Considered in Grand Committee
That the Grand Committee do consider the Common Agricultural Policy and Agriculture and Horticulture Development Board (Amendment etc.) (EU Exit) Regulations 2019.
My Lords, the matters in the five instruments are closely interrelated; I hope it will be helpful to your Lordships if I speak to all five together.
With a number of small exceptions, which I shall explain, these regulations make purely technical amendments, which are necessary to address European laws being brought on to the UK’s statute books in a partially inoperable form, and enable the policies behind the common agricultural policy, the Agriculture and Horticulture Development Board, and state aid legislation to continue to function as they do today. These instruments are not required solely in a no-deal scenario; in the event of an agreement—which of course the Government sincerely wish for—they will ensure that the current legislation remains operable at the end of any implementation period.
The instruments on the common agricultural policy make largely technical and operability changes to ensure that the UK Government are able to meet their commitments to funding in the agriculture sector. The Government have pledged to continue to commit the same cash total in funds for farm support until the end of this Parliament, expected in 2022; this includes all funding provided for farm support under both Pillar 1 and Pillar 2 of the current CAP. This commitment applies to the whole of the UK.
The UK Government have guaranteed that the current level of agricultural funding under CAP Pillar 1 will be upheld until 2020, as part of the transition to new domestic arrangements. The UK Government have also guaranteed that any rural development projects for which funding has been agreed before the end of 2020 will be funded for their full lifetime.
As noble Lords are well aware, agriculture and fisheries are devolved policy areas and are of special importance for all parts of the United Kingdom. We have worked closely with the devolved Administrations to produce these instruments; they place great importance on them and have given their consent to these instruments.
I will now outline the CAP statutory instruments. They enable the regulations to continue to operate effectively, do not introduce new policy and preserve the current regime for supporting CAP beneficiaries. The amendments in these instruments include omitting redundant references to the “European Commission” and “member states” and amending references to “Union law” throughout, so that the retained EU regulations continue to operate effectively as part of national law.
One purpose of these modifications is to ensure continuity and clarity as to who is responsible for the implementation and administration of the CAP schemes. The obligations and discretions placed on member states will continue to be exercised after exit by relevant authorities in the UK. In this context, “relevant authority” means the Secretary of State, Scottish Ministers, Welsh Ministers and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland.
The Common Agricultural Policy and Agriculture and Horticulture Development Board (Amendment etc.) (EU Exit) Regulations 2019 make operability amendments to domestic regulations made under the European Communities Act implementing certain provisions of the EU common agricultural policy.
First, I draw your Lordships’ attention to a minor correction which is needed to the Explanatory Memorandum for this instrument. In paragraph 4, “Extent and Territorial Application”, the amendments to the AHDB order 2008 are given as applying to the UK. In fact, while parts of the AHDB order 2008 apply to the UK, the amendments proposed in this instrument apply to Great Britain in relation to horticulture, and to England only in relation to the red meat levy. That reflects the territorial coverage that the levy body, the AHDB, has for those specific sectors. We shall withdraw and re-lay the EM in the coming days, with the territorial application of the AHDB order amendments corrected. Correcting this has no impact other than aligning the EM with the instrument we are debating today. I apologise for any inconvenience this causes to your Lordships, but when I heard of it, I wanted your Lordships to know immediately.
As well as operability changes to domestic regulations under the European Communities Act, this SI also amends one order concerning the Agriculture and Horticulture Development Board. This is to address two operability issues arising from the United Kingdom leaving. In one case, this has required us to make a small policy change. Currently, there is a minor levy exemption applying to livestock which is imported from “another member state” and slaughtered in England within two to three months of being imported. For continuity, we retain this exemption, and to ensure that we are then in line with WTO rules and are not favouring the EU, we also extend the exemption to cover any such livestock imported from the rest of the world. We expect this minor policy change to have little or no impact on the ground, given the very low levels of live imports from beyond the EU.
The Common Agricultural Policy (Financing, Management and Monitoring Supplementary Provisions) (Miscellaneous Arrangements) (EU Exit) Regulations 2019 make technical amendments to the supplementary regulations which set out detail on the financing, management and monitoring arrangements for the CAP schemes. This instrument ensures the operability of five different pieces of EU law. These ensure that the management and monitoring aspects of the retained EU legislation maintain the current standards after exit. This includes setting out further detail on how checks to beneficiaries should be carried out and how penalties should be applied to those found to be in breach of the legislation.
The instrument also attends to five other pieces of retained EU law where references to EU audit and accounting systems would clearly no longer be appropriate. These would be replaced by the domestic system, which currently operates in parallel to the EU system, to provide equivalent assurances to our Parliament. Four of these are implicitly tied to EU audit and accounting systems, which, as I say, will be replaced with the existing domestic equivalent. The final revoked piece of EU law relates to the EU policy monitoring system, which, again, will be replaced by our existing domestic policy evaluation process.
I turn to the Common Agricultural Policy (Financing, Management and Monitoring) (Miscellaneous Amendments) (EU Exit) Regulations 2019. This instrument amends the retained EU law which sets out the overarching framework for how CAP schemes function, governing the financing, managing and monitoring arrangements which underpin schemes. It removes the EU audit and accounting regime, which, as I already mentioned, operates alongside the existing equivalent domestic regime and would no longer be required for Exchequer-funded payments. Current levels of checks and scrutiny over CAP payments will remain under the domestic system until domestic policy reform can be delivered through a new domestic agricultural policy.
I turn to the Agriculture (Legislative Functions) (EU Exit) Regulations 2019. They amend five different EU regulations which give the European Commission power to change existing legislation relating to the financing, managing and monitoring of the CAP; direct payments; the rural development programmes; and fisheries programmes funded by the EMFF.
