To be published as HC 745-ii

House of COMMONS



Environment, Food and Rural Affairs Committee

CAP Implementation 2014-2020

Wednesday 23 October 2013

Peter Kendall and Martin Haworth

Mark Grimshaw, Dave Webster and Jo Broomfield

Evidence heard in Public Questions 65-151



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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Wednesday 23 October 2013

Members present:

Miss Anne McIntosh (Chair)

Richard Drax

Mrs Mary Glindon

Sheryll Murray

Neil Parish


Examination of Witnesses

Witnesses: Peter Kendall, President, and Martin Haworth, Director of Policy and Communications, National Farmers’ Union, gave evidence.

Q65 Chair: Good afternoon and welcome. Can I thank you very much, Mr Kendall, for agreeing to participate in our inquiry? If you could introduce yourself and your colleague for the record, that would be marvellous.

Peter Kendall: I am Peter Kendall, President of the NFU. Martin Haworth is our Director of Policy.

Chair: Since we last met, you have announced that you will not be standing again as President. I am sure we would like to record our congratulations on your continuing achievements-you are not going just yet-and all that you have achieved, not only on the behalf of your members but on behalf of the farming community and, I am sure, the countryside as well. The Committee would just like to note that, if we may.

Neil Parish: I would endorse that.

Q66 Chair: How would you describe the proposed deal, first of all as regards the UK taxpayer, and secondly as regards the English farmer?

Peter Kendall: Let me go back a stage. When the first proposals came out from the European Commission, I was probably less than careful with my choice of words about what the Commission was trying to achieve. We called it a dog’s breakfast or lacking a vision for where it wanted to get European agriculture.

It seemed to be a rather convoluted way of hanging on to the budget, rather than trying to move agriculture in a continued modernisation route that certainly Commissioner Mariann Fischer Boel and Commissioner Franz Fischler had tried to do in the past. They took the model, which we believe to be slightly confused, that was introduced and said that we now have codecision with the European Parliament, so that we now have three European institutions representing 27-28 now-Member States; it was always going to be a bit of a fudge. In hindsight, it has turned out to be an enormous fudge. That was the backdrop to what we have tried to work around and influence in our lobbying, both in Brussels with the MEPs and with our Government.

For taxpayers, the Prime Minister quite intentionally set out to reduce the size of the European budget. Many people said he would never do that. As a farming organisation, we have no problem with reducing the overall budget. Particularly when compared to farmers, we understand that the citizens of Europe are having a really tough time, and we are all having to make sacrifices. Therefore, the reduction of the European budget was something we certainly did not argue against, and we accepted it. What we did argue about, however, was that it should be done fairly. One of the big things that will come out in the next half an hour or so will be that we have actually had a bigger cut. We believe it is a 22% cut to the Pillar 2 allocation for the UK, which will impact everything we are going to discuss this morning.

Overall, it is right for taxpayers to demand better value. We understand that. Our concern is that, while we had a 22% cut in the UK, 16 other Member States out of the 27 had extra money: the French had an extra €1 billion Pillar 2 allocation; the Italians had an extra €1.5 billion Pillar 2 allocation; and Finland had a €700 million Pillar 2 allocation. We have had a 22.5% cut. So yes, it is a good deal for taxpayers, but this is not a great deal for the UK. We now have arguments about how that is split between England and Scotland. We are working closely with Northern Irish and Welsh farmers’ organisations to say, "Leave the allocation as it is, but be well aware that the Scottish farmers and the Scottish Government are arguing for a reallocation towards themselves." While this is good for taxpayers, this is pretty scary stuff for English farmers, who already get significantly less per hectare then their key competitors.

Q67 Chair: Are you concerned about the timetable for implementation of the decisions in England?

Peter Kendall: I know you have Mark Grimshaw from the RPA following on. One thing Mark has always been very keen on is planning head. Compared to the reforms we had in 2005, which were driven by an ideological delivery over and above deliverability, the RPA are well prepared and are thinking ahead about all of the issues that need to be addressed. I hope those words do not come back to haunt my successor, as you rightly observed in the introduction; thank you very much for your kind words. However, it feels as if the RPA have done a really sterling job over recent years to get back on track and they are well-prepared for that changeover.

Q68 Chair: Have you identified any particular difficulties in relation to inspections, checking compliance and making payments?

Peter Kendall: It really does depend on the decisions that are yet to be taken by the UK Government. One of the things I worry about is whether, because we are seen to be antiEuropean, the Commission over-scrutinises what we do. Having had a Government that in 2005 said, "We know best; we are going to show Europe how to do this," I believe we were scrutinised very heavily. The £500 million of disallowance fines was a result of changing decisionmaking at the last minute and being badly prepared, but, also, telling the Commission that we knew best, and not following the prescribed routes.

Until we see whether or not the UK Government chooses to go down a nationalcertification scheme and a very simple implementation of the three EU greening measures, it is a job to say what our concerns would be.

Q69 Chair: Finally, in general terms, you have mentioned your concern about reduction in the budget. You are particularly concerned about the potential transfer from Pillar 1 to Pillar 2. Are you also concerns about the implications if there is no matched funding under Pillar 2 and what the implications of this for your members will be?

Peter Kendall: Yes. We have always argued for matched funding, because this starts to enable governments to consider the EU budget for CAP to be a national budget, rather than one that is driving a European policy. Matched funding meant the UK Government had skin in the game. Now we know that the UK Government argued for potentially 20% modulation without any matched funding. This was just a way of raising money for national ends, rather than meeting European agricultural objectives. Matched funding was something we argued long and hard for; I know MEPs argued for it as well. Those decisions have now been taken and we are realistic enough to know where we sit.

You mentioned my concerns about modulation. This Committee was very helpful in July 2012 when you said that the competitiveness of UK farmers will be reduced if they are exposed to higher modulation rates than their European counterparts. You concluded, "We therefore recommend that Defra does not set modulation rates higher than other Member States that receive similar single farm payment rates." That has been a valuable message for us, but I am afraid it is falling on deaf ears in Defra at this moment in time.

Q70 Neil Parish: Welcome to both of you. I largely echo your words that the present CAP has been a pig’s breakfast. I do not think those were the exact words you used, but they are the ones I will use.

Playing devil’s advocate, if I actually look at the table of payments across Europe-I can understand you wanting to argue the very best payments for UK farmers, and English farmers in particular-we do not fare too badly. Yes, France and Germany are a bit ahead of us, but looking at our main competitors, most of the Eastern and Central European countries are below us. Is it such a terrible deal for English farmers? I remember us starting the single farm payment back in 2004 and wondering whether there would be a single farm payment after 20122013. I would suggest to you, in all fairness, that these figures are not so dreadful.

Peter Kendall: If I can be slightly demob happy and suggest it is a real surprise to find Neil playing devil’s advocate. Chairman, I am not surprised at all to find Neil taking that line. If I were in your constituency, and I played back your words, and I said that a Dutch dairy farmer gets €500 a hectare, or tell your dairy farmers that a Danish dairy farmer gets €477 per hectare-their costs would be identical to the dairy farmers in your constituency.

I am an arable farmer, as you often tease me, in the flatlands of East Anglia. A German arable farmer in SchleswigHolstein would get €359. The lowland rate for England-for your constituents who are dairy farmers-is €263. You are talking about a Danish dairy farmer getting €200 more; you are talking about a Dutch dairy farmer getting twice as much.

When we talk about the dairy crisis of last year, it makes a hell of a difference to the resilience. We have always argued that, if we ratchet these payments down, we will live with it, because the market responds. If we end up with a system that allows French farmers to recouple, the beef producers in your constituency will also be disadvantaged. The market will not respond in the way it should if single farm payments were unravelled evenly across Europe. To be honest, the farm structures and types of costs we have historically in Somerset or Bedfordshire were very different to parts of the accession countries that have come in, such as the Czech Republic, Hungary or Bulgaria, where their cost structures are very, very different. Our key competitors have much greater payments than we have, and it does impact on our resilience when we have extreme weather years, like 2012, and very volatile markets.

Neil Parish: To answer you, most of my constituents know exactly where I am coming from, especially the farmers. There is another part to the question. For all the rights and wrongs of the Beckett formula for making area-based payments, England has actually moved to an areabased payment and not a historic payment, hence a lot of the problems vis-à-vis dairy payments and beef. Ultimately, that is surely the way that the whole of Europe is going to have to go, and also Scotland and Wales. While there has been pain for English farmers, would you argue that in some respects-I did not think I would ever say this, either-we might be slightly ahead of the game, albeit not in the amount of money we are receiving per actual farmer?

Peter Kendall: Martin Haworth on my left was one of the early advocates of decoupling. There was a genuine sense of travel in our advocacy of decoupling. In other words, we went to historic originally, and then we moved from historic to area-based. Why? Because by having historic payments, we were able to say, "This money was not determined by what I am doing today; I am not influencing my market production, but it does reflect the cost base within my farming system."

Everyone went to historic to start with. You then go to a regional basis evenly, and then you can start to wind them back and reduce them as the market is able to respond to those signals. We were very clear that we saw areabased payments. The Germans, who also adopted an area-based system, did so because it actually evened things up; they had a system which reduced the winners and losers, ultimately, through the system they imposed.

