HC Deb 12 April 1973 vol 854 cc1607-29

8.18 p.m.

The Minister of State for Agriculture, Fisheries and Food (Mr. Anthony Stodart)

I beg to move, That the Farm Capital Grant (Variations) Scheme 1973 (S.I., 1973, No. 492), a copy of which was laid before this House on 21st March, be approved. With permission, Mr. Speaker, I propose to deal with the two Farm Capital Grant (Variation) Schemes 1973 together, the one covering England, Wales and Northern Ireland and the other Scotland.

The purpose of the variation schemes is to reduce the standard rate of grant from 30 per cent. to 20 per cent. for works and facilities for which application for grant is made on or after 22nd March this year. This change was notified to the House on 21st March by my right hon. Friend the Minister of Agriculture when he made his statement on this year's Annual Price Review.

I am sure that everyone present tonight will have welcomed the substantial increase in capital investment on farms in recent years. It is one of the outstanding features of the British countryside. This increase largely reflects the rise in farm incomes and also the confidence which our farmers have come to feel in the prospects for agriculture. It is because the industry is in this buoyant state that the Government regard as unjustified the fears that have been expressed about the effect of the cut in the rate of grant.

I know that there are those who ask whether the reduction has anything to do with our entry into Europe. I can answer emphatically that it has nothing at all to do with it. Secondly, it has been asked whether this is perhaps the beginning of the phasing-out or abandoning of the farm capital grant scheme. Again, I would say most certainly not. But every Government grant must be looked at periodically in the context of wider agricultural interests. With regard to the question of the Community it is true that some modifications may have to be made, but I do not expect that any of these will be of much significance.

Farmers have the incentive to continue to expand production. We very much want them to do so. I am well aware of the high interest rates for overdrafts and of the recent increases made by the Agricultural Mortgage Corporation. But the rise in farmers' incomes has given them the means to maintain the level of investment necessary to meet future market requirements.

If I am right in my assessment of the situation, the Government no longer have to provide quite such a large amount of direct financial assistance for the generality of works and facilities covered by the capital grant scheme. The amount spent by the Government on grants for capital improvement on farms rose from £36.5 million in 1970–71 to over £74 million in 1972–73. In the present year, 1973–74, we estimate that the amount will rise to nearly £93 million.

It is true that this very large sum partly reflects the rush of applications made in the first quarter of last year before the end of the temporary 10 per cent. addition to the rate of grant on 18th March. It is also true that the value of money is different, but it is not as different as all that.

Mr. Keith Stainton (Sudbury and Woodbridge)

Is my hon. Friend including the increased figure of the continuing amount for drainage grants, co-operation and the like?

Mr. Stodart

Yes. I am taking this from page 34 of the White Paper.

It is also true that the number of applications declined a bit during the latter part of last year, but such a reaction was only to be expected after the rush I have described in the first three months.

The latest figures, for the first quarter of this year, show a marked rise in the number of applications. The number in England and Wales during the last three months was over 21,000, which indicates a continuing high level of investment.

Even after allowing for the effect of the flood of applications up to March a year ago, the increase in actual and estimated expenditure is remarkable. Capital grants represented about 9 per cent. of the total estimated cost of agricultural support in 1968–69. In 1972–73 the proportion is estimated to be 26 per cent. and the forecast proportion for 1973–74 is even higher.

Therefore, it is not altogether surprising that the Government regard the amount spent on capital grants as being out of proportion with other forms of agricultural support. To redress the balance we decided that the standard rate of grant should be scaled down to 20 per cent., but we have made no cuts in the special rates of grant for drainage, for improvements to hill land or for remodelling works which are needed because of an approved farm amalgamation. Nor have we made any change in the grants for similar improvements under the horticulture improvement scheme, the agriculture and horticulture co-operation scheme or the agricultural investment grant scheme.

A point on which there has been criticism of the guillotine coming down so sharply is that we had to bring the schemes into operation quickly in order to prevent a repetition of the flood of applications we experienced last year from persons who would, perfectly understandably, have wanted to forestall the decrease in the rate of grant. I have mentioned the rush of applications which took place last year when the higher rates of grant came to an end and when it was announced that the grant for certain minor items, such as low ground fencing, was to stop. The announcements then gave two weeks' and four weeks' notice respectively of the changes, and the number of applications in March 1972 was eight times the normal monthly intake. The present change in the rate of grant does not affect applications made before 22nd March this year.

