§ 4.27 p.m.
§ LORD DENHAM
My Lords, I beg to move that the Farm Capital Grant Scheme 1970, which was laid before this House on December 1, be approved. It may be convenient to noble Lords if with this Scheme I move also the Farm Capital Grant (Scotland) Scheme 1970, the Ploughing Grants (Variation) Scheme 1970 and the Ploughing Grants (Scotland) (Variation) Scheme 1970, since they are all closely related.
The most important of the four Schemes are the two Farm Capital Grant Schemes, for these replace most of the existing capital grants. The existing grants have been introduced over a long period in which there have been many changes in the agricutural industry. We are now recasting the grants in a form which is more suited to present-day farming and which will make more effective use of available funds. We are also replacing the differing requirements of the present schemes with fewer and uniform conditions in a single Scheme, and this will reduce paperwork and be simpler for everyone. There are only minor differences between the Scheme for Scotland and that for England, Wales and Northern Ireland. These differences arise because the provisions in paragraph 3 of the main Scheme, relating to smallholdings authorities, do not apply to Scotland; there is different legislation relating to drainage in Scotland; and claying and marling and hop-growing are not 1315 practised there and therefore do not need to be covered by the Scheme.
Apart from these differences the Schemes cover broadly the same items as the arrangements being replaced, except that plant and machinery will not be eligible for grant. As your Lordships know, farmers are now benefiting from the new tax allowances on plant and machinery which were introduced on October 27. The standard rate of grant under both Schemes will be 30 per cent. of eligible expenditure. Higher rates of 50 per cent. are payable on certain works and facilities for the benefit of hill land and also on remodelling works which are certified as a consequence of an amalgamation or boundary adjustment approved under the Farm Amalgamation and Boundary Adjustments Scheme. The highest rate of grant is 60 per cent. which is for field drainage for the benefit of hill land. Applications received or approvals issued by March 18, 1972, will attract an additional 10 per cent. grant to give effect to the increased rates announced following this year's Annual Review. Sub-paragraph (2) of paragraph 3 of the main Scheme lists the works and facilities on which smallholdings authorities may qualify for the 10 per cent. supplement payable under Section 51 of the Agriculture Act 1970. Section 51 gives effect, for a period of five years, to a recommendation of the Wise Committee that a special grant should be made available for the reorganisation of smallholdings. The total rate of grant available to smallholdings authorities on the works and facilities specified in the Scheme will be 50 per cent. on applications made by March 18, 1972, and 40 per cent. on applications made between that date and December 31, 1975.
To qualify for grant under the Schemes, expenditure of a capital nature must have been incurred in connection with an agricultural business. Under sub-paragraph (2) of paragraph 4 the agricultural business must be one which is capable of yielding a sufficient livelihood to an occupier reasonably skilled in husbandry. The intention initially is to regard a net farm income of £880 a year as representing a sufficient livelihood in Great Britain. In Northern Ireland, the statutory minimum wage for agricultural 1316 workers will be used, reflecting the different structure of farming in that country. For the future, the figures will be increased in line with increases in the statutory minimum agricultural wages. Under sub-paragraph (1) of paragraph 4, bare land holdings will not be eligible for grant on the full range of works and facilities listed in the Schedules. An exception is made, however, where a bare land holding was created more than five years before an application is made under the Schemes; or where the land in the holding is newly reclaimed for, or restored to, agriculture; or where the separation of the bare land from an equipped holding was not contrary to the interests of good estate management.
Agricultural businesses which fail the sufficient livelihood or bare land tests will still be eligible for grant on certain items—mainly land operations—provided that these would continue to be of benefit to the land occupied by the business if it subsequently became part of a larger unit through amalgamation. There will be no tests of whether the proposed expenditure is prudent and economically worth while. These are matters which in future will be left entirely to applicants. In this, the Schemes differ from some existing schemes. A further difference will be that the "benefit to the land" test of the present Farm Improvement Scheme has been dropped. But, as announced at the last Annual Review, grant will not be paid on expenditure totalling more than a "ceiling" figure of £100,000 in respect of any single farm unit in any two-year period. Expenditure which has qualified for the higher rate of agricultural investment grant introduced on March 19, 1970, will count towards the ceiling. The level of the ceiling will be subject to review in the light of experience. The ceiling will be applied administratively as it is under the existing arrangements for the Agricultural Investment Grant on Fixed Equipment.
