Commons consideration of the Draft Direct Payments to Farmers (Reductions) (England) Regulations 2023 - Feb 28

Draft Direct Payments to Farmers (Reductions) (England) Regulations 2023

2.30pm
The Minister for Food, Farming and Fisheries (Mark Spencer)

I beg to move,

That the Committee has considered the draft Direct Payments to Farmers (Reductions) (England) Regulations 2023.

The Chair

With this it will be convenient to consider the draft Agriculture (Financial Assistance) (Amendment) Regulations 2023.

Mark Spencer

The Direct Payments to Farmers (Reductions) (England) Regulations 2023 were laid before the House on 31 January. I draw Members’ attention to my entry in the Register of Members’ Financial Interests. The matters in these two instruments are closely related and apply in England only. The instruments implement parts of the agricultural reforms we are making in England, using the powers in the Agriculture Act 2020.

The direct payments regulations apply progressive reductions to direct payments made to farmers in England for the 2023 scheme year. These reductions were first announced in the agriculture transition plan in November 2020 to help farmers with their business planning. We are now into the third year of our seven-year agricultural transition period, during which we are gradually phasing out direct payments.

We are committed to these reforms. We remain convinced that direct payments are not the right way to support farmers or to improve the environment. The payments are untargeted, provide poor value for money and have imposed unnecessary bureaucracy on farmers. We are continuing to reduce the payments in a fair way, with higher percentage reductions for payment amounts in higher payment bands. We also plan to continue to make direct payments in two instalments each year for the remainder of the agricultural transition period to help farmers with their cash flow. By continuing to phase out direct payments, we are freeing up money so that we can reward farmers through our new and existing schemes. That will deliver improved environmental outcomes and support sustainable food production. The Government will do that while remaining committed to maintaining average levels of investment in farming of £2.4 billion per year in England over the life of this Parliament.

The funding being released from direct payments is being reinvested back into farming and the countryside. That means we can accelerate the roll-out of the sustainable farming incentive, with six additional standards being added this year. As we announced in January, we will be making the sustainable farming incentive more attractive —particularly to small farms—by introducing a new management payment. We have also increased the payment rates under our simplified countryside stewardship scheme. That will help more than 30,000 farmers, who are already enhancing the environment, to keep up with the rising input costs they are facing.

Under the farming equipment and technology fund, we are offering grants for equipment to increase productivity, boost environmental sustainability and improve animal health and welfare. Under round 1 to date we have paid over £31.5 million, supporting over 3,000 farmers with their investment plans, with a further round of the fund opening last week.

John Spellar (Warley) (Lab)

The Government are outlining policy objectives. Given the impact on supply chains over the last year, and particularly in the last few weeks, to what extent will increasing the domestic content of food production be part of those objectives?

Mark Spencer

It is very much front and centre; these things are not diametrically opposed. We can have a positive environmental benefit and an increase in biodiversity while also becoming much more efficient in the way we produce food. Looking back over the last few decades, we have got about 1% more efficient every year. We think we can accelerate and improve on that with investment. Some of the grant schemes are aimed directly at allowing farmers to invest in new technology and new equipment to make the way in which they produce food more effective and efficient.

There is an array of other schemes and policies that the funding released from direct payments will go into. Those include slurry infrastructure grants to help farmers invest in better storage; the new entrants pilot, which will bring new talent into land-based businesses; and a tree health pilot that will help farmers tackle tree pests. The instrument also makes a minor change to correct an error made by the Direct Payments to Farmers (Reductions) (England) Regulations 2022. It does not change the reductions figures that were applied to direct payments in the 2022 claim year.

Turning to the Agriculture (Financial Assistance) (Amendment) Regulations 2023, many of our new financial assistance schemes are launched under part 1 of the Agriculture Act 2020. They are part of the transition as farmers move from direct payments to payments that produce a specific benefit, and that includes the schemes I have just detailed. The schemes pay farmers and land managers to improve their productivity, the environment and the health and welfare of animals and livestock. The Agriculture (Financial Assistance) Regulations 2021 provide the legal framework for the Department for Environment, Food and Rural Affairs and its delivery bodies to enforce and monitor schemes and to publish data about grant payments.

