HC Deb 25 March 1970 vol 798 cc1604-13

12.18 a.m.

The Joint Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. James Hoy)

I beg to move, That the Agricultural Investment (Variation of Rate of Grant) Order 1970, a copy of which was laid before this House on 18th March, be approved. The purpose of this Order is quite simple. It gives effect to the increased rates of agricultural investment grant and investment supplement which were announced by my right hon. Friend in the Annual Review Determination last Wednesday. The agricultural investment grant, paid under Section 31 of the Agriculture Act, 1967, was, until this Order came into operation, at the rate of 10 per cent. of expenditure incurred on fixed equipment, plant or machinery, and on long-term improvements to land for the purposes of agricultural businesses.

This Order increases the rate to 30 per cent. The new rate will be paid on approved expenditure incurred between 19th March this year and 30th September, 1971. If an item is being bought under a hire purchase or similar agreement, paragraph 3(2)(b) of the Order provides that it may qualify for the increased rate of grant if the initial payment is made within this period.

The Order also increases from 5 to 15 per cent. the rate of investment supplement which under Section 33 of the 1967 Act is payable in addition to farm improvement grant approved under Section 30 of the Act. The effect of this increase will be that items qualifying under the Farm Improvement Scheme will attract grant at the rate of 40 per cent. of approved expenditure. The higher rate will be paid on proposals received or approved within the two-year period commencing on 19th March.

The value of all the increases, of which these are part, is expected to be some £20 million or more, but the precise figure will depend on the response.

It will be noted that the rate of agricultural investment grant has been increased for a shorter period than the rate of investment supplement. This is because items eligible for investment grant will be eligible for grant under the Farm Capital Grant Scheme. The rate of grant will be higher—40 per cent. as compared with 30 per cent.—but for some items, such as buildings, there will be a requirement that the Department's approval must be obtained before work is started. There is no such requirement in connection with investment grant, so we have to allow sufficient time for the completion of work on items started before the new Scheme comes into operation. We think that 18 months is sufficient for this; if work has not started by the time the new Scheme is introduced, an application may be made under that Scheme for the higher rate of grant.

These considerations do not apply to the other grants which are being increased, because to qualify for all of them approval must be obtained before work commences, and no more applications will be accepted for these grants under existing arrangements after the new Scheme commences.

It is our belief that these and other increases announced in the Annual Review will provide a valuable stimulus to the investment which is essential if the industry is to maintain its justifiably proud record of productivity and efficiency. I invite the House to approve the Order.

12.22 a.m.

Mr. Bryan Godman Irvine (Rye)

Although my fertilisers arrived on the day before the Annual Review, I am happy to tell the Minister and the House that a little scheme which I hope will qualify for an investment grant has been delayed, through reasons unconnected with anything under my control, so I am just as interested in this Order as anybody else.

We are grateful to the Minister for letting us have a slight clarification of what the Order will cover, but it is still not quite clear to me. In the Explanatory Note, we are told that the Order applies to the investment grant payable under Section 31 of the Agriculture Act, 1967. The right hon. Gentleman made clear that there is another Order or Scheme to come which will deal with something else. We shall greatly appreciate it if he will clarify the matter so that all farmers, including me, will know exactly what is covered.

In the two paragraphs of the Review White Paper which lead to the Order now before us, there is reference to the downturn in the number applications in respect of schemes which would qualify. The Minister, no doubt, has some information about the downturn which, perhaps, is not available to me, but I can turn to two places for information, and these show a fairly dramatic downturn.

On page 43 of the Price Review White Paper, dealing with the farm improvement applications made for 1969–70, the estimate given is £14.3 million. For 1970–71 it is £15.5 million. As the rate in 1969–70 is 30 per cent., the figure that I understand would therefore become available is £50 million. In 1970–71, £15.5 million at 40 per cent. comes out at only £39 million. Therefore, the downturn that has led to this Order is a matter of £11 million in one year. This is a very significant matter which should be explained by the Minister a little more clearly than by the one word "downturn" in the Price Review.

In the National Farmers' Union Press release there is a reference to a paper on hidden depreciation. I do not know whether the Minister has seen it. I have not. If there is something significant there which he could tell us about, that would also be of interest.

We on this side of the House welcome the Order, but we come back to the point raised in connection with various Schemes tonight, that anybody who talks to the farmers will be left in no doubt that they will have great difficulty in finding the cash to meet the additional amount, small as it may be.

In Table A on page 36 of the Price Review it will be seen that the income of the farmer in 1964–65 was £447 million. The figures for 1969–70 are £535 million. Since 1964–65 many things have happened which have led to a little matter of a 25 per cent. decrease in the value of money. I need not tell the Minister what those various items are. Not the least of them was devaluation. If the amount for 1964–65 was corrected to allow for the fall in the value of money, it would represent about £600 million in purchasing power today, whereas the figure we find here is £535 million. Here again is a very serious deficit, which is an indication of why the farmer cannot find cash to take advantage of the Scheme.

