Common Agricultural Policy and Agriculture and Horticulture Development Board (Amendment etc.) (EU Exit) Regulations 2019

Lord Beith Excerpts

Wednesday 20th March 2019 Grand Committee

[Lord Beith (LD)]

My Lords, far from going round the houses, the noble Baroness, Lady Byford, has done us a service by going through the instruments so thoroughly and raising some really important questions—the Minister will have quite a lot to answer. I will say something about these instruments, but I do not want to forget to thank the Minister and his officials for the extremely helpful briefing they gave to opposition parties.

There are five instruments, and their titles are so confusingly similar that the only way to deal with them is the way in which the noble Baroness, Lady Byford, did—as first, second, third, fourth and fifth, which is the order in which they appear on the Order Paper. They deal with very important matters related to farming and rural communities, particularly funding issues. They are interrelated, which is why I think it was sensible to take them together.

The instruments are also interrelated with the Agriculture Bill—the elephant that is not in the room, because we do not have it yet—which interacts with these instruments in a number of respects. The Agriculture Bill gives huge and unacceptably wide order-making powers to Ministers. Some of those duplicate some of the powers exercised in these statutory instruments, so it is quite difficult to view them separately. If the Agriculture Bill ever becomes an Act, it will come into force probably in the middle of a period in which these instruments are in force, or while we are still waiting for the instruments to come into force at the end of an implementation period.

We accept that these instruments are a necessary means of ensuring that we have continuity in what would otherwise be an even more difficult situation for the farming community. They are no-deal instruments primarily; the Minister explained that they will still be necessary even if there is an agreement, but that would not be until the end of the implementation period. They would therefore lie dormant during an implementation period, and that would have to be achieved in the withdrawal agreement Bill, which would be necessary in those circumstances. Of course, we do not know when exit day will be—whether it will be next Friday, 30 June, or some other date—or indeed if it will be. By the time we get to it, these instruments will need to be amended because things will have changed, either during the delay, or during the implementation period, or both. It is hard to imagine that the form in which these instruments are now will serve all purposes in perhaps 20 months’ time, as would be the case after an implementation period.

What on earth are farmers supposed to make of all this? It is bad enough when your work is at the mercy of the weather and fluctuating market prices; but, frankly, it has been easier to forecast the weather—and even market prices—than the Government’s management of the Brexit exercise. That adds another huge dimension of uncertainty and these five instruments would at least provide continuity in the event of a no-deal Brexit.

There are a few issues I want to pick up. The Minister mentioned an intriguing point on the first instrument: the red meat levy paid on imported animals slaughtered within two or three months of import would be extended from EU states to the rest of the world. That sounds like a policy change, and a policy change ought to be dealt with differently, or at least drawn to our attention. Its significance diminishes, however, when you discover that—in the words of the Explanatory Memorandum—the amount of the levy currently collected is “probably nil”. That is a rather interesting phrase to use; perhaps the Minister can explain why it is only “probably nil”, as though nobody knows whether it has been collected at all.

The second and fourth instruments puzzled me—and officials when I asked them—for a different reason. Unlike all the others, they do not necessarily come into force on exit day, whereas most EU exit regulations do come into force on exit day—whenever that turns out to be. If the Minister chooses not to lay either the second or the fourth instrument until some later date, they will not come into force until the day after that. Why the difference, and do the Government envisage the orders not being brought into force at the same time as the others?

The third and fourth instruments abandon the mechanism known as the EU crisis reserve. That relies on deductions from the direct payment pot to create a central reserve for times of crisis in EU agriculture. It is another mechanism that has never been used; farmers have received reimbursement for the deductions in the funding scheme. It clearly makes little sense in a UK-only context—I suppose one could have a scheme for the four jurisdictions within the UK, but it makes a great deal less sense. We have to refer to a different statutory instrument, the next one in the group, to see the accountability mechanism for dealing with it.

It is also in the third instrument that we find that euros will remain the currency on which the whole system of agricultural support is calculated and accounted for. However, I understand that provision may be included in the Agriculture Bill for a switch to sterling. We need to clarify that; I was reassured when I received briefing from officials that neither farmers nor the taxpayer would in the long run be placed in a very different position by currency fluctuations because support is decided at a fixed point in the year. However, it would be helpful to have clarified the Government’s intention in relation to a later switch to sterling.

The fifth order is essential to continue the exemption of various agricultural and fisheries projects and funding streams from EU state aid rules. To the extent that state aid rules continue to have effect post exit, such an exemption is necessary. It of course begs the question of how many state aid rules we will have post exit. The Minister could perhaps clarify; there will be rules that extend because they are in the withdrawal agreement—there may be things which we decide to continue and do not remove because we want to restrain undesirable interference with the market by various forms of state aid. It left me slightly puzzled as to the extent of its impact.

The decision about the future of state aid rules is one of the hundreds of policy decisions which we will have to come to later if exit goes ahead. The battle will then be between those who thought that Brexit meant a bonfire of rules and those who see that many issues in the rules have been developed while we have been in Europe and are valuable to us and we do not want to lose them. That again creates more uncertainty for farmers, because they have been told by the ardent Brexiteers, “Oh, we’ll get rid of all those EU rules; you don’t have to worry about them”, whereas in practice, as the Government have indicated on many issues already, a lot of the things we observe in Europe are things that we believe to be right, and that we advocate and intend to do anyway.

We have had a foretaste of the problems and uncertainties with the publication of the tariff regime only two weeks before it was planned to come into force. While the sheep sector, which is so valuable in areas such as that which I come from, has retained its tariff protection but still faces the problem of potentially heavy tariffs on its exports, eggs, cereals, fruit and vegetables will have no tariff protection. Farmers Weekly called it policy devised on the hoof by a Government struggling to cling on to power.

My last point was raised the noble Baroness, Lady Byford, but it looks forward. Can the government machinery cope with the complex transfer of functions provided by these orders? The noble Baroness raised the question in the context of the Rural Payments Agency and delays to payments. The RPA and Natural England have 14,000 historic environmental stewardship payments outstanding. The RPA says that it is concentrating not on the 2018 so-called advance payments—we can hardly call them advance in 2019—but on the 2017 final payments. Its target is still only to complete 95% of them by July. Tenant farmers with rents to pay need those payments to be made in a timely fashion, and they have a big impact in rural communities on suppliers of farm machinery and materials for agriculture. The system cannot cope at present, so a series of quite complex changes gives rise to worry as to how the system will cope.

The complexity of this is illustrated by the Minister’s admission that there is a small error in one of the sets of regulations before us today. That can obviously be corrected, but one has to bear in mind that this extremely complex process is taking place in an industry that faces a great deal of uncertainty and many other complexities. It is pretty worrying.

[The Earl of Erroll (CB)]

My Lords, I want to say just a couple of things. I am married to a farmer and in the evenings I have to try to sort out some of the paperwork, mapping, basic payment systems—

--- Later in debate ---

[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—