The instrument makes technical amendments to those regulations to support the requirements of the financial assistance schemes we plan to deliver in 2023 and beyond. The amendments include removing the definitions of three financial assistance schemes from the 2021 regulations so that we can be more flexible in adapting our schemes to suit farmers’ needs. For example, we will launch the animal health and welfare grants through the farming investment fund.

We are amending the data publication requirements so that the Secretary of State may exempt financial assistance schemes awarded to improve the health of livestock or plants if publication would hinder the scheme’s purpose. For example, identifying a land manager who has received grants related to diseases in livestock could be damaging to their business and deter them from reporting future cases.

We are also amending data publication requirements so that, where the Secretary of State is required to publish the aggregate of financial assistance paid under the scheme, they must also publish the number of agreement holders who receive financial assistance under that scheme. That will ensure that the taxpayer still knows where our funding is going.

The amendments allow the financial assistance schemes to run more efficiently and effectively for farmers while still making sure that there is accountability to the public. I hope that I have assured Members of the need for these instruments, which will help safeguard the long-term prosperity of the farming industry in England and protect the environment for future generations.

2.37pm
Daniel Zeichner (Cambridge) (Lab)

It is a pleasure to serve with you in the Chair, Mr Hollobone. I was uncharacteristically cheerful last week—I enjoyed the NFU conference—but I can assure the Minister that normal service will now be resumed. The statutory instrument on direct payments is short, and the Minister will be pleased to know that we will not oppose it, although we have reservations about how the agricultural transition is being managed. We are keen to see environmental land management schemes succeed, but we have questions.

Here we are again, for the third year running, going through the same process. Why have we had three separate annual phases, given that the plan was set out in a timetable at the beginning? There might be good reasons, but I am not sure they have ever been made explicit. It would be helpful to understand the Department’s thinking on why we are repetitively discussing the same ground.

I note that this is proposed to be the last year. Paragraph 7.6 of the explanatory memorandum suggests moving to a de-linked payment. Will the Minister clarify whether that process will require a further SI or whether this is effectively it?

I will also refer, as I have on both previous occasions, to paragraph 7.2, which the Minister referenced in his opening speech. It states:

“Direct Payments are untargeted, can inflate land rent prices and can stand in the way of new entrants to the farming industry.”

That is possibly true, but it is conjecture. It is also true that basic payments can provide stability and keep many people afloat. I have said this before: the explanatory memorandums should be statements of fact, not conjecture.

I am normally at pains to praise civil servants for their work in dealing with the complexities of secondary legislation, but given that this was pointed out last year and the year before, there is only a certain number of conclusions I can come to. I suspect that this is a cut-and-paste job that has been carried forward from year to year and that no one listens to these proceedings—I can possibly understand why that might be, but I think it is wrong.

More worryingly, this may be what the Department actually thinks. Given that this point touches on the most basic issue of whether public support for our food system is needed, it is not inconsequential. With food shortages being highly topical, there could hardly be a more sensitive moment to reflect on whether the special circumstances the farming sector faces—in particular, unpredictable weather—merit special treatment. I ask the Minister to reflect on whether it is laziness, complacency or an ideological aversion to intervention that explains the offending account of how basic payments worked.

Given that we have had a couple of years of these reductions, it should be possible now for the Minister to stand up the assertions at paragraph 7.2, so perhaps he could tell us what impact the reduction in basic payment so far has had on land prices and on new entrants. He mentioned new entrants in his introduction, but as far as I am aware we have not yet had the details of the new entrant scheme. Could he tell us where that has got to?

I have referred to the point, at paragraph 7.6 of the explanatory memorandum, on de-linking. Given that it is not entirely clear whether we will have further discussion about that, I will ask a couple of questions. Many of us, I think, are still slightly puzzled as to why farmers will get paid for the next few years whether they farm or not. I would welcome a comment from the Minister on the reasoning behind that. Will he also clarify what happens to those who are restructuring businesses, ending arrangements or starting new arrangements in these key years—the so-called reference years? Is there not a danger that some will unintentionally miss out on support and, perhaps more seriously, that decisions will potentially be skewed, distorted or delayed to ensure that they qualify for the right reference year? I would be interested to know how many people the Minister thinks will be affected by that. Has any estimate or assessment been made? I fear that there are some unanswered questions.

