Sustainable Farming Incentive

Statement

The following Statement was made in the House of Commons on Wednesday 12 March.

“With your permission, Mr Speaker, I would like to update the House on the sustainable farming incentive.

We stand on the edge of an unprecedented global transition for British farming. From leaving the European Union to the challenges of climate change and geopolitical events, we are asking more of farmers than ever before: to continue to produce the food that feeds the nation and to protect the environment on which our long-term food security depends. We are determined to create the conditions for farm businesses to be profitable and succeed. We are proud to have secured £5 billion for farming over two years: the largest budget for sustainable food production in our country’s history. That is £1.8 billion for customers already in agreements, £1 billion for farmers now in SFI agreements and a further £150 million for farmers in the SFI pilot.

Labour has got that money out of the door and into farmers’ pockets. We have invested it to bring thousands more farmers into environmental land management schemes, which were vastly underspent by the previous Government, to make a record number of capital items available for the coming year to help farmers carry out actions under the SFI and Countryside Stewardship, with £600 million available for productivity, animal health and welfare innovation, and other measures to support agricultural productivity, as well as 50 landscape recovery projects across the country. We have responded directly to calls from the sector to roll out a new higher- tier scheme, and to increase payment rates so that higher- level stewardship agreement holders—many of them upland farmers—are fairly rewarded for their work.

More than half of all farmers are now in schemes, with 37,000 live SFI agreements and 50,000 farmers in ELM agreements. Under the SFI, 800,000 hectares of arable land are being farmed without insecticides, 300,000 hectares of low-input grassland are managed sustainably, and 75,000 kilometres of hedgerows are being protected and restored, which is a huge success for nature. I thank all farmers involved and reassure them that all existing SFI agreements will be honoured.

Farmers will continue to be paid under the terms of their agreement for its duration. If they entered into a three-year SFI agreement earlier this year, they will be paid until 2028. If they submitted an SFI application but this has not yet started, that will also be honoured. All farmers who took part in the SFI pilot will be able to apply for an agreement.

With the high uptake of the scheme, however, the fact is that it is now fully subscribed. This Government inherited SFI with no spending cap, despite a finite farming budget, and that cannot continue. We will continue to support farmers to transition to more sustainable farming models, including through the thousands of existing SFI agreements over the coming years and a revamped SFI offer. But this is an opportunity to improve how we do that under a fair and just farming transition, which supports farms to be profitable businesses in their own right through fairer supply chains, better regulation and greater market access, and directs public funding in a fair and orderly way towards the priorities that we have set out on food, farming and nature. We will be strategic in how we design our schemes, and responsible within the available budget. This is about using public money in a way that supports food production, restores nature and respects farmers as the businesspeople they are.

SFI can and must work better for all farms and for nature, and I will set out the details of the revised SFI offer following the spending review, including when it will open for applications. We will work closely with the sector to design an improved scheme so that it can tell us what works best for its businesses. We will also put in place strong budgetary controls so that SFI is affordable to the public purse. The revised offer will align with our land use framework to better target SFI actions fairly and effectively, focusing on helping less productive land contribute to our priorities for food, farming and nature.

The underlying problem facing the sector, however, is that farmers do not make enough money. The Government are changing that. [Interruption.] Opposition Members may laugh but businesses do need to make money; they might need to know that. We announced a new set of policies at the National Farmers’ Union conference last month aimed at improving farm profitability, securing our food security, and protecting nature. Through our farming road map, we are creating the conditions for farmers to run profitable businesses that can withstand future challenges.

This decision is about investing in long-term stability. It is about a future where farmers are supported to run profitable businesses, and where public money is used in a better way to better restore nature and to secure long-term food security”.