In this connection it has been put to me that there have been instances when intending applicants for grant have been asked by my Department to delay lodging applications so that the pipeline ahead of them might clear. I have no evidence of any of my staff having asked a prospective applicant to hold back his application. We have always been willing to accept applications which set out clearly —if necessary in outline,—the work proposed, where it is to be done and its estimated cost. But if any hon. Member can provide details of such a request, I shall be glad to look into the case and to write to him.

In 1972 the agriculture industry invested £167 million in buildings and works. Expressed in real terms this was an increase of about 10 per cent. on the volume of the investment in 1971, which was itself a record. It is clear that the industry is now geared to a fairly high level of investment. It has never been better placed to take advantage of it. In these conditions I have no doubt that the industry will be able to maintain an adequate level of investment with the rates of grant set out in these two statutory instruments.

I conclude by recalling a conversation I heard on an early-morning farm programme on the radio one Saturday about a month ago—probably the Saturday after the announcement of the Price Review. Three farmers were being interviewed as to their opinions of the cut in the grant. The first said that he was extremely glad. "I have got done nearly all the building I was thinking of doing", he said. The second said "Thank goodness, I got my scheme in in time to get the 30 per cent." The third said, somewhat dismally, "I have been caught, because my scheme is not in yet ". The interviewer or chairman of the discussion asked him "Well, what are you going to do? Are you going ahead with it?" The reply of the third man was "Oh, it will not make any difference. I will go ahead just as before". This is the assessment I would make of the effect that the cut will have.

I hope I have given the House a clear explanation of the two schemes.

8.28 p.m.

Mr. David Clark (Colne Valley)

I only hope that the hon. Gentleman's suggestions, and what was said by those three speakers on the radio, are correct. and I hope that my fears and those of many in the industry about the effect of this cut are unfounded. I believe this is a scheme which both sides of the House have welcomed. I believe it is true to say that both the last Government and this present Government had some hand in producing it. While perhaps both sides had certain reservations about it, we generally accepted it, believing that it was to the benefit of agriculture and in the long run to the benefit of the British housewife.

We on this side, however, certainly regret the Government's decision to reduce the level because we believe it could —and I emphasise could—affect the very buoyancy to which the Minister referred in introducing this scheme. In our submissions we find considerable support from the industry itself. The Minister and the House well know that the National Farmers' Union is very concerned about this aspect which was announced in the Farm Price Review. The Country Landowners' Association went considerably further than that. The President of that body, Mr. Graham, went so far as to say The cut will hinder the industry's efforts to boost production, on which lower food prices depend. Obviously, when we get a statement like that from a gentleman in such a position of authority we are bound to take it seriously and to try to assess the effect of the scheme. When we hear that it could affect prices and when we in this House are also conscious of the effect on prices, clearly we have to look at this scheme with extreme care and caution

I fully accept the Government's point that there has been a welcome increase of investment in agriculture. That is good, not only for farmers but for the country as a whole. I would argue that it is not in the general interest at this stage of our fight against inflation to do anything which might threaten that investment. It is on this point that we take issue with the Government. We accept the figures which the Minister has given showing that investment in 1972–73 will be £74 million and in 1973–74 will be £93 million.

Mr. Stainton

Has the hon. Gentleman noticed the expression on page 11 of the White Paper on the Farm Price Review that estimates for 1973–74 are on the convention basis of guaranteed prices and that rates of grants will be the same as in 1972–73?

Mr. Clark

The point about it, which I believe the Minister will confirm, is that the estimated amount of grant for 1973–74 is in the region of £93 million. I believe that there I am using the Minister's own figure. We welcome it and we do not dispute it for a moment. I would point out that the scheme we are discussing will not affect the figures one iota. We shall have to wait until 1975 to know in round figures the cost to the Exchequer, when it will be approximately £50 million.

What worries me is that there is no doubt that the rate of grant has affected the investment rate. In his introduction the Minister quoted other instances where a two- and four-week period was given for phasing out the grant, with the result that in that period there was a great inflow of applications for grant, proving the point.

Both Governments accept—and that is why we advocate it—that there are times when extra incentives that are offered will be effective. I have managed to work out a figure. If we look at the rate of take-up of grants in the three months to 28th February this year, we find that these were at the level of only 46 percent. of that of the previous 12 months when a very much higher rate of grant was available. This will be one reason why we have a high Exchequer cost of capital grant, due largely to the level of applications in the two-year period to 18th March 1972, when a 40 percent. grant was available. This has appealed to the farmers, as it was meant to.

But the point is that as it has been found historically that an increase in the level of grants has led to an increase in the level of investments, we fear that a decrease in the level of grants will lead to a decrease in investments. I hope that we are proved wrong and that the three wise men who advised the Minister on the radio are correct. I hope that farmers will invest, but we on this side have our doubts.