If that journey we have advocated as an organisation is to be followed, we are ahead of the game. Actually, however, this appalling implementation is allowing France to take an extra €1 billion into Pillar 2, and they can then take that money from Pillar 2, put it into Pillar 1, and recouple beef production, which is so important to your constituency.

Neil Parish: We will talk about Pillar 1 and Pillar 2, but, talking about the principle of the funding, basically the payments that Scotland and Wales are receiving are based historically on what they were producing in 2001 and 2002. I do not think anybody in the real world would suggest that, by the time you get to 2020, they should still be receiving payments on the same basis. I know it is not your wish to be able to do that, but that is where I do actually support the idea of changes in the payment. Otherwise, we do not get any changes in agricultural practice. I know you, as President of the NFU, are very keen to see agriculture embrace new technologies and change. I just fear that if you stick to an historicbased payment, that will not happen.

Martin Haworth: We would absolutely agree with you. However, looking at the way different countries are going to move from that historic base to an area base, I will take the extreme example of the Flanders section of Belgium. They are going to do everything and use every mechanism they can to end up with a situation that entirely mirrors what is already happening, so there will not be any change. Scotland is also doing that, to some extent. France is doing that.

A lot of countries are theoretically moving to an area base-we agree with you absolutely that that it is the right place to go-but they are doing it in such a way that they are in fact perpetuating, more or less, the historic system.

Peter Kendall: For farmers themselves, if you end up farming in Northumberland or in Cumbria, and you look across the border and see, so much flexibility having been granted in this current reform, that Scotland allows very large payments to be directed to certain sectors so they do not move to a level basis, those English farmers feel particularly betrayed, because some of those beef producers will see themselves getting a third of what some historicpayment producer is getting only a few miles away across the border.

We then hear that the Scottish want more money transferred from England, Wales and Northern Ireland to Scotland, but we also hear that the UK Government is planning to modulate 15% as well.

Q71 Neil Parish: I am coming on to that. You are making an argument for the United Kingdom necessarily controlling everything as one payment. The problem is when you have devolved powers for Scotland, Wales and Northern Ireland, you are going to get different systems. I agree with you: I am very much keen on the single farm payment, because I thought it was going to be regionally based and it would go area-based across the whole of Europe, but it has not done that.

This leads me on to the next question; I think I probably know the answer you may make to this first part. Should Defra try to transfer 15% of funds from Pillar 1 to Pillar 2? By how much would the perhectare payment be reduced? Do you agree with the 15%, or not?

Peter Kendall: I do not. I do not agree with it for a whole host of reasons. The mistake that would be made is to look at it in isolation. It is really important to look at all of this reform and its implementation in the round. We have to start by recognising there has been a 22% cut in the Pillar 2 allocation. We have to start with the realisation that our ambitions for environmental spend have to be held in check or very well targeted. I do not want to be accused of being antienvironment, but we have to target this really carefully. If you look at some of the past schemes that have been implemented, there have been some very grand, enormous schemes for large estates, sometimes paying farmers to stop producing altogether and completely rewild-i.e. to destock and turn their farms over to rewilding.

We should work out what our ambitions are. We should start by saying what we are trying to achieve and what we need to spend to do that. That needs to be done in a targeted way. For example, from the proposals we have seen from Defra, the Entry Level Stewardship scheme will cease to exist. I will give you just a couple of examples we have been working on. If you cease the Entry Level Stewardship scheme and Organic Entry Level Stewardship scheme, as we think Defra are planning to do, to carry on all of the rest of the work that is being done through Pillar 2 you would need 5% modulation. If you spent 50% of what is currently being spent on ELS and OELS-bearing in mind some of that work would be picked up by greening, by cross-compliance and by voluntary schemes that we are all promoting-you only need 9% modulation.

My question to Defra is this: why do you need 15%? When we want to create jobs, grow exports and produce more food, are we going to use that extra money to pay people to stop farming? For me, the holy grail is to use the land that is already out of production in a much smarter, targeted way for the environment, so we produce more food and we have a better environment.

Q72 Neil Parish: What percentage of funds under Pillar 2 should go to farmers? I expect you probably think 100%.

Peter Kendall: It depends on the conditions of the greening and what we are trying to get out of greening. What I certainly do not think we have with the Pillar 1 single farm payment is any incentive to overproduce, to intensify or to overgraze. We have had decoupling. I tear my hair out, because I still hear politicians-obviously not on the EFRA Select Committee, because you are all up to speed-still talking about production subsidies. It comes out of the Treasury and other Government Departments frequently, but Pillar 1 is not geared to production; it is a payment that helps us manage the volatility of the market, sometimes extreme weather events or distortions in global markets-because the Americans might dump on our markets, etc. It helps us to cope with those and increases our resilience, but it also helps us with the fact that we have higher production standards because of all of that European regulation we have as well.

The SFP is separate to the environment spend. It is not driving antienvironment behaviour. I would also argue that farmers are responding ahead of Government policy to put right some of the excesses that were driven by productionrelated support in the 1970s and 1980s.

Q73 Neil Parish: You would probably also accept that most farmers pour their single farm payment into their business, and that helps to keep their business going. It could be argued that it also goes to help support production as well; I do not think you would necessarily disagree with that.

Peter Kendall: However, you always have the ability to stop producing and you still get the money. There is no incentive for me to produce more tons of wheat on my farm. The really important thing about this is-rather than the American system of counter-cyclical support where, when the globe collectively overproduces too much food, you then take your foot off the throttle-you produce less and you might even crop your second wheats or your poorer land. The single farm payment allows you to do that.

Neil Parish: I will not get into the argument over how much you are getting for your wheat and whether you get the single farm payment.

Peter Kendall: Have you seen the price drop recently?

Q74 Neil Parish: We will not get into this argument. The final part is this: do you agree with Natural England’s assessment that there is no evidence that voluntary landmanagement agreements under Pillar 2 have any significant negative impact on levels of food production and productivity?

Peter Kendall: Barring a few cases, where we are paid for maintenance of hedgerows or stone walls, all the payments are related either to having rare breeds, low stocking rates or taking land out of production.

Neil Parish: So the answer is that you believe it does.

Peter Kendall: Unless we have an awful lot of schemes aimed just at stone walls and hedges, I cannot believe how it can be anything else. They might say there are not many farms that have been rewilded, but, collectively, there is a lot of land taken out of production. If we increase these budgets and we increase our modulated spend, my question is: what we are going to do with it? How are we going to make sure we do not cut production at a time when our UK population is rising at a pretty fast rate?

Q75 Sheryll Murray: I have a couple of questions to ask. The first relates to degressivity and capping payments. The Tenant Farmers Association argue that capping payments at €300,000 would save at least £70 million, which could have the benefit of feeding through to the lower levels of modulation, possibly by as much as 4%. Given your desire to minimise modulation, would you support such a move?

Peter Kendall: No, I would not. That is not because I am in that bracket at all, before anyone suggests that.

Neil Parish: You had better declare an interest.

Q76 Sheryll Murray: Is it worth me enquiring, then, as to why farmers need €300,000 of taxpayer support each year?

Peter Kendall: My starting point is that I want to get to a place where farmers do not receive support. Part of not receiving support is an industry becoming increasingly competitive and driving the right market signals to enable us to become competitive.

If I have a family-I can find you examples-where three brothers work together and they have a large farm because they choose to work together-one might be in charge of the machinery; one might be in charge of the livestock; and one might be in charge of the cropping husbandry-I would much rather they remain together than they pay accountants, lawyers and business consultants to break up that business into three holdings.

The big goal of all of this is that European agriculture becomes more competitive. To put a signal in place that over a certain size we want you to not expand or we want you to break up your holdings to get around these rules would send a message that farms should get to a certain size but no bigger, or that we do not like people amalgamating or working together. That would be a negative message.

I, for one, really do believe we want to drive modern structures, we want to get people to share resources, and we want people to build competitive businesses. That is really the issue. What message would it send? Who would ultimately benefit? It would be lawyers, accountants and business consultants who would benefit from that.

Q77 Sheryll Murray: Can we now turn to the active-farmer test? How should the Government determine who is an active farmer in terms of minimum activity? Do you foresee the active-farmer test creating problems such as with the relationship between tenants and landowners?

Martin Haworth: The Commission’s initial proposals for the active-farmer test were hugely bureaucratic. They would have required farmers to submit an enormous number of accounts to prove they were active farmers. We did not see that as workable; it would have certainly caused a huge bottleneck in the RPA and certainly led to difficulties with payments. We are pleased that that has gone.

We do want the payments to be targeted at active farmers. We think the best mechanism for doing that is to impose a minimum claim size of five hectares, which would take out about 16,000 of the claimants, many of whom are in no sense active farmers or people who rely on farming. A lot of them are not farmers at all.

To us, that measure is the single most effective measure to take out non-active farmers from the payment. Other than that, a lot of effort has gone into trying to define what an active farmer is, and no one has succeeded in doing it. We are probably ending up with a number of tests that would say who is not a farmer, but nothing to absolutely identify what is a farmer. That is probably as far as we can get on that score.

Chair: On the point Sheryll is raising, you do not see any potential difficulties between tenant farmers and their landowners in this regard.

Peter Kendall: We could move on to look at minimum activity in conjunction with the active-farmer test.

Sheryll Murray: There is also dual use, as well.

