Why Michael Gove should stick to his plan to cap direct payments

George Dunn, chief executive of the Tanant Farmers Association

George Dunn, chief executive of the Tanant Farmers Association - Credit: Archant

No one who has been listening carefully to the many speeches made by environment secretary Michael Gove, who has just passed his first anniversary in the role, or taken the time to read the Health and Harmony Command Paper, can be in any doubt that our exit from the European Union next March will usher in major change in policy for domestic agriculture.

Environment Secretary Michael Gove should stick to his plan to cap direct payments argues George Dun

Environment Secretary Michael Gove should stick to his plan to cap direct payments argues George Dunn of the TFA Picture: ANDREW HENDRY - Credit: Andrew Hendry Photographer

As part of the process of change, the Department for Environment, Food and Rural Affairs (DEFRA) has committed to a period of transition.

What is less clear is exactly what we will be transitioning to. The Government has talked about a new funding arrangement focusing on public payments for public goods together with a package of measures to improve productivity. However this sits alongside as yet unknown new realities for our trading relationship with the EU and the rest of the world, access to labour both on farm and in the processing sector and the regulatory environment.

We also need to be assured that whatever new offerings come our way they must be efficiently administered. Anyone who has had recent experience with either the Basic Payment Scheme or Countryside Stewardship will have understandable cause for concern here.

Once those basics have been established, we need to make the most of the transitional period to ensure that the industry is as ready as it can be for the change that is underway. Mr Gove appears to be wavering on his original plan to place a ceiling on direct payments through the transitional period. The idea was that he could use the money saved to pilot new schemes in advance of fully fledged offerings beyond the transition period. His recent evidence session before the House of Commons Environment Food and Rural Affairs Committee seemed to suggest that all farmers need to lose a little bit in order to be convinced the change was underway – I am not so sure.

I would encourage Mr Gove to think again. For farm tenants occupying on land subject to farm business tenancies there is evidence to suggest that the availability of direct payments is causing an impact on rental values at the margin particularly in situations where existing farmers are bidding on additional acres with the understanding that they will be able to obtain entitlement to claim direct payments into the future. Applying the proposed ceiling of £100,000 would immediately take the pressure off levels of rents payable on FBTs as it will reduce the incentive for existing owner occupiers to acquire additional land to expand their operations and take advantage of the direct payments available with entitlements acquired in the marketplace. This, in turn, would have big advantages to all FBT tenants by dampening comparable evidence across the board.

There is no doubt that the current system is fuelling unsustainable tender rents. I am sure we can all recount stories of individuals who have paid over the odds for access to tenanted land. However, recent figures issued by DEFRA from its Farm Business Survey record that average levels of FBT rents on arable ground are below £100 per acre – a fair margin below the heady rents we often hear quoted from tenders.

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Clearly there are plenty of landlords and tenants in the marketplace agreeing deals between themselves at more sensible levels of rent then we see tendered in the open market. There’s nothing smart about paying too much rent – it’s simply a cost to your business and potentially to every other tenanted business through the use of your rent as a comparable. We need to take the steam out of the rental market and placing a ceiling on direct payments through the Brexit transition period would assist with that.