Examination of Witnesses (Questions 260-279)
RT HON
JANE KENNEDY
MP AND MR
DUNCAN PRIOR
27 OCTOBER 2008
Q260 Chairman: Just for the record,
and perhaps I could put this to Mr Prior, over the time that we
have been in transition to the adoption of the higher welfare
standards, the removal of stalls and tethers, what help has the
United Kingdom Government given to our pig producers to assist
with the costs of the transition from the previous to the expected
welfare standards, taking into account that there is some evidence
that the Republic of Ireland, for example, gave assistance to
their pig producers when stalls were removed? What have we done?
Mr Prior: This Government has
not provided financial assistance for that transition. We are
aware that some states have been minded to do that, Ireland being
one of them, but this Government does not generally speaking feel
that it has to use public money to pay people to meet their legal
obligations. However, the Government has provided support, as
the Minister has outlined, for restructuring, not specific to
the welfare issue, I accept that, but the £37 million restructuring
finance was not insignificant. On your specific question, no,
the Government has not made funding available for that transition.
Q261 Chairman: Simply because you
felt that should be an industry expense, full stop?
Mr Prior: There are different
ways of helping and the way the Government has moved this forward
to try and bring about a level playing field is first of all leading
the way across Europe in raising the standards that Parliament
in this country wanted but then to lobby hard and achieve similar
standards across the EU. They are not in place yet; it is pretty
imminent but it has been a few years, but that was one of the
costs of achieving that raising of the bar, if you like.
Q262 Chairman: Are you certain that
there are not, from your analysis, any schemes in other European
Union countries which are designed to help their producers move
to the higher welfare standards which, if there were such schemes,
would clearly put our producers at a disadvantage? Are you monitoring
what is going on in other Member States?
Mr Prior: Not systematically.
It is the job of the European Commission to ensure that Member
States do not unfairly support their industries, which is why
we have the state aids regime, so we would expect any support
that goes beyond the de minimis threshold of state aid to be put
through that process. Where we are given evidence, and quite often
it is anecdotal evidence, that other Member States are pursuing
the types of initiatives you might have in mind, we pursue that
with the Commission and quite often undertake some questions in
the country concerned through, for example, the British embassies
concerned. We are reactive to those issues where they are brought
to our attention.
Q263 Mr Williams: You say that higher
welfare standards are going to be brought into other European
countries. Presumably the reason why they are not there at the
moment is that they have asked for and obtained a derogation because
of the state of their industry and the effect that it would have
on their industry. Is that the case and, if it is, there is no
chance that any applications for further derogations could be
accepted by the European Union?
Mr Prior: If I have understood
your question correctly, Mr Williams, I do not think other Member
States are enjoying a derogation. It is that the law has not been
brought in yet to its implementation stage, so although the EU
law is in place the farmers have not been required yet to bring
those standards in and there is just a little bit of time left
to go before they are.
Q264 Mr Williams: How much time is
a little bit of time?
Mr Prior: I think it is 2012.
I will have to check that.
Q265 Mr Williams: That is quite a
lot of time.
Jane Kennedy: But bear in mind
that the UK ban was, I think, introduced in 1991. It was in advance
of my election to Parliament in 1992, and there was a long period
of time, about seven years or so, for the UK industry to adapt
to that decision of Parliament, and then we were campaigning in
Europe to have that standard applied across Europe for the way
in which pigs are farrowed. We took the step first. If you like,
we led the way as a country in terms of welfare, and now we have
been successful in securing agreement across Europe. It has taken
some time to get there and it will still be another two or three
years before it is fully carried out. There were some concerns
expressed by pig farmers' representatives that I met two weeks
ago about some leeway that may be given to certain pig arrangements,
and I know I have got the detail at the back of my head, but there
is some anxiety about that and that will have to be followed carefully.
Q266 Chairman: If I could just come
back to my previous point, Mr Prior, and I have been helpfully
supplied by a little example, courtesy of BPEX, they tell us that
in order to help the French producers adhere to the new welfare
standards relating to the housing of pregnant sows, the French
Government have, according to this information, provided support
of up to 20% of the total eligible investment, and this support
I am advised is increased by 10% for producers located in the
less favoured areas, and indeed for young farmers. Were you aware
of that?
Mr Prior: We were aware of BPEX's
concern and we have made inquiries, including to the British Embassy
in Paris, but have not been able to identify a breach of state
aids nor an application for state aid, so if, as we always call
for, there is hard evidence that we can be furnished with to support
some of these claims, we will pursue them, as we do.
