Agricultural Tenancies Bill [H.L.]

HL Deb 28 November 1994 vol 559 cc485-532

3.24 p.m.

The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Earl Howe)

My Lords, I beg to move that this Bill be now read a second time. In doing so, I must declare an interest as both a tenant and an owner occupier of agricultural land.

It is with more than the usual nervousness that I rise to open the debate in your Lordships' House this afternoon. That is not, I hasten to say, because I lack confidence in any way in the worthwhile Bill which I shall be commending to your Lordships. Rather, it is because I am conscious of the particular wealth of expertise on this subject, even more than on many others, which exists among noble Lords from all sides of the House who will follow me in the debate. I therefore hope that they will bear with me if, in describing the background to the Bill, I appear to be guilty of oversimplifying or omitting some important points.

The present tangle of agricultural holdings legislation has grown up largely over the last 120 years or so. Before then the relationship between the landlord and tenant of agricultural land was a much simpler one, governed principally by the terms of the tenancy agreement itself. In the middle of the last century, freedom of contract was held in high esteem, both in society and in legal circles. For example, in a case before the Court of Appeal in 1875 the Master of the Rolls made the following pronouncement: If there is one thing which more than any other public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by courts of justice". However, from that time onwards a further argument began to be put forward; namely, that in order for freedom of contract to work satisfactorily, there must be a genuinely free and open market in which there was equality of bargaining power. In the case of the economic relationship between landlord and tenant, it was pointed out that the market was not entirely free because the supply of land could not expand rapidly in response to demand. Nor was there usually an equality of bargaining power, because the landlord's purse was generally deeper and his access to advice much readier than the tenant's. It was partly in order to address those perceived problems that the law, in the shape of the agricultural holdings legislation, began to intervene to modify the freedom of contract between landlord and tenant and was thereafter added to at regular intervals for the next 100 years.

Before the first Agricultural Holdings Act in 1875, the relations between the parties were governed principally by common law, which meant that the terms of the tenancy agreement were given effect but that where these were insufficient the gap would be filled by referring to local custom or by applying case law developed by the courts. However, because the tenant's legal position was perceived by Parliament to be somewhat precarious, there began a long process of statutory intervention to improve it.

Since 1875 there have been over 20 pieces of primary legislation which have affected or modified the operation of the agreement reached between an agricultural landlord and his tenant. Of those, the most important provisions have related to security of tenure. In particular, the Agriculture Act 1947 was passed at a time when food rationing was still in existence and Parliament regarded it as essential that the level of production of our farms should be improved. Thus it was that in that year a major change in security of tenure was introduced. The landlord's notice to quit was made subject to consent being given by the Minister. That was subsequently amended to require consent by the agricultural land tribunal. The effect of the change in reality was to give all tenant farmers, who farmed their land efficiently, complete security of tenure save in most exceptional circumstances. At the time it was believed that that would contribute to improving agricultural output.

In relation to security of tenure, the zenith—or perhaps the nadir—of the whole process was reached with the passage of the Agriculture (Miscellaneous Provisions) Act 1976. This provided security of tenure for two further generations of successors to an existing tenant, provided that they were close relatives who could prove themselves eligible and suitable to take on the tenancy. By taking the land out of the landlord's control for three generations, this went almost as far as it was possible to go in the direction of security short of actually transferring the title from the landlord to the tenant. These succession provisions were subsequently repealed in 1984 in relation to new tenancies, but the effective lifetime security of tenure first conferred by the 1947 Act still applies, having been carried through into subsequent legislation, most recently the Agricultural Holdings Act 1986.

One argument advanced in favour of security of tenure is that tenant farmers are encouraged to put their energy and resources into the land by the knowledge that only in very special circumstances can they lose their occupancy. However, in parallel with the movement over the last century or so from complete freedom of contract to virtually complete security of tenure, there has occurred an equally massive shift in the pattern of agricultural land ownership and tenure. The percentage of land that is rented fell from about 90 per cent. at the turn of the century to less than 35 per cent. in 1993. The tenanted sector has thus been in chronic decline for several decades, though the introduction of security of tenure undoubtedly hastened this trend.

Although one-third of agricultural land is still rented, much of this is now rented on short-term arrangements such as Gladstone v. Bower tenancies which do not have security of tenure. Thus the proportion of land that is let on protected tenancies is small and diminishing, and where such tenancies terminate it is known that only about 10 per cent. of landlords choose to re-let on a similar basis.

There is broad agreement within the industry on the reasons for this decline. Principal among them is the maze of restrictive tenancy legislation, and the security of tenure provisions in particular. These represent a major disincentive to any landowners who might otherwise consider letting their land. The supply of new full tenancies has slowed to the merest trickle, while the existing stock continues to ebb away. What was a prolonged dry spell is now a definite drought.

