Policy paper

UK government response to the independent intra-UK allocations review (Bew Review)

Published 6 September 2019

1. Foreword

Up until now, agriculture funding between different parts of the UK has been influenced almost entirely by the objectives of the Common Agricultural Policy. Once we have left the European Union (EU), it will be the complete responsibility of governments here to make decisions on how best we support our farmers, so Defra in England and the devolved administrations in Scotland, Wales and Northern Ireland can spend public money however they see fit. This means that in future, we are all accountable to you, the electorate, for the decisions we make. The basis on which allocations are made between our respective budgets does not determine how we spend those budgets. But because of the diverse geography of the UK it matters very much how agriculture funding is divided between us. We have a unique opportunity as we leave the EU to decide how money used to support our farming sectors reflects the individual needs of England, Scotland, Wales and Northern Ireland.

We also have an opportunity to draw a line under concerns associated with the methodologies and decisions of the past, and agree a sustainable solution for a long-term agricultural funding settlement. Scottish farmers have been arguing for some years that a proportion of the Common Agricultural Policy funding – ‘convergence funding’ – was wrongly allocated in 2013. This view is not shared in all parts of the UK, so I am very grateful to Lord Bew and his fellow panel members for considering how to address the ‘convergence’ issue in the round, in the context of the government’s funding commitments in this Parliament.

The review was given a limited terms of reference, because the panel was not able to take into account the wider spending decisions and trade-offs that Ministers must consider. But I am very pleased that we have not only been able to accommodate the panel’s requests for funding and the allocation they recommend, but we have been able to go further and provide to Scottish farmers all the convergence funding they feel they should have received between 2014 and 2020.

We are also pleased to confirm that this additional funding – on top of the Bew Review’s recommendations – is a one-off solution to draw a line under the long-running concern Scottish farmers have had. The funding is being provided to address perceptions of unfairness with historical allocations of Common Agricultural Policy funding. Decisions on future funding allocations will consider the needs of farmers in England, Scotland, Wales and Northern Ireland, and we will work with the devolved administrations to agree the right approach.

The review has made some important and interesting proposals about the process for determining that future funding settlement, and its shape. I look forward to discussing those proposals with my colleagues in HM Treasury and my counterparts in the devolved administrations, as we all seek to make the most of our departure from the EU.

Rt Hon Theresa Villiers MP Environment Secretary

2. Introduction

1) In October 2018, the former Secretary of State for Defra commissioned an Independent Review (“the Review”) into the factors which should be taken into account to ensure a fair allocation of domestic farm support funding to the end of this Parliament. The Review was set up in part because Scottish farmers felt that the 2013 allocation of convergence funding had been unfair. That being said, the Review was designed to be forward looking, and not unpick the decisions of the past.

2) The Review was undertaken by Lord Bew of Donegore. The Prime Minister appointed four representatives nominated by Defra and each of the devolved administrations: Leo O’Reilly (representing Northern Ireland), Jim Walker (representing Scotland), Rebecca Williams (representing Wales) and Lord Curry of Kirkharle (representing England). Each panel member was supported by officials from the devolved administrations and a secretariat comprising Defra and HMT officials was also established to support the review panel as a whole.

3) The Review ran a written and oral consultation during which government ministers, political and industry representatives, and agricultural economists were invited to submit their views on the following areas:

• whether the existing proportion of support for each country of the UK be maintained at current levels until 2022
• whether any issues specific to one part of the UK be considered in the allocation of convergence funding across the UK
• if there are any factors or principles stakeholders consider to be important in the allocation of convergence funding
• if there are any factors or principles in relation to the future allocation of convergence funding that should be ruled out by the Review

4) The Review engaged with economists (both independent, and from Defra and the devolved administrations) to develop the “Bew formula” for convergence funding allocations from 2020-2022.

5) The final Review report was published on 6 September. The final report made four recommendations and four wider observations, all listed in Annex A.