We also have doubts because of another factor. We must consider the cost of borrowing money when we discuss the effect of the scheme and its implications. We all know the overdraft rate for bank loans. The interest rate for a fixed-interest loan for farmers from the Agricultural Mortgage Corporation today is 11¼ per cent. Only a year ago it was 8½ per cent. This means that if a farmer borrows from the AMC he faces considerable extra repayment burdens in addition to the loss of the 10 percent. grant, the loss of one-third of the grant.

If we examine the matter, bearing in mind the extra cost of building during the past year, we reach a remarkable figure. A building costing £1,000 in February 1972 would have involved a farmer in a capital cost of £600 after he had received a 40 percent. grant. He could borrow money from the AMC at 8½ per cent. The cost of a similar building has now increased to £1,190 and the farmer will receive only a 20 per cent. grant. The net cost after the grant is £962, at an interest rat of 11½ percent. from the corporation. The cost is 60 per cent, higher than it was a year ago. Hard facts like this worry us when we discuss the scheme.

I was glad to hear the Minister make two points. The first was that the scheme had nothing to do with the EEC. Some of us were becoming a bit suspicious that it was the first stage of the phasing-out of the capital grant scheme, but according to the Minister that is not so. We are at an early stage of the whole proceedings but we should like to know his thoughts on the further modifications that will have to be made because of the EEC regulations.

The other point that I welcomed concerned farmers who have been caught out. I should like to have it confirmed that my understanding of what I heard is correct. We are all familiar with allegations that some farmers were preparing their schemes but had been advised by some of the Ministry's officers that they should hold their horses for a little while so that they did not bung up the whole system. The Minister agrees, and we agree, that it is very unfortunate for those people and that if possible something should be done to help them. Is he saying bluntly that if farmers can produce evidence that they were in the process of completing a scheme but had not completed it because of various factors, one of which could be the influence of his officers, those cases will be considered by the Ministry? I hope that is so. The Opposition and the whole industry will be most grateful for a categorical answer.

Our worry is that cutting back on capital grants could damage British agricultural investment, and we object to the scheme for that reason. It seems to us that a direct capital grant of this nature is one way of trying to help the poor consumer. It is not all that obvious but it is a fact because giving direct Exchequer aid in cases like this means there is nothing added to the food price bill, which we are all constantly watching. On the one hand, it leads to an increase in production which enables the industry to modernise, mechanise and absorb the higher cost which it is inevitably facing in these times of inflation. And, of course, it enables the Government to do this without passing on any direct cost to the consumer. It does not affect the market price.

Therefore, we would argue that this capital investment is a positive method by which a Government can support agriculture without increasing food prices. And it is a matter of great regret to us that at this time, when prices are rising at a frightening rate, the Government have decided to cut back on this very scheme by which they could have helped the consumer even in the short run. That is why we are worried about this scheme.

8.41 p.m.

Mr. Keith Stainton (Sudbury and Woodbridge)

I say in the best of good faith that it is somewhat ironical that we should have from the Opposition benches this argument in defence of what is known in agricultural circles as "landlord's capital". But, be that as it may, it is purely a debating point and I wish to make nothing of it, because the tragedy is that I find myself opposed to my own Front Bench on this matter. This is a real tragedy because over the years I have battled with my hon. Friend the Minister of State on numerous occasions on a variety of agricultural measures dealt with both upstairs in Committee and here in the Chamber and I think I am right in saying that previously we have not had any substantial difficulty. But I take issue with my hon. Friend on the scheme tonight on behalf of my constituents, my farmers in Suffolk and, therefore, I believe, on behalf of the farming community throughout the country.

I suppose it may be argued that the White Paper of which the scheme is a part forms a package, and taken overall that package is a fairly good deal. When one takes a package one trims one item in order perhaps to be more indulgent on another. I can only say in response to that kind of argument that the NFU and the CLA, although restrained, have certainly been extremely forthright in the circulars and documentation they have issued to hon. Members in protest against this measure.

The second argument which has been promoted by the Minister of State tonight is that these grants have become unbalanced and now form an entirely undue proportion of the total amount of agricultural support forthcoming from the Government. In terms of percentage that is quite right. If we aggregate the figures in the White Paper—and I think we must take the merger of the two series of figures, the pre-capital grant scheme and the capital grant scheme as such over the period 1968–69 to 1973–74 the first figure quoted is £24.5 million, but for 1972–73 it is £74.1 million.

The Minister hesitated to quote a percentage. He merely said that it was higher for 1973–74, and I think it would be difficult to determine the figure. The figure is in the White Paper in sterling terms £92.9 million but on page 11 there is a reservation, which I instanced in my intervention, that the projections for 1973–74 are based on the continuation of the rates of grant applicable prior to the decisions contained in the White Paper.

