Common Agricultural Policy and Agriculture and Horticulture Development Board (Amendment etc.) (EU Exit) Regulations 2019
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Lord Gardiner of Kimble
That the Grand Committee do consider the Common Agricultural Policy and Agriculture and Horticulture Development Board (Amendment etc.) (EU Exit) Regulations 2019.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Gardiner of Kimble) (Con)
My Lords, the matters in the five instruments are closely interrelated; I hope it will be helpful to your Lordships if I speak to all five together.
With a number of small exceptions, which I shall explain, these regulations make purely technical amendments, which are necessary to address European laws being brought on to the UK’s statute books in a partially inoperable form, and enable the policies behind the common agricultural policy, the Agriculture and Horticulture Development Board, and state aid legislation to continue to function as they do today. These instruments are not required solely in a no-deal scenario; in the event of an agreement—which of course the Government sincerely wish for—they will ensure that the current legislation remains operable at the end of any implementation period.
The instruments on the common agricultural policy make largely technical and operability changes to ensure that the UK Government are able to meet their commitments to funding in the agriculture sector. The Government have pledged to continue to commit the same cash total in funds for farm support until the end of this Parliament, expected in 2022; this includes all funding provided for farm support under both Pillar 1 and Pillar 2 of the current CAP. This commitment applies to the whole of the UK.
The UK Government have guaranteed that the current level of agricultural funding under CAP Pillar 1 will be upheld until 2020, as part of the transition to new domestic arrangements. The UK Government have also guaranteed that any rural development projects for which funding has been agreed before the end of 2020 will be funded for their full lifetime.
As noble Lords are well aware, agriculture and fisheries are devolved policy areas and are of special importance for all parts of the United Kingdom. We have worked closely with the devolved Administrations to produce these instruments; they place great importance on them and have given their consent to these instruments.
I will now outline the CAP statutory instruments. They enable the regulations to continue to operate effectively, do not introduce new policy and preserve the current regime for supporting CAP beneficiaries. The amendments in these instruments include omitting redundant references to the “European Commission” and “member states” and amending references to “Union law” throughout, so that the retained EU regulations continue to operate effectively as part of national law.
One purpose of these modifications is to ensure continuity and clarity as to who is responsible for the implementation and administration of the CAP schemes. The obligations and discretions placed on member states will continue to be exercised after exit by relevant authorities in the UK. In this context, “relevant authority” means the Secretary of State, Scottish Ministers, Welsh Ministers and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland.
The Common Agricultural Policy and Agriculture and Horticulture Development Board (Amendment etc.) (EU Exit) Regulations 2019 make operability amendments to domestic regulations made under the European Communities Act implementing certain provisions of the EU common agricultural policy.
First, I draw your Lordships’ attention to a minor correction which is needed to the Explanatory Memorandum for this instrument. In paragraph 4, “Extent and Territorial Application”, the amendments to the AHDB order 2008 are given as applying to the UK. In fact, while parts of the AHDB order 2008 apply to the UK, the amendments proposed in this instrument apply to Great Britain in relation to horticulture, and to England only in relation to the red meat levy. That reflects the territorial coverage that the levy body, the AHDB, has for those specific sectors. We shall withdraw and re-lay the EM in the coming days, with the territorial application of the AHDB order amendments corrected. Correcting this has no impact other than aligning the EM with the instrument we are debating today. I apologise for any inconvenience this causes to your Lordships, but when I heard of it, I wanted your Lordships to know immediately.
As well as operability changes to domestic regulations under the European Communities Act, this SI also amends one order concerning the Agriculture and Horticulture Development Board. This is to address two operability issues arising from the United Kingdom leaving. In one case, this has required us to make a small policy change. Currently, there is a minor levy exemption applying to livestock which is imported from “another member state” and slaughtered in England within two to three months of being imported. For continuity, we retain this exemption, and to ensure that we are then in line with WTO rules and are not favouring the EU, we also extend the exemption to cover any such livestock imported from the rest of the world. We expect this minor policy change to have little or no impact on the ground, given the very low levels of live imports from beyond the EU.
