UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 74 5 -ii i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Environment, Food and Rural Affairs Committee

CAP Implementation 2014–2020

Tuesday 29 October 2013

Rt Hon MR Owen Paterson MP, Ian Trenholm, Sarah Hendry, Martin Nesbit, Amy Holmes

Evidence heard in Public Questions 152-225

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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Tuesday 29 October 2013

Members present:

Miss Anne McIntosh (Chair)

Richard Drax

Mrs Emma LewellBuck

Iain McKenzie

Sheryll Murray

Neil Parish

Ms Margaret Ritchie

________________

Examination of Witnesses

Witnesses: Rt Hon Mr Owen Paterson MP, Secretary of State for Environment, Food and Rural Affairs, Ian Trenholm, Chief Operating Officer, Sarah Hendry, Director, Rural Development, Sustainable Communities and Crops, Martin Nesbit, Acting Director General, Strategy, Evidence and Customer, and until recently Director EU, International and CAP Reform, and Amy Holmes, Acting Director, EU, International and CAP Reform, Defra, gave evidence.

Q152 Chair: Good afternoon again, Secretary of State. Would you like to introduce the new members of your team for the second part of the session, where we are looking at the reform to the Common Agricultural Policy and how we are going to implement it?

Mr Paterson: Very good. Thank you for inviting us back. Can I introduce Sarah Hendry on my right, who is Director of Rural Development and CAP Implementation; Ian Trenholm stays in his place, and is Chief Operating Officer; on my left are Martin Nesbit, Acting Director General of Strategy and Evidence, and Amy Holmes, Interim Director of International, EU and CAP Reform?

Q153 Chair: We are delighted to welcome your colleagues back, and thank you for this session. We have not completed our evidence session, so we are taking it slightly out of kilter. I must refer to the registered interest that I have.

Richard Drax: Can I also do the same, please?

Q154 Chair: Secretary of State, I think you alluded to this in the earlier evidence session, but, under a previous Government, the cost of implementing the last round of CAP reform was an individual cost of each claim in England of about £1,700. Are you able to give the Committee an assurance today that this system will be implemented in England in a significantly easier, more simplified manner than that?

Mr Paterson: Yes. I was really shocked a year ago when I came in and found out just how much we have had to spend on this allowance. When Bronwyn first showed me the figures, I could not believe how much it was, so I have been absolutely clear from the moment I took over that we want to introduce CAP reform in a manner which does not let us in for significant disallowance.

Q155 Chair: I am sorry; we can come on to disallowance, but I think it was the manner in which the then Secretary of State had gone for option three, which was the most complicated with knobs on. We started, in our first report on this round of CAP reform, being told that this was going to be an altogether simpler, easy-to-administer reform. Could you give us this afternoon an assurance as regards the way it is implemented in England? We can come on to fines and disallowance in a moment, but will the whole implementation be simpler?

Mr Paterson: Yes, emphatically, because that is the way to avoid disallowance. That is the big driver for us. There was a lot of speculation that we were going to make greening much more complicated. We want to make it really simple and easy for people to apply, and we want to make it really simple and easy for our payments agency to send out the payments. We want to have an easy system. Ian, do you want to go into more detail on the system?

Q156 Chair: Just before you do, are you not planning to introduce any new computer system at this time?

Mr Paterson: We are, absolutely.

Chair: This is where it went very badly wrong in 2005.

Ian Trenholm: Yes, we are, for two reasons. One is that the computer system that we currently have is a very old system and needs replacing. We cannot use the existing computer system to administer the new policy, so we are taking the opportunity to replace an outdated computer system with a state-of-the-art computer system that will be both cheaper to put in and cheaper to maintain. It will also be more flexible in the long term, because one of the key practical issues is that the existing system is very much what is called hard-coded, which means that every time you want to make a change, you have to spend an awful lot of money making that change and doing some very complex testing. The new system is a series of components and, as a component becomes outdated, you can swap it out and replace it with a new one. I am very happy to go into further detail, if that is helpful.

Q157 Chair: Mr Trenholm, this is precisely what the previous Committee was told in 2003, 2004, 2005 and 2006: that we were going to have this very easy-to-use and simple system to administer, which was all-singing and all-dancing, and it absolutely crashed on day one. I think we are going to take a lot of persuading that that is not going to happen this time.

Ian Trenholm: If I could come back, we are already prototyping the system. We will be launching a Mac-based system in November. We are looking to put our first release live next summer in what is called an alpha release. We are doing a lot more testing. We are sitting down with farmers in their offices and at their kitchen tables, rehearsing through the system with them right now. We are starting much, much earlier than was ever the case before. The technology that we are using is a much simpler technology. It is open-source technology.

We are also using a software system at the core of the system that has been used for some years by the Italian paying agency and one or two others, and that system has never had disallowance levied against it as a computer system. Using that as the core of our system very significantly de-risks what we are doing. I think what happened in 2005 was we tried to build a system from scratch and, as you know as a Committee, this is an incredibly complex policy, so building a computer system around a complex policy which was changing at the last minute is probably the worst way of going about things. We are going about this in a very different way.

