Defra’s announcement at the end of November provided full details of the planned reduction of direct payments between 2021 and 2024. The reduction of the basic payment scheme (BPS) from 2021 will see the introduction of the new environmental land management scheme (ELMS) from the start of 2022.
The BPS will be reduced gradually over the four year period, with larger reductions for those receiving larger amounts. Those receiving under £30,000 will see a reduction of 5%. A table summarising the position is set out below.
Payment band |
2021 |
2022 |
2023 |
2024 |
Up to £30,000 |
5% |
20% |
35% |
50% |
£30,000 to £50,000 |
10% |
25% |
40% |
55% |
£50,000 to £150,000 |
20% |
35% |
50% |
65% |
Over £150,000 |
25% |
40% |
55% |
70% |
From 2024, the direct payments will become ‘delinked’ from the land, with an option of a lump sum payment being available. Those looking to retire soon may benefit from taking this lump sum payment. Further consultation is due to take place later this year, in particular with regards the tax treatment of these payments.
Now full details of the future reductions in income have been published, farmers and landowners can factor these into their plans, by updating forecasts, budgets and cashflows. It is never too late to plan, farmers who have not already considered and taken steps to replace the drop in revenue should now do so.
Some may address ways of cutting costs or consider ways to increase profits. However, many have reduced overheads and maximised efficiencies over the last 10 years due to other pressures affecting business performance.
The new ELMS will focus on the environment, animal health and welfare, and carbon emissions. Full details are not yet known, and further announcements are
expected during 2021. Due to the lack of information available, it is difficult to make extensive plans. It is worth reviewing your business model to see where you
might be able to make changes which have a positive impact on the focus areas.
Some see ELMS as a new opportunity to diversify, whilst others may feel the time is right to let the younger generation undertake new projects which qualify for the new government support. Prior to embarking on any new diversification project, the income, capital gains tax implications and business structure should be reviewed.
Now confirmation of the reduction has been received, there is no hiding from the fact that income will drop and unless steps are taken to find dways of replacing the lost income or reducing costs, so will the profits.
For further information please contact Daniel Webb at daniel.webb@hazlewoods.co.uk or your usual Hazlewoods contact.