Agriculture subsidies after Brexit

Having left the EU, the UK is now free to design its own agricultural policy to replace the EU’s Common Agricultural Policy (CAP), although key elements of the CAP-based system currently remain in place. In 2018, UK farmers received around £3.5 billion per year in CAP payments.^[1]

How were agricultural subsidies allocated under the EU’s Common Agriculture Policy?

CAP payments fall under two pillars:

Pillar one - Direct Payments

These made up 80% of the UK’s 2018 CAP budget.^[2] Farmers receive payments based on how much land they farm, although they are required to meet ‘greening’ requirements and may have their subsidy cut if they do not comply with environmental regulations. In the UK, direct payments are provided through the Basic Payment Scheme (BPS), administered by the UK government for England and devolved administrations in Scotland, Wales and Northern Ireland. Measures to support market prices also fall under pillar one.

Pillar two - Rural development payments

These made up 20% of the UK’s 2018 CAP budget.^[3] This provides financial support to farmers and other rural businesses for delivering environmental benefits (such as preserving habitats and managing flood risks), improving farm efficiency (such as helping farmers use less feed and pesticides) and supporting rural development. In the UK, these payments are provided through multi-annual Rural Development Programmes, such as the Countryside Stewardship Scheme. 

Reliance on public subsidies varies between farmers. Between 2014/15 and 2016/17, direct payments (under pillar one) made up an average of 9% of farm revenue or 61% of farm profits in England, although this figure is much higher for some sub-sectors, such as upland farms grazing livestock.^[4]  

How were agricultural subsidies distributed within the UK?

Agricultural policy is devolved. When the UK was a member of the EU, the four governments were responsible for administering subsidies according to EU rules. Outside the EU, the different administrations can develop their own schemes.  

How will farms be supported in England?

England has made the most progress in establishing a post-Brexit agricultural subsidy regime. The new regime is being ‘co-designed’ with farmers, land managers and other interested parties, whereby these groups work with officials from the Department for Environment, Food and Rural Affairs (Defra) to develop the new schemes.

In 2018, Defra announced its intention to adopt the principle of ‘public money for public goods’, whereby farmers and other land managers will be paid for delivering (primarily) environmental benefits rather than the amount of land they farm. The government argued that direct payments were a poor use of public money.

The Agriculture Act, passed in November 2020, sets out a legislative framework for the new subsidy regime in England, including the list of ‘public goods’ for which subsidies may be paid. Shortly afterwards, Defra published an updated plan, The Path to Sustainable Farming: An Agricultural Transition Plan 2021 to 2024. This set out plans for a range of schemes, including initiatives to increase biodiversity, restore landscapes, promote animal welfare and increase productivity through investment in new equipment and technology. Central to the new regime is the Environmental Land Management Scheme (ELMS).

The environment secretary has described the ELMS as the ‘main tool’ for delivering improvements to water quality and biodiversity, key elements of the government’s 25 Year Environment Plan.^[5] The scheme is also expected to support the government’s net zero ambitions by helping to reduce agricultural greenhouse gas emissions, protecting and increasing carbon stores and supporting ecosystem resilience.

The ELMS has three components:

1. Sustainable Farming Incentive (SFI)

SFI will pay farmers for taking actions above minimum legal requirements to promote wildlife diversity, use water efficiently, enhance hedgerows and manage croplands and grasslands, while continuing to use their land for production.

A pilot scheme was launched in October 2021 with 1,000 participants. Running alongside this, an initial version of the scheme, only be open to current BPS recipients, will launch in 2022 focussing on soil quality and animal health and welfare. Each following year, additional standards will be added before full rollout in 2025, while all farmers will be eligible to apply from 2024 at the earliest.

2. Local Nature Recovery Programme

This scheme will pay for actions that support natural recovery in local areas, such as creating, managing and restoring natural habitats, peat or wetland areas, and hedgerows. It will encourage co-ordination between different farmers.

A limited rollout of the scheme will begin in 2023, before full rollout by the end of 2024.

3. Landscape Recovery Scheme

This scheme will support long-term changes to land use, such as large-scale tree planting and peatland restoration projects (which would involve either massive reductions to or complete cessation of farming on the affected land). It will be open to projects for land areas of between 500 and 5000 hectares, with proposals sent in by individuals or groups and Defra selecting those with most potential.

A national pilot of up to 15 projects will begin in 2022 – starting with a two-year development phase – and the programme will be scaled up from 2024.

Defra published more information on the new schemes in December 2021^[6] and January 2022.^[7]

To meet the government’s environmental goals, Defrais aiming for at least 70% of farmers, covering at least 70% of farmland, to take part in SFI, and ‘significant numbers’ to participate in the Local Nature Recovery scheme.^[8]

The new regime will be introduced gradually over a seven-year ‘agricultural transition period’ from 2021–2028. Over this period, components of the current subsidy regime will be phased out. The biggest change will be the gradual reduction of direct payments under the Basic Payment Scheme (BPS). This will occur in two stages:

Between 2021 and 2024, payments will be gradually reduced, with farmers who receive the most money facing the sharpest cuts. Greening requirements have already been removed from the BPS.

