Lords: 21 January 2021
Rural Landlords and Land Letting: Reform
Volume 809: debated on Thursday 21 January 2021
Question for Short Debate
Baroness Rock
To ask Her Majesty's Government, further to their discussions with the Tenancy Reform Industry Group, what plans they have to reform (1) legislation, and (2) taxation, related to rural landlords and the letting of land.
(Con) [V]
My Lords, I declare my interests as set out in the register as a director of Wrackleford Farms, a tenanted farming business. I thank all noble Lords taking part in this important debate today, and greatly look forward to their contributions. I also thank my noble friend the Minister, who so recently took the then Agriculture Bill through this House. I was most encouraged by his supportive comments on the vital importance of agricultural tenants.
The tenanted sector of agriculture brings together those with assets—landowners—and those with entrepreneurial flair—tenants—to create sustainable and profitable businesses while providing landowners with a return through the payment of rent. The landlord and tenant system also provides liquidity to the most fixed factor of production in agriculture: land. Farm businesses looking to expand or contract can use the flexibility of the landlord and tenant system to meet those objectives. Also, agricultural tenancies remain the only viable route for many aspiring farmers to enter the sector.
It is disappointing that this important sector is adversely affected by short-term thinking. The introduction of the Agricultural Tenancies Act 1995 represented a major deregulation of the legislative framework within which agricultural tenancies operate. A key change was to lengths of term. Prior to 1995, new tenancies could be let only for the lifetime of the tenant, whereas under the new legislation there was no minimum term. A major problem before 1995 was that landlords were reluctant to let farms, knowing that they would be let for a generation. As a result, the size of the tenanted sector was in decline. However, this legislation has allowed the pendulum to swing too far in the opposite direction and now the average length of term on new tenancies is, remarkably, under four years. This means that farm tenants cannot plan for the long term, either in relation to their agricultural activities or in their desire to take part in diversification and new agri-environment schemes such as the proposed ELM schemes.
The Tenant Farmers Association has long asserted that the best way to address this is through amendments to the taxation environment within which landlords make decisions about land use. To do this, it has proposed the following sensible changes to taxation: first, restricting the generous 100% relief from inheritance tax, currently available to all landlords regardless of the length of time they are prepared to let land, only to those prepared to let land for 10 years or more; secondly, restricting those landowners that use share farming, contract farming, share partnerships and grazing licences as thin facades of trading activity to gain tax advantage when in practice they take no risk, have no entrepreneurial input and lack any management control; thirdly, offering landlords who are prepared to let for 10 years or more the ability to declare their income as if it was trading income for taxation purposes; and finally, reforming stamp duty land tax to end the discrimination against longer tenancies. This is an area where there appears to be a consensus between those organisations representing landlords and those representing tenants. It seems odd that government policy is to encourage longer farm business tenancies on the one hand and then to penalise those long-term tenancies through the way that they are taxed through SDLT. I seek an assurance from the Government that this issue is reviewed. On taxation, while I appreciate that the Minister does not speak for Her Majesty's Treasury, it would be instructive to hear whether his department supports these measures and whether he will discuss these matters with his Treasury colleagues.
I thank the Government for bringing into effect certain agricultural tenancy reforms through Schedule 3 to the Agriculture Act 2020. These changes followed a Defra consultation which covered a very much wider agenda of issues than were introduced. That consultation was a distillation of yet wider changes proposed by the Tenancy Reform Industry Group, TRIG, which provided very detailed reports covering AHA tenancies, 1995 tenancies, taxation, county council smallholdings and issues around new entrants and retirement.
In its briefing for this debate, the Country Land and Business Association states that
"tenancy reform must be developed through consensus within TRIG."
I consider this to be too narrow, but it does give this Government the green light to bring forward a Bill encompassing the full array of changes which TRIG proposed in its reports to Defra in 2017. However, the Government must not find themselves completely unable to make progress on wider areas of tenancy reform when a consensus cannot be found within TRIG due to the competing interests represented within it. This group should of course be a place to which the Government go for expert advice, but it should not decide policy. It is for the Government to decide how best to promote resilience and sustainability within the tenanted sector. During the debates on the various stages of the then Agriculture Bill in your Lordships' House, we heard from many noble Lords from all quarters that we needed a specific piece of legislation for agricultural tenancies. When might we see a government Bill which picks up the issues identified by TRIG and the department's own consultation?
One of the welcome changes in the Agriculture Act was the expansion of the franchise of organisations that can be used for the appointment of arbitrators for dispute resolution beyond RICS. Now we have the Central Association of Agricultural Valuers and the Agricultural Law Association. This is good news, as RICS had too much of a monopoly in this area, and its own governance issues. However, we must go much further on reforms to arbitration.