If I was slightly irked by paragraph 7.2, that is as nothing compared with paragraph 12, headed “Impact”, on page 4 of the explanatory memorandum. The SI reduces payments to farmers by between 35% and 55%, yet paragraph 12.1 says there is

“no, or no significant, impact on business”.

Can the Minister square those two points? Of course there is an impact. If half the support is taken away, there is bound to be an impact. We have been probing that at every opportunity, and in response to written questions the Minister pointed to the assessment published at the end of October, which tells us not a lot about the impact on individual farmers.

The real question for the Minister to answer—even roughly—is, how many are getting less income than before under this new process? I put that to him now, just as I did in a slightly different form at DEFRA questions on Thursday. I once again ask him where in the DEFRA accounts the reduction set out in this SI is offset by money being taken up, or not, in other schemes. Will he tell us? Will he explain how any underspend will be dealt with and for how many years it will be rolled forward? I am advised that underspends in the EU schemes could be carried forward for up to three years. Will DEFRA mirror that arrangement?

There is a wider, completely unanswered question on impact: what assessment has been made of the environmental benefits, or not, from reducing area-based payments and redirecting, or not, that resource to environmental schemes? Can the Minister tell us? I have to say that I do not expect an answer, and I will take his likely silence as confirmation that no such assessment has been made. That is hardly surprising, given that it is actually quite a hard thing to do without the proper baseline assessment we called for at the beginning.

The second SI is more straightforward and has to do with checking the financial assistance schemes replacing area-based payments. Regulation 5(c) seems to say that, where data is not required to be provided annually, an annual declaration can be made instead. That sounds reasonable, but can the Minister confirm which schemes it applies to and how many cases are likely to fall into that category? On regulations 7 and 8, the publication of data is an important principle, but the publication of sensitive data can sometimes cause difficulties, so we understand why what is being done is being done.

These SIs are the next stage in the transition to a “public money for public goods” approach to agricultural support. We support that transition and we want it to work—we need to move to a more environmentally friendly and nature-positive food production system—but we remain concerned that the complexity of the schemes currently proposed will hamper take-up. In terms of both food supply and environmental gain, that is something we simply cannot afford.

2.45pm
Kit Malthouse (North West Hampshire) (Con)

It is a great pleasure to appear under your wise guidance, Mr Hollobone. I have a few questions and challenges for the Minister. Before I get to them, I would just say that I broadly support the thrust of the Government’s policy, and I am already seeing the impact in my constituency. I represent 220 square miles of Hampshire chalk downland, which had not been ploughed in previous centuries, but much of which was then brought under the plough and was able to be productive with the application of chemicals. We are seeing more and more of that land now returned to its historical function, which is essentially as grassland for the cultivation of protein, in the form of sheep and cows. That is of great benefit to our landscape and our ecology.

I have a couple of issues. On the SI on reductions to direct payments, I feel—a bit like the hon. Member for Cambridge—slightly jammed into a decision today. As the Minister will know, there is a calculator online where farmers can work out what their reductions will be, and the rates were advertised beforehand. If we parliamentarians made some amendment to the SI today to change the rate of reductions either way, it would throw a spanner in the works for many farming businesses, including in my constituency. So I am not really being given a choice in terms of the vote on this, given the impact on farmers if we changed the regulations. I question whether that is the proper function of parliamentary scrutiny—we are making a decision, but we are not really making a decision.

Another issue I want to raise on this SI is about notice. As the Minister said, it is welcome that the Department published six new standards in January to go along with the existing three. However, reducing direct payments as farmers decide, singly or collectively—they can now operate in groups—which of those standards to pursue, whether that is hedgerows, pest management or whatever it might be, means that farmers will start to see reductions in their direct payments before they can demonstrate the benefits of those standards or claim under them. The Minister is a farmer, and he will know better than me whether somebody can put in place and comply with the hedgerow standard in time to fill the gap in cash flow caused by these reductions—whether they can procure hedgerow, plant it and make sure it is up to standard and is thriving, and not just go through the motions.

