Select Committee on Environment, Food and Rural Affairs Minutes of Evidence



Annex 1

 

A Retirement Scheme for UK Farmers

 

BACKGROUND

  Given the continuing pressures upon the agricultural industry, and farm tenants in particular, it is widely accepted that there must be further restructuring of the primary, productive units within agriculture. To facilitate this change it will be necessary for a number of farmers to leave the industry. To an extent this is occurring already as income and capital bases decline to very low levels. However, there are a significant number of producers who, because of inadequate assets and pension provision and lack of available housing, are unable to make the rational decision to cease trading. It would be helpful to these individual producers to provide assistance to enable them to leave the industry with dignity.

  The issue of whether the UK should participate in the EU scheme for early retirement has been repeatedly considered by farming organisations and the Government. The TFA has argued consistently for the introduction of a scheme. To date, the conclusion of the UK Government has been that such a scheme would not be appropriate. However, given the persistence and depth of the current crisis the TFA would ask the Government to revisit the issue urgently.

RATIONALE

  Within the Rural Development Programmes for 2000-2006 there is no use made of the Early Retirement chapter of the EU Rural Development Regulation. However, the "Rural Enterprise Scheme" recognises the need to develop and improve the agricultural infrastructure. The scheme aims at providing targeted assistance to support the development of more sustainable, diversified, enterprising rural communities to assist their regeneration and adjustment to the new demands of the rural economy.

  The introduction of a retirement scheme for agricultural producers would fit well with this overall strategy. It would have the multiple benefits of providing an exit with dignity for individual producers caught in a "debt trap" and no longer able to farm economically thereby enabling their land and other productive assets to be redeployed. This restructuring would enable those remaining in the industry to better handle the commercial challenges which lie ahead and the opportunities of growth in other activities in the wider rural economy. Also by accelerating the retirement of some of the older farmers this would bring down the average age of the active farming population.

  It is also clear from the Agricultural Minister's comments to the Agricultural Committee of the House of Commons on 29 February 2000 that he would be enthusiastic about introducing a scheme if the issues of discrimination between producers and dead-weight costs could be overcome. The retirement scheme proposed by the TFA in this paper deals with both those issues.

  As the Government has urged the industry to take a strategic view and to facilitate further necessary restructuring, it is apparent that some public assistance for this is a missing element in the Government's strategy. We now urge that proposals should be made to introduce this element as a revision to the UK Rural Development Programme at the earliest possible opportunity.

  There have been examples of similar systems operating in other sectors of UK industry (eg shipbuilding and car manufacturing) which have been based on providing packages of redundancy to employees. A direct comparison with the agricultural situation can be made with the fishing industry, which has in recent times been able to access grants for decommissioning of fishing vessels. Some other countries of the European Union, particularly France and Ireland have run successful retirement schemes for their farmers.

RELEVANT LEGISLATION

  The enabling legislation for an early retirement scheme is contained within Chapter IV of the EU Council Regulation 1257/99 of 17 May 1999 (the Rural Development Regulation). The objectives for any scheme under this chapter are as follows:

    1.  To provide an income for elderly farmers who decide to stop farming.

    2.  To encourage the replacement of such elderly farmers by farmers able to improve, where necessary, the economic viability of the remaining agricultural holdings.

    3.  To reassign agricultural land to non-agricultural uses where it cannot be farmed under satisfactory conditions of economic viability.

  Eligibility requires that the participant meets the following criteria:

    1.  Stops all commercial farming (although there can be non-commercial farming and the retention of the use of any buildings).

    2.  Is over 55 and less than normal retirement age.

    3.  Has practised farming for 10 years preceding participation.

  There are also certain conditions attached to the use of the land after joining the scheme. Where the land is transferred to another producer it must be shown that the economic viability of the whole of that producer's holding has been improved and that the producer undertakes to practice farming on the holding or at least five year. Any non-agricultural use must be compatible with protection or improvement of the environment.

  In return for participation eligible farmers could receive a maximum of Euro 15,000 per year (8,700) with a maximum overall payment of Euro 150,000 (87,000). This money would be available over a maximum period of 15 years and not beyond the 75th birthday of participants.

  Commission Regulation EC No 1750/99 of 23 July 1999 lays down some further detailed rules. They are as follows:

    1.  Where participation is by a partnership, company or other multiple, overall support is limited to the amount provided for one individual.

    2.  Any non-commercial farming activity continued by the participant is not eligible for support under the Common Agricultural Policy.

    3.  Tenants can participate by releasing land to owners provided that the lease is terminated and the requirements relating to the after-use conditions are met either if the land is to be continued in agriculture or non-agricultural use.

    4.  Land released through participation may be included in a re-parcelling operation or in exchange of parcels. Member States can also make provision for land to be taken in charge by a body which reassigns it at a later date to individuals who satisfy the after-use conditions.

  The scheme as contained within the European legislation is not ideal for UK conditions. For example it would have been preferable to allow all farmers nearing and over retirement age to be eligible to participate rather than those who are over 55 and under retirement age. Also, it may have been more beneficial to have less restrictive after-use conditions. Nevertheless, if a scheme is to be up and running quickly then there is no alternative but to base it under current Regulations.

PROPOSED DETAILS OF A SCHEME FOR THE UK

Objectives

  The objectives of the proposed, one-off early retirement scheme would be as follows:

    1.  to enable a dignified, voluntary, early exit from the industry of elderly farmers who have an unacceptably low current income and an insufficient capital base to provide for their retirement;

    2.  to encourage effective restructuring on any land thereby released.