These five regulations work together to provide the necessary powers to ensure the smooth functioning of the CAP and EMFF-funded fisheries schemes in the light of economic, scientific and environmental changes. For example, the Commission is currently empowered to make legislation adding to a list of practices equivalent to crop diversification in the light of developments in the sector. These powers also provide powers to, for example, update the model we use to estimate the net revenue of an EMFF or rural development project, if a more accurate model becomes available.
As its title suggests, this instrument makes amendments to confer existing legislative powers on the appropriate authorities: either the Secretary of State or the relevant Administration for each home nation. These amendments consist largely of replacing references to the “Commission” with “appropriate authority” or “Secretary of State”.
The instrument also contains operability changes relating to the EU financial discipline mechanism. The financial discipline mechanism ensures that the Pillar 1 budget, which comprises spending on direct payments and on schemes under the common market organisation, is not exceeded. It works by reducing the value of direct payments if forecast expenditure on Pillar 1 exceeds a predetermined budget.
This SI makes changes to make the financial discipline mechanism operable in England. As agriculture is devolved, each Administration has assessed what amendment is appropriate to remedy the inoperability. Devolved Administrations have chosen to omit the financial discipline mechanism, while England has chosen to use the powers contained in the withdrawal Act to make financial discipline operable on an England-only basis. For England, operability amendments are made to financial discipline provisions to ensure the mechanism will work properly in a domestic context and on an England-only basis. This does not constitute a new policy, as the mechanism currently applies in the EU.
I turn finally to the State Aid (Agriculture and Fisheries) (Amendment) (EU Exit) Regulations 2019. State aid rules govern the way subsidies can be given, and exist to stop companies gaining an unfair advantage over their competitors. This instrument amends specific retained EU state aid regulations relating to agriculture and fisheries. It does not make provisions for the broader domestic state aid framework. That is addressed in the State Aid (EU Exit) Regulations 2019, which were debated and approved by this House on Thursday 14 March.
Agriculture and fisheries schemes have long benefited from exemptions to the state aid rules. This instrument maintains these agriculture and fisheries exemptions, allowing government to continue to support these industries and provide stability as we leave the EU.
The instrument will have three main effects. First, it corrects references to state aid rules in some of the CAP regulations. This makes sure that the state aid exemptions, which flow from the agriculture and fisheries state aid exemption in the Treaty on the Functioning of the European Union, continue to apply to direct payments and rural development programme payments. This will allow these crucial payments to continue after exit.
Secondly, the instrument will continue to exempt certain categories of agricultural and fisheries aid which are deemed compatible with state aid rules. These are known as the “block exemptions”. For example, this will ensure that the Rural Payments Agency can continue to make payments for forest environment commitments covered by the agricultural block exemption regulation under the forestry elements of countryside stewardship. For fisheries, payments to the sector which support, for example, the sustainable development of fisheries, the protection and restoration of marine biodiversity, and innovation in aquaculture will continue to be able to be made under the block exemption regulation.
Finally, the instrument provides that funding under certain financial de minimis thresholds will continue not to constitute state aid. For example, the Calderdale natural flood management grant scheme, a critical flood defence project, is covered by this exemption, and this instrument ensures that we will be able to continue to support schemes such as that one.
This instrument makes no policy changes. It ensures that agriculture and fisheries schemes, such as direct payment schemes, that currently benefit from state aid exemptions will continue to benefit from them. I hope noble Lords will agree that transposing legislation and maintaining the exemption of certain aid from the state aid rules is necessary to support our vital agriculture and fisheries sectors.
These five instruments aim to ensure continuity with current EU legislation through operability changes. Government and the devolved Administrations have liaised with stakeholders regarding plans to make both CAP and state aid-retained EU law and existing domestic legislation operable at the point of EU exit. With regard to financial discipline, Defra is currently liaising with stakeholders through a targeted engagement exercise to discuss the proposed new guidance, which will set out how Pillar 1 spend should be apportioned to England.
These statutory instruments provide important and necessary continuity for stakeholders and beneficiaries. They will provide guarantees for the future by ensuring that farmers, fisheries and land managers continue to receive payments that support their vital work. I beg to move.
My Lords, I thank the Minister for introducing these five statutory instruments, but I must admit that I was slightly thrown as I thought that we were going to take them separately. I have prepared for them to be taken separately, so I hope noble Lords will forgive me if I have rather a long list of things to raise. It would have been easier for me if we had taken them separately. However, we are where we are, so I beg everyone’s forbearance.
I thank the Minister for introducing these instruments. They are a very necessary and welcome step in enabling a smooth transition. I declare my interest as a family farmer and as benefiting from the basic farm payment scheme. My farm was in the environmental stewardship scheme many years ago.
It might be simpler if I take the instruments one at a time. I gather from the first one that stewardship schemes will no longer be open to new applicants and that intervening schemes will overlap and be covered by payments in the normal way. However, paragraph 7.4 of the Explanatory Memorandum says that Pillar 2 projects submitted before the end of 2020,
“will be funded for their full lifetime”.
I welcome that too. Defra and the devolved Administrations can continue to sign new projects during 2019 and 2020, but I am not clear how that fits in with the earlier statement that environmental stewardship schemes will no longer be open to new applicants. I might have misread the SI, in which case I apologise. However, I welcome the basic provisions.
The AHDB has a duty to raise the levy, and that will continue to be done. However, I wonder whether the AHDB will review the way in which it operates that levy, because there will perhaps be opportunities in the future to look at different and better ways of using levy income, which is a considerable amount of money coming in from businesses. As I said, this instrument will deliver a smooth transition and give farmers, land managers, rural businesses and communities certainty. I am very grateful to the Government, as that will help enormously. My specific queries, therefore, are on the existing environmental stewardship schemes, which I gather will no longer be open to new applications, and on paragraph 7.4, which refers to the possibility of signing up new projects during 2019 and 2020.
