Q I will ask a question that I asked the National Farmers Union earlier: if we had a world in which there were no basic payment scheme payments—no subsidy on land, tenure or occupation—and tenants came in and only paid the rent on which they could still turn a profit, what is the correct value of land rents in an upland area, or a typical lowland area?
That is an interesting question, and one to which there is no simple answer. There are two codes of tenancy in play. One is the code under the Agricultural Holdings Act 1986, and one is under the Agricultural Tenancies Act 1995. The 1986 Act has a formulaic approach to rent. It steers you away from the market. In my view, if you look at the rents that are on Agricultural Holdings Act tenancies, they are probably more akin to an affordable level of rent. We are seeing around £80 per acre on arable, £50 to £60 per acre on grass and up to £100 per acre on dairy.
The farm business tenancy rents, which are driven by tender rents quite a lot, are far too high. We often see rents for arable ground in excess of £200 per acre and over £200 per acre for dairy ground. Those are clearly unsustainable. I would direct the Committee to look at the sorts of evidence you would get from the 1986 Act as to what a reasonable level of rent is.
I do not think it is that easy. As George was saying, several things make up land rents. One of them is what you can get for what you do with that land. It is right that it should be left to the market. It may well be that some of the rent levels are unsustainable. I think they will probably adjust as we change regimes, but I do not think that being bound by a formulaic rent system is a good idea in a system where there is uncertainty in trading conditions and there needs to be some flexibility.
To add to that, the problem with an open market system is that the market is so slim, and the evidence is so hard to come by. Therefore, you tend to be driven by the froth in the system—the tender rents. If you look at DEFRA’s own figures, the average farm business tenancy rent on an arable farm is about £100 per acre, but the tender rents suggest they should be double that. I just think we need to ensure that we are not wholly going with the market level.
Q I suppose the point I was making was less to do with the market. If you removed from the market the roughly £100 per acre basic payment scheme payment—if that just vanished—what is the land then worth to rent? I am assuming that it was a market rent, but it would become, potentially, a buyers’ market rather than a sellers’ market, as now.
On that point, we would see the farm business tenancy rents under the 1995 Act move more towards the level of rents we would see under the 1986 Act. They might fall a little bit, but because they take into consideration the productive and related earning capacity of the holding, that would reflect better what that holding can physically produce.
Q I have a linked question, although it might be too complex to answer. From the CLA’s point of view, at what point does it cease to be worth renting land and start to make more sense to bring it in hand and farm it yourself without a subsidy?
There is no easy answer to that, because the circumstances will vary. I think it very much depends on what the person who owns that land wants to do with their holding. It may well be that, due to questions other than just land rents, they want to bring it in hand. It may be that there are other things they want to do on that land—for example, tourism or something completely different to agriculture—or it may be that renting the land to tenants suits them and they will continue doing that. That will vary according to the owners’ vision for the land and the stage they are at in terms of their business.
Q On tenancy issues, your organisations famously do not always agree, but on the future direction of travel for policy, do you both agree that a move from an area-based subsidy to payment for the delivery of public goods is the right way to go for agriculture policy? If you have any concerns about the development of that, what are your key concerns about what might go wrong in that transition?
We would totally agree, as the CLA, that this move is the right move. We have been a proponent of moving towards payment for public good for a while now. The Bill is welcome. We also welcome the inclusion of soil quality, for example, and the consideration of sustainable food production and food security in the Bill. The fact that there is now going to be a multi-annual framework for financial assistance is also important, as is assistance for productivity improvement.
Regarding what we would want to see, there are two main aspects, as well as a number of other improvements, which I might talk about later. One is making sure that the transition is right. At the moment, we are missing information, not just about what is going to happen next year, but about residual payments for individual businesses over the rest of the transition years. We are missing the kinds of details about ELMS that will make it possible for those businesses to make decisions about where they want to take their business, and in particular, of course, about payment rates. In the absence of those details, and given the uncertainty in trading conditions, we would like the start of the transition period to be pushed back by one year without moving the start of ELMS.
