Examination of Witness (Questions 40 -
59)
TUESDAY 29 FEBRUARY 2000 (Afternoon Sitting)
RT HON
NICHOLAS BROWN
Mr Jack
40. But section 8 does not seem to give the
before and after effect.
(Mr Brown) Before and after?
41. The current position versus the new position
under the new regulation. That is the bit which I am struggling
with.
(Mr Brown) You are looking for a graph or a table
which sets out a rising profile of expenditure for each of the
different measures except what was the Hill Livestock Compensatory
Allowances. Is that your point?
42. That is part of it.
(Mr Brown) That is effectively the situation. There
is a rising profile of expenditure across all the measures except
what was the Hill Livestock Compensatory Allowance.
43. I understand that your plans are laid out
in cash terms, not real terms.
(Mr Brown) I would need to be advised by officials.
I assume it is whatever public accounting standards would require.
I do not quite see how it would make a difference. The point is
that the profile of expenditure is rising across each of the regimes
except, as you rightly point out, the Hill Farm Allowance Scheme.
44. Minister, you made great play that this
is a rising profile in cash expenditure. How much of an increase
is it in real terms?
(Mr Brown) We are going round in circles. It is a
60 per cent increase on what the base line was projected to be,
which seems to be the fairest way of comparing it. There is an
extra £300 million worth of new money; in other words, not
included is the element which is modulated which, as you fairly
point out, would go to farmers anyway. The response, of course,
is that it goes to farmers one way through the compensation payment
and a different way through the use of the Second Pillar of the
Common Agricultural Policy.
45. So your simple argument is that the £300
million is the cash increase over seven years extra?
(Mr Brown) It is the effect of match funding the modulated
amount. This is money which was not going to be spent on farm
businesses but which is now.
46. Under either the Less Favoured Area or Rural
Enterprise, I am not quite certain which, which bit incorporated
the old 5(b) money?
(Mr Brown) It is the successor scheme which is now
called Article 33. It is a Farm Enterprise.
47. The Rural Enterprise Scheme?
(Mr Brown) Yes.
48. So what was MAFF's Objective 5(b)? By how
much does that increase over what the current levels of expenditure
5(b) were?
(Mr Brown) I have the figures in front of me. The
old scheme is closing down. The profile of expenditure starts
at £8 million for England in 2001-02 and rises to £36
million in 2006-7. One assumes that there would be a mid-term
review for this policy but that there would be a successive policy
afterwards. I think the Second Pillar is going to expand as a
measure rather than come to a sudden end. That is my suggestion
for it.
Chairman
49. May I suggest that if Mr Jack wants to look
at his tables for a bit, I will bring him back at a later stage.
I would like to wrap up a little section on funding at the moment.
The European budget, the element. You alluded in your introduction
to the fact that the United Kingdom share of that was disproportionately
small.
(Mr Brown) That is very much my view.
50. 3 and a half per cent.
(Mr Brown) You understand why. Because the allocation
was based on historic spend. Historically, because a decision
was made within the previous Government, this has not been a large
area of expenditure for us.
51. I understand that. You ought to have said
that you would be keeping an eye on watching that. Your review
in 2002. What are your realistic hopes of being able to increase
that?
(Mr Brown) I made a very strong case to the Commission
which was accepted, hence the 30 per cent increase. Any other
measure of allocation I would have thought would have got us an
even larger share—you know, agricultural output, for example.
But because they use the historic measure, and all the other Member
States made their own bids based on historic spend, and because
the amount of money set aside was over-subscribed, clearly it
was a difficult decision for the Commission to make. They are
sympathetic to our position. There is a mid-term review. I made
it perfectly to the Commissioner Fischler that we would be pressing
for a shift of resources in our direction. I re-emphasised that
when we submitted our outline plans for this measure because,
of course, it shows that the British Government are making much
more use of these measures than we ever did in the past. He is
sympathetic to that but there is a snag and the snag is this:
the allocations are based across the seven years at a relatively
stable rate; in other words, the allocation at the beginning will
be similar in terms of the EU funding to the allocation at the
end, but with a smaller amount allowed for inflation. It is a
pretty small amount. So any claim we make half way through effectively
has to be under-spend that someone else has not used or new monies
that the Commission has found. In other words, there are these
countervailing forces to my ambition to get more money.
