News
21st Mar

2019

Supporting Farmers Through the Transition Period and the Future of the Agricultural Tenancy Legislation.

Based on a presentation given by TFA Policy Adviser, Lynette Steel, at the Westminster Food and Nutrition Forum on Thursday 14 March 2019.

There is no doubt that it is an exciting, if not slightly daunting times that lie ahead of us all.  As a tenant farmer myself, I have confidence that the sector cannot only survive but thrive in a post Brexit world. However, for that to be able to happen, we must have certainties from Government. Even the savviest business owners cannot protect their business from the unknown, and the only certainty we currently have, is that there is plenty that remains unknown.

Approximately one third of English and Welsh Agricultural land is farmed by tenants, traditionally on an Agricultural Holdings Act (AHA) or Farm Business Tenancy (FBT). However, we are seeing an increasing number of alternative agreements as the agricultural tenancy market has stagnated, limiting the opportunity for new or progressive farmers to access land.

The introduction of the Agriculture Bill gave the Government the opportunity to achieve a comprehensive reform, balancing the needs of food, farming and the countryside. Unfortunately, the TFA believes the right balance has not quite be struck, however, beyond the primary “public money for public goods” tag line, we were pleased to see focus on the provisions to help farmers to improve productivity and powers for ministers to step in to assist farmers in extreme market conditions. Both will be essential to support farmers through the transition period.

Whilst we await news as to whether we have a transition period or not, we continue to be frustrated by the lack of clarity from Government on the percentage reduction in BPS payments beyond 2021 and the end of this Government in 2022. The TFA believes that this Bill should contain provisions to allow for multiannual budgets to be agreed. Furthermore, given the size of the task ahead, would seek Government assurance that it will not look to diminish the current budget in the long term.

I continue to find it difficult to understand how farm businesses are expected to become resilient and competitive with this level of uncertainty facing us. To put this in to context, to apply for a tenancy or to go through a simple rent review I would have to produce a cashflow, and budget of at least 3 years to prove business viability.  With these uncertainties facing us, I am not currently able to accurately do this. The lack of DEFRA’s understanding of the affects these delayed decisions are having on farm business is fundamentally undermining the goal that the bill is trying to achieve.

This then leave farmers with two options:

The defensive reaction – absorb the loss in income, try to reduce some input cost at detriment to the business.

A positive response – rising to the challenge and adopting innovation, using transition payments, however uncertain, to invest in ensuring business resilience.

Indeed, the TFA welcomes the concept of Delinking and Lump Sum payments in the bill. We believe this idea, could allow recipients to use the capital to assist with on-farm investment to help drive productivity, or invest into on or off farm diversified projects.

Another major advantage of a lump sum payment would be to assist with retirement and restructuring.  For tenant farmers, particularly those on older secure tenancies,     a lump sum payment could unlock the possibility of a housing solution for future retirement or, coupled with a payment for a tenancy surrender from their landlord, form part of a more immediate move into retirement, allowing their holding to be farmed instead either by a new entrant, or another farmer looking to progress their business.

Enabling the concept of increasing land mobility into the hands of a proficient farmers, should drive increased productivity, which in the short term, will help start to bring the Agriculture Bill to life.

Furthermore, the facility in the Bill to provide a mechanism to deal with the productivity problem that the agriculture industry is facing is an important commitment.  The TFA continues to work with the Government to create a firm platform for the farming industry to thrive. We have called on the Government to instigate a Farm Productivity Scheme to provide access to finance through a plan led, individual farm strategies.  Having a robust and tangible action plan to dramatically accelerate holding productivity will enable UK agriculture and horticulture, to succeed post Brexit.

However, this will only be achieved through matching essential Government assistance with an industry commitment to the adoption farm planning, benchmarking, new technology and engagement in knowledge exchange and skills training.  The challenge is for the industry to want to drive productivity and adapt to change.  Bodies such as the TFA and NFU must lead the industry to adopt a change in mindset, however, this can only be achieved through collaboration with Government.

For example, in developing a new Environmental Land Management Scheme (ELMS), the TFA are encouraging Government to look again at previous schemes which have worked well, there is no need to reinvent the wheel. The UK has a history of developing leading agri-environment schemes, and by working with the industry there is no doubt that the new ELM scheme can deliver benefits for all. Flexible schemes which are adapted to individual holdings will bring the biggest public benefits. Scheme uptake and ultimate success will depend greatly on the RPAs ability to improve administration and payments of the current schemes urgently.

For tenants, amendments to the Agriculture Bill to ensure they are not excluded by legislation is vital.   Their capability to partake in such schemes will be key to their business ability to flourish in a post CAP industry.

The TFA have supported two vital amendments in the bill to ensure this can happen:

  1. To enable tenants to pursue any opposition from a landlord to arbitration, in the event they object to participation in support schemes.
  2. To ensure payments are only claimed by the active farmer, i.e. those who take the entrepreneurial risk for the activities implemented on the land.

Not adopting these amendments will disenfranchise the tenanted sector from the Agriculture Bill.

However, our biggest concern remains to be the security of tenure. The average length of an FBT is now less than four years. Now, please tell me how I can run a successful business in the knowledge that my largest assets could be taken away from me within 24 months?

The Tenancy Reform Industry Group (TRIG) have put forward several recommendations to the Government following its intention to bring forward much needed reform to the legal and policy framework surrounding tenancies.  It must not miss this opportunity to reform the taxation environment within which agricultural tenancies operate.  Tax is a major driver in the land market and influences owners’ decisions on land occupation.  Significant, positive change can be achieved with a small number of sensible tax reforms.

 The top three tax changes the TFA would like to see are:

  1. Restricting Agricultural Property Relief to Inheritance Tax only to land let for 10 years or more.
  2. Abolishing Capital Gains Tax rollover relief for new land purchases but extend it to investments in fixed equipment on let land.
  3. Abolishing Stamp Duty Land Tax (SDLT) on agricultural tenancies.

Furthermore, the primary recommendation put forward by TRIG, and favoured by Government is changes to agricultural tenancy law to allow the conversion of an AHA tenancy to a Fixed Term Assignable AHA. This would enable a retirement mechanism, allowing the outgoing tenant to obtain a value for their tenancy while assigning it to a proficient farmer. For landlords, this recommendation would also bring benefits giving them the opportunity to either buy the tenants remaining interest, prior to the assignment, or by receiving a market rent (based on FBT values) from the new tenant.

This recommendation would assist with the re-structuring of the agricultural tenanted sector, helping the industry to become more accessible, productive and fit for purpose. We are looking forward to separate English and Welsh consultations on tenancy reforms, which are to run in conjunction with one another and have been promised for this year. As well as development in other policy areas which will bring clarity to help the industry, positively & confidently transition in to an era beyond Brexit.

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