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Direct Payment to Farmers (Reductions) (England) Regulations 2022

Volume 820: debated on Monday 21 March 2022

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Direct Payment to Farmers (Reductions) (England) Regulations 2022.

Relevant document: 30th Report from the Secondary Legislation Scrutiny Committee

My Lords, I hope it will be useful to your Lordships if I speak to all the instruments, beginning with the draft Direct Payment to Farmers (Reductions) (England) Regulations 2022, which were laid before this House on 3 February 2022. The matters in these instruments are closely related. Made using powers under the Agriculture Act 2020, they implement important aspects of our new agricultural policy, as set out in the agricultural transition plan published in November 2020 and updated in June 2021. The three instruments apply only in relation to England.

The Direct Payments to Farmers (Reductions) (England) Regulations 2022 apply progressive reductions to direct payments to farmers in England for the 2022 scheme year. By doing so, it continues the process of phasing out direct payments in England which began in the 2021 scheme year. The Government remain committed to phasing out direct payments in England over the seven-year agricultural transition period. We are doing so as area-based payments are unfair: they go primarily to larger landowners, artificially inflate land rents, stand in the way of new entrants to farming getting access to land, and offer little return for the taxpayer.

To help farmers plan, we initially committed in 2018 to phase out direct payments. The specific reductions provided for in this instrument were announced in November 2020. As was the case for 2021, higher percentage reductions will be applied to payment amounts in higher payment bands.

Although direct payments are reducing, total funding to farmers is not. We will make money from the reductions available to targeted schemes, which will increase farm productivity, improve the health and welfare of animals, and enhance the natural environment. In the coming year, that reallocated money will be used to meet the rising demand from farmers for countryside stewardship, our current environmental offer, which has seen a 40% increase in applications. That funding will also be used in the launch of the first of our new environmental land management schemes: the sustainable farming incentive. Further, we will also fund the initial wave of the landscape recovery scheme, with projects focused on supporting native species and restoring rivers.

We are also making available free business advice to farmers and will continue to offer a range of popular grant offers so that farmers can invest in their businesses and become more efficient and sustainable. We will also be offering a new suite of opportunities for farmers, supply chains and researchers to collaborate on researching and developing innovative but practical solutions to the challenges and opportunities that farming faces. This is an essential reform that puts England on track to meet its legally binding environmental and net-zero targets, while creating a thriving and self-reliant farming sector.

The Agriculture (Financial Assistance) (Amendment) Regulations 2022 amend the Agriculture (Financial Assistance) Regulations 2021, approved by this House on 22 March 2021. Those regulations put in place financial data publication and enforcement and monitoring requirements for four new financial assistance schemes established under the Agriculture Act 2020. This amending instrument extends the range of financial assistance schemes covered by the 2021 regulations to ensure that any new financial assistance scheme launched in 2022 and thereafter is subject to the same checking, monitoring and enforcement requirements that applied to the original schemes launched in 2021.

The 2021 regulations gave Defra the opportunity to test, refine and develop these new requirements. The amendments made by this instrument will now allow the Government to move on to the next stage of agricultural policy set out in the agricultural transition plan.

This instrument also strengthens the investigative powers in the 2021 regulations to ensure that where there are suspicions of offences in connection with financial assistance —for example, fraud offences—the Secretary of State can, where appropriate, fully investigate the matter. The amendment will allow the Secretary of State to investigate not only agreement holders but applicants, and in certain circumstances the employees or agents of an applicant or agreement holder. These investigative powers mirror powers Defra holds in relation to CAP schemes, while allowing Defra to use them in a more proportionate manner, reflecting the objectives of the Agriculture Act.

This instrument also removes a reference to grants in Regulation 13 of the 2021 regulations. The amendment will ensure that “financial assistance” is not limited to grants and can include other forms of assistance, as provided for in Section 2(1) of the Agriculture Act.

In drafting the 2021 regulations, Defra engaged with key stakeholders in a targeted consultation exercise between 4 August and 1 September 2020, giving stakeholders the opportunity to review Defra’s proposed approach and express their views. Feedback gathered during the consultation exercise was used to inform the content of the 2021 regulations and this amending instrument.

I turn to the Agriculture (Lump Sum Payment) (England) Regulations 2022. As part of our wider agricultural reforms, we want to support farmers who wish to leave the industry, as well as those who want to stay. We know that some farmers would like to retire or leave farming but have found it difficult to do so for financial reasons. That is why this instrument allows a scheme to be introduced in 2022 which provides lump sum payments to farmers in England who wish to leave the sector. These payments will be in place of any further direct payments to the recipient during the remainder of the agricultural transition. This is not new money and will not impact the funding of other schemes. This scheme should also free up land, creating more opportunities for new entrants and farmers who wish to expand.

These instruments implement provisions in the Agriculture Act 2020. They continue the transition away from the inefficient direct payments model of the CAP and they build upon the already implemented financial assistance framework to cover new schemes, in line with the agricultural transition plan. I beg to move.