6) The UK government welcomes the Review and its development of an intra-UK funding allocation for agriculture for 2020-2022. We are grateful to the work of those who have developed the Review’s recommendations – to Lord Bew, the review panel, secretariat and officials in the devolved administrations – and for the input from Ministers, political parties, industry bodies and economists throughout this process.

7) The UK government accepts most of the recommendations and wider observations made by the Review and our response is set out in detail below.

3. Recommendations

Recommendation 1: For the period 2020-22, we recommend that the convergence funding budget is split according to the proportion of land in each part of the UK that received in 2013 lower CAP funding per hectare than 90% of the EU average.

1) The government accepts the recommendation. For the years 2020 to 2022, this means that England will receive 13.9% of the notional convergence funding budget, Scotland will receive 63.7%, Wales will receive 13.7% and Northern Ireland will receive 8.7%.

Figure 1: The 2014-2020 allocation of the UK convergence funding budget (left) and the Review’s recommended 2020-2022 allocation of the UK convergence funding budget (right)^{[footnote 1]}

2) The Review developed the “Bew formula” based on the proportion of land in England, Scotland, Wales and Northern Ireland which met the EU’s criteria (on a Member State level) to qualify for a convergence funding uplift. The Bew formula provides additional funding for land with low per-hectare payment rates. This land is predominantly in upland areas and is predominantly in Scotland.

3) The Review advised that future agricultural funding is allocated on the basis of productivity and need – for example, to those farmers who farm in the toughest environments. As the current pillar 1 budget is allocated on the basis of the proportion of productive sectors supported by the Common Agricultural Policy in each part of the UK, the recommended allocation of the convergence funding component of the farm support budget will provide slightly more financial support overall for farmers in the most challenging environments.

4) The government recognises the value of upland farming, both to communities and in delivering public goods, and the challenges felt by upland farmers on difficult terrain.

5) For these reasons, the government supports the recommendation to allocate convergence funding based on the proportion of land in England, Scotland, Wales and Northern Ireland that received lower funding per hectare than the EU average in 2013, therefore tilting the support of the Pillar 1 budget slightly towards those who farm in challenging environments.

Recommendation 2: We recommend the final year of the EU’s funding is the sensible baseline for the 2020-22 period, which would see a total of €127.6 million over two years (the 2020 and 2021 scheme years) divided according to our recommended allocation.

6) The government agrees with the recommendation.

7) The EU distributed the €223.4 million uplift in convergence funding to the UK from the period 2014-2020 in annual payments which increased incrementally, from €10.7 million in 2014 to €63.8 million in 2019.

8) The Bew formula for future convergence funding allocations is linked to the EU’s own way of allocating convergence funding to EU Member States, as it allocates funding to areas which have low per hectare payment rates. As the EU’s methodology and Bew’s methodology are broadly aligned, the Review advised that the UK government matches the EU’s most recent funding for convergence funding, namely €63.8 million annually (€127.6 million over the two year period 2020-2022).

9) The government understands the EU’s rationale for introducing convergence funding (to equalise per hectare payment rates between Member States by 2020) and will match the EU’s most recent convergence funding allocation to the UK, meaning that the notional convergence component of the farm support budget will be €127.6 million over the period 2020-2022.

10) The government’s acceptance of recommendations 1 and 2 means that Scottish farmers will receive an additional €60.43 million and Welsh farmers an additional €6.11 million over the 2020-22 period. Using the historic € / £ exchange rate at which convergence payments have been made available in the UK (1.1757), this equates to £51.4 million and £5.2 million respectively.

Recommendation 3: We recommend that the UK government increase the farm support budget by €66.54 million over the two-year period.

11) The government agrees with the recommendation.

12) The farm support budget is fixed for England, Scotland, Wales and Northern Ireland until the end of this Parliament. Convergence funding is a component of the farm support budget. As the Review recommended a change from the current convergence funding allocations, this would mean that some administrations would gain farm support funding, whereas other administrations would see their farm support budget reduce in size.