The Common Agricultural Policy (Financing, Management and Monitoring Supplementary Provisions) (Miscellaneous Arrangements) (EU Exit) Regulations 2019 make technical amendments to the supplementary regulations which set out detail on the financing, management and monitoring arrangements for the CAP schemes. This instrument ensures the operability of five different pieces of EU law. These ensure that the management and monitoring aspects of the retained EU legislation maintain the current standards after exit. This includes setting out further detail on how checks to beneficiaries should be carried out and how penalties should be applied to those found to be in breach of the legislation.
The instrument also attends to five other pieces of retained EU law where references to EU audit and accounting systems would clearly no longer be appropriate. These would be replaced by the domestic system, which currently operates in parallel to the EU system, to provide equivalent assurances to our Parliament. Four of these are implicitly tied to EU audit and accounting systems, which, as I say, will be replaced with the existing domestic equivalent. The final revoked piece of EU law relates to the EU policy monitoring system, which, again, will be replaced by our existing domestic policy evaluation process.
I turn to the Common Agricultural Policy (Financing, Management and Monitoring) (Miscellaneous Amendments) (EU Exit) Regulations 2019. This instrument amends the retained EU law which sets out the overarching framework for how CAP schemes function, governing the financing, managing and monitoring arrangements which underpin schemes. It removes the EU audit and accounting regime, which, as I already mentioned, operates alongside the existing equivalent domestic regime and would no longer be required for Exchequer-funded payments. Current levels of checks and scrutiny over CAP payments will remain under the domestic system until domestic policy reform can be delivered through a new domestic agricultural policy.
I turn to the Agriculture (Legislative Functions) (EU Exit) Regulations 2019. They amend five different EU regulations which give the European Commission power to change existing legislation relating to the financing, managing and monitoring of the CAP; direct payments; the rural development programmes; and fisheries programmes funded by the EMFF.
These five regulations work together to provide the necessary powers to ensure the smooth functioning of the CAP and EMFF-funded fisheries schemes in the light of economic, scientific and environmental changes. For example, the Commission is currently empowered to make legislation adding to a list of practices equivalent to crop diversification in the light of developments in the sector. These powers also provide powers to, for example, update the model we use to estimate the net revenue of an EMFF or rural development project, if a more accurate model becomes available.
As its title suggests, this instrument makes amendments to confer existing legislative powers on the appropriate authorities: either the Secretary of State or the relevant Administration for each home nation. These amendments consist largely of replacing references to the “Commission” with “appropriate authority” or “Secretary of State”.
The instrument also contains operability changes relating to the EU financial discipline mechanism. The financial discipline mechanism ensures that the Pillar 1 budget, which comprises spending on direct payments and on schemes under the common market organisation, is not exceeded. It works by reducing the value of direct payments if forecast expenditure on Pillar 1 exceeds a predetermined budget.
This SI makes changes to make the financial discipline mechanism operable in England. As agriculture is devolved, each Administration has assessed what amendment is appropriate to remedy the inoperability. Devolved Administrations have chosen to omit the financial discipline mechanism, while England has chosen to use the powers contained in the withdrawal Act to make financial discipline operable on an England-only basis. For England, operability amendments are made to financial discipline provisions to ensure the mechanism will work properly in a domestic context and on an England-only basis. This does not constitute a new policy, as the mechanism currently applies in the EU.
I turn finally to the State Aid (Agriculture and Fisheries) (Amendment) (EU Exit) Regulations 2019. State aid rules govern the way subsidies can be given, and exist to stop companies gaining an unfair advantage over their competitors. This instrument amends specific retained EU state aid regulations relating to agriculture and fisheries. It does not make provisions for the broader domestic state aid framework. That is addressed in the State Aid (EU Exit) Regulations 2019, which were debated and approved by this House on Thursday 14 March.
Agriculture and fisheries schemes have long benefited from exemptions to the state aid rules. This instrument maintains these agriculture and fisheries exemptions, allowing government to continue to support these industries and provide stability as we leave the EU.