I also welcome the second SI on financing, management and monitoring. I agree with the Minister and other members of the Committee on the importance of the agriculture sector in our country today. As well as agriculture, I should mention horticulture, because the two go together. It is worth around £113 billion and employs some 3.5 million people in the food sector. With the growing population in this country, the challenges we face are more acute than they are for some of our colleagues in the European Union, where populations are in fact decreasing. There is a greater need to make sure we produce as much as we can in this country.
Paragraph 14 of the Secondary Legislation Scrutiny Committee’s report states that the NFU, one of a group of organisations that came together to consider this and advise the Minister, called for greater clarity. I refer to paragraph 8 of that document, which talks about a framework that,
“enables current agricultural support measures to continue to function effectively in the UK after EU exit”.
It goes on to say that payments will work,
“within a suitable financial framework”.
I wondered what was meant by “suitable framework”; perhaps “effective” would have been better. Again, I would be glad of some clarification on that.
I welcome paragraph 10.2 of the Explanatory Memorandum, which says that Defra and the Rural Payments Agency’s industry partnership group came together on 25 September and again on 26 November, as I referred to earlier. Those working groups were very worthwhile and, on the whole, people were very happy with what came out of them. What reassurances can the Minister give that the payments will be paid on time? As he is well aware, I just sent him two Written Questions on the way the payments are made to English farmers at the moment. While 80% is quite good, and we are looking to 90%, late payments have a huge effect on many farmers. I worry about what the mechanism will be for holding the responsible statutory bodies to account when we leave, to make sure those payments are made on time. I did not see anything in this instrument that would cover that. Maybe I am being overanxious, but it would be helpful to the Committee to have a response on that.
In the past, the EU has fined us for late payments, with infraction payments. If that body no longer regulates us, who will hold the bodies responsible for those payments to account? At the moment, no environmental body has been set up; that will come in the future. If we leave without an agreement, we will have a gap between the end of March and whenever something else gets established. Like many others, I hope that an agreement will be reached and therefore these questions will be unnecessary. However, what assurances can the Minister give that those payments will be made? If I am right, the responsibility for those payments has been moved from the Environment Agency to sit totally within the RPA, so who will hold the RPA to account? I am not clear on that.
Is there any definite date for the possible future liabilities? For example, some of the projects in which we have been engaged in this country are social and rural economic projects that run for a five or six-year programme. From this legislation, I am not sure whether we could be held to account by Brussels in later years, although we will have left the EU—if the Minister follows my logic. In other words, can the EU come back to us on some of the existing projects which have been agreed, if it thinks they are falling short of what is expected? I cannot explain myself any better, because it is slightly complicated. I apologise.
On the agriculture environment schemes, who will hold us to account on making sure that payments are made correctly and on time? I am not asking about situations where there is a death, or transfer of ownership, as I know dealing with those takes time. However, many environment schemes are delayed, so I would like clarification on that.
I turn now to the third statutory instrument: miscellaneous amendments. The Explanatory Memorandum explains that this is a reasonable course of action—I am sure it is—to ensure that CAP programmes can operate properly, ensuring smooth transition. I am quite happy with that. But I am puzzled by the statement that standards of cases of discrimination, harassment and victimisation are included in this SI. I wondered why that was and what it means. I would be grateful for some clarification, because it seems extraordinary.
Reading through this SI, I have no problem with the change of wording from “member states” to “relevant authority”, because we are leaving the EU. However, on pages 6, 12 and 13, I have two queries. Regulation 4(10)(a)(i), talks about,
“the scheme for distribution to the most deprived in the UK”.
Is there a set-down definition of “the most deprived”? Is that something we would transpose from a European definition, or will we interpret it in our own way when we leave?
Regulation 5(28)(b), which amends Article 31, states that we are leaving an existing EU “small farmers scheme”. How many farmers in our country, if any, fell within that scheme? Are they currently in such a scheme and, if so, do the Government anticipate continuing such a scheme, or introducing one if they are not already included?
The fourth SI looks at the technical and legislative functions. Sub-Committee A referred that to us for our thoughts. If I picked it up right, provisions which have been carried out by the European Union will be transferred by regulation to public authorities to continue smoothly; I am more than happy with that. However, paragraph 7.2 of the Explanatory Memorandum talks about preventing having to make primary legislation every time a technical change is required. Can we have a little clarification? I am sure it is a good thing, but sometimes we need primary legislation rather than just secondary legislation, and I am not sure from the EM exactly what that is.
Paragraph 10.4 of the same EM, on the consultation outcomes, states Defra had its consultation between 4 July and 12 September on the fisheries White Paper. I am pleased about that; it was very helpful. While it states that the stakeholders were broadly supportive, did they have any specific major concerns?
Finally, I turn to the fifth SI, on state aid. Paragraph 2.6 of the Explanatory Memorandum states that if the UK,
“has exceeded its annual State aid budget, certain categories are then only exempted from State aid rules for a 6 month period”.
It goes on to say by how long this SI extends that—and here in my notes I put dot, dot, dot, because I am not sure by how long it will be extended. Will it be another six months or will it be for an indefinite period? Again, I seek clarification.
On emergency aid, I am grateful that the Minister mentioned flooding, something which sprang to my mind. The other issue is drought; we face great drought considerations in this country. The Minister knows, because I have raised it with him before, that the Environment Agency is a little slow—to be kind—in agreeing to some of the extractions that are needed, particularly in very dry areas such as East Anglia, Norfolk and into Lincolnshire, where they will not be able to continue producing crops in the same way unless they can gain water. I am well aware of the pressure that is put on water, and looking to the future, there will be even more pressure. There are ways in which we can save water—by plugging leaks, to say the least—but my thoughts turn to emergency aid for flooding and droughts, and there may be other things.