I shall not pursue that point; we do not want to get tied up in statistics of that kind tonight. It is revealing, however, to reflect on an answer which my hon. Friend the Parliamentary Secretary gave to my hon. Friend the Member for Weston-super-Mare (Mr. Wiggin) on 27th March comparing the expenditure on the farm capital grant scheme at current prices and at 1968–69 money values. The absolute amount rose from £24.5 million in 1968–69 to £57.6 million in 1971–72.

I do not wish to go further into that matter because we are talking about forecast out-turn thereafter. The multiple of 3.02 is on the say-so of my hon. Friend the Parliamentary Secretary. But if one deflates these figures to constant 1968-69 money values and starts on the same basis of £24.5 million, one finishes up with £48.2 million, which is a multiple of 1.96 as opposed to 3.02. We must bear this clearly in perspective when talking about the vast increase allegedly contained in these grants.

In many senses we are only touching on the periphery of the argument, which is not about the percentage that these grants absorb of the Government's support for agriculture but must be about something of which we do not know the real profundity. It must be related from the grants to the gross formation of capital investment—we have these figures in the White Paper—in buildings and works. In turn, these two series of figures should and must be related to the capital stock within the industry itself in order for either of them to be at all meaningful. It is extraordinarily difficult to get to these base figures.

I have had undertaken a certain amount of research. It would appear that a survey in Berkshire in 1968 revealed, for example, that of the building stock in 1968 just short of 60 percent. dated from pre-war. If one is cognisant of that fact and also bears in mind that gross capital formation of building works in agriculture in 1971 was £140 million provisionally and in 1972 was £167 million—let us round it up to £150 million—the best estimate I can get of the 1972 valuations of farm fixed investment is about £1,500 million. This means that gross capital formation is going on at the rate of about 10 per cent., or so one would assume. But when one has regard to the ageing of that stock of capital investment I aver that even with the upsurge which has been taking place the capital investment in agriculture is inadequate.

The biting, bitter fact of this move— I shall come to the anomalies, which are causing a lot of heart-rending, in a moment—is that the people who are hit the hardest by this move are the tenant fanners and owner-occupiers. We are told in paragraph 28 of the White Paper that In Great Britain 63% of the holdings were wholly or mainly owner-occupied in 1972 compared with 54% in 1960–61. That is a vast difference—and I am not talking about acreage, which does not in my view, apply in this instance. Thus: The people who are hardest hit are the tenant farmers and owner-occupiers. The landlord if he puts up new buildings normally simply increases the rent and recoups his outlay. That is written to me in a very astringent letter from a prominent and competent farmer in my constituency.

One could and should explore many aspects of this situation, given the latitude so to do, but I should like now to take up first the question of the anomalies and then that of Europe. In terms of the anomalies, I have with me a letter from a chartered surveyor who operates not quite within my constituency. He writes that he and his staff have been under enormous pressure, which came to a climax in the last two to three months as the time for 40 percent. scheme deadlines drew near. He says: It has been necessary, therefore, to concentrate on the 40 percent. schemes and to leave the balance of 30 percent. schemes to be prepared afterwards in situations where special work is required to start soon. That was written on 26th March. In effect, therefore, farmers are descending not from 30 percent. to 40 percent. but effectively from 40 percent. to 20 per cent., a cut of 50 per cent.

My correspondent goes on to say: On 21st March, I had approximately 20 schemes waiting to go to the Ministry in Norfolk, Suffolk and Essex under the 30 percent. grant. Final plans had been prepared for almost all these schemes but a few builders' quotations were awaited. I had not submitted the grant application form, as previously I had been asked by the Ministry surveyors in Norfolk and Suffolk to submit schemes in toto to help cut down the extra work incurred in dealing with dribs and drabs. I submitted all these schemes to the respective offices on 22nd March but, as the matter now stands, my clients will forfeit 10 percent. of the grant and my own position is one of considerable embarrasment. The Minister of State made some encouraging noises on this point, but I should like to know with the utmost precision what he has in mind. He suggested dealing with the hardship cases, but they do not come within the ambit of the scheme. We seem to be thrown upon the goodwill of ex gratia payments from the Treasury. If so, that is lamentable and I am not prepared to settle for that. I want a specific assurance from the Minister of State about exactly how these situations will be dealt with—albeit that I have argued the erroneousness of the cut now contemplated from 30 percent. to 20 per cent.