Here, I have to admit to first-hand experience of what an archaic process arbitration can be. My family has recently had to go through a difficult, lengthy and expensive arbitration process for the review of our farm rent. It is not a process that I would welcome having to repeat, although, sadly, it is the principal mechanism for resolving disputes that cannot otherwise be settled by agreement. Arbitration was intended to be a relatively straightforward and inexpensive process for resolving disputes. I can attest to the fact that it is anything but. As a family, we were disappointed with the way in which our case was handled in a number of ways.
Being able to learn lessons from this process is massively hampered by the fact that arbitration awards are required to be kept confidential between the parties. I contend that they should be publicly available and open to scrutiny, so that arbitrators can be held to account for the way in which they resolve cases. At the moment, there is little precedent or case law in this area. In addition, parties are left with an incredibly short period of time within which to appeal. A period of only 28 days is insufficient, particularly where the appeal has to be mounted in the majority of cases by a tenant farmer who can be daunted by the prospect of having to take matters to court. Overturning bad arbitration decisions is difficult and expensive and I believe that the whole process of dispute resolution needs to be fundamentally reviewed.
The CLA calls for a balance in landlord-tenant relationships and I wholeheartedly endorse this. However, it is patently obvious to any informed observer of the landlord-tenant system in agriculture that it favours the landlord. Short lengths of agreement, restrictive tenancy terms and high rents provide maximum benefit and flexibility to landlords and place additional burdens on existing and prospective tenants. The system needs to be levelled up. With more individuals looking for opportunities to take on tenancies in comparison to those offering land, it is clear that there is a market failure, which the Government need to step in to correct, both by considering sensible changes to legislation and the beneficial taxation environment within which landlords operate. It is obvious that the financial incentives are driving perverse behaviours that are in direct conflict with the good intentions of current legislation.
Agricultural tenancies are crucial to our farming industry, our farmed environment and our farming future. Reforms are vital. A specific agricultural tenancy Bill is essential and I hope that the Minister will respond positively to that call.
Lord Clark of Windermere
(Lab) [V]
I thank the noble Baroness, Lady Rock, for giving us this opportunity to debate this important issue. I began my working life on the fells of Cumbria and have maintained an interest in upland management ever since. The Government's Agriculture Act 2020 potentially offers great opportunities for the upland, with public payment for public good—blending environmental, forestry and farming approaches —but there are challenges. In recent days, an issue has come to the fore in Cumbria that illustrates this.
For over a century, the Newton Rigg agricultural college has provided research, advice and education throughout the area, particularly in upland management as well as mixed dairy. Furthermore, it was the National School of Forestry for England—a highly respected college. About 10 years ago, Askham Bryan, a college in Yorkshire, acquired Newton Rigg for the token amount of, I believe, £1. Now, facing severe financial difficulties itself, it has put the assets of Newton Rigg up for sale. The tenants, Newton Rigg, obviously will lose their asset, which is their land. This is simply a piece of asset-stripping of the worst kind and it will remove a time-honoured source of advice to upland farmers in particular, when it is most needed. The move has caused great difficulties across Cumbria. Will the Minister heed our voices and, perhaps, help?
Lord Redesdale
My Lords, I declare my interests as set out in the register. I own two tenanted farms in north Northumberland, in the Redesdale valley, both of which are governed under the 1986 Act. The farms are family-run businesses that have passed down through the generations and hopefully will do so in the future.
Upland hill farming at present does not make much money; incomes are low and therefore farm rents are not high. When the necessary and growing legal responsibilities of landlords are included, such as the recent electricity safety regulations, there is the real possibility that landlords can make a loss year on year. In my case, I calculated that if I rented out the farmhouses as holiday cottages, I would make far more than I do at present renting out the entire farm, although I should stress that I have no intention of doing this.
I raise this issue because upland farm incomes are moving from being based on traditional intensive stock rearing to environmental improvement schemes. While this is an important transition, understanding how these schemes will affect farm income in the long run will be vital, as many of the schemes, such as tree planting, will be funded in the short term, but there needs to be consideration and clarity on how this will be sustainable in the longer term when the schemes end. The Government's target for tree planting, for capturing carbon, will require vast areas of woodland to be planted. I have planted thousands of trees, which is great for biodiversity, but it is taking land out of grazing and therefore income from the farms in the longer term.
Predicting future income sources when the entire funding of farming is changing is difficult and will cause many disputes between landlords and tenants. Any certainty that the Government can give in a post- CAP world, especially on the longer-term income from environmental stewardship schemes, will be vital for the take-up and sustainability of those schemes.