It is also worth saying that, having experienced the 2005-to-now problems, we have learned from those problems. We have systematically gone through all of the reports that have ever been written, we have taken all of the recommendations and we have made sure that those recommendations have been built into our project plan. I absolutely take the cynicism, if you will, that this is a new computer system, but we have learned a number of lessons and I am confident that we will not have the same issues that we had in 2005.

Q158 Chair: As I see it, what you are saying is that farmers in upland areas particularly, who are very remote from the cabinet as far as getting rural broadband is concerned, which is not going to be in place before 2016 in many areas, are going to have Digital by Default in 2015 and a new computer system at the same time.

Ian Trenholm: They are not two different things. Essentially, there will be one computer system. We are developing an assisted digital strategy, which means that we are looking at how we can help farmers who, for one reason or another, cannot access services digitally. As Mr Grimshaw told you last week, over 80% of farmers currently contact the RPA electronically. We have gone up from 40% to 54% of applications online over the last year. I think we need to consider the needs of farmers across the piece. A very significant number of farmers are and wish to interact with us electronically. We then have to look at the other farmers who cannot or choose not to, and work out how we are going to help them. That will probably be in a different way.

Q159 Sheryll Murray: Could I just ask you to distinguish between the hardware and the software? Am I to take it that you are writing a new software programme? If you are, will it be compatible with the certain specification of hardware? In other words, are you looking at writing something that is compatible with Windows 8, for instance, which is completely different, or are you going to make it compatible with the lowest hardware operating system?

Ian Trenholm: Within reason. We are testing our system on a range of different browsers, which I think is your question, and also at a range of different speeds. We are testing it on what a 56K dial-up modem would be like, and also testing the performance at very high-speed broadband. We are doing that continuously and we are trying to make sure that the software runs as efficiently as we can. We are not going to go back to very old software that is insecure, because it is not in our interests. It is not in the farmers’ interests for them to be running computer systems which are, say, Windows 95 or very old systems. It is just not secure enough.

Q160 Iain McKenzie: You link in with the broadband providers or suppliers. What has that been like? I have been talking to some and they are still very reluctant to commit to certain rural areas of the country in terms of providing the fibre-optics and the superfast broadband.

Ian Trenholm: We are working with our colleagues at DCMS, who are leading on the overall broadband programme. We will be looking at different farms in different locations and working out where there is good broadband coverage and where there is not good broadband coverage. We will have to make sure that our assisted digital strategy takes into account where there is strong and weak broadband coverage. We and the programme are not directly linking with the broadband providers, because we cannot be confident of the exact detail, on a farm-by-farm basis, at this stage. We have to build a system that is generic enough to be run across a range of different systems, be that satellite broadband or fibre-optic and so forth.

Q161 Mrs Lewell-Buck: Correct me if I am wrong but I think the timeline to have your IT systems in place and everyone onboard is 2015. Is that correct?

Ian Trenholm: That is correct.

Q162 Mrs Lewell-Buck: Bearing in mind the comments from the Chair and the rest of my colleagues on the Committee, is it realistic that these farmers will be up and running with this IT by 2015, and would it not be more reasonable and responsible to offer a manual option as well, while people are coming on board?

Ian Trenholm: We may very well do that. As I said, we are putting in place an assisted digital strategy that looks at exactly what technologies farmers can have. It is possible today for a farmer to go out and buy a satellite-broadband service. They can do that wherever they live in the UK, irrespective of what is going on in the broader picture.

Q163 Chair: Would they have to pay for that themselves?

Ian Trenholm: They would.

Q164 Chair: Are you going to give them some money out of the rural community broadband fund for this purpose?

Ian Trenholm: The cost of a satellite broadband service is broadly equivalent to a mobile phone package, so I do not think it is a particularly expensive option.

Q165 Chair: Do you know?

Ian Trenholm: I do know. I looked it up earlier on.

Q166 Chair: How much is it?

Ian Trenholm: £15 a month with a £99 installation fee.

Q167 Chair: Whereas the people who get superfast broadband by 2015 will not have to do that.

Ian Trenholm: They will still have to pay for broadband. They will still have to pay us a provider fee.

Q168 Chair: Can I just play back a couple of things you have said, please, just for greater clarity for my farmers, as well as anybody else? We have been told in the evidence we heard in the Rural Communities report-and we have just had your response to that-that not everyone is going to have superfast broadband by 2016. Does it not seem a reasonable request that those farmers who are not going to have superfast broadband by 2016 should be told by BT who they are and where they are, so that they can make alternative arrangements such as the ones you have suggested?

Sarah Hendry: A lot of the counties are working with BT to try to map people within the 90% and the 10%. I believe the vast majority of that has now been done; a lot of the contracts have been signed on a county basis and there are a few more to do, so we should have that clarity. I think there is then sometimes a bit of negotiation or playing around at the margins with BT or the other providers.

Q169 Chair: If you could use your good offices, that would be very helpful.

Sarah Hendry: Yes, we certainly should have that clarity in time for this.

Q170 Chair: Just to clarify another point you made, if I may, Mr Trenholm, you said that the new system would be tested at high-speed broadband. What about those who do not get the high-speed?