The Minister says there will be a reduction in bureaucracy, but I assume we will unleash an army of people in high-vis with clipboards across the countryside to ensure that all these standards are being complied with. That might be a one-off exercise, but nevertheless I presume there will be some confirmation of compliance in exchange for public money. If that is the case, timing becomes critical, because if compliance is about result rather than input, we obviously have a bit of an issue.

Another point is about the nature of the payments. I wrote to the Minister recently, as he may know, about the pest management standard. As I understand it—he may correct me—if I decide I am going for the pest management standard, I avoid the use of pesticides. If I avoid the use of pesticides for the season, I get my payment at the end of the season. However, if my crop is devastated by some pest halfway through the season, and I have no choice but to use a pesticide, I will lose my payment, at the same time as I lose my direct payment. There is no partial payment; we cannot say, “For six months, you didn’t use a pesticide; we will give you half the money.” Farmers face an all-or-nothing cliff edge. They will have to make a financial calculation about whether the crop price merits the use of the pesticide or merits them allowing the crop to be destroyed and taking the subsidy. That injects an element of jeopardy into the system at a point at which there are these final, significant reductions in direct payments, which may not be helpful. I, too, would be interested to know what is going to happen to the underspend. I wrote to the Minister about that recently as well, and I would be grateful for elucidation today.

I turn now to the financial assistance regulations. I am slightly concerned—perhaps the Minister can enlighten us—about the immense power the legislation gives him to create, close and amend schemes when that has previously required parliamentary consent. Paragraph 7.6 of the explanatory memorandum states:

“This will help future-proof the 2021 Regulations against changes to the name or design of specific schemes, and avoid the need for an increasing list of financial assistance schemes in the regulations. The instrument also omits the previous definition of the “farming investment fund”…the fund can be used more flexibly for any of the statutory purposes in section 1.”

Does that mean that, without parliamentary consent, the Minister can start or close a new scheme or quietly do away with things that are not working? Where will the accountability be for the expenditure of public money on new things? If the Minister says we are going to have a trampoline standard, does that mean that we will pay someone who starts a trampoline park on their farm and that if it does not quite work out, it will be quietly closed and nobody will be any the wiser? There is a transparency issue there that concerns me.

I understand the Minister’s desire in the financial assistance regulations to have the power not to publish in circumstances where disease or other matters might affect somebody’s business. However, in a world of social media and in a community that talks—and farmers do talk—I question how realistic that is. If there is an outbreak of disease in an area and we are attempting to control it, not publishing might protect one business, but it might also damage lots of neighbouring businesses, which will be unable to take the measures they need to to protect themselves from that disease. If the Minister is saying that that will be his judgment, that is fine, but the SI does not say that he will have regard to the overall surrounding businesses; it just talks about having regard to that particular business and to whether it will be damaged.

As the Minister would expect, I will vote for the regulations, but I seek reassurance on that point. To give an example, my constituency home is in the middle of an avian flu control zone. A captive hawk was taken to the vet because it was a bit poorly, and it turned out it had the flu. As a result, we are in the middle of a 3 km exclusion zone, where everybody has to keep their chickens in. Has publication damaged that person’s business? I do not know. Presumably, the hawk’s illness has damaged their business. However, I hope the Minister understands my point—that there is a wider responsibility, other than to just the business itself.

2.53pm
Mark Spencer

I genuinely welcome the Committee’s scrutiny. To be fair to the hon. Member for Cambridge, I also welcome the scrutiny he brings to the role of ELMS and his desire to hold us to account, particularly over the £2.4 billion. That is a manifesto commitment, and he is right to continue to ask whether we are committed to delivering it. I am more than happy to reassure him again that we will deliver that cash. I also welcome his comments about how he wants to see ELMS succeed, bringing environmental and biodiversity benefits, as well as keeping our country well fed.

On the SIs, the hon. Gentleman asked why we have done things the way we have previously and whether this is the final time. The honest truth is that I am the Minister now and I do not think we should keep coming back and talking about the same question. I challenged the team, and we decided to make this the final time. To be fair to previous Ministers, the process has allowed for scrutiny and for the debate to take place annually. Originally, we set out a seven-year plan, and allowing some flexibility in the system and an opportunity to revisit decisions is always sound political practice.

