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County Council Smallholdings

Volume 301: debated on Wednesday 26 November 1997

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1 pm

Hon. Members will be aware of the major contribution played by the agricultural tenanted sector to farm production, rural development and our rural environment. Indeed, our landlord-tenant system is largely unique within Europe. No other member state of the European Union has a landlord-tenant system like ours. For centuries, landlords have let land, and tenants have taken land and formed useful and binding agreements through tenancy agreements for the effective and profitable farming of large parts of our agricultural landscape.

In the past, Members of this House and of another place have taken it upon themselves to regulate the way in which farm tenancies operate, most recently by the introduction of the Agricultural Tenancies Act 1995. Although the area of land covered by tenancy agreements is now only around 30 per cent. of the total agricultural area of this country, agricultural tenancies still provide a stable framework beneficial to both landlords and tenants within which farming activity can progress profitably.

Many new entrants into industry find it difficult to get a foothold in their chosen business sector. However, the capital requirement of agriculture makes it one of the most difficult industries to start up in. Tenancy agreements offer a useful and effective way of bringing in new entrants, since the capital requirement at risk is shared jointly between landlord and tenant in long-term binding partnerships. Thus, the farm tenancy environment is advantageous to new entrants, and ensures that farming remains open to those without enormous family resources at their disposal. Therefore, it is a system that should be supported by hon. Members on both sides of the House.

It may be helpful to set the context for this debate if I briefly outline the history of smallholdings. I am sure in starting this that hon. Members will be somewhat surprised to learn that their history dates back to the Small Holdings Act 1892, when local authority agricultural estates were first initiated. They received a tremendous boost after the end of world war one, when smallholdings were seen as one of the tangible parts of the policy that emphasised a land fit for heroes. It was then that county councils were first given responsibility for their provision and organisation. Their incorporation into local government remained somewhat ad hoc until the Agriculture Act 1970. That consolidated local authorities' responsibility by giving them a discretionary power, which constituted a major recognition of their value.

For instance, smallholdings authorities were formally given the power to provide land for the purposes of smallholdings for persons who are, or will shortly become, qualified by reason of their agricultural experience to farm a holding on their own account. Authorities also have the power to provide, improve, maintain and repair fixed equipment on land held for the purpose of smallholdings.

The 1970 Act requires that the general aim of smallholdings authorities—having regard to the general interests of agriculture and of good estate management— shall be to provide opportunities for persons, who would not otherwise have the opportunity, to be farmers on their own account, by letting holdings to them. Thus was established the so-called gateway principle.

The 1970 Act required authorities to prepare long-term plans for the management of smallholdings estates, to provide larger holdings by reorganisation and amalgamation. That created the so-called ladder principle, whereby tenants could move upwards and onwards, either within the county council holdings or elsewhere. Such plans for reorganisation and any subsequent revisions had to be submitted for approval to the Ministry of Agriculture, Fisheries and Food.

Regulations made under the 1970 Act lay down that applicants for smallholdings must have a specified minimum period of practical experience and/or formal training, and that holdings must be let at open market value. Following the 1970 Act, there was a considerable improvement in revenue yield for the next 10 years. Rental income yields increased primarily as a result of increased productivity in the farming industry and because of the Act's requirement for open market value rents.

The Agricultural Holdings Act 1984 withdrew the right of succession on new tenancies in the private sector— such rights have never applied to county farms—and gave power to grant licences, subject to the approval of the Minister, of between two and five years. The Act also introduced retirement of tenants on council holdings at the age of 65, which had not previously been possible, in an attempt to increase tenant turnover, subject to provision by the landlord of suitable alternative residential accommodation. It should be noted, however, that that legislation did not apply retrospectively, and, as a consequence, local authorities have no powers to force the retirement of individuals possessing pre-1984 tenancy agreements, irrespective of their age.