In administering the Schemes we shall require the cost of the eligible work included in any one application to be at least £100, as under the current Farm Improvement Scheme. Proposed works and facilities must not be unreasonable in cost, and applicants will be required to obtain written authority from the Ministry before starting work. Applicants will 1317 continue to have the choice of claiming grant on either actual expenditure incurred or standard costs, and it is hoped to introduce a new set of standard costs in February to coincide with the introduction of decimal currency. In the meantime, existing standard costs will apply.
The ending of grants on plant and machinery inevitably affects the amount of Government aid available for the installation of bulk milk tanks, for under the Farm Improvement Scheme these tanks have been eligible for a 30 per cent, rate of grant since 1967. Since March of this year the grant rate has been 40 per cent. This is a substantial grant, and dairy farmers wishing to install bulk milk tanks in the near future can still qualify for it by putting in an application before December 31. But in addition to the grant under the Farm Improvement Scheme, the Milk Marketing Board has received an allowance of ⅜ of a penny per gallon for five years on new bulk milk. This allowance has recently been extended until September 30, 1973. The Milk Marketing Board has used this allowance, together with contributions from buyers, to pay special premiums to producers. These have enabled milk producers to offset over the first three years of operation a substantial proportion of their part of the cost of a bulk milk tank.
My Lords, as I have already mentioned, farmers are now entitled to new tax allowances on capital expenditure on plant and machinery incurred after October 26. These new tax allowances and the allowance of ⅜ of a penny per gallon to the Milk Marketing Board provide substantial assistance for the farmer wishing to install a bulk milk tank. But it is true that the total assistance would be somewhat less than was previously available. I know that the industry has been concerned that this might affect the progress being made in switching to bulk collection. Because of the benefits brought by bulk collection to both consumer and producer, we are also anxious that this should not happen. The Minister has therefore announced in another place that he will be raising the allowance to the Milk Marketing Board from ⅜ of a penny to ⅝ of a penny per gallon for five years in so far as it relates to milk from bulk tanks installed before September 30, 1973. In broad terms, this increase, which will not apply 1318 where farm improvement grant is paid, will offset the effect of withdrawing the grant.
May I now turn to the Ploughing Grants (Variation) Schemes, which were also laid before the House on December 1? As some noble Lords may be aware, the Ploughing Grants Scheme is one of those which are being replaced by the Farm Capital Grant Scheme. After December 31 it will of course be possible to apply under the Farm Capital Grant Scheme for a 40 per cent. grant on the cost of ploughing land of the type which is eligible for the £12 ploughing grant at present. We therefore need to wind up the existing ploughing grants, and the Variation Scheme makes December 31 this year the last date for receipt of applications under the 1970 Scheme. Applications must reach the Ministry's divisional offices by that date to qualify for the £12 ploughing grant. Farmers whose applications are approved will have until May 31, 1971, to carry out the work. The Farm Capital Grant Schemes have been designed to give more effective help towards profitable investment by getting rid of out-dated restrictions and by providing a single set of basic conditions instead of the differing and complex procedures of the existing grants. I am sure your Lordships will agree that this streamlining was a job that needed to be done. I know that noble Lords opposite share our views on this matter because the Schemes are of course based on legislation introduced earlier this year by noble Lords opposite. We welcomed the principles involved, and we have now given effect to them in these new Schemes. I trust they will have a favourable reception.
My Lords, I apologise for the length of the speech with which I have introduced these Orders, but they are very complicated and I thought it best to go into them in some detail. I now invite the House to approve these Schemes.
§ That the Farm Capital Grant Scheme 1970, be approved;
§ That the Farm Capital Grant (Scotland) Scheme 1970, be approved;
§ That the Ploughing Grants (Variation) Scheme 1970, be approved;
§ That the Ploughing Grants (Scotland) (Variation) Scheme 1970, be approved.—(Lord Denham.)1319
§ 4.38 p.m.