The other issue that we have is about trade standards, which the NFU and others have spoken about. We certainly share their concerns.
I would take you back a little bit, Minister, and just say that we need to be really careful. Despite the fact that there is a great deal of criticism of the CAP, and the way in which the basic payment scheme operates and its impact on rents, we need to be clear that those payments are being received by individual farms right up and down the country that are doing the right things on the environment, animal welfare, consumer safety and all those issues. If we simply remove the BPS payment without properly thinking through the changes that we need to make, we risk the good work that we are doing. That is why we have been saying that we are making changes for a generation, and they need to be done well rather than quickly, so we support the CLA’s stance on delaying the transition. We think that we have concertinaed the work on ELMS, for example, too much to try to bring that forward into a sensible place.
Also, while we support the general move towards public payments for public goods, we see that move alongside the productivity elements, which we believe are really important as well. The Bill has a couple of lines on productivity, but we want to see much more about how that can work alongside creating resilience within farm businesses. There are also the trading elements and ensuring that we are not undercut by cheap imports from abroad, produced to standards that are illegal here; the fair dealing practices; and the issue of access to the tenanted sector. Schedule 3 goes some way towards addressing that sector, but it needs a little bit of work.
The main one, as I said—I will not labour the point—is the delay in the start of the transition. It also seems to us that a couple of other things would be improved if they were done differently. For example, the multi-annual framework for financial assistance is five years. I can see why it has been done like that, but that means that it is at risk of being entangled with the political and election cycles. As far as I know, farmers in the EU—which is going to be our closest competitor—will still have seven years to plan. That is closer to the business cycle in agriculture, so we would favour lengthening the period covered by the multi-annual financial assistance framework.
The other thing that could be added to the Bill is a provision on rural development and, in particular, socioeconomic funding schemes. In the new world, that is going to be done via the UK shared prosperity fund, but that is not due to arrive until 2022 at the earliest. What would happen if that got delayed, or got into other difficulties? We would like to see some provision to make sure that it is possible for Government to continue socioeconomic schemes.
Those are two important improvements. We would also want to make sure that any moneys that are recouped from direct payment, particularly in the early part of the transitions, are used for productivity and ELMS pilots and do not go back to the Treasury.
We agree on the issue of trade standards. We think we need to nail that wholly into the Bill to ensure that we are not undercutting our high standards here and offshoring our issues abroad.
While there have been some helpful statements from the Government, we are concerned about some of the rhetoric that appears to be emerging, particularly from the Prime Minister’s Greenwich speech, where there was an indication that we would not necessarily insist on our laws being protected in trade deals, which is rather worrying. Of course we were also promised free and frictionless trade with the EU on leaving the European Union, but we hear the Chancellor of the Duchy of Lancaster saying today that we need to prepare for issues at the border when we end our implementation period.
On the fair dealing section of the Bill, we should nail down the fact that that should be regulated by the Groceries Code Adjudicator. The Bill leaves it hanging as to who should be the regulator. There is a suggestion that the Rural Payments Agency has a role to play; I would disagree. As the CLA has said, we need a delay in the transition period by one year, which will give us sufficient time to think about these things more deeply.
The access for tenants to schemes needs to be addressed, because schedule 3 to the Bill provides a provision only on a “may” basis. We want it to be a “must” basis that the authorities come forward with regulations. Currently, that applies only to the 1986 Act tenants, not the 1995 Act tenants. As that is half the tenanted sector in agriculture in England, we think that should be changed.
On the food security section, we want the report to be annual, not five yearly. Finally, in the financial assistance plans, the missing thing is the word “financial”. There is no commitment to say what the finances are going to be in any one year over the five-year period. That needs to be nailed into those plans as well.
There is nothing in the Bill that will affect the lengths of tenancies per se. Obviously there is the welcome inclusion of soil health within the public payments for public goods element of the Bill, which might encourage people to go for longer tenancies, depending on how the ELMS fits into that, but there is nothing specific that will do anything about the lengths of tenancies.