Finally, I welcome the direct rural payments, which I think are fairly clear. No doubt, other Members in Committee will want to raise those issues anyway. I am sorry my speech is so bitty—I thought we would deal with each SI individually. I apologise to other Members that it has been a bit round the houses.
My Lords, far from going round the houses, the noble Baroness, Lady Byford, has done us a service by going through the instruments so thoroughly and raising some really important questions—the Minister will have quite a lot to answer. I will say something about these instruments, but I do not want to forget to thank the Minister and his officials for the extremely helpful briefing they gave to opposition parties.
There are five instruments, and their titles are so confusingly similar that the only way to deal with them is the way in which the noble Baroness, Lady Byford, did—as first, second, third, fourth and fifth, which is the order in which they appear on the Order Paper. They deal with very important matters related to farming and rural communities, particularly funding issues. They are interrelated, which is why I think it was sensible to take them together.
The instruments are also interrelated with the Agriculture Bill—the elephant that is not in the room, because we do not have it yet—which interacts with these instruments in a number of respects. The Agriculture Bill gives huge and unacceptably wide order-making powers to Ministers. Some of those duplicate some of the powers exercised in these statutory instruments, so it is quite difficult to view them separately. If the Agriculture Bill ever becomes an Act, it will come into force probably in the middle of a period in which these instruments are in force, or while we are still waiting for the instruments to come into force at the end of an implementation period.
We accept that these instruments are a necessary means of ensuring that we have continuity in what would otherwise be an even more difficult situation for the farming community. They are no-deal instruments primarily; the Minister explained that they will still be necessary even if there is an agreement, but that would not be until the end of the implementation period. They would therefore lie dormant during an implementation period, and that would have to be achieved in the withdrawal agreement Bill, which would be necessary in those circumstances. Of course, we do not know when exit day will be—whether it will be next Friday, 30 June, or some other date—or indeed if it will be. By the time we get to it, these instruments will need to be amended because things will have changed, either during the delay, or during the implementation period, or both. It is hard to imagine that the form in which these instruments are now will serve all purposes in perhaps 20 months’ time, as would be the case after an implementation period.
What on earth are farmers supposed to make of all this? It is bad enough when your work is at the mercy of the weather and fluctuating market prices; but, frankly, it has been easier to forecast the weather—and even market prices—than the Government’s management of the Brexit exercise. That adds another huge dimension of uncertainty and these five instruments would at least provide continuity in the event of a no-deal Brexit.
There are a few issues I want to pick up. The Minister mentioned an intriguing point on the first instrument: the red meat levy paid on imported animals slaughtered within two or three months of import would be extended from EU states to the rest of the world. That sounds like a policy change, and a policy change ought to be dealt with differently, or at least drawn to our attention. Its significance diminishes, however, when you discover that—in the words of the Explanatory Memorandum—the amount of the levy currently collected is “probably nil”. That is a rather interesting phrase to use; perhaps the Minister can explain why it is only “probably nil”, as though nobody knows whether it has been collected at all.
The second and fourth instruments puzzled me—and officials when I asked them—for a different reason. Unlike all the others, they do not necessarily come into force on exit day, whereas most EU exit regulations do come into force on exit day—whenever that turns out to be. If the Minister chooses not to lay either the second or the fourth instrument until some later date, they will not come into force until the day after that. Why the difference, and do the Government envisage the orders not being brought into force at the same time as the others?
The third and fourth instruments abandon the mechanism known as the EU crisis reserve. That relies on deductions from the direct payment pot to create a central reserve for times of crisis in EU agriculture. It is another mechanism that has never been used; farmers have received reimbursement for the deductions in the funding scheme. It clearly makes little sense in a UK-only context—I suppose one could have a scheme for the four jurisdictions within the UK, but it makes a great deal less sense. We have to refer to a different statutory instrument, the next one in the group, to see the accountability mechanism for dealing with it.
It is also in the third instrument that we find that euros will remain the currency on which the whole system of agricultural support is calculated and accounted for. However, I understand that provision may be included in the Agriculture Bill for a switch to sterling. We need to clarify that; I was reassured when I received briefing from officials that neither farmers nor the taxpayer would in the long run be placed in a very different position by currency fluctuations because support is decided at a fixed point in the year. However, it would be helpful to have clarified the Government’s intention in relation to a later switch to sterling.
The fifth order is essential to continue the exemption of various agricultural and fisheries projects and funding streams from EU state aid rules. To the extent that state aid rules continue to have effect post exit, such an exemption is necessary. It of course begs the question of how many state aid rules we will have post exit. The Minister could perhaps clarify; there will be rules that extend because they are in the withdrawal agreement—there may be things which we decide to continue and do not remove because we want to restrain undesirable interference with the market by various forms of state aid. It left me slightly puzzled as to the extent of its impact.
The decision about the future of state aid rules is one of the hundreds of policy decisions which we will have to come to later if exit goes ahead. The battle will then be between those who thought that Brexit meant a bonfire of rules and those who see that many issues in the rules have been developed while we have been in Europe and are valuable to us and we do not want to lose them. That again creates more uncertainty for farmers, because they have been told by the ardent Brexiteers, “Oh, we’ll get rid of all those EU rules; you don’t have to worry about them”, whereas in practice, as the Government have indicated on many issues already, a lot of the things we observe in Europe are things that we believe to be right, and that we advocate and intend to do anyway.
