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.

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Inheritance Tax Residence Exemption: Even more smoke and mirrors from the 2015 Summer Budget

The fanfare for this Summer’s July Budget trumpeted the arrival of a £1 million IHT exemption for the family home.  The detail is not so clear cut.  Chancellor George Osborne has introduced a new residence exemption from IHT.  It works like this. Continue reading “Inheritance Tax Residence Exemption: Even more smoke and mirrors from the 2015 Summer Budget”

Summer Budget 2015: Rural Points – More smoke and mirrors

The Inheritance Tax changes will be the headline grabbing feature for many rural property owners.  But is all what it seems?  A few other budget points also need attention if you’re interested in rural property and farming.

Business-wise the decision to set the Annual Investment Allowance at £200,000 permanently from January 2016 is important, and relatively welcome. Continue reading “Summer Budget 2015: Rural Points – More smoke and mirrors”

Trustee Development Spring 2015

The personal responsibility of an estate trustee far exceeds that of a company director, shareholder, limited liability partner or sole trader. This responsibility extends to settlors and beneficiaries, and many others besides. Many people rely on rural estates for their livelihood and homes. Estates are under wider public scrutiny on a scale never experienced before. The complexities of farming and rural estate management have never been greater. New business opportunities abound for the creative estate manager, but the prospect of commercial reward comes with risk.

Working with the CLA we have devised a one day trustee training course which includes a tour of an award-winning estate. The Rhug estate will be our host on 17 March 2015, and we are delighted to be visiting Ragley Hall for the first time on 21 March.

The programme will ensure that estate trustees know their job: a vital safeguard for settlors, beneficiaries, estate managers, other professional advisers and, not least, trustees themselves.

Training Outcomes
On successful completion you should:
• Understand the extent of the personal responsibility of a trustee to beneficiaries;
• Understand the trustees’ role, authority and responsibility in the management of a rural estate;
• Participate effectively in trustees’ meetings and other trust business;
• Relate effectively to beneficiaries, settlors, staff, key advisers and other interested parties in the strategic management and direction of a rural estate

To book a place please follow this link:

https://www.dropbox.com/s/gsuas1gvrojpiib/Trust%20Programme%20Spring%202015.pdf?dl=0

Alternatively, please email Charles Cowap, cdcowap@gmail.com or call Charles on 07947 706505, or use the contact form below. RICS members, chartered accountants and solicitors will be able to claim formal CPD in respect of their participation.

Budget 2014: Rural points

Nothing very obvious grabs the rural headlines in today’s budget other than the extension of CGT rollover relief to the new Basic Farm Payments.  This measure is backdated to 20 December 2013, the date the new payment entitlements were introduced.

The single most significant measure for most rural businesses will be the increase and extension of the Annual Investment Allowance.  Currently £250,000 a year this was due to revert to its former rate of £25,000 after December.  In a very welcome extension it is to be increased to £500,000 almost immediately (from April), and to be extended to 31 December 2015.  Complications which arise from straddling account year ends aside, this is most welcome for any farmer with serious investment plans in the next year or two.  The government reckons this will ‘cost’ £85 million in 2014-15 rising to £1,270 million in 2016/17.  However there will be a benefit to government from 2017-18 of £445 million over two years as annual writing down allowances are proportionately reduced.

The property world will also be interested in the extension of the special taxes which now apply to dwellings owned by ‘non-natural persons’ – generally meaning valuable London property held by companies, latterly to avoid SDLT on sales and transfers.  The threshold for 15% SDLT is reduced to £500,000 from £2 million immediately – although there are savings for those unfortunates who have exchanged contracts but not yet completed.  The threshold for ‘ATED’ – Annual Tax on Enveloped Dwellings – will also start to fall from 2015, to £1 million in the first year incurring an annual ATED charge of £7,000 and the following year to £500,000, leading to an annual ATED charge of £3,500.

Environmentalists will want to study the changes to the Carbon Price Floor.  The Carbon Price Support rate has been reduced to £18/tonne through to 2020.  It had been planned to raise it to £30 per tonne in 2009 prices by then.  However the EU Energy Trading Scheme has not worked well, and continuation at the current floor rate was seen as a threat to the competitiveness of the electricity generating industry.  This should take some pressure off electricity bills in the next few years (although marginally so in most cases).

Other more detailed points which may be relevant in the rural economy and to property include: Continue reading “Budget 2014: Rural points”

CAP: Agric Fundamentalists v Enviro Fundamentalists – some inconvenient points

Decision week for Defra Secretary Owen Paterson.  He is due to announce the ‘modulation’ rate for England by the end of the week.  Will it be 9% as the NFU wants, or 15% as the RSPB demands?  Modulation is EU-speak for the amount of farming support that is diverted (modulated) into more general rural development and environmental schemes.  So the more money that is modulated, the less the direct farm payments through the Basic Farm Payment which will soon replace the Single Farm Payment.  The BBC provides some of the background here.

