Memorandum submitted by Barclays Bank
PLC (RPA 03)
1 Barclays PLC is a UK-based
international financial services group engaged primarily in banking,
investment banking and investment management. In terms of assets
employed, Barclays is one of the largest financial services groups
in the United Kingdom. Barclays has been involved in banking for
over 300 years and operates in over 60 countries, including Ireland,
Spain, Portugal, France, Italy and Germany. It has 76,200 employees
and over 2900 branches world-wide.
Introduction
2 Barclays is the largest
single lending brand in UK agriculture, with over £2 billion
lent to the farming industry. Its teams of rural and agricultural
managers provide banking facilities to farming businesses throughout
England and Wales, and parts of Scotland.
3 This submission addresses
two specific issues on which we were invited to comment regarding
the impact of the delays in making payments to farmers in England
under the Single Payment Scheme:
- cost to the agricultural
industry in England incurred by additional and extended borrowing;
- possibility of farm bankruptcies
resulting from the delays.
Background
4 The Mid-term review of
the Common Agricultural Policy, implemented in January 2005, marks
a fundamental change in the public support provided to farming
businesses. Prior to reform, farming businesses received a range
of payments associated with a variety of specific support measures,
such as the Arable Area Payment Scheme (AAPS), Sheep Annual Premium
Scheme (SAPS), Suckler Cow Premium Scheme (SCPS), Beef Special
Premium Scheme (BSPS) etc. Payments were received at various times
of the year, with the majority, including AAPS and SAPS, received
in the autumn. Beef payments were typically received in two instalments:
an advance payment in the autumn, followed by a final payment
in the spring of the following year.
5 In 2005 all CAP direct
payments were superseded by the Single Payment Scheme, which is
to be paid during a payment window from December 2005 to June
2006.
Cost to the agricultural
industry incurred by additional and extended borrowing
6 The cost to the agricultural
industry of the delayed Single Payment is two-fold: for borrowers
it will lead to higher interest charges as a result of increased
borrowing, and for farmers with interest bearing cash deposits,
their income will be reduced due to reduced credit balances. In
practice, interest charged on lending will be higher than interest
paid on deposits, but for the purpose of this exercise, an interest
rate of 6.0% has been used as a basis of estimating the combined
cost of the delay for the farming industry in England.
7 It is understood that
the total payments under the Single Payments Scheme is to be £1.7
billion (¤2.5 billion) in England for 2005.
8 The following estimates
of the additional cost to the industry are based on three scenarios:
- Single Payment received
in March 2006
- Single Payment received
in June 2006
- 50% interim payment received
in March 2006, with balance paid in June 2006
Table 1 Estimated total
cost of delayed payments in 2005-06 (England)
| £ million
|
| Single Payment received in March 2006
| 25
|
| Single Payment received in June 2006
| 50
|
| 50% interim payment received in March 2006,
with balance received in June 2006
| 38
|
9 To put these costs in
context, total interest charges on all lending to farmers in the
UK during 2004 was £526 million; at an average rate of interest
of 6.6%. Total income from farming in the United Kingdom was £3.0
billion (DEFRA; Agriculture in the UK2004).
10 Table 2 provides a broad
estimate of the additional interest charges incurred on additional
borrowed money for three farm types:
Table 2 Estimated cost of
additional borrowing for three farm types
| Three-month delay
£
| Six-month Delay
£
|
| 1,000 acre cereals farm
| 1500
| 3000
|
| 100 cow dairy farm
| 200
| 400
|
| 1,000 ewe upland sheep farm
| 300
| 600
|
11 The estimates, in both
tables, are based on the delay from the beginning of the Single
Payment Scheme payment window in December 2005. It should be borne
in mind however that even if payments had been made in December
2005, additional interest costs would have been incurred, compared
to previous years, since payments for most old schemes were received
before December e.g. SAPS (£294 million in 2004) received
in October; AAPS (£900 m in 2004) received in November.
Possibility of farm bankruptcies
resulting from payment delays
12 Barclays rural and agricultural
managers are well aware of the impact that delayed payments will
have on their farming customers' cash-flows and have been discussing
how they can best provide additional facilities as the payments
are awaited. Overdraft facilities have already been increased
for a high proportion of livestock and arable farming customers.
Barclays has also provided farming customers with a specific Single
Payment Loan, where the bank considers lending up to 100% of the
subsidy payment, with the repayment arranged to coincide with
receipt of the Single Payment.
13 Barclays has repeatedly
assured customers of support while awaiting a Single Payment.
In Barclays view a late cheque will not turn a good business into
a bad one. It is vital that farming businesses are able to continue
to trade without having to resort to selling crops and livestock
early, or having to seek additional credit from suppliers. There
is every reason for the banks to be as supportive as possible
within the usual cannons of good lending by providing facilities
at times like this.
14 As the largest single
lending brand in UK agriculture, Barclays has a long established
relationship with, and strong commitment to, the UK's farming
sector. The response outlined above is consistent with the support,
service and products we have provided during several periods of
difficulty for UK Agriculture, including outbreaks of Foot and
Mouth disease and Classical Swine Fever.
15 Fortunately bankruptcies
are rare in farming business, and we do not expect any significant
increase in the probability of bankruptcies as a result of payment
delays. Nevertheless, the delay in payments is not welcomed; it
incurs additional interest charges for farming business, many
of whom can ill afford any additional costs to their business.
Barclays Bank PLC
November 2005
| 