Peter Kendall: When we look at the potential-I know it has been discussed in this Committee before-needs of upland farmers and how they might be affected, particularly if the upland Entry Level Stewardship scheme was also reduced in due course and more money were to go to the upland areas, a minimum activity would have real benefit; it would make sure it does not go just to large inactive landowners in the uplands. This is a limited pot.

I bat for productive farming. I want farmers to be treated fairly in the European perspective. It is important that we continue our environmental performance as well, but I do not bat for people who just own land. That is not a priority of mine in any shape or form.

Q78 Mrs Glindon: Mr Kendall, you have just alluded to upland farmers. Should the regional allocation of direct payments be adjusted to increase support for upland farmers? If so, what would be your preferred means of doing so?

Peter Kendall: I go back to my opening comments about trying to avoid cherrypicking bits of this debate in isolation. I talked about modulation and saying that we could have a discussion about modulation without knowing what our needs for agrienvironment are. It is unclear, and not decided yet what the future agrienvironment scheme will look like in its entirety or how easy it will be for an upland farmer to access that agrienvironment scheme.

We have said-and I have support from the NFU council-we should make sure that we share the pain of that reduction in funding, and we acknowledge very clearly how important those environmental payments are for upland farmers, and we also understand-this is in our response-that upland farmers have less choice and more limited options than other farmers. However, the reason why we are not saying, in a very simple way, "We should move money from lowlands to uplands", is because it is not that simple. If I take a lowland livestock farmer today, he will lose Entry Level Stewardship scheme payments; he could face 15% modulation. I suspect, as a lowland farmer, he will have more negative impacts of greening on his farm business. On top of losing his ELS money, he could potentially lose 15% in modulation and have costs associated with greening. To lose another 1% or 2% to the upland areas would mean that that lowland livestock farmer could lose out very dramatically.

We have already pointed out that if you are a lowland livestock farmer going from 9% modulation-these are Defra figures from 2012-to 15%, that would cost an extra 6%, and 12% of his farm income would be gone in modulation. I really am determined that, when we talk about transfers to the uplands, we make sure we are sharing the pain evenly, and we do not see a massive drop in income for those lowland farmers. Their £12 an acre is really important to the ELS. The modulated money will impact. As I said, there will be a 12% drop in income if it goes up to 15%. We cannot just promise lots of goodies for the uplands without understanding where it is coming from. Those upland farmers might not only get extra money on their single farm payment, but have a NELM scheme that makes it easy for them to get that money and have greening that is actually very easy for them to meet. We have to do this in the round and not in isolation.

However, I repeat my commitment: we do not want upland farmers to lose out and we do understand that they have limited options as well.

Q79 Mrs Glindon: You have said it is complicated. You do not have a preferred method as to how exactly you could move the money uphill.

Peter Kendall: I do. All you need to do is set different rates for the lowlands and the uplands in the different regions. However, I do not say we should do it now; we need to do it in the round when discussing all of those other implications, because those with constituencies with livestock farmers in lowland areas will realise they have had a pretty torrid couple of years. It is not all roses for them, and we need to make sure they are not massively disadvantaged to put a few extra pounds into the uplands.

Q80 Mrs Glindon: Do you think there is a risk that changes to Pillar 2 schemes could possibly leave upland farmers worse off, despite the proposals to move money uphill through changing regional distribution?

Peter Kendall: Absolutely, yes. One of the points we have been making about lowland farmers is that, if ELS ceases to exist, for a lowlands farmer that is £30 a hectare just gone.

I started my career in the NFU having a bit of a disagreement with Don Curry on modulation. Bearing in mind we were the only country in Europe to modulate, the deal that was done at the time was that you would take money off farmers; it was matchfunded by the Treasury and it was accessible to all farmers. The Government said, "We still have to modulate. We want to modulate to the maximum degree. There will be no matchfunding and it will not be open to everybody anymore either." People say to me, "Farmers do not mind modulation." Farmers hate modulation, because it is now going to become even more selective. There will be some farmers, like those we have just been talking about, who will not be able to get any of that 15% back, and the Government has stopped matchfunding at the same time. There is a big sense of betrayal. A promise was made when we started modulating and, exactly as I depicted nine years ago, it was a Trojan horse for cutting English farmers’ payments.

Q81 Mrs Glindon: I want to ask a question on greening now. Are there particular aspects of the Commission’s greening proposals that give you concern?

Martin Haworth: Yes. We have done a lot of meetings around the country; we have probably been to every county in the country. The one aspect that comes out time and again is that, for some farmers, the obligation for arable farmers over a certain size to grow three crops on their land is the one that is most concerning to them. Let us be clear: for many arable farmers, that will not be a problem. I am not suggesting it is a problem everyone will face, but for some farmers it will be very difficult, particularly those ones who maybe are specialists and rent different parts of land every year and grow specialist crops. It will be very difficult for them to do that. Smaller livestock farmers-not necessarily specialist arable farmers-who are growing one crop at the moment to feed their livestock will potentially be forced to grow two more in the future. It is very difficult.

The general feeling is there is no environmental benefit in making farmers grow three crops at all. It is very inefficient; it is forcing farmers to do something that the market is not requiring. It could be costly in terms of the machinery they use and the management they have to deploy. For all those reasons, that is the one thing that, time and again, a certain section of farmers has said is very difficult. We have been trying to find a way to avoid that problem, possibly by saying farmers could do something else instead of growing those three crops or do more of the other obligations. At the moment, the Commission is being very difficult about that. Defra is very concerned and is very riskaverse in the way it is looking at imposing or applying the greening. Therefore, it is very unwilling to do something that is potentially going to cause difficulties with the Commission or with inspection. At the moment, we are looking very, very hard at trying to find a way for those farmers who are in this potential problem to get out of it. It is probably our biggest challenge in greening.

Q82 Mrs Glindon: Under a certification scheme, do you think the Government would have the flexibility to provide equivalent measures to some of the Commission’s proposals such as the threecrop rule you have mentioned? Would you like to see such a scheme?

Martin Haworth: Frankly, the certification scheme puts us in something of a dilemma. Yes, if it gave us more flexibility and enabled those farmers I have mentioned to get out of the threecrop rule, it would clearly be very good news. We would welcome it.

However, the downside is: what are the conditions that are going to be imposed by the Commission on that? They are likely going to be a lot more onerous in terms of the inspection regimes, etc; we have to take that into account. Secondly, to be frank, through bitter experience farmers have learnt that changes of Government and changes of Minister can alter the rules.

A certification scheme gives us flexibility that is good for us, but it could also give flexibility to a future Minister or Government to make the conditions much more onerous. That is something we cannot ignore.

Q83 Mrs Glindon: Greening is a payment which suggests that taxpayers should receive something in return. What measures should the Government use to assess whether greening is delivering for the taxpayer?

Peter Kendall: I would start by saying all of the payment is trying to make sure that food production is being delivered in a more sustainable way. That is why we have crosscompliance. I would also, as I have already said, acknowledge that around the world agricultural markets are distorted in nearly all developed countries. In Australia they intervene in certain ways with a gentler touch, obviously, compared to what we do in Europe. The United States and Canada are very protectionist. In certain sectors, Japan is enormously protective for one of the biggest economies in the world. For me, that cushion against distorted markets is important for farming. We know this is not a factory putting steel in one end and nuts and bolts out of the other. Weather can have enormous impact on that.

The payment we get is delivering value for taxpayers. The greening is a new element that the Commissioner decided was a way of selling the whole CAP-defending the budget-to taxpayers. I am not sure how much it will deliver for the environment. If we can, we should make sure that with Ecological Focus Areas, one of those three greening elements, we keep a reasonable amount of the Entry Level Stewardship scheme measures on farms, and that will have some benefit.

On farms, I already see a dramatic improvement in the state of our water, the way otters are returning to rivers, the way hedgerows are managed and the way we manage margins. I find it desperately sad that some of the green NGOs paint a picture of the British countryside as an absolutely basket case. It is not a countryside I recognise. Every time I fly in and out of this country I look at it with immense pride; I do not recognise the basket case that some of them portray.

Q84 Richard Drax: If I may move on now, if I can, to the Rural Development Programme, in your written evidence you argue that rural development spending should be re-prioritised to focus on measures to improve farmers’ productivity and profitability; what measures did you have in mind?

Peter Kendall: That is not saying we welcome maximum modulation so that you can then give it back to farmers. It is on the basis that, if we do have a limited spend, rather than pay to take land out of production on a big scale and pay people to keep livestock that is no longer economic or reduce stocking rates, we should also look at having some availability for farmers, whether it is through investing in smarter technology that reduces our input or helping people with slurry storage, for example. Those sorts of infrastructure areas would be the sort of element we would suggest.

However, we do it with a real warning sign, as well: this can actually be pretty wasteful at times. If you end up with a scheme that we have to tender for, and that Defra has to administer, so before we start I lose a pound from my single farm payment, and to get it back I have to compete with other people, submit an application form and probably pay a consultant to approve it. I then have the work done; usually, if it is a grant scheme, it is expensive. You would be amazed how people put the prices up for that. I will then need to have it inspected before I then have the money passed back to me, having been approved, etc. My hunch is that we might get 40p back in the pound, because of all of those dead administrative costs.