We have had a foretaste of the problems and uncertainties with the publication of the tariff regime only two weeks before it was planned to come into force. While the sheep sector, which is so valuable in areas such as that which I come from, has retained its tariff protection but still faces the problem of potentially heavy tariffs on its exports, eggs, cereals, fruit and vegetables will have no tariff protection. Farmers Weekly called it policy devised on the hoof by a Government struggling to cling on to power.
My last point was raised the noble Baroness, Lady Byford, but it looks forward. Can the government machinery cope with the complex transfer of functions provided by these orders? The noble Baroness raised the question in the context of the Rural Payments Agency and delays to payments. The RPA and Natural England have 14,000 historic environmental stewardship payments outstanding. The RPA says that it is concentrating not on the 2018 so-called advance payments—we can hardly call them advance in 2019—but on the 2017 final payments. Its target is still only to complete 95% of them by July. Tenant farmers with rents to pay need those payments to be made in a timely fashion, and they have a big impact in rural communities on suppliers of farm machinery and materials for agriculture. The system cannot cope at present, so a series of quite complex changes gives rise to worry as to how the system will cope.
The complexity of this is illustrated by the Minister’s admission that there is a small error in one of the sets of regulations before us today. That can obviously be corrected, but one has to bear in mind that this extremely complex process is taking place in an industry that faces a great deal of uncertainty and many other complexities. It is pretty worrying.
My Lords, I want to say just a couple of things. I am married to a farmer and in the evenings I have to try to sort out some of the paperwork, mapping, basic payment systems—
I do not believe that the noble Earl was here at the start of the debate and therefore it is not really possible for him to take part.
I am sorry. I was only going to make a point about the RPA workload.
Perhaps the noble Earl might speak to the Minister afterwards.
I am grateful to the Minister for his introduction to the bundle of regulations before the Committee today. I declare my interests as listed in the register and that I receive EU funds under the CAP schemes that we are discussing here.
I am sorry to intervene, but the noble Earl was sitting over there at the beginning of the debate.
Not quite; I missed the first couple of minutes.
I may well bring up the points that the noble Earl intended to make, so I will hope to cover some of his anxieties. To continue, I am grateful to the Minister and his team for the very constructive way in which his department has engaged with Peers on these regulations.
By and large, the Explanatory Memorandums have commonality across the regulations, as the bundle today transfers the functions necessary to transfer the complexities of the CAP schemes, including the basic payment scheme, to the UK on the UK’s exit from the EU. Last week, the Committee examined and approved the statutory instruments pertinent to rural development that are also managed under the subject of this week’s regulations.
I certainly approve of the instruments, but it would be useful to have the Minister’s clarification and confirmation of several aspects of their provisions and some amendments give rise to the need for further explanation. I am very clear about the CAP schemes. I apologise if some of my queries go beyond the technicalities of the regulations, but to a large extent they expand on the queries already raised by other noble Lords.
The regulations have been introduced to maintain continuity and consistency and bring about a smooth transition to the UK’s new regime proposed in the forthcoming Agriculture Bill. Can the Minister confirm that the instruments will become operable in the event of no deal, whenever that might be, and, under the scenario that the UK leaves with any deal at the end of the transition period up to the end of the present Parliament, which is still expected to be in 2022, when the Agriculture Bill may be implemented?
In so far as there might be an extension of the date under Article 50, will this result in a commensurate end date for the transition period under the outcome with a deal? Would that then necessarily shorten the time when these regulations would operate before the new Agriculture Bill provisions became operable at the end of the Parliament? I assume that, because of these complexities, no end date can be written into these regulations. As further payments for the EU will continue under the extension of Article 50, will this be relevant to the £39 billion due from the UK to the EU on exit?
Turning to what the regulations mean for present practice, can the Minister confirm certain features? First, and very importantly—this might be the point that the noble Earl, Lord Erroll, wished to bring up—is the Rural Payments Agency capable of administering the added totality of these schemes, bearing in mind two aspects? First, it manages the schemes already from a UK perspective so, prima facie, it should. However, secondly, whenever there have been any fresh iterations of CAP regimes, the RPA has traditionally struggled to cope, with resulting delays and confusions. It is struggling now to incorporate the environmental schemes transferred to it last year. What can the Minister say to reduce anxiety over the management of these changes?
Are there any possible contradictions regarding the various closure dates and schemes and new applications? In paragraph 2.2 of the EM on the agriculture and horticulture development board regulations, contradictions could arise which could transfer through to Pillar 2 operations, in that environmental and countryside stewardship schemes may continue until their relevant scheme end date, which may differ from the end date of 2020 under the rural development schemes. Is it correct that the features of new applications could continue under one scheme, but not another? Is this pertinent during any transition period when the present EU regime would still continue?
Will the Minister confirm that modulation will continue at the same rate under these provisions until measures under the Agriculture Bill take effect? Does this also apply to cross-compliance, the three-crop rule and the various other features of the present CAP? Could any features change during this period? Under the CMO regulations, will the maintenance of intervention and stock management continue? The Minister will understand that purchases and releases of stock are very relevant to market prices and maintain stability within various thresholds.
There are also continuity queries under the present iteration of the CAP scheme in relation to the devolved Administrations. Scotland was originally concerned that its farmers were disadvantaged vis-à-vis English farmers, Could any contradictions arise under paragraph 7.8 of the Explanatory Memorandum for the supplementary provisions regulations, or under paragraph 6.3 of the Explanatory Memorandum for the legislative function regulations? There are some Pillar 1 discrepancies in their implementation. It is noted that the Secretary of State can exercise functions on behalf of Scotland and Northern Ireland only with their consent, and on behalf of Wales with certain restrictions and with its consent. Presumably, the complicated arrangements which presently exist will continue.