Ian Trenholm: It is being tested for all speeds, from 56K dialup up to superfast broadband. That is how we are building the system. We are doing that on a continuous basis. Every time we build a new release of the software, we are testing it across a range of speeds and a range of browsers and so forth. We are trying to replicate the experience of a range of different farmers.

Q171 Chair: Might those farmers who live a long way from the cabinet and who will not qualify for fast speeds be given extra help between now and 2016?

Ian Trenholm: Yes, exactly. What we are doing is putting an assisted digital strategy in place. That may very well be the option to submit on paper, but, more likely, we would encourage them to use an agent or some other person to assist them in completing-

Q172 Chair: That is an additional cost. In addition to the satellite, they are going to have to pay for an agent to help them.

Ian Trenholm: We may very well pay for the agent.

Q173 Chair: You may.

Ian Trenholm: We may.

Q174 Chair: Could we just get on the record how much we think it is going to cost and how much Defra are prepared to make available?

Ian Trenholm: We have not decided that yet. As I said, we are putting in place an assisted digital strategy. We are quite clearly looking at which farmers are currently able to interact with us online, and who currently does and who currently does not. One of the things that Mr Grimshaw and his team have done over the last few years is to look very carefully at how farmers are interacting with us. There are quite distinctive patterns and quite distinctive types of farmer, so we want to make sure that, where farmers genuinely need support, we can provide that support. Where farmers are choosing not to interact with us electronically but could, I think we have to ask the question why that is, and we should be encouraging them to interact with us electronically.

Q175 Chair: That is very helpful, thank you. Secretary of State, does the reformed CAP, in your view, represent a good deal for the UK taxpayer?

Mr Paterson: It is not really satisfactory from the point of view of my strategic aim, which was to continue the progress begun by MacSharry and continued by Fischler. There are certain points where we definitely go backwards; the reestablishment of coupling is an example. Our achievement, working closely with likeminded allies, is that we have stopped some really bad things happening. We may not get thanked for it, because I am not rung up by my farmers saying, "Thank you very much, Mr Paterson, this has not happened," but we did stop a lot of bad stuff: the craziness of the active farmer was an example. On the last night, late on, there was a proposal to replace the milk regime with a really seriously misguided proposal to penalise the most efficient 5% of Europe’s dairy farmers and to reward the most inefficient.

We did stop a lot of bad stuff, and I think we can take credit in some areas, such as the sugar reform, where we really dug in and worked with allies against some big opposition. It was always intended that 2015 would be the end of the sugar regime. The proposal was to push it out to 2020, which would have meant that it would have gone into the next round. Frankly, we would never, ever have got a stake through its heart. By accepting 2017, we will have a free market. There are great opportunities and it is really good for our hardworking citizens. The ludicrous sugar regime at the moment adds 1% to the shopping basket of every citizen in this country, because we are paying 35% over the odds for the sugar.

Q176 Ms Ritchie: As a supplementary to you, Chair, this is really around the budget-and I should say now that I am going to have to leave to go to another meeting. Given that the European Commission expects you to have a determination in respect of the budget for yourselves and also for the devolved regions, when do you hope that will happen? Will Scottish independence have any impact on the allocations to devolved regions?

Mr Paterson: We have had clear submissions from all constituent parts of the United Kingdom. We will be discussing this at the highest levels of Government and we will be making a decision very soon.

Q177 Sheryll Murray: Thank you very much, Madam Chairman. Secretary of State, I just wanted to turn to Pillar II and the budget. The Commission have not revealed how their guidelines are interpreted in practice, but did the UK Government fail to get an equitable share of the rural-development funding, and if so, why? Was it because of the way in which the Commission guidelines worked, and did they work against us, or was there another reason?

Mr Paterson: There is always a cause for celebration and a cause for grievance on anything to do with finance and the European Common Agricultural Policy. You can look at these things from various different angles. It is partly historic. What we should celebrate is that there will be very significant payment by the public purse on Pillar II. We are looking at a figure of €1.84 billion. That is a substantial sum of public money, and the trick is to make sure that we spend it wisely.

Q178 Neil Parish: Given that Government is philosophically opposed to direct payments, why are you so against capping very large payments, for example at €500,000, or increasing degressivity above 5%? Playing devil’s advocate, why do some claimants need more than €500,000 of taxpayers’ support?

Mr Paterson: I want to see an efficient, successful farming industry concentrating on the production of good-quality food, with successful environmental outcomes. I do not want to see our successful farmers spending hours and hours with expensive solicitors artificially carving up their holdings to avoid an arbitrary diktat on the size of their holding. I am happy to see a slice of 5% above 150 on the basic payment without greening, which is what we intend to do and what we are consulting on, but I really do not want to see our most successful large landowners spending the whole time artificially locked up with expensive lawyers. I would much prefer to see them working.

Q179 Neil Parish: Do you see those payments as land management, not just about the fact of the size of the farm and how they manage the land? Is that how you see the payment working?