The Tenancy Reform Industry Group made a suggestion, because one of the things that landlords are concerned about is how they get land back if the tenant goes into breach. We are not interested in protecting tenants who are in breach. If we had easier-to-use provisions that allowed landlords to take land back if they had let for a long period of time, that might make them freer to do that.
There is also a need to look at the taxation framework, which goes beyond the Bill, but we hope that the Chancellor might say something about that on
Interestingly enough, we would support the introduction of provisions that enabled landlords, as you might expect, to get possession of the land in the case of breach. The question for us is whether there should be a threshold on that. Our answer would be that two years or more would be better than any arbitrary longer threshold. That is certainly an additional provision that we could support if there were not an arbitrary threshold.
Q It is very good to hear that you both support the direction of travel of the Bill. We heard earlier from witnesses who were explaining how, under the direct payments system, it is often possible for the landlord to simply hold the subsidy and for the tenant not to receive the benefit. Do you think that the new system will align your interests? Can you give us an example where, possibly, the landlord and the tenant might disagree about an improvement? Perhaps the tenant wants to gain some support for sequestration or planting trees or whatever, but the landlord is in disagreement. Do you think that we are setting up conflict between landlord and tenant? Perhaps, Ms Hammond, you could imagine a really bad tenant and, Mr Dunn, you could imagine a really bad landlord. What would you be fighting over?
It is really important to understand that, in most cases, we would expect agreement to be found. I think the reason why we do not like one of the particular provisions in schedule 3, which has to do with arbitration in case of disputes, is that at the moment it very much looks at the interests of the tenants, who might be gaining financially quite a lot, without necessarily having a balance of the interest of the landlord.
I will give you a few examples of why landlords might withhold consent. It might be about landscape protection. For example, the National Trust will have properties where they want to make sure that the landscape continues to be enjoyed as it is. Or it might be that something does not fit with the business planned for the whole of the holding—in particular, if you are looking at other areas of the holding that are currently in hand or are farmed by somebody else, which might be better suited to planting trees, because trees cannot grow very well in all places. Or it might be about putting buildings on land in order to create new activities.
As drafted, the schedule would mean that, in the case of a dispute, it would go to an arbitrator, and then the decision is binding on the landlord. That means that there could be really long-term and possibly irreversible decisions being imposed on the landlord. We see that as a really fundamental infringement of property rights, and that worries us. It is the absence of balance that worries us.
Just to correct something that you might have said in your question, for the basic payment scheme, which is being phased out, in 99.9% of the cases that would be going to the tenant, the occupier, who has the land at their disposal.
Obviously, within some of the newer farm business tenancies under the 1995 Act—which I referred to earlier, following the Minister’s question—a landlord might expect to receive at least the basic payment scheme in rent, plus more, in terms of the tenant’s willingness to pay rent on that basis, so there is a secondary move of the payment to the landlord, but the claimant is the tenant, and that is what the regulations say.
The bigger area that we have concerns about is the agri-environment scheme, where there has been this idea that you could have dual use, where a landlord could claim countryside stewardship and environmental stewardship while the tenant is claiming the BPS. We think that is wholly inappropriate, and we will ask for amendments to the Bill to define the rightful recipient of some of this money. It should be the active farmer who is in occupation of the land.
Responding to what Judicaelle said about the need for tenants to have access, all of Judicaelle’s members will be entirely reasonable and will give consent to our members to go into these things, but we are looking for those beyond the CLA’s membership, who are not always as reasonable. Sadly, we do see landlords withholding reasonable consent very frequently. “Reasonable” is the key word here. We are looking for a set of regulations. The Bill provides that there should be regulations, and those regulations will set out what are the reasonable terms upon which a tenant should be able to apply and insist upon a consent, for either fixed equipment or for access to a scheme.