13) If the Bew formula was applied to the convergence funding budget, England would lose €65.91 million in farm support funding and Northern Ireland would lose €0.63 million.

14) Although the terms of reference of the Review state that it would be fiscally neutral, the government agrees to increase the farm support budget by €66.54 million over the two year period 2020-2022 so that no farmer in the UK receives less than they were expecting. Defra and the Northern Ireland administration will therefore see no change in their budget. The government has agreed to provide an additional £160 million to Scottish farmers as a one-off increase to address the perception of unfairness with historical allocations of the Common Agricultural Policy.

Recommendation 4: We recommend that this [recommendation 1 - to allocate convergence funding according to the proportion of land in each part of the UK that received in 2013 lower CAP funding per hectare than 90% of the EU average] would be an inappropriate basis on which to allocate total agriculture funding beyond this period over the long term.

15) The government partially accepts this recommendation.

16) The government agrees that to allocate all agricultural funding solely on the basis of the number of agricultural hectares in England, Scotland, Wales and Northern Ireland would be a radical shift from the current approach and is unlikely to reflect how agriculture is practised across the UK or to be acceptable to all administrations based on their various policy objectives. It would lead to large reductions in budgets for some administrations or a likely unaffordable increase in the total funding going to the agriculture sector. However, we will engage with the devolved administrations to discuss the basis on which future allocations should be made, and do not want to pre-empt this process.

4. Wider observations

1) The Review makes some wider observations beyond its recommendation on the intra-UK allocation of ‘convergence’ funding between 2020 and 2022. The government response to these observations is below.

Wider observation 1: We suggest UK government Ministers consider engaging collectively with their devolved administration counterparts to agree some principles for the initial 2022 intra-UK allocation of agriculture funding.

2) As recognised by the Review, agriculture is devolved and the UK government in England and each devolved administration has the flexibility to develop agricultural policy suited to their unique circumstances. However we agree that there are areas where close collaboration between the administrations is required and the future of agriculture funding is one of these areas.

3) The UK government is already working closely with the devolved administrations to find approaches on an administrative framework to coordinate agricultural support after 2022. We expect our close collaboration to continue with the Welsh Government, Northern Ireland administration and the Scottish Government on future working and coordination on agriculture. This process helps in ensuring effective co-ordination and dialogue between the administrations on how any changes in one part of the UK may affect other parts.

4) We recognise that discussions on future funding should take place in parallel to these discussions. The government will work with the devolved administrations to develop an approach to future funding allocations. Engagement between the government (HM Treasury, Defra and the Territorial Offices) and the devolved administrations will set out to agree funding after 2022, recognising that agriculture policy is and will remain devolved.

Wider observation 2: Ministers should try to avoid giving farmers in any one part of the UK an unfair competitive advantage when deciding future allocations.

5) Central to these discussions on post-2022 funding arrangements will be the principle that we should avoid giving farmers in any part of the UK an unfair competitive advantage. The UK government is committed to a Brexit that will see improvements for farmers in England, Scotland, Wales and Northern Ireland.

6) The government can confirm that the additional funding provided to Scottish farmers to draw a line under the disagreement over the 2013 convergence funding payment will be a one-off payment.

Wider observation 3: We advocate including in those principles a recognition both of the social value of upland farming in particular and the challenges facing those practising it, and of the potential for delivering environmental public goods alongside sustainable food production, wherever in the UK that potential exists.

7) The Review made the case that the recognition of the value of upland farming should be a key principle underlying the future allocation of agriculture funding.

8) The government recognises the great value of upland farming and the unique challenges faced by farmers throughout the UK in these environments. We are aware of the vital role upland farmers play as stewards of the countryside and the range of social benefits that they contribute.

9) The government welcomes the Review’s endorsement of the government’s proposals in England to introduce an approach based upon ‘public money for public goods’ and recognises the considerable scope that this will present for farmers in the uplands.