Mr Paterson: This is a substantial sum of public money, which helps maintain the industry. The trick is to see how it is going to develop down the road. This replaced the original subsidy of large amounts of food surplus. It was clear, from the beginning of the reform, that this was going to be there. There are all sorts of questions, when you look at other countries, as to whether it is good value, which is why we will have an interesting discussion, I am sure, in a few minutes on modulation from Pillar I to Pillar II.

Q180 Neil Parish: Are you able to use this 5% that comes from degressivity or capping the over-€500,000 payments for environmental schemes and the like, if you so choose?

Mr Paterson: Yes. I think we can put it straight into Pillar II. That would be the proposal.

Q181 Neil Parish: You are not thinking of more than 5%, then.

Mr Paterson: No, not at the moment. As I said, I want our successful farmers to concentrate on being successful farmers, managing their farms, producing good food and improving the environment. That is what I want them to concentrate on. I do not want them huddled up with expensive lawyers because of some pretty arbitrary diktat on how large their holding should be.

Q182 Iain McKenzie: Secretary of State, do you agree with Natural England’s assessment that the implementation of greening based on the basic greening measures is unlikely to generate measurable environmental benefits?

Mr Paterson: I think it will deliver some benefits. It was absolutely clear, from the very earliest discussions I had, that the Commission were determined to push this through. I think we are in a different position to other European member states. We have good schemes already in Pillar II on ELS and HLS, which do deliver environmental outcomes. As a country, we are further down the road on this, but we are only one of 28 now and we had to accept that the Commission was absolutely determined to put this greening element through. I think the trick is to make it as simple and easy to reply as possible. The one area where we are consulting very publicly is to see if we could do something on pollination, which is a matter of huge interest to the general public, and quite rightly because pollination is of absolutely critical importance to our plant environment. Without gold-plating and without making it unnecessarily complicated, I am still very keen to see if we could get something in there on pollination. It might be in the EFAs, but I am not sure. We will, clearly, put this in our consultation document.

Q183 Iain McKenzie: How much flexibility would you say you have over the implementation of greening?

Mr Paterson: There is not a huge amount. Commissioner Cioloş was very clear about his three criteria.

Q184 Iain McKenzie: Were you talking about approaching the Commission about a certification scheme that would permit farmers to undertake an alternative measure to three-crop rotation?

Mr Paterson: I have talked to Peter Kendall about this. I know that the NFU are keen on this proposal. The feedback we have had from the Commission is that they are not enthusiastic, and it could be complicated.

Q185 Iain McKenzie: Have you spoken to the Commission on that specific point?

Amy Holmes: As I understand it, what the NFU are asking for, and what Peter Kendall described when he gave evidence, is to not do the crop diversification measure but to supplement it with additional EFA measures using a national certification scheme. The Commission proposals are quite clear in that you cannot substitute crop diversification. There are equivalent measures that you can do, which are listed in the annex, but you cannot not do something within that band. You cannot swap crop diversification for additional EFA measures, in essence.

Q186 Iain McKenzie: Have you spoken to them on that specific issue?

Amy Holmes: Officials have spoken to officials in the Commission.

Martin Nesbit: The legislation is pretty clear as well.

Q187 Iain McKenzie: Finally, Secretary of State, are there any particular aspects of the Commission’s greening proposals that give you concern?

Mr Paterson: Yes. The arbitrary nature of the crop rotation will be difficult for some people. I was talking to a chicken farmer in Worcestershire not long ago. He only grows wheat to feed his chickens and he will have a problem. I can see people doing swaps with neighbours and renting land off each other, which will give some complications to the RPA. This does not affect us, because Scotland will be running its own CAP. One of our big achievements was to get absolutely total autonomy for the four regions of the UK. I was up in Scotland not long ago and there will be a problem, for instance, in some of their big barley growing areas, where they grow barley for malt for the whisky industry. They will not be rotating much, so I think that could cause us problems. I would repeat, though, that Commissioner Cioloş, from the very first meeting I had with him, was absolutely determined to push this through.

Q188 Iain McKenzie: When will you assess whether the greening payment delivers environmental benefits? How will you assess that?

Mr Paterson: In some of the stuff like the EFAs, there is the potential to deliver some of the benefits that we are already getting in ELS. As I see it, we will get a slug of the benefits from ELS, which means we will have to create something new in Pillar II, but we have to decide what we do in greening before we can move on to what replaces ELS.

Q189 Iain McKenzie: As a quick supplementary, on the referendum on Scottish independence, what would be the impact on the CAP breakdown be for England if it fell to a yes vote?

Mr Paterson: I do not speculate on what happens if there is a yes vote. I am very confident that the Scots will be sensible and will maintain the Union, which has brought great benefits to all constituent parts of the UK since it was set up.

Q190 Richard Drax: If we may come back to modulation, Secretary of State, can I just ask very quickly whether you think that English farmers are, on the whole, some of the efficient, most environmentally friendly and best farmers, probably, in the EU right now?

Mr Paterson: Why do I think they are?

Richard Drax: Do you think they are, and that English farming is up here, the gold standard, compared to some countries, or most countries, in the EU?