19:42:00

My Lords, I first declare my interests as set out in the register, in particular as a dairy farmer. I thank the Minister for repeating this Statement in your Lordships’ House and for allowing an opportunity to scrutinise the decision to cap sustainable farming incentives in this manner. We on these Benches are proud of the Environment Act 2021 and of the transition in farming support payments to environmental land management schemes. ELMS is a crucial step in fulfilling our legally binding commitment to achieve a 30% recovery in nature by 2030, as well as ensuring that farming payments are for public goods. To cap the sustainable farming incentives with no notice, despite the Government’s own website informing that up to six weeks’ notice would be given for withdrawal of SFIs, is a betrayal of our farmers and our natural environment. Many were already facing unexpected financial hardship from the massive reduction in delinked payments, planning for the reduction in IHT reliefs, the increased minimum wage and national insurance contributions. This adds more pressure to those who were expecting to transition to SFIs this year but had not yet applied. Fewer than half of farm holdings that were in the basic payment scheme have SFIs. The NFU’s farmer confidence survey shows farmer confidence in England and Wales at its lowest level ever. Some 88% of farmers believe the phase-out of direct payments will negatively affect their business, and 51% of farmers were planning to use ELMS to mitigate that phase-out. These dramatic changes in government support with no notice upset any attempt at budgeting, with costs already largely set for this year based on revenue projections that have now been dramatically cut. This will cause significant further hardship and heartache. What assessment has been made of the impact of the SFI announcement on the financial viability of the farming industry? How many farms are likely to be pushed beyond breaking point this year? Has the estimated £400 million being cut from delinked payments been fully reallocated to the environmental land management schemes? Do the Government still intend to open the Countryside Stewardship higher tier this summer as previously committed to? In regard to the environment, what impact will the SFI decision have on compliance with the legally binding commitment delivered in our Environment Act to deliver improvements in biodiversity and nature recovery, given the central importance of farmers and land managers in achieving this? Government messaging about the timing of new SFIs has been muddled, mentioning both 2026 and 2025 and it being potentially contingent on the finalisation of the land use framework. Please could the Minister be clear today on exactly when farmers will be given access to new SFIs and how their emphasis will differ from existing SFIs? Can the Minister also confirm that the £5 billion budget settlement for farming remains intact and will be fully distributed over the years ending in 2025 and 2026? Given this Government’s disappointing financial decisions relating to farming and the wider rural economy, it would also be helpful if the Minister could enable us to understand what role she sees for private sector finance in replacing the public purse in land management. ELMS is an important segue into that, identifying valuable natural capital activities in land management, which in turn can morph into quantified public goods. In order for the private sector to step in, we need to see financial incentives. What financial incentives would the Government consider appropriate to deliver this investment? Will the woodland carbon code and peatland carbon code be admitted into the emissions trading scheme, creating real market demand? Will tax incentives be considered, or public bidding rules? Finally, could the water industry play a greater role in financing nature-based projects for reducing peak flow rates and flood events, and improving water quality? The farming community needs help to plan after so many blows; I hope that the Minister can help with her answers.

My Lords, I thank the Government for the Statement. They will no doubt by now be aware of the significant disappointment and dismay the sudden closure of this scheme, without consultation or warning, has caused. What analysis did the Government do before this announcement to establish the likely impact on smaller farmers such as family farmers and those on significantly less than the minimum wage? Were there impact assessments in respect of farmers losing their basic payment this year with the immediate removal of SFI, and without, as yet, any clear replacement scheme? Can the Minister please share with us the expenditure implications? It is our understanding on these Benches that if the BPS cuts this year are taken into account, more than £400 million of the £2.5 billion farming budget will remain unspent. Given that this was a budget intended to reward farmers for nature restoration and sustainable food production, can the Minister reassure us that this will not damage both? Can she explain how the Government will ensure that key environmental work is rewarded, and carried out by farmers who can no longer get access to this funding? Does the Minister accept that there is a danger that the larger landowners, the ones that are more corporate, are highly likely to have already taken up the SFI and be part of the 6,100 new entrants this year? What advice does she have for the smaller operators, some of Britain’s poorest farmers, who are now left behind? Is she further aware that only 40 hill farms were new entrants this year, and that the previous Government failed to provide sufficient support for hill farmers, which in turn led to an over 40% drop in hill farm incomes in just five years? Is there any plan to help the small farms, upland farmers and commoners affected by this sudden change? Can the Minister share with the House any discussions with farming stakeholders in advance of this change? Stakeholders tell us there were none, and the NFU said that it had just 30 minutes’ notice. Finally, will the Minister please share what steps the Government will now take to increase the farming budget to reflect the Government’s nature and climate targets? We would be very happy to share the suggestions in our own manifesto if that would be in any way helpful. These targets, we would argue, have been greatly damaged by this cut in SFI.