From 2024, direct payments will be ‘delinked’, which will mean recipients will no longer need to farm the land to receive remaining BPS payments. This is intended to simplify administration of the system and signal the end of subsidies paid only for farming land.

Money saved from the reduction in BPS payments will be directed to the new support schemes.

An exit scheme is also being introduced, to encourage farmers who retire to make land available for new entrants or consolidation. They will be able to take their remaining direct payments as a lump sum, on condition they sell their land or surrender their tenancy.

Existing environmental schemes – like the Countryside Stewardship Scheme – will be closed to new entrants and participants will be supported to join the ELMS. Transitional schemes – including the Farming in Protected Landscapes Scheme – have been established to reduce gaps in support during the transition period and accelerate the delivery of environmental benefits before the ELMS is fully operational.

Alongside the introduction of new schemes, the government intends to reform how subsidies are enforced – moving towards a model that relies more heavily on education and support rather than penalties.

How have the farming and environmental sectors reacted to the plans?

Farming and environmental groups have been broadly supportive of the principle of public money for public goods. However, industry groups expressed concern that the government’s initial proposals paid too little regard for food production, did not give enough certainty over long-term funding, and would make it too difficult to receive support.

In response, in autumn 2020, the government amended the Agriculture Bill to refer to food production explicitly. It also introduced the Sustainable Farming Initiative (SFI), which will cover a broader range of basic environmental activities than originally envisaged. Some environmental groups think these concessions to farmers go too far and could lead to a regression to CAP-style direct payments.

Concerns have also been expressed about the speed of the transition period. In October 2021, the National Farmers’ Union (NFU) called for an urgent review of the future farming programme and the postponement of reductions to the Basic Payment Scheme planned for 2022 and 2023. The NFU argues that supply chain problems and a shortage of labour have caused widespread disruption across the sector, making it hard for farmers to run effective businesses even before the reduction in direct payments, and that Defra’s new schemes "simply aren’t ready", with more time needed to ensure the schemes are a success.^[9]

How will agricultural subsidies be allocated in Wales?

In December 2020, the Welsh government published the Agriculture (Wales) white paper. As in England, the concept of public money for public goods is described as central to the new ‘Sustainable Land Management policy framework’, which is also being developed through a process of co-design.

Initially, the Welsh government had planned to end direct payments and begin phasing in a new funding regime from 2021. However, the new ‘Sustainable Farming Scheme’ is not now expected to open until January 2025. Under this scheme, farmers and land managers will be paid to farm in ways that promote environmental benefits such as carbon storage and soil and water quality. An agriculture bill – setting out a more detailed framework for the new scheme – is planned for summer 2022, with a final consultation on the design of the new scheme and transitional measures expected in spring 2023. The Welsh rural affairs minister has said that there "will be no new scheme until its ready".^[10]

To aid the transition to the Sustainable Farming Scheme, the Welsh government has also committed to continuing BPS payments until 2023. Similarly, existing sustainable land management schemes in Wales have been extended until December 2023. Yet, as in England, concerns remain about how farmers and land managers will adjust to the changes. Farming leaders in Wales have been critical of the proposals, warning that: “…there is a glaring hole, in that traditional social values such as protecting families, jobs and communities are afterthoughts rather than key strategic objectives.”^[11]

BBC Radio 4, Farming Today, Seasonal Workers Pilot, Welsh farm payments and dog attacks, 07 December 2021 https://www.bbc.co.uk/programmes/m00127h4

Farmers Weekly, New Agriculture Bill for Wales to launch this autumn, 07 July 2021 https://www.fwi.co.uk/news/farm-policy/new-agriculture-bill-for-wales-to-launch-this-autumn

How will agricultural subsidies be allocated in Scotland?

In August 2020, the Scottish parliament passed the Agriculture (Retained EU Law and Data) (Scotland) Act, which gave ministers the power to alter the inherited CAP regime. In August 2021, the Scottish government consulted on the future of agricultural support in Scotland and established the Agricultural Reform Implementation Board (made up of farmers, crofters and conservationists) to advise on policy development. ^[12]

In the medium term, the Scottish government plans to keep direct payments to farmers in place until the end of the current Holyrood parliament (expected to be 2026), although by 2025 around 50% of these payments will be conditional on delivering environmental benefits, and the remaining 50% will continue to be based on the area of land farmed.^[13] Unlike the UK government for England, the Scottish government has set out than an explicit aim of the new regime will be to maintain food production and keep farmers on the land.^[14] This different policy approach partly reflects the very different nature of farming in Scotland, with 85% of Scottish land made up of less favoured farmland.^[15]

The Scottish government plans to set out its proposals for a future agriculture bill in 2022. A national test programme is also expected to begin in spring 2022 and last for three years. This will support and encourage farmers to learn about how their work impacts the climate and nature.

Scotland’s new support scheme will play a key role in meeting the Scottish government’s commitment to reduce agricultural emissions by 31% between 2020 and 2032.