Mr Paterson: That is a very good question. I have not looked at the direct productivity comparisons with other EU farmers, but what I am seeing is that English farmers are successfully competing in a world market. They are producing products that consumers want to buy and we are beginning to make inroads into export. They would not do that if they were out of kilter with the market. I was clear from the beginning that my ideal-to get back to the Chairman’s first question-

Q191 Richard Drax: I have to interrupt, I am sorry, because we are pushed for time. I do not want to go too far along these lines. The reason I ask you that question is that, certainly from the NFU’s perspective-and I know you know this; I think you are quoted as saying they are "obsessed" with this 15% modulation-to them, and to others, this combination of greening rules, cross-compliance, Pillar II measures and voluntary measures will, together, produce the environmental benefits that we need, without the move to 15% modulation, which they and many others would argue is going to make them uncompetitive within the EU. What is your view on this modulation and where are we going with it?

Mr Paterson: Just let me quickly finish your first question. As I see it, since direct subsidy of production stopped and you had the single farm payment, English farmers have reacted successfully to market signals. We do not need coupling in this country to have a successful beef industry. That, I think, is the way to go, and I have always said that there is a role for public funds to compensate farmers and landowners for the public good provided by the environmental work that they do and for which there is no obvious market mechanism.

I think the whole argument about modulation is very mixed. Peter Kendall has fought a very public campaign. He does not want to go above 9%, which is where we are at the moment, and he does not want to go to the 15%, which we could go to. That was made very clear to me on a weekly basis when I went to an agricultural show all through the summer. Whenever I went to the NFU tent, I was given a very clear line. I have to say, however, that the minute I left the NFU tent, I was frequently grabbed by another farmer or another landowner who said, ‘You stick to your guns. I am in ELS. I am in HLS. We very much value the Pillar II money.’ I would point out to everyone that 70% of our agricultural land is in one of these schemes, so it is not an absolutely black-and-white argument that all the farming community follow the leadership of the NFU line. In fact, I have had county chairmen of the NFU saying they would like to scrap all subsidies, going back to the earlier question over here.

Where we are is that I am clear that we are going to consult over the next few weeks. As long as there is a clear benefit from projects proposed, there is a justification for the 15% modulation. We are not going to do it, as I said, just for the hell of it. We will only do it if we can come up with good schemes that will help English agriculture, the rural environment and the rural economy. If we come up with projects, that is a good use of public money, and we have to look the taxpayer in the eye-and they are having a tough time at the moment. Because of world weather conditions, we have recently had an increase in prices. This is very important. The public have to see what they get for this public money.

Q192 Richard Drax: I think we all accept that, but the point is that, if no one else in the EU does it, does that not make the English farmer vulnerable to being uncompetitive?

Mr Paterson: No, I completely disagree that English farming is going to be made uncompetitive because of a few euros’ difference per hectare. There is already a massive discrepancy in payments per hectare right across Europe. There is no level playing field, and there never was from the beginning. If you look at the new entrants in eastern Europe, they are miles behind us. We are a little below the average, in the middle, but Malta is miles ahead of us, as are some of the more mature countries. This does not make the difference. What makes the difference is being world competitive on technology, skills and things like rural broadband, as we have just been talking about. That is what is going to make the difference to our agriculture. Training, skills and bringing in technology are the things that really matter.

Q193 Richard Drax: We mentioned food scarcity earlier, and the fact that 1 billion more are going to need to be fed. Would that not imply that more money should go to Pillar I rather than Pillar II?

Mr Paterson: No, not necessarily. You only need to look at our consultation document when it comes out. There are real benefits to some of these Pillar II schemes, enhancing our skills and our productivity. We have to compete in the world against farmers in Brazil, America and elsewhere.

Q194 Richard Drax: How will Pillar II help us enhance our productivity? That is what we are here to ask you.

Mr Paterson: The programmes that we have-improving technology, improving the standards to which we produce agricultural products, getting people into food production and adding value-are all absolutely integral to ensuring that our productivity improves. Productivity is really important in this. It is much more important than a few hundred pounds an acre in Pillar I. It really is key to me.

Q195 Richard Drax: How is more money to Pillar II going to increase productivity?

Mr Paterson: That depends on us constructing schemes which will help.

Q196 Richard Drax: The production of food or the greening of the environment?

Mr Paterson: Pillar II schemes have to help either the rural economy, agriculture or the rural environment. There will be a mix. It is, however, really important that we look the taxpayer in the eye-who, under difficult circumstances, is going to be spending £3.5 billion on this, which is a very significant sum of money-and ask what they are going to get for it. That is why, going back to the earlier question, I am keen to get something in here on pollination, which is a matter of intense interest-and quite rightly-to the general public. You could look the public in the eye and say, ‘For this, we are improving the status of pollinators.’

Q197 Richard Drax: Finally, does the addition of greening under Pillar I reduce the need to transfer the maximum amount to Pillar II?

Mr Paterson: I have partially touched on this. What it means is that you take a slug of activity out of ELS, because you cannot pay for something twice, which is one of our absolutely key points in the negotiations. Once you have taken a slice out of ELS, you know what is not there and you can then create son-of-ELS and, probably, HLS. I repeat very clearly that we are not going to do this unless we come up with some very worthwhile schemes that will deliver public benefits.