My Lords, I thank noble Lords for their interest and questions on the Statement. Twice before, the SFI system has been paused when the funding had been used up from the applications and started up again. Although applications for the SFI 2024 scheme have closed, I want to reassure noble Lords that we plan to reopen the SFI application service once we have a reformed SFI offer in place. Ongoing ELM schemes are supporting farm businesses to remain viable as they adjust to the reduction of farm subsidies that noble Lords have referred to. The new figures published recently showed that the proportion of commercial farms with income from agri-environment schemes rose from 49% in 2021 to 70% in 2023-24. There is a success rate here. The noble Lord, Lord Roborough, asked about funding from the delinked payments reductions. The money released from the reductions to subsidies is being reinvested through our other schemes for farmers and land managers. Every penny is staying within the sector. Details of how the £5 billion for 2024-25 and 2025-26, which was secured in the last spending review as being spent, were published on our farming blog on 12 March, for noble Lords who are interested. This includes £1.05 billion on SFI and £350 million on other ELM schemes. The noble Lord asked about the Countryside Stewardship higher tier. That is being rolled out in a controlled way by invitation, so that everyone will get the right level of support. Invited applicants will be asked to submit applications from this summer. On the environment and environmental targets, which the noble Lords asked about, closing SFI for new applications will not have any impact on the environmental benefits that we are getting from the 37,000 SFI agreements that are already live, nor affect the outcomes we are getting from other agri-environment schemes. The Government are still committed to delivering on these environmental outcomes. Some 4.3 million hectares of land are now in SFI agreements, which means that 800,000 hectares of arable land are being farmed without insecticides. We want to move further on this. This reduces harm to pollinators and improves soil health. Some 300,000 hectares of low-input grassland is being managed sustainably, which will help biodiversity and improve water quality. Some 75,000 kilometres of hedgerows are being protected and restored, and this provides essential habitats for wildlife, improves carbon storage and strengthens our natural flood defences. Regarding the timing of the reformed SFI, we plan to reopen the online application process once we have finalised the offer. On the issue around small farms, upland farmers and commoners, we need to make it fit for purpose as it moves forward, so that we are talking to the right people and allowing the right kind of farms and communities to apply. We are considering what it needs to look like, taking those issues into consideration. Clearly, the spending review is also important. We expect to publish more information as to what it will look like and when it will come into play after that. We will work with stakeholders and farmers to review the scheme, to ensure that we are directing funding towards the actions that are most appropriate and have the strongest case for that investment. We also want to align the SFI with our work on the land use framework and the 25-year farming road map that my colleague, the Farming Minister, is working on. We need to protect the most productive land and boost food security while we deliver for the environment and nature. We are evolving the SFI offer and exploring ways to better target the money towards smaller farmers and the least productive land. We need to ensure that we get the outcomes that we need. To confirm, the farming budget remains at £5 billion for this year and next year, as we previously announced. We are on track to spend all the funding that is available. On private sector funding, which the noble Lord, Lord Roborough, asked about, the Government are committed to significantly increasing private investment in nature’s recovery. This will not only help us meet our environmental targets but will create opportunities for farmers and land managers to diversify their business revenues through the sale of services around nature and the environment. Those markets are small, but they are growing. We are going to consult on what additional action we need to take to strengthen those markets in the weeks ahead. In the recent land use framework publication, we announced a call for evidence to seek views on how we can better incentivise private investment in nature from the sectors that impact and depend on our shared natural capital. We intend to publish that later this year. The noble Lord, Lord Roborough, asked specifically about the Woodland Carbon Code and the Peatland Code. The Government have launched a consultation on integrating greenhouse gas removals in the UK Emissions Trading Scheme—as the noble Lord knows, that was last summer. This included exploring the inclusion of the Woodland Carbon Code in the UK Emissions Trading Scheme. We are going to look at that consultation and respond in due course. We are also exploring opportunities for expanding private investment in woodland creation. A few weeks ago, we launched the timber in construction road map, and we have an upcoming call for evidence on private investment for nature recovery. We also recently launched a tender to modernise the Woodland Carbon Code’s operations and the upcoming voluntary carbon and nature markets consultation, so there is quite a lot going on in that area. On the water industry, we are aware of a number of water companies that are working to develop nature-based solutions and exploring actions to improve water quality and manage flooding. We are working with the industry to understand how we can promote the different benefits that come from this and to promote blended funding approaches. Through Ofwat, the Government are also supporting water companies to develop nature-based solutions—we have discussed this in other debates. It is an important focus for us. Mainstreaming nature-based solutions to deliver greater value is something we now have a grant to look at, so we can bring together multi- sectoral expertise and leadership, which is what we are going to need to facilitate and enable the proper, true transition to nature-based solutions. I hope I have covered most things, but I will check and get back to noble Lords if I have not.