I do not think we have seen a negative impact on land values; if anything, I think the opposite might be true. Land values continue to go up exponentially, and it is probably now beyond the means of most traditional farmers to make a return on land, given the value it seems to attract today. So we have not seen that impact on land values, but what is more interesting is the impact that that might have on rental values going forward, and we will have to monitor that to see what impact some of these changes will have on the rented sector especially.

We are keen to roll the scheme for new entrants out soon, and it will not be long before the hon. Gentleman sees the details of that. If ever there was a moment when we wanted to see the brightest and best young people coming into our sector, this is it. Encouraging new entrants into agriculture, farming and food production is the right thing to do. It has always been difficult, but somehow people have managed to defy economic gravity and enter UK agriculture. In the ’30s and ’40s that was traditionally through dairy farming. We then saw a change to outdoor pigs and poultry. Now we are seeing a lot of people getting into food production through flying flocks. Given some of the changes that ELMS are bringing—with overwintered stubbles and cover crops—we are seeing real opportunities for people to set up flying sheep flocks to graze off those cover crops in the spring. That is another great opportunity for people moving forward.

As we move into these new schemes, we will transfer all that cash from one pot into the other. That is the right thing to do. We must take people on this journey at time and a speed that they can cope with, and I think we are pitching that just about right. That goes to some of the comments from my right hon. Friend the Member for North West Hampshire. We are moving in that direction and giving people the chance to readjust.

My right hon. Friend mentioned hedgerows. They are a really good example of where we can have a very positive impact. There are quite generous capital grants available to people through countryside stewardship to put in new hedgerows. The SFI standards also allow people to monitor and log the quality of their own hedgerows, so that they can improve them and change the way they manage them.

Clive Lewis (Norwich South) (Lab)

I want to pick up on the point the right hon. Member for North West Hampshire made about an army of people in high-vis holding clipboards. One issue that has been raised with the Environmental Audit Committee in our food security inquiry is that enforcement may be an issue, and we were wondering what extra support and resource would go into the enforcement side. If the payments go to farmers, people could be paid but not actually do the work on hedgerows and sustainability. I would be grateful for more information on that.

Mark Spencer

I was just coming to that, because it is a really important point to land, so I am grateful for the two interventions that have given me opportunity to do that. We want to move in a direction that is much less about enforcement and catching people out and more about supporting and encouraging people to do the right thing. Instead of inspectors, we will have assistants and people going on to farms to advise and support. People will not be turning up with a tape measure and saying, “Aha! You’re 50 cm short on that margin.” Rather, they will be saying, “This is what you need to do, and this is how it needs to work.” We want to help and support people to move in the right direction.

There is another side to that. With modern technology it is possible to monitor things via satellite. We can see cropping and improvements to hedgerows via satellites. If individuals take the mickey, do not do the right thing and try to commit fraud, we will of course go after them and prosecute them for defrauding the taxpayer. We aim to support the people who want to do the right thing, while penalising the very small number of people who want to take the mickey.

My right hon. Friend the Member for North West Hampshire made a point about pest management and the use of pesticides on a crop. The purpose of pest management buffer strips is to encourage the production and growth of natural insecticides—in other words ladybirds, lacewings and predators that will go and eat aphids, which are the pests we want to get rid of. We are encouraging people not to use insecticides. They can still use herbicides and fungicides, but they cannot use insecticides, which are the chemicals that will kill those ladybirds and lacewings. I accept that there may be a time where a farmer, having committed to not using insecticide, has to backtrack on that agreement because of a huge aphid infestation. They would have to make a commercial decision as to whether they wanted to stick to receiving taxpayers’ money for not using insecticides or wanted to backtrack on that, use insecticide and not receive payment for that crop.

Kit Malthouse

There is a third element to the decision that should surely be of interest, which is whether we want the food. For example, there are certain crops that are particularly prone to aphids—for example, beans. If someone grows beans, the risk is much higher, because that crop is much more likely to get aphids. As the Minister will know, there can be a massive infestation, and the farmer will have no choice—either they lose their crop or they spray it. If they spray it, they lose their subsidy. Quite a lot of farmers will say, “You know what? Beans are too much trouble. I am not going to grow beans. I will grow something else, because I know what is going to happen with beans. They are going to get aphids, because that is what they do.” We may see a migration away from the farming of some crops, because of that risk.