  The Government might wish to link the introduction of such a scheme to the "Rural Enterprise Scheme" under the Rural Development Programmes. Their overarching objective stated to "provide targeted assistance to support the development of more sustainable, diversified, enterprising rural economies and communities to assist their regeneration and adjustment to the new demands of the rural economy". Two particular projects listed under this general objective are "re-parcelling" and "development and improvement of infrastructure connected with the development of agriculture".

  Alternatively, the Government could propose to the Commission that the Rural Development Programmes be amended to include Early Retirement Schemes under Article 10 of the Rural Development Regulation.

Allocation of Funds

  Any scheme introduced will have to be cash limited. Whilst we considered the use of bidding or auction systems to allocate the scarce funds to those in greatest need, for administrative simplicity and fairness, it is proposed that the funds are allocated on a first-come-first-served basis. Applicants should be invited to tender for an announced fixed annual sum of money from the retirement scheme budget. This should be set at the rate applying in the Rural Development regulation (approximately 8,500).

Eligibility

  Applicants should be full-time farmers between the ages of 60 and 65 on the date for receipt of applications.

  All applicants would be subject to a means test to ensure that only the most needy were helped and to minimise any dead-weight element which may exist. The means test would apply both to income and capital.

  As only full time farmers are to be considered on income, applicants would have to show that their annual income from farming was less tan 9,200. This is broadly equivalent to the level of the National Minimum Wage taking into account the rules on maximum working hours. Evidences of income would be based on the last available set of completed accounts in the 12 months prior to applying for the scheme.

  For capital applicants would have to show that their net worth was less than 16,000 having excluded from the calculation the value of any available, intended, principle residence up to a maximum net value of 50,000. This is in line with the means test for state benefits. The calculation of net worth would take into account all liabilities (including debts, overdrafts etc) and all assets including those that have been transferred or given away prior to applying and within six months of the announcement of the scheme's introduction.

  Applications could be made by sole traders, partnerships (but not individual partners), limited companies and charitable and other trusts. In each case the means tests are to be applied as above to each applicant.

After-use Conditions

  Upon acceptance into the retirement scheme applicants will have to satisfy one of the following options in relation to the land that they have been farming:

    1.  That it has been transferred to another producer who has agreed to farm it for at least five years and thereby improves the economic viability of his holding.

    2.  That it will continue to be farmed by the applicant on a non-commercial basis with no support from the Common Agricultural Policy.

    3.  That it is put to a non-agricultural use compatible with protection or improvement of the environment.

Landlord/Tenant Concerns

  In order to comply with the after-use conditions, agricultural tenants who wish to participate will have to reach an agreement with their landlord on one of the following options in relation to the land that they have been farming:

    1.  That it will be granted to another producer on a Farm Business Tenancy for at least five years (without a break clause in the first five years) and the producer thereby improves the economic viability of his holding.

    2.  That it will be farmed in hand by the landlord for at least five years and the landlord thereby improves the economic viability of his holding.

    3.  That it can continue to be farmed by the applicant on a non-commercial basis with no support from the Common Agricultural Policy.

    4.  That the landlord puts it to a non-agricultural use compatible with protection or improvement of the environment.

    5.  That the landlord agrees to let the applicant put it to a non-agricultural use compatible with protection or improvement of the environment.

    6.  That the landlord agrees to enter into an arrangement with a third party to put it to a non-agricultural use compatible with protection or improvement of the environment.

Capitalisation of Annual Payments

  Whilst the Government would not be expected to provide a capital sum equivalent to the annual payments granted, the scheme should allow successful applicants to capitalise the annual payments into a single payment in the financial market place.

Timing

  Once accepted into the scheme applicants should be allowed up to 24 months to take up the offer given the complexities involved in arranging for the after-use conditions to be met. There are also particular issues for tenant farmers in the timing of surrenders and notices to quit. These would be covered by an allowance of up to 24 months from acceptance into the scheme to take up the offer.

Ring-fencing of Payments

  All payments made under the retirement scheme should fall outside the scope of means testing for any other state benefit and be free from taxation.

Housing

  As noted above one of the constraints preventing some from leaving the industry is the lack of available accommodation. Whilst the means test will cover those who have some form of housing provision further help needs to be given to those who have not. Clearly, demand for housing in rural areas is high and this is reflected in the costs associated with renting or buying property in those areas. The TFA believes it would be sensible and proportionate to provide incentives to landlords whose tenants are considering taking advantage of the retirement scheme to provide ongoing accommodation. Such provision would not add further strain to an already difficult housing market in rural areas.

  The TFA therefore proposes that landlords should be able to claim a deduction from any capital gain following a property sale which had been used by a tenant taking up the retirement scheme. The conditions for such a deduction would be as follows:

    1.  The tenant has no alternative residence and does actually reside in the property provided by the landlord after joining the scheme.

    2.  The landlord provides the property for at least five years and the tenant resides there for all of that time or leaves of his own volition to alternative accommodation after at least two years of continuous occupation.

    3.  The maximum deduction from the capital gain would be 50,000.

CONCLUSION

  There is an urgent need for the introduction of a retirement scheme in the UK for agricultural producers. A scheme as detailed above would ensure those who are in most need of the scheme receive benefit and those who would otherwise have left farming without the need for State help are not provided with assistance to leave the industry. The size of the budget for the scheme will necessarily be open to negotiation but should be in the region of 25 million per year for 10 years.

 


 
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