Defra’s decision to end this year’s Sustainable Farming Incentive (SFI) scheme for new entrants, with no prior warning, was badly handled. It was a surprise both to farmers and those in the supply trade who have invested in reorganising and restructuring their businesses to meet the demand for environmental services.
While SFI was never designed to replace the legacy EU Basic Payment Scheme (BPS), it was part of the transition process to a system where public investment results in public goods – in this case environmental enhancement. Labour had already accelerated the phasing out of the BPS – affecting all farm business cashflows. Nor had there been any warning that the SFI budget was finite and would effectively work on a first come first served basis – driving a further wedge between Defra and industry.
And the Defra budget is set to be pared further, as government seeks to make savings across all departments save for health and defence.
Cue further opprobrium for minister Steve Reed – although he is right to point to profitable farm businesses as the only certain way to secure their longer-term future. Arguably, the EU and BPS fossilised farm structure – the annual Total Income From Farming figures show that over half UK farm businesses rely on subsidy to break even.
Farm size has been consolidating at least since the advent of mechanisation, as technology allows fewer people to both manage greater areas and increase output. That trend is inevitable and will continue – only faster outside the EU. Reduced public funding for UK agriculture is part of the price of Brexit, without the political protection of the greater number of farmers in the EU. It will speed up the process towards fewer, well organised and invested farm businesses seeking to spread their overheads over more hectares or animals. But it will require support for those working in less favoured areas if landscapes and access – vital for tourism – are to be maintained.
The Institute of Fiscal Studies (IFS)’ Paul Johnson, speaking at NFU conference last month, listened to a range of farmer complaints over unfair cuts to inheritance tax and rising costs. He observed that all sectors of the economy think they are uniquely disadvantaged by regulatory and tax changes, and all believe they deserve special treatment. It is government’s job to find a balance between incentive and pain across all sectors. Mr Johnson also suggested that a farm business that couldn’t meet IHT payments spread over 10 years might ask itself whether it was viable in the first place.