Rural Proofing: a key reference for rural activists and analysts

Rural analysts and activists take note.  Defra has updated its rural proofing guidance this week.  This will be a key reference for anybody interested in the development and impact of policies which affect rural areas.  Why?

Because policy measures are meant to have been ‘rural proofed’.  So the criteria for rural proofing are important because they provide a framework for the independent evaluation of rural impact.  They are also therefore a sound basis on which to challenge measures which may adversely affect rural economic, social and environmental interests, or to promote measures which will support these interests.

The Defra guidance tells us:

Thriving rural communities are vital to the English economy. A fifth of us live in rural areas and they are home to a quarter of England’s businesses, and generate 16.5% of the English economy. Rural areas face particular challenges around distance, sparsity and demography and it is important that government policies consider these properly.
Rural proofing is about understanding the impacts of policies in rural areas. It ensures that these areas receive fair and equitable policy outcomes. This guidance sets out a four- stage process to achieve this objective.

Figure One of the Defra Guidance offers this four stage process for rural-proofing:

Rural Proofing Process

The Guidance goes on to suggest this way to assess rural impact:

Rural Impact How to Assess

Worth a look for anybody concerned with rural policy and development nationally, regionally or locally.

New Brexit Blog

I have set up a new blog site solely dedicated to Brexit, Farming and the Rural Economy.

You can see it here, and in particular a page of links to useful information which I hope to keep updated with relevant publications and other sources of Brexit information as they appear.

I hope you will find it a useful resource.  Please send in any suggestions for material you think is needed, or other suggestions for its development.

Concise Rural Taxation 2017/17 Now Available

Concise Rural Taxation (formerly Taxation for Students of Rural Land Management) is now an annual publication.  This year’s edition is now available. Continue reading “Concise Rural Taxation 2017/17 Now Available”

Brexit and the rural economy

A first reaction to the referendum ‘Brexit’ decision from a group of postgraduate students at Harper Adams University who have been studying Land Use and Management this week.

Project Brexit

The 18 students have worked rapidly in small groups this morning to appraise the impact on different sectors of the rural economy, and the actions that land managers, owners and occupiers should now be considering.  Here they are:

Agriculture: the issues here have been well rehearsed.  What will replace the Common Agricultural Policy?  If anything?  On what terms will we trade with the EU, both for sales of our produce and purchase of our inputs?  Is there an opportunity in this to open or develop new markets at home or abroad?  One paradox is that enhanced regulation of our farming and food industry may add to the quality perception of British food once outside the EU.  But our markets may then be open to genetically-modified crops, and it may be possible to accelerate the uptake of GM technology here.

Scale and efficiency look as if they will become even more important and we might expect to see small farms going to the wall and large farms getting larger.  On the margins some land may switch from sheep production to forestry if there are shortfalls in support.

Knowledge for farming may take a hit: early pest and disease intelligence from continental Europe may become less accessible, and investment in research and development may fall without access to EU funding.  If capital values fall, problems may in turn emerge over borrowing ratios and liquidity.

Labour availability may also limit the production of some higher value crops, even in the short term if seasonal workers choose EU destinations with longer term prospects for free movement of labour.

A wider question over the management of the industry as a whole: will the emphasis on compliance with Basic Payment requirements start to fall away, with what consequences for the wider environment of the countryside?

Land and property: Savills shares saw a 20% drop at one point, wiping £824 million off the value of the company.  House builders fared worse.  This points to a slow down in the rate of house construction, exacerbated by the danger of higher input costs and more difficulty in recruitment given the reliance of construction on EU workers.  This in turn knocks on to the demand for development land, and its price.  Farmers may still be in the market for land if they see bargains available on which they could expand, but foreign buyers are likely to hold off and investment buyers may be far less confident of their own positions given the impact on financial services.  Could this be good news for new entrants?  Even if land prices do drop the prospects of access to land by this route remain unrealistic.  A more likely scenario is for the market to go into virtual stasis, and for prices to do no more than tick over in a narrow price band.  The clear message here: only sell now if you have to.  Rather than sell look at short term options like farm business tenancies.

Forestry: much of the return on investment in forestry comes in the form of capital appreciation.  Will land prices wobble?  A weaker pound could push up the cost of the 60% of our timber we import, in turn pushing up prices to the construction industry while stimulating demand for home grown timber  Good news for foresters could be bad news for processors and end users.  Although the UK Forestry Standard has a EU origin it is now embedded in UK legislation.  The UK however has no planting targets but we do know that there will be severe shortages of home grown timber in 50 or 60 years due to a lack of planting now.  Might changes in agricultural policy lead to the abandonment of marginal land sheep farming, making this ground available for afforestation?  It’s hard to see where planting land may come from otherwise.

Forestry disease and pest control may benefit if plant health import regulations can be imposed rigorously.  But this will require significant expenditure on plant health inspectors.  Will this be a priority for future spending?

Renewables, energy and the environment:  Many of our environmental objectives embody wider obligations than the EU alone, for example our membership of the UN, adoption of the Kyoto protocol and the outcomes of the Paris climate talks.  But without pressure from fellow EU members to achieve the UK target of carbon reduction of 80% against 1990 levels by 2050, will there be sufficient pressure on the government here to make sure we stick to these obligations?

CAP Pillar 2 environmental and rural development schemes are bound to be tied up with whatever happens to domestic agricultural and environmental policy.  The directives on bathing waters and birds and habitat are an EU obligation, but if we stick with the European Economic Area we will still be subject to controls on pollution, industry, energy policy, chemical safety rules and rules on product liability.

