Category: Policy & Business

Scottish Agriculture Secretary

Mairi Gougeon has been reappointed as Cabinet Secretary for Rural Affairs in the new administration of Humza Yousaf.  The post was reportedly offered to Mr Yousaf’s defeated rival in the SNP leadership election, Kate Forbes, but she turned it down.  Ms Gougeon also takes on responsibility for Land Reform.

Agreement Reached on UK Joining the CPTPP

On 31st March, the UK Government completed negotiations to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), following over 2 years of negotiations.  Whilst the accession agreement was signed at a virtual meeting of Trade Ministers, the legal text of the agreement has yet to be published, and there will be a ratification process in the UK similar to that of other recent trade deals (e.g. Australia and New Zealand).  The key points from an agricultural perspective are:

  • General economic impact: the UK will be joining a trade bloc of 11 countries, accounting for about 7% of global GDP.  The UK already has bilateral trade agreements in place (or pending ratification in the case of Australia and New Zealand) with nine of these members, the other two being Malaysia and Brunei. Therefore, the additional economic gain from joining the CPTPP will be limited at a national level, with the UK Government estimating that it will boost UK GDP by 0.08% in the next decade.  From an agri-food perspective, the UK joining the CPTPP will not alter the level of access that Australian and New Zealand exporters will have to the UK market.
  • Import tariff concessions:
    • Palm oil: controversially, import duties on Malaysian palm oil (currently up to 12%) will be eliminated upon entry into force.  Given the environmental concerns around deforestation associated with palm oil production in Malaysia, this will attract strong criticism.  The UK and Malaysian Governments have attempted to address this by publishing a joint statement as part of the environment chapter of the agreement which sets out commitments to promote sustainable production and protecting forests.  Palm oil may provide greater competition for domestically-grown oilseed rape.
    • Sheepmeat: Australian and NZ exports to the UK will remain subject to the TRQs outlined in the UK’s bilateral Free Trade Agreements (FTAs) with these countries.  Duties on imports from other countries, which are minimal, will be eliminated from entry into force.
    • Eggs:  Australian eggs will remain subject to the UK’s Global Tariff. Duties on imports from other countries will be eliminated over a 10-year period, although imports from these countries are likely to remain minimal.
  • Tariff Rate Quotas (TRQs) on Imports to the UK: the following new TRQs have been agreed
    • Beef: a new duty-free TRQ of 13Kt will be phased in over 10 years and will start at 2.6Kt.  It only be available to Canada, Mexico, Chile, Peru, Malaysia and Brunei.  Importantly, any beef imports will have to meet UK Sanitary and Phytosanitary (SPS) requirements.  The Canadians sought UK acceptance of its standards (which permit hormone-treated beef), but the UK withstood this.  Also, Australia and New Zealand will not get any further access to the UK market under the CPTPP.
    • Pork: a 55Kt TRQ will be phased in over 10 years (starting at 10Kt).  Again, this will be available to the same countries listed above.  Vietnam and Singapore will also have access to this TRQ for an initial 3-5 year period before their duties are eliminated via a bilateral FTA with the UK.  This TRQ could present some competitive threats from the likes of Canada and Mexico, although some commentators don’t believe that Canada will pose an immediate threat as it currently only utilises a small proportion of its potential TRQ under pre-existing agreements.
    • Chicken: a TRQ of 10Kt will again be available to the countries listed above.  A 10-year phase-in period will again apply.  Vietnam and Singapore will again have access to this TRQ for an initial 3-5 year period before tariffs on imports from these countries are eliminated.
    • Sugar: a 25Kt tonne TRQ will be shared by Brunei, Chile, Malaysia, Peru, and Vietnam.  Canada will also have access to this TRQ for an initial two-year period before its tariffs will be eliminated as per the bilateral (roll-over) FTA that the UK has with Canada.
    • Rice: for long-grain milled rice, there will be a 10Kt TRQ to be shared by Brunei, Chile, Malaysia, and Peru.  Most-favoured nation (MFN) duties will continue for rice from Australia, Japan and Mexico.
    • Other CPTPP countries: will have access to the UK market as agreed in existing (pending) bilateral trade deals.  As our previous articles on the Australian and New Zealand trade deals have noted, bilateral TRQs of beef and lamb will be phased in over 15 years, whilst dairy TRQs will be phased in over 5 years.
  • Tariffs and TRQs on UK Exports: as the UK was perceived to be quite defensive in the access that it is offering to importers, the market access for UK exports has also been limited to some key areas, including:
    • Whisky: exports to Malaysia will see tariffs of up to 80% being reduced down to zero over a 10-year period which should help Scotch whisky to gain further market share. This is seen as a significant win for the UK.
    • Dairy exports: the Canadian Government has not made any additional market openings available. This means that the UK will need to compete with other members for Canada’s CPTPP TRQs for dairy products (16.5 Kt). This is unsurprising given the UK’s stance on Canadian beef imports and the Canadian dairy sector is highly protected.  There will be similar additional cheese TRQ of 6.5Kt on exports to Mexico, again, this will be shared with other CPTPP members.  Similar arrangements to Canada will be put in place for to any UK dairy exports to Chile, Japan, Mexico, Peru and Vietnam.
    • Beef: British exports of beef will be subject to a TRQ under the CPTPP.  There is limited further detail at this stage and it will require the publication of legal texts to confirm what is available.   In 2022, it is estimated that the UK exported 4.4Kt of beef to Canada and the CPTPP potentially presents an opportunity to grow this volume.  Tariffs on UK beef exports to Mexico (up to 25%) will be eliminated after a staging period.  There will also be staged liberalisation on exports to Peru, although export opportunities to Latin America will be limited.
    • Pork and poultry: tariffs on UK exports to Mexico, of up to 25% and 75% respectively for pork and poultry, will be eliminated over a staging period.  Similar provisions will apply to poultry meat exports to Peru and pork exports to Vietnam.
    • Other goods’ exports: over 99% of UK goods’ exports will be eligible for tariff-free trade upon accession.  For other goods where tariffs are being phased out, the UK has agreed to catch-up to other CPTPP members who are in Year 6 of their various multi-year tariff phase-out schedules.  Importantly for the UK, this includes Malaysia agreeing to phase out its 30% tariff on car imports.
  • Sanitary and Phytosanitary (SPS) measures: as mentioned above, the UK has offered no concessions on this.  However, the deal does provide a framework for more transparency and information sharing on SPS issues, which would help with addressing food fraud.  The UK has also managed to formalise the principle of ‘regionalisation’ meaning that in the event of animal or plant disease outbreaks, trade restrictions would only be limited to affected regions.
  • Other provisions: for goods, there will be multilateral cumulation which basically means that intermediate goods (e.g. car parts) from any country will count as ‘local’ for the purpose of accessing tariff concessions on trade within the bloc.  So, UK car parts sold to a Vietnamese automotive plant would be classed as local for any Vietnamese car exports from that plant to Malaysia.  In terms of services, UK companies will be able to operate in all CPTPP countries without the need to establish a local base in each territory.  This will be a significant gain for the UK financial services sector in particular.  The CPTPP chapter on the environment largely formalises commitments made by the UK and other CPTPP members under other international agreements.