Last weekend saw a crescendo of lobbying on the issue, with the RSPB taking out full page national newspaper advertisements and the NFU writing to all MPs.  Some of the mood of the debate is caught in Mark Avery’s Sunday blog: all households will have to pay £400 to support farmers; this is nothing more than a payment for owning land and farming it (whither tenant farmers?).  On the other hand the NFU whinges that German farmers are only subject to modulation rates of 4.5%, French farmers 3% and the proposed Scottish rate is 9.5%.  This will hurt competitiveness, says the NFU, and disadvantage English farmers.

The environment lobby makes much of the ‘value’ that we get for CAP payments.  The more money that goes to Pillar II (EU-speak for the budget that pays for environmental and social goodies), the better. But farmers prefer Pillar I (EU-speak for the budget that pays for direct farm support payments) because that relates directly to the land they farm and how they farm it – and this can be defended strongly on grounds of food security (will you starve or me?).

But of course we are dealing with public policy here, and the reality is more complex that the advocates of Pillar I and II would like us to accept.  The new direct farm payments come with more environmental strings attached – crop diversification and ecological focus areas for example.  And more of the money is moved uphill – where it is desperately needed because much of upland farming is economically marginal at best – at the (moderate) expense of lowland areas.  Whatever Pillar II funding we are left with, will be far more focussed than previously – a better deal on the 35% of rural land which will benefit compared with the previous 70%?  Perhaps so if you are in the lucky areas; perhaps not otherwise – although tougher conditions on the Pillar I funding may make up the difference in some lowland areas.

The RSPB and others have set out their case for the ‘value’ we receive in return for our £400 per household.  This is a compelling and attractive case, immediately attractive to anybody who pays tax.  Given the propensity of Avery and others to dismiss the CAP payments as a mere subsidy on land ownership and farming, I have been pondering what we do get for the money we spend on farm support.

This is an incredibly complex question once you factor in food security and social justice.  To take some dairy figures, our consumption of milk products works out as follows:

Taking our daily consumption of fresh milk, butter, yogurt, cream, dairy desserts we on average consume about 4 litres of raw milk a week.  That’s a little over 200 litres a year.  With an average dairy cow now producing 7,327 litres a year, that means each cow is supporting 36 people.  This typical cow requires 0.5 ha  of land a year, and lives in an average herd of 125 cows.  So the average herd is providing dairy produce for 4,500 people.  At a direct CAP Single Farm payment cost of just over £200/ha, this equates to a cost per consumer supported with dairy products of just under £3.00/year (1).  Doesn’t seem much, but let’s cut the CAP farming support payments altogether.   What happens next?

There is little doubt that the main buyers of milk from farmers have an excellent idea of the costs of production – including the effects of farming subsidies – and set their prices accordingly.   Ergo – exit CAP, enter higher payments from the main buyers.  Despite the hyperbole to the contrary, the main farm produce buyers have no interest in the financial failure of their principal suppliers.  So prices are adjusted accordingly to make it worthwhile – but only just so for better than average producers – to continue to supply milk.  In compensation retail prices increase – for everybody.

So if you are hard up, milk has just gone up and you won’t save much tax if you weren’t paying any or much tax anyway.  But if you are better off milk, yogurt, cheese etc has also gone up, but the CAP isn’t costing you so much through your tax bill.  That’s to say that another element of redistribute taxation has been lost.

Meanwhile at lower rates of modulation fewer farmers are encouraged (forced?) to look at the financial effiency of their operation.  At the recent LEAF conference, Martin Wilksinson (HSBC Head of Agriculture) made the point that many farmers could more than make up their CAP losses with improved technical and financial effiency.  This is one of the real challenges to the farming industry: to move more farmers to the standards of the best.  England was the first region in the UK to move to Single Farm Payments based on the same average payment, away from a payment based on historic payments.  Wales and Scotland have been slower to move in this direction, and there seems a compelling case for England being better prepared for this round of CAP reform as a result.  One fear for the environmental lobby might be the real danger that some of the best lowland farmers may move away from CAP support altogether, joining those sections of the farming industry which have never had it anyway (eg pigs and poultry).

Meanwhile farmers need to promote the value we get from Pillar I payments by stressing any benefits they provide to the rest of the country as consumers and taxpayers.  For example, how many people is your farm feeding?  And at what cost in public support?  Will Santa be coming early for the farming lobby or the environment lobby?

