2 Dec 2020

Pain Today - Jam Tomorrow

It is not often that agricultural finance makes it into the front pages of the daily newspapers, but George Eustice’s presentation to the Oxford Farming Conference on 30th November did precisely that. “The Path to Sustainable Farming” - his long awaited follow-up to the 2018 “Health and Harmony” consultation, sets out his view for a “moment of change, where, for the first time in fifty years, we have a chance to do things differently”.

The whole document runs to some 66 pages, so unsurprisingly has been paraphrased by commentators. It gives some further details of a range of new initiatives, but more importantly for most farm businesses, it also elaborates on the effect which the first few years of the new regime will have on existing farm subsidies.

The withdrawal mechanism is set out in tabular form, but it is actually surprisingly simple. In 2021 the Basic Payment Scheme (BPS) subsidy will be reduced by 5% on payments up to £30,000, 10% on the next £20,000, 20% on the next £100,000 and 25% on anything above £150,000. The deductions are cumulative, so for example, a recipient of £40,000 in 2020 would see his 2021 payment reduced by 5% on the first £30,000 and 10% on the balance leaving him with £37,500. Over the three succeeding years all recipients will see 15% annual reductions, so his subsidy cheque will drop by £6,000 each year until by 2024 it will be £19,500 only. No detail is given of reductions in the last three years of the scheme, but we do now know that by 2024 all farms will have lost at least 50% of their direct payments and some may have lost nearly 70%.

In addition to confirmation of expected bad news, the paper also offers some comfort. There is confirmation that the agricultural support budget will, in aggregate, remain unchanged over the life of this parliament, with the direct payments that have been withdrawn flowing into alternative and more targeted measures. In 2022 there will be a “Sustainable Farming Incentive” (SFI) scheme which will reward those whose farming methods “improve soil health, enhance hedgerows and promote integrated pest management”. The existing Countryside Stewardship schemes (CSS) will continue to be available until 2024 – although there would seem to be some overlap, benefits provided under SFI must be additional to those provided under CSS. Looking further into the future, SFI looks very much like the basic level of earlier environment schemes such as the old Entry Level Scheme, and it has been designed as one which most farms will be able to easily adopt. The higher tiers of the Environmental Land Management Scheme (ELMS) will become available after 2024 and broadly will involve habitat creation or restoration on a local or landscape level.

In addition to ELMS, the paper offers several new initiatives in the future, including:

  • A slurry investment scheme from 2022 to give funding for the improvement of slurry systems
  • Schemes for tree planting, peatland restoration and nature recovery from 2024
  • A specific and time limited package to help those farming within “protected landscapes”
  • Measures to promote animal health and welfare including grants towards handling facilities, diagnostic testing and some associated veterinary input.
  • Grants for water storage, precision farming machinery, specialist forestry equipment and some sorting and processing plant
  • Help for new entrants from 2022 partly via the County Farms Network
  • An exit scheme from 2022 to help farmers who wish to retire by way of enabling them to take remaining subsidy payments as a lump sum.

It will be noted that whilst the withdrawal of BPS is outlined in some financial detail, the precise terms and amounts of the successor schemes are still somewhat vague. Commentating on the changes, Monahans agricultural partner Andrew Perrott remarked “We have been waiting for this news for some time and it contains little to surprise us other than a certain amount of “jam tomorrow”. The BPS payments represent a major source of income for many farming businesses and now that the timescale for their removal has been confirmed, there can be no excuse for failing to grasp the nettle of restructuring and reorganising”

If you wish to discuss this further, please contact Andrew Perrott.