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Direct Payments Ceilings Regulations 2020

Volume 804: debated on Wednesday 1 July 2020

Motion to Approve

Moved by

That the draft Regulations laid before the House on 9 June be approved.

Relevant document: 18th Report from the Secondary Legislation Scrutiny Committee

My Lords, I declare my farming interests as set out in the register. I hope it would be helpful to your Lordships if I speak to both the Direct Payments Ceilings Regulations 2020 and the Direct Payments to Farmers (Amendment) Regulations 2020, given the close connection between the two instruments.

These instruments amend retained EU law governing the 2020 direct payment schemes for farmers. That EU law became domestic law on exit day under the Direct Payments to Farmers (Legislative Continuity) Act 2020. The Direct Payments Ceilings Regulations 2020 are needed to amend the financial ceilings for 2020 direct payments. The Direct Payments to Farmers (Amendment) Regulations 2020 are needed to confirm the exchange rates to be used for the payments. These instruments also make other minor operability amendments to the retained EU law. These will ensure that the law can function effectively in the United Kingdom for the rest of the 2020 scheme year. These instruments maintain the status quo of the 2019 scheme. The Chancellor of the Exchequer announced on 30 December that funding for direct payments for 2020 would match the total funding for direct payments available in 2019. These instruments are consistent with that announcement.

The Direct Payments to Farmers (Amendment) Regulations 2020 are subject to the “made affirmative” resolution procedure. That procedure was specified in the 2020 Act because, under that Act, the EU law became domestic law on exit day and, therefore, operability amendments were also needed by exit day. This avoided a significant legislative gap in the direct payments schemes for claim year 2020.

The two instruments before your Lordships today cover all four parts of the United Kingdom. We have worked closely with the devolved Administrations, and they have given their consent to the instruments.

The Direct Payments Ceilings Regulations 2020 amend the UK national ceiling and net ceiling for claim year 2020. These financial ceilings are in the retained EU regulation 1307/2013 and are used to calculate payments to farmers. The amendments to the ceilings made by this instrument take account of previous policy decisions made by the Government and devolved Administrations. This includes the transfer of funds from direct payments to rural development. Each part of the UK has decided to transfer the same percentage of its share of the ceilings as it did in previous years. This maintains continuity for farmers. The amendments also take into account the findings of the Bew review concerning the allocation of farm support funding in the UK. I have previously commended the noble Lord, Lord Bew, for his review, and I do so again today.

In line with the recommendations of the Bew review, the Government agreed that Scottish farmers would receive an additional €60.43 million and Welsh farmers an additional €6.11 million over the two-year period 2020 to 2022. The Welsh Government have decided to use the additional funds allocated to them for 2020-21 for their 2020 direct payments schemes. The UK national ceiling and net ceiling for the claim year 2020 have been increased by €3.055 million to account for this. The Scottish Government have decided not to use any of the money allocated to them following the Bew review for their 2020 direct payments schemes, but this money remains ring-fenced for farmers in Scotland.

The net ceiling has also been amended to take account of the decisions made by the Government and devolved Administrations on the level of reductions to be applied to large payments. Each part of the UK has maintained the same approach as for previous years. I want to emphasise and make clear that the existing reductions are not part of the phasing out of direct payments in England, which will not begin until 2021.

The amendments made by this instrument mean that the UK national ceiling for claim year 2020 is €3.055 million higher than it was for claim year 2019. The UK net ceiling for claim year 2020 is €3 million higher than it was for 2019. These increases result from the additional funds for Wales arising from the Bew review.

The Direct Payments to Farmers (Amendment) Regulations 2020 amend six pieces of legislation, as described in sections 6.3 and 6.4 of the Explanatory Memorandum. The amendments confirm the euro-to-sterling exchange rate for payments under the 2020 scheme. The rate is the same as was used for the 2019 scheme, where 1 euro is worth just over 89 pence. This reflects the decisions made by the Government and the devolved Administrations about the exchange rate they wish to use. It provides farmers with certainty.

The other operability amendments made by this instrument are minor. The need for these instruments was identified after EU exit. These amendments include removal of some redundant cross-references, such as to articles which are not part of retained EU law. Other amendments include removal of references to the Commission’s budgetary management system of financial discipline, as this does not form part of retained EU law. Some amendments address other outstanding minor operability issues, such as removing references to the “Commission”.

These two instruments are important, as they provide certainty and continuity for UK farmers. I beg to move.