My personal preference is to leave as much of that single farm payment to farmers to make those investments themselves. It is very bureaucratic to set up those schemes. If the Government is determined to take that money, hopefully it will be at a lower level than the 15% they have talked about and some will go back into helping manage some of those important areas we were talking about. Whether it is slurry or smart farming technology-robotic milking is one that Owen Paterson uses-I want to see farmers make the right investments to be more competitive and resilient going forward.

Richard Drax: Can I just refer to my Register of Members’ Interests, which I have not done because I was late?

Chair: I would obviously also like to refer to mine.

Q85 Richard Drax: I just wanted to put that on the record, because we are talking about the CAP.

Are you worried that, if the Government chooses not to focus on green issues, it will jeopardise the longterm health of the environment, which determines the viability and future of farming, or is that mumbojumbo?

Peter Kendall: I think it is mumbojumbo. I have grazes on my hands from cleaning out drains yesterday morning. The most important asset on my farm is the soil. There is no incentive for me to compact or damage my soil. I want to make money so that I can invest in better tyres and better track technology. I have done quite a bit of investing in drainage this year. Why? Because we have had a wet year.

Farmers farm as if they are going to farm their farms forever. They do not smash and grab, in my opinion; they invest for the long term. What we need is to make sure the right message and education gets through to farmers, so we know how to improve our performance. Yes, we have made mistakes in the past. A lot of that was very badly directed agricultural policy, but if you give us the right information, research and development, we will definitely put ourselves on the track of improving the environment.

This is true when it comes to biodiversity, as well. I walk my dog with the kids on a Sunday morning. Biodiversity is an area that we really value as farmers. I see no interest in damaging the environment. It is about making sure that we do not have policies that conflict with that. Realistically, if you go back 20 years or 30 years, we were paid to take the hedges out; we were paid to fill the ponds in. No wonder there was some negative impact. If you go back far enough, Dig for Victory during and after the second world war was a massive reason for grassland being removed. There has been a massive improvement in the way the countryside has been managed, but behind us were negative agricultural policies that incentivised some of that damage.

Q86 Richard Drax: With the likelihood of agri-environment pots being reduced, what should the new schemes focus on?

Peter Kendall: We need to make sure that these schemes do not lead to large land abandonment. For example, for our farm at home-I apologise for using this example-to go back into a highlevel scheme, naturally they are going to say, "You need to take 7% of land out of production." I would like them to say to me, "You should be targeting 1% farmed in a really smart way, doing the right pollen and nectar mixes and putting the right wildbird mixes in those awkward corners." Also, rather than saying to me that I cannot be part of the scheme, I want access to grants to plant new hedgerows, to plant those corners up into a new coppice, to maybe create a pond in that awkward corner that was probably there 40 or 50 years ago.

At the moment, the schemes are large, very landhungry and they demand you put in your entire farm to qualify. I want something that allows everybody to do a little bit on their farm to add to the schemes they have been involved in in the past.

Q87 Richard Drax: As the funding goes down, do you increase the competition to get that funding amongst farmers?

Peter Kendall: It is definitely going to mean a competition for that money. That is why to pay very large schemes lots of money for taking land out of production. Actually, some of this creates more of a subsidy dependency than helping people do projects or smallscale initiatives, rather than paying whole estates and farms to become less productive.

Q88 Richard Drax: If the ELS schemes end as predicted, and Defra implemented greening in a way that was no more onerous than elsewhere in Europe, might this lead to English farmers delivering less environmental public good than under the previous CAP?

Peter Kendall: Yes, it could. One of the reasons why we as an organisation have been a lead partner of the Campaign for the Farmed Environment is so that, historically when setaside went, and if ELS goes in the future, we try to get farmers to do the smartest possible things under Ecological Focus Areas. Rather than just do the easy things, let us keep as much of the ELS measures on our farms in place to make sure we keep those environmental benefits. I cannot guarantee that, but let us start with the harsh reality that the Government did negotiate a 22% cut in Pillar 2 funding. NFU as an organisation put significant resources into the Campaign for the Farmed Environment. First of all, we should maintain the ELS measures-or as many as we can-for the delivery of Ecological Focus Areas.

The second thing would be to carry on the work we have done through the Campaign for the Farmed Environment, where agronomists are increasingly being trained to have environmental qualifications, because with the latest sprayer technology and whathaveyou, you can draw straight lines down the edge of a field, and you can now plant on that awkward half a hectare; there are now pollen and nectar mixes that the bees will benefit from.

Those messages are coming across from the advisory services and the partners we have in our businesses. Whether they are agronomists or food nutritionists on dairy farms or whatever, we need to make sure those right messages are conveyed, because we all want to see a more vibrant environment as well as a productive environment.

Sheryll Murray: I would like to move on to transition arrangements and, in particular, the Entry Level Stewardship schemes. Does the potential for a gap in funding for those farmers who use Entry Level Stewardship schemes that expire in 20142015 concern you? I know from some of my own farmers-and I think the Chairman has also had representations from hers-that there is a growing concern. What is your view?

Peter Kendall: We know there is a large renewal coming up. What we have argued for is to make sure people are told up front what the rules and conditions are. For 20152016 there are about 9,000 people dropping out each year.

Sheryll Murray: What about 2014?

Peter Kendall: There are no new applications being taken in, actually. We are aware that there is no money coming in to that. Bearing in mind the expectation is that ELS will cease to exist, we are aware of that funding gap. That is why I have made the point that, for example, before we commit up front to moving money from the lowlands to the uplands, we must bear in mind that those lowland Entry Level Stewardship scheme farmers have already lost about £12 an acre or £30 per hectare. Yes, it is a concern, but it needs to be addressed in the whole discussion, rather than in a piecemeal manner.

Q89 Chair: I have a couple of points. You may have already answered them, but just elaborate. In your written evidence, you mention you are aware of the problem with common land and graziers. I know that the NFU locally have been particularly helpful. Is there anything you would like to put on the record about active graziers and the potential that they might be affected?

Peter Kendall: I made this point earlier about this. If more money were to go to the uplands, a minimum activity is something that could well be used to make sure it does not get moved to that land and goes to people who are not actually farming it.

Q90 Chair: Again, you may feel you have answered this. If the Government does review the allocation between the English regions-the three nonseverely disadvantaged areas and the other two-do you have any strong views in the NFU whether it should be two or three?

Peter Kendall: Defra have been clear already that they intend to keep the two lines of three areas in place and they just change the rates. I am much more concerned if the money changes allocations throughout the UK. Scotland would be my biggest concern. Defra has said it wants to keep the areas; it is a matter of the payment rates within them.

Q91 Chair: Are there any concerns you have about the current inspection regime and if there is any scope for improvement?

Peter Kendall: We had very strong representations from our membership when we raised this at our NFU council only last week: they believe the penalties are disproportionate. A cropping farm keeping livestock is very heavily penalised for a small indiscretion of keeping cattle-that might be a tag problem. Farmers think it is very unfair.

The Commission has been very clear: they will not allow you to separate different parts of your business out. They believe that the large sums of public money at stake-those fines and those inspections-are proportionate. We tread very carefully. Why? Because this is public money and we understand the desire for scrutiny, but farmers do feel-I know my Deputy President, Meurig Raymond, who farms in Pembrokeshire, has very regular and very intense inspections-it is overly bureaucratic. Then again, it is in return for significant public support.

Martin Haworth: To add to that, this reform does offer two benefits. One is the recognition that it will be possible to take a more proportionate approach, including using what is now called the yellowcard process. For minor breaches that do not have an animal or humanhealth risk attached to them, as a first warning, farmers can just be given a warning without penalty. We would very much support that. It is something that the Government can decide to implement or not; we would certainly support it.

Secondly, looking at the current list of cross-compliance conditions, particularly on the side of the Good Agricultural and Environmental Conditions, it is possible for the Government to review that list and potentially reduce it. We think some of them are redundant or unnecessary; we would again urge that to happen.

Q92 Chair: Have you seen any change following the recommendations of Richard Macdonald’s Farming Regulation Task Force in relation to compliance?

Peter Kendall: I am not sure a better regulation initiative in the UK can have a big impact on the rules being created by the European Commission. As I said in my introduction, the process, the greening and the recoupling-all of the rules that are being created-are not to help us become more competitive and grow businesses in a successful way; it has been about defending the budget. It has been a really regrettable reform, in my opinion.

There are big trade-offs here. You have Mark Grimshaw from the RPA coming later on. We might say that if we could have had a lighttouch certification scheme, it would stop us having to have three crops. Three crops is regulation gone mad, in my humble opinion. Why would you want to make somebody who has 200 or 300 acres of grass and 100 acres of barley grow three crops? The storage implications and the running around do not have any place with better regulation and building competitive businesses.

The tradeoff is that, once we go to a certification scheme, it becomes more complicated for the RPA. The Commission say the UK or England is not doing what it really intended, and therefore it will scrutinise them even more intensively than they would have otherwise. For all the best intentions of better regulation, I am afraid we are in a bad place. The £500 million of disallowance hangs over us heavily. Because of that, we will go for simple implementation, and there will be regulatory madness for every working farmer.

Q93 Richard Drax: May I ask you one quick, literally yesorno question, Mr Kendall? Bearing in mind that we are talking about the CAP and the EU, out of interest, because we have you here, if the UK came out of the EU, could English farming survive without any subsidies at all, or would what we are talking about here have to be replaced by some national support?