In response to the significant decline in land made available for agricultural tenancies in the past decade, central Government introduced the 1995 Act, which has led to farm business tenancies. That fixes the lease of a holding, for the first time, for a specified period. The idea is to free up existing restrictive practices in respect of landlord-tenant contracts. The reform was welcomed across the industry, but it is still too early to be able to evaluate its repercussions, although clearly it should have a major impact on county farm estates.

Against that background, I must draw the attention of the House to concerns being expressed about the future of county council smallholdings—in particular, the threatened sell-off of those estates by cash-strapped county councils. In doing so, I remind hon. Members of Section 39 of the 1970 Act, which required that county councils,
"having regard to the general interests of agriculture and of good estate management, shall make it their general aim to provide opportunities for persons to be farmers on their own account by letting holdings to them".

With around 5,500 tenants on 130,000 hectares of land, more than £23 million in rents every year and an accumulated level of capital receipts from the sale of land of £277 million, county council tenancies have formed a vital part of the backbone of the let sector of this country. In terms of size, that far outstrips the industrial farms of the Co-operative Wholesale Society, Velcourt and Sentry, even if it is divided up many times.

I have some understanding and experience of the importance of county council estates, as, when I was previously a Gloucestershire county councillor, I chaired a major review into the future of that estate.

Gloucestershire's estate is the 13th largest in area, comprising some 3,500 hectares, spread through a total of 150 holdings, 93 per cent. of which are principal holdings.

The review marked an important stage in the estate's development. Although at first its future was very much in doubt because of evidence that had accrued, the final report completely dismissed that approach, and ended up as a ringing endorsement of the value of keeping the estate within the local authority family. I shall use that experience to exemplify what I believe to be right about county council smallholdings, and to explain why it is essential that they are kept in being.

Of course, not all county councils are considering selling their estates. Indeed, some are still involved in purchasing new holdings for let. In that respect, I commend Devon county council, which has a forward-thinking policy on its statutory smallholdings estate. However, some authorities have already disposed of their estates, and others are seriously contemplating the possibility of selling all, or a significant proportion of their farms.

For example, Wiltshire county council is considering selling all its 40 or so holdings, and, most notably, North Yorkshire county council has been looking to sell its full estate of 4,400 hectares. That will mark a worrying precedent, for it is the first of the very big estates to come into the sell-off frame.

The Tenant Farmers Association—the representative organisation for tenant farmers in England and Wales— has been fighting to promote the retention of county farm estates. Indeed, the TFA's chief executive, Mr. George Dunn, tells me that he has been in correspondence with both the Minister of Agriculture and the Deputy Prime Minister, on behalf of the Department of the Environment, Transport and the Regions. The Minister of Agriculture has now replied to him, and I hope that the Government, through the Parliamentary Secretary, my hon. Friend the Member for Scunthorpe (Mr. Morley), might be able to add to his comments during this debate.

It was unfortunate that the 1995 rural White Paper, produced by the last Government, gave such little regard to county farm estates, with less than a page of coverage and then only to propose that county councils could use a greater proportion of the funds gained through the sale of county farms than they had previously been allowed to do.

Although the provision runs out in March next year, and few county councils have taken advantage of it for other than tidying-up operations, it has focused the attention of some authorities on the value that they could realise from their estate assets.

The drive towards sales under the private finance initiative has led to its own problems. I understand that North Yorkshire has severely overestimated the value of its estate, suggesting that it is worth about £65 million. The concern is that such uninformed figures can result in decisions being taken on misleading valuations, and create the wrong result, but I am pleased to inform the House that North Yorkshire county council is now conducting an independent valuation of its estate.

Although smallholdings are meant to provide opportunities for new entrants, they are often criticised because tenants, at least under the old legislation, had security for life. The introduction of the Agricultural Tenancies Act 1995 provided a real opportunity for county councils to consider restructuring their holdings to create starter units on shorter-term agreements, progressive units on medium-term agreements, and full units on longer-term agreements. Some authorities are taking that opportunity, but others are interested only in the opportunities for sale.