My Lords, my interest in this topic arises from my role as a county councillor in Cumbria, where, of course, there are many issues to do with farming. In a sense, some people might think that this is a trivial regulation. It actually commits the Government to spend £2.8 billion, which I do not regard as a trivial amount of money. I welcome the certainty that it gives the farming community. All I would say—and this is no personal criticism of the Minister—is that in Cumbria we are also very dependent on structural funds, and we have no certainty about what will replace them at the end of this year.

I am a very strong pro-European and I greatly regret Brexit, but I was always a critic of the common agricultural policy, and I think that this is an opportunity for better arrangements for agriculture.

I welcome the curbs on payments to large farmers—I always thought they were excessive—but would like to have seen a further shift from Pillar 1 to Pillar 2 in the allocation of money. That would have been a step towards the fulfilment of the environmental land management goal which, in principle, most of us support. However, we are stuck in what appears to be a very lengthy transition period, from direct payments to these new arrangements.

Opponents of the European Union’s agricultural policy were always very critical of direct payments for their bureaucracy, but we appear to be sticking to them for a long time. At the same time, Europe is going ahead with reforms of its own, such as trying to ensure that 25% of food is grown organically. I would just like to ask: why the slow pace of change? Could we not do better?

I think these issues are very relevant to hill farmers who, as I have discovered, are often in very desperate poverty. We do not tend to think of very poor people living in the countryside but some of our hill farmers are in a very bad situation, and a shift to a system of payment with stronger environmental objectives would be of great assistance to them.

I support the measure, but there are many unanswered questions.

My Lords, the Minister may not be surprised that I regret these SIs. But he need not worry—I do not intend to vote against them. What I regret is that it is necessary to take this action as a consequence of leaving the EU. That has come at such a cost, in terms of time and money. We are already in the second half of 2020, and still have no idea what our relationship with the EU will be—even though it is our biggest market and the source of much agricultural labour—nor do we know the nature of any trade deals with other countries.

I am glad that the Government have finally set up the commission on farming, but I note that it is advisory only. As the Minister knows, farmers must plan long term. The arrangements here relate only to 2020, and direct payments will indeed be phased out. I am particularly concerned about small farmers, especially tenant and hill farmers. There is no real certainty going forward, although we will seek to flesh that out in the Agriculture Bill from next week.

I would like to put a few questions to the Minister. What is the impact of adopting the exchange rate from the end of 2019 as compared to now? What is the impact of not using the EU’s budgetary discipline? Is the Rural Payments Agency ready for its tasks? He will recall serious past problems. I look forward to his replies.

My Lords, I declare my interest as a former farmer and a current member of the National Farmers’ Union.

In welcoming these two statutory instruments I will be very brief indeed. These are very straightforward SIs, which have no bearing on future agricultural reform, reform which—in the Agriculture Bill currently before us—is, in my opinion, long overdue. These instruments simply facilitate and enable payments to be made to farmers in this year, 2020.

Farmers are not having an easy time financially. Some people will be of the opinion that taxpayer-funded support of farmers is wrong, but that is what we do in this country, and that is what they do in the EU. As we cast off the shackles of the CAP, we will continue to support our agricultural industry in our own, reformed way. The populace want good, safe food at a reasonable price. Our farmers produce that. They are among the best agriculturalists in the world but, to produce that food at a price reasonable to the consumer, state support is a necessity.

I support my noble friend’s two statutory instruments.

My Lords, I thank my noble friend the Minister for the clarity with which he set out the regulations, which are technical and relate to agricultural spending. They look back to a division of funds that occurred in 2013 in relation to EU spending and they look forward in terms of the consequence of the excellent Bew review and the Government’s response to it.

I support the regulations and agree with the split of money put forward by the Bew review and the additional spending recommended by it and taken forward. The regulations also carry on the tradition of the division between Pillar 1 and Pillar 2 payments—the split—as my noble friend mentioned. Of course, devolved Administrations will have their own separate schemes.

I wonder whether I might push my noble friend a little on how collaboration with the four nations of the UK is evolving in terms of both policies and structures. Can he also provide a little more information on how that structure will deal with wrinkles on matters such as competitive practices? Will the process that we have for this year carry on each year throughout the transitional period, mutatis mutandis, and be something that we can therefore look forward to on a regular, annual basis?

That the caps set for the different nations of the UK—England, Scotland, Wales and Northern Ireland—are variable is a feature of devolution and is to be welcomed, but was any thought given to having a lower cap for England and moving money to Pillar 2, to agricultural and rural schemes, rather than direct payments being made to farmers? I note that the direct payments system is to be continued for some time, but what thought was given to moving some of that money across into what was Pillar 2?

As I have said, I strongly support the regulations. I appreciate that there is some relationship between what we are doing today and the thinking behind ELMS. As my noble friend Lord Shrewsbury said, that is for another day, but it would be good to hear some of the thinking behind the standstill position as regards England on the split between Pillar 1 and Pillar 2.

