The future of farming and green recovery

Stephen Poole

This is a personal view that I have put together partly in response to being told by farmers that they plan 2 years ahead in their plans, but accountants work one year in arrears.

Also, in my view, we have a once in a lifetime opportunity to make a real difference and it is important to understand how to make use of all the tools and incentives available. With that in mind, I am going to try to pull together the various forces acting at the moment, and keep an up to date summary here of policy and taxation measures relating to agriculture.

I have a special interest in rewilding so I have some comments on this at the end.

Natural capital accounting

As part of understanding the way we live within, make use of and return parts of the natural world, it can be useful to account for the natural capital as part of accounts.

Valuation of the natural environment in business plans takes account of

what have the business got
what can it do
what is it worth

I recommend the guide produced by EFTEC which has an example balance sheet in Annex 3. At the moment the exact figures for the various component parts are not always easy to come by, but they are starting to be tabulated, and I will update this page with full details when available.

There is a distinction between private and public consumption and the hope is that public natural capital increases can be monetised, and potentially private flows also. As a general rule we think

private amounts to the extent that the assets are protected
public if available to public as a whole

Monetising natural capital flows

This a summary of the main current ways to monetise activities:

through the future ELMS payment system which has a phased introduction to take over from basic payments. Update in process
carbon offsetting with the Woodland Carbon Code, a voluntary standard. This gives a standard value on stored carbon in tree and landowners planting trees can potentially benefit from selling Carbon upfront payments of between £5 and £15 / tCO₂. Woodland carbon guarantee scheme auctions every 6 months
biodiversity net gain offsetting under the environment bill. This will inform future planning to increase biodiversity, and farmers may benefit from offsetting payments from local development (see below)
water companies make payments to farmers who put in place flood control and water qualify improvement schemes
green prescribing – the mental health value of being outside – a source of income for businesses with outside spaces, with the impact being a pure good
Countryside stewardship payments with good examples of payments for creation of woodland giving, for example, capital grants of up to £6,800 per hectare and annual maintenance of around £200 per hectare

As a general guide, my experience is that the cost of baseline valuation will fall between about £1000 for a very simple situation to £10000 for a complex estate.

Countryside Stewardship payments

Countryside Stewardship agreements will continue for 2021, 2022 and 2023, but will then be replaced with the new Environmental Land
Management Scheme (ELMS). This will follow trialling and testing and a national pilot involving farmers and land managers. Under current plans, the full ELMS system will be in place from 2024. However it is expected that this timescale may slip.

Net gain

At the Spring Statement 2019 the government mandated that net gain would be mandated in the Environment Bill and is contained at section 90 et seq which propose a new Schedule 7A to the Town and Country Planning Act 1990. The Bill was introduced in January 2020 and is currently in committee stage and scheduled to report on 25 June 2020. In essence the Bill requires a 10% increase in biodiversity included credits obtained.

I am not going to provide a full overview of the Environment Bill here, but will comment on parts of it as it passes through the house. It contains far more than is mentioned here and requires separate study, in due course

Tax reliefs

A brief overview of tax reliefs.

Income

Averaging of profit under both 2 year and 5 year schemes

Capital

Capital allowances on investment up to a current limit of £1m

Entrepreneur Relief on sale of active farmland to give a 10% rate of capital gains tax

Inheritance Tax

Agricultural relief on land used for agricultural purposes, which is largely centred around being used for the production of human consumable food and other products

Business Relief where the land is mainly not held as an investment asset, applies where an active trading activity is carried out. This is more complex and will be covered in a separate article.

Woodland

Commercially managed woodland is exempt from income tax and capital gains tax. In addition there is an IHT relief which defers IHT payments on growing trees. This will be covered in a separate article.

Rewilding

Rewilding can be seen as a use of land to increase the biodiversity. The above schemes can be used together and note that payments can usually be claimed for the same asset if this has more than one beneficial aspect.

At the moment about 0.3% of land area in the UK is rewilded and even ambitious plans tend to only envisage this increasing to about 5%. However this rewilded area could have an impact much larger than its area suggests.

In general it is probably not going to be worthwhile to attempt to rewild small areas, and an arbitrary lower limit could be set at 1,000 acres if large mammals are part of any rewilding plan. However, working with neighbours will allow areas of land to be connected up across landscapes. For this reason, a large part of a rewilding initiative will be connecting up land areas so action across areas involving multiple land owners is envisaged.

From a tax point of view, wild land can fall within the tax reliefs, for example where land is managed under a land management program agreed with Government under ELMS or a similar scheme payments under that scheme can potentially be seen as a payment for the service of providing the ecosystem service that the payment is based around.

As far as woodland is concerned, if these are managed under an agreed scheme it might be argued that this is commercial so should fall within reliefs. This will be covered separately.