Q267 Chairman: Hang on. M Barnier
has announced it. You said that there is no evidence of an application
for state aids, right? If you wanted to get on with it perhaps
you would wait until somebody blew the whistle. Do you not think
you might ring up Paris tomorrow and check this out again, because
BPEX are not in the business of manufacturing unfounded bits of
information and they have provided some information in good faith?
There may be a perfectly rational explanation under the generic
term of "restructuring", which seems to cover a multitude
of sins, but it would be nice to know, seeing as M Barnier has
put it on the public record that that is what he is doing, whether
it does command the approval of the Commission.
Mr Prior: Perhaps I was not clear.
What I was trying to say was that we have not got any evidence
that the French have been pursuing support measures that are in
breach of state aid rules. If those sorts of measures achieve
state aid rules, fine.
Q268 Chairman: For our greater clarification
would you be kind enough to make an inquiry, either via the embassy
in Paris or in Brussels, to find out if this on-the-record public
package is within or without state aid rules? We would just like
to be educated about it because we are not experts either but
we can only work on the information that is given to us. Minister,
I just want to check a point. Were you in the Treasury when the
modification to the agricultural buildings allowance went through
the Finance Bill?
Jane Kennedy: When it went through
the Finance Bill, yes.
Q269 Chairman: So, being the careful
Minister you are, you will no doubt have seen the submissions
that came from the department of which you are now part giving
a view about these allowances. Can you remember what advice you
got from Defra at the time?
Jane Kennedy: The change to the
ABA and the IBA was announced at the 2007 Budget which was a few
months before I was in the Treasury, and I published the consultation
document that went out in the July following the Budget in preparation
for the 2008 Finance Bill. I spent long hours, as you will recall
Financial Secretaries do in preparation for Finance Bills, understanding
the reasons for the decision and the announcement at Budget. If
you remember, a very large number of changes took place to business
taxation as a result of announcements in the 2007 Budget and this
was a part of that overall package, and the change and the introduction
of the new industrial allowance means that about 95% of small
businesses will be able to seek significant relief on investments
in the first year in which the investments are made and it evens
out the ability of business, whatever the sector in the UK, to
get the benefit of the allowances.
Q270 Chairman: That is a very good
Treasury line and it works if your business is profitable because
any allowance is an allowance against your tax liability, but
if, as we have just been told, many of the components of the industry
were not making money, then it can be an interesting proposition
on a piece of paper but the hard reality is that you still have
to make certain changes and you have not got any profit. Okay,
there is carryover relief but it means that you do not get the
benefit from it for a long period of time, and, given the type
of capital expenditure which the industry continues to have to
make for high welfare standards, notwithstanding the IPPC investment
which we will come on to in a minute, it did seem to be hitting
at least that particular part of industry quite hard at a time
when it was "down". That obviously did not weigh in
your mind.
Jane Kennedy: I did not see representations
from the agricultural sector. I did see and met representatives
of those in manufacturing who had concerns about the implementation
of the removal of one type of allowance and the introduction of
the new one. I looked at it very carefully and there was no getting
away from the fact, which I acknowledged at the time, that there
would be some businesses that would be losers overall as a result
of that change, but in terms of the overall reform of business
taxation, which you will recall we as a Government were being
heavily criticised for for the complexity of the arrangements,
this was a very significant step towards simplifying the arrangements
for allowances for capital investment in buildings and, in the
Treasury phrase, "fittings" and plant and machinery,
which were horrendously complicated.
Q271 Chairman: Did Defra make a submission
that you recall about it?
Jane Kennedy: I certainly did
not see one and I am not aware that they did.
Q272 Chairman: Oh, well, I suppose
that is another one that we put down on our list of areas where
we question whether Defra has "punched its weight",
as we used in our—
Jane Kennedy: That is not necessarily
Defra's fault.
Q273 Chairman: "Not necessarily
Defra's fault"—hmm, said ex-Treasury Minister Jane
Kennedy. Okay, at least we have got the idea. That is perhaps
one we can put to the Permanent Secretary when she comes to see
us. Let us move on to IPPC. Do you really back what your memorandum
says, that producers have had ten years to prepare for IPPC, when
it is quite clear from the evidence that we have had that the
rules keep changing and there is still uncertainty as to exactly
how they are going to work?
Jane Kennedy: In what respect?
Do you mean in relation to the way in which they will work with
the Environment Agency?