Overall, whilst joining the CPTPP might help the UK to gain greater access to some Asia-Pacific markets (particularly Malaysia), its impact from an agricultural perspective looks set to be limited.  As mentioned above, the UK already has bilateral trade deals with most members and most agricultural trade will continue to be conducted via these bilateral trade deals.  In the longer term, a bigger issue could be what happens if the US joins the CPTPP, as it had agreed to join its predecessor (the Trans-Pacific Partnership), until the Trump administration pulled out.  Although the current US administration is not overly focused on international trade, the prospect of a future US administration re-joining a Pacific trade bloc (CPTPP, or a subsequent deal) should not be ruled out.  This would have much more significant implications for agriculture from both a market access and SPS perspective.

What happens next?

  • The legal text of the agreement will be formalised and published in due course.
  • From there, the agreement will come under Parliamentary scrutiny and this should include an examination and report by the Trade and Agriculture Commission; similar to the reports it compiled for the Australia and New Zealand trade deals.  This will be done to verify that accession to the CPTPP is consistent with UK laws concerning animal welfare, food safety and environmental protection.
  • Existing CPTPP members will also have their own ratification processes, which could potentially result in delays, although this is not anticipated as things stand.
  • The UK is expected to be formally approved to join during a Ministerial meeting of CPTPP members during the summer, with the ratification process will then need to be completed by all CPTPP members.

Further information can be obtained via: https://www.gov.uk/government/publications/comprehensive-and-progressive-agreement-for-trans-pacific-partnershipcptpp-conclusion-of-negotiations/conclusion-of-negotiations-on-the-accession-of-the-united-kingdom-of-great-britain-and-northern-ireland-to-the-comprehensive-and-progressive-trans-pac

Energy Efficiency

From the 1st April non-domestic premises being let out must comply with energy efficiency standards.  This applies to England and Wales where all properties must be rated grade E or better.  Those that are rated F or G are deemed to be ‘substandard’ and it will be illegal to let them until improvements are made.  It covers buildings that are not used for residential purposes that ‘use energy to condition the indoor environment’.  This rule will apply to lettings on farm such as offices or workshops.  Some of these are likely to have been let on long-standing or informal arrangements (especially workshops).  An EPC may never have been done or the landlord might be unaware of their obligations.   