52. Presumably the EU element, that depends
to some extent on the level of the pound translated through the
exchange rates.
(Mr Brown) It is all done in euros, fixed for the
seven-year period.
53. So the moves of the pound would not alter
that amount expressed in sterling?
(Mr Brown) Payments are in euros so clearly there
is no agri-monetary or other scheme you can apply to inflate the
value of this money.
54. So it would be (inaudible) in practice?
(Mr Brown) I think that is right but I will just check
with my officials.
Mr Öpik
55. Moving on from the referendum of the euro.
(Mr Brown) It is actually a very fair point. For these
agricultural purposes, membership of the single currency would
be advantageous, assuming the rate was right.
56. A lot of people have said that as well but
I would not have dared to say that because the Chairman would
have called me to order but thank you for saying that, Minister!
In the agricultural context. I am aware of wider political issues
surrounding it. Talking about modulation, which is obviously quite
contentious as well, how did you decide on the percentage of production
support which should be modulated?
(Mr Brown) The Department has economic modelling,
to show what the impact would be. We conducted a consultation
all of last year, three separate phases, including Ministers themselves
going out and discussing with farmers. We had a whole range of
replies from broader countryside organisations and also, of course,
from the organisations representing farmers. We took all of that
into account as well. I am very conscious of the fact that the
industry itself is going through a really tough time. It is the
third year of depressed incomes. So I wanted to make sure that
what we did was proportionate and eased in rather than coming
in one go. We got matched funding for it. That is absolutely crucial
to show that it is an advantage to farmers collectively across
each sector, which it is. In other words, each sector gains on
our model, except possibly for general cropping, which is a relatively
small part of the total. We looked very carefully at other methods
of modulation. Should one impose a ceiling? In other words, should
the 20 per cent of the farmers who receive 80 per cent of the
support pay more? Should one have a structural modulation and
a ceiling at a higher rate of modulation for the larger farmers
than the others? I take the view that the answer to that is no,
so we applied what was frankly reasonably well known, our negotiating
objective in the Brussels 2000 round as our model of degressivity
and modulated accordingly. In other words, it is a flat rate which
if you receive more compensation payments you will pay more back
into the Rural Development Regulation, but there is not an enhanced
rate. We thought very carefully about this. It seems to me that
to have some enhanced rate or a threshold would lead to behavioural
changes. I understand that was the Canadian experience when they
experimented with something similar. In other words, people artificially
breaking up holdings to avoid the extra rate of modulation. It
did not seem, in terms of simple fairness, to be right.
57. But there is an issue there with small farms.
They are paying—initially at least—a higher percentage
of their disposable income. It hits small farmers more.
(Mr Brown) 40 per cent of the farmers account for
5 per cent of the agricultural output. Now it is the compensation
payments for price cuts that are being attacked. It is not the
whole of the Common Agricultural Policy payments. So if one is
in receipt of a relatively small compensation payment, you also
have a relatively small modulation burden. There is this idea
of a franchise which was discussed by the Council of Ministers
when we were talking about European Union measures. The administrative
costs of what is a relatively small sum of money, business by
business, are very large. You have to organise exemptions. The
argument about behaviourial change is there as well. There is
also an argument about equity. It seems fair to treat everybody
the same. If you get more money then you lose more but it is the
same percentage.
58. What is the process needed to get compensation?
If you are a small farmer and you are paying out the flat rate,
you could argue that it is going to hit you bigger than the larger
farmer.
(Mr Brown) No, I do not take that view. Remember,
everybody has the same percentage reduction. As I say, 40 per
cent of farm businesses account for 5 per cent of the agricultural
output and the compensation payments relate to price cuts and
output. So you are losing a relatively small amount of money.
59. Okay, you have made the point. I do not
want to take you to task on that one.
(Mr Brown) Your argument is: should Government have
considered having some cut-off which would relieve the burden
on very small farmers? People are small farmers for a range of
different reasons. It is not all to do with running small businesses.
As an investment, for lifestyle reasons, and yet you could not
really devise a scheme that reflected that, so it seems fairer
to treat everybody the same.
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