I thank my noble friend for introducing these regulations. I would like to put one or two questions about each in turn.

Could my noble friend the Minister clarify an issue that has been raised? The Secretary of State for Environment, Food and Rural Affairs said at Blackpool, if I have understood correctly, that farmers have more than made up for any income lost since these new provisions came in—or, in fact, since we left the European Union. My contacts told me over the weekend that is anything but the case. It would be welcome to know the basis for the Secretary of State’s remarks; perhaps there is something I am misunderstanding.

Regarding direct payments to farmers, the subject of the first regulation before us, as my noble friend said, this is putting us on the path to reducing the direct payments until we eventually come into ELMS. What has been identified, I think by the CLA especially, is that there will potentially be a 50% gap in the funding that farmers have been receiving between the regulations before us this afternoon and the end of the transition period. If that is the case, and I am sure my noble friend’s department will be aware of that, I would like to understand how that gap will be filled so that farmers do not lose out.

I am concerned that there is a lack of understanding. We are meant to be levelling up the economy and unleashing the rural economy. I think, at the moment, the rural economy is performing below par. One reason is that we simply do not have the tools.

I will take the North Yorkshire moors as an example, or the Yorkshire Dales, where my brother lives: we still have woeful broadband internet connections there and the mobile signal contacts are often potentially extremely dangerous. We learned at a recent meeting that masts have apparently been put in by two providers—I believe it is O2 and EE—but these have not been linked up in this rather broad area of North Yorkshire. My noble friend’s department is responsible for rural affairs—it is in its title—so perhaps he could use his good offices to ensure that, as we leave direct payments and move to an alternative form, farmers will be given the tools to do the job.

To conclude on the first regulations, there is also a lack of understanding that tenants are unable to qualify under the new schemes. I would be interested to know to what extent that is reflected in contacts that the department has had with tenants. I know that our honourable friend the Farming Minister in the other place, Victoria Prentis, is aware of this. I commend the work of the Rock review on tenant farmers, but tenants are being evicted as we speak. There simply will not be that many of them left, if we carry on at this pace, when we reach the end of the transitional stage for direct payments to farmers.

I make a plea to my noble friend: will he help me to understand how, when it is gone, the direct payments relief will be replaced for those tenants who cannot claim for anything other than farm schemes owing to the nature of their farm tenancy agreements? Those are enshrined in a great many agricultural Acts, not least the 1947 Act. Can he put my mind at rest on the plight of tenant farmers?

I add that on common land graziers and those with shooting rights are trying to compete side by side. I am sure my noble friend will be aware that there is currently an issue with food security, not least because we understand that Ukrainians have been picking most of our fruit and vegetables in the last two or three years. It appears that, added to the cost of wheat, we may perhaps soon have in this country a local shortage of such staples. I wonder how my noble friend expects to address that.

I turn briefly to the Agriculture (Financial Assistance) (Amendment) Regulations. Paragraph 7.6 of the Explanatory Memorandum says that the department will perhaps try to look more favourably and proportionately on how the offences are to be inspected; I think my noble friend alluded to this. However, the first sentence does not entirely fill me with confidence. It states:

“The instrument also expands the power of the Secretary of State to investigate suspected offences in connection with applications for, or receipt of financial assistance.”

That will not go down well, particularly with the owners of small family farms, who have said at every turn how they are finding that, if anything, the administrative burdens are increasing. I would like to hear a little more detail from my noble friend about how these regulations will applied. How will the full force of Defra be applied more proportionately?

The third and final instrument before us states clearly that direct payments are to be replaced. My noble friend referred to a lump sum payment. This might seem very attractive, particularly to older farmers. I refer again to my experience of North Yorkshire in this regard. The difficulty they have asked me about is: if they apply for this lump sum grant, how will that affect their tax situation? Did I understand my noble friend to say that it could be up to £100,000?

We have a shortage of affordable homes in the countryside. Very few new houses being built across North Yorkshire—and, as far as I can see, in other rural areas of England—are one- or two-bedroom, which would be ideal for farmers who have moved off the farm and want to stay in a village. If we do not make it more attractive for them, we will prevent newer, younger farmers coming in, which is a desire of Defra. With those few remarks, I look forward to my noble friend’s responses.

My Lords, I declare my interests as a farmer and landowner, as set out in the register. I am broadly supportive of the Agriculture Act and the introduction of the new system of public funds for public goods, but I need to hear what the Government have to say about the very different circumstances that apply today from when the Act was passed.

Like other noble Lords, and this was referred to by the noble Baroness, Lady McIntosh, I am most concerned with how the Secretary of State is reported to have said that rising input prices will be matched by rising output prices. This demonstrates a lack of understanding, particularly of businesses. The consultant Andersons has calculated that, whereas the average rate of inflation for consumers is 5.5%, it is 10% for farmers, when it is recognised that their principal inputs are fuel, feed, fertiliser, seeds and labour.