Scottish Farm Incomes

Farm profits in Scotland have significantly increased for the second year running.  In the 2021/22 year, the average Farm Business Income (FBI), which can be thought of as farm profit, was £50,000 across all farm types; a rise of over £11,000 on the previous year.  This follows a £10,000 increase the year before.

The main cause for improvement is an improvement in total output.  This includes agricultural output, agricultural support payments and diversified activities, and was up by 9% on the year.  Agricultural output alone increased by 10% due to strong milk, cereal and livestock prices.  The profit for an average Dairy farm was estimated to be £162,100, with Cereal farms reaching a record high of £84,632.  The increase in output more than offset the increase in costs which were up by 6%.  However, with the figures only running to spring 2022, these costs do not not the reflect the cost rises seen over the last year.  For the first time in ten years, the average farm would have been profitable without support payments (BPS, LFASS etc).  The average business would have made a profit of £5,100 from agriculture, contracting and diversified activities.

The data is from the accounting year 2021-2022 – i.e. the period ending around a year ago which relates to the 2021 crop year and 2021 BPS.  The analysis is based on a survey of about 400 commercial farms (standard output exceeds £20,000).  It excludes farm types not in receipt of support payments (i.e pigs, poultry and horticulture).  Full details of the data, including a breakdown by farm type, can be seen at https://www.gov.scot/publications/scottish-farm-business-income-annual-estimates-2021-2022/

Local Nature Recovery

The Government has issued guidance on how Local Nature Recovery (LNR) strategies should be drawn up.  These akin to Local Plans under the Planning regime, but for nature.  They will set out priorities and opportunities for nature recovery in defined areas – usually a Local Authority region.  These strategies may have practical implications as elements of ELM such as Countryside Stewardship and Landscape Recovery will have local targeting.  They may also change the weighting of the Biodiversity metric under Biodiversity Net Gain.  Having land included in a LNR strategy with a certain land use places no obligation on landowners to use it in that way.  However, it may influence future opportunities.  The various environmental lobby groups are sure to be actively engaged in the LNR process.  The farming sector needs to ensure its voice is heard as well.  

Rules for Farmers

Defra is trying to make the ‘Rules for Farmers and Land Managers’ easier to find.  Following consultation and feedback from a group of farmers it has launched a new page which can be found at https://www.gov.uk/guidance/rules-for-farmers-and-land-managers.  It has links to all all the pages that contain information on the ‘must dos’ in law.  Defra is asking for feedback on how to improve the page further, this can be done via a link on the page.

Animal Health & Welfare Capital Grants

Defra has announced the Animal Health & Welfare Grants are now available to apply for.  These are being offered as part of the Farming Equipment and Technology Fund (FETF) and represent the next step on the Animal Health and Welfare Pathway.   Grants of between £1,000 and £25,000 are available towards the cost of items that have been pre-identified to improve the health and welfare of livestock and which also improve productivity together with bringing environmental benefits to the business.  A list of the items and the amount of grant available (circa 40%) can be found at https://www.gov.uk/government/publications/farming-equipment-and-technology-fund-fetf-2023/annex-4-fetf-2023-animal-health-and-welfare-eligible-items.  Regardless of the price an applicant pays for the item, they will receive the grant indicated on the list.

The list contains over 100 items, many of which are new for this round and have been included following co-design of the scheme.  In particular, support for broilers and egg layers is now available for the first time.  This round will be open for 12 weeks, closing midday on 15th June.  Animal Health and Welfare grants will be offered every year throughout the Agricultural Transition.  Information on further rounds will be made available in the summer.  Whether there is another round in 2023 will depend on uptake under this round.

The scheme is competitive and to be eligible for funding, equipment must not be purchased until an agreement has been received from Defra.  If successful, all items must be paid for and installed before a claim for grant is made, and ahead of the claim submission deadline which will be included on the agreement offer.  Applications can only be made via an online portal this can be found at https://ahw.fetf.org.uk/

Full guidance is available at https://www.gov.uk/government/publications/farming-equipment-and-technology-fund-fetf-2023/about-the-farming-equipment-and-technology-fund-fetf-2023

A reminder that the Productivity and Slurry theme of the Farming Equipment and Technology Fund closes midday on 4th April (see Bulletin article https://abcbooks.co.uk/productivity-slurry-grants/).