The instrument will have three main effects. First, it corrects references to state aid rules in some of the CAP regulations. This makes sure that the state aid exemptions, which flow from the agriculture and fisheries state aid exemption in the Treaty on the Functioning of the European Union, continue to apply to direct payments and rural development programme payments. This will allow these crucial payments to continue after exit.
Secondly, the instrument will continue to exempt certain categories of agricultural and fisheries aid which are deemed compatible with state aid rules. These are known as the “block exemptions”. For example, this will ensure that the Rural Payments Agency can continue to make payments for forest environment commitments covered by the agricultural block exemption regulation under the forestry elements of countryside stewardship. For fisheries, payments to the sector which support, for example, the sustainable development of fisheries, the protection and restoration of marine biodiversity, and innovation in aquaculture will continue to be able to be made under the block exemption regulation.
Finally, the instrument provides that funding under certain financial de minimis thresholds will continue not to constitute state aid. For example, the Calderdale natural flood management grant scheme, a critical flood defence project, is covered by this exemption, and this instrument ensures that we will be able to continue to support schemes such as that one.
Lord Gardiner of Kimble
My Lords, I should have at the very outset declared my farming interests as well, as set out in the register. I should probably do that at every Defra occasion because of the interconnection with agriculture, the environment, and so forth, but I think all noble Lords know of my agricultural background and all that goes with it. I am most grateful to all noble Lords; it is so nice to see the noble Lord, Lord Beith, who has a Dispatch Box before him, and my noble friend Lady Byford, who is forensic. I will endeavour to answer as many questions as I can today, but for those that are intricate, perhaps a letter would be a more fulfilling experience. Some of them go slightly off the core of the discussions on these instruments, but they quite clearly go into wider agricultural matters, which are important.
First, your Lordships have agreed that these regulations are so important to ensure payments are made to farmers, land managers and fishers, to comply with state aid rules, and to have that operability. There are quite a number of questions, so it is important that I answer as many of them as I can. My noble friend Lady Byford asked about stewardship schemes and the issue of new applicants, and, in reference to paragraph 7.4 of the EM of the first statutory instrument, how our commitment fits in with this—the noble Lord, Lord Grantchester, also referred to these matters. The environmental stewardship scheme in this SI is closed to new applicants; current agreement holders will continue to receive payments under the Treasury guarantee following EU exit, which I mentioned in my opening remarks. The Countryside Stewardship Scheme has replaced environmental stewardship in England; this is open to applicants and is covered again by the Treasury guarantee. The noble Lord, Lord Carrington, raised this issue at Questions yesterday; indeed, I had an opportunity of raising this with the Minister of State today. We accept entirely that there needs to be an improvement in the level of payments experienced with both the environmental stewardship and Countryside Stewardship schemes. That is why we have transferred it from Natural England—rather than the EA, which was managing these matters —to the RPA because, candidly, we thought it is the organisation to deal with payments and the BPS payments following the first year of the change of CAP. We are at 90%-plus of payments on BPS and, as my noble friend said, the last few per cent are often because of probate cases, cross-border issues or inspections.
I will take back from today the very helpful remarks made at the beginning, which relate to Countryside Stewardship—I do not have to declare an interest in this particular point. I am well aware that farmers have paid money to engage in the Countryside Stewardship or environmental stewardship schemes and that they are now waiting for money. For some, that wait goes back to 2016, so I am not content about that matter. I am always prone to understatement, so I hope your Lordships will understand what I mean when I say that “I am not content” with the current arrangements.
The Earl of Erroll
I think I am allowed to intervene quickly. Maybe interest payments could be looked at, because real costs to farmers arise from non-payment.
Lord Gardiner of Kimble
I have heard the noble Earl and respect his tenacity in putting that point. I had better not say anything more on the record, but that is clearly one area where the question is how we get a better situation. That is why I assure your Lordships that the RPA is geared up to deal with this, and the Secretary of State and all the ministerial team are looking for progress.
Baroness Byford
Reading through the instrument, I found that odd. I could not think of the context that it was referring to.
Lord Gardiner of Kimble
I can understand that. In signing the EM, Ministers have to declare that we have had due regard to the need to eliminate discrimination, harassment, victimisation and any other conduct prohibited under the Equality Act 2010.