The internal energy market in the EU may also become more difficult.  More agreements with specific countries are likely to be needed and the overall effect may be to increase the price of new interconnectors.  Increased investment costs will in turn push energy prices up.  This in turn could foster home production of renewable energy, but companies like Siemens may need to reconsider the use of the UK as a production base for the EU.  The departure of major suppliers could in turn lead to price rises on kit putting further pressure on energy prices.

So: one door has closed firmly and for good.  Who knows where the other doors are or what lies behind them?  The outlook is still very substantially speculative beyond the short-term market reactions.  The future belongs to those who will be the most vigilant and opportunistic.

Budget 2016: Rural and property points

Headline points from the 2016 Budget for the rural economy and property. Get out of sugar, get into tunnelling, run a micro-business on the side, infrastructure needs you, take your capital gains now, incorporation is looking better and better unless you intend to sell your professional services to the public sector, drink whisky and beer not wine. Despite this, old age and death are beginning to look expensive.

A £3.5 bn reduction in public expenditure is not intended to dent George Osborne’s claim that, “We [ie the Conservative Government] are the builders”. Practically this means Continue reading “Budget 2016: Rural and property points”

80% of tied cottage occupiers could face tax on empty bedrooms

Thank you to everybody who responded to my survey on tied housing.  I have now offered the following observations in response to the HMRC consultation’s suggestion that the tax and National Insurance treatment of tied housing as a benefit in kind should be based on its full rental value.

The suggestion that all employer provided accommodation should be taxed on the basis of its full market rental value could therefore have significant implications for [rural] occupiers, many of whom are likely to be at the lower end of the pay range.  This in turn is likely to lead to greater pay pressures on employers at a time when there is no sign of agricultural volatility decreasing and when those same employers are facing the additional costs of extended pension rights etc.
It is also worth highlighting the contrast with Local Housing Allowance (LHA) and Housing Benefit (HB) if the proposal to move to full rental value were to go ahead.  LHA and HB are both restricted according to the number of bedrooms the occupier is deemed to need and LHA is further restricted to the lower level of rent prevailing in the district.  80% of the respondents to my survey would find their entitlement restricted if they were LHA or HB claimants, yet would almost certainly find it impossible to move to alternative accommodation without changing their job.

The online survey was undertaken between Monday 4 January and Tuesday 2 February 2016 using SurveyMonkey. No attempt was made to define a particular population beyond occupiers of employer provided living accommodation generally, with attention drawn to the survey via social media (twitter, LinkedIn, charlescowap.wordpress.com) and direct approaches to contacts in the rural economy. I cannot claim that the survey is representative of a particular group, nor that the results should therefore be treated as compelling. It does however provide a persuasive insight into the housing arrangements for people employed in some sectors of the rural economy.

Key findings:

  • Number of respondents: 25, all of whom live in accommodation provided by employers
  • Twenty pay no rent for their accommodation (80%), while five pay some rent (20%). Nobody claimed to pay full market rent.
  • Size of accommodation ranged from one to six or more bedrooms, Table 1

Table One: Number of bedrooms

Number of bedrooms Number of dwellings
1 2
2 4
3 5
4 8
5 4
6 or more 2
Total 25

 

  • The twenty five dwellings were occupied by a total of 70 people, ranging from single occupiers to couples with one or more children.
  • One respondent worked in education. Most respondents (n=17) worked on rural estates and seven occupiers worked in agriculture. There were no respondents from the forestry, licensed trade, security, other estate or property management or finance and banking sectors.
  • Two respondents paid Income Tax or National Insurance on the value of their accommodation but the majority did not (n=19, 76%). One respondent did not wish to answer this question and a further three did not know.

The data were further analysed as to the suitability of the accommodation for the size of the family unit living there. This was done by reference to the qualifying bedroom criteria for Local Housing Allowance and Housing Benefit.

  • Of the 25 households, twenty would have had their entitlement to benefit restricted due to an excessive number of bedrooms. This would have affected 58 of the 70 people covered by the survey. Examples of those excluded included:
  • 10 out of 11 couples in the survey occupying property of two or more bedrooms;
  • Two couples with children over 16 occupying houses with more than four bedrooms;
  • Two couples with one child under 16 occupying houses with more than three bedrooms.

One respondent who had lived in employer provided accommodation offered the following observations in response to the survey:

“Having lived in service accommodation for many years I’d comment:

1 In accepting a position where I was required to live in service accommodation to meet my contractual obligations I had no choice in the location (edge of pig farm)type of housing, nearby education, or standard of maintenance and external environment

2 There is an implicit and unpaid expectation that there will be a significant and unpaid additional labour contribution – unlocking for out of hours lorries and loading/unloading, telephone, attending sick animals

3 Additional taxation of such housing as a benefit could break that relationship and would require an employer to pay more for out of hours service

4 We never thought of service accommodation as a benefit, but a liability, knowing that when job terminated we would have to move so saved and invested every penny to buy a flat first, then a house, for long term security” (Mr John Stones, former director Nuffield Farming Scholarships)

Implications

Questions 9 and 10 of the HMRC Consultation, Employer Provided Living Accommodation, Call for Evidence (January 2016) ask what proportion of employees provided with accommodation pay rent, how much rent do they pay, how is the value paid as rent calculated before going on to suggest that a move to market rental value would provide a simplification to the tax system.

The findings of this survey suggest that very few occupiers in the rural economy pay any rent at all, and that a move to full market rental value could have disproportionate effects on occupiers who have little or no choice over the size of the accommodation provided for them. A move to market rental value as the basis of taxable benefit is likely to lead to upward pressure on pay in order to compensate for the extra cost, and with this consequences for employer costs including increased National Insurance contributions.