News
28th Jan

2021

TFA Blog #29 – DEFRA’s Basic Payment Lump Sum Scheme Suffers from a Dose of Reality

This blog is the full (unedited) piece, written by George Dunn, TFA Chief Executive, for The Cumberland News and Westmorland Gazette, published on 23 January 2021.

DEFRA’s Basic Payment Lump Sum Scheme Suffers from a Dose of Reality

 

One of the most talked about elements of the Health and Harmony consultation issued by DEFRA almost exactly three years ago was the proposal to allow existing applicants under the Basic Payment Scheme (BPS) to opt out of getting annual payments in return for receiving a capital payment to effectively buy out their BPS Entitlements.  The expectation was that this lump sum payment could be used in one of three ways to benefit the recipient.

Firstly, the recipient would have the opportunity to use the money to invest in their farm business to make it more productive and resilient.  Tenant farmers often struggle to make capital investments due to the difficulties they have in borrowing money for that investment because of lack of security.  The injection of cash through a lump sum payment would have provided a significant opportunity for good investment decisions to be made.

Secondly, there was the option for recipients to invest off the holding.  This might be in a diversification activity, house for retirement, pension scheme or some other initiative.  This would have recognised that for many farmers, resilience is not only about what happens within the farm gate but in all of the economic and wider interests of the farm family.

Thirdly, the lump sum could have been used to ease people into retirement.  DEFRA is keen to encourage restructuring within the farming industry both by providing opportunities for farmers to retire with dignity and making available new ventures for those seeking to enter the industry.

As with many aspects of the thinking and policy discussions which emerged in the immediate post-EU referendum period, over time we have seen the dawning realisation of implementation diminish the previous aspiration for change.  DEFRA has now decided that the only option available to individuals wishing to take a lump sum payment is to use it as a means of leaving the industry altogether.  This represents a huge, missed opportunity.

It seems the DEFRA has changed its position for two main reasons.  The first relates to cross compliance.  Since the introduction of direct payments, DEFRA has been able to seek to enforce regulatory and other standards on the farming industry by using a complicated assortment of Statutory Management Requirements and criteria for assessing good agricultural and environmental condition.  Failure to comply meant DEFRA was able to penalise individuals through reduction in BPS payments.  If those annual payments are gone so is the opportunity for DEFRA to wield its cross-compliance sword to cut through those annual payments.  The second is a more fundamental concern about uptake.  DEFRA’s fear is that a scheme introduced allowing for all three of the elements noted above could prove immensely popular and therefore very expensive in terms of the cash flow of the exchequer.

A consultation on the new scheme is expected over the next few weeks.  It seems that even for the more limited application envisaged, we are expecting the level of payments available to be constrained either by reducing the number of years over which the lump sum payment will be calculated or by imposing a simple maximum payment under the terms of the scheme.  This will further reduce interest in the scheme and diminish uptake.

For smaller farm businesses with older operators, the scheme may still have its merits particularly where the lump sum can be added to other payments for surrender of a tenancy or for the sale of live and dead stock.  However, the widespread benefits that were once considered important will not now be delivered.

Share This :