The figures in the raised sample are £429 million in 1964–65 and £418 million in 1968–69. When they are corrected for the real value of money today they are seen to be very significant. Therefore, I have no hesitation in saying that the farmers will have the greatest difficulty in finding the money to pay even that small amount that will be required under these Schemes and the Order. Even if they could do so there are two other difficulties. Most of them have their overdrafts extended to the furthest limit and cannot take them any further. Second, if they could get an overdraft, a rate of interest of about 10 per cent. is not a very attractive proposition.

When we get to 60 or 70 per cent. being paid, that is a dangerously high figure. Therefore, it is right that the Minister has said that this will be a matter that will last only two years. It may be necessary at the moment, but it is not a figure at which it would be healthy for agriculture to operate for very long. Perhaps the Minister could tell us how the money will be paid—whether in two sums or one.

I commend the Order to the House.

12.30 a.m.

Mr. James Scott-Hopkins (Derbyshire, West)

I wish to raise two quick points. I interrupted the Minister when he spoke about "work" commencing as being the operative word in the context of application of the grant. Can he define what is meant by "work"? We have had the question in the past of whether it is the first shovel going in or the man coming on to the land. What is the definition? This is a small point, but if the right hon. Gentleman can define it now, he will save a lot of annoying legal issues later.

Secondly, this is the grant under the 1967 Act which covers those items of fixed equipment, plant, machinery, and so on, which are not covered under the Farm Improvement Schemes. The only thing that it does not include is a dwelling-house. Has there been any change in policy recently whereby, if buildings are put up on bare land—if a farmer applies for buildings to be put up on absolutely bare land—the scheme will apply to those buildings?

A case has recently been brought to my notice concerning a small unit of land, which is not necessarily a viable unit on its own, which is bare of buildings but, because of the recommendations of one of the Minister's officials, will become a new unit. Farm buildings are to be put on the bare land. I understand that those farm buildings and the equipment to go into them will now qualify for grant, not merely the existing 10 per cent., but the new, increased rate of 30 per cent. If this is so, I entirely and utterly disagree with it.

If must be the wrong policy to give grants for buildings and machinery which are to go on to bare land unless there is certainty that the new unit to be formed will be viable under the most strict criteria. If that is so, I have no objection and I am all in favour of it. Basically, of course, I welcome the Order. If the Minister will answer the two points which I have raised, I shall be grateful.

12.33 a.m.

Mr. James Davidson (Aberdeenshire, West)

I should like first to say how warmly I welcome the Order. I have only one or two points to make to the Minister. In principle, it is, perhaps, a pity that although the percentage has been raised, the ceiling is not a little lower, because I fear that what will happen is that a very large proportion of the money that is allocated under the Order will go to a few large schemes, to farmers who can afford to find the other part of the money, and not to a large number of smaller schemes, which is where I should like the money to go.

The emphasis under the Order is on fixed rather than mobile equipment. Again, from the point of view of export orders, this is, perhaps, a pity, because the country would benefit most from stimulus to tractors, forage harvesters and that sort of equipment rather than to fixed equipment which is made largely by firms which are dependent chiefly on the home market for the installation of their products.

I agree with most of the points raised by the hon. Member for Rye (Mr. Bryant Godman Irvine), who raised most of the points to be raised on the Order. I am very interested in what sort of equipment will or will not be eligible. There will necessarily be anomalies, of which I mention three. I take it that grain storage equipment, because it is fixed equipment, will be eligible, and yet, for example, the equipment which a farmer might buy to produce prop corn—propionic acid-dressed grain—which will keep more or less indefinitely, and which we tried ourselves last season with great success, will presumably, because it is mobile and can he moved about, not be eligible although it is every bit as much a way of enabling grain to the stored as a fixed grain storage bin or silo. A grain drier will be eligible because it is fixed, and yet a forage harvester, which is an absolutely essential part of the process of preserving grass for forage, will not be eligible because it is mobile and not fixed. Mechanical feeding equipment installed in a byre or piggery or any other form of livestock building presumably will be eligible and yet a tractor which takes feedstuffs to feed livestock outside the farm will not be eligible.

I should like confirmation that what I have said about these three examples is correct. Perhaps the Minister would explain why fixed equipment performing basically the same function as mobile equipment is eligible for grant whereas mobile equipment is not. If the object is mechanisation of our farms and increased efficiency in the farming industry, these can be little difference whether it stems from fixed equipment or mobile equipment.

I reiterate that I warmly welcome the Order and the previous Orders and look forward to hearing the Minister's answer.

12.36 a.m.

Mr. J. E. B. Hill (Norfolk, South)

I welcome these increases, but they should have been made some time ago, because the Government were warned many times from this side of the House that the rate of capital investment in agriculture was not keeping up. If the Government were to realise their own selective expansion programme, it was obvious that it was not sufficient merely to keep up the rate of investment but that the trend needed to move more steeply upwards. This has not happened. Surely, the claims in the White Paper of increases of 10 and 13 per cent. are expressed in current values and not in real terms. The actual in creases are markedly less.