Turning now to the policy changes, the noble Lord, Lord Beith, mentioned the changes to the RML. I thank the Minister for his introduction regarding the changes made and the application of this levy. Bearing this in mind, to the extent that the AHDB loses funds, will the Treasury make up that shortfall?
Turning now to some of the other amendments that change present policies, I mention disallowance. The audit function explanations in Annexe 2 to the Explanatory Memorandum on the financing, management and monitoring regulations talk about replacing the European Commission and make clear that the UK’s regulatory regime will become operable. Ultimately, how does this affect the UK Treasury? Will applicants be anxious that they might become subject to unknown clawbacks at some future date, or does it merely suggest that there might be minor amendments to plug any discrepancies that could arise?
It is planned to remove the crisis reserve. As this is part of the CMO regime, will the UK now not continue to finance any central reserves in case of emergencies, and if not, why not? Annexe 2 puts the total funds that are put into reserve each year at £38 million, but states that they have never been used, so far. Are the Government forecasting that there will be no climate change emergency or any other contingency that would make a fund prudent?
I turn now to the state aid provisions, and note, as did the Minister, that they were extensively discussed in a Department for Business, Energy and Industrial Strategy debate on 14 March. They largely transfer the functions of the European Commission to the CMA. I begin by asking the Minister to explain the possible discontinuity in understanding how state aid provisions will operate. In the existing regime, they exist between member states to alleviate possible anti-competitive behaviour between member states. How will this operate in relation to its repatriation to the UK? Is it to monitor fair competition between the UK regions of England, Scotland, Wales and Northern Ireland, or will it operate in some other way? Will the devolved Administrations have their own rules? If not, what anti-competitive behaviour is being undertaken, and against whom? Do the regulations take effect on exit day or at the end of the transition period? Previously, an annual state aid budget appropriate to the UK was set. Will this continue at the present level as the regime is repatriated?
Is it intended to set a budget figure between the devolved Administrations? Bearing in mind that the UK’s present spend is at 0.36% of GDP, lower than the EU average of 0.69%, is there room for UK schemes to expand—if that is the right way to understand the exemptions from state aid? This means that to be up to parity with France, for example, the UK could spend £6 billion more than it does at present. How would this application of state aid apply in Ireland? Would it revert back into WTO territory between Northern Ireland and Eire? There are also significant penalties for breach of the regulations. How will this operate in a UK context under the powers of the CMA? What role will Parliament play in any of these provisions? I mention the state aid complexities at great length because they are particularly pertinent to the agricultural sector, incorporating important features, such as product designations by geographical indicators.
Finally, I echo the remarks of the noble Baroness, Lady Byford. The regulations are very pertinent to agriculture, the wider rural economy and the food supply chain. The Minister will appreciate that there is great anxiety regarding the present lack of clarity on the outcomes and negotiations with the EU, and the level of tariffs that will apply under the various scenarios.
I appreciate that the Minister’s department was not the lead department regarding the announcement last week of temporary tariffs that will come into force in the event of a no deal. However—perhaps this is for another day—further dialogue with the Minister and his department would be very welcome as it is his department that will have to manage the dialogue with the agricultural industry, and extensive consultation would be appreciated across the industry.
My Lords, I should have at the very outset declared my farming interests as well, as set out in the register. I should probably do that at every Defra occasion because of the interconnection with agriculture, the environment, and so forth, but I think all noble Lords know of my agricultural background and all that goes with it. I am most grateful to all noble Lords; it is so nice to see the noble Lord, Lord Beith, who has a Dispatch Box before him, and my noble friend Lady Byford, who is forensic. I will endeavour to answer as many questions as I can today, but for those that are intricate, perhaps a letter would be a more fulfilling experience. Some of them go slightly off the core of the discussions on these instruments, but they quite clearly go into wider agricultural matters, which are important.
First, your Lordships have agreed that these regulations are so important to ensure payments are made to farmers, land managers and fishers, to comply with state aid rules, and to have that operability. There are quite a number of questions, so it is important that I answer as many of them as I can. My noble friend Lady Byford asked about stewardship schemes and the issue of new applicants, and, in reference to paragraph 7.4 of the EM of the first statutory instrument, how our commitment fits in with this—the noble Lord, Lord Grantchester, also referred to these matters. The environmental stewardship scheme in this SI is closed to new applicants; current agreement holders will continue to receive payments under the Treasury guarantee following EU exit, which I mentioned in my opening remarks. The Countryside Stewardship Scheme has replaced environmental stewardship in England; this is open to applicants and is covered again by the Treasury guarantee. The noble Lord, Lord Carrington, raised this issue at Questions yesterday; indeed, I had an opportunity of raising this with the Minister of State today. We accept entirely that there needs to be an improvement in the level of payments experienced with both the environmental stewardship and Countryside Stewardship schemes. That is why we have transferred it from Natural England—rather than the EA, which was managing these matters —to the RPA because, candidly, we thought it is the organisation to deal with payments and the BPS payments following the first year of the change of CAP. We are at 90%-plus of payments on BPS and, as my noble friend said, the last few per cent are often because of probate cases, cross-border issues or inspections.
I will take back from today the very helpful remarks made at the beginning, which relate to Countryside Stewardship—I do not have to declare an interest in this particular point. I am well aware that farmers have paid money to engage in the Countryside Stewardship or environmental stewardship schemes and that they are now waiting for money. For some, that wait goes back to 2016, so I am not content about that matter. I am always prone to understatement, so I hope your Lordships will understand what I mean when I say that “I am not content” with the current arrangements.
I think I am allowed to intervene quickly. Maybe interest payments could be looked at, because real costs to farmers arise from non-payment.
I have heard the noble Earl and respect his tenacity in putting that point. I had better not say anything more on the record, but that is clearly one area where the question is how we get a better situation. That is why I assure your Lordships that the RPA is geared up to deal with this, and the Secretary of State and all the ministerial team are looking for progress.