The Financial Times reported yesterday that the European Union is

“reviewing the bloc’s sustainable food strategy after a concerted push against the planned reforms by national governments, farmers and the agriculture industry.”

Is this debate happening here? Surely, in the unfolding circumstances of inflation and Ukraine it would be sensible, as a minimum, to delay the planned cuts in BPS payments for this year and maybe next. This would not involve additional government funding, only a delay to the introduction of the new schemes.

The new sustainable farming incentive support is, after all, a fraction of what farmers are due to lose in the BPS. This is important for smaller farmers with weaker balance sheets, as the stronger cash flow provided by the BPS would enable them to purchase inputs, such as fertiliser, on a more timely basis.

In this country, the Food and Drink Federation is now calling for a national food security council, which could work alongside the industry to enable a collective response to supply chain disruptions caused by immediate issues such as rising energy, CO2 and fertiliser prices. Please could the Minister give us some indication of what the Government are doing to address all these important issues?

Finally, on the regulation on lump sum payments, I believe the payment is totally inadequate to encourage farmers to retire. It is also a disincentive for new farmers to enter the industry. A payment of up to £100,000 is attractive only if the farmer owns his own house, particularly in the south of England. This excludes most tenant farmers. Nothing is achieved if the farmer rents from the landowner the farmhouse he has been living in, at an open market rent, as this could be the same or more than his farming rent.

As a means to free up land for new farmers, this scheme suffers from the basic problem that the BPS is not available any more, while the other funding that is available is much smaller. The only likely “beneficiary”—in inverted commas—both from the reduction of the BPS and from the lump sum scheme is the well-financed larger farm. From a farming, environmental and social point of view, this is not what we want to achieve.

My Lords, I thank my noble friend the Minister for galloping us through these measures. The challenge for us in this Committee is not to detain him too long, so as to allow him to resume all the work he is doing. I echo much of what the noble Lord, Lord Carrington, said. I declare my peripheral interests; my agriculture and land are all in Scotland so I am not directly involved.

The rationale for this process of cuts is the same as when this was carried out in New Zealand. All input costs and other things—my noble friend the Minister mentioned rents—dropped in parallel with the cuts in government funding. In the current economic situation, there is no way that fertiliser companies have the slack to cut prices. They are being forced up, as my noble friend the Minister will know, by 200% or more. Will the Government be monitoring how this works out in practice and will they create powers to delay the introduction? It will stretch the lump sum payments if they are the only remedy that is available, and people are going to be forced out of business.

My noble friend the Minister has promised that there will be no reduction in payments to farmers, and I am sure he believes that, but what proportion are the Government expecting to go to conservation projects that are not related to farming? Will that considered to be part of the payment or are they going to be financed from elsewhere?

My Lords, I declare my agricultural interests as detailed in the register, although they are not particularly relevant to the point I want to make.

I do not think the Minister was in this House when we considered the Agriculture Bill in 2019—I cannot quite remember but I hope I am right about that. During the passage of that Bill, there was quite a lot of comment from many parts of the House about the position of smaller farmers, particularly hill and livestock farmers, most of whom are marginally profitable, if at all, and nearly all of whom depend wholly or almost wholly on the public subsidy that they receive. I made a plea at that point for the Government to consider not reducing the lowest band of the direct payments because those are directed only at the relatively small farmer.

I see in the regulations in front of us that, in fact, the smaller farmers—that is, those receiving £30,000 or less—are to receive a cut of 20%. That seems rather harsh. Although I am perfectly aware that there is no possibility of this regulation being amended, I wonder whether the two Ministers here would discuss with their ministerial colleagues the state of the small farms in this country. I do not believe that this Conservative Government really want to see small farms eased out of business. I am really worried about them.

The larger farms will get by. They have efficiencies, they are usually better capitalised; they will probably be all right under changed circumstances. But the small family farms, in many cases tenanted farms and/or livestock farms, are struggling and will struggle even more with these proposed cuts. I just do not feel that Ministers are sufficiently sympathetic to the position of small farmers at the moment. I would be grateful if the Minister could comment on that.

My Lords, I thank the Minister for his introduction to these three statutory instruments dealing with proposals for the transition to the new financial support payments for farmers in England post Brexit.

The first SI, which deals with direct payments and reductions, has been well publicised since Brexit and during the passage of the Agriculture Bill. Farmers’ payments under CAP have already started to decrease and this year will see a further reduction in their payments, from 20% for those on £30,000 up to 40% for those in receipt of more than £150,000. This sliding scale has been well trailed and there should be no surprise among farmers about its further reduction. What is more problematic for them is the lack of the implementation of ELMS to replace this lost income. Small farmers will be hit particularly hard.

Consultation on the transfer took place back in February to May 2018 and the new arrangement is now beginning to bite. Are the Government considering a further consultation on the actual effects of the sliding scale of reduction in direct payments, especially as the implementation of ELMS is only slowly coming into effect during the transition period? Meanwhile, food security is moving rapidly up the agenda.