A final point is that, before any further reforms are brought forward in legislation, the implications of the operation of the Agriculture Act 2020 need to be given time to be evaluated. I should also say that the TRIG has done excellent work in the past.
Lord Berkeley of Knighton
(CB) [V]
My Lords, I declare my interests as listed in the register. Interestingly, they include having been both a landlord and a tenant, so I see both sides of this argument. I endorse a lot of what the noble Lord, Lord Redesdale, has just said, particularly about finding more ground to plant trees. We have to approach these changes carefully. Noble Lords may recall the 1986 Act, which was intended to help young farmers. It was one of the best examples ever of the law of unintended consequences, in that no new farm tenancies were issued, as far as I know. However, I believe passionately that we need to make it easier for young people to get into farming. Unless you are very rich or you come from a landowning family, there is no chance whatsoever.
Looking at the whole question from the landowner's point of view, again I think that we have to tread carefully, because people can be encumbered with families who do not farm well. If we extend things too far, you cannot get land back that you might want to use for your own family.
I would like to make one final point, which may not be raised by the other speakers. I feel, especially as we are now going to move to a new subsidy system, that we need to look carefully at how this is regulated and what clarity is given to it. For example, I have seen agreements where the landlord takes a subsidy and the tenant should pay slightly less, but it does not always work out that way. There have been problems on both sides—I am not blaming one or the other—but it would be useful to have clarity on this. That would help to remove issues that can cause conflict.
Lord Bourne of Aberystwyth
My Lords, it is a pleasure to follow the noble Lord, Lord Berkeley of Knighton, and to hear his interesting points. I also thank my noble friend Lady Rock for introducing this debate and setting out the important case for acting to help tenanted farms.
I want to express some concern about 1986 Act tenancies—that is, those granted before 1 September 1995 and hence still governed by the Agricultural Holdings Act 1986. About one-third of agricultural land is let. I am not sure what percentage is actually subject to the 1986 Act, and I hope that my noble friend the Minister, who is so adept in these areas, will be able to give that figure and also, perhaps, the number of farms in the country that we are talking about. But if he does not have that to hand—and I appreciate that these are relatively detailed points—perhaps he could write afterwards.
There often exists a problem with regard to succession rights for tenants under the 1986 Act. How can older tenants, with no immediate successor to whom they can transfer a tenancy, be encouraged to retire? I know that the Government considered extending succession rights to nieces, nephews and grandchildren but did not take up that proposal. Could my noble friend relook at that with the Government, because it seems a perfectly sensible proposal? I raise that point as there are limited options available to hand over to a new tenant when there are no immediate obvious successors.
I welcome much of what was done in the Agriculture Act 2020. However, as my noble friend Lady Rock pointed out, there are now problems with rather short leases. What are we doing to encourage landlords to let for longer periods? That is the only other issue that I wish to raise.
Lord Carrington
My Lords, I declare my interests, as set out in the register. This debate enables the airing of some important considerations in relation to tenancies and taxation. However, with the huge number of uncertainties facing farming now that the Agriculture Act has been passed, the timing is not right for further legislation. The Government have succeeded in abolishing the old agricultural system but have not announced in any depth what is the replacement.
The Deputy Chairman of Committees
(Lord Faulkner of Worcester) (Lab)
We have to stop for five minutes while a Division takes place in the House.
That was not the Bell—it was the noble Lord's phone.
I apologise to noble Lords—can the noble Lord resume, please?
I was saying that the Government have not announced in any detail what happens next, so farmers are unable to plan. This could involve both tenancy and tax matters. For example, let us suppose that they want to enter a tree-planting scheme under the ELMS, and their tenancy excludes silviculture, or the ELM scheme that they enter has a 25-year life, whereas their tenancy is a 10-year FBT, and so on. Details of ELMS may be unavailable until 2024. Those are the real issues that must be resolved by the TRIG.
The introduction of ELMS may have adverse tax consequences, as current tax rules operate as a disincentive to diversification in how they treat investment and trading activities differently. Leaving aside that information gap, I congratulate the Government on the reform measures in the Act, which were agreed by the whole industry, rather than spending time on divisive old chestnuts such as reform of AHA succession provisions. These restrictive tenancies, designed for issues of a different age, do not satisfy either landowners or succeeding tenants, who want the flexibility of an FBT where consensual terms are agreed. Other mooted changes such as introducing reasonableness tests and minimum tenure FBTs are unlikely to secure widespread industry support. I urge all reform to be on a consensual basis.
Please could the noble Lord draw his comments to a close, as there is a Division in the House?
Sitting suspended for a Division in the House.
The Earl of Caithness
My Lords, my noble friend Lady Rock gave a powerful speech in introducing this debate. I particularly support her comments on rogue landlords who are abusing the system and I hope that my noble friend the Minister and the Treasury will take note of that.