My Lords,

“The beef and butter mountains, they never seem to stop

When the little streams of bureaucracy come a-tricklin’ from the top

Why we joined it, I don’t know at all.”

I could continue; it was a song that we sang in the 1970s campaigning against the common agricultural policy—I could do the hand gestures from those days from memory.

I warn the Government that the view in the “red wall” of the common agricultural policy and that use of taxpayers’ money remains consistent; people do not like it. If we are to continue in the same format, it will be unpopular and the excuse that “it’s from Brussels” will not hold for government.

I myself am shocked by the way in which tenant farmers in my immediate locality are being driven off the land as landowners see more profitable opportunities available through the market, yet the basis of the common agricultural policy was that it would guarantee our agriculture into future generations. When the market suits, the market operates, and the tenant farmer is powerless.

Agricultural policy in this country now needs fundamental reform. I shall not force a Division on these regulations—the Government need time to adopt, adapt and bring forward proposals—but the current system is not sustainable, politically or economically, even into the medium term. A wise Government would get agricultural reform firmly on the agenda and make tenant farmers a key part of the recipe for future sustainability and success.

My Lords, I support the regulations in spite of their originating through Brexit, which of course I regret.

In the distant past my family invested in an agricultural engineering business in Somerset. It is long gone but there remains in north Somerset the Chidgey farm, though I have no direct connection to it. However, I live in and have represented a farming community locally, with a rich history in farming evolution and development. The eastern border of the South Downs National Park runs past our drive on the road into New Alresford in Hampshire. I am a member of the Alresford and District Agricultural Society, established over 100 years ago. Its annual show, held half a mile away at Tichborne Park, is renowned throughout the region as a major event in the farming community.

New Alresford is one of several Georgian market towns that developed across Hampshire, prospering as a centre for sheep farming with markets supplied by drovers from across the South Downs. The Southampton-to-London coach road ran through the town, recalled by a turnpike cottage as you enter today, and no fewer than three coaching inns are located in the centre. Mixed farming seemed the order of the day, with cereal crops flourishing on the downlands. When the railway came, trout from Hampshire’s chalk streams, complemented by local watercress, could make it to London on the watercress line in a matter of hours.

Clearly, farming in Hampshire can be very much top-end and not at all in the difficult upland terrain requiring the support acknowledged in the review undertaken by the noble Lord, Lord Bew. His recommendations are a feature of the regulations for direct payments to farmers set out in this statutory instrument. Nevertheless, high-quality farming conditions attract high land values, high labour costs and high support costs. Without the benefit of an inherited farm, start-up costs can be prohibitive. There are many large farms in the farming community in Hampshire and, as mentioned by my noble friend Lady Northover, tenant farmers often struggle to meet the costs that they have to incur for that rental. With changes in public taste, there is greater interest in local products and produce and more opportunities for niche farming. The Bew review formula for funding allocations is based on such productivity, and on need.

The Government claim to recognise farming efficiency and the need to improve the environment, and that their policy will help farmers to continue to provide a supply of healthy home-grown produce to high environmental and animal welfare standards, yet Parliament is expressing unease at the prospect of agricultural standards being loosened under the new trade agreements. Only today it was reported that Waitrose has said that any regression from existing standards would be unacceptable.

We find that, through lax planning controls, the essence of our idyllic town of Alresford is under threat. A few years ago the watercress beds were bought by a major player in the fresh salad market. The farm became a major preparation and distribution centre for salad products brought in by road from mainland Europe. The clear waters of our River Alre are extracted to wash the nutrients and chemical deposits off the salads back into the river. As a result, the ecology of the river is slowly dying and the insects, birds and small mammals are disappearing, while the agencies responsible for maintaining and protecting the environment simply prevaricate.

The noble Baroness, Lady Bennett of Manor Castle, will not be speaking, so I call the noble Baroness, Lady McIntosh of Pickering.

My Lords, I thank my noble friend for bringing forward these regulations today, sandwiched so neatly between the Fisheries Bill and the Agriculture Bill next week. Like other noble Lords, I express my concern about how these regulations under the current system apply to smaller farmers and, in particular, those on hill farms, where I grew up and which I represented for 18 years in the other place, and tenant farmers.

I welcome the certainty that my noble friend has presented today, with the rate being fixed at an exchange rate of 89p to the euro. My question is one which I am sure has been asked in other years. I understand that the euro currently stands at 90p, or even slightly higher. Who picks up the shortfall in the costs of the exchange rate? Does that mean that fewer funds are available to the farmer, as it has to come out of the £2.8 billion allocated to the direct payments? I would be interested to know. Obviously, someone has to pay if there is a currency discrepancy there in this particularly volatile current period.