Peter Kendall: There must be national support. I know that was a short point, but if I can say very briefly, people often hold New Zealand up as some sort of beacon of removing agricultural subsidy. The agricultural industry is responsible for just over half the GDP of New Zealand. When they pulled support, their currency fell by 40%.

Our economy is driven by the City of London and many other parts-Land Rover and Jaguar, maybe, to a small degree. However, if you stop supporting British agriculture, the currency would not fall by 4%. A lot of the subsidy regime in New Zealand was replaced by increased prices, because of that currency devaluation.

To work in a market such as Europe, I look at other examples. Norway and Switzerland probably have higher levels of support, and they have to meet all of the same regulatory standards, because they export big percentages of their farm produce into those markets. It is far from an easy debate to have.

Q94 Chair: What would happen if the Scottish people vote to come out of the United Kingdom? Would we have to reenter separate negotiations for CAP funding?

Peter Kendall: I would probably have a party.

Chair: Do not be selfish, Mr Kendall.

Peter Kendall: I understand that they would be outside the European Union and they would have to renegotiate their entry, which I would wish them well on. I would be interested to see how they started to make the justification for a budget allocation. Martin might be better placed to know whether we would hang onto the whole UK allocation or whether we would lose some of that as well.

Chair: I have to declare an interest: I am a nonpractising Scottish advocate; I am not in a position to comment.

I do not think anyone has seen the legal advice, but they are claiming that they would still remain and they would wish to consider themselves members of the European Union. I do not know if Mr Haworth could comment.

Martin Haworth: That is a matter of debate and dispute, is it not? Most lawyers think that they would be outside the European Union and would have to negotiate their way back in; the Scottish Government takes a contrary view on that. I am not a constitutional expert enough to be able to give you any answer at all, I am afraid.

Q95 Chair: A more parochial question: we understand that the Government indicates that the local economic partnerships will have a role to play in distributing the Rural Development Fund. Do you think that they are particularly wellqualified to do so? Do you think they have got a good experience in rural affairs? I think in my own case, North Yorkshire, they possibly have, but I was wondering more generally.

Peter Kendall: There are some good examples, but, by and large, there was very poor agricultural representation. What I have a real gripe about is that 5% of these funds go into a leader project; we have got a long list of money that has been taken off farmers in modulated form. I go back to my point about half the Danish and significantly less than the Dutch. We have got a long list of where they paid for pantomime costumes in the village hall down the road from our headquarters or thatching bus shelters; 5% has to go into those sorts of projects. It leaves the farmers’ pockets-and let us not imagine it is farmers like me, but some of the mixed farming families down in the West Country, who have had all these problems with the weather-and goes into schemes that are not involving farmers, and that leaves me profoundly worried. I think sometimes it is wasted.

Chair: That is very helpful indeed. On behalf of the whole Committee, can I thank you, Mr Kendall and Mr Haworth, for contributing to our inquiry, and we wish you every possible success with the continuation of your presidency. Thank you very much indeed.

Examination of Witnesses

Witnesses: Mark Grimshaw, Chief Executive, Rural Payments Agency, Dave Webster, Chief Executive, Natural England, and Jo Broomfield, CAP Delivery Programme Director, Defra, gave evidence.

Q96 Chair: Good afternoon, gentlemen. If I could thank you very much indeed, welcome you and thank you very much indeed for agreeing to participate in our inquiry on implementation of the CAP. Could I just ask you first of all to introduce yourselves and give your positions for the record, if you would?

Dave Webster: Hello. I am Dave Webster. I am Chief Executive of Natural England.

Mark Grimshaw: I am Mark Grimshaw. I am the Chief Executive of the Rural Payments Agency.

Jo Broomfield: I am Jo Broomfield. I am the Director of the CAP Delivery Programme.

Q97 Chair: You are all extremely welcome and, again, thank you for participating in our inquiry. Just a general question to begin with, to each of you: what are the main challenges that you face within your organisation in implementing this round of CAP reform?

Dave Webster: From a Natural England perspective, clearly there are IT challenges and clearly there are contributions to the scheme design, but probably the main challenge is to maintain business continuity and quality customer service during this transitionary period. We have over 45,000 multiannual agreement holders. Clearly we have to communicate a phased closure of the current schemes and the introduction of the new schemes to our customers, and clearly we have got to take those same customers through digital by default.

Mark Grimshaw: It is a fairly similar situation for the RPA: maintaining the performance that we have striven very hard to establish over the last couple of years; organising the transition from the current schemes to the basic payment schemes and other schemes that we are responsible for running; communications, to our people internally, to our stakeholders and most importantly to our customers, so that they understand what is expected of them; the detailed testing regime that we will go through in partnership with the CAP Delivery Programme; and business as usual for all of the other things we do that will not be picked up in this particular round of changes.

Jo Broomfield: Picking up on some of the points that my colleagues have raised, obviously I have to make sure that that transition for the delivery bodies between the legacy scheme operation and the new operation is as smooth as we can make it. One of the biggest challenges I face is the limited time that we have to deliver the new solution, so this is a challenging programme that we are embarked upon, and we absolutely do not want to make the mistakes of the past. The journey for customers, as Mark has outlined, is quite significant in terms of our move to a more digital solution, and obviously we strive to make sure that the policy that we get to implement in the system is actually deliverable.

Q98 Chair: If I could just ask Mr Grimshaw, on the cost of administering the 2005 reforms, the cost, according to the National Audit Office, of an individual claim in England was about £1,700, compared to £285 in Scotland. What assurance can you give the Committee today that the costs of the next round will be less?

Mark Grimshaw: We can certainly confirm that they will be less than £1,700. It is worth just looking at the journey since the first year of the scheme, so in 2012-2013, our last audited figures, the cost of a claim was down to £691. It is currently standing at £673, and our target for completion of this financial year is £647, so it is more than a 50% reduction against the £1,700 that you mentioned. We would be seeking additional reductions, assuming that the policy outcomes that we end up with are deliverable, from the £647 that we expect to be at at the end of this year.

Q99 Chair: You will have heard the evidence we just heard from the last witness, Mr Kendall, that the farmers still seem to be smarting from the £500 million disallowance, and obviously we congratulate you; I think you have reduced the disallowance this particular year. What reassurance, again, can you give the Committee, Mr Grimshaw, that going forward we will not see the high levels of disallowance that we have seen in the past?

Mark Grimshaw: The figure, just for the record, is £580 million since the start of the current scheme; a lot of that is down to the fact that the originating technology was not fit for purpose, because of the way that it was specified, rather than the provision of the technology itself, and the lack of the control across the various schemes that were in place. One of the benefits of the new proposals is the introduction of something called Article 69, which places the responsibility on the agency to ensure that it can verify and control all future schemes. That helps us in terms of building in the disallowance capability to make sure we manage it in the first instance.

We also have far better capability in communicating with our customers, to make sure that they are aware of their responsibilities under cross-compliance. The system that is being built by Jo and his colleagues, if you accept the principle of out-of-the-box, the solution that they are building comes with a much lower incidence of disallowance from the Commission in the first place. That is all predicated on us getting the most advantageous policy outcomes, and making sure that customers do the right things, if you will excuse the pun, in the field.

Q100 Chair: You are not intending to change the system at this stage before the introduction in 2015?

Mark Grimshaw: No. The work that is underway at the moment, which Jo can certainly give you the details on, is to prepare the new system for go-live in line with the new scheme, which will be 2015, although we will be releasing early elements of the scheme for customers to begin to get an appreciation of the feel and the interface, so that we can start to build some of the database quality checks that will be required.

Chair: Is there anything you would like to add?

Jo Broomfield: Just to reassure the Committee that reducing the disallowance risk going forward is a prime concern of the programme. As Mark has said, because we are integrating an offtheshelf product that has been used in other Member States already, and has a good track record in terms of not attracting disallowance penalties, that is a core plank of our approach. We are also making sure we are picking up the lessons that have been learnt in the past years since 2005, and there obviously has been quite a lot of learning around what causes disallowance and what we need to focus on.

Q101 Chair: Just in this last year, regarding the disallowance for a fruitandvegetable producer organisation regime, who would it normally have fallen to to have identified that as being not fitting into what producer organisation?

Mark Grimshaw: It would fall to our agency to be responsible for the forecasting of potential disallowance risk, whether it be for fruit and veg or for any of the other landbased schemes or, in fact, for any of the Pillar 2 schemes. We maintain the responsibility through a disallowance capability that we have inhouse to look across all of the schemes.

Q102 Chair: Is there any special gift to identifying future disallowance?

Mark Grimshaw: No, we do not have a particularly accurate crystal ball, but disallowance is clearly a function of what has happened in the past. We are looking in 2013 at disallowance impacts from years 2007 through to 2010, and disallowance tends typically to run on a five-year cycle. Even in 2017, when you would expect to be well in to impact from the future scheme and the future system, we will still be getting disallowance from today’s activity. If you think of a rolling five-year process, that is the best way to look at it.

Q103 Chair: I have not got it in particularly for you; it is just a stream of questions that sprung to mind, Mr Grimshaw, and perhaps Mr Broomfield might want to contribute as well, but how much of a burden will the three-crop rule be for the RPA?