My noble friend Lady Byford asked a question about statutory instrument 2—I hope noble Lords will agree that it is much easier if we look at the green sheet than if I repeat the full title of each SI. She mentioned the NFU call for greater clarity and the question of what is a suitable financial framework. By this we refer to the existing domestic financing framework.
On statutory instrument 4, my noble friend Lady Byford asked whether there were any specific concerns on fisheries. My understanding is that there were no outstanding concerns from the fisheries sector, but again, I will look into that further. On statutory instrument 5, my noble friend asked what emergency aid covers. Article 30 of the agriculture block exemption regulation sets out specific exemptions for urgent payments made after natural disasters. Likewise, Article 44 provides similar exemptions for fisheries in the fishery block exemption regulation.
My noble friend Lady Byford mentioned drought; emergency payments could be exempted under Article 25 of the agriculture block exemption regulation. She also mentioned exemptions; she said that some exemptions are for six months, and asked how long we seek to extend them for. There will be no explicit limit to this extension, as indeed there is no limit in the EU regulations. With all these instruments we are bringing everything back as it is at the current point. What we have now, therefore, is what we will have on our statute book with the operability amendments that are contained in the statutory instruments.
My noble friend Lady Byford also asked about standards of cases. We are retaining the current level of checks that the EU requires through the CAP legislation. Where there is an ability in the EU legislation to reduce inspection rates upon meeting certain audit criteria, we are retaining the necessary criteria but allowing it to be met through a procured domestic audit; clearly, we will now have a responsibility for these matters.
That leads me to the noble Lord, Lord Grantchester, and my noble friend Lady Byford, who raised the essential point of how we ensure that what will be public money is held to account properly. UK Administrations will be subject to an existing domestic framework for the financing, accounting and auditing of payments. This system provides for equivalent levels of scrutiny and parliamentary oversight as in the EU system. It is set out in the following domestic legislation: in England, the Government Resources and Accounts Act 2000; in Wales, the Government of Wales Act 2006; in Scotland, the Public Finance and Accountability (Scotland) Act 2000; and in Northern Ireland, the Government Resources and Accounts Act (Northern Ireland) 2001. Within this framework, public bodies in England, Wales, Scotland and Northern Ireland prepare financial accounts in accordance with the government financial reporting manual, issued by the Treasury, which applies international financial reporting standards as adapted for the public sector. Domestic audits are also subject to the National Audit Act 1983 as amended by the Budget Responsibility and National Audit Act 2011. In addition, domestic public bodies involved in the administration of agricultural support payments are scrutinised through internal audits. The Government Internal Audit Agency, which is independent of Defra, audits the English paying agency, and equivalent practices apply to the devolved Administrations.
My noble friend Lady Byford also asked about the AHDB review. Late last year, Defra and the devolved Administrations in Scotland and Wales, in consultation with DAERA in Northern Ireland, ran a request for views on the future of the AHDB and sought views on the levy, its calculation and uses. A summary of responses will be published this year.
I think that I was asked to give a reassurance about payments being made on time. I have made it very clear that the RPA is now responsible for making payments to agreement holders. The Government have been clear that the current delivery of agri-environment schemes is not good enough, as I have said. On the issue of harassment, raised by my noble friend Lady Byford—
Reading through the instrument, I found that odd. I could not think of the context that it was referring to.
I can understand that. In signing the EM, Ministers have to declare that we have had due regard to the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited under the Equality Act 2010.
I turn to the point raised by the noble Lords, Lord Beith and Lord Grantchester, about the red meat levy exemption. In continuing the existing exemption for imports from the EU, we were advised that we need to be in line with WTO rules, as I advised. I also advise that we expect this change to be minimal or nil. We believe that very few animals are imported into the UK live for slaughter. On average over the last five years, fewer than 500 cattle, sheep or bovines have been imported each year from beyond the EU into the UK. Their average values have been relatively high and our understanding is that they are imported mainly for breeding purposes. We believe that few, if any, are slaughtered in England soon after being imported—hence our belief that the impact of this change would be minimal.
The noble Lord, Lord Beith, raised a question relating to three of the instruments and concerning the legal wording coming into force on a date later than exit day. He asked why that is the case. The legislation is worded as it is because it was not clear whether the instruments would be debated, approved and made before exit day. The wording providing for the instruments to come into force on the latter of exit day or the day after making was a prudent contingency to account for this eventuality and to ensure that we did not purport to bring into force an instrument before it was made. I might need to think about that myself, but I wanted to put the position on the record. However, it is an interesting construct.
It is indeed—that had not occurred to me. Do we conclude from this that the Government have no intention of doing anything other than bringing all five instruments into force on exit day?
Yes; I always have a safety valve. Picking up my noble friend’s point, it is why we thought that these SIs hung together as a package. From all the details that noble Lords have raised, I am relieved that we put them together because they are intricately connected.
The noble Lords, Lord Grantchester and Lord Beith, raised the question of funding a crisis without a crisis reserve. The 2018 crisis reserve payments are covered by Her Majesty’s Government’s funding guarantee, so farmers will receive reimbursement for the 2018 crisis reserve payments. After exit, clearly UK participation in the EU crisis reserve will become unworkable. Making the EU’s concept of the crisis reserve operable in the UK would mean taking the UK’s contributory share of the existing reserve—about £39 million—as the basis for a UK-only reserve. This would be likely to be of limited value in response to a crisis, especially when divided between England, Wales, Scotland and Northern Ireland. Removing the crisis reserve could also mean that more money could be paid out to farmers at the start of a payment window.
