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Session 1999-2000
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Delegated Legislation Committee Debates

Draft Horticultural Development Council (Amendment) Order 2000

Second Standing Committee on Delegated Legislation

Thursday 15 June 2000

[Mr. John McWilliam in the Chair]

Draft Horticultural Development Council (Amendment) Order 2000

4.30 pm

The Minister of State, Ministry of Agriculture, Fisheries and Food (Ms Joyce Quin): I beg to move,

    That the Committee has considered the draft Horticultural Development Council (Amendment) Order 2000.

I shall begin with some background information on the Horticultural Development Council. The HDC was established by the Horticultural Development Council Order 1986 as part of the provisions of the Industrial Organisation and Development Act 1947. Its primary function is to commission research and development on behalf of the horticulture industry. It covers all horticultural crops with the exception of apples, pears and hops, for which separate arrangements apply. Mushrooms were excluded from the original order, but were added to the HDC's remit in 1990 when the order was amended.

The order covers England, Scotland and Wales. The council is an executive non-departmental public body that is funded by a statutory levy on growers of horticultural produce; no public funding is involved. Its chairman and members are appointed by Agriculture Ministers.

In the financial year ending 30 September 1998, the council raised about £3.7 million from the levy, £2.7 million of which was spent directly on research projects. The remainder of the income was spent on the council's technology transfer programme and operational and administrative expenses, including the salaries of scientific staff, levy collection and chasing levy avoidance, with the balance being transferred to reserves.

The nature of the research commissioned by the HDC comes under the ``near market'' category. It builds on strategic horticulture research programmes, including those of my department, and carries the results through to market application. The council's research projects are suggested by separate panels that consist of growers from different sectors of the horticulture industry. The panels consider the benefits to the environment as well as to the industry. Research and development expenditure is proportional to the amount of levy raised from growers in each sector, but the council has the final say on projects that are pursued.

HDC-funded research has concentrated on crop protection, reducing input costs, improving quality, reducing chemical usage, increasing efficiency and yield and other matters. Growers have made it clear, through the sector panels, that those projects are of greatest concern to the industry. Many projects in the protected crop sector have reduced the application of fertilisers and chemical growth regulators. Not only does that help producers to reduce their input, but it has obvious environmental benefits. Similarly, much recent work on crop protection has addressed aspects of integrated crop management and non-chemical pest, disease and weed control measures. There is a clear demand from consumers and retailers for food that has been produced using fewer chemicals. Such research allows growers to meet that demand.

As with all development councils established by the Industrial Organisation and Development Act, the HDC is subject to statutory review after three years of operation and at five-yearly intervals thereafter. The reviews determine whether development councils should continue to exist and, if so, whether their functions or remit should change. The Horticultural Development Council was last subjected to that process in 1999. In July 1999, following consultation with the industry and individual growers and a poll of levy payers, Agriculture Ministers agreed that the HDC should continue for another five years. We also agreed during the consultation process that a change was required to the levy arrangements, which were uneconomic and burdensome when applied to small growers. That brings me to the specific provisions of the order.

The order makes two amendments, both of which cover changes to the levy arrangements. I said that the council is funded by a statutory levy on growers of horticultural produce. With the exception of mushroom growers, for whom different arrangements apply, the levy is based on a percentage of the net sales value of horticultural crops. The current rate is 0.5 per cent., the maximum allowable under the order. Growers whose annual net turnover of horticultural produce is below £25,000 are exempted from the levy.

The figure of £25,000 was set in the 1986 legislation and has not been changed since. During last year's statutory review, it became clear that that threshold was unrealistically low, and that it was becoming uneconomic to collect it at the bottom end of the scale. It also placed a burden on smaller businesses. That was confirmed by an independent economic evaluation of the HDC, commissioned under the Ministry's rolling programme of policy evaluations. Agriculture Ministers agreed that the levy threshold should be raised to £50,000 with effect from the levy year commencing 1 October 2000.

Mr. Geoffrey Clifton-Brown (Cotswold): How was the figure of £50,000 arrived at? It would have made a lot of sense to have used the same figure as the de minimis figure for VAT, which is £62,500 and below which it becomes burdensome to produce detailed returns.

Ms Quin: The figure was arrived at by considering economic trends since the levy was first set in 1986, and by reference to our desire to keep it within the original ratio of support for smaller growers. The industry has told me that it is pleased that we have raised the limit to £50,000. About 600 small growers will be exempted from the levy as a result of the change, which has been generally welcomed. In representations to its members, the National Farmers Union has said that it makes a lot of sense to review the figure every five years rather than leaving it as long as before. We were happy to respond positively to that wish. It makes sense to consider the figure within the normal five-year review period, and that will help growers in future.

Mr. Clifton-Brown: I was arguing not for a lower figure but for a higher one, and on the same basis as the Minister—that the levy is burdensome for smaller growers. It would be eminently sensible to try to keep the same balance as Customs and Excise use for VAT.

Ms Quin: The hon. Gentleman makes his point, but we consulted on the matter and received general support from the industry. We do not rule out reconsidering it within the normal review period, but we have consulted widely and the change has received widespread support. As the figure proposed in the order is not so different from that suggested by the hon. Gentleman, we believe that the proposed amendments are satisfactory.