§ LORD CHAMPION
My Lords, I am sure the noble Lord need not apologise for the length of his speech. This is an important matter, and there are four Orders here. They are all important and, clearly, the change that has taken place, or is taking place, is such that it is right the House should be informed of it at some length. I am grateful to the noble Lord for having made the speech he has, which will be available for us and others to read in the future.
I see that the Minister, in discussing these Capital Grant Orders, is reported at column 135 of the Commons Hansard of December 7 as saying:These replace most of the exciting capital grants with a single unified Scheme.I imagine that the word "exciting" was a slip of the tongue, or a slip of the Hansard pen; for clearly what he meant was that the "existing" Orders would be replaced. But, my Lords, having said that, I see no reason why we should not regard these grants as exciting—not only these grants, but all the grants that have been made for capital injection into this industry since the end of the war.
Unless I am very much mistaken, the first big capital injection came under the Labour Government, when £200 million was injected into the industry for this particular purpose. Since then, we have had a number of different schemes, all designed to the same end: to improve the capital structure of this industry. As I look round this industry—and I do have a chance to do so occasionally—I am a little excited by the change that has taken place since the inter-war years, when I got to know this industry fairly well. My Lords, the change has been exciting, and we ought to be glad that we have had the good sense to make it in the case of this important industry within our economy.
We on this side of the House give a general welcome to these Orders because, as the noble Lord rightly said—he gave us credit for this fact—they closely follow what was said in the March Annual Review of this year and the 1970 Agricultural Act of the last Administration which followed. Something is happening in this connection which is of some importance and the noble Lord rightly 1320 stressed it. It is that it is clearly part of these Orders that farmers should be relieved of some of the paper work that bedevilled previous schemes. I know what difficulties this caused, particularly with some of the smaller farmers I know in South Wales.
This idea of relieving them of some of the paper work is wholly admirable, always provided that sufficient safeguards are left to ensure that the monies dispensed under the Schemes are properly applied. We are talking about taxpayers' money; and a lot of it. They, the taxpayers, have a right to feel that their interests are being adequately safeguarded against fraud. I remember that confidence in the Ministerial powers in this general connection was shaken by the extensive frauds that took place in South Wales not so very long ago in connection with the lime Schemes. It filled the newspapers at that time. Rightly, people came to me and said, "You have had something to do with agriculture in the past."—and I admitted that I had—"What are the Ministry doing to ensure that this never occurs again?" I was not then in a position to tell them what the Ministry might be doing. All that I say to-day is that if this relieving of the farmers of some of the paper work by any chance results in making fraud easier, blame will have to be laid somewhere. I hope that this will not be the case; that the money will go to where it is intended it should go; namely, to the farmers to do the job which they ought to be doing.
The stringent application and approval certification is a job for the Ministry. They really must do it. I am sure that the noble Lord will convey this thought back to the Ministry, which I am glad to see he now represents in some of these matters on the Front Bench opposite. Large sums of money are involved. He told us a few minutes ago that some of these schemes can result in £100,000 being spent over two years on the same farm unit. That does not necessarily mean that all that money comes out of the pocket of the taxpayers, but a large proportion of it will; and it is only right that we should be careful about how that money is spent and that we should ensure that the nation gets value for the money that is poured out in this way. That is our job here in Parliament.