There are two different types of tenants. The Agricultural Holdings Act tenants, who farm about 1.3 million hectares, face the problem that most do not have any woodland in their tenancy—it was excluded when the tenancy was drawn up. What help will the Government give them with becoming more environmentally friendly, and with planting trees and understanding the possible difficulties?
The other group, the so-called farm business tenancies—they are not really tenancies, as my noble friend pointed out, because they are only about four years long—have a different problem. The dichotomy here is between the high rent demanded by landlords and the environmental obligations that the Government want all users of land to undertake. Landlords inevitably want the highest rent, but you cannot do that on a short tenancy. Furthermore, the farm business tenancies are having to plough up grassland and turn land over to maize for biodigestion in order to meet those high rents. Those landlords are irresponsible; they are not caring for the future of the land and are diminishing their assets. This will also thwart what the Government hope to achieve by the Agriculture Act that we have just passed. My noble friend must attack tenancies in two different ways, but what support—and what hope—can he give to make farm business tenancies more environmentally friendly?
(LD) [V]
My Lords, the noble Earl, Lord Caithness, has really hit the nail on the head, as one of the major problems we will face with ELMS is introducing it on farms that are tenanted. I add my congratulations to the noble Baroness, Lady Rock, for her excellent, comprehensive and succinct opening speech.
I thank the Tenant Farmers Association for its excellent briefing, which points out that short-term tenancies are holding back progression, investment and sustainable land use—which are exactly what will be needed in abundance if the environmental land management scheme is going to result in what we all want, particularly in the upland areas that the noble Lord, Lord Clark of Windermere, referred to. Whether people there are tenants or owners, they have to get an income from the farm. If a lot of that income comes in future from government grants and environmental schemes, the relationship between landlords, tenants and the grants will be crucial. Will the pilots and the national pilot devote sufficient attention to relatively small tenanted farms—or perhaps large farms with large amounts of grazing—in upland areas and how they will cope with doing everything that the Government want them to do?
Lord Curry of Kirkharle
My Lords, my interests are as recorded in the register. I am delighted that the noble Baroness, Lady Rock, has sponsored this debate and introduced it so eloquently, but regret that we have only two minutes to speak.
I have farmed as a tenant farmer all my professional life under a variety of arrangements, from Agricultural Holdings Act tenancies to FBTs to a range of share-farming arrangements. At one point, I had four different landowners and six different arrangements. The time is right to review tenancy arrangements and the relationship between landlord and tenant. I have the added benefit of being able to view the world from both sides of the fence, having been a board member of the Crown Estate and, for the past 10 years, a trustee of Clinton Devon Estates. We need much more flexible arrangements between landlords and tenants, so reviewing legislation to try to achieve that would be really helpful.
The relationship between landlord and tenant needs to be much more of a partnership, whatever the legal arrangement. If we are to deliver improvements in soil health, restore habitats, improve biodiversity, reduce diffuse pollution and so on, short-term FBTs with often disengaged landlords will not achieve this. Landlords and tenants will need to agree plans, particularly in tier 3 of ELMS. This will challenge traditional arrangements.
Landlords should also take the opportunity to look at restructuring, as some tenants will inevitably retire as a result of the change in policy. If possible, they should provide rural housing for retiring farm tenants. I also make a plea to landowners that farms that may become available through retirement be let to young, new tenants if possible, rather than taking the easy, default option of merging with existing farms. The reduction in the number of farm holdings is a real concern. Landlords should be willing to take the risk with a number of their farms within their land holding to encourage new blood. The Minister may be aware that I have had conversations with his officials on this matter and I hope that the changes will result in new entrants to our sector.
Baroness McIntosh of Pickering
My Lords, I am delighted to follow the noble Lord and I congratulate my noble friend on securing this debate. I pay tribute to all farmers, who have worked tirelessly through this pandemic to put food on our plates in extreme weathers, in England and Wales especially, and I pay regard to the fact that tenant farmers account for 30% of those who farm in England and Wales and nearer 48% in North Yorkshire.
My main concern reflects that of other noble Lords: tenants who occupy the land under farm business tenancies. They account for up to half the tenanted sector of agriculture in England and Wales, and the tenancies are characterised by short-term lets and restrictive clauses. There is unfinished business from the Agriculture Act 2020 and I seek an assurance from the Minister today that these tenants, particularly FBT holders, will not be excluded from new government schemes replacing the CAP or indeed from any private arrangements for the better environmental management of the land. Will my noble friend therefore confirm that the beneficiaries of the new schemes will be the economic operators, those taking the entrepreneurial decisions and the tenant who actively farms, not the landlord, as that would be singularly inappropriate if they are not actively managing and farming the land?