My noble friend referred to the ceilings regulation and the fact that, as I understand it, the ceiling is being kept the same. As we go into the transition period, where these will be phased out, will my noble friend say whether the Government intend to keep the pro rata within the ceiling, so that as the total comes down, the pro rata will remain the same and there will be a similar cap in future years? Can my noble friend address specifically a potential continuity gap between the regulations before us today and the new regulations, which will not come into effect until the end of the payments transition period? I understand that a consultation on ELMs has reopened, and I accept that that is an issue for another day. However, it is difficult to respond to a consultation if the farmers or those who wish to respond do not know the outcome of the trials and we have no idea what the nature of the pilots will be. Any light that my noble friend can cast on that would be very welcome.

The continuity gap that concerns me, which I hope my noble friend might briefly address, is: as we phase out these payments over the period to the end of the 2020s and the new payments come into effect, how does my noble friend intend that the Government will address that? Obviously, this is an argument for another day, but I hope that he will look favourably on the amendment to delay the transition phase from 2021 to 2022 in the context of the Agriculture Bill when we reach that next week.

Looking ahead to that Bill, I know that a number of noble Lords today have argued for transfers of payments from pillar 1 to pillar 2. My concern is that we are taking money away from the active farmer and often giving it to those not involved in farming at all. That will be an even bigger issue when we come to address financial assistance or public goods. I hope that my noble friend will address that when he comes to consider the comments that we have made in this little debate, but I thank him and I support these regulations.

My Lords, somebody from these Benches has to admit that not everything about the European Union was great, although we regret leaving it, and the CAP probably comes under the heading of the least-loved bit. Therefore, when anything that changes that comes along, one must bite one’s lip and say, “Well, possibly not too much harm done”. However, the bit that attracted me to speak on this was the second of the two regulations, on the direct payments penalty simplification. Having had a look at the regulations and, I must admit, finding that I got more from the guidance than the text, I noticed the simplification order, which is there because certain small overpayments had a small penalty attached to them. That seems a reasonable way forward.

It is not so much what is being done here as the thought behind it. Are we going to a system that reflects the idea that small indiscretions and bookkeeping errors are less severely punished? If ever something was going to intensify your problems, it is having that extra bit of unexpected financial pressure on you from getting hit for a mistake. A few people will game the system—okay, fair enough; there should be some benefit—but surely there should be an ongoing thought in the department about small mistakes. Things are changing; systems are changing. When we go to the ELM system there will still have to be accounting processes going on. Will the Government take the approach that these small errors should be treated in a more lenient fashion?

This will colour much of the debate that is coming. It may not be directly applicable to these regulations, but as we go forward we are gathering information to hold the Government to account. If I could get a little guidance on that, I would be very grateful to the Minister. Let us not pretend that we are not part of a continuum of discussion; these regulations are simply part of it.

My Lords, I thank the Minister for the considered way in which he has presented these regulations. After all, they enable those payments to be continued for this year to the end of the transition period. Coming from Northern Ireland, where we benefited considerably through the common agricultural policy, I regret leaving the EU—but I face the fact, and have accepted the fact, that we are leaving.

The provenance and sustainability of the food we eat are important to us all. That is why it is so important that all legislation surrounding the agricultural sector is robust and fit for purpose. We need to legislate to continue these payments for this year. The farming industry is also rightly looking forward to next year and beyond, by which time we will have left the EU. Our farmers face uncertainty and have a degree of concern about that, and we have a duty to address their concerns.

The future payments regime must respect the needs of farmers and sustainable production. It has to address climate change and allow our farming sector to do its job and produce the food we all eat. The noble Baroness, Lady McIntosh of Pickering, referred to the need to support active farmers. I suppose the way to do that is by supporting sustainable production in any future payments regime.

There is also a need for food security and to ensure accessibility to supply as we still grapple with the problems caused by Covid-19. We have to think about what the Agriculture Bill—which we will discuss in Committee next week—will provide for us from next year onwards and how that payment regime will play out. As I said before, it is important that the payments are based on sustainable production and ensure a steady and accessible supply of food. Reporting on food security should be done annually, not every five years as suggested in the Bill. I ask the Minister to address, in advance of Committee, his view and the Government’s of changing from every five years to annually.

There should also be scope for Ministers to carry over any money left unspent at the end of a budget year. Does the Minister agree? What steps will the Government take to ensure that any financial assistance scheme encourages sustainable food production? What plans does the Minister have in that regard?