We are retaining CAP schemes governing the Common Market’s organisation in other retained EU legislation. This legislation will allow the UK to respond to a crisis in the agricultural markets in the same way that the EU currently can. If there is a crisis in the agricultural sector, the Government will consider how to respond, including whether to provide further funding in the usual way.
This is not a theoretical situation. I do not wish to turn doom-laden, but if the events we are discussing led to a sudden fall and crisis in the sheep sector, then market intervention might be an option that the Government had to consider. I recognise, as the Minister indicated, that we have other ways to do that.
Yes, and I think it has been clear from the department that, like any responsible Government or department, we would act if issues arose. The noble Lord mentioned the sheep sector; in the temporary tariff regime we brought forward, we recognised the sensitivity and potential vulnerability of that sector. He is absolutely right: we need to be alive to, and ready to act on, issues of weather or markets. That point is well made.
The noble Lord raised the issue of the euro. Defra and the DAs have agreed to retain references to the euro in retained EU legislation at the point of exit. This is because, at the point of exit, the CAP will be part-way through making payments under current schemes. To minimise disruption and avoid a difference in sums paid to farmers before and after exit, we will retain the euro until an appropriate time when we can make the change to sterling with minimal disruption. We intend to bring forward regulations to amend euro references to sterling later. These regulations will of course be subject to normal parliamentary scrutiny. In addition, we will work with the devolved Administrations on any changes.
The noble Lord, Lord Beith, asked about retention. On implications for farmers, I reiterate that the Government have guaranteed that the current level of agricultural funding under Pillar 1 will be upheld until 2020 as part of the transition to new domestic arrangements, and that all CAP Pillar 2 agreements signed before 31 December 2020 will be fully funded for their lifetimes. The exchange rate for BPS 2018 is already set for the scheme year, meaning that farmers paid either side of exit day will be subject to an identical exchange rate.
The noble Lord, Lord Beith, asked how many state aid rules there will be after exit. The state aid regime will be rolled over by this statutory instrument, as will the whole architecture through the BEIS statutory instrument. We are not making any changes to the current EU regime beyond those required to make these matters operable.
The noble Lord, Lord Grantchester, asked whether the SIs will be necessary if the Agriculture Bill gains Royal Assent before the end of the current implementation period. If the current withdrawal agreement is agreed, these SIs will still be needed to ensure that the retained EU CAP legislation is operable in a UK context at the end of the implementation period. This will be the case even once the Agriculture Bill has gained Royal Assent. This is because the horizontal framework regulations, as amended by the SIs, will be required while we continue to operate legacy CAP schemes under retained EU law. Likewise, some CMO regulations will remain after the Agriculture Bill comes into force.
The noble Lord asked about the discontinuity in state aid: will DAs have their own rules and do they take effect at exit day or at the end of the implementation period? This is a reserved policy area, but, as with all the SIs I have had to deal with, there has been a close working relationship with the devolved Administrations. BEIS is working on a memorandum of understanding with the DAs, and my noble friend Lord Henley is working on this. If there is any further information I can bring forward from that, I will let your Lordships have a copy.
In a no-deal scenario—
I intervene because I have been dealing with state aid provisions more generally. The European system regards state aid for agriculture as part of a block exemption. In other words, it does not regard it as state aid.
My Lords, I am afraid the noble Lord was not in the Committee at the start of debate.
I have written here: “Whitty (late)”.
Would it help if the noble Lord and I had a conversation after this debate on the statutory instrument? I am interested in hearing his point.
With your Lordships’ permission, I will conclude my point. In a no-deal scenario, the SI will take effect on exit day; in the case of a withdrawal agreement, it will come into force after the implementation period.
On the noble Lord’s question about Ireland, these regulations will ensure that the same state aid regime applies in the UK and Ireland, because obviously it is bringing back the same arrangements.
My noble friend Lady Byford asked how many farmers fell within the schemes. My memory is that for direct payments, it is about 85,000 farmers, but of course with countryside stewardship and environmental stewardships it is a much smaller sum.
My Lords, I know I got a bit confused when we went over the various instruments. My question was actually in reference to small farmers, as my noble friend will be able to see when he has a chance to look at Hansard—there is no definition. I agree with him about the total numbers, but my query was about the number of small farmers and whether they are in a small farmers’ scheme.
I think that may be a matter of detail. I will write with a résumé of points I may not have covered, and areas where I think a little more detail would help. I am most grateful to my noble friend.
The noble Lord, Lord Grantchester, asked about the Treasury and the levy. The exemption is being extended to the animals slaughtered that come from beyond the EU. That covers very few animals, and the levy at stake is estimated to be less than £1000, while the levy income is £26 million a year. I therefore might put that in the de minimis bracket.
The noble Lord asked how the CMA and Parliament will enforce state aid. The CMA will be an independent regulator with enforcement powers, including requiring aid granters to claw back payments. Any changes to the state aid regime will be made in legislation.
I will pick up the noble Lord’s point about tariffs—because I too read Farmers Weekly and the Farmers Guardian. We will continue to maintain dialogue with the sector on this important issue. As I said in Questions yesterday, clearly one of the five principles on which we base this is whether it is in the interests of the consumer and the producer. It is why we came forward with what is, as I said yesterday, a temporary tariffs package, and one with which Phil Stocker, the chief executive of the National Sheep Association, was “extremely pleased”. I know one cannot please all sectors, but I think there was a very conscious recognition that the sheep sector was an area where we needed to have that extra support available.
I am conscious that noble Lords have asked me a number of other questions. I will of course write if I have not covered any points. I have already noted a number of questions that could do with a bit more detail, and I may be able to furnish the noble Lord, Lord Grantchester, with answers to some of his further questions.
These instruments are needed for our farming and fishing sectors, and I commend them to the Committee.