Examination of Witnesses (Questions 500
- 519)
WEDNESDAY 28 OCTOBER 2009
JIM FITZPATRICK
MP AND MR
JOHN BOURNE
Q500 Mr Williams:
That is why I am asking.
Jim Fitzpatrick: We asked the
question, but we have not got the answer yet. We asked the question
of how is it going to be distributed and what are the criteria
going to be to determine who can apply and what will it be spent
on. These are matters which are being examined. I am sorry, I
do not have the answers yet.
Mr Williams: I am only suggesting that
that might be an input that the British Government might like
to make in this matter, that it could be a help to sustain co-operatives.
Chairman: You are not bidding for some
of this money, are you!
Mr Williams: Are there any Fontainebleau
consequences of this because, when we used to have a big rebate,
in order to accept money from the Commission, we used to have
to put a lot of money in?
Q501 Miss McIntosh:
It is called `matched funding', and presumably it is subject to
matched funding.
Mr Bourne: We do not know, we
are not clear as yet. The debate in Europe at the moment is around
the total, the sum, and all the details are yet to be discussed,
so I think it is too early to predict whether we will get the
money, whether it will be compulsory, whether it will require
any matched funding, et cetera, et cetera, and we will have to
see, but I am sure, Mr Chairman, you will be pleased to hear that
we have already started talking to people about, if we had it,
what would be the most rational and proportionate use of it.
Jim Fitzpatrick: Can I just say
that the one consequence which was made clear by the Commission
was that this was draining the bottom of the barrel for next year's
budget and, were there to be anything that required some kind
of urgent assistance from the Commission, then the account was
dry and there was not going to be any and, if the Member States
wanted to spend that money, then do not come later on asking for
support if something else happens, and that was a very serious
consequence, but the majority decided that was the way they wanted
to go.
Q502 David Taylor:
A few minutes ago, you said, and I wrote it down quite quickly,
"We will support anything which ensures that agriculture
is as competitive as it can be". That is what you said, I
think, is it not, Minister?
Jim Fitzpatrick: Well, "anything",
that is probably too wide a comment, but the essence was that
Defra is in business to support British agriculture and, if there
are proposals coming forward that they think we ought to be implementing,
then obviously we would look at them.
Q503 David Taylor:
I was taken by the word "competitive" because you have
been at pains to stress that you do not want to intervene in the
market and it seems to me that you could construe "competitive"
in that context to mean that you would be phlegmatic or relaxed
about the weakest animal from the dairy herd, in a sense—and
this might have been DFoB—falling behind and having to be
put down because it would make the industry more competitive,
so you would not see that you had any role, as Defra, in trying
to sustain the scale of the dairy industry or to make a more secure
future for dairy farmers? You do not see that there is any role
there?
Jim Fitzpatrick: I think the Chairman
made the point in one of his questions or observations a moment
ago that the British dairy industry had rationalised itself over
a number of years and was, from our point of view, in a far healthier
state than it had been previously in respect of the products,
the volumes and the quality that it is producing. Our difficulty
obviously always is that, if there is a Dairy Farmers of Britain
situation and it is clear that there are difficulties, we would
have to assess whether or not it is appropriate to be of assistance
and, in that instance, we concluded that it was not.
Q504 David Taylor:
Six weeks ago today, your officials were in discussion with our
Committee and I think that we are struggling to establish what
Defra feels is its role in relation not just to the collapse of
DFoB, because you are obviously trying to say that you had no
part in its downfall, but what you see as your role in ensuring
a vibrant dairy industry. We asked the officials and they said
that one of their main roles was horizon-scanning, which, to me,
makes Defra sound like some sort of parliamentary home guard that
are looking for incoming missiles or something like that, a reactive
role, in other words, and not especially a proactive role. You
said you would help if it did not involve interfering in the milk
market, but you do have resources and you do have powers which
will not interfere in the market and which will not unbalance
anything, yet you gave a flat refusal, not you personally. I do
not know, but at what point did you take up your role, Minister?
Jim Fitzpatrick: The reshuffle
in late June/early July.
Q505 David Taylor:
It was your predecessor then. The NFU wrote to the Department
in June 2009 to ask, not unreasonably, that, in recognition of
the disruption caused by DFoB's collapse—and you had the
powers to do it, you had the resources to do it, it does not interfere
with the market and it would have helped secure in the medium
term various parts of the dairy industry—whether you could
extend the implementation period for nitrate-vulnerable zones
by a further year. We heard from the NFU, and presumably the response
was from your predecessor, that there was a flat refusal, a flat
rejection. That, to me, does not sound like a department that
is focused on supporting British agriculture or a significant
part of it.
Jim Fitzpatrick: Well, in the
conclusion, certainly we were not able to accede to the requests
that were being made by the NFU, although there was at the margin
an extension of one year in respect of elements of it. The Nitrates
Directive, again as I understand it, has been in force for 16/17
years.