My final point is about Europe. There is much fear in the farming community that what is in hand now presages changes vis-à-vis our entry to Europe and might well be the thin end of the wedge. It could be that with this thought in mind, there would be a further upsurge. I would agree if the Minister of State were to tell the House that there is overheating in the farm building supply industry. This is an acute problem. To get even a quotation, let alone a competitive quotation, one has to go flat out.

But cutting back the rate to 20 percent. the Ministry is not harmonising at all. It has in fact slashed the rates well below the EEC level. In so doing it has thrown away one of its trump cards which it should have held very close to its chest in order to pursue the discussions on the modernisation directive which is not due for several months, later this year. Perhaps we have forfeited a tactical situation which could well be to the grave disadvantage of our farming community.

The Minister of State made various references to Europe. He is in direct conflict with Mr. Peter Wormwell of the East Anglian Daily Times who wrote that this move was contrary to the change of policy last year which stipulated that member countries could introduce a system of grants on the United Kingdom pattern and permission was given for the range to be within 25 to 30 per cent. I do not seek to put Mr. Peter Wormwell of the East Anglian Daily Times in direct conflict with the Minister of State, but to my mind that is a very large question mark.

I apologise for having taken so long to put my case, but it is a complicated issue. I hope that I have made my points with reasonable clarity and force-fulness.

8.56 p.m.

Mr. Emlyn Hooson (Montgomery)

It is an ironic situation that yesterday the House was discussing the contribution that this country would have to make to subsidising butter exports to Russia and this evening we are discussing a matter which is a considerable blow to the farm development programme of this country, and will obviously have long-term repercussions on farm costs and therefore eventually on consumer prices.

It is difficult to know exactly what the Government are aiming at in this proposal. Although we are greatly impressed that the Minister gets up so early on a Saturday morning to listen to the farming programme—[Interruption.]

Mr. Stodart

I was in bed.

Mr. Hooson

If the Minister was in bed, I will rephrase my comment and say that although we are greatly impressed that he is awake so early on a Saturday morning after the labours of the week, the story he recited of the discussion between the three farmers seems to me in no way to bear out his point.

Here I declare an interest in that I am a hill farmer and, as we have heard the Minister say, hill-farming grants will continue. But if those grants were to be withdrawn, farmers would still farm in the hills and carry out their proposals, but they would do so far less adequately than at present.

The same situation arises with farm grants. The third farmer the Minister cited may regard it as necessary for his long-term prosperity and that of his family to carry out his farm scheme despite the grant having been reduced to 20 per cent. Nevertheless, no one can doubt that, with modern interest rates, it will be a much greater hazard for him to do so, and that his union will press this point when it comes to reviews of the level of agricultural prices in the Common Market. If a man borrows money at 11¼ percent. and has to borrow an additional 10 percent. of the capital expenditure programme, he is required to make a considerable contribution.

The Government are making a great mistake, now that we have entered the Common Market and there is a change of policy, in introducing this reduction at this time as in my view it is very discouraging to farmers.

It is particularly discouraging to young farmers who have bought farms at a very high price. Well-established farmers have already carried out their improvements, as will be seen from the improvement schemes already sanctioned. Young farmers now have to pay more than an economic price for land. They are the people who are at the end of the queue and are faced now with this reduction.

Representing, as I do, a largely agricultural constituency, I know of a number of farmers who, having recently—and by recently I mean in the past five or six years—moved into farms, were preparing their schemes. These are the people who are now left behind. The Government's decision is a stupid one. What they will gain on the swings they will without doubt more than lose on the roundabouts.

Under the Common Market directive this reduction was not necessary. Unless my understanding of the directive is wrong, the computation of the interest rate allowed on various schemes under the continental system works out equivalent to 30 per cent. for capital grant schemes. We were informed of this in a very helpful background paper by the Country Landowner's Association. I did not see this requoted in the hand-out of the National Farmers Union, but I assume the Minister will deal with the matter in his reply. The farming community protests against this reduction. It is the wrong time to do it, in my view, when farm costs are rising so much and when there is so much consumer protest over the rise in farm prices. How can one possibly resist the claim for additional farm prices when 10 per cent. is to be added to the rent in the case of a tenant and when the owner-occupier faces an additional and substantial capital cost which has to be capitalised and the interest rate taken into regard in calculating farm costs? The Government are making a great mistake in reducing the grant from 30 per cent. to 20 per cent.

I add one last plea to reinforce that of previous speakers that consideration should be given to those fanners who had schemes ready to go in and that particular care should be taken to see they do not suffer as a result. I do not know how the Government are to work out a practical system for sorting out the sheep from the goats on this matter and for being satisfied that schemes were genuinely about to go in. That is a matter of some difficulty.