At the very time when farm business tenancies should be encouraging greater movement of tenants, the threat of sales will stultify that movement, as tenants are tempted to sit tight. Sales can be achieved only on the basis of vacant possession, so only when the existing tenancy is at an end can the new owner get possession of the land. There is little incentive for a tenant to go elsewhere, as the new terms could be far worse than the existing ones.

There is undoubtedly an enormous temptation for councils to cast an accountant's eye over their smallholdings, when their financial circumstances are increasingly harsh. Some may even have a potential conflict of interest, when fulfilling their role as strategic planning authorities and making provision for their area's share of the 4.4 million homes tempts them to increase the land value of their holdings.

There is a clear need to restate the benefits of local authority smallholdings and to defend the belief that there is a coherent policy that links opportunities for young farmers, the rural economy and the environment. For that I am reliant on the rationale of the counties themselves; they have produced an excellent sheet of criteria that predicate the continuing existence of their farm estates.

To support for the farmers through the gateway and progression principles, one could add the opportunity to enter into enhanced arrangements on larger farms, perhaps moving to owner-occupation. The 1995 Act will reinvigorate such activities. The estates are also a valuable source of employment in rural areas, either directly through farming or via exciting new business and community opportunities on estate land. They remain a key catalyst for the wider economic development of the countryside.

If handled carefully, farms can retain their asset value as part of a effective bank of land that can be used when and where appropriate, especially for initiatives such as social housing, which is desperately needed in our rural areas. They are still a cash cow for local authorities, providing revenue streams from operational trading accounts managed along commercially viable lines.

A primary factor for the farms' retention is the strategic control that they offer county councils in rural areas, allowing them to influence development and the maintenance of the countryside. They allow a stake in environmental, conservation and countryside management, retaining the best in terms of the maintenance of hedgerows, ditches, watercourses, and even the built environment, through the occupation of farm buildings that might otherwise be declared redundant. Of course, only tenants can be compelled, without Government involvement, through their tenancy agreements, to care for the landscape.

Smallholdings provide the best interface with the general public by the encouragement of proper access, the opportunity to provide excellent educational resources and the knowledge that wider communities can share in the enhancement of rural areas through the democratic process.

There are, besides the immediate pressing issue of the threat of sales, other problems caused by the ad hoccery in the system. For instance, with rents rising generally in the industry, while incomes have been far less buoyant, rents on county smallholdings have started to increase more quickly.

A key reason for that is the rate of return recommended by the Audit Commission, of 6 per cent. on net asset values. Experts agree that that is high for a return on property, and it is ratcheting rents upwards. There is a variation in how different authorities approach the rate of return. I am especially interested in the Minister's views on that, as tenants are worried that they face an unfair burden, given the mess left by his Conservative predecessors.

Other performance indicators are being implemented in widely different ways. That may add to the industry's competitive edge but it is sometimes neither fair nor reasonable. It also determines where the line between full-time and part-time tenancies may be drawn.

Tenant selection remains one of the most important factors behind success but, given the limited number of opportunities available, new entrants are tempted to bid up key rents, not only damaging their own prospects but suggesting to landlords that they can expect even higher rents from their existing tenants. There is also a strong feeling among tenants that farm business tenancies are being offered for too short a period.

Allied to higher rents, that is causing uncertainty and resentment. The legacy of the local government review has yet to bed down completely in the sector, and smaller estates are much more vulnerable to sale. We have yet to anticipate how the operation of compulsory competitive tendering, or best value, will translate to the sector.

The county council smallholdings are a vital national asset, but they are in the hands of county councils, albeit under a statutory duty, and there is a lack of consistency of treatment across the country. That is why I tend to support the proposal of the Tenant Farmers Association that there should be a national review of the strategic importance of the county farms sector to agriculture and the rural economy and environment.

Before that review takes place and produces its report, there should be a moratorium on all sales of county farms. I know that the Government may not be willing or able to enforce that, but if, via my hon. Friend, a clear position of support for the smallholdings' continuation is set out, I am sure that local government will respond positively to the prompting.