1321 My Lords, I understood the noble Lord to say that grants on bulk milk tanks and plant, machinery, harvesters and tractors will disappear in favour of a tax incentive allowance of, initially, some 60 per cent. and a writing-down allowance of 25 per cent. of the reducing balance in subsequent years. If those were not his exact words, they ought to have been—because I fished them out for myself. But while he may not have used those exact words, he indicated what the intentions were. The Minister (as reported in column 138 of Hansard of the other place) said on December 7 when speaking of the bulk milk tanks grant in operation under previous Schemes:This is a substantial grant, and those dairy farmers who wish to install bulk milk tanks and can still qualify for the grant by applying between now and 31st December would do well to take advantage of it. If they apply now and if they qualify in this way, they will get the 40 per cent. grant and the 60 per cent. initial allowance on the remainder.… That, incidentally, applies to other plant and machinery including tractors and combine harvesters.I am bound to ask the noble Lord whether this is really necessary. Is it right that they should be able to have both the grant and the initial allowance? This brings the amount up to 60 per cent. plus 40 per cent—which is a very large amount indeed. And it will go to those people who are smart enough to read Hansard, smart enough to delve into these Schemes and to make the necessary applications for approval before the end of this year. The ordinary farmer who does not do that will not be able to take advantage of what I am bound to describe as this act of generosity. The smart boys will know of it and will get in straight away. Incidentally, I am bound to say that I doubt whether the tax allowance system will prove as helpful as the grant system on plant, machinery and so on. The small man will not benefit until long after he has made his tax returns—if he benefits at all. The grant system ensured that the money was paid to the man and was paid not long after the job was done. In some cases part of it was paid before the job was half done. Under the new tax allowances system and the initial allowance, "plus, plus", system, he will have to wait until a much later date. I 1322 should have thought that this was not particularly helpful to the small farmer.
My Lords, turning to the drainage grant, I welcome the Order which appears to me to gibe effect to the 70 per cent. grant for drainage schemes approved before March 18, 1972, which was something which was promised in the Annual Review. After that date the amount will be 60 per cent. It must surprise some people that there can be substantial drainage problems on hill farms. People think that all that happens is that rain falls on the hill farms and hurries down to the valleys. It does not. There are to my knowledge vast areas of hill land where drainage is certainly needed. I think that I have previously told the House that I was associated with my brother in a hill farm in South Wales which was 1,000 ft. above sea level. About a quarter of the acreage consisted of very wet, peaty ground. I remember walking over it with my brother and discussing this matter when he perpetrated something which I thought was very much an Irish bull. He said: "We shall never do anything good with this land so long as we have this stagnant water running all over the place." How right he was. We should never do any good with that ground unless we got rid of that "stagnant" water. The fact was that it was stagnant in part but the rest was moving to some extent through the ground. Certainly the ground badly needed a drainage scheme of the kind which would have been possible to us under the Scheme now before us. I think that if we could somehow manage to persuade the hill farmers to find the 30 per cent. they will have to find over and above the 70 per cent. which they can get, it will be a good thing for them and the country as a whole.
Finally, my Lords, on the whole matter of grants, I have not attempted to cover every aspect of them for obvious reasons. The ploughing grants appear to me to carry on from the old system to the new unified system, and as such appear to me to call for no special attention by the House. They are worthwhile alterations, always provided that the system will permit the grant to be earned and received by the farmers; and I believe that in this case there is no question of their waiting for the tax allowance to benefit. I am happy to welcome these grants and with 1323 the noble Lord I commend them to the House.
§ 4.50 p.m.
My Lords, before my noble friend replies and has too much of a free run, I wonder whether I might ask him a question. In doing so I should like to say how very much I agree with what the noble Lord, Lord Champion, said at the beginning of his remarks, when he paid tribute to the Capital Grant Schemes. Of all the grants paid to agriculture, it is the Capital Grant Schemes that have enabled agriculture as a whole to move forward and to become the competitive industry which it is now. I have always felt that these have been far and away the best grants ever given to agriculture. If the present Schemes result in a saving of paper work they are greatly to be encouraged. I have always taken the view that it would be far better if the Schemes were designed to be a little less accurate and a lot less cumbersome, rather than going for complete precision with a tremendous amount of paper work.
One point I was concerned about (I may have misheard my noble friend) was when I thought he said that when a capital grant, or any grant, is paid there is to be a minimum standard beneath which a grant cannot be paid. In other words, if the holding is not considered to be a viable unit it will not attract a grant. Under the old system the viability of a unit was determined by the man-days required to work the unit. As I understood my noble friend, this is now to be changed, and the test will be not the amount of man-days required but the net income that may be obtained from the unit. This seems to be an extraordinary system, and I should be grateful if he would enlarge a little on what he said. I think my noble friend said that the net figure was to be £880 per annum. How is that figure arrived at? Is the individual who is applying for a grant to come with his previous year's accounts to show that he has made £880? He may be an extremely good farmer, but during the previous year, because of circumstances, he may well have made a loss. Would that mean he would be unable to have a grant which otherwise he would have had?