Budget 2023

The Chancellor, Jeremy Hunt, delivered what he described as a ‘Budget for Growth’ on the 15th March.  The main points are;

  • the Office of Budget Responsibility (OBR) predicts that the UK will (narrowly) avoid a recession in 2023.  This is defined as two successive quarters of negative growth.  However, the economy is still forecast to shrink by 0.2% during 2023.  In 2024 growth is forecast to rebound to 1.8%, with 2.5% in 2025 and 2.1% in 2026
  • inflation (CPI) is predicted by the OBR to fall to 2.9% by the end of this year
  • as previously set out in the November Budget, Personal Allowances and Higher Rate Thresholds for Income Tax will be frozen until 2028.  This increases tax income because, as wages rise, the tax-free element does not rise in tandem.  In addition, the top 45% Additional Rate of Income Tax will be paid on earnings over £125,140, instead of £150,000
  • one of the headline measures in the Budget was reform to tax relief on Pension contributions.  The annual tax-free allowance is raised from £40,000 to £60,000 and the Lifetime Allowance is completely scrapped.  This is designed to encourage older workers (especially doctors) to remain in the workforce
  • There were no changes to Inheritance or Capital Gains Tax, beyond that announced in November (the annual CGT exemption being cut to £6,000 from April)
  • It was confirmed that the main rate of Corporation Tax on profits over £250,000 will increase from 19% to 25%.
  • The ‘Super-deduction’ under which companies could claim 130% tax allowance for investment in certain assets will end in April.  A 100% first-year allowance (‘full expensing’) will replace it – this will have no expenditure limit.  The standard 100% Annual Investment Allowance (AIA) for sole traders, partnerships etc. will remain at £1m
  • The Household Energy Price Cap will be extended for a further three months to June, but at a lower subsidy rate so that the average bill is capped at £2,500 per year rather than £3,000.  There is no change to business energy support
  • Fuel duty is frozen.  The duties on alcohol will go up in line with inflation from August, but there will be a reduction in duty on beer and cider sold in pubs
  • There were a number of measures introduced to get more people into the workforce including additional free childcare and extra programmes to get the over-50s back to work
  • One specific point for agriculture was the launch of a consultation on the taxation of the ecosystems market (see https://www.gov.uk/government/consultations/taxation-of-environmental-land-management-and-ecosystem-service-markets).  This has two parts.  The first is a call for evidence on the taxation of ecosystems services.  The second part looks at APR under IHT and whether the rules need to be changed to encourage ecosystem services.  This part is also being used to consult on a recommendation in the recent Rock Review of tenancies that APR on tenanted land should be restricted to situations where leases are for 8 years or more. 

BPS 2023

The 2023 Basic Payment Scheme (BPS) application window is now open.  The last day to submit a claim (without penalty), including Young and New Farmer applications and to transfer entitlements is 15th May.  Certain changes can still be made, to a previously submitted claim, until 9th June as long as the claim has been submitted by 15th May.  Claims can also be made up until 9th June, but will attract penalties.  All scheme rules and details on how to claim can be found via https://www.gov.uk/government/publications/basic-payment-scheme-2023

The 2023 BPS application will be the last under the present system, it is also important that a claim is made this year.  From 2024 Defra plans to De-link payments and to be eligible for De-linked payments from 2024-2027 an eligible claim must have been made in 2023.  As previously written, De-linked payments are based on a business’s average BPS payment, including any Young Farmer Payment and Greening for the years 2020, 2021 and 2022 – the reference payment.  When payments are De-linked, entitlements will not be required and it will not make a difference if a claimant increases or decreases their land area or even stops farming, the reference payment will be made annually, subject to the % deductions under the Agricultural Transition, until 2027.

If a claimant has applied and received the Lump Sum Exit Scheme payment they will not receive a De-linked payment.  For those who have applied for the Lump Sum, but have not yet completed their exit it would be prudent to claim for the 2023 BPS, to safeguard their position in case they find they are not eligible for the Lump Sum or cannot complete the land transfer by 31st May 2024.  If a BPS claim is made in 2023 and they subsequently meet the Lump Sum rules, the 2023 Basic Payment will simply be taken off the payment due under the Lump Sum.

As was the case last year, the BPS payment will be made in two instalments.  An advanced payment of 50% of the estimated total will be paid from 1st August 2023 with balance payment made from 1st December.

The revenue claim window for Countryside Stewardship and Environmental Stewardship is also now open and closes on 15th May.