I am not saying that I believe that county farms should never be sold. There will be instances when, for good estate management, development, or other purposes, individual farms or groups of farms may need to be sold, but a general evaluation of their benefits to the agricultural sector must be undertaken before we allow any large-scale sale of holdings.

I urge my hon. Friend to encourage such a review and moratorium. Otherwise, we will be faced with another example of selling the silver for coppers, when keeping it would produce far greater rewards in the long run.

1.16 pm

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food
(Mr. Elliot Morley)

I congratulate my hon. Friend the Member for Stroud (Mr. Drew) on the way in which he has put his case. I know that the issue is of particular interest to the farming community and farming organisations. His case has great support, for the reasons that he has outlined, and especially as smallholdings are seen as the first step on the ladder for those who want to go into agriculture as a career.

I want to give a broad outline of the background, and put the issue in context. I should say, for the record, that the Government recognise the important role of county council smallholdings, and we endorse what my hon. Friend said. I certainly hope that our endorsement will influence county councils' decisions.

The Ministry of Agriculture, Fisheries and Food has main responsibility for county farms, but the Department of the Environment, Transport and the Regions has an interest through the provisions of Local Government Act 1972, which my hon. Friend mentioned. Local government finance considerations govern councils' powers to dispose of land and other capital assets.

MAFF has statutory agricultural obligations: principally, approving estate reorganisation plans, but also submitting an annual report to Parliament on smallholdings. I stress that neither MAFF nor DETR Ministers have any statutory powers to prevent the disposal of smallholdings if councils are so inclined. The Agriculture Act 1970 makes it a general aim for local councils to encourage smallholdings and provide opportunities for persons with sufficient experience to be farmers on their own account, but I stress that there is no specific obligation on local authorities.

The previous Government were concerned about the low turnover of tenancies. In the 1995 rural White Paper, however, they did announce that local authorities would be encouraged to make a balanced assessment of the future role, management and ownership of their farms. That was to be achieved through a special scheme in which the amount of set-aside on receipts from any sales of farms fell from 50 per cent. to 10 per cent., if the receipts were received between 1 April 1996 and 31 March 1998. Under the scheme, authorities are required to give sitting tenants the opportunity to purchase before farms are offered for sale to third parties. That is only right and proper.

When the announcement was made—we were in opposition at the time—we criticised it because we thought it a clear signal from the Conservative Government that they did not think smallholdings very important. It was clearly a green light to local authorities to dispose of smallholdings in an unwarranted fashion.

Subject to part III of the Agriculture Act 1970, smallholdings authorities are free to manage their estates as they see fit. They are obviously in a good position to do so in the light of local circumstances. Councils have no obligation to seek ministerial approval of any proposed estates disposals, but, as my hon. Friend said, many local authorities have pursued positive policies of retention, and are to be congratulated on encouraging the development of smallholdings.

Concern has been expressed in farming circles to the effect that in recent years county farms have not been very effective in helping new entrants to agriculture. At a conference held by the Royal Institution of Chartered Surveyors in January 1994, county council representatives showed that there were differing views as to the retention of county farms and their future management. There was, however, a consensus on the need to continue to take decisions at local, not national level—a general principle that we would endorse.

There was also concern about the size of smallholdings with respect to the viability of certain units in modern agriculture, in view of the pressures and changes to which it is subject.

The Agricultural Tenancies Act 1995 may help to deal with some of these problems. We are conducting a policy evaluation of the Act, and I can assure my hon. Friend that that review will include a consideration of the role of county farms. It may also be possible to examine the issue of rent calculations, depending on the terms of reference. I should point out in fairness that the recommendation has come from the district auditor, so it falls within local government legislation governing best practice for councils.

We may also have to consider the wider question of new entrants to the agriculture sector in a further study—depending on the outcome of the review of the 1995 Act. When that Act was introduced, we expressed some anxieties about it, but we made it clear that we would give it time to settle in, to see whether it would achieve its objectives of releasing more land for rent. That in turn would allow greater opportunities to new entrants, and would help those already in the sector to expand. The review is a useful chance to discover whether the Act is meeting those objectives.