I turn to the point raised by the noble Lords, Lord Beith and Lord Grantchester, about the red meat levy exemption. In continuing the existing exemption for imports from the EU, we were advised that we need to be in line with WTO rules, as I advised. I also advise that we expect this change to be minimal or nil. We believe that very few animals are imported into the UK live for slaughter. On average over the last five years, fewer than 500 cattle, sheep or bovines have been imported each year from beyond the EU into the UK. Their average values have been relatively high and our understanding is that they are imported mainly for breeding purposes. We believe that few, if any, are slaughtered in England soon after being imported—hence our belief that the impact of this change would be minimal.
The noble Lord, Lord Beith, raised a question relating to three of the instruments and concerning the legal wording coming into force on a date later than exit day. He asked why that is the case. The legislation is worded as it is because it was not clear whether the instruments would be debated, approved and made before exit day. The wording providing for the instruments to come into force on the latter of exit day or the day after making was a prudent contingency to account for this eventuality and to ensure that we did not purport to bring into force an instrument before it was made. I might need to think about that myself, but I wanted to put the position on the record. However, it is an interesting construct.
Lord Beith
It is indeed—that had not occurred to me. Do we conclude from this that the Government have no intention of doing anything other than bringing all five instruments into force on exit day?
Lord Gardiner of Kimble
Yes; I always have a safety valve. Picking up my noble friend’s point, it is why we thought that these SIs hung together as a package. From all the details that noble Lords have raised, I am relieved that we put them together because they are intricately connected.
The noble Lords, Lord Grantchester and Lord Beith, raised the question of funding a crisis without a crisis reserve. The 2018 crisis reserve payments are covered by Her Majesty’s Government’s funding guarantee, so farmers will receive reimbursement for the 2018 crisis reserve payments. After exit, clearly UK participation in the EU crisis reserve will become unworkable. Making the EU’s concept of the crisis reserve operable in the UK would mean taking the UK’s contributory share of the existing reserve—about £39 million—as the basis for a UK-only reserve. This would be likely to be of limited value in response to a crisis, especially when divided between England, Wales, Scotland and Northern Ireland. Removing the crisis reserve could also mean that more money could be paid out to farmers at the start of a payment window.
We are retaining CAP schemes governing the Common Market’s organisation in other retained EU legislation. This legislation will allow the UK to respond to a crisis in the agricultural markets in the same way that the EU currently can. If there is a crisis in the agricultural sector, the Government will consider how to respond, including whether to provide further funding in the usual way.
Lord Beith
This is not a theoretical situation. I do not wish to turn doom-laden, but if the events we are discussing led to a sudden fall and crisis in the sheep sector, then market intervention might be an option that the Government had to consider. I recognise, as the Minister indicated, that we have other ways to do that.
Lord Gardiner of Kimble
Yes, and I think it has been clear from the department that, like any responsible Government or department, we would act if issues arose. The noble Lord mentioned the sheep sector; in the temporary tariff regime we brought forward, we recognised the sensitivity and potential vulnerability of that sector. He is absolutely right: we need to be alive to, and ready to act on, issues of weather or markets. That point is well made.
The noble Lord raised the issue of the euro. Defra and the DAs have agreed to retain references to the euro in retained EU legislation at the point of exit. This is because, at the point of exit, the CAP will be part-way through making payments under current schemes. To minimise disruption and avoid a difference in sums paid to farmers before and after exit, we will retain the euro until an appropriate time when we can make the change to sterling with minimal disruption. We intend to bring forward regulations to amend euro references to sterling later. These regulations will of course be subject to normal parliamentary scrutiny. In addition, we will work with the devolved Administrations on any changes.
The noble Lord, Lord Beith, asked about retention. On implications for farmers, I reiterate that the Government have guaranteed that the current level of agricultural funding under Pillar 1 will be upheld until 2020 as part of the transition to new domestic arrangements, and that all CAP Pillar 2 agreements signed before 31 December 2020 will be fully funded for their lifetimes. The exchange rate for BPS 2018 is already set for the scheme year, meaning that farmers paid either side of exit day will be subject to an identical exchange rate.