Q506 David Taylor:
Currently, 1 January 2012 is the implementation date. Is that
right, Mr Bourne?
Mr Bourne: Yes.
Q507 David Taylor:
And you refused to extend beyond that, or the Department refused
to extend beyond that?
Jim Fitzpatrick: We have been
in a position previously in respect of the action plans of being
`infracted' by the Commission because we had not complied with
the Directive which, as I say, has been in being for some 16 years.
Were we able to do so, then we may have done, but the examination,
as I understand it, concluded that it was not appropriate that
we undertake that request.
Q508 David Taylor:
The second and final way, and this time it is not your Department,
but you are a part, in which the Government could have assisted
those that were affected by the DFOB collapse, and in fact you
note it in paragraph 18 of your submission, the final sentence,
is that, "The Receiver had approached HMRC requesting sympathetic
tax treatment of DFoB members and Defra had liaised with HMRC
who confirmed their staff were aware of the situation".[8]
That, to me, sounds like a classic Civil Service brush-off. This
is to do with the debt-for-equity swap and the difficulties which
farmers have in classifying the money that they had invested with
DFoB and lost as a capital loss, and they cannot now do that as
the law stands, but they were asking HMRC to treat this rather
more sympathetically. It was in your submission at paragraph 18.
Where are we on that because that was four and a half months ago
and you presumably have been chasing HMRC for a more positive
response. What is happening?
Jim Fitzpatrick: As far as we
are concerned, the request for HMRC to be sensitive to the plight
of farmers caught up in the collapse was a sympathetic one. We
certainly did not get further requests from individuals to say
they were being badly treated by the Treasury and could we revisit
or put pressure on to—
Q509 David Taylor:
No, that is true, they were seeking, what shall we say, a sympathetic
interpretation of the law as it stands, which is not entirely
unambiguous.
Jim Fitzpatrick: My understanding
is that they got that sympathetic treatment and hearing.
Q510 David Taylor:
We have not heard that and the NFU have not heard that.
Mr Bourne: I think that there
are two issues here, Mr Taylor, one of which is the generic one
about, if you had a farmer who had been a member of Dairy Farmers
of Britain and they were, not surprisingly, going through short-term
issues, including struggling to meet their tax commitments in
general, whether they would get a sympathetic treatment, and we
pursued that as part of the wider Government approach to dealing
with businesses that are suffering during the recession. As far
as I am aware, no one has come back to me to say that that has
not worked okay, but I cannot guarantee there are not any issues.
The separate issue which, I think, you might be mentioning is
the one around what is the tax treatment of losses that farmers
have endured as a result of the collapse of Dairy Farmers of Britain.
Q511 David Taylor:
Yes, I have just said that, that they have difficulty in getting
the capital loss, which they have undoubtedly suffered, treated
as a taxable loss because of the debt-for-equity swap that occurred
in March 2009, I think it was.
Mr Bourne: All I can say is that
the receiver told me that that was a very complicated accounting
issue which certainly went well beyond my skills. We know that
that has gone to HMRC and no one has come back to me to say that
it is unsatisfactory.
Q512 David Taylor:
Could you recheck on that and write to the Committee as a matter
of urgency before we draft our Report because it is a very important
matter generically and individually because some DFoB members
have had tax bills in the thousands of pounds for this period
when they have made very substantial losses.[9]
Mr Bourne: And the other issue
which I know the receiver was concerned about was consistency
of treatment because it was so complicated, so there was an issue
of consistency as well as actual treatment.
Q513 David Taylor:
So you will check with your colleagues in HMRC and give us an
unambiguous reply on that?[10]
Mr Bourne: Yes.
Q514 Chairman:
Let us go back to the NVZs because one of the things which, I
think, is genuinely concerning about this whole incident is that,
when we have had farmers in here, they have given evidence and,
when we have asked them how much have they lost, sometimes their
losses are running at over £100,000 because they have lost
their milk cheques, they have lost the monies which they invested
in dairy farmers and the loans that they gave to the business,
so the practicalities for some of these people in making the necessary
investment in appropriate facilities to comply with NVZs, it turns
out, if you like, for some of them to be an absolute impossibility.
Under those circumstances, and I accept the point you make, Minister,
about Britain being somewhat laggard as far as the Nitrates Directive
was concerned, but, given that we have here exceptional circumstances
and also given the fact that you gave us a helpful commentary
on the discussions in Europe about sustaining the dairy industry,
I am a little bit surprised to hear that you did not go and have
some conversation with the Commission to ask if, for perhaps one
year, those farmers who have suffered like this could be given
a derogation from the necessary requirements to give them a chance
to recoup because practically I do not see how they are going
to have the money to make these big investments in appropriate
facilities.
Jim Fitzpatrick: Well, during
the course of the consultation which was had in respect of NVZs,
there were a number of amendments made to the original proposal
which, it was felt, were responding to the concerns that were
being articulated from farmers, and those amendments were written
in. As a result of that which was submitted to us, we believe
that those amendments were relatively significant in that which
was introduced.