Mark Grimshaw: If the decision taken by Defra through policy colleagues and Ministers is to go with the simple scheme that has been put forward by the Commission, it will be relatively straightforward for us to coordinate. The level of inspection will be minimised, because it will be the scheme as put forward by the Commission. The moment we move away from the Commission’s preferred scheme then it becomes increasingly more burdensome to manage the process, and it becomes more costly. Supporting the Secretary of State’s drive for simplicity and deliverability, the RPA would certainly prefer that we went with the scheme as preferred and put forward by the Commission.

Q104 Chair: To both yourself and Mr Broomfield, does greening require you to do a whole mapping exercise, for example, to take account of the EFAs-the Ecological Focus Areas?

Jo Broomfield: It does require some new mapping data to be collected, but that is a core part of the technology that we are looking to implement. The real challenge then is how we collect that information from customers, and there are some transitional arrangements that we are also looking to exploit in terms of how long we have to collect that information before we are into a very strict validation regime around it. It does impose additional system requirements, but that is within our plans, and it is within the core product that we are looking to use as well.

Q105 Chair: Is there anything you would like to add to that, Mr Grimshaw?

Mark Grimshaw: Yes, just one thing: one of the lessons that we learnt from the 2005 exercise was that the agency needed to engage far earlier with the Department, and make sure that deliverability was at the forefront. On the piece that we have just been referring to, we are looking at an extended period of time before we have to have all of the mapping rules in place. That has been negotiated by our negotiators on the back of what some would call demands and others some would call requests from the RPA to get derogation on the rules. That is good news from an RPA and UK perspective.

Q106 Chair: Excellent. To what extent, having already moved to areabased, does that mean that the CAP implementation in England will be easier the next time around?

Mark Grimshaw: It should be a lot more straightforward, because we just have the one areapayment rate. Having moved from the historic to the areapayment is good news as far as we are concerned; we will see the benefits of that in the 2013 payments, because we are at 100% payments by area. It helps us; it is one of those nice-to-haves. Other countries in Europe do not have that benefit. We have been through the pain over the course of seven years; we are out the other side on that particular issue.

Chair: It is worth recording that you do seem to have turned around what was a very bad situation quite significantly.

Q107 Neil Parish: These questions are to Mr Webster. Why does Natural England give 2016 as a start date for new agrienvironment schemes, when both the Commission and Defra have committed to working towards the schemes beginning in January 2015? How long a gap do you foresee in these schemes?

Dave Webster: Effectively there is no difference. The actual programme is anticipated to start on 1 January 2015, but the schemes that Natural England will engage with-the New Environmental Land Management Scheme-will not commence until 1 January 2016. We will be able to arrange agreements or start to negotiate agreements in 2015, but they will not formally start until 1 January.

Q108 Neil Parish: So people coming out of schemes at the beginning of 2015 will not necessarily be able to get another scheme going until 2016.

Dave Webster: No. There are transitional arrangements in place for 2014; there is £26 million of funding, but in 2015 there is no funding. That will be for new agreements; clearly the existing agreements will just continue, and there are no schemes coming to an end in 2015.

Q109 Neil Parish: Right, so if a farmer has an existing agreement he or she can extend that, can they?

Dave Webster: No, there are no agreements under HLS currently that will end in 2015.

Q110 Neil Parish: What assessment have you made of the potential impact of a funding gap between those ELS schemes expiring before 2016?

Dave Webster: We know what the situation is. 2014 is handled effectively, because we have got transitional funding both for Higher Level Stewardship and ELS, which will take us through to 2015. In 2015 there will be 9,000 Entry Level scheme applicants or agreements that will not have a scheme to go to; there will also be 2,000 upland Entry Level schemes. Those are the sort of numbers that we are talking to; of those a number will then potentially get into the Land Management Scheme.

Q111 Neil Parish: You are talking about 11,000 schemes altogether, so a significant number?

Dave Webster: Agreements, yes.

Q112 Neil Parish: Is there any way the Government can find money to plug that gap?

Dave Webster: That would be a matter for the Government; it would be a policy consideration.

Q113 Neil Parish: Are you confident those farmers are aware that the funding will cease?

Dave Webster: Certainly there is a range of meetings with stakeholders through the CAP Implementation Programme. Certainly for the Entry Level schemes we have put notes on our website, we have done targeted communications around it, and if you take Entry Level Stewardship as an example, we did not have any late applications, so the message seems to have got out.

Q114 Neil Parish: Is there a danger that farmers that cannot get those schemes in place, because of that year’s gap, move out of these schemes altogether?

Dave Webster: We tend to find in practice that there are always some gaps, so even with the continuity of schemes you will probably have at least three or four months where farmers take a view, because they are voluntary schemes, about whether they want to go back in. We are not anticipating an issue around that.

Q115 Neil Parish: The next question is to Mr Webster and Mr Grimshaw. In terms of active farmers, how should the minimum level of activity be defined to avoid adverse impacts both on farmers and the environment? It is quite a thorny issue.

Mark Grimshaw: As I am sure the Committee are aware, Defra have not defined the minimum-activity test yet. Again, we would advocate sticking with the requirements laid down by the Commission, so we would look very much at, if you like, the ineligible, the negative list of businesses, and the minimumactivity requirements, so keeping land naturally in good agricultural environmental conditions-from an RPA perspective as simple as possible.

Q116 Neil Parish: Would you be looking at the way that land is managed? You could have somebody who runs a farm, very environmentally friendly, does all the right things, but only gets perhaps 5% of his or her income actually from farming.

Mark Grimshaw: You are entering into the policy space that has not been determined yet, so I cannot answer that one, I am afraid.

Q117 Neil Parish: Is that going to be looked at or not?

Mark Grimshaw: I believe the policy people have it on their radar.

Q118 Neil Parish: When will potential claimants be told whether they qualify under the minimumactivity test? If you have not actually set the test, it is very difficult to answer that question.

Mark Grimshaw: Exactly, so I think we have to wait for the consultation to be concluded and for Ministers and policymakers to-

Neil Parish: When do you think that you will have concluded your survey and whathaveyou?

Mark Grimshaw: My understanding is that it will have to be concluded this calendar year.

Q119 Neil Parish: That is probably good news. Do you foresee any problems for the tenant-landlord relationship?

Mark Grimshaw: I do not see any significant problems, providing there are no dramatic changes to the rules. If you are referring to dual use, which I suspect you probably are, we have been advocating over the last 12 to 18 months that tenant farmers make sure they have a properly documented legal agreement in place, and that they are not relying on word of mouth or historic gentlemen’s agreements, because when one of our inspectors arrives to validate that dual use is appropriate, they will need to see the documentation. That is a campaign that we have run in conjunction with George Dunn and the Tenant Farmers’ Association, and it is good, sensible business practice to make sure your contracts are in place.

Mrs Glindon: Mr Grimshaw, the Tenant Farmers’ Association consider that those who bear the entrepreneurial risk should receive CAP payments. How might this be enforced?

Mark Grimshaw: From an RPA perspective, it is relatively black-and-white. If a legal contract is in place that gives the responsibility for the land and the ability to claim the CAP, we will pay it; if there is not, we would question it. It is very much developing the answer that I gave to Mr Parish. Make sure that the contracts are in place, and make sure that as the tenant you have the right agreement in place with the landlord, and then when we see the contract, if we need to, we can ensure that we are paying the appropriate party.

Q120 Neil Parish: On that particular one, are you going to give advice to farmers as to what those contracts should be, because otherwise they will put in a contract, but then you will say that contract is no good?

Mark Grimshaw: We do not give formal advice. We would leave that to somebody like the Tenant Farmers’ Association, but we would strongly recommend that a legal contract that is appropriate and proportionate was put in place.

Q121 Mrs Glindon: Could I ask this question of Mr Webster and Mr Grimshaw: should dual use be retained and, if so, why? Are you aware of any problems under the current system?

Dave Webster: It is a policy decision for Defra, rather than Natural England as a delivery agency. It is a difficult area from a Natural England perspective, because you want to balance the opportunity to engage with both Pillar 1 and Pillar 2 schemes. If it was prohibited we do believe there is a risk of undermining the environmental outcomes in the short term, but we would expect over time that businesses will adjust, and because the Pillar 2 schemes are so competitive, we would expect there not to be a longterm impact on the takeup of the schemes.

Mark Grimshaw: Unfortunately the European Commission do not look upon dualuse claims particularly favourably. The arrangements that people have in place are going to be scrutinised, which is why we have joined forces with the Tenant Farmers’ Association to make sure contracts are as robust as possible. Providing they adhere to the rules as they currently stand, we would see no reason why they could not exist in the future.

Q122 Chair: Can I just pursue that point, because does Natural England not give any advice whatsoever on a legal contract?

Dave Webster: No. It tends to be an internal matter between the landowner and the tenant. We are constructing templates on the ratio of agreements that were in place and the payments between, because clearly, as you are aware, there has to be agreement between the landowner and the tenant about what the respective payment is and who will pick that up. Because it tends to be an internal contract matter, Natural England does not tend to provide advice in those circumstances.

Q123 Chair: Are you not concerned that landowners in more than one part of the country are top-slicing up to 70% of the payments off and calling them administration fees?