I believe that farmers throughout the United Kingdom need to be treated fairly. Disparities in farming incomes must not be accentuated by the availability, or otherwise, of direct support payments or equivalent forms of financial assistance across the UK. Like other noble Lords, I want to hear about the degree of collaboration with the devolved institutions and how that will play out in terms of future agricultural policy, our future agricultural regime and, above all, payments to farmers—including whether it will support food production or some other means within farming.

Also, what is the possibility of using genetics in sheep and beef production and linking that to climate change?

First, I declare an interest, having been a hill farmer for part of my life; my son is continuing that. I am glad to see these items of legislation progressing because, having looked at them, one hates to think what a mess it would be if we did not have the detail contained in them.

Noble Lords have mentioned the review conducted by the noble Lord, Lord Bew. We in Scotland can be very grateful for it because the discrepancies that were left were a handy cudgel for certain Scots to attack Westminster with; that has now been answered.

Up to now, I have missed the genius of the Printed Paper Office. Whenever any piece of legislation came up, you could just drop in there and ask for it—and, lo and behold, they could produce it. I have found these measures to be elusive documents. Eventually, the Government Whips’ Office tracked down the second piece of legislation—at least, I think it is the second —that is being moved today on www.legislation.gov.uk, which is nothing to do with parliamentary Bills or comprehending them.

I thank my noble friend the Minister for his explanation of the first piece of legislation because we needed to get our heads round it. The second SI seems an extensive and totally fundamental effort to fit what were regulations under the EU CAP into the independent UK context; without that, the wording was completely at sea. It also appears to modify three fundamental bits of EU legislation, all in the one instrument. I am glad to hear that my noble friend the Minister has crafted this together with the devolved institutions.

My Lords, the Parliamentary Under-Secretary of State for the Environment, Food and Rural Affairs, Victoria Prentis, said on 29 June:

“The statutory instruments largely maintain the status quo from the 2019 scheme, and thus provide continuity for farmers. They do not change the rules that farmers have to meet. Both instruments are UK-wide and have been made with the consent of the devolved Administrations.”—[Official Report, Commons, Second Delegated Legislation Committee, 29/6/20; col. 3.]

The two statutory instruments have been passed in both Houses. Indeed, the opposition parties have not opposed them at all. This is largely to protect farmers in the UK because we will exit the EU by the end of 2020. Therefore, farmers will have to continue to receive payments in 2020 and perhaps into 2021.

Farmers provide food security for the nation. The high standards in food production maintained by our farming community will require support, although the issue of Covid-19 is occupying minds in the Government. Once we exit the EU, I believe that new policies will have to be prepared both for the export of our farm products and the import of EU farm products. The quality of our farm produce is very high and that must be maintained. Discussions are already taking place with the USA about the importation of chlorinated chicken. Whatever meat we import from the US will have to meet our quality standards. We have to be able to buy at competitive prices but without compromising on quality; quality must trump price.

An increasing number of people in the UK are becoming vegetarians, particularly due to the fact that Covid-19 originated in the meat markets of China. At harvest time, UK farmers depend on immigrant labour from Europe, and therefore our immigration laws will have to ensure that they can continue to do so. Some of the largest farms in the UK are owned by foreigners. The farming industry employs tens of thousands of workers whose rights must be protected, particularly as regards their wages and other welfare issues during the harvest period. Farm workers need to continue to be paid or they should be given alternative jobs.

Finally, the farming industry is highly mechanised and supports thousands of people working in the ancillary industries that provide tractors and other equipment. Defra has an important role to play in the coming years as we exit the EU.

My Lords, I support these regulations. I congratulate my noble friend the Minister not only on the manner in which he has introduced them—in his usual calm, considered and clear way—but also on how he undertook the consultations with the devolved nations to bring the regulations to the House in their current form.

I offer my sincere congratulations to all our farmers, who have been very much key workers on the front line during this Covid crisis. They work in difficult conditions, often to extraordinarily tight margins, and truly they bring home the food so that we can all eat. We have some of the finest produce in the world, including Worcestershire pears, Herefordshire apples, Gloucester pork, Aberdeen Angus beef and Norfolk turkeys—I could go on. I love it all, but I have to do so much training because otherwise I would be the size of a barn. Not only do we have some of the best-produced crops and livestock, our farmers work to some of the highest standards in the world. The care they show for their crops and livestock is matched only by the care they take of the land on which they are produced. All this is done against a backdrop of some of the most difficult conditions, both financial and beyond. I mention the BSE crisis, foot and mouth disease and, as we have heard, the plight of hill farmers, who already work in difficult conditions but were particularly affected by the fallout from Chernobyl.