NFU Scotland has welcomed the Scottish government’s proposals, which align with its calls for a mixture of environmental-based and land-based payments being phased in from 2026.^[16]

How will agricultural subsidies be allocated in Northern Ireland?

Farmers in Northern Ireland are in a rather different position from those elsewhere in the UK because of the Northern Ireland protocol. They have direct access to the EU’s single market but are also in even more direct competition than farmers in the rest of the UK with Irish farmers who are still being supported through the CAP where payments are still largely based on the amount of land farmed.

The UK Agriculture Act 2020 contains measures to allow Northern Ireland’s Department of Agriculture, Environment and Rural Affairs to administer direct payments to farmers until 2022. Following this, it is expected that the Northern Ireland assembly will legislate for a future agriculture policy framework.

Under the Northern Ireland protocol, the Northern Ireland executive can design its own subsidy programme, but the total amount that can be spent each year is capped, with the Joint Committee agreeing an initial ceiling of £382.2 million – broadly comparable to the amount Northern Ireland farmers received before Brexit.

The Northern Irish proposals for a new agricultural policy framework were published in August 2021 and have four key outcomes: “increased productivity;  improved resilience; environmental sustainability; and a responsive supply chain.”  Meanwhile, the executive is committed to maintaining the current Basic Payment Regime. The Ulster Farmers’ Union described the proposals as a “step in the right direction” to meeting food, environmental and climate change objectives.

How will the budget for agricultural subsidies be decided?

The UK government has committed to maintaining current levels of spending on farm funding until the end of the current parliament (currently due to end in 2024). As part of this commitment, in the autumn 2021 spending review, the government provided additional money to the Scottish, Welsh and Northern Irish administrations to allow them to maintain current levels of spending on farm support until 2024–25.^[17] Beyond that, it is not yet clear how agricultural funding will be allocated between the four nations.

The Agriculture Act 2020 requires the government to produce multi-annual financial assistance plans at least every five years, setting out how they plan to support farmers in England. However, this still provides less certainty over farming budgets than CAP’s seven-year budget.^[18]

1. House of Commons Library, Brexit next steps: Farm Funding in 2020, Insight, 29 January 2020, retrieved 27 August 2021, https://commonslibrary.parliament.uk/brexit-next-steps-farm-funding-in-2020 
2. Department for the Environment, Food and Rural Affairs, Defra evidence and analysis paper no 7, Agriculture Bill: Analysis and Economic Rationales for Government Intervention, September 2018, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/740670/agri-bill-evidence-paper.pdf
3. Ibid.  
4. Ibid.
5. House of Commons Environment, Food and Rural Affairs Committee, Oral evidence: Environmental land management and the agricultural transition, 20 July 2021, https://committees.parliament.uk/oralevidence/2620/pdf
6. Department for Environment, Food and Rural Affairs, The Sustainable Farming Incentive: what’s new, improved and coming in 2022, 2 December 2021, https://defrafarming.blog.gov.uk/2021/12/02/sfi-standards
7. Department for Environment, Food and Rural Affairs, Get ready for our 3 new environmental land management schemes, 6 January 2022, https://defrafarming.blog.gov.uk/2022/01/06/get-ready-for-our-3-new-environmental-land-management-schemes
8. Department for Environment, Food and Rural Affairs, Environmental land management schemes: outcomes, 6 January 2022, www.gov.uk/government/publications/environmental-land-management-schemes-outcomes/environmental-land-management-schemes-outcomes
9. National Farmers Union, Urgent review needed of BPS reductions in 2022/23, 4 October 2021, www.nfuonline.com/news/media-centre/press-releases/urgent-review-needed-of-bps-reductions-in-2022-23
10. BBC Radio 4, Farming Today, Seasonal Workers Pilot, Welsh farm payments and dog attacks, 7 December 2021, www.bbc.co.uk/programmes/m00127h4
11. Farmers Weekly, New Agriculture Bill for Wales to launch this autumn, 7 July 2021, www.fwi.co.uk/news/farm-policy/new-agriculture-bill-for-wales-to-launch-this-autumn
12. Scottish Government, Agriculture Reform Implementation Oversight Board, www.gov.scot/groups/agriculture-reform-implementation-oversight-board
13. BBC Radio 4, Farming Today Methane and net zero; Scottish susbsidy system; Carbon auditing; COP26, 5 November 2021, www.bbc.co.uk/programmes/m00114pc
14. Ibid.  
15. BBC Radio 4, Farming Today, Fishing accidents, Scottish farm payments, flytipping, www.bbc.co.uk/programmes/m00127wf
16. NFU Scotland, The Transition to Future (Conditional) Agricultural Support, NFU Scotland’s Approach, May 2021, www.nfus.org.uk/userfiles/images/Policy/0521%20NFUS%20Proposals%20For%20Future%20(Conditional)%20Support.pdf
17. HM Treasury, Autumn Budget and Spending Review 2021, October 2021, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1043689/Budget_AB2021_Web_Accessible.pdf
18. House of Commons Library, Briefing Paper: Agriculture Act 2020, 3 December 2020, https://researchbriefings.files.parliament.uk/documents/CBP-8702/CBP-8702.pdf