Q274 Chairman: I think the rules
keep changing and farmers, we have been advised, are concerned.
For example, one of our witnesses, Mr John Godfrey, commented
that had he sent all the required documents in connection with
IPPC in hard copy it would have amounted to 7,000 pages and he
has had to work 500 hours in terms of management time just to
implement this ever-changing mix of requirements. There seems
to be some confusion in the world of farming as to exactly how
these IPPC requirements are going to operate even now. The impression
given by your memorandum is that it is all done and dusted but
the pig producers are telling us a different story, that it is
not. Mr Prior, what do you think is the situation? Do you sense
from your contact with the industry that there is still confusion?
Mr Prior: We accept that all the
detail due for implementation was not known 10 years ago, to answer
the specific point, so it is true the industry could not have
known all the detail then because it did not exist. The directive
had a 10-year implementation life. As you will know, the directive
covered a huge range of different individual sectors from cement
works and chemicals to, as we are talking about, the intensive
livestock sectors. The Government decided it would leave the intensive
livestock sector implementation until the last opportunity, which
gave that sector a benefit in one sense that other sectors did
not have, but it meant that the detail that you are talking about
that was necessary for the industry to know could not be available
until nearer the time. What the Government would say is that the
implementation by Defra and the Environment Agency is being carried
forward with very close working arrangements with the industry.
The industry itself has been part of the determination of the
unknown factors, if you like, but yes, it is true: 10 years ago
industry could not possibly have known all the answers because
they were not in place.
Q275 Chairman: And this is another
area where the United Kingdom Government have chosen not to give
farmers specific assistance in terms of implementing IPPC?
Mr Prior: Yes.
Q276 Chairman: Again, are you aware
of any help that is being given by continental counterparts?
Mr Prior: We are aware that some
Member States have been minded to put support in place but, going
back to the previous answer, it is not this Government's policy
generally speaking to use taxpayers' money to pay people to meet
their obligations.
Q277 Chairman: No, Mr Prior, there
is a concern in the industry that if other Member States have
in some way given assistance in this context it puts our pig farmers
at a competitive disadvantage. It may well be that they have Commission
approval for whatever mechanisms they used; that is perfectly
legitimate. The question I am asking is, have we established if
any schemes that you are aware of were or were not within the
state aid rules?
Mr Prior: Yes, they were.
Q278 Mr Williams: Many representations
were made to Lord Rooker about this issue and, as I understand
it, he has set up a committee that was chaired by one of the leading
officers in the NFU to look at it and see if it could be slimmed
down a bit because there was a suspicion that there was duplication.
Do you know if any progress has been made by that committee?
Mr Prior: Yes, indeed, Lord Rooker
did set up a team, chaired jointly by the NFU and the Environment
Agency, to look at these costs. I think there were two elements
to the costs. There were the initial costs associated with the
IPPC permit application and the processing of that, and the second
category of costs was the ongoing annual costs of inspection of
farms and so on. An independent auditor was employed to thoroughly
investigate this. My understanding is that the investigation did
not find significant savings, indeed found that the Environment
Agency, if anything, was under-recovering some of its costs, so
the pledge that was made when the investigation was set up that
any excess costs that were discovered would be reimbursed to industry
fell because there were no excess costs to reimburse. The inquiry
then looked at the ongoing annual charges and specifically the
idea that it might be possible to use third party operators, inspectors
if you like, to undertake some of the work on behalf of the Environment
Agency where those inspectors may have been on the farm in any
case, for example, through the assurance scheme inspections. The
Environment Agency with industry has been working with those assurance
schemes to look at that and we understand that that is now being
taken forward, and where it is possible to enjoy the economies
of scale, if you like, of having those joint inspection arrangements
some of the annual costs imposed by the Agency would be reduced
accordingly.
Q279 Mr Williams: Is there any prospect
of that happening in the near future?
Mr Prior: Given that the Environment
Agency has costed some of that very specifically, the answer should
be yes. It is going to be up to industry at farm level to demonstrate
that they are able to comply and the figures that the Agency have
given us are that if the Environment Agency itself carried out
the full inspections the costs would be £2,386 per installation
a year, but under what you might call accredited pig installations
the cost to the Environment Agency and which would be passed on
to the farmer would be £1,500, so a reasonable reduction,
but, as I say, the industry has to be able to demonstrate its
compliance with that arrangement in order to enjoy the benefits
of what essentially is a risk-based approach.
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