19:57:00

My Lords, the Minister in the Commons told the House of Commons that he knew for five years that the money was going to run out, but he said nothing. Instead, he waited until the money ran out and slammed the door— overnight—on more than half of English agricultural holdings, in breach of the six-week notice period that was cynically, overnight, airbrushed off the Defra website. His only reason for this was that there might otherwise have been a rush of applications. His only advice to farmers was to apply immediately for any new SFI that is opened, which is surely itself a recipe for a precipitous rush. It also ignores that inquiries to Defra by farmers seeking to get their applications right take months to get a reply. It took me three years to get answers, and those were still incomplete when the scheme was shut in the face of my family farm. Finally, the Minister then tells hard-pressed rural communities that his department running out of money should be “a cause for celebration”. I cannot help but recall the rustic expression, “Don’t piddle down my back and tell me that it’s raining”. Can the Minister tell the House what lessons have been learned from this latest disaster for so many family farms?

As I mentioned earlier, this is not the first time that SFI has been paused. The way the scheme operates is that it opens for applications and, when the funding is used up, it is then paused until we look at the next round of SFI funding. It is difficult to judge when that is likely to come to an end. In response to the noble Lord’s final question, we are aware that the SFI scheme needs reforming, which is what we are now looking at doing. We need to get it right and we need it to work better for farmers and for the environment. That is why, as I mentioned, we will be talking to stakeholders, including those who use the scheme and those who we would like to use it but who perhaps find it difficult to apply to at the moment. I am particularly talking about smaller farms and upland farms; we need to be much more targeted on them. We are aware that we need to reform it, and we are working on that at the moment.

My Lords, I refer the House to my register of interests. It is somewhat disingenuous of the Minister to say that the SFI scheme has been paused twice. The previous two occasions were actually pilot schemes, which were then rolled forward, so I do not accept that. Following on from the question from the noble Lord, Lord Cromwell, what assessment has been made of whether Defra has sufficient resources and staff to deliver commitments across the environment and food security, and what is the Minister’s assessment of the Rural Payments Agency’s ability to handle the change?

As I said, we need to reform the system and we are working on that; we want it to work as effectively as it possibly can, both to support farmers and to deliver the environmental targets that we need. I have visited the RPA offices in Carlisle, and the staff there work incredibly hard. We are looking at how we can improve the digital support they get, for example, because we need to ensure that the RPA is fit for the future and able to support farmers as best as it can in the way that it needs to.

My Lords, I thank my noble friend the Minister for her Statement today. On the sustainable farming incentive, I know that she visits Northern Ireland and the other devolved nations fairly regularly, examining agricultural and environmental issues. When she next visits Northern Ireland, could she discuss with the Minister for Agriculture there the impact of the withdrawal of APR and business property relief? They were essential to sustainable farming in Northern Ireland, where an acre sells for about £25,000. The level of investment and money needs to be investigated by the Government and the Treasury again.

I thank my noble friend for those questions. The last time I visited Northern Ireland, I went on a visit with the Ulster Farmers’ Union to a farm to look at the specific differences between farming in Northern Ireland and in England, and to listen carefully to their concerns about some of the issues that my noble friend has raised. I can confirm that I am going to Northern Ireland on Thursday. I will be spending two days there, and I have already asked for an agenda item with Minister Muir, who my noble friend referred to, to discuss exactly these issues. It is really important that Northern Ireland farmers are listened to, just as it is important for farmers in the rest of the UK.