From the Government’s point of view, it is perfectly possible for the inspector in a high-vis jacket with a clipboard to come along and say, “Do you know what? On balance, we would rather have the beans, so we will give you a bit of flex on the pesticide. We recognise that you have a huge infestation that needs to be dealt with, and if we do not deal with it, we are not going to have any beans.” That is the conundrum that a lot of farmers with those particularly pest-prone crops are juggling.

Mark Spencer

I thank my right hon. Friend for that intervention. We are getting very much into the detail of the personal management decisions farmers will have to make. Farmers may be thinking that they need to use a chemical to kill those aphids, but there is quite a lot of evidence to suggest that if they have put in insect buffer strips and give the lacewings and ladybirds three or four more days, those lacewings and ladybirds will go and do the job for them.

If you will allow me to digress, Mr Hollobone, I spoke to a gentleman called Martin Lyons—I am sure he will not mind me giving his name—who farms in Cambridgeshire. He had such an event in a field of beans. He went to inspect the field, but on arriving he saw that the beans were swarming with aphids. When he got back to the yard, the sprayer—the machine he was going to use to apply the chemical—was broken. By the time he got the part, four or five days later, he thought he had probably lost the crop, but when he went to look at it before applying the chemical, he found literally tens of thousands of ladybirds all over the beans, and they had removed the aphids. He was able to return the chemical to the company that had supplied him and save the money.

We have become a little bit too dependent—I say this as a farmer myself—on chemical solutions, when nature often finds the solutions for us. We need to do more of that and to get back to some of the practices we saw in the ’30s and ’40s, working with nature rather than against it. That is what many of the changes we are bringing in will deliver.

To turn to the second part of today’s proceedings, there are two schemes to which the financial assistance regulations are applicable—he says, looking for inspiration from his officials to his left. It is really important that we understand that we want to motivate people to do the right thing. My right hon. Friend the Member for North West Hampshire referred to avian influenza, which is slightly different, in that it is a notifiable disease. There may be other examples, such as bovine viral diarrhoea in cattle. If people become aware that that disease is in a herd, they will not want to trade with it. Where farmers want to be part of the scheme and engage in data recovery, we do not want those who are being supported, who do not have BVD, to be penalised because people think their being on the list of those who have received support to prevent the spread of the disease means they have the disease in their herd—we do not want them to be blacklisted. Anecdotal evidence shows that if people are allowed to keep the matter private, they are much more likely to come forward and report any issue they have, rather than hide it.

Sir Oliver Heald (North East Hertfordshire) (Con)

Does my right hon. Friend agree that regenerative agriculture is valued, particularly in my constituency, through the Groundswell Festival? I do not know whether he has ever attended, but it is interesting to see the new techniques that are being pursued, which actually go back to the old techniques he referred to. I endorse what he has been saying, because if farmers have cover crops and use their sheep or cattle to eat them, what they see coming through, as exemplified by Groundswell, are fantastic worms and wonderfully improved soil. Will my right hon. Friend say a word more about that, because it is very important in North East Hertfordshire, where we have a cluster of farmers who are pursuing those techniques?

Mark Spencer

I thank my right hon. and learned Friend for his intervention. It is worth putting on record the fact that the farmers I talk to want to do this stuff and move in the right direction. They want to embrace working with nature. That is something they have done for generations and want to continue to do, and we are delighted to be able to support them in that direction.

My right hon. Friend the Member for North West Hampshire made a flippant remark about a trampoline park standard. Technically, it would still be possible today for DEFRA to come forward with a trampoline park standard, if it was minded to. However, public scrutiny, along with that provided by my colleagues and by members of the Opposition, would probably make it unlikely that we would proceed with such a standard. We need to trust the democratic processes we have in place and the scrutiny available to us.

I hope I have covered the points that hon. Members have raised, and I thank them for their genuine interest in this topic and their questions.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Direct Payments to Farmers (Reductions) (England) Regulations 2023.

DRAFT AGRICULTURE (FINANCIAL ASSISTANCE) (AMENDMENT) REGULATIONS 2023

Resolved,

That the Committee has considered the draft Agriculture (Financial Assistance) (Amendment) Regulations 2023.—(Mark Spencer.)