Lord Cameron of Dillington
My Lords, I declare an interest as a farmer, landlord and past tenant farmer.
In haste—if we want our agricultural productivity to compete with other nations', we need fresh blood and, for agricultural tenancies to proliferate, to bring that fresh blood in we need to have a system that encourages both sides to get involved. Tenants need the incentive to invest in their soil and infrastructure. In my view, no tenancy should be for less than seven years and, if possible, it should be renewed for a further seven years unless there are good reasons not to, which could include, for instance, the landlord having a family who want to farm, or even wanting to sell the holding. However, a second term should be the norm.
Extending succession provisions of older tenancies to wider members of the family would not help. Interfering in existing contracts sends all the wrong messages to landlords and it would not open up our farms to all our best students, who do not happen to have a sitting tenant as a relative. Succession tenants are not necessarily the most able and, for our agriculture to catch up with others', we must ensure that all of our very best can have their chance.
Equally, to encourage more lettings, HMRC needs to recognise the concept of the rural business unit, whereby you can have different enterprises operating on a holding but treated as one business for the purposes of tax. One of those permitted enterprises should be long-term agricultural tenancies. If that were to happen, long-term tenancies would flourish. Incidentally, agricultural tenancies themselves should be able to include a variety of enterprises, especially and including ELMS.
I stress again that, for agricultural tenancies to proliferate, the motivations of both landlords and tenants must be accommodated.
Lord Inglewood
(Non-Afl) [V]
My Lords, I declare my landowning and farming interests and my other declarations in the register and join the noble Lord, Lord Clark of Windermere, as a fellow Cumbrian and chairman of the Cumbria LEP, in respect of his comments about Newton Rigg College.
The recent debates on the Agriculture Act 2020 in your Lordships' House showed the interest in and the disagreements about the future of agriculture, otherwise known as rural England. Changes are afoot across the land. For the past two or three generations, buttressed by town and country planning legislation, the countryside has been almost exclusively a focus for farming and forestry. We need to be clear that upland and lowland farming and animal and arable farming are different. Indeed, in some ways, forestry is a form of arable farming. Living we do as in a country where the landlord and tenant system is prevalent in all kinds of different forms across all urban and rural Britain, how then should arrangements work, especially at a time of change?
Too much current discussion is focused on today and the existing legislation when a new look is required right across the piece. I believe that ad hoc tinkering is likely to lead to muddle and injustice. What is the role of contract and what is the role of legislation, be it hard or soft law? Everyone knows that change always costs money, but agriculture's economics have been battered and the national finances are under the cosh. We have to be clear that working capital must be retained in the sector because, if it is not, constructive change will be paralysed. This is why, as the noble Lord, Lord Cameron, said, the long-standing ideas of the CLA about the rural business unit have found their time. It is completely self-evident that bringing about change needs a complementary tax regime that does not haemorrhage working capital from the sector.
Baroness Gardner of Parkes
My Lords, tenant farmers have more effect on lives than may be appreciated. My experience came from when I was a parliamentary candidate in Cornwall and had a home there for a number of years afterwards. The farmland was occupied by a tenant farmer whose three daughters almost matched my three daughters—the benefits to all six were remarkable. The Cornish girls took my girls down to the brooks, the milking shed and the wonderful spots and showed them a bit of what farm work was like. The three Cornish girls had new "virtual" lessons. As adults, the eldest married and went to South Africa, where she runs a successful hotel business, and the second went to Australia, where she holds a major office in the Queensland police, but the third one was the really big surprise. Everyone was worried because she had poor eyesight and thought that that would hold her back terribly, but she achieved a remarkable thing for a Cornish girl: she ran the patisserie in Harrods. I met her again there many times.
The farmer with a short lease needs to be supported, because why would you put in a huge effort for someone then to grab the land away from you? That would be very wrong. I am pleased to support the idea put forward by the agricultural people.
The Earl of Devon
My Lords, I thank the noble Baroness, Lady Rock, for calling this key debate. I note my interests and the fact that I speak with modest experience as the co-chair of a local agricultural tenancies working group.
Given that tenants farm one-third of the agricultural land in England and Wales, tenancy reform will undoubtedly have a large impact, but that impact pales in comparison to that of the Agriculture Act and the introduction of ELMS. I therefore urge caution against a rush to further immediate reform and suggest that we need time to understand ELMS and farmers' new role as environmental land managers before enacting further change. In an ideal world, TRIG would continue its excellent, consensus-driven work during the agricultural transition period before recommending a comprehensive reform that will complement ELMS and improve farming.