My Lords, I do not know whether I have an interest to declare. I am not a farmer but the Church Commissioners, who pay my stipend and working costs, are one of the largest landowners of tenanted farms in the UK, so I declare that. We have had a couple of brief references so far to food security, but might I tempt the Minister to say a little bit more on that subject, particularly given the geopolitical situation we are in at the moment? In addition, has any assessment been made of the impact that these changes and the announcement last week are likely to have on the UK’s food security?

On food security, as I mentioned earlier, we currently have 37,000 farmers in the SFI scheme, which equates to about 50% of farmland. The purpose of that is to support them to produce food sustainably while also delivering for nature. The SFI agreements last for three years, so, although we have closed the new applications, the live agreements—the 37,000—remain unaffected and can continue to support sustainable food production. We are committed to improving food security and are aware that SFI is a major tool that we need to use to support that. We are also looking to boost food security with other tangible measures. For example, we recently committed to ensure wherever possible that half of food supplied into the public sector is produced locally or certified to high environmental standards. We have also announced a five-year extension to the seasonal workers visa route and we are looking at reform to the planning system so that farmers can put the necessary infrastructure in place that they need in order to continue to produce food sustainably.

My Lords, further to the question from the noble Lord, Lord Cromwell, is the Minister aware that, speaking in the House of Commons before the election, the then shadow Defra Minister, Danny Zeichner, said that farmers in the UK needed complete certainty and stability on the SFI? He went on to say that an incoming Labour Government would provide exactly that. Is this the Minister’s idea of complete certainty and stability?

I completely understand that the closure so quickly and unexpectedly has caused difficulties and concern—I just want to say that. However, it is important that, looking to the 25-year farming road map that we are developing, part of the reasoning behind that is to try to give that kind of security. It is also important that, when we look at opening the SFI scheme next time, all this is taken into consideration, so that our reforms produce a more stable scheme. He is absolutely right that farmers need certainty and security, because farming is looking at long-term investments and farmers need to be able to know how to make those investments. So I take his point.

My Lords, I declare my farming interests are set out in the register and that I am likely to be affected by the withdrawal of SFI 24. I want to just probe a little further on the two questions that were asked by the noble Lord, Lord Cromwell, and the noble Earl, Lord Leicester. The Government claim that the promised six-week warning of closure was not given due to the potential spike in applications causing budget overspend. Surely, Defra has been monitoring this spending versus budget and advising Ministers accordingly. Please can the Minister confirm that she is satisfied with the efficacy of the Defra review process and, if so, why the Government did not take early action to avoid this serial blow to farming and the environment?

My Lords, as I said, I am very aware that the sudden closure, when farmers were expecting more notice, has not been easy and that, for many people who were intending to put in applications, as the noble Lord said about himself, that has caused difficulties. I have friends who are in that boat, so I am very aware that difficulties were caused. I will take the concerns of the House back to the Farming Minister and explain that the unexpected pause and its impacts are felt very strongly by this House. I am happy to commit to do that, because it is important.

My Lords, I declare my agricultural interests as in the register. My noble friend Lady Batters very much wanted to be here this evening, but as a working farmer she is having to carry out TB testing today. Following on from some of the earlier questions, can the Minister give a bit more detail of the advice that the new Ministers were given when they came into the department last July, when presumably the officials were already aware that there might be pressures on the fund? It seems astonishing to everyone in the Chamber that not even the Ministers gave any indication that the funds were running out. Can the Minister give a bit more explanation? The great concern now is that the details of the new scheme may not be announced in the very near future. Can she indicate when the new revised scheme is likely to be announced?