But even though there was an upsurge with the change from 40 per cent. to 30 per cent.—I was among those who put in a scheme at the last minute—I would have thought it far better and healthier for the country to allow a month's grace rather than bring down the guillotine as the Government have done.

9.3 p.m.

Mr. Charles Morrison (Devizes)

I could not help noticing, as did my hon. Friend the Member for Sudbury and Woodbridge (Mr. Stainton), the support of the hon. Member for Colne Valley (Mr. David Clark) for the Country Landowners' Association, which I find most refreshing, not only in general but in particular, because I am a member of that organisation. I hope the hon. Gentleman will fight the good fight with some of his colleagues who have been taking a somewhat different line from that which he has been taking and who have been supporting the nationalisation of all land.

The schemes have been a major incentive to investment in farm buildings. Equally, no doubt, they have been a major feature in the modernisation of British agriculture. It is not least surprising, when a cut is made in the level of grant, that the disappointment already expressed by a number of hon. Members should have been raised. This disappointment is felt by a large number of farmers and landowners.

It has been argued that the agricultural building industry already has too much work on its hands and that the result of this pressure upon it is that it has tended to put up its costs, not unnecessarily but to provide a disincentive or at least to reduce the pressure upon it. It is argued therefore, as a corollary to this, that a reduction in the grant will reduce the pressure somewhat and will in turn have the effect of reducing the price of some of the buildings which are planned.

It has been claimed that one of the effects of grants at a fairly high level has been that some buildings have been designed with too many ornate features. It follows that a reduction in the grant could mean that some of the embellishments of some buildings could be cut out without any disadvantage to farming operations.

I know that it can be argued that at present it is easier for the owner-occupier or for the landlord to borrow money for necessary investment in buildings because of the considerably enhanced value of land stemming from the recent increases in land prices. However, it must be remembered that those increases have not been particularly welcomed by farmers or by landowners. It can be argued, however, that it is easier to borrow for necessary investment in building because of that increase.

Furthermore, the cost of borrowing can be set off against other profits.

I know that in due course, however much money has to be put up for the purpose of constructing a building, the owner-occupier or landowner will be reimbursed as a result of his capital expenditure claims. Nevertheless, in spite of all these points, the cut which the Government have proposed has caused considerable concern, particularly amongst landowners at a time when rents are frozen.

There is no doubt that the cut will mean considerable changes in plans which in some instances will cause delays. It will mean that many decisions will have to be revised. My hon. Friend the Minister of State said that the cost of the capital grant scheme was out of proportion to the total cost of agricultural support. That is probably a fair point, given that my right hon. Friend the Minister of Agriculture had so much money available to allocate and that he had to make certain choices. Probably he was right this year to spread the financial resources more widely amongst more farmers. He was able to spread the resources more widely than he would have done if he had retained the level of grants at 30 per cent. If he had taken that course, he would have been aiding only those who were investing in the near future, rather than the majority of farmers who are committed in other ways.

I hope that my right hon. and hon. Friends will watch carefully the trend of applications for building grants in the course of the coming months. If our fears about the effect of the cut are unjustified, all well and good. If our fears should regrettably be justified, I hope that the matter will be considered at the next review and that sympathetic consideration will be given to revising the percentage grant upwards to 30 per cent. once again.

9.10 p.m.

Mr. R. J. Maxwell-Hyslop (Tiverton)

There is nothing magical about any specific level of grant. We have to consider the trend and not the particular figure at any one time. The most significant single trend in farming over the last year has been the steep rise in costs. These have had many components—fuel, electricity, wage, fertiliser and building costs —quite apart from fodder costs. It is allegedly Government policy to achieve two results. One is a continued increase in British agricultural output and the other is a containment in unit cost over the increased output.

That is a fair summary of Government policy as proclaimed. Therefore we need to judge the trend of costs to see whether they are compatible with those two objectives and in particular what the effect of this measure is likely to be. If we take an improvement scheme costing £5,000. and that is by no means a very ambitious scheme, the increase in AMC variable rate over the last couple of years from 8 per cent. to 12 per cent. adds an additional £200 a year to the cost of servicing that loan. Having to pay 12 per cent. on an additional £500 which has to be borrowed, because that is the amount by which the grant is reduced on a £5,000 scheme, entails interest charges of another £60 a year.

Taking this simple example, the combination of the increase in interest rates and the reduction in grant from 30 per cent. to 20 per cent. for a £5,000 improvement scheme imposes increased costs in excess of £5 a week on the farmer. If the Government do not mind production costs rising and being reflected in increasing food prices, well and good. But that is not what the Government say. They say that they want farmers to increase their efficiency. I think that is the usual phrase. What does increasing efficiency mean? It generally means a greater ratio of capital to labour. By decreasing the percentage grants that is exactly the trend which is discouraged.