While it is to be welcomed that the Government are focused on biodiversity and carbon sequestration targets, the knotty issue of food production is somewhat ignored. The British farmer is very disillusioned at the trade deals with countries on the other side of the globe which have a very different landscape in which to produce their livestock and huge economies of scale that are not open to British farmers. They also have less stringent animal welfare rules than those which operate here. It is, therefore, much easier for Australian and New Zealand farmers to undercut our own hard-working farmers. Does the Minister agree that farmers are angry about the way they are being treated by the Government and undercut by cheaper imports?

I turn to the financial assistance amending SI. This seems to be all about monitoring of farmers’ financial assistance and enforcement. Over the five pages of the Explanatory Memorandum to this short SI, there are no fewer than nine references to monitoring and enforcement. The whole instrument gives the impression that the farming community is systematically and deliberately attempting to defraud the Government out of money.

There is reference to the tree health pilot scheme and annual health and welfare reviews being exempt from the publication requirements which apply to all other payment schemes. Can the Minister say why this is?

Under paragraph 6 of the Explanatory Memorandum, bullet point 5 refers to the Secretary of State being able to investigate suspected offences. Given the general tenor of this SI, what is the current level of offences? Paragraph 7.1 again refers to checking, monitoring and publication of information. In paragraph 7.3, the fourth bullet point refers to

“investigation of breaches and suspected offences in connection with applications for, or the receipt, of financial assistance”.

Can the Minister say whether wholescale fraud existed in the farming community over payments?

Paragraphs 7.5, 7.6, 7.7 and 7.9 refer to suspicion of fraud, breach of conditions, investigative powers and, again, suspected offences. It would appear that farmers are being accused of wholesale fraudulent activity over their payment claims. The whole statutory instrument wields an awful lot of stick and hardly any carrot in its treatment of farmers. Can the Minister please give the Grand Committee some clarity on just what the basis is for the tone of this statutory instrument, which I find offensive?

Paragraph 7.10 states:

“The instrument does not impose duties that are significantly more onerous than before”.

Can the Minister say, however, whether he thinks a family farmer would be likely to agree with this statement?

Paragraph 11 refers to Defra planning to provide detailed guidance for each financial assistance scheme. Can the Minister say when this guidance will be published? No impact assessment has been produced, on the basis that participation in the Government’s financial assistance schemes is voluntary. This is insufficient reason for not producing an impact assessment. What will happen if farmers decide that they simply cannot make a living out the new schemes and vote with their feet? The country will still need to engage in biodiversity, and it will certainly still need to produce food, especially given the current situation with the decline in food being imported from Ukraine and the rising cost of energy and fuel supplies.

I regret to say that I think it would be more truthful if this SI were renamed the “Agriculture (Financial Assistance) (Prevention of Fraud) (Amendment) Regulations”. British farmers are not all dishonest and on the fiddle. They are committed and hard-working, diligently and desperately trying to make a living during a very difficult time when there is little certainly for them, in an industry which is under threat in the long term. I look to the Minister to give reassurance that the ethos of this SI is misplaced and not borne out by the evidence.

Lastly, we come to the Agriculture (Lump Sum Payment) (England) Regulations 2022. It is important that new, hopefully younger, people are able to enter agriculture. Encouraging farmers to retire is important as this releases land for new entrants. I note that the SI refers to releasing land for existing farmers to expand. Can the Minister give reassurance that farmers wishing to expand will not push out the interests of new entrants? While it is important for small farmers to be able to expand their holdings when land is released, it should be in proportion to those wishing to get a toe-hold on the farming ladder.

The regulations make it clear that farmers have to release the land before they can receive the lump sum payment but may retain five hectares of land. Can the Minister say what the rationale is behind retaining five hectares? This may be standard practice but, as I am not a farmer, nor come from a farming family, it would be useful to know just what is behind this.

Paragraph 7.8 of the EM indicates that applicants who are part of a woodland creation scheme would not have to transfer their land. Can the Minister give reassurance that the woodland creation schemes do not include rapid growing conifers but the type of trees that are slow growing and likely to increase the biodiversity of the land and the return of species which have previously abandoned the area?

The instrument contains a formula for calculating what the lump sum payment will be. I readily admit that algebra is not my strong point, but can understand how this will be calculated. The maximum amount payable is £100,000 and Defra calculates that 87% of farmers will not reach this cap. This does not seem a sufficient reward to encourage farmers to leave the land after a lifetime of desperately early mornings, slogging through all weathers and very late evenings in order to supply milk, meat, vegetables and grain, often for a poor monetary return. Perhaps I am overly simplistic in my view, but I am not sure this is going to make the room for new entrants which the Government were hoping for—the noble Lord, Lord Carrington, referred to this.

This suite of SIs work together to give a package of measures across the farming industry which should bring some certainty to the farming community but which I fear are not likely to do so. Together with the existing trade deals and those currently under negotiation, it is no wonder that the British farming industry does not feel that the Government have its back.