If we take the issue of trees, for example, trees are normally reserved out of tenancy agreements. It is the landlords who hold the trees, so if there are any carbon credits available under the Bill, they will not be accessible by the tenant because those trees are reserved to the landlord. Perhaps that is something that needs to be thought through, if trees are going to be a really important part of the Government’s policy going forward.
The majority of my members are looking for longer terms; they want security. The average length of term on a farm business tenancy today is 2.9 years. Think of agriculture in terms of its long-term need to look at soil management, agri-environment schemes and so on. If you take land that has buildings it goes up to about seven, if you have land with housing, it is up to about 10 or 11, but we would expect those later ones to be even longer than that. Our members consistently ask for greater length of security of tenure. For example, if you go to a bank to borrow money to invest in your business and you can only show a three-year or a four-year time horizon, why would the bank lend you money to do any substantial investment if it only has a four-year period to pay that back? Even those tenancies that the CLA often claim get renewed year after year, are only for annual security. How do you go to a bank asking for support for something where you have annual security? We think there is a great deal of appetite for longer-term tenancies.
I think my members want good tenants who look after the land and can pay their rents. They want tenants who are willing to innovate and continue to develop their business. It requires flexibility on both sides. I understand the appetite for longer tenancies and that can be agreed. However, what we do not want is a third party determining how two parties who are free to contract, contract.
Rolling tenancies happen and I therefore think that the figure of 2.9 years is a little misleading. We want a system that works for both parties, particularly in times of uncertainty. I would add that an awful lot of my members are somebody else’s tenant. They have land of their own, but they might add to it, for scale, for example.
In a situation where we have 90% of all farm business tenancies in England now being let for periods of five years or less, there is market failure here, which the Government need to address.
Q I would like to push you a little further on the security question. I recognise there are some differences here, but I think it is partly being presented as a question of equality, of a negotiation between equals. It does not quite seem that way from where I am sitting. Can we explore further whether more measures could go into the Bill to get the balance right for members of both organisations, but particularly Mr Dunn’s members, for whom it is presumably harder to get land if they are moved from a particular piece of land than it is from Ms Hammond’s members to get new tenants if the tenant has moved. Forgive me if I have got that wrong.
From our end of the spectrum, we do not want the Bill to have a minimum term for agricultural tenancies, because that will not help our sector at all. We want to see the ability for landlords, where they let long term or where they are nervous about letting long term, in case they get a tenant who they do not get on with or who does not pay their rent, or who does something to the historic landscape, if the landlord is the National Trust, to feel confident to let for a longer time, because they know they can get the land back early if there is a problem. We are absolutely on the money with that. There is what might be called an oven-ready amendment that could go into the Bill to achieve that.
More widely, we think the taxation system needs to be looked at to incentivise longer-term tenancies and penalise shorter-term ones through the taxation system. Ireland has done some good things on the income tax side, which the Treasury could look at, but that is not something that would be put in the Bill.
You will not be surprised to hear that I do not agree with that. I do not see that there is a market failure. There might be things in the market that are happening at the moment, because of the way that the system works, that may be unsustainable. We will see what happens when the BPS ends. If you look at some of the reforms that have been made, not in Ireland but in Scotland, it all but killed the rental market. That would not be good for my members or for George’s. We need to be extremely cautious about putting things in legislation and rushing them through without proper consideration of the consequences for both parties. That could lead to a market that is even more nervous than it is now and, as a result, becomes ossified. I do not think that would be good.
Q Mr Dunn, I was struck by your comment about tenancies being too short and the fact that people are just staying 2.9 years and not longer. In my constituency I have a lot of county farms, but I also have a real problem with the lack of a new generation coming through. One thing farmers have raised with me is that because the subsidies will not necessarily continue beyond this Parliament, they can plan for five years, but not for 10 years. Is there anything specific we can add into the Bill to address that specific problem? I totally agree that this longer-term issue is the problem. If I am a county farmer in Stafford, I cannot submit a 10-year business plan because the Government are only guaranteeing it for the first Parliament term. Is there anything specific we can do to address that?