FBTs were introduced to increase new entrants and improve productivity, as we heard, yet the average age of farmers remains over 60 and productivity has flatlined. The fact that the average farm business tenancy lasts for only about three years is a complete failure. Such short-termism may be profitable, but it is a disaster for our soil. From personal experience, I know that it can take years and considerable cost to build organic matter in soil, so why would a tenant farmer do that with only a three-year tenure? Equally, how does a landlord implement a long-term stewardship vision for land without a long-term relationship with those who farm it? Can the Minister therefore explain how ELMS payments might work within the current agricultural tenancies structure, what payments will be the landlord's and what will be the tenant's, and whether that will vary with length of tenure? Finally, with the Environment Bill looming, can the Minister please explain how conservation covenants will work within the existing agricultural tenancies structure?
Baroness Bennett of Manor Castle
(GP) [V]
My Lords, I thank the Whips for organising my participation after an administrative snafu, and the noble Baroness, Lady Rock, for calling this debate. It is a pleasure to follow the noble Earl, Lord Devon. We share many concerns, although on this occasion my perspective is different.
I begin with the observation from Defra's consultation feedback analysis report that tenancies reform is not adequate to tackle the many ills of our current system. It is treating the symptoms of a disease, not the disease itself, which is our acute concentration of land ownership. A lightning recap: half of the land is owned by 1% of the people; much land ownership is not recorded or publicly available; and the vast majority of people cannot get access to land to grow food. A handful of NGOs, including the Kindling Trust and the Biodynamic Land Trust, go to great lengths to get land for a small percentage of the huge numbers of people who would like to start businesses on it.
Your Lordships' House is often accused of being medieval, as it sometimes can be, but the very nature of our proceedings demonstrates how fast a change is possible. We need an even larger-scale reform of land ownership and access to land to get us out of the medieval relic that is our 21st-century reality.
I have one specific question for the Minister and one suggestion. In the past, the Government have sought to use policy to achieve consolidation of land ownership. The clear view has been that the increasing size of farms is inevitable and even desirable. That has been hugely destructive to the environment, productivity and public health, with the focus being on grain and oil production rather than vegetables and fruit. It has also led to the hollowing out and ageing of rural communities. Have the Government abandoned this ideological position? Are they looking to increase the number of growers and farmers in the UK, and to reduce the average size of growing and farm businesses? My suggestion is for the Minister to read, or get one of his officials to read, a quite short book: Miraculous Abundance: One Quarter Acre, Two French Farmers, and Enough Food to Feed the World.
Baroness Scott of Needham Market
My Lords, these Benches support many of the proposals and share the concerns articulated this afternoon, particularly the idea that we now need some reforms as a matter of urgency. TRIG has done some great work in pointing the way to the most urgent of those. The fact is that the Agricultural Tenancies Act 1995 has not achieved what it set out to do to improve the land; nor has it brought in a new generation of farmers.
It is clear that landlords and tenants should be free to exercise a degree of reasonable flexibility where change can lead to more efficient and effective farming of the holding. It is essential for farmers to be able, within reason, to extend their activities to become more viable.
Many noble Lords have expressed concerns about the lack of information on how the new agriculture regime will play out in the relationship between tenants and landowners. Those concerns were set out by the noble Lord, Lord Carrington, the noble Baroness, Lady McIntosh, the noble Earl, Lord Caithness, and my noble friend Lord Greaves, and others. It is also clear that we need a more open, less confrontational and faster system of dispute resolution, ideally based on real understanding and collaboration between landlords and their tenants.
I disagree with the noble Earl, Lord Devon, about close relatives. We should give some consideration to extending this. It might be more likely that farmers will retire if they think someone close to them will take over the holding. We run the risk of missing chances to bring new people in.
We support the extension of the tenancies and hope that the Minister will respond positively to many of the suggestions that have come forward.
Baroness Jones of Whitchurch
My Lords, I am grateful to the noble Baroness, Lady Rock, for tabling the debate and to all noble Lords who have spoken—far too many to mention individually. The overarching message has been the need to complete the unfinished business of agriculture tenancy reform. I pay tribute to the Tenant Farmers Association in particular for continuing to press this case.
As the Minister said during the passage of the Agriculture Bill, we all want a thriving tenanted sector and an environment in which all types of tenure run strong businesses. But to achieve this we need to address the critical issues that remain to be resolved. In particular, we need to ensure parity between tenants under the 1986 and the 1995 legislation to be able to object to a landlord's refusal to enter a financial assistance scheme, along with new rights to invest in and improve the productivity of a holding.
I hope the Minister will agree that it is vital that all types of farming operation can participate in ELMS and make their contribution to environmentally sustainable agriculture. Could he also update the Committee on the Government's plans to bring newer, younger entrants into the sector—those with the energy to drive forward the changes needed in this new era? A number of noble Lords raised that point.