1324 I entirely accept that there must be some form of arbitrary level beneath which a farmer may not receive a grant, but I am concerned about what appears to be an extraordinary figure of £880. Why that figure? I think my noble friend said that it would be altered as conditions alter. Is there to be a formula on which the figure is worked out? Will it go up another year by £100 or £150? If so, how and why? It my noble friend could enlighten us a little it would be helpful.
§ 4.53 p.m.
§ LORD DENHAM
My Lords, I am most grateful to the noble Lord, Lord Champion, and to my noble friend Lord Ferrers, for the welcome they have given to this Scheme—I felt it was a somewhat qualified welcome in the case of my noble friend—and I should like to deal with the various points which they have raised. The noble Lord, Lord Champion, asked whether we were confident that the rules have been framed in such a way as to avoid the possibility of fraud. I am advised that fraud has never been a major problem in administering the Schemes under which grant is paid on capital investment. This is because, in general, farmers and landowners have to obtain the Ministry's approval to their proposals before starting work; and approval is normally given only when the Ministry is satisfied that the cost of the proposed work is reasonable. Farmers must also make clear at this stage whether they intend to claim grant on the actual cost of the work or on the basis of the standard cost laid down for various types of improvement.
When grant is claimed on the basis of actual cost, the applicants must support their claims with receipts or accountants' reports showing the expenditure actually incurred. Any variations from the approved amount, or any discrepancy between the amount claimed and supporting documents is carefully investigated. In many cases the completed work will also be inspected to see that it has been carried out satisfactorily. When grant is claimed on the basis of standard cost, the specification and cost on which grant will be paid are laid down by the Department; that is, for example, £43 15s. 0d. for a standard cattle 1325 grid. No opportunity for fraud will arise.
It is important to keep a balance between the cost of checking against fraud and the risk of fraud occurring. Under the Capital Grant Scheme we shall be streamlining our checks where this can reasonably be done. Where there is other satisfactory evidence of expenditure we may be able to reduce the proportion of finished cases which we inspect at claim stage. However, I can assure your Lordships that in reviewing the various checks on grant claims we shall move cautiously at each step so as to secure the most economical result and to ensure that no unjustified risks are taken.
My Lords, the noble Lord also asked about the ceiling of £100,000. That ceiling of grant-aided expenditure on any separate farm unit over two years will apply to the total expenditure on works and facilities grant-aided under the Farm Capital Grants Scheme and to expenditure qualifying for the higher rate of agricultural investment grant which was introduced on March 19, 1970. The ceiling applies to the total grant-aided expenditure before deducting the amount received in grant. Thus the maximum amount of grant for which a separate unit can qualify over any period of two years is less than £100,000. If the expenditure is all on buildings and other items which qualify for the 40 per cent. grant rate, the maximum amount of grant payable for that two-year period would be £40,000. The amount of grant would, of course, be somewhat higher if some of the expenditure was in respect of field drainage or improvements benefiting hill land which currently attract a 60 per cent. grant.
In deciding for the purposes of the ceiling whether the land is separately farmed, we shall consider the farming facts in each case. For example, we shall have regard to whether the unit has its own labour, livestock, machinery and feedingstuffs store; whether it is physically separate from other land on which grant-aided expenditure has been incurred; whether it has its own manager or farm account. A ceiling at the same level is already applied to the 30 per cent. agricultural investment grant. Only experience in operating it will show 1326 whether or not it is set at a reasonable level. It will therefore be kept under review. We are anxious to safeguard grant from disproportionate demands from very large enterprises; but, equally, we do not wish to restrict the development of modern specialised units which can lead to greater productivity and stability; nor do we wish to discourage investments on large arable units.
I had hoped, my Lords, having managed to use the term, "bulk milk tanks" without any accident three or four times during the course of my speech that I was through with it. But the noble Lord has raised it again. As noble Lords are aware, the new tax allowances for plant and machinery, which the Chancellor announced on October 27, apply to expenditure incurred from that date. At the same time, the Minister of Agriculture, Fisheries and Food announced that plant and machinery would not be covered by the new Farm Capital Grant Scheme. From January 1, when the new Scheme comes into force, no fresh applications for the Farm Improvement Scheme will be accepted and any further proposals will qualify for the tax allowance only.