Q198 Neil Parish: Going on to the agri-environment schemes, you talked about competitive agriculture in Pillar II, but what proportion of the Pillar II budget, whatever you modulate it at, will be available for agri-environment schemes as opposed to measures aimed at boosting the rural economy? Of the 9% or 15% you take, what are you going to spend on agri-environment schemes?

Mr Paterson: I might not know the detail of this. A lot of this is already committed, do not forget. We have already committed on schemes up to 2015. You have Leader, where, under EU rules, we have to spend 5% of the rural development money. Sarah, as the absolute guru on the detail, might get into this.

Sarah Hendry: Currently, you would put around 80% of Pillar II money into agri-environment schemes. When you see the consultation document, it will model various scenarios for how we might or might not flex that, and people can comment on that. If we continued on something like that share, the thing we have to take into account is that we have a large overhang of existing commitments in multi-annual agreements. That will take up more than £2 billion of the budget available to us in England, so the headroom left for new agreements, even if we transferred the full amount from Pillar I, would be relatively small, at something like 30% of the overall pot available to us.

Q199 Neil Parish: That leads me to the other part of my question. Natural England told us that farmers will have to compete for stewardship-scheme funding. How will this competitive process take place? If you want the uplands and others to have these stewardship schemes, how are you going to make sure that the right people get the scheme, and who is going to be the judge of that?

Sarah Hendry: The basis on which we are thinking about doing that now-and, again, that is being developed and we have had quite a lot of contact with environmental organisations, including Natural England, and with farmers and others-is that part of it would be very highly targeted. I think Natural England use the phrase "on invitation", so we would have a very clear idea about where our highest value SSSIs and other sites are. Some of them might already be in schemes and, therefore, when they come to an end, you would invite those to continue. That would be highly targeted. If we have sufficient money in Pillar II, we might look at something that is on more of a landscape proposal, perhaps on a catchment basis or other landscape areas where you can start to roll out the Lawton vision of doing things in a joined-up way and looking at multiple objectives around biodiversity, water, woodland and other things. We have yet to think about how we encourage the right kind of proposals to come forward, but there might be a role there for environmental, wildlife and farmers’ groups and others to come forward with proposals for where they can make an offer.

Q200 Neil Parish: There are some very good ideas there, but, if you are going to go down that path, surely you have to have some idea of what is going to cost and how much you would need to modulate in order to get yourself there.

Sarah Hendry: I mentioned before that we have the existing over £2 billion of commitments. I know that we will need to use at least 5% of the EU money that we get for Pillar II for Leader-that is a requirement. We know that, just to achieve that, we will need to transfer across at least 1%. If we transferred up to around 15%, that would enable us to run some schemes on the basis that we had set out in the consultation. If you scaled that back and went down to 9%, you would be talking about having about half the amount available, and so on. It is about hard choices, depending on the money.

Q201 Chair: I think it is under the direct payment scheme, but it might be under the agri-environment scheme; we are hearing stories-and are about to take evidence-that 70% of the scheme is going on administration costs. Does that not seem uncomfortably high?

Sarah Hendry: Do you mean administration costs to our delivery bodies?

Q202 Chair: It is particularly relating to common land. We might come back and look at that, but it strikes me that 70% of the scheme going on administration costs is not a good use of taxpayers’ money.

Sarah Hendry: Where we pay out money, and if we are talking about agri-environment agreements, we will pay that to the person who enters into the agreement. In some cases, that might be the landlord, if that is the person who comes forward and has the appropriate management control over the longer term; in other cases, it would be to the tenants; if they were commoners, it could be directly to the tenants. Any agreement they enter into would tend to be a private matter.

Q203 Chair: This leads neatly into Sheryll Murray’s question on the active-farmer test.

Q204 Sheryll Murray: There are different views from various people on the active-farmer test. How are you going to determine who is an active farmer in terms of minimum activity? Do you see the active-farmer test creating any problems, such as the relationship between tenants and landowners? In your answer, perhaps you could let us know when claimants will be notified if they are considered active farmers and eligible to receive CAP funding.

Sarah Hendry: Frankly, this is one of the most difficult areas at the moment. As you will be aware, there is a so-called negative list of activities set out in the regulation, including things like providing water services, railways and golf courses and what have you. There is a certain amount of work that we need to do in talking to farming and other organisations to think about how we could apply that test: will people need to come forward if they think they need to make a case on it, or are there other ways of doing it? It is potentially one of the more burdensome activities that RPA might need to undertake. It is hard and we will be doing some more consultation with it. We set out the position in the consultation document but we do not yet have a nice, easy approach to that.

Q205 Sheryll Murray: Do you foresee an end to dual-use payments? It has caused difficulties, with farmers perhaps getting money from Pillar I and landowners getting money from Pillar II. Can you see an end to that?

Sarah Hendry: We know it is one of the areas that the European Commission has had a lot of concerns about in terms of whether we can really show that the different people receiving the different payments for the same piece of land have the right level of control. We have needed to tighten up the evidence that we get under the current scheme. I think we will need to look, in light of the detailed implementing rules, at whether or not that can continue. Clearly, it has advantages if you want to enter into an agri-environment agreement, particularly on a high-value piece of land, where it might need to be the landlord who signs the agreement. That is another piece of work in progress for us.

