Tag Archive: basic payment scheme
For the first time in my life, the UK is not a member of the European Union. As a result, on 15th January 2020 the Government published the second iteration of the Agricultural Bill. In summary the Agricultural Bill sets out a framework of new Agricultural Policies and transition measures for England, Wales and Northern Ireland. The Bill is a crucial cornerstone of the Governments’ future farming and land management policy.
Practically, what does this mean for farmers and land owners?
The Bill clearly sets out that direct subsidy payments (BPS) will be phased out between 2021 to 2027. This means that the current application window to the Basic Payment Scheme will be the last under the current subsidy scheme as we know it. In 2021 reductions in payments will begin. Although there is nothing specifically set out in The Bill, a DEFRA policy statement released in September 2019 clearly sets out the payment bandings and percentage reductions, these operating in a similar way to Income Tax with the reductions only applying to the claim amount within that band. It is likely that further reduction percentages will increase over the transition period until the final payments are made in 2027 scheme year.
Unfortunately, as we know many farming businesses, since the early 90’s, have based their business models on the receipt of IACS, SPS and more recently BPS. To put this into some sort of perspective, according to the FARM BUSINESS SERVICE DATA 2018-2019 the average English cereal farmer relies on BPS income for 58% of their Profit. Within the same survey a less favoured area, grazing livestock farmer relies on 186% of its profit from BPS income, this is a startling figure and would mean the average LFA livestock farmer would be making a significant loss when the BPS payment is phased out in 2027.
The Bill also sets out that it could be possible to roll up a number of future BPS payments and these could be taken as a lump sum. It is clear that the Governments’ intention with this is to assist farmers to either retire, diversify, improve efficiencies or to make it easier for new entrants into the industry.
De-linking is a significant change, payments will be continued to be made to current recipients of BPS, however in the future it is understood that these recipients would no longer have to be actively farming. As I understand it this, coupled with the ability to “roll up” BPS payments, is to accelerate change within the industry and to help free up land and farms that could help existing farmers or new entrants into the industry.
What is the focus of the Bill?
It is understood that there will be new financial assistance powers which will enable payments to be made to farmers for a range of public goods. These payments will be made for such items as providing habitats for wildlife, reducing flood risk, preventing climate change, improving public access and protecting iconic features. In England the Government is in the process of developing the Environmental Land Management Scheme (ELMS), this will be part of the delivery mechanism, working towards the provision of public goods. This scheme is being piloted in a number of areas at the moment and is hoped to be rolled out in 2024, half way through the Agricultural Transition period. If farmers were thinking that this was going to replace the direct subsidy scheme I would suggest that this is not going to be the case at all. The ELMS scheme will be very targeted in what it delivers and I’m assuming will be no-where near the level of financial rewards that current CSS/HLS/BPS schemes deliver to regional farming businesses.
In short the profitability of farming businesses are going to be reduced over the next 7 years. It is important for farmers to understand the impact of what is on the horizon, we have time ahead of us to improve the performance of farming businesses and decrease their reliance on subsidy and in preparation for this we are holding a series of regional talks over the coming months to discuss the Agricultural Bill in more detail and its potential effects on family farming succession.
We are hosting a series of regional seminars which will include discussion on the Agricultural Bill which will run between 24th February and 4th March, for more details visit www.georgefwhite.co.uk/planning-for-change or call your regional office.
Simon Britton, Partner – Head of Farm at George F. White 07866 721146 / email@example.com
It is clear now that there is a significant change in farm subsidies on the horizon in regards to Brexit and for many it could be substantially reduced. This is worrying for our industry as the Basic Payment Scheme and Environmental Grants account for a large percentage of turnover in many farming businesses. Also, the industry will face further challenges from volatile markets to a shortage of farm labour, which has already, in many businesses, increased cost.
It is absolutely vital that farmers understand the financial performance of their businesses and ensure that they’re stable enough to weather the Brexit storm. The good news is that farmers have the next three or four years to do this and make certain they are flexible and resilient enough to manage these difficult times.
Over the past 12 months we have steered our advice, talks and seminars around the importance of business resilience in uncertain times and we are thrilled to present to you The Farm Road Show with George F. White. We will be hosting a series of seminars across the North in order to identify the pressures on farming businesses and give insight into what we are seeing across the sector.
We will be highlighting:
- Common themes
- What farmers should be doing in preparation for Brexit
- How to access Rural Grants
This is an excellent opportunity for you to understand the current state of the farming industry as well as meeting our team and receiving expert advice in regards to your next step.