-oOo-

Footnote 1: These calculations were surprisingly hard to source.  The DairyCo website provides daily consumption figures, and the average herd size and milk yield are available from Defra statistics.  DairyCo also provides a diagram showing how the UK’s milk supply is utilised.  My approach was to take the daily consumption of the dairy products listed (a list which is not complete) and work out how much raw milk is needed for each product, eg about 20 litres for 1 kg of butter; 10 litres for 1 kg of cheese.  This ignores some of the complexities of dairy processing, for example milk from which cream has been separated may reappear as another milk product and so on.  Some arithmetic followed based around stocking rates (0.5 ha/cow), total production/consumption figures and lowland Single Farm Payment Rates per hectare in the last year or two.  In short, lots of assumptions; lots of scope for error – but if anybody can highlight any errors or better still existing sources of information like this I would be delighted to know.

 

Autumn Statement 2013

Good news if you want to employ a youngster, go to university, rent a shop or use a lot of fuel.

The Autumn Statement predicts increased growth, up to 1.4% from 0.6% for 2013, and the total in employment by 2018 of 31.2 million.  In other words, about half the population.

Fuel duty is to be frozen for the rest of this Parliament.  Employers will not have to pay employer National Insurance on under-21 year olds, unless they are being paid more than £813 a week (in other words higher rate taxpayers).

Business Rate rises will be limited to no more than 2% irrespective of higher inflation in 2014/15, and retail property will benefit from a rate discount of up to £1,000 in 2014/15 and 2015/16.  This will apply to properties with a rateable value of less than £50,000.  In addition new occupiers of shops which have been empty for at least 18 months will get a 50% discount on their rates bill.  Small Business Rate Relief will be doubled from April 2015.

Local authorities will be encouraged to sell high value vacant social housing in order to reinvest in new housing, and their revenue account borrowing limits will be raised in order to encourage social housing investment.

The Personal Allowance for Income Tax increases to £10,000 next April and a new form of Married Couples Allowance makes its debut.  It applies to civil partners as well, but don’t get too excited.  The transferable tax allowance of £1,000 arrives in 2015/16 and is NOT available where either party is a higher rate taxpayer.  So who does this help?  Couples where perhaps one partner isn’t able to use their own tax allowance in full and the other partner is an ordinary rate taxpayer.  So the resulting benefit is likely to be no more than £200 a year.

If your overseas clients are thinking of selling UK residential property they had better act now, as CGT is to be introduced on non-residents’ disposal of UK residential property.

Energy

Fracking – onshore oil and gas exploration – will receive a new tax allowance with immediate effect.  Details are thin at this stage however.

A new fund to help private landlords to improve the energy efficiency of let property is to be introduced.

Grants of up to £1,000 will be available to make substantial energy investments in property newly purchased over the next three years.

Infrastructure

The National Infrastructure Plan gets a makeover, but don’t get too excited.  Buried in the small print of the UK Insurance Growth Action Plan is the expectation that 70% of planned expenditure is expected to come from the private sector (meanwhile Defra sees cuts to its budget of £19 million next year and £18 million the year after).  Setting aside this small reservation, the list of projects includes:

  • New nuclear power at Wylfa in North Wales;
  • Railway station improvements at Gatwick Airport;
  • Improvements to the A50 at Uttoxeter by 2015/16;
  • The A14 improvements near Cambridge will not include a new toll road;
  • A new £10 million competition for ‘hard to reach’ broadband will launch in 2014, which may therefore be helpful to the less accessible rural areas;
  • Topical on the day that an Autumn Statement is accompanied by the threat of the worst floods on the East Coast since 1953, we are promised a list of key flood defence projects by the time of next year’s Autumn Statement;
  • There is also to be a £10 million prize pot for the first town or city to set up a pilot driverless car project.

A new Infrastructure Court is also promised – so look for some interesting relationships with the work of the Planning Inspectorate’s Major Infrastructure Unit (formerly the Infrastructure Planning Commission!).   So will this be IPC2?

The UK Insurance Growth Action Plan includes a chapter which introduces the investment of £25 billion by six insurance companies in infrastructure over the next five years.  They will be looking for commercially and economically viable economic and social infrastructure projects, most probably in transport, housing, energy, health and education.  This can include major projects led by private sector sponsors.  Projects already undertaken include campus developments, student accommodation, Alder Hey Children’s hospital.  And look out for a new logo to be displayed on infrastructure emerging from this initiative!  It’s a shame however, that this makes no mention of ‘green’ infrastructure – surely an attractive opportunity for the insurance industry where the reduction of flooding risk is on offer?