I ask my noble friend whether there will be a more equitable consideration of farmers’ concerns across the piece, given that we have this opportunity as we come out of Europe. Some of the EU’s policies in this area, as the noble Lord, Lord Addington, put it so eloquently, probably did not mark its finest hour. I echo the words of the Minister when he introduced the regulations: they bring certainty and continuity. At the time we are currently in, that surely has to be a thoroughly good thing.

My Lords, I also thank the Minister for introducing these two statutory instruments and for his time and that of his officials in providing a briefing in preparation for them. We have listened to an interesting debate that has ranged over a number of topics, some relating to the Agriculture Bill, which we will begin to dissect next week. The noble Lord, Lord Bourne of Aberystwyth, and the noble Baroness, Lady Ritchie of Downpatrick, both asked about the relationship between the four component nations of the UK in agreeing a division of the direct payments, and I will be interested in the Minister’s response.

Both these statutory instruments are straightforward, as the as the noble Earl, Lord Shrewsbury, said. The Direct Payments Ceiling Regulations 2020 allow the devolved Administrations to set their own percentages to be made available to support rural development measures. In this case, Scotland has set it at 9.5%, Wales at 15% and the Government at 12% for England. As a result of the Bew review and this instrument, that provides for an additional €60.43 million for Scottish farmers, and an additional €6.11 million for Welsh farmers over a two-year period, 2020-22, as the Minister has already set out. These payments are made under the Direct Payments to Farmers (Legislative Continuity) Act 2020 and can be made only with the consent of the devolved Administrations.

The Government and the devolved Administrations each decided to maintain the same level of reductions as in previous claim years, and the Explanatory Memorandum gives full details of the figures and calculations involved. Are these payments per applicant or per farm? There is a big difference between all the farms that the National Trust owns and an independent farmer who may be a tenant. I am sure the Minister can clarify that. My noble friend Lady Northover and the noble Lord, Lord Mann, raised the issue of tenant farmers.

The direct payments to farmers SI, as well as covering some tidying-up measures, sets the all-important exchange rate from the euro into the pound for 2020. I welcome the fact that it will be set at the same rate as that set by the European Central Bank during the months prior to 1 October 2019. Several noble Lords asked about that exchange rate during previous debates on direct payments in the Chamber earlier in the year. The Rural Payments Agency previously issued guidance to farmers in England on 12 March this year which explained how the Government plan to set the exchange rate, and I am sure that all farmers will be reassured now that that has been finalised. Will the Minister confirm whether setting the exchange rate at the October 2019 rate is more beneficial to farmers than setting it at today’s rate? The noble Baroness, Lady McIntosh of Pickering, also raised the exchange rate issue.

As we all know, direct payments were the main income source for farmers under the previous CAP regime. The Government have given a commitment to provide £2.852 billion for these payments in 2020, which is the same as for 2019. Noble Lords asked again today whether that will be carried forward into future years beyond 2020. Farmers are concerned that their income could become unstable as the land management schemes are rolled out. The noble Lord, Lord Liddle, welcomed the change and acknowledged the uncertainty for farmers, especially hill farmers, as did the noble Baroness, Lady McIntosh of Pickering.

The noble Lord, Lord Holmes, gave us an excellent list of produce and livestock, which helps us to appreciate the work that farmers do on our behalf. I look forward to the Minister’s response to questions raised in this debate, and I support these two statutory instruments.

I thank the Minister for his introduction to the regulations before the House today. I also thank him, the noble Baroness, Lady Bloomfield, and the department’s officials for having a short meeting with me and the noble Baroness, Lady Bakewell, to discuss these regulations. I remind the House of my being in receipt of payments, as recorded in the register.

I confirm that the regulations are necessary and hope that they are the last regulations and amendments needed under the Direct Payments to Farmers (Legislative Continuity) Act 2020. The regulations have UK-wide relevance. While one SI states that it was made with the consent of the devolved Administrations, the other merely states that it will be made UK-wide with consent. I am sure that there have been discussions with the devolved Administrations, but I stress to the Minister that this dialogue must be meaningful and two-way. I say that in light of the poor sharing of data and dialogue, not only between the Administrations but within the regions and between the city mayors of England, concerning health information on Covid-19 cases. Both SIs are peppered with references to the devolved Administrations and the individual policy choices made by them, and I echo the remarks of the noble Lord, Lord Bourne, in that respect.

The Direct Payments Ceilings Regulations 2020 make many amendments and adjustments that previously, while the UK was a member of the EU, would have been made by the European Commission. One of the adjustments takes account of the reallocations of payments between Pillar 1 direct payments and Pillar 2 rural development. I thank the Minister for confirming that these adjustments and many others are following the custom and practice of prior years and in this case are making redistributions of 12% in England, 9.5% in Scotland and 15% in Wales, with no transfers occurring in Northern Ireland. I recognise the importance of this to many regions, as noted by my noble friend Lord Liddle in his remarks.