Farm labour costs will continue to rise. Most people would grant that the rate of pay for agricultural workers is still far behind what it ought to be compared with other members of the community. This will be remedied only by fresh infusions of capital into the industry. This process is not encouraged by slashing the grant by one-third. This is the gravamen of the case, and theoretical considerations about balance ought not to take precedence over judging compatibility with the Government's agricultural policy as a whole.

Those are the criteria I ask my hon. Friend to apply. Unfortunately in this scheme he leaves himself no flexibility whatever. It is unhappily, no good his coming to the Box and saying that he will look sympathetically at cases which have been chopped off by the scheme because sympathy is all that the people concerned will get. The scheme does not empower him to make that effective. That is why when his right hon. Friend introduced it there were some theoretical grounds on which to justify it, but it is incompatible with the major objectives of the Government's policy both in terms of food prices and in terms of continuing to stimulate increased agricultural output.

It is worth spelling out why we want increased agricultural output, because it is not self-evident to everyone. When people have taken on board the fact that the era of buying food at marginal surplus prices is probably over for all time and we are moving into an era in which the true cost of production rather than the marginal price of surpluses will determine what the consumer pays, the case for becoming more self-sufficient in agricultural production becomes ever more convincing to those who were not initially sympathetic to it.

When we saw what happened to grain prices six months ago—not because the cost of producing grain had risen astronomically, but because that little margin of surplus which used to depress international prices had vanished—many people were brought face to face for the first time with the facts about food production. Recent dramatic increases in beef prices have also brought people face to face with the international situation that will be the reality in the foreseeable future.

The Government should bear in mind these long-term trends rather than the short-term budgetary ones, particularly when one recollects that the effect of these changes in terms of spending from the Consolidated Fund is likely to be felt in 1975 rather than now. The effect on food prices is likely to be felt in the shorter term and the effect on the Consolidated Fund in the longer term. All in all that suggests an imbalance of policy rather than the right balance.

That is why I should be much happier if my hon. Friend were able to say that he is not obliged to ask us to confirm the scheme tonight. A scrutiny of the date on which the order was laid suggests that there is some slack in the rope, so that he could go back to his right hon. Friend after tonight's debate and reconsider this matter.

9.18 p.m.

Mr. Peter Hardy (Rother Valley)

I had not intended to intervene, but I should like to make a few comments in response to the hon. Member for Devizes (Mr. Charles Morrison) who suggested that some hon. Members had been converted to the cause and were now supporters of the Country Landowners' Association. The hon. Member for Devizes has it entirely wrong. What has happened is that the CLA has come to agree with us. That agreement is being expressed in terms that it is incomprehensible that the Government are prepared to jeopardise food prices in the way they have. One can only agree with the CLA and say that one hopes that the song of joy for the repentant sinner will be repeated in the months ahead if the Government continue to conduct their agricultural policies in the way they are doing.

I have spoken to farmers in my constituency about some of these policies, though not recently about the capital grants scheme. Many of them will be astonished at the proposal to reduce the amount of grant since they have been horrified during the past two years and four months to have no fewer than eight changes, all going upwards, in the rates of interest that they have had to pay. The current rate—it went up only a few days ago—is prohibitive for any farmer contemplating the kind of capital investment that British argriculture must continue to have.

Recently I visited a farm in my constituency, the farmer having contacted me about the impending shortage of feeding stuff for his pigs and poultry. At the end of last year and the early part of 1973 many farmers were extremely anxious about the supply of feed for their poultry. Many of them were living on what might be termed a hand-to-mouth basis. As a result of their experience, many will wish desperately to increase their storage capacity to enable them to live through the next period of shortage a little more comfortably. The cost of providing that capacity is soaring. I thought that my hon. Friend the Member for Come Valley (Mr. David Clark) was remarkably kind when he pointed out that whereas it would have cost £1,000 a little while ago, it will now cost £1,190. I believe that the hon. Member for Sudbury and Wood-bridge (Mr. Stainton) was more accurate when he said that it was more likely to be £1,250 or £1,300 and that by the end of this year it would no doubt be higher.

That being so, the reduction of grants when interest rates are soaring and building costs are rising rapidly, and when no fanner can look forward to maintaining an 11½ per cent.. interest rate with any confidence, means that this is an untimely measure. I hope that the Minister of State will think again.

9.22 p.m.

Mr. Anthony Stodart

I begin by repeating what I said in opening. No one ever likes anything being cut. Wherever the cut falls, people will not be very pleased.