All businesses operate within a sphere of uncertainty about the future for their market and how they intend to run their businesses in the long term. Anybody who thinks they can do a 10-year business plan and stick to it after year five is thinking wishfully. The idea of having multi-annual plans is really good, but they need to highlight how much money will be spent and how it will be spent through those plans, rather than just vague indications of the way in which the financial systems powers will be played. If farmers had a reasonable five-year horizon to work through, that is as much as I think they would be looking for.
I totally agree with the TFA that the more certainty in the future, the better. Part of the problem we have at the moment is that we do not have certainty past next year. Although there have been commitments to maintaining the current level of funding, so far they are, unfortunately, just commitments. We would welcome a quantification as part of the multi-annual financial assistance frameworks.
Q Is the delegated power included in this Bill, which allows the Government to extend the transition period, a good enough safety net if things did go wrong in the future?
I think it is good that there is the facility to pause or extend. One would hope that there would be close consultation with the stakeholders to consider that. There is a doubt as to whether we can reverse, which might be possible. There is also the issue, which I know other witnesses have raised, that if you are taking money out of the BPS, and, for whatever reason, we are not ready to spend that through the new public payments for public goods or productivity schemes, that money needs to be paid back to the recipients from whom it has been removed, until such time as the Government are ready to commit to that expenditure.
Q Chapter 2, clause 8 deals with the possible extension of the period. I may not understand it particularly well, but it does not make it clear whether, if there is an extension to the seven-year period, that would pause the transition from BPS to ELMS, or whether that would just continue, but at the end of the seven years there would be an extra year or two under the full ELMS system. If there was an extension, at the same time, could that be coupled with a freeze in the transition for a number of reasons, including that the ELMS was not being taken up as quickly?
Yes, and I think that is what the Bill intends. My reading of the Bill would suggest that that is what would happen under those circumstances. To go back to the previous question, if money was taken out of the system that was not able to be spent through the new arrangements, that would have to be paid back, in our view.
Q A previous witness said that if a tenant farmer exercised an option that we set out under clause 13 to take a number of years payment in lieu as a lump sum, under the way tenancy agreements tend to be drafted, the landlord would say that was a dilapidation and would take compensation off the tenant farmer. That seemed a rather extraordinary extension of the conventional interpretation of dilapidation. What would your respective views on that be?
My view is that the answer you were given was nonsense. There would have to be a very specific clause in a tenancy agreement that provided for the circumstances that you are describing—for a landlord to be able to dilapidate a tenant for taking away the payment, which is rightfully theirs anyway, because it is their entitlement to do with that what they will.
We are actually quite excited by the provisions on the lump sum and the extent to which that could generate some really good restructuring within the sector. I do not think there will be an impact on land values as was suggested, because land values are driven by much more than the agricultural return, which is about 2% of the average land value, when you look at how agriculture operates. There might be an impact on rent, which could be a good thing for the sector in terms of productivity and margin and efficiency, but we think that the lump sum elements are certainly something worth pursuing.
I think we are a little bit more cautious without more detail. We look forward to the consultation that will happen on the secondary legislation. It is hard to say how it would work and whether there would be any unintended consequences without more detail. The same thing is true of the lump sum. We can see opportunities, both for retirement and investment in the farm, but at the moment, we also see that it could have all sorts of unforeseen consequences. We really do need to have a thought-through view of how the system would work.
Q The final question from me is about schedule 3, which sets out in some detail a range of quite technical changes to tenancy law that have come out of the TRIG—the Tenancy Reform Industry Group—recommendations. Are you both content with what is being proposed for those changes to the commercial unit test and so on?
Minister, you would be surprised to hear me say that we are absolutely content and there are no other changes that we would want to make, and I am not going to say that. There are elements that we think need to be added—for example, what we were talking about earlier in terms of the provision for farm business tenancies, for encouraging longer-term lets, to give landlords the option of ending those early, but only for those who are letting for a long time. We think that the provisions in relation to tenants’ access to diversification, financial assistance and fixed equipment need to be extended to include 1995 Act tenancies.