Q515 Chairman:
Nobody is disputing the advocacy which you undertook on behalf
of UK agriculture, but, when one looks, for example, at the kind
of financial flexibility which the Commission has given in, for
example, saving some of the banks, I do not think it is unreasonable
for more modestly funded businesses, like farmers, to say, "Couldn't
you give us a bit of a break?" The very fact is that, outwith
the general application of the differing circumstances, Minister,
that you have just enunciated, you did not go back and say, "Look,
there's a small group of farmers here who in practical terms just
haven't got the cash to make this investment. Could they be let
off the hook for 12 months?" so did that question not get
asked and, if not, why not?
Jim Fitzpatrick: I am not aware
of the reasons why it was not asked if it was not asked, Chairman.
All I can say is that the responses which we received through
the consultation that was run created a number of amendments to
the position that was consulted upon, and there were a number
of actions which were also taken by Government, short of providing
direct financial support, in terms of the lead-in time, the advice
and guidance, the money from the Rural Development Programme for
storage on farms, et cetera, so there were some adjustments made
and there were some initiatives undertaken.
Q516 Chairman:
I know all of that, but the practicality of the kinds of losses
that these quite modest farmers have suffered does raise the question
as to how are they going to do it. A business of this size losing
over £100,000, that is a major sum of money, and I am just
a little bit surprised that somebody has not gone to the Commission.
They are not always that bad. If you ask for some special help
for particular circumstances, they are quite willing to agree
to a Member State's request to give some kind of assistance. This
is not a case of asking the state to pay, it is just recognising
the practicality that these guys have not got the money to invest
and a lot of them are fighting for their survival.
Jim Fitzpatrick: Well, I guess,
given that the Directive is some 16 years old and there have been
rollouts over a number of years and a whole range of different
elements brought through, when we had the discussion at Agriculture
Council on EID, electrical identification, which is almost seven
years old, the vast majority of Member States and the Commission
were saying, "You've had enough time and you don't need more
time", and this is not a surprise or ought not to be a surprise
as these things are quite clear.
Chairman: I have been where you are sat
and I know that you can have a conversation with the Commission
about these particular issues without, in the nicest sense, trying
to make a case out as a sort of Trojan horse to slow the job down
yet again. One recognises, because we did some work on this, that
changes have been made, and I do not think that is the issue,
but anyway I think it would be nice if you could at least re-examine
the case as to whether there can be some kind of derogation because
these guys are facing a practical problem. If I had lost £100,000
and I had to spend over the next two or three years some thousands
of pounds for a new slurry system, survival of the business or
take a chance?
Q517 David Taylor:
Could you put into the public domain the refusal letter that you
sent to the NFU with their consent?
Jim Fitzpatrick: What I will undertake
would be to research and write to the Committee via yourself,
Chairman, with our assessment and the action that was or was not
taken and the reasons behind it, and I can get that research done
and supply the information, as requested.[11]
Q518 Mr Williams:
In Wales, there was a very large number of farmers that were affected
by this collapse and also jobs in processing facilities as well.
We will come on in a minute to the fact that actually the Assembly
for Wales, even though it has more limited powers, did actually
do something to help farmers that were affected by this collapse,
but was there any work done between Defra and the Welsh Assembly
Government to ensure a co-ordinated response to the collapse of
Dairy Farmers of Britain?
Mr Bourne: Yes, as soon as Dairy
Farmers of Britain went into receivership and indeed before that,
we had been in discussion with the Welsh Assembly Government at
official level and they attended our meetings and we shared information
with them throughout the process.
Q519 Mr Williams:
One thing which was asked by the Farmers' Union in Wales was whether
there would be the possibility of some advance payment of the
Single Farm Payment. Wales found that they were able to do that,
the Welsh Assembly Government, but Defra was not. Why was that?
Jim Fitzpatrick: We have said,
in response to the issue being raised about advance payments/early
payments, that it would not, in our view, be appropriate. Where
exceptional circumstances were raised, we would look at that,
but, given that the RPA's performance over recent years has been
improving, given that 75%, if I remember correctly, of the money
last year was paid out by the end of December and that payments
would be starting on 1 December, we felt, particularly with the
workload that the RPA are working under at the moment with the
whole remapping exercise which is going on, that to distract them
from that and to divert attention into saying that there was a
possibility of early payments and allowing people to come forward
would perhaps mean that there would be extra pressure brought
to bear on the RPA which we did not think was appropriate. I have
not come under any pressure from the NFU to say, "That is
a wrong decision and we want you to revisit it because we think
there need to be early payments", such as was decided for
in Wales by the Welsh Assembly Government. There seems to be an
acceptance that we are not going for early payments and, in that
instance, we have been under no pressure to change our minds on
that subject.
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