We will be hosting at various venues and dates in February:
Booking a space
If you would like to join us please get in touch with Charlotte Bryden or call 0191 605 3489 by Monday 12th February.
Please specify which venue you would like to attend and the number of place required.
Farmers are set to receive an increase in their 2016 Basic Payment Scheme (BPS) payment due to the exchange rate being set at €1 = £0.85228.
The 2016 exchange rate sees an increase of 16.5%, compared to last year’s exchange rate of €1 = £0.73129, making it the most favourable rate since 2011. This year’s BPS payment window opens on 1st December and farmers will be hoping for a smoother and swifter payment than 2015.
David Hume, a farm business consultant at land, property and business consultancy George F. White said: “This news will be a welcome relief for farmers as farm incomes have been under severe pressure over the past 18 months. In simple terms, it means that lowland and upland farmers will see an increase in their area payment of around £12/acre extra than 2015, and those with moorland seeing an extra £3/acre. An 800 acre lowland farm, for example, will see around an extra £9,600 which could be equivalent to an extra 80t of wheat. A hill farm with 500 acres of moorland will see an increase of around £1,500, equivalent to selling another 20-30 lambs.”
The news will also help ease the frustration of many farmers who have not yet received their full 2015 BPS payment due to incorrect penalties and miscalculations made by the Rural Payments Agency (RPA). The RPA started making ‘top up’ payments at the beginning of September to those farmers who had informed them of an incorrect 2015 payment.
David added: “Top up payments from the RPA will be paid into bank accounts without any prior notification and before a remittance advice or second claim statement is received. It is vital that these amounts are cross checked against what farmers expected to receive as even some of these top up payments have been incorrect. What has added to the confusion is that the RPA have also started making reimbursements for the Financial Discipline Mechanism (FDM) relating to the 2014 payment. It is also worth getting this payment cross checked too.”
FDM reimbursements have been calculated based on 1.3% of a farmers 2015 BPS payment, therefore those with incorrect payments may not have been reimbursed the full amount. For those farmers wishing to understand what they might be paid for 2016 or to cross check their 2015 payment, George F White has developed a ‘BPS calculator’. To find out more, please contact David Hume on firstname.lastname@example.org or 01665 511986.
The purchase and sale of agricultural property is an exciting and fast moving enterprise offered by George F. White which I am pleased to be involved in. It has, however, been an area of work which in the lead up to, and post EU Referendum, we were unsure of the level which it would be impacted upon – commodity prices seem to be remaining at a low level despite a weak pound and Brexit is still causing uncertainty in the market place.
One of the big unknowns in purchasing agricultural property in the current climate is the future of the Basic Payment Scheme (BPS) income. But on a positive note, banks and financial institutions are still willing to lend on a business forecast which shows continued BPS support over the coming years. This is promising and is coupled with the continued low levels of interest payable on borrowing thanks to the long term low on the Bank of England base rate.
Thanks to these factors, we are pleased to report that it does seem like it’s business as usual with land transactions and general business growth across the region. This is very encouraging for the industry and shows good testament to people wanting to crack on despite the on-going saga the politicians seem to have us in!
Interestingly, privately marketed land transactions seem to remain popular across the region. The thought process is that the seller benefits from reduced marketing expenses and personal intrusion to their home whilst the purchaser is able to get their foot in the door from an early stage and complete on the deal without any turbulence from additional competition.
We expect to see continued movement within the land and property sector, whether it be as a result of retirement, dispute or cashflow pressure. I think that this is something that we are going to see increase within the industry with struggling businesses in need of a cash injection.
In terms of the larger scale land transactions, the market seems to be sustained as a result of the attractive tax benefits currently offered to investors, whereby the payment of capital gains tax can be offset against the purchase of a new qualifying investment.
Whether this is an area of tax likely to receive scrutiny going forward is yet to be seen – perhaps it would be prudent to assume a change for the worse.
Whilst making these business decisions, we feel it’s always important to understand what the exit strategy is going to be if something does go wrong. Stress testing the various ‘what if’ scenarios is something which is often overlooked in the run up to making a deal.
If you would like any advice regarding your property or agricultural business please speak to your regional contact:
Northumberland & Borders – Tim Michie 01665 511992
County Durham – Jonathan Wallis 01388 529577
Yorkshire – Matt Brown 01677 458203