I reinforce the argument that it is essential that sufficient credit should be forthcoming to enable farmers to take advantage of the grants now proposed. In East Anglia the Government's policy as it affects the banks has resulted in many schemes being deferred. I should like to quote from a letter which I have submitted to the Joint Parliamentary Secretary from Barclays Bank, Norwich, dated 24th February, 1970: On the question of farm expansion, the ceiling imposed by the Government in November 1967 had the effect of precluding us from assisting other than by guiding our customer to other sources of finance, e.g. the Agricultural Mortgage Corporation. And in reply to your specific enquiry, we have certainly had to discourage a number of projects which we would have unhesitatingly supported had conditions been otherwise. Such cases are frequent and extremely frustrating, not only for the customer but also for the banks". When I put that letter to the Parliamentary Secretary, he replied: It is inevitable that if the restrictions on bank lending are to bite, there must be cases in which credit is refused. Although agriculture has priority for bank lending, that priority cannot be absolute; bank managers must have some regard to the needs of non-priority customers". It is surely undeniable that the effect of the credit policy has been to force the deferment of schemes and the downturn of investment, which the Government are trying to correct.

It is no good the Minister replying that there have not been difficulties. When I submitted the Minister's reply to the bank, I had the further answer: I can only say that my experience, and that of my colleagues from all over the country who are dealing with farmers' finances every day, is substantially different from the information received by Mr. Mackie's department". That summarises the difficulty. That may refer to only one region, but unless more credit is forthcoming, farmers will not be able to take advantage of these new grants in the time during which the grants run, which is until September of next year.

May I therefore ask the Minister whether he can expedite the payment of grants in this period since it is clear that farmers not only have to find the 60 per cent. of the total amount but for a period have to find 100 per cent. of the cost, as usually the manufacturers need to be paid and are now asking to be paid promptly?

There is the further point that banks often have to ask farmers to finance the improvements on a longer-term basis, and they recommend them to go to the Agricultural Mortgage Corporation. When we last debated agricultural credit the Financial Secretary to the Treasury accepted that, because of non-variability of interest rates during repayment, the whole subject of A.M.C. mortgage rates was worth looking into. It is undoubtedly a further deterrent to farmers to have to incur loans when the high current rates of interest have to run throughout the whole of the period of the loan. Surely it is now time for the difficulty, which amounts to a distortion, to be considered, and I hope that the Parliamentary Secretary will say something about it.

12.43 a.m.

Mr. Hoy

The hon. Member for Norfolk, South (Mr. J. E. B. Hill) selected only one area of the country, and the situation there might not apply generally. He knows as well as anybody in the House that the Government gave agriculture the same credit priority within the banks' lending ceilings as was given to the export industries. We did so because we thought that this would be of considerable help to farmers; we have done our best in this respect.

I was asked which items were eligible for grant. When making his statement, my right hon. Friend said that there would be a considerable increase in the number of items eligible. I will not list all the things which will be included, but they are mainly fixed items, although there is a slight qualification to that which should please the hon. Member for Aberdeenshire, West (Mr. James Davidson). They are mainly permanent buildings, excluding dwelling-houses, but including glasshouses and frames, poultry houses and permanent yards, loading platforms, silos, provision for gas and electricity other than for dwelling-houses, fencing including hedges, walls and gates, and a host of other things.

The hon. Member for Aberdeenshire, West was concerned that large firms might collect too much of the money, and thought that we might have put the ceiling too high. This is the first time that we have imposed a ceiling, and we hope that it will prove to be helpful.

I was asked when payment would commence. I am told that people prefer to pay for work when it is finished and, therefore, payment of grant is usually made when the work is finished, but there is a possibility that it can be paid by instalments if approval has been given. As to bare land, investment grants are payable when a unit becomes viable. Grant-aided investment for building and works was at a record level in 1969. Only recently have there been signs of a down turn. As regards mobile equipment, if it does the same work as fixed equipment it may well be covered, but I will check.

The hon. Member for Rye (Mr. Bryant Godman Irvine) asked for the following figures: in 1967 applications numbered 48,135, the investment on which grant was paid was £46–2 million, and the value of approvals was £55 million. In 1968 the figures were 53,297, £50.9 million and £62 million respectively, and in 1969 they were 47,956, £59.6 million and £62.9 million. These are the latest figures I have.

The hon. Member feared that the farmer's share was too high at 70 per cent. We had a meeting this week with representatives from all over the country. Those who spoke said that it would have been more attractive if it had been increased. This is the same with every grant: if one increases it by 10, 20 or 30 per cent., it is always said that if it were raised by another five per cent. it would be even better. One has to hold the line somewhere and fix the grant at rates which one thinks will encourage the industry, but one also has a responsibility to the taxpayer.

I think that that covers all the questions, and I hope that we can now have the Order.

Question put and agreed to.

Resolved, That the Agricultural Investment (Variation of Rate of Grant) Order 1970, a copy of which was laid before this House on 18th March, be approved.