I also take this opportunity to commend the noble Lord, Lord Bew, for his review of the distribution of EU funds between the Administrations of the UK, which has now awarded a further €60 million to Scotland and €6 million to Wales for the period 2020 to 2022. I understand that Scotland and Wales have yet to decide how these funds will be distributed. Will the Minister let us know in due course the decisions taken, if that is deemed appropriate?

I have several questions around paragraph 7.7 of the Explanatory Memorandum, where the level of deductions applied across the Administrations to payments under the basic payment scheme is addressed. That they reflect levels similar to prior years is recognised and appreciated, and that they differ in gradations, sizes and top-slicing ceilings between Administrations is further recognised. Can the Minister confirm that these differences do not amount to meaningful competitive distortions between the Administrations of the UK as a whole? How will this operate on a holding or holdings farmed across borders or in more than one Administration? Like the noble Baroness, Lady McIntosh, I would like to know how the transitional arrangements due to start next year will play out against these various clawbacks in terms of continuity of payments between the two systems.

The 100% reduction above a certain amount appears brutal and begs the question of how many applicants these top-payment amounts would be paid to. Bearing in mind the exchange rate and, for example, a top amount of €300,000, my back-of-an-envelope calculation does not suggest that a large percentage of funds would be going to a lot of big estates. The reduction of only €3.9 million in a total of €3 billion would seem to suggest that.

This is the status quo. It is important to reflect that to receive payment you have to qualify as an active farmer, and it seems to suggest that payments are going to farmers to encourage good agricultural practice, and landlord and tenant legislation at present reflects this. Next week, the Agriculture Bill goes into Committee. There seem to be government proposals that suggest a change in the criteria for payment away from the status quo—the active farmer. Will the Minister confirm that payments now and in future are aimed at rewarding farmers producing food for the nation for the public goods they provide by farming in a sustainable manner? Can the Minister provide the split of the total UK reduction of €3.9 million between the Administrations?

Finally, I return to the Direct Payments to Farmers (Amendment) Regulations 2020, merely to ask the Minister to confirm that this instrument’s many corrections to operability issues, to enable retained EU law to operate without ambiguity, mean that there is no likelihood of any more amending instruments to come, and that there are no changes in policy reflected in the amendments.

I hasten to add that one change is brought to our attention in the Explanatory Memorandum regarding the exchange rate used for the 2020 claim year. My understanding is that it will remain the same as in 2019—in other words, no change—but that to take a prior year’s rate is a change. In this situation, I am advised that the Government are being helpful in making this decision.

With that, I confirm our approval of the instruments before the House today.

My Lords, in many respects, the debate went beyond the instruments, but it was an interesting and important prelude. Let me say immediately that if, in the time I am allocated, there are any points that I have not addressed, I will write more fully.

Let us deal with devolution, about which a number of points were raised by the noble Lord, Lord Grantchester, the noble Baroness, Lady Ritchie, and my noble friend Lord Bourne of Aberystwyth. The first thing to say is that we have worked very closely with the devolved Administrations. As noble Lords will know, there are schedules relating to Wales and Northern Ireland, at their request, which we will deal with in due course.

We plan to have an agricultural support framework agreed and in place by the end of the year. This is currently planned to cover marketing standards, crisis measures, public intervention, private storage aid, data collection and cross-border farms. The aim is to have effective co-ordination and dialogue between the Administrations on how changes to legislation in one part of the UK could affect others. As I said, these statutory instruments cover all four parts of the United Kingdom, and I emphasise again that they are made with their consent.

My noble friend Lady McIntosh and the noble Baronesses, Lady Bakewell of Hardington Mandeville and Lady Northover, raised exchange rates. As we all know, exchange rates fluctuate on a daily basis. The rate we have set, which is not significantly different from today’s rate, maintains continuity with the 2019 scheme. The feeling across the piece was that it would be better to set the rate now rather than wait for a September rate, as has been done before, so that there could be certainty for the farmer as to what the rate would be. I am afraid I have no crystal ball to tell me what the exchange rate might be in September. All I can say is that we decided to keep continuity with the arrangement for the 2019 scheme, which I think is a better way forward.

I turn to the point of the noble Lord, Lord Mann, and other noble Lords. The Government are determined that farming in the UK should not see a reduction in government support at this time. That is why this Government have pledged to guarantee the current annual budget in every year of this Parliament. We recognise that farmers and land managers need certainty over future funding arrangements, and we have committed to a seven-year transition, starting in 2021.