My Lords, I thank the Minister for his introduction to these SIs, which, as he said, follow on from the detailed debates we had during the passage of the Agriculture Act, and indeed previous SIs which began to roll out the detailed proposals.

First, addressing the SI which introduces year 2 of the basic payment scheme reduction, as has been said, this is not a surprise, as the plan for this reduction in 2022 has been set out in previous documents. Nevertheless, even for the lowest category of claimants, a drop from 5% to 20% is significant. Already the farming press is reporting significant cases of hardship, and the noble Lord, Lord Benyon, recently admitted in the Chamber that it was hard to see how many upland farmers could continue to make a living under the new regime. We know, for example, that pig farmers have been particularly badly hit by what Victoria Prentis, the Minister in the other place, has described as an “exceptionally challenging period.” I therefore share the concern that several noble Lords raised about the Secretary of State’s comments last week, in which he said that the reductions in the basic payment scheme for farmers would be more than recouped by their increased income from the sale of produce. I do not think anyone of us felt that that was a reality, and indeed I very much share the comment of Minette Batters, who said

“one of us is … living in a #ParallelUniverse”.

I think she summed up the views of many when she said that. Perhaps the Minister could comment on what seems to be an unrealistic comment of the Secretary of State and say whether he agrees with it.

Of course, the Welsh Government have de-risked the changes by postponing the basic payment cut for a year to allow the farming community to adjust to the new arrangements. Can the Minister say what the impact of this is, with farmers receiving different subsidies throughout the devolved nations, and what is the impact on the internal market from the phasing out happening at different timescales?

I am conscious that this SI is for one year only, as was the previous year’s SI. In the current climate that probably makes sense given the huge traumas that are going on in the sector. As noble Lords have said, we are seeing the impact of unforeseen world events causing massive increases in the cost of fuel and gas, and shortages of feed and fertiliser. The Explanatory Memorandum in paragraph 14 makes it clear that these arrangements will be kept under review, saying that

“Defra and its agencies will monitor and review the impact of this instrument as part of its standard policy-making procedures.”

Can the Minister shed more light on what these monitoring arrangements are? I would have thought that in the current climate that is exactly what such flexibility was designed to address, and presumably at this moment risk analyses are taking place as to the impact of these huge world events. Can the Minister say what tests would have to be met before the Government agreed to deviate from the rollout of the basic payment cuts? If not now, when would they ever agree to do it?

Can the Minister also give more information about the savings being made from the first year of the basic payment cut? Again, as noble Lords and the Minister said, it has been said that no money will be lost from the overall pot of money if it is not reallocated via other ELM schemes, but we know that many of those other ELM schemes are not fully up and running yet. Can the Minister reassure us that none of the unallocated money in that first year has been reclaimed by the Treasury? We know what the Treasury is like, and it is hard to imagine that it has allowed that money to sit in a pot awaiting its allocation for future years—it is very generous if it is thinking like that. I think we would all like to be reassured that the cuts in one pot are there and can be shared and made available for this and future years. Just so that we can have some further reassurance on that, when will we be able to see the accounts to give us some factual information?

The noble Duke, the Duke of Montrose, raised the split in the distribution of the ELM schemes. Can the Minister say whether it is still the intention to split it evenly between the three pillars so that a third will still be available to go to individual farmers rather than the larger projects that were also envisaged under the ELM portfolio?

The second SI tightens up the rules for checking, monitoring and enforcing the applications for financial assistance. I do not have a great deal to say on this, although I agree with the noble Baroness, Lady Bakewell, that the tone is rather unfortunate. Obviously, it is important that schemes are watertight and not open to fraud, but it is also important that we have the right degree of flexibility in terms of the investigations that take place. However, I point out the irony of Defra deciding to go its own way on leaving the EU, only for it to concede in paragraph 7.7 of the Explanatory Memorandum that the changes that it is now introducing

“will bring Defra’s investigative powers closer to those … previously created under Common Agricultural Policy … rules”.

I turn to the third SI on the arrangements for lump sum payments; again, noble Lords have raised a number of concerns about this. My first reaction on reading this SI was: is this it? Is this all we are going to get? I had expected a much more detailed document setting out the criteria, any exemptions and much more detail about how and to whom the land could be transferred. We understand the need for and potential benefits of having a scheme that allows farmers to retire with some dignity if they do not want to participate in managing their land for environmental benefits, but we also need to be confident that these retirement payments will transform the way that the land is subsequently managed and owned. This was very much our ambition during the passage of the Agriculture Act.

The Minister may have seen the briefings that we have been sent by Sustain, which echo many of our concerns about this proposal. A fundamental concern is that there is no priority for the land that becomes available to be offered to new entrants. In the Commons debate, the Minister, Victoria Prentis, said:

“The lump sum exit scheme sits alongside extra support to help new entrants into the industry.”—[Official Report, Commons, Delegated Legislation Committee, 15/3/22; col. 13.]