Q206 Chair: If I could just dwell on that point for one moment, this is where a problem is arising, because it is the tenants or the farmers-often, the graziers, if it is common land-doing the work. If the evidence we hear does point in the direction of 70% being creamed off on administration charges under a clause of that agreement, does that not seem an abuse of the intended purpose of the agri-environment scheme?

Sarah Hendry: If that is what is happening, it is clearly not is what intended. We place no requirement on anyone to levy administration charges, commission or anything else. All we require in those circumstances is the signature to indicate that the landowner is content for the agreement to happen. Anything more than that will tend to be a private agreement between the landowner and the tenants, and that is something that is very difficult for us to get into. We do not have any losses on that.

Q207 Chair: We are told that Natural England cannot get into it, and it is causing a lot of anxiety for people who, historically, used to get the money themselves. Now, the money is being creamed off, potentially, as we will possibly hear, if that is the case, by landowners. Is it something you could address at this stage of implementing the next round?

Sarah Hendry: We do not think we have the mechanism to address it.

Q208 Chair: Is it an injustice that will just persist?

Sarah Hendry: We are not aware of lots and lots of cases of this. I know, Chairman, that you have raised some cases that are known to you.

Q209 Chair: In various parts of the country. You could potentially look at this.

Sarah Hendry: I am not sure that we have the mechanism to do it.

Q210 Chair: Where does the mechanism lie? Do we need a mediation or resolution, as we advocated in our uplands report?

Sarah Hendry: That might be a route.

Q211 Neil Parish: In terms of regional payments, the Government is looking at whether it can combine the same payment for non-SDA land and SDA; non-moorland would be a similar type of payment. This would have the effect of moving some money slightly uphill, so to speak. That would perhaps be useful to upland farmers, but if the uplands scheme in Pillar II is discontinued, might upland farmers still be worse off, despite the changes in regional distribution? Do you understand what I am talking about?

Mr Paterson: Yes, sorry. I am clear that, in the uplands-going to my mantra about food-because of the nature of the ground, it is not possible to survive on food-production alone, so there is a very clear role for taxpayers’ money to compensate farmers. People will not go to the Lake District or the Peak District if the stone walls have all fallen down, and if the carrion crows and the bracken have taken over. There is a real environmental-management role upon which sits a huge rural-tourism industry which is worth about £33 billion. I am absolutely clear that there is a role for Pillar II schemes, and I think there is a clear role for ensuring that an adequate slice of Pillar I is moved uphill so that farming continues as a thriving activity in the hills. We are consulting on this, as you will see in the paper when it comes out.

Q212 Neil Parish: Can I take your answer to mean that payment for non-SDA and SDA land will be the same or similar, and that you are also still looking at having upland environmental schemes in Pillar II? Will you have the money for Pillar II payments?

Mr Paterson: No, this will be a change in Pillar I. There will be a deliberate shift in Pillar I to move some more money uphill, and that is quite deliberate. Do you have the details?

Sarah Hendry: Yes, I do.

Neil Parish: It is £257 a hectare for non-SDA and £208 for SDA at the moment. If you change it to the same, it will be moving about £50 per hectare in Pillar I.

Sitting suspended for a Division in the House.

On resuming-

Q213 Chair: Thank you very much, Secretary of State, for returning. Could I just follow up on National Parks first of all? Setting the minimum claim at five hectares will remove 40% of the holdings within National Parks and 8% of the land from cross-compliance obligations, with potentially a detrimental impact. It might have been put to you on your visit to North Yorkshire but, if not, are you concerned-and do you share the concerns that have been put-about that loss of entitlement?

Sarah Hendry: Can I do that one, Chairman? Looking at the figures that National Parks have put forward, we think that they have derived those from census information which was available to them. If we look at the information that comes from the single farm payment data for 2012, we think that they overestimate the impact in National Parks. They also did not disallow the people below one hectare who were already excluded from SPS. If you look at the data, the National Parks come off rather better than the English average. In England, it is less than 1% of agricultural land; in National Parks, it is about 0.4% of agricultural land that would be excluded. The cross-compliance provides an additional leverage on things that are largely set in existing legislation, so, even on land that was excluded from cross-compliance, a lot of the requirements still apply.

Q214 Chair: That is very helpful, thank you. Secretary of State, a previous Minister for Agriculture, Jim Paice, was very aware of and very helpful around particular problems for common land, and particularly the registration of entitlements for commoners. The way in which the current implementation has been applied in the single payment scheme has caused significant problems. Will you take a political interest, as Secretary of State, in common land under the reformed CAP? It is not widely across England but common land exists in areas like North Yorkshire, Cumbria, Northumberland and, I understand, parts of Cornwall and Devon.

Mr Paterson: Broadly, we are looking at various options on this, but we intend to have the maps completed by 2015. Sarah, do you want to talk more about the details?

Sarah Hendry: As the Secretary of State has said, we will be doing the remapping, because we recognise that that is very important. On the implementation of part one of the Commons Act, we are looking for options as to how we might be able to do that.