The noble Lord, Lord Beith, asked how many state aid rules there will be after exit. The state aid regime will be rolled over by this statutory instrument, as will the whole architecture through the BEIS statutory instrument. We are not making any changes to the current EU regime beyond those required to make these matters operable.
The noble Lord, Lord Grantchester, asked whether the SIs will be necessary if the Agriculture Bill gains Royal Assent before the end of the current implementation period. If the current withdrawal agreement is agreed, these SIs will still be needed to ensure that the retained EU CAP legislation is operable in a UK context at the end of the implementation period. This will be the case even once the Agriculture Bill has gained Royal Assent. This is because the horizontal framework regulations, as amended by the SIs, will be required while we continue to operate legacy CAP schemes under retained EU law. Likewise, some CMO regulations will remain after the Agriculture Bill comes into force.
The noble Lord asked about the discontinuity in state aid: will DAs have their own rules and do they take effect at exit day or at the end of the implementation period? This is a reserved policy area, but, as with all the SIs I have had to deal with, there has been a close working relationship with the devolved Administrations. BEIS is working on a memorandum of understanding with the DAs, and my noble friend Lord Henley is working on this. If there is any further information I can bring forward from that, I will let your Lordships have a copy.
In a no-deal scenario—
Lord Whitty (Lab)
I intervene because I have been dealing with state aid provisions more generally. The European system regards state aid for agriculture as part of a block exemption. In other words, it does not regard it as state aid.
Lord Gardiner of Kimble
Would it help if the noble Lord and I had a conversation after this debate on the statutory instrument? I am interested in hearing his point.
With your Lordships’ permission, I will conclude my point. In a no-deal scenario, the SI will take effect on exit day; in the case of a withdrawal agreement, it will come into force after the implementation period.
On the noble Lord’s question about Ireland, these regulations will ensure that the same state aid regime applies in the UK and Ireland, because obviously it is bringing back the same arrangements.
My noble friend Lady Byford asked how many farmers fell within the schemes. My memory is that for direct payments, it is about 85,000 farmers, but of course with countryside stewardship and environmental stewardships it is a much smaller sum.
Baroness Byford
My Lords, I know I got a bit confused when we went over the various instruments. My question was actually in reference to small farmers, as my noble friend will be able to see when he has a chance to look at Hansard—there is no definition. I agree with him about the total numbers, but my query was about the number of small farmers and whether they are in a small farmers’ scheme.
Lord Gardiner of Kimble
I think that may be a matter of detail. I will write with a résumé of points I may not have covered, and areas where I think a little more detail would help. I am most grateful to my noble friend.
The noble Lord, Lord Grantchester, asked about the Treasury and the levy. The exemption is being extended to the animals slaughtered that come from beyond the EU. That covers very few animals, and the levy at stake is estimated to be less than £1000, while the levy income is £26 million a year. I therefore might put that in the de minimis bracket.
The noble Lord asked how the CMA and Parliament will enforce state aid. The CMA will be an independent regulator with enforcement powers, including requiring aid granters to claw back payments. Any changes to the state aid regime will be made in legislation.
I will pick up the noble Lord’s point about tariffs—because I too read Farmers Weekly and the Farmers Guardian. We will continue to maintain dialogue with the sector on this important issue. As I said in Questions yesterday, clearly one of the five principles on which we base this is whether it is in the interests of the consumer and the producer. It is why we came forward with what is, as I said yesterday, a temporary tariffs package, and one with which Phil Stocker, the chief executive of the National Sheep Association, was “extremely pleased”. I know one cannot please all sectors, but I think there was a very conscious recognition that the sheep sector was an area where we needed to have that extra support available.
I am conscious that noble Lords have asked me a number of other questions. I will of course write if I have not covered any points. I have already noted a number of questions that could do with a bit more detail, and I may be able to furnish the noble Lord, Lord Grantchester, with answers to some of his further questions.
These instruments are needed for our farming and fishing sectors, and I commend them to the Committee.