But these two schemes are not linked up. There is currently no incentive for a retiring farmer to offer the land to a new entrant. It is far more likely that, as we have always feared, the land will be gobbled up by the large landowner next door, who will have an inside track on details of the sale and will use it as an opportunity to expand their landholdings. This was the point made by the noble Lord, Lord Carrington, who also made a good point about these sums of money simply not being sufficient for people who want to move off the land to be able to buy a house away from the farm.

Another alternative is that the land will be bought up by large corporations that have no farming background but are keen to offset their carbon emissions or to use it for biodiversity net gain to offset developments elsewhere. We know that the Government are encouraging this, and in many ways those schemes have merit, but we need to know where the land will go and who will be making use of it.

If we are not careful, both those depressing scenarios —the landowner and large corporations—are very likely unless the provisions in this SI for disposal of the land on retirement are tightened up. The end result is that we will see small family farms squeezed out of the sector, which was the point made by the noble Duke, the Duke of Wellington.

Will the Minister look at this again and provide some reassurance about new entrants and where that land will go? Will he also look again at the very narrow definition of “connected person” in Regulation 7(1) of the Agriculture (Lump Sum Payment) (England) Regulations 2022, because, as it stands, you can transfer the land to any family member as long as it is not your partner or spouse. I ask again whether this been fully thought through, because it seems likely that the payments will be made within a family—maybe to the father—with other members of his family carrying on farming much as before. Again, we are facing a scenario where new entrants will find it very difficult to make headway in coming on to the land.

Finally, what are the specific exemptions where payments can be made but land does not need to be transferred? As the noble Baroness, Lady Bakewell, said, the example given in the Explanatory Memorandum is that if a farmer plants trees under a woodland creation scheme, they do not have to transfer the land. Is there not a danger that this will encourage a huge shift to planting trees, where a more holistic environmental use of the land makes more sense? Of course, we all want trees to be planted, but we want this to be, as we always say, “the right tree in the right place”. It seems very worrying that this will lead to a wholesale obsession with planting trees when we need to be more in line with the full holistic needs of that land use for the future. The woodland exemption was given only as an example. What other exemptions are being considered to avoid the land being transferred?

I find these proposals depressing, because I do not think that they will achieve the promise, set out in the Agriculture Act, to broaden land ownership and bring a new generation of environmentally focused farmers into the sector. It feels like the proposals are rushed and flawed. I am sorry to have asked a number of questions here, but I think it is important for the future of the farming community and of our environmental land that we have a substantial reassurance that our concerns are misplaced and the right outcomes will be achieved. If the Minister is not able to do so today, I hope he will feel able to write with more detail about how the retirement scheme in particular can breathe new life into the sector.

I thank all noble Lords who have contributed to the debate. I will do my best to answer the many questions that have been put to me without exceeding my time slot.

The noble Baroness, Lady Bakewell, asked a number of questions in relation to the reduction of direct payments. We do not plan to consult further on the reductions, but the Government have published an evidence paper, updated in September 2019, setting out the expected impacts of removing those direct payments, and that included an analysis by sector, location and type of land tenure. It provided an analysis of how farm businesses across all sectors can offset the impact of reductions in direct payments. An update to that analysis was due to be published shortly, and it has been delayed—only slightly, I hope—in light of what is happening in Ukraine and the impact this will have on farm business incomes; that point was made by a number of noble Lords. We are reviewing this to ensure that the analysis remains fit for purpose.

All funding released from reductions in direct payments in England is being reinvested into delivering other schemes for farmers and land managers in this Parliament. I hope that is some reassurance to the noble Baroness, Lady Jones, as well.

The noble Baroness raised other issues about reductions to direct payments. A small number of farmers leave the industry each year; that has been the case for some years now. They do so for a whole variety of reasons. According to the data we have from the Rural Payments Agency, in 2020 around 1,000 basic payment scheme claimants in England can be assumed to have exited the industry. It is too soon to produce equivalent data following the 2021 scheme year, but for the basic payment scheme 2021, the reductions for most farmers were modest. Around 80% of claimants would have received a reduction of around 5%, which is within the scope of the year-to-year variance experienced historically in any case due to currency fluctuations.

On the impact on the internal market from phasing out direct payments, these payments are largely decoupled from production and therefore they should not be trade distorting. Within the UK, there are already significant differences in the implementation of direct payment schemes, and while direct payments currently form an important contribution to farm income, as the noble Duke, the Duke of Wellington, said, in many cases it is critical—the reason they are still in business. They can nevertheless hamper productivity growth in the agriculture sector and drive up land rental prices. Removing them should raise our agriculture sector’s productivity across the board, leaving our farmers in a better position to compete.