On the detail of the new scheme, as I mentioned earlier, we will consult with stakeholders on how it needs to be reformed to work better for farmers and the environment. We do not want a repeat of problems for farmers, so we need to get it right. We must also look at budgets through the spending review. I cannot give specifics of when it will start up again, but we will start it up again. The current system will last for three years, so we need to look at how to get the next system in place as soon as practically possible, having taken those steps. On the six weeks’ notice, the SFI scheme was set up as a demand-led scheme. Our aim was to allow as many farmers to join as possible before it was paused. We were not able to give any advance notice of the need to close, because we were concerned that, if we said that we would be closing it, we would suddenly have a lot of extra demand without the funding to manage that demand. I know that this is not what noble Lords want to hear, but that was the reasoning behind it. We must be able to afford to give the funding to support the applications that come in, and budget constraints are very difficult at the moment. While we aim to give notice and are clearly aware that the website mentioned six weeks, there is no requirement in the scheme to do that. I appreciate that it did say six weeks. As part of reforming it, we want there to be much more sophisticated, effective budget controls around this. As the noble Lord mentioned, farmers need certainty. To give them certainty, we need to ensure that we can assess the scheme in such a way that we can provide that.

My Lords—

My Lords—

We will hear from the noble Baroness, Lady Hoey, and then from the noble Baroness, Lady Coffey.

I thank the noble Lord for that. No matter what is said in justification, this will still be seen as an attack on farming, particularly on small farms. Does the Minister agree that the most important job for farmers is to produce good-quality food, and that all funding going into farming should have that as the priority? Why are we allowing so many solar farms to be put on good agricultural land, with other land being used for things other than farming? Surely that must be a priority if we genuinely care about food security?

The noble Baroness’s question references a lot of the longer-term work that Defra is doing to get these things right. Regarding solar farms, the land-use framework is designed to look at things such as where we put energy, where the best-quality agricultural land is, where we put housing and so on. The land-use framework looks to address much of that. Regarding what farmers should be doing, whether their first priority is to produce food and so on, we are developing the food strategy and the 25-year road map for farming. Both are looking at how we address this and how we ensure that we have high-quality, sustainable food production in this country for us to become as self-sufficient as is practically possible. These are important long-term pieces of work that the department is doing. We wanted to move away from short-term decision-making that did not deliver in the long run. A big criticism of what has happened with the sustainable farming initiative is that it was too short-term. Taking that bigger picture view, to give farmers certainty for the future, is a really important piece of work that the department is doing.

My Lords, I know that the Minister is a friend of farmers and recognise her experience in Cumbria and her previous time as a Member of Parliament. She will know that farmers are disappointed. The money that is available through SFI was always intended to increase over the five years of the agricultural transition, so it is no surprise that more and more farms have come in. A record 65,000 are now in agri-agreements. I am really worried in a different way about the intensification of food production, which will actually hamper the progress that had been made in getting farmers signed up to nature. Let us be candid: the ambitious but practical nature targets can be achieved only with the help of farmers and landowners across our country.

The noble Baroness makes a really good point about the increasing intensification of farming, and that is something we do not want to see. Our focus has to be on high-quality sustainable food that we can buy locally, and on farmers being able to support the country. We said in our manifesto, “food security is national security” and that is very true. It is incumbent on us as the Government to look at how we deliver on that promise.

My Lords, what seems to get missed in this is how little money every farmer in Britain makes out of food. In some instances, especially in dairy, they are making as little as a penny out of what we spend. Are the Government in their food strategy going to ask the supermarkets to be completely transparent about the amount of profits that they make and the supply chains that they operate? Will they ask them to start to implement much more local sourcing and a different kind of supply chain so that farmers, whom we are asking so much of, actually get paid for growing food for us?

Fairness within the agricultural supply chain has to be a key priority for the Government, because we know that farmers have suffered under different pricing regimes, if you like, for many years. If we do not get it right, we will not be able to get the food security that we want as well, because if farmers are going to produce the food that we are asking them to produce, they have to know that they will be paid fairly for that food. We are going to use powers in the Agriculture Act 2020 to introduce “fair dealing” regulations that will apply to businesses when purchasing agricultural products from farmers. There have also been new rules for the pig sector introduced to Parliament which ensure that contracts clearly set out expectations and that changes can be made only if agreed by all parties. This continues on from the work that the previous Government were doing, and I am sure that noble Lords opposite will be very supportive of it. Following on from that work on pigs, we are committed to bringing in regulations for eggs and fresh produce sectors, as previously proposed by the Government. If we need to intervene with other sectors, then we certainly need to look at that and see what needs to be done. As I said right at the beginning, we do recognise that this has been an issue for farmers, but we also need to look at how best we can support farmers to create that secure food sector that we so badly need as a country.