This switch from grant to tax allowance raises a difficult transitional problem. Many farmers and landowners will have entered into contracts before October 27 on the assumption that they would get grants; or even if they had not actually placed an order, would have planned their farming on the assumption that fixed plant and machinery was eligible for grant.
Farming differs from other industries in that orders for agricultural plant and machinery are more often placed orally. Another difference is that the cycle of production is longer and it may be more difficult to make rapid changes in production plans. For these reasons, the Government decided that it would be both impracticable and also unfair to confine grants on plant and machinery to those cases where written contracts had been entered into before October 27. Farmers will, therefore, have until December 31, 1970, to put in their applications for grants on plant and machinery under the Farm Improvement Scheme or, if they intend to go for the agricultural investment grant, to make the actual payments for the plant and machinery they have in mind.
1327 Your Lordships may ask why, having accepted that there should be this period during which grant could still be obtained, we did not make a special exclusion from the new tax allowances. The answer is that one of the aims of the new system of tax allowances is to simplify administration. To have made special arrangements whereby farmers who receive the grants were disqualified from the new allowances would have run counter to this objective. It would have meant more checks and fewer administrative savings.
It is not often, my Lords, that I have heard complaints that the Inland Revenue have been too generous, and complaints that they have been too generous to farmers must be rare in the extreme. I believe that their generosity on this occasion is amply justified by considerations of administrative simplicity. Moreover, their generosity is by no means excessive, since the tax allowances apply only to the farmers' share of the cost, after deducting the grant, and there may well be a balancing charge at the end of the day, if the farmer trades in a machine whose secondhand value exceeds its written down value in his accounts.
The noble Lord, Lord Champion, and my noble friend Lord Ferrers were worried about the effect on small farmers of replacing grants with tax allowances. The extent to which any farmer, large or small, will benefit from the new tax allowances depends, of course, on the amount of his taxable income. I would accept that the small farmer is less likely than the larger one to derive much advantage from the new allowances, but I think it is a mistake to look at this aspect of the arrangements in isolation, for there are several changes in the new scheme as compared with the existing one which will be very much to the small man's advantage.
First, and perhaps most important, we have dropped the benefit to the land test. This means that there will no longer be a requirement that the farm must be large enough to produce at least half the food for the livestock. Small farmers with livestock will be free to become more intensive, if it is in their business interest to do so. Secondly, there will be no requirement that all the land occupied by a business must be in single ownership 1328 or occupation. In future, therefore, the producer who owns part and rents part of his holding may qualify for grant on the whole of his expenditure, instead of on just the proportion relating to the land he owns.
Finally, even the very small farmers who do not satisfy the sufficient livelihood requirement will now be able to get grant for many items, provided these would continue to be of benefit to the land if it subsequently became part of a larger unit. In addition, small producers, as well as large ones, will benefit from the simpler requirements of the new and unified scheme. Indeed, they may well benefit more, as they do not always have the same access to advice as the larger producer and so may find it more difficult to understand the complications of different schemes meeting different needs.
My noble friend Lord Ferrers asked about the minimum limit of a holding to attract grant. Under the present Farm Improvement Scheme, the limit is in terms of a sufficient livelihood, which is taken to be the minimum agricultural worker's wage. Under the agricultural improvement grant there is a different minimum in terms of standard man days. The new Scheme will use the sufficient livelihood concept. My noble friend asked how the figure of £880 was arrived at. This figure is roughly the average earnings of an agricultural worker to-day. In principle we think that there is a case for regarding anything less than that figure as being below a reasonable standard of viability, remembering that it is the test of viability after the investment has been made, not before it. In practice, we are not applying the principle fully. With the minimum wage going up to about £770 a year, it would be reasonable to suppose that the average wage will be at least £1,000 a year. We do not want to make too abrupt a departure from previous standards of viability, which would put sufficient livelihood at £684 now and £770 next January, and so £880 represents a compromise between the current rule and a strict standard of viability. I must again apologise, my Lords, for the great length of time I have taken over moving these Orders.
§ On Question, Motion agreed to.