I noticed that a question was raised by a Member on Second Reading about widening the franchise of succession to include nephews, nieces and grandchildren, which was not adequately answered by the Secretary of State. Perhaps there is an amendment that could be brought to look at widening the franchise. Very often, it is the nephews and nieces and grandchildren, rather than the sons and daughters, of farmers, who are the active individuals. So there are certain changes that we will promote through amendments to the Bill.
What I have said before about schedule 3 stands. We do not particularly like the commercial unit test removal; we think that it is actually well worth having and it should be strengthened. Why would individuals who are already successfully farming elsewhere have the privilege of reduced rent? It does not seem fair and it does not make sense. Apart from that, my significant concern is with the arbitration proposal for dispute resolution on landlord’s consent.
There are a number of things that the CLA welcomes in there, for example provisions relating to landlord investments, which we think will provide protection for both the landlord and tenant, and the removal of the minimum retirement age of 65 and also the widening of the pool of potential arbitrators. We are not opposed to the whole of schedule 3, but we certainly have significant concern with what is in there at the moment. We certainly would not favour any extension to the AHA tenancies, which we regard in this day and age, and given the flexibility that the market requires, as an outdated system, which certainly should not be prolonged.
You would not expect me not to disagree with what Judicaelle has said about AHA tenancies. If we trusted the landlord community with farm business tenancies to deliver sustainable, long-term, sensible tenancies, we would not be hanging on to the AHA tenancies as much as we are. Sadly, the landlord community has not played the game well in terms of farm business tenancies, in the way that they have delivered those.
The commercial unit test that Judicaelle talked about is a capricious test. It hits people when there is a death out of time, or people who are badly advised. That is all. It is a very expensive test to have advisers help you through. In essence, the Bill is about productivity and increasing efficiency. Having the commercial unit test in place hits those individuals who have been go-ahead, and have been looking to get themselves on rather than waiting for dad or mum to die in order to get the tenancy of the farm. Why should they be penalised when they have been the ones who have been go-ahead, and those who are not so go-ahead get the opportunity to succeed?
Q My question is to you, Mr Dunn, with your expert Welsh agricultural hat on, if you please. Given that the Welsh Government will not legislate until, at the very earliest, the middle of 2021, and given that the payments for the direct payment schemes will begin to diverge across the UK, what do you think the consequences will be?
We are in discussions with Welsh Government officials, as you might expect. This morning, I was having discussions with their policy lead on tenancies. Certainly, I would take from the discussions that we have had to date that there is a real understanding of the need to ensure that they are moving at a pace that allows tenants to have access to the new arrangements.
In the context of having devolved Government, there is no point in having devolved Government if you just do what England does, so there will be specific things for Wales that we will need to look at. I know that the Welsh Agriculture Minister has some aspirations for that in Wales. We are waiting for a White Paper from the Welsh Government that is coming later this year. We are having input into that White Paper. Obviously, they have not reserved the rights for the financial assistance powers within the Bill, but the agricultural tenancy section—schedule 3—applies to Wales and England equally.
We represent farmers and landowners in Wales as well. I think that, given the framework of devolution, there needs to be some flexibility. Like previous witnesses, we are a bit concerned where either the implementation of the Bill or, indeed, the way that the money is allocated across the UK changes to such an extent that we see intra-UK market disturbances. We would certainly argue that that should be avoided.
AB01 Key stakeholders on Dartmoor (Dartmoor Hill Pony)
AB02 Rare Breeds Survival Trust (RBST)
AB03 Compassion in World Farming
AB04 National Farmers Union of Scotland (NFU Scotland)
AB05 Central Association of Agricultural Valuers (CAAV)
AB06 Sustainable Food Trust
AB07 The Law Society of Scotland
AB08 National Pig Association
AB09 Nature Friendly Farming Network
AB11 The Trails Trust
AB12 Mid & West Berks Local Access Forum
AB13 Department for Agriculture, Environment and Rural Affairs (Northern Ireland)