Can the Minister update the Committee on progress since the Agriculture Bill received Royal Assent? Can he confirm that the regulations needed to implement the changes already agreed have now been laid? Are interim non-legislative measures being contemplated? When do the Government hope to bring forward a more substantial piece of primary legislation to address the outstanding issues?
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs
(Lord Gardiner of Kimble) (Con) [V]
My Lords, I start by declaring my farming interests as set out in the register. With agricultural tenancy matters being devolved, I speak from an English perspective. I express my gratitude, along with other noble Lords, to my noble friend Lady Rock for raising this matter for debate as we start the transition towards a new domestic agriculture policy—a transition that we believe will help our farmers to stay competitive and produce high-quality food, for which they are renowned, while protecting and enhancing the environment, on which a sustainable and productive future depends.
To put the importance of the debate in context, as has been said, a third of all farmland in England is tenanted, with 13% of farms wholly tenanted and 33% with a mixed tenure, both owning and renting land. This variety in land tenure and the ability to rent land flexibly is important, because it enables tenants and owners to expand, responding to market changes by renting out additional parcels of land. It also provides a route into farming for new entrants, bringing new skills and ideas into the sector.
I say to the noble Lord, Lord Clark, and my noble friend Lord Inglewood that I am fully seized of the points made about Newton Rigg. I am in dialogue with the Department for Education and I understand that feelings are running high in Cumbria.
The Government believe that a vibrant and flourishing tenant farming sector is vital. The legislative framework for agricultural tenancies must enable the development of successful farm businesses for tenants and an appropriate rental return for owners. This is how we will maintain confidence in the let sector and ensure ongoing opportunities for tenants and new entrants to land.
As many will recall, we discussed during the passage of the Agriculture Bill the importance of new entrants and the role that renting land through the county farm system has played in facilitating that. In the agricultural transition plan, the Government have set out plans for a new funding scheme to create lasting opportunities for new entrants to access land, infrastructure and support to establish successful and innovative businesses, working with county farm estates and other landowners. We have started work to develop this new entrants scheme through a co-design process, with the aim to provide further details by September and introduce the scheme in 2022.
My noble friend Lady Rock highlighted the role of the Tenancy Reform Industry Group. Defra has regular meetings with TRIG to discuss tenancy policy and legislation. I express my personal thanks to all TRIG members for their work over many years in providing expert insights and advice, but it is the responsibility of government to decide policy.
I hope everyone would agree that developing consensus is the best way forward. A number of points have been made on this. I think the noble Lord, Lord Curry, raised partnership. No contractual arrangement flourishes if one or both parties are unhappy. That is why having the confidence to let more land is key to the route to getting more entrants into the let farming sector. If confidence is undermined, what is to prevent owners withdrawing let land and reducing the opportunities we all dearly want for existing and future tenants to come into the sector?
The tenancy reforms the Government delivered through the Agriculture Act 2020 had widespread support from TRIG and other respondents to our 2019 public consultation. These reforms have helped to modernise and update the Agricultural Holdings Act 1986. They give tenants greater flexibility on when to apply for succession on retirement, modernise the suitability test for incoming tenants, and provide a balanced dispute process for tenants who would be unreasonably prevented from varying outdated, restrictive terms that might be a barrier to entering into future schemes.
The focus of these tenancy reforms is specifically on the older, 1986 legislation, not on the more modern farm business tenancies. This is because agreements under the 1986 Act were negotiated more than 30 to 40 years ago in a very different commercial and policy environment. My understanding is that, with 19,400 AHA holdings and 17,600 FBT holdings, we are seeing a reduction in AHA holdings and an increase in FBT holdings. Of course, we want modern commercial agreements, which the FBTs can provide, negotiated more recently with freedom of contract. They are reviewed more regularly, giving tenants the opportunity to renegotiate terms if that is deemed necessary. That is why the responses to our public consultation, in terms of reform of dispute provisions, for example, were very much concentrated on AHA holdings tenancies.
The Government are working with TRIG to develop the supporting regulations to implement the 1986 Act dispute reforms and to modernise the suitability test criteria for tenants who apply for succession. This will make sure that a fair dispute process is put in place that considers the interests of the tenant and the landlord and that incoming succession tenants show that they have the farming and business skills needed to build viable businesses in future. Following two recent constructive meetings with TRIG, we are making good progress with developing these regulations and, subject to parliamentary time, we intend to implement them later this year. When this focused work on the new tenancy regulations is completed, we will continue our engagement with TRIG to explore whether there is industry consensus on the need for further legislative reform and to consider whether non-legislative options might be effective.