The noble Baroness, Lady Jones, also asked what tests would have to be met before the Government agreed to deviate from the rollout of the basic payment cuts. Defra regularly gathers and publishes statistical data on the current state of the industry; for example, the results from the 2021-22 Farm Business Survey, which will cover the first year of progressive reductions, will be published this autumn. Data is also gathered through bodies such as the Animal and Plant Health Agency and the Rural Payments Agency, and that includes information on various aspects of the sector, such as the impact of reductions in direct payments. That allows the Government to monitor the sector and to make better decisions on the future of farming.

The Government are committed to phasing out untargeted direct payments. We do not believe that they are the best way to support farmers, as I tried to explain in my introductory remarks. The noble Baroness also asked about the savings being made from the first year of the basic payment reductions. For 2021, approximately £178 million was freed by reductions to the payments. This is being redirected into delivering other schemes for farmers.

The noble Baroness, Lady Jones, also asked for reassurance, as I think did my noble friend Lady McIntosh, that none of the allocated money from direct payment reductions has been reclaimed by the Treasury. All the funding released from reductions in the direct payments is being reinvested into delivering other schemes for farmers and land managers during this Parliament; it is not being hoarded for long-term future use. That amounts to an average of £2.4 billion a year over the period 2021-22 to 2024-25.

We have been clear all along that we will spend money where it delivers for the environment, alongside food production, and we need to support changes across the entire farm landscape to deliver those broad and connected ambitions. That is why we have increased the countryside stewardship payments by an average of 30% and introduced the sustainable farming incentive. Direct payments are not about food production. The decoupling of payments from food production took place around 15 years ago. Our evidence suggests that the removal of direct payments in England would have only a marginal effect, if any, on overall food production.

With regard to the Agriculture (Financial Assistance) (Amendment) Regulations 2022, a shared enforcement framework was previously established by the Agriculture (Financial Assistance) Regulations 2021, ensuring that powers of entry will be exercised, and inspections carried out consistently across the schemes. This instrument extends that framework to cover additional new financial assistance schemes and broaden the investigative powers of the Secretary of State, in a manner consistent across the different schemes. Training and guidance will also be provided to those authorised with powers of entry or to carry out inspections to ensure that these are exercised in a consistent way.

The noble Baroness, Lady Bakewell, asked about the tree health pilot scheme and the annual health and welfare reviews being exempt from publication requirements; she wanted to know why that was the case. Specific location details and personal information identifying a land manager or landowner in relation to tree pest and disease findings will not be published. This information is considered to be sensitive and potentially damaging to the individuals or businesses concerned. It could also inhibit the reporting of future cases of pest and disease outbreaks. We will, however, publish aggregated data for these payments.

The noble Baroness, Lady Bakewell, also asked about the level of fraud in the farming community and overpayments. These regulations offer a range of enforcement measures to deal with fraud or breaches of scheme rules, including the withholding of financial assistance, recovering financial assistance previously awarded, and prohibiting a person from receiving financial assistance for up to two years. Appropriate sanctions will be available and applied where there are clear cases of misuse of public funds; for example, through neglect, serious cases of non-compliance or fraudulent behaviour. The noble Baroness asked for specific numbers but I am afraid I will have to get back to her on that because I do not have them, but the point she made, echoed by the noble Baroness, Lady Jones, will have been heard loud and clear.

The noble Baroness, Lady Bakewell, asked when the guidance will be published for each financial assistance scheme. I understand the importance of giving farmers as much time as possible to plan. Detailed guidance for stakeholders will be published in good time ahead of each scheme being launched, giving farmers support to implement the standards and understand the new rules. This guidance will be written in plain English, which will set out and explain the detailed scheme rules and requirements. Some schemes, such as countryside stewardship and landscape recovery, are already live and appropriate guidance has been published. For other schemes, guidance will be published in good time ahead of their launch. For example, for the SFI scheme, we will publish final details of the offer for 2022 and scheme information later this spring—some might say we are in spring now, so shortly—ahead of opening for applications later in the year.

Without the Agriculture (Lump Sum Payment) (England) Regulations 2022, we will not be able to meet our public commitment to offer farmers a lump sum exit scheme this year. This would limit the options we can provide farmers as direct payments are phased out; it would also limit structural change in the farming sector. We believe that the calculation of the lump sum payment is fair. Our calculation means that, for most farmers, the lump sum will be approximately equivalent to the amount they might otherwise receive in direct payments for the years 2022 to 2027, as these are phased out over the remaining years of the planned agricultural transition.

The noble Baroness, Lady Bakewell, asked about the rationale behind the stipulation to retain five acres. Well, farmers will be able to keep up to five hectares of agricultural land. This allows, for example, a farmer to keep some land around or near their farmhouse. We feel this flexibility will help with uptake of the scheme, which will create more opportunities for new entrants and expanding farmers. In relation to the question that she asked about trees, all publicly subsidised planting has to comply with the UK forestry standards. They are based on a UN-sanctioned approach to sustainable forest management. The UK forestry standards are, in effect, a live document that is being updated all the time. At the moment, the emphasis is placed heavily on the need to use public money to deliver the maximum possible public good. This means not just having monoculture conifer plantations, but ensuring we have a genuine yield in biodiversity and numerous other public benefits, such as flood management and flood prevention. As it happens, the overwhelming majority of woodland creation supported by the Nature for Climate Fund grant schemes will be native broadleaf. That can be judged by the applications coming in, even though this very new fund is in its first year.