The main argument confronting us about which it is my job to try to convince the House is whether farmers' incomes are not much better than they were three years ago. The hon. Member for Rother Valley (Mr. Hardy) said that farmers were horrified about what had happened in the past two years. I remind him that I am a farmer. I know all about overdrafts. I assure him that farmers are much more contented than they were in the early part of 1970. One indication of their lack of discontent possibly is to be found in the amount of mail which Ministers in my Department receive from hon. Members. There has been a very significant fall.

I say to my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) what I said earlier: the call is still for expansion. Hon. Members on both sides have said that they have their doubts about whether we shall achieve it in view of this cut. Personally I think we shall.

The hon. Member for Colne Valley (Mr. David Clark) and my hon. Friend the Member for Tiverton spoke about increased costs. There are increased costs. It would be foolish to deny that. However Tables 20 and 23 in the White Paper reveal that these have been counterbalanced by very welcome increases in farmers' incomes. This is a matter that we cannot altogether ignore. My right hon. Friend and I are confident that in present conditions there will be no adverse effect on production.

My hon. Friend the Member for Sudbury and Woodbridge (Mr. Stainton) said that he thought that the National Farmers' Union and the Country Landowners' Association had been restrained in their comments. That is a fair com- ment. I know that the CLA in particular has expressed grave displeasure about this matter. Again, it does not surprise me that it should.

My hon. Friend referred to the vast increases that had taken place in the figures that I had quoted. I accept that inflation has taken place, but not to such an extent as to rebut my claim that investment in real terms has been going along very well indeed.

My hon. Friend referred to the level of aid and, understandably, attempted to draw a comparison with what is available in other member countries of the EEC. The difficulty is that there is no EEC level as such, because there are wide variations. I believe that farmers here are getting fair treatment compared with the aid for capital investment which is available in other member countries. A 20 per cent. grant is broadly comparable with a 4 per cent. interest rebate on a 15-year loan repaid by equal annual instalments. This is roughly similar to the general level of aid in both France and Western Germany. In Holland the system of grants is quite different. Even with this cut and the pitch down to 20 per cent. for what I call the common-or-garden side of the capital grants scheme, we still have 60 per cent. for drainage and higher rates in the hill areas. Therefore, there can be no question of saying that we are worse off compared with the rather complex system of grants in Europe.

I repeat, there is absolutely no connection between going into Europe and the cut that we have made. It has nothing to do with any attempt to get to the EEC level or anything like it. If we find that the cut has an adverse effect, I undertake that naturally we shall watch the situation closely and will take what action may be needed.

The hon. and learned Member for Montgomery (Mr. Hooson)—I did not know that he was a hill farmer—is extremely lucky. My farm is the last one outside the hill areas. Therefore, no doubt like his, it is the most difficult farm in the world. However, I suggest that mine is the more difficult because I get absolutely none of what in Scotland are called subsidies, whereas he must do well out of them.

Many hon. Members have touched on the extremely important matter of what might be loosely described as hard cases. I must be frank with the House. There would clearly be endless room for argument whether a scheme was "on the point of being sent in". To avoid unfairness and anomalies we must choose a clear and objective date. The best date to choose is the date when the application is received by the Ministry.

As I have already said, if any hon. Gentleman has evidence and can provide me with a good case for saying that my Department has been responsible for saying to that farmer, "Do not put in your claim for the time being because it is inconvenient for us", then I shall look into it with the greatest care. I cannot of course make promises on cases which, with the greatest respect to my hon. Friend, are at this stage hypothetical, until I have seen individual cases and what they add up to. Therefore, I cannot give a blanket assurance that all will be well. But I give an undertaking that I shall look personally at every case and that I shall try to judge, as I think fairly, whether some recompense can be made.

Mr. David Clark

I appreciate the Minister's gesture and I am sure that he will carefully review every case that is referred to him. May I press him on one point? If the House approves the scheme, has he any power to give people a grant of an extra 10 per cent. if the submission date was after 22nd March?

Mr. Stodart

I must be frank and say that I have to make a case in equity to get money to do this. That responsibility would lie on my shoulders. I shall do my best and all I can ask is for the House to trust me to do my best.

Questions put and agreed to.

Resolved, That the Farm Capital Grant (Variation) Scheme 1973 (S.I., 1973, No. 492), a copy of which was laid before this House on 21st March, be approved.

Resolved, That the Farm Capital Grant (Variation) (Scotland) Scheme 1973 (S.I., 1973, No. 476) a copy of which was laid before this House on 21st March, be approved.—[Mr. Monro.]