that will also be honoured. All farmers who took part in the SFI pilot will be able to apply for an agreement.

With the high uptake of the scheme, however, the fact is that it is now fully subscribed. This Government inherited SFI with no spending cap, despite a finite farming budget, and that cannot continue. We will continue to support farmers to transition to more sustainable farming models, including through the thousands of existing SFI agreements over the coming years and a revamped SFI offer. But this is an opportunity to improve how we do that under a fair and just farming transition, which supports farms to be profitable businesses in their own right through fairer supply chains, better regulation and greater market access, and directs public funding in a fair and orderly way towards the priorities that we have set out on food, farming and nature. We will be strategic in how we design our schemes, and responsible within the available budget. This is about using public money in a way that supports food production, restores nature and respects farmers as the businesspeople they are.

SFI can and must work better for all farms and for nature, and I will set out the details of the revised SFI offer following the spending review, including when it will open for applications. We will work closely with the sector to design an improved scheme so that it can tell us what works best for its businesses. We will also put in place strong budgetary controls so that SFI is affordable to the public purse. The revised offer will align with our land use framework to better target SFI actions fairly and effectively, focusing on helping less productive land contribute to our priorities for food, farming and nature.

The underlying problem facing the sector, however, is that farmers do not make enough money. The Government are changing that. [Interruption.] Opposition Members may laugh but businesses do need to make money; they might need to know that. We announced a new set of policies at the National Farmers’ Union conference last month aimed at improving farm profitability, securing our food security, and protecting nature. Through our farming road map, we are creating the conditions for farmers to run profitable businesses that can withstand future challenges.

This decision is about investing in long-term stability. It is about a future where farmers are supported to run profitable businesses, and where public money is used in a better way to better restore nature and to secure long-term food security”.

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?

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.

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.

My Lords, the Minister in the Commons told the House of Commons that he knew for five years that the money was going to run out, but he said nothing. Instead, he waited until the money ran out and slammed the door— overnight—on more than half of English agricultural holdings, in breach of the six-week notice period that was cynically, overnight, airbrushed off the Defra website. His only reason for this was that there might otherwise have been a rush of applications. His only advice to farmers was to apply immediately for any new SFI that is opened, which is surely itself a recipe for a precipitous rush. It also ignores that inquiries to Defra by farmers seeking to get their applications right take months to get a reply. It took me three years to get answers, and those were still incomplete when the scheme was shut in the face of my family farm.

Finally, the Minister then tells hard-pressed rural communities that his department running out of money should be “a cause for celebration”. I cannot help but recall the rustic expression, “Don’t piddle down my back and tell me that it’s raining”. Can the Minister tell the House what lessons have been learned from this latest disaster for so many family farms?

As I mentioned earlier, this is not the first time that SFI has been paused. The way the scheme operates is that it opens for applications and, when the funding is used up, it is then paused until we look at the next round of SFI funding. It is difficult to judge when that is likely to come to an end. In response to the noble Lord’s final question, we are aware that the SFI scheme needs reforming, which is what we are now looking at doing. We need to get it right and we need it to work better for farmers and for the environment. That is why, as I mentioned, we will be talking to stakeholders, including those who use the scheme and those who we would like to use it but who perhaps find it difficult to apply to at the moment. I am particularly talking about smaller farms and upland farms; we need to be much more targeted on them. We are aware that we need to reform it, and we are working on that at the moment.