I am also aware of the views of the Tenant Farmers Association about county council smallholdings. I have met the association a number of times on my regional visits. Its members have put their arguments rationally and reasonably to me, locally and nationally, and we have listened carefully to those representations.

Neither the DETR nor MAFF has the powers to impose a moratorium on sales. Besides, some sales have already taken place, and negotiations have been entered into. It will therefore be difficult, legally speaking, to impose a moratorium until the situation changes on 31 March. So much was made clear to Mr. Dunn of the TFA, in a letter from the Minister of Agriculture.

We also face the practical problem that it would take legislation to bring in a moratorium. It is not realistically possible to find time for such legislation before 31 March 1998, when the scheme ends. But I can assure my hon. Friend that the Government have no plans to continue with the scheme once it has ended.

I repeat our desire for a continuation of county farms, and I should like to outline some of what the Government are doing to help. We provide funding for ATB-Landbase, the industry training organisation for agriculture and commercial horticulture, helping to ensure that young people have the right skills to work in the industry. The money supports the ATB-Landbase training helpline, as well as local training infrastructure, the development of recognised qualifications and careers advice. It is clearly important to train young people wanting to go into agriculture, horticulture or livestock.

We have also provided funding arrangements as part of the sector challenge. Over the next three years, this funding will complement MAFF funding in this area. I am pleased to say that some of it will go towards measures designed to attract young people to farming. We shall also underpin the development of a comprehensive training company audit scheme.

We are also looking into the problem of quotas which faces new entrants. Certain sectors are quota controlled— the dairy and sheep sectors, for instance. That poses a major problem; we are arguing strongly for reform of the quota system within the Agenda 2000 proposals which were recently published by Commissioner Fischler. I am pleased to say that many new sheep and suckler cow farmers already receive free quota. At the same time, the UK continues to press for the replacement of sheep and suckler cow quotas in the long term by a more flexible system such as regional reference ceilings.

The milk sector presents rather more difficulties. Here, new entrants must inherit, buy or lease quota. Providing sufficient milk quota to maintain viable farms is one reason why some county councils restructure their estates from time to time. There is a difficult balance to be struck between the needs of current tenants to make a living— or even to expand—and the demands of people looking to make a start in farming. Should any proposals emerge, we are prepared to consider suggestions for an industry-run new entrants scheme.

We have discussed the issue with farming representatives, and we have raised it in Europe. A report produced by the European Commission last year on "Young Farmers and the Problem of Succession in European Agriculture" will play an important role in stimulating debate in the Community on the measures needed to encourage more young people to take up farming. The average age of farmers in the EU is 55, and rising. We must tackle that if we are to ensure the continued efficiency and prosperity of the industry. We look forward to continuing discussions in Europe.

There is every reason why county farms should once again play an important part in helping new entrants to farming, but we do not underestimate the difficulties—not least of which are size, and the small number of such farms that become available for succession. Unlike certain occasions in the past, councils must respond to the demands of would-be farmers and local taxpayers.

Sound estate management may permit the release of capital for badly needed local initiatives and create genuine opportunities for new entrants. My hon. Friend clearly does not want to fossilise the structure of county council smallholdings; but they must be reorganised so as to provide better opportunities for new entrants. I am quite sure that that is the right approach.

We will, as a Ministry, encourage local authorities to look constructively at ways of addressing the issues. We also believe that the energies and ideas of new entrants need no longer be confined to traditional agriculture on smallholding estates. There could be far greater use of the flexibility in farm business tenancies to offer genuine benefits to new starters and to explore the potential of niche markets, such as the organic sector.

We want to ensure that local councils look at all possible alternatives before considering selling any of their estate. They should listen to the views of bodies such as the Tenant Farmers Association and the Ministry; and they should take into account the case made so ably today by my hon. Friend the Member for Stroud for the retention of this important part of agriculture.