It is already interesting to see the different strands that are coming out around that. I always think that, if the Government are in the middle, perhaps we might have it right: the noble Lord, Lord Liddle, mentioned the pace of change and said that the agricultural transition should be quicker, and my noble friend Lady McIntosh suggested that we should have a longer transition. The reason we have set this transition is that we do not want any cliff edge; we want farmers to continue to do the very important work that they do, at this time of change.

For me, there is no issue around whether you are a large farmer or a small farmer, and the noble Lord, Lord Mann, was right in what he said. All farmers play a very important role in the management of the environment and the production of food. We have all sorts and sizes of landholdings and tenure, and they are all part of the very important arrangements that we have to support the landscape, agriculture and food production.

On another point, which I think the noble Baroness, Lady Ritchie of Downpatrick, raised, if we look at the Agriculture Bill, we can see the Secretary of State’s powers to give financial assistance. Clause 1(4) says:

“In framing any financial assistance scheme, the Secretary of State must have regard to the need to encourage the production of food by producers in England and its production by them in an environmentally sustainable way.”

We want sustainable agriculture. With particular regard to Cumbria, I say to the noble Lord, Lord Liddle, that the new arrangements will be very appealing to hill farmers—farmers who have been looking after the landscape throughout generations. The ELM schemes will be an important part of the recognition that we, as a nation, should give to land managers for the really crucial role—with over 70% of our landmass farmed—that they will play in the mitigation of climate change, adaptation and so forth.

This concept of public money for public goods is important—again, the noble Lord, Lord Mann, referred to this—because it portrays to the British taxpayer what the British farmer will actually do to improve the environment. At the same time, we need farmers to have stability and certainty, along with a smooth transition to a replacement system. So, as I said, we will not be switching off direct payments overnight.

In connection with the ELM schemes, I should say to my noble friend Lady McIntosh that we did have to pause the response to the discussion document and supporting engagement. But as of 24 June, we have reopened this discussion and look forward to receiving feedback from stakeholders. We are doing those tests and trials across the land, with farms of different topography and size, precisely so that we have a range of schemes that will be successful for farmers; and so that farmers will feel that it is their own system, too. I also say to my noble friend that as part of that prelude, applications for the new countryside stewardship scheme are open. We continue to encourage farmers and landowners to apply, as we believe that this is the best way to start preparing for ELM. The ELM national pilot is due to commence in late 2021 and run until 2024, when the full ELM scheme is due to launch.

I also say to the noble Lord, Lord Liddle, that upland farmers play a vital role. As the Minister responsible for national parks and areas of outstanding natural beauty, and from my frequent visits to those glorious parts of the country, nothing could be clearer to me than that benign and pastoral farming is a key element of that. They will therefore be very well placed.

I think it was the noble Baroness, Lady Northover, and the noble Lord, Lord Grantchester, who raised the issue of cross-border farms. Where a farmer has land in more than one part of the United Kingdom, all their land must be included on a single basic payment scheme application. Guidance is provided to such farmers to explain how the scheme rules apply to them. The existing payment reductions for large farmers are worked out based on the proportion of the entitlement that the farmers have used in each part of the United Kingdom.

I turn to the matter of some divergence appearing in interpillar issues. For certainty, this Government, the Scottish Government and the Welsh Government—as I have said before, the Northern Ireland Government have decided not to make a transfer—have decided to take the same approach as was taken for the years 2014 to 2019. They will maintain the status quo precisely to ensure certainty and continuity. The claim for 2020 is around £386.4 million, to be transferred for rural development measures and important schemes in England, such as the Countryside Stewardship scheme and so forth.

The noble Lord, Lord Chidgey, mentioned maintaining the ecology of our rivers. That is hugely important. Clean water will clearly be covered by the financial assistance that is available for new schemes. There were some references to the Commission’s budgetary management system regarding financial discipline, and these have been admitted because they do not form part of retained EU law.

The noble Lord, Lord Addington, raised a clearly important point about errors and omissions. I have heard of many farmers who have had difficult conversations and discussions about this. We are determined that our successor to the CAP will not be so bureaucratic and that it will trust the farmer, although it will obviously have enforcement measures as well to ensure value for money. I say to my noble friend Lord Holmes of Richmond and the noble Lord, Lord Addington, that this will clearly be a very important feature when looking at how best to simplify matters.

Many other points were raised, but I understand that I have gone beyond my time and I apologise to noble Lords. We will be discussing food security. It is a very important part of our work and will be the subject of discussion next week. There is much more that I could say but, in view of the time, I will write to noble Lords on all the outstanding points.

Motion agreed.