Q215 Chair: Securing the register where it was unsecured in the past is something that you are prepared for.

Sarah Hendry: We recognise that there are problems where you have land that either is not on the register or is erroneous on the register.

Q216 Sheryll Murray: Could I just turn to the LEPs? Love them or hate them-and I think there is a mixed view on them-how much Pillar II funding will be channelled through the LEPs? How will you ensure accountability? That is where there has been a lot of criticism in the past.

Mr Paterson: This is one of the issues that we will be consulting on. We want to have the LEPs involved in this. I have talked to various LEPs as I went around the country, and particularly the one at the Royal Cornwall Show. There are various key things that we do need to finalise, which is why we need to get on with the consultation. Is there anything in particular that you want to mention on this, Sarah?

Sarah Hendry: On the control and how it is spent, we have set out in the guidance to LEPs the measures that we think will be appropriate for this money to be spent on. We will be looking for them, in their strategies on how they will spend European funds, to reflect how they will do that. We have the opportunity to talk to them and they have been putting drafts in recently. There will be a list of things that we think would be appropriate and we will help to manage the money for them.

Q217 Sheryll Murray: Will there be more stringent control over them? Will they be held to account in a more stringent way than, perhaps, we have seen in the past?

Sarah Hendry: It will be different from the regional development agencies, yes.

Q218 Richard Drax: The LEP in Dorset has extremely able, worthy and hardworking people. "Hardworking" is, perhaps, the phrase that I should underline. They are so busy. How, realistically, are these people going to cope with more administration, more budgets, more money and more detail? How is this going to work, practically?

Sarah Hendry: Different LEPs organise themselves in different ways. Some of them, clearly, are drawing on the capacity that they have in local authorities. Local authorities will be the accountable bodies for the funds that LEPs have to deal with, and we would remain, technically, the managing authority for European funds put through them. Our teams are available to do a lot of the administration for them. They would have a strategic role and they could help with prioritising and make decisions, but the detailed administration would remain with civil servants to enable them to focus on their strategic role.

Q219 Richard Drax: Dorset County Council, which is facing another budget cut and having to cut its budget from £300 million to £100 million, is worried about this because it is going to mean more of its staff involved in doing this sort of work. Is that not going to affect their budgets?

Sarah Hendry: That, clearly, is a decision for different LEPs in different authorities, but there are very significant sums of money available to be spent on purposes that local authorities have a strong interest in. They would need to make a judgment on how they want to be involved in that.

Q220 Sheryll Murray: I take a different view to Richard on this. Are there going to be checks on the local authority to make sure that they are doing their job properly, if they are the authority that is directly overseeing the way that the money is being spent? Will your Department be making sure that the checks are in place so that the funds are diverted in the right way?

Sarah Hendry: Ultimately, the responsibility for accounting for the money-a lot of which comes from Europe-rests with us or the other Government Departments as those managing authorities, and it is our role and responsibility to make sure that the right checks and procedures are in place.

Q221 Chair: If we hear evidence to the fact that it is a problem, that a private agreement is causing difficulties for individual tenants and graziers, will the Department look at creating a mechanism to deal with this type of problem?

Mr Paterson: I am not sure that we can commit until we see the detail.

Q222 Chair: That is up to us to make a recommendation.

Mr Paterson: Apart from the case that you have brought to our attention, I have not come across this anywhere else. I do think that there is a limit to how much we can get involved in private arrangements between private landlords and private tenants. Ultimately, there are solicitors who can help resolve this in law. There is a limit to how much we can get involved.

Q223 Chair: We will come back to this when we hear the evidence. Mr Nesbit?

Martin Nesbit: The only thing I was thinking of adding was that, given the emphasis that we have placed on the simplicity of implementation, particularly for direct payments, we need to be careful about adding additional rules on expenditure which then impose burdens on the full range of landlords and tenants, as well as those particularly affected in these individual cases, and potentially increasing the disallowance risk to the Department too. This is clearly something that will need further thought.

Q224 Chair: We need to take the evidence and then come back to you, but my understanding is that this is much more pervasive. If they think they are getting away with it, it will only increase as well. On the Macdonald taskforce that the Committee is very excited about, what stage are we at in implementing their recommendations, particularly on cross-compliance?

Mr Paterson: We have implemented a good number, and I commented on this in the earlier session. The problem that we have is proving a negative. People do not ring me up and say, "Thank you very much for not having inspected my farm", but, thanks to what we have done, there will be 8,000 fewer inspections of dairies this year. What we are trying to do is to reward those who do respect the regulations. The vast majority of farmers are responsible, and their reward is that they will be bothered less.

Q225 Chair: Does the launching by the Department of the red-tape challenge not negate the work or mean that the Department is parting company from the Macdonald taskforce?

Mr Paterson: No, I think that that all works together.

Chair: You have been very generous. We have taken things slightly out of kilter, which is a little unfortunate, in some of the questioning, but we are very grateful to you for the time you have made available. We will draw our conclusions and be in touch with the Department at that time, but thank you to you and your team for being so generous with us this afternoon. Thank you very much.

Mr Paterson: Very good to see you.

Prepared 1st November 2013