The council has estimated that a £50,000 threshold would reduce its levy income by only £125,000 a year, but that if we increased it further there would be a corresponding reduction in the amount that would be raised and be available for research. The new threshold will release about 660 businesses from the obligation to pay the levy. The council estimates that the change will have minimal effect on its research and development programme and that it should allow for some redirection from money that is currently spent on administration to research.

The second change to the order relates to the levy on mushroom growers. The mushroom levy is assessed on spawn purchased for use in compost during the accounting year. The order provides for a maximum levy of 7p per litre of spawn purchased—the rate that is currently levied. The amendment will increase that maximum levy rate for mushroom growers to 15p per litre of spawn. That will allow the HDC the flexibility to consider increasing the mushroom levy if it becomes necessary to raise additional funds to meet additional research requirements. However, the increase is currently theoretical. It allows the flexibility for extra funds to be raised for research, but we do not expect an immediate change to the levy to result from it.

Although the consultation process showed general acceptance of the increase to 15p, there was a general realisation that it was intended to allow headroom for research should that prove necessary. The industry is concerned to ensure that it has a mechanism to increase the amount of research money that is available, especially because of some of the serious new disease problems that are affecting it. I think that I am right in saying that those points were made in all the answers to the consultation process that we received. Obviously, we want to ensure that funds for commissioning new research can be available. The mushroom industry has been consulted and is content with this proposal.

I hope that I have explained to the Committee the purpose of the amendments to the order and that it will receive general support.

4.42 pm

Mr. James Paice (South-East Cambridgeshire): I thank the Minister for introducing the order so comprehensively and I appreciate her point about the Horticultural Development Council. The Opposition not only wholly support it, but welcome the outcome of the review and its continuation.

I should also place on record our support and welcome for the doubling of the threshold to £50,000, but before the Minister gets too carried away into thinking that it was her decision, I should point out that the increase was recommended by the National Farmers Union. I have a copy of its proposals, in which it states:

    The NFU further proposes that...relevant turnover below £50,000

should be exempt.

That is welcome, but I want to press the Minister on the other part of the proposal, which is the raising of the levy. At the end of her remarks, she said that she felt that there was no opposition to the increase and that it had received widespread support. It is probably true to say that it received support in principle. However, one can do no better than to quote the Mushroom Growers Association, which has told me clearly that it

    stresses its view that the Mushroom Industry cannot bear an increase in the levy amount at present, or indeed, in the foreseeable future.

It goes on to make the following point:

    An alarming number of farms have, in fact, gone out of business in the past two years, or are currently up for sale.

I want to emphasise that point. Whatever the limit may be, the industry could not take any increase in the levy. The index of producer prices from the Minister's own Department shows that prices in 1998, the last year for which figures have been published, were only 0.3 per cent. higher in cash terms than the average over the previous decade and lower than they were 10 years before.

The university of Manchester made a study of the economics of mushroom production, which was published in 1999. It showed that the state of the industry is extremely poor. Although the majority of mushrooms are still produced in the United Kingdom, imports—as with other horticultural products—have risen substantially, so that our self-sufficiency in mushroom production, which in 1988 was 92.5 per cent., had fallen to 56.3 per cent. by 1997. It rose a little to 64 per cent. in 1998. Imports have risen from 24,800 tonnes in 1988 to 87,000 in 1997. In value terms, the value of imports has more than trebled. United Kingdom production fell by 4.8 per cent. between 1998 and 1999, the last years for which figures are available, and the average cash price was virtually static. Again, I refer to the Mushroom Growers Association letter to me. It states that

    you will be aware the price achieved for mushrooms has continued to fall in real terms over the last decade and that there is little prospect of any change in that situation.

The reality is that, in cash terms, there has been a price standstill. In real terms, that is a significant reduction. That is why imports have penetrated so far into our markets.

On top of that, the Mushroom Growers Association is facing the introduction of the climate change levy. Its letter to me states:

    For those remaining, margins continue to be extremely tight and the industry currently faces the additional financial burden of the Climate Change Levy.

I know that the Minister and her colleagues in the Department appear to have supported the industry on the climate change levy, but the Government have decided to impose the levy. That will be another impost on an industry that uses a considerable amount of energy.

My final point is about the HDC itself. The Ministry of Agriculture, Fisheries and Food carried out an independent survey of the Horticultural Development Council. It found that it had a surplus of about £1 million. The new chairman has said that the money must be used for research and for sensible projects. I am pleased to see that he intends substantially to reduce bureaucracy in research. He has said that if the surplus continues, it will be returned to the growers. My point is that while that surplus exists there is no justification for increasing the levy.

I am prepared to support the order, but I do so on the understanding that the order is only, as the Minister put it, creating headroom for an increase in the levy. The industry cannot absorb any increase in the levy for the foreseeable future, given the serious situation it faces. The only result of an increase in the levy would be—I have demonstrated that this is happening already—an increase in closures. Companies would either be driven out of business or they would go overseas to produce their mushrooms, which would result in increased imports. That would not be satisfactory. I suggest that the Government would not want that.

I hope that the Minister can doubly reassure us that there is no intention, now or in the foreseeable future, to increase the levy. From where did the impetus come to enable the increase in the levy from 7p to 15p? Someone obviously suggested that a power be taken to enable the Government to increase the levy. One could cynically suggest that they did so because they want to increase the levy, which would be wrong. I hope that the Minister will be able to reassure me on those points. Subject to that, I shall be content with the order.

4.49 pm


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