I turn to taxation. One of the first things that I was told when I went on the Front Bench was, "Be very cautious if engaging in taxation matters and always say, 'This is a matter for the Chancellor'". I would say to noble Lords that, in my briefing for this debate, I was very pleased to be joined by, as well as my officials, Treasury officials. I will be passing back to the Treasury and assessing the points that have been made in this debate on taxation and I am grateful to all noble Lords for raising those matters. I recognise that the fiscal framework plays an essential role in owners' decisions whether to let land and on the length of tenancy terms offered. However, I think that other factors are important, too, such as the size, quality and location of the land and personal motivations for owning it.
I am aware of the work that TRIG has done to investigate tax issues, suggesting that tax changes might help to incentivise the letting of agricultural land and encourage longer-term tenancies—for example, through limited income tax relief on farmland rents. The Government are committed to a fair and sustainable tax system and keep all taxes under review as a matter of course—that is the Treasury bit. The impact and potential unintended consequences of tax reform need careful analysis, as I hope everyone would agree.
For example, the proposal from the Tenant Farmers Association to limit the availability of agricultural property relief to owners who let land for 10 years or longer could result in owners instead using other ways—for instance, contract farming or taking the land back in hand—to retain the benefits of that relief. I am mindful of wanting to have the right climate for owners—I think particularly of smaller parcels of land. Unfortunately, there is a historical feeling that this is always about the big estates and small tenant farmers. I think that the opportunities for more land coming on to let will be from medium and smaller-size farmers who no longer want to farm and want to have someone, possibly a neighbour or a new entrant, coming into the industry. Relationships are again essential.
I understand the point made by many noble Lords about longer-term tenancies. It is recognised that they provide security for many tenants to invest and grow their businesses. It is also important to understand that shorter-term tenancies can sometimes be more suitable for businesses—I have heard that from certain quarters, including my noble friend Lord Taylor of Holbeach, who is engaged in a number of these matters. Short-term lets may be more appropriate for some new entrants looking to rent land on a short-term basis to gain experience without committing to long-term potential risks. Short-term lets can also be more suitable for some seasonal horticultural businesses. The flexibility over the length of tenancy and maintaining owners' confidence in the let sector can only encourage more agricultural land into the let sector. However, I understand the points that have been made about longer tenancies and their dynamic.
Turning to ELM, raised by many noble Lords—my noble friends Lord Caithness and Lady McIntosh, the noble Lords, Lord Greaves and Lord Redesdale, and the noble Earl, Lord Devon, among others—what we are doing here is co-designing. It is essential that we work across the piece with tenant farmers and those working on common land. As part of our co-design process with industry, we are considering questions about the need for landlord consent to tenants entering schemes and the length of scheme agreements to ensure that our future schemes are broadly accessible, as well as providing the stability needed to support the delivery of public goods, such as environmental improvements. Indeed, one of the tests and trials includes six areas where landowners and tenants are working together. An example is an estate in County Durham and North Yorkshire covering an area of more than 7,000 acres. This is about a collaborative system of planning and delivering environmental management on land that encompasses a variety of farming systems and a tapestry of habitats. We want to ensure that the collaboration between tenants and owners can be supported and incentivised.
Many noble Lords asked about further legislation. I would not be straightforward with your Lordships if I did not say that the pressure on primary legislation at the moment across Whitehall is intense. Therefore, it would be wrong of me to make a promise to my noble friend Lady Rock on the timing of any further legislative proposals. We want to get through what we have said we will do with the Agriculture Act 2020 and see how that works. We want to work with TRIG and all interested parties to see how we can have a dynamic tenanted relationship and system. It would be wrong of me to say that I can promise primary legislation in the foreseeable future. I say that candidly because I simply do not have command of the legislative programme. We want to find ways to resolve the points that have been raised today so that there is a genuinely benign and dynamic relationship between owners and what I hope will be an increasing number of new entrants. That is why the work that we are doing with the county farms is so important.
A number of noble Lords raised the issue of trees. Obviously, we want to ensure, whether on owned or tenanted land, that it is the person engaged in the outcome of this, whether the tenant or the landlord, and the person who will be undertaking the work who should have the reward. Where tenants are undertaking that, of course they should be rewarded.
I am starting to get messages of concern from our gallant Whip about the time that I am taking. I assure all noble Lords that these matters are current and live. I am grateful to my noble friend for raising this important matter, as reflected by the considerable number of your Lordships who have participated in the debate, and I will follow it up with a letter in the usual manner to cover some of these important points in further detail.
As this debate has now concluded, the Grand Committee stands adjourned until 3.45 pm. I remind Members to ensure that they have sanitised their desks and chairs before leaving the Room.
Sitting suspended.