Dave Webster: We are very aware of that, and clearly we have tried to provide information on what that ratio of cost between the landowner and the tenant is, to illustrate what good practice looks like, but because we have not got a legal arrangement in this situation we cannot take it any further than that.

Q124 Chair: If you are the custodian of taxpayers’ public funds, and you see that the money, to me, is being used inappropriately, surely you should not hand that money over? To me 15% or 20% might seem a more accurate administrative cost, but it goes to the very heart, as Mr Parish and Mrs Glindon were saying, of making sure that the appropriate monies reach the appropriate person farming the land. If you are a landowner taking 70% out of the agreement without being able to sign that agreement otherwise, that, to me, does not seem a good use of taxpayers’ money, nor a legitimate use of taxpayers’ money.

Dave Webster: We do not have the ability to intervene through the regulations to make the sort of intervention that you are talking about.

Q125 Chair: I am struggling to understand why you do not have the ability to intervene. You are charged by successive Governments to administer the CAP monies in this regard; it falls to you. I cannot believe that Mr Grimshaw or Mr Broomfield would say that they were placed to do this; it falls to you to sign off that scheme. It just strikes me that you are being spectacularly absent from these arrangements and allowing money to be misappropriated, if that is not too strong a word, for purposes that have nothing to do with administration, but mean that the money, which should be going to the tenant who is actively farming the land, is going somewhere else.

Dave Webster: What we endeavour to do in arranging the agreement is seek to ensure that there is a written agreement in place, with dispute resolution, that identifies the respective payments between the tenant and the landowner. Before we enter into the agreement that is where we apply our control, because clearly once the agreement is in place it is very difficult to apply any measure to it.

Q126 Chair: We recommended in our uplands report that there should be a dispute-resolution mechanism, but I am not entirely sure that any of the existing agreements commit to that? It might be something you might like to consider.

Dave Webster: We can take that back to Defra as well, because it can be part of the scheme design.

Chair: Mr Broomfield might like to carry that away with him as well.

Q127 Richard Drax: On capping payments, Mr Grimshaw, what is your estimate of the amount of funding the minimum level of degressivity will generate for Pillar 2 per year?

Mark Grimshaw: Assuming that it comes in at 5% then we would expect that that would be somewhere in the region of £1.2 million to £2.2 million per year.

Q128 Richard Drax: Again to you, Mr Grimshaw, if I may, would it be possible to introduce a payments cap, for example, at €300,000, in such a way that it would prevent large farms breaking up, and thereby maintaining their large claims of public money?

Mark Grimshaw: It is unlikely that we would be able to do it in such a way as to stop farmers or landowners taking decisions to redistribute some of their assets and perhaps create other organisation. What we will be able to do is identify that and decide then how to deal with it; simply putting the cap in place is likely to generate some interesting business activities.

Q129 Neil Parish: One last question on that: with the amount of money saved from capping or degressivity, can the Government spend that money in any way it likes on CAP and on greening, or not?

Mark Grimshaw: As far as I am aware, it can be recycled.

Neil Parish: So to the uplands or whatever-whatever it felt like doing.

Mark Grimshaw: Yes.

Q130 Neil Parish: Mr Webster, can you provide some detail of what agrienvironment schemes will be available under new CAP? How will they operate? For example, will they focus on particularly the geography, and will they be 10year agreements?

Dave Webster: The detail of the design is still being developed, and it will be subject to a consultation from Defra, and clearly they deal with design and we implement it, although we have been helping with the design. What we are trying to do here is take the best of the existing design, the delivery experience, and the evidence that we can bring. The new scheme will have three elements: the first is a site element similar to the current HLS schemes, building on the best of those. It will be a multiannual agreement for land management with capital items. It will be targeted at the highest value and site features, so it will tend to be a significant scale of schemes, sites and features. It will be discretionary and it clearly will be supported by Natural England advice and support.

A new element of the scheme is to operate at a landscape scale, because what we have found, particularly with the Entry Level schemes is that we have not necessarily made improvements to things like the farmland bird index. Operating at a landscape scale, building on the kind of concepts that Professor Lawton demonstrated with his report, would enable us to make change at a more significant basis for the environment.

How that will operate we are not completely sure yet. Clearly we have got natural improvement areas at the moment, and that might operate as a way of getting that landscape scale change. Then there will be a final element, because the first two elements would be targeted. For the final element there would be a universal opportunity around capital to do good works for the environment across the country.

Q131 Neil Parish: There would be some capital involved. How long are the agreements? Are they going to be 10 years?

Dave Webster: Fiveyear agreements.

Q132 Neil Parish: Why are you proposing the removal of the separate uplands and organic agrienvironment schemes or strands?

Dave Webster: Clearly that is not a Natural England decision; that is a policy decision that Defra are considering. From our perspective, we would still expect a significant uptake in the uplands through this new land management scheme, because clearly they provide a huge amount of environmental benefit through the work that they do. We would expect the existing options in the upland scheme to be in place in the new scheme, and that would allow farmers to take up those environmental outcomes.

Q133 Neil Parish: Will farmers have to compete for funds under Pillar 2?

Dave Webster: Yes.

Q134 Neil Parish: How do you see greening, either through the basic Commission measures or a certification scheme, complementing work under Pillar 2?

Dave Webster: It is very much complementary. Greening will deliver a certain level of environmental benefit, but the bulk of what was delivered through ELS will now be delivered through the new scheme.

Q135 Neil Parish: Have you any idea what this new scheme is going to be called?

Dave Webster: No.

Q136 Neil Parish: This is to all of you: I hate the word "stakeholders", but are stakeholders right to be concerned that your resources are being reduced at the same time as you are implementing a complex policy that may require offering extra support to claimants?

Mark Grimshaw: Stakeholders are right to have concerns. The challenge is for us to make sure that those concerns are nullified by a good explanation as to what we are doing. It is absolutely fair to say that the RPA’s budget has been reduced; it has been reduced inyear. However, our performance has also improved dramatically over the course of the last two and a half years, and the plans that we have in place will see that improvement continue. As the Chief Executive of the agency, I am quite content at the moment, with the forecast budgets for 2014-2015, that I can deliver the asks that are being made of me; from 2015/2016 onwards it becomes a little hazier, and we will tackle those issues when we get close to them.

Q137 Neil Parish: Many of my farming constituents complain that they do not get enough advice from your good selves, because you say, "We cannot give advice". Are you thinking of changing that policy, or not?

Mark Grimshaw: No, we are not in the advice game. Certainly when we are onfarm we will have a constructive discussion. Our inspectors are all very experienced landbased individuals. They will have a discussion, whether it is about cattle, land or environment agency schemes, but they will stop short of giving advice.

Q138 Neil Parish: Many of your inspectors might be, but not all are that expert sometimes, but I will not have a big argument about that. How will you handle claimants who lack the capability to interact with the Government on a digital basis, especially if broadband is not everywhere?

Jo Broomfield: First of all, we acknowledge that there is a real challenge out there, and we have heard that message very strongly from stakeholder groups as well. However, we think it is right that we are designing this new service as a digital service, so that the experience we offer to customers going forward is a much better experience, so it is a common platform they can use to apply for any of the schemes, rather than the separate systems they have to go through at the moment. It will be more intuitive, and it will do some of the checking for them to illustrate incompatibilities between schemes they are applying for and crosscompliance issues that they need to be aware of; it will be an enhanced way to offer them guidance through the system as they are making their application.

That is where we want to be. We recognise, though, that there is a real problem out there with some of our customers, be that a broadbandavailability issue, or be that just IT literacy, etc. We are developing an assisted digital proposition, which is in line with Government thinking in this area, to see how we can help those people who have a genuine need who cannot get online, and what we can do, and we have a number of options that we are working up at the moment to help those people. A lot of this is will be quite a big campaign to help people move to using digital services.

Q139 Neil Parish: Many older farmers did not go into farming to work a computer.

Jo Broomfield: I understand.

Neil Parish: The last part of the question is about the fact that in the past the RPA has been accused of not being proportionate in its response to genuine mistakes, which are then difficult to correct. Do you recognise this criticism and how will genuine mistakes be handled in the future? I want to add one last part to it: when you make a mistake it does not seem to be a problem; when farmers make a mistake it seems to be a huge problem.

Mark Grimshaw: I do recognise the issue, partly because it appears in my postbag reasonably frequently. Part of the difficulty here is that the RPA has to wear two different hats, so when it comes to a matter of enforcement in order to maintain the disciplines out there in the field, we do not have much in the way of latitude. The cross-compliance regulations are the cross-compliance regulations. There are opportunities for farmers to put certain things right within certain timeframes, but when we find that somebody has contravened a rule or a regulation two, three, four or five times, then the approach that we have to take is laid down for us. I know that inspectors are now being encouraged to have a conversation about how improvements can be made, but the rules, as they say, are the rules.

When it comes to applying those sorts of challenges internally, we have worked very closely with the Parliamentary Ombudsman to look at our complaintsandappeals process. We have sorted the vast majority of outstanding complaints and appeals in the last two and a half years, and we have made a number of ex gratia payments to recompense individuals for the time and effort they have had to go to to raise concerns with us. Wherever possible, we have followed the Ombudsman’s six key principles, and the main one that we would be interested in is putting right the issues for the individual claimant, and putting them back into a position where there has been no financial loss. That has been an active campaign that I have driven personally since I last had the pleasure of coming here.