10) We have outlined how farmers in the uplands could be additionally supported through the new Environmental Land Management scheme in England, through for example, enabling public access to and enjoyment of the countryside, farmland and woodland, and maintaining, restoring or enhancing natural or cultural heritage. While we would welcome a similar approach being consistently adopted across the UK, it will clearly be for each administration in the UK to take any final decisions on how best to support their farmers in upland areas.

11) The government already recognises that farming efficiently and improving the environment can go hand in hand. Our future agriculture policy in England will help farmers continue to provide a supply of healthy, home-grown produce made to high environmental and animal welfare standards. When we leave the EU we will ensure that our food system delivers healthy and affordable food and is built upon a resilient and sustainable agriculture sector.

Wider observation 4: We suggest Defra and HMT Ministers ensure that funding for agriculture and rural areas more broadly is protected, if not enhanced, given its high benefit-to-cost ratio.

12) The government recognises the contribution that agriculture and rural areas more broadly make to our national life, economically, socially and culturally.

13) The funding choices we take will be based on the domestic priorities across the UK and this will continue to be the case for agriculture after 2022. These decisions will also be affected by the economic environment and the fiscal position and will be made clear at the appropriate fiscal event.

5. Conclusion

Leaving the Common Agricultural Policy gives Defra and the devolved administrations in Scotland, Wales and Northern Ireland more flexibility to decide how money should be used to support the individual needs of our farming sectors in the future. It also presents the UK government with the opportunity to ensure that future funding allocations to the devolved administrations for agriculture are fair.

The independent Intra-UK Allocations Review has provided recommendations on how the convergence component of the farm support budget can be divided fairly to the devolved administrations for the period 2020-2022. The government has accepted the majority of the recommendations made by the independent Review and has already begun to implement them. In addition to this, the government will provide additional funding to Scottish farmers to draw a line under the long-running concern about the 2014-2020 allocation of CAP funding, enabling the government to move forward and work with the devolved administrations to find a sustainable solution for a long-term agricultural funding settlement.

The Review made several wider observations, which the government will discuss in more detail before a decision is made on post-2022 funding arrangements. The government will consider the needs of farmers in England, Scotland, Wales and Northern Ireland and will engage with the devolved administrations to ensure that our farmers receive fair funding in the future.

6. Annex A: Recommendations and wider observations made by the Review

6.1 Recommendations made by the Review

1. For the period 2020-22, we recommend that the convergence funding budget is split according to the proportion of land in each part of the UK that received in 2013 lower CAP funding per hectare than 90% of the EU average.

2. We recommend the final year of the EU’s funding is the sensible baseline for the 2020-22 period, which would see a total of €127.6 million over two years (the 2020 and 2021 scheme years) divided according to our recommendation allocation.

3. We recommend that the UK government increase the farm support budget by €66.54 million (€65.91 million to England and €0.63 million to Northern Ireland) over the two-year period.

4. We recommend that this [recommendation 1 - to allocate convergence funding according to the proportion of land in each part of the UK that received in 2013 lower CAP funding per hectare than 90% of the EU average] would be an inappropriate basis on which to allocate total agriculture funding beyond this period over the long term.

6.2 Wider observations made by the Review

1. We suggest UK government Ministers consider engaging collectively with their devolved administration counterparts to agree some principles for the initial 2022 intra-UK allocation of agriculture funding.

2. Ministers should try to avoid giving farmers in any one part of the UK an unfair competitive advantage when deciding future allocations.

3. We advocate including in those principles a recognition both of the social value of upland farming in particular and the challenges facing those practising it, and of the potential for delivering environmental public goods alongside sustainable food production, wherever in the UK that potential exists.

4. We therefore suggest Defra and HMT Ministers ensure that funding for agriculture and rural areas more broadly is protected, if not enhanced, given its high benefit-to-cost ratio.

1. P.72, The Intra-UK Allocations Review Report ↩