Returning to a question put to me by the noble Baronesses, Lady Bakewell and Lady Jones, which I realise I did not answer, we think that the lump sum exit scheme will free up land for new entrants and expanding farmers. It is about providing opportunities for farmers, rather than aiming for a particular balance between those entering the sector and existing farmers who wish to expand. We recognise the importance of providing additional support for new entrants alongside that lump sum exit scheme. Attracting new talent into food and farming is vital, if we want a sustainable and productive agricultural sector.

As set out in our agricultural transition plan for 2021 to 2024, we will provide funding to create lasting opportunities for new entrants to access land, infrastructure and support to establish successful and innovative businesses. In January this year, the Secretary of State announced the development of incubator pilots for new entrants, with council farms playing a key role. The details of the pilots are currently being designed and we hope to launch the pilot scheme later this year.

The noble Baroness, Lady McIntosh made a number of comments and raised questions, some of which overlapped with points made by the noble Duke, the Duke of Wellington, particularly on small and tenant farmers. At the end of January this year, the Secretary of State announced an independent review, chaired by the noble Baroness, Lady Rock, dedicated to looking at how Defra schemes can better support the tenanted sector, as farming in England is reformed to be more sustainable. The review period is expected to be six to nine months, and it will publish its findings and recommendations later this year. I will not go into all the details on the group of experts—who has been selected and how, or who they represent—but it is a broad range and I am happy to provide that information if the noble Baroness would like me to. I could tell her now, if she asks, but I am worried about the time.

The tenancy working group, as it is called, will collect evidence and bring forward recommendations on a whole range of issues: how scheme design can facilitate the participation of and benefit to tenant farmers in the new environmental land management schemes; what policy initiatives will secure the long-term sustainability of England’s tenant farming; how best to foster positive and long-term tenant/landlord relationships; ways to minimise any potential loss of land from the tenanted sector to avoid damaging its resilience; why it might be necessary to look for new legislative or regulatory powers in the future—I shall stop there, because the list is rather long.

I have that already. I am just slightly disappointed that the working group will not now report for nine months; it was meant to report within six months.

I said six to nine months; I am afraid that is the answer I received. I shall check on the timescale, but I assume six to nine months is correct, since that is what my colleague, my noble friend Lord Benyon, has told me.

The noble Duke, the Duke of Wellington, raised a broader point beyond tenant farmers, about small farmers. He is right: small farmers are the backbone of our countryside, and any policy that results in a reduction in the diversity, breadth and viability of our small farmers is not a good one. They are critical to the future sustainability of our countryside. Farmers will be supported throughout the seven-year transition period to the new system. We are reducing direct payments, as the noble Duke said, but that will be gradually over the seven years, which will give farmers time to adapt and take advantage of the new offer. Money saved by direct payment reductions will be reinvested directly into English farming and agriculture through our new schemes. The Government are committed to providing the same cash total to the sector in each year of this Parliament. Some £10.7 million of funding has already been awarded through the interim phase of the future farming resilience fund. That provides, among other things, free business support to farmers and land managers to help them navigate the changes during the early years of the agricultural transition period.

Upland farmers have a particularly important role to play in addition to that of food production, and that is in land management. In their contribution to alleviating the threat of floods, which blight so many communities in this country, there is almost no one in a more important position than those farmers. They are absolutely in the mix when it comes to the new system that has been designed.

I turn to the questions asked by the noble Lord, Lord Carrington, and my noble friend the Duke of Montrose. My noble friend asked what proportion of the money would be spent on schemes which are not related to farming and are purely conservation. Again, I cannot give him a direct number, but there are schemes beyond the system being described today which are designed to support, for example, natural regeneration or tree planting, most of the funding for which comes from the nature for climate fund. We are talking here about a slightly different system which the nature for climate fund supports, but ultimately this is all about good land management.

The Government published a paper, which was updated in September 2019—I may have mentioned it earlier—setting out the impacts of removing the direct payments. That paper is being updated as we speak. The delay is caused by the conflict in Ukraine.

My noble friend and the noble Lord, Lord Carrington, talked also about the impact on consumer food prices. The analysis that we have made in Defra suggests that any effect of direct payments on consumer food prices is limited. However, we are doing a full impact assessment on food security up to 2024, and the results will be made available and will inform future policy design.

It is important that we continue with the transition as planned. Applying reductions to direct payments frees up money which we can use to pay farmers and land managers to encourage environmental protection and enhancement, public access to the countryside, and the safeguarding of livestock and plants. We must also provide opportunities for farmers who wish to leave farming to do so in a managed way. These instruments will allow the Government to ensure that this can be done. I hope that I have answered the key questions put to me today. I beg to move.

Motion agreed.