Q140 Neil Parish: Things have improved, but certainly at the beginning, for instance, many farmers were sent maps where you sent them land that they did not even farm and had never farmed. If a farmer filled in a form that put on land that they were not farming they were in huge trouble, yet you seem to be able to bung out whatever you liked, and it does make farmers rather upset.

Mark Grimshaw: Yes, and that is one of the big concerns that we are dealing with for the future scheme, and making sure that the mapping information that we have on record is as accurate as it possibly can be, partly because of some of the challenges around ecological focus areas and the possibility of three crops, etc.

We are doing some very intense work with Jo and people on the programme to try to get to a position where it is transparent in terms of the movement of mapping from the current environment on the Rural Land Register to the new environment that they will need for the basic payments scheme. By opening visibility to the scheme early, to allow people to go in and have a look, have a feel, play with their maps online, but not be able to change the core data, we are hoping that we will be able to get people into a position where, when the scheme opens for business, they can go online and make the necessary changes.

Q141 Chair: Mr Grimshaw, just one thing: you said you are working up a number of options; are you able to share what the options are with us?

Mark Grimshaw: The options for digital by default? It was Jo that said that.

Chair: Are you able to share that with us?

Jo Broomfield: Essentially it is fairly simple in terms of the options that you have if somebody cannot get online: either we can have a face-to-face interaction with them, and enter details on to the system with them present and them certifying that those details are correct-that happens in other Member States who are using the technology we are adopting-or we can collect that information on a paper form, much as we do now. This is not our preferred approach; this is for the exceptional cases, where people really cannot get online. That can either be rekeyed or scanned in, depending on the volumes we are dealing with. Alternatively, we can look at intermediary use, so somebody else working with a farmer or a customer to enter that information, so that may be an agent or even somebody acting in a paid intermediary fashion.

Broadly all of the variants of the options that we have revolve around those three approaches, and we are just trying to understand how best we target and engage with people to understand when we need to offer those approaches. As much of this as possible we want to be the customer self-selecting what is the right route is for them, and giving them as much encouragement and support to get online if they are able to as we can. We recognise we are going to have to do some work.

Q142 Chair: We have established in our Rural Communities Report recently that many rural areas-and I am afraid I am particularly rural-the distance from the exchange for the farmers, and the cabinet, is so great that they really do feel discriminated.

Jo Broomfield: We are doing a couple of other things. Obviously there is the rural broadband fund that Defra is operating under at the moment. That is due to distribute £20 million by March 2015, so there is some activity going on to address some of those hardesttoreach areas.

In the technology space, where we are developing, we are doing as much as we can to test as we go, to try to make sure we get the solutions as performant as we can at the lowest bandwidth speeds that we can, so that we try to make the service as accessible as it can be.

Q143 Chair: There just seems to be a bit of a gulf with Defra’s understanding of what is happening on the ground, and it just seems unfair that farmers are having to pay for their own access to a satellite system by computer, when I do not know if that is even eligible for this rural broadband fund.

Jo Broomfield: I am not sure; we could check that for you.

Mark Grimshaw: It might be helpful for the Committee: one of the things that we have been doing over the last couple of years is developing our analytical capability, which I talked to you about before. Just to note some of the statistics on existing claimants and their ability to get online, 54% of the customers that apply for SPS-the basic system currently-apply electronically, so they apply through SPS Online; 91.5% of all British Cattle Movement Service activity is done electronically. If you look at the entire cohort of our customer base, and include those that email us, which presupposes they have got some sort of internet capability, 83% of our claimants are online.

Q144 Mrs Glindon: The current implementation of the SPS has caused significant problems in relation to common land. What approach is the Government taking to common land under the new CAP?

Mark Grimshaw: That is probably one for me. That is part of the consultation process currently. However, as an agency, we are trying to get a little step ahead here, and we invoked, at the beginning of this calendar year, a campaign to actively map all of the common land, on the basis that we expect that to be one of the foundations for the allocation of funds in the future, assuming that those decisions are taken. The Committee can have a little bit of confidence that we are trying to get ahead of the game here, and we are going through the activity of mapping common land. Jo is already building that into the future solution as well.

Q145 Mrs Glindon: In line with what the NFU would consider to be appropriate, would the Government plan to implement part 1 of the Commons Act 2006, which does secure the updating of the registers?

Mark Grimshaw: Unfortunately you are going to get the "that is a policy" answer, I am afraid to say. You will need to speak next week to our policy leads on that one.

Q146 Chair: Just before we leave that, I think it is the NFU evidence on common land that there were a number of active graziers whose common land register was not perhaps absolutely up to date and recorded. Mr Grimshaw, would you look favourably on their additional payment entitlements being considered, so they do not lose out on what they should have received.

Mark Grimshaw: Again, we are awaiting policy advice as to the approach that our policy colleagues want us to take. What we are doing as an agency is engaging with as many of the common land associations as we possibly can to try to determine the most appropriate way to operate common land right in the future. As you will know, it is a somewhat convoluted and complex space going back many tens of years, and probably does need a focus to sort it out.

Chair: If I could just make a personal plea, because a number of us do represent commons land on the Committee, it really is quite urgent, because obviously with the graziers, by definition, their income is perhaps not as generous as some of the other parties, may we say. Could be dealt with, and some pressure brought to bear, Mr Broomfield, on the policymakers, as we indeed will hope to do over the next week or two as well?

Q147 Neil Parish: To Mr Webster and Mr Grimshaw, what should the Government set as the minimumclaim threshold, and why?

Mark Grimshaw: Again, this process is going to be one of those, "It is a policy issue".

Neil Parish: But from your point of view it is relevant.

Mark Grimshaw: Yes, it is very relevant. I heard Peter Kendall and Martin Haworth talk about five hectares as a minimum. Five hectares would take approximately 16,000 claimants out of the claimant count, have a relatively light impact on the amount of land involved in schemes-possibly 50,000 hectares-and reduce the challenge on the successful delivery of the future scheme. If that were to come back as a proposition that was approved by the Department, we would not be uncomfortable with it.

Q148 Neil Parish: The national parks are not very happy, are they? They are saying that five hectares would significantly bar quite a lot of claimants in the national park. Would we be able to make an exception for them, or would you have to set one bar for everybody?

Mark Grimshaw: We would certainly have to set one rule for everybody. Interestingly enough we did pick that up as an issue in their written evidence. We do not understand the logic that they have applied, so we are going to pick it up with them separately. Instinctively, it seems a little odd to have national parks that are less than five hectares.

Q149 Neil Parish: When you are processing a claim of one to five hectares, I suspect the cost of processing that claim is probably greater than the claim itself in many cases.

Mark Grimshaw: It certainly would have been in the early days; I doubt very much that it would be today, especially if they have not been any-

Neil Parish: You are much leaner and meaner now, are you?

Mark Grimshaw: Thank you, I could have said that, but much better coming from you.

Q150 Chair: On a lighter note, if possible, you have all been very generous with your time. In the interests of communication-it is particularly directed at the RPA-do you each feel that you are being listened to and that the communications between yourselves and Defra are perhaps better than possibly were perceived in 2005? Mr Webster, would you like to go?

Dave Webster: I think they are very good. We spend a lot of time together as a three. There is a capital programme board that we all sit on; there is a capital steering group that we all sit on, and there is a chief executive group, so we have a lot of engagement with Defra and with each other to make sure that we learn the lessons from the last scheme and implement this effectively.

Mark Grimshaw: I would agree absolutely. We took 26 lessons to be learned from all of the reviews from the last implementation, and we have been through them systematically. One of the big issues was that the RPA and delivery bodies simply were not engaged in the policy discussions, and we have been right from the outset. Not only that, but we have successfully influenced the policy discussions to get the outcomes to focus very much on simplicity and deliverability. While all of that is very encouraging, we have got to keep going, because the implementing regulations have still got to be landed successfully, and we want to bear down on any lastminute decisions to implement the national options. So far so good; I think it is going as well as we could have expected it to, and maybe even a little bit better.

Q151 Chair: Could I just add a riding question, because we mentioned at the outset about the timetable, and Mr Grimshaw, I think, was asked specifically. On the question of the implementing regulations, we have heard from a number of witnesses and we have our own concerns. Is there going to be enough time for these to be both consulted upon and adequately put in place, so that the delivering bodies will have it cut and dried?

Jo Broomfield: It is one of the more challenging aspects of the programme. We have always recognised it as such. How can you build a solution when the requirements do not firm up until six months before you are due to deliver it? The approach we are taking with the new solution is it is designed at the outset to be a flexible solution, so that you can change the rules in it easily. We have separated out the key data sets from the core processing, so the approach we have taken gives us the best opportunity to be able to respond to late-breaking changes in implementing regulations as an example, or the Defra scheme design.

At this point I am confident that we will be able to, providing, as Mark has said, that we continue to get the deliverability point across to the policymakers, and all the signs are that that is landing.

Chair: I am sure we will be watching you. Can I thank you, on behalf of the Committee, Mr Webster, Mr Grimshaw and Mr Broomfield, for being so generous with your time and contributing at this stage of our inquiry? We wish you every success. Thank you very much indeed.

Prepared 25th October 2013