We must ask ourselves: does this matter? In order to answer that question, I should like, with permission, to give two quotations. First, Many people believe that agriculture, like any other industry, needs a continuous infusion of 'new blood' from outside the industry to provide a fresh and innovative outlook, energy and drive". Secondly, Letting represents a relatively low-cost route into the industry and one which prevents agriculture becoming a closed shop. A healthy let sector allows good young farmers to extend and develop their potential, with benefits for the industry as a whole". Wise words indeed! They are taken from the report of the committee of inquiry into the acquisition and occupancy of agricultural land, published a full 15 years ago. And they remain just as true today. I am sure that the noble Lord, Lord Northfield, who was chairman of the committee, and the noble Lord, Lord Carter, who was a member of it, still subscribe to them.

Almost everyone in the industry—except for a few die-hards who seem impervious to reason and oblivious to the evidence—has come to see that corrective action has to be taken, and soon. Landowners, tenants, young farmers, land agents, valuers and others connected with the industry have all been pressing upon us the need for legislation. And last December, an even more remarkable thing happened: they all agreed on what changes were needed to the present system.

It is now 11 years since we made the last substantive changes to agricultural tenancy law. The Second Reading debate of the Agricultural Holdings Bill in your Lordships' House took place on 8th November 1983. There were a number of noble Lords on that occasion who criticised the Bill for not going far enough to achieve the desired increase in new lettings. I fear that we must all now concede that they were right. With hindsight we can all see—or at least I believe most of us can—that such a heavily regulatory system as is provided by the Agricultural Holdings Act will not create the right climate for landowners to be encouraged to offer more land for letting. That is one reason why today we are debating a much more streamlined Bill which offers a simpler framework allowing room for the parties to reach sensible agreements between themselves.

Perhaps your Lordships will hear later in today's debate whether the party responsible for introducing, with retrospective effect, the statutory succession provisions in 1976 now acknowledges the damage that was then done to the agricultural tenanted sector. If not, I am sure that there are many in your Lordships' House and elsewhere who would be more than willing to tell it. I would like to believe that members of that party now understand—as the industry itself has come to do—that reform is the key to revitalising the tenanted sector. Yet the Opposition spokesman on agriculture in another place has made clear that Labour will oppose this Bill because it ends security of tenure for tenant farmers. Unless we take action there will be no tenant farmers left. It is this reform that we are being urged from all sides of the industry to implement in order to offer hope to aspiring tenants and to offer prospects to the young people who are so important as the source of new ideas, new techniques and new perspectives. Is this not an objective which noble Lords opposite can wholeheartedly share? I very much hope so.

The Government do not plan to repeat the mistake of the Labour Party in 1976 by legislating with retrospective effect. Existing tenancies will be unaffected by the new legislation which will [...] to agricultural tenancies granted after it comes into force.

I want now to pick out some of the main points in the Bill and describe them in more detail. Clause 1 introduces and defines the concept of farm business tenancies, which is how the new tenancies will be known. The clause sets out the conditions that a tenancy must meet in order to come within the ambit of the Bill. In all cases, at least part of the land comprised in the tenancy must be farmed for the purposes of a trade or business throughout the life of the tenancy. This is a minimum test, known as the business conditions, which all farm business tenancies must satisfy. Besides that, the tenancy must meet one of two alternative conditions. The first alternative is that the parties must have exchanged notices, before the tenancy is granted, confirming their intention that the tenancy is to be and will remain a farm business tenancy; also, the tenancy must be primarily or wholly agricultural in character at the beginning of the tenancy. If this is the case, the tenancy will remain a farm business tenancy as long as the business condition is met. The effect will be to allow much more flexibility for tenants, with the permission of their landlords, to extend their enterprises into non-agricultural areas without this calling into question the nature of the tenancy. In this way, diversification will be made easier and the rural economy as a whole will benefit.

The alternative scenario is where the parties have not exchanged notices before the grant of the tenancy. In those cases, the test, if the status of the tenancy is brought into question, will be whether the character of the tenancy is primarily or wholly agricultural. The test is described in Clause 1(3). In such cases there is, of course, a risk that any significant changes in the character of the tenancy could take it outside the scope of the Bill. For that reason, we would expect that most landlords and tenants will wish to exchange notices beforehand in the interests of certainty. But we have to cater for the situation in which, either deliberately or accidentally, they do not do so.

Clause 2 provides that a tenancy cannot be subject to the new legislation if it was granted before the Bill comes into force. Clause 4, which might be described as a mirror image of that provision, makes clear that the Agicrultural Holdings Act 1986 does not apply to new tenancies granted after the Bill comes in to force. Tenancies created under the statutory succession provisions of the 1986 Act will continue to be subject to that Act.

Clauses 5 to 7 concern the provisions for giving of written notice when either party wishes to end a tenancy. Under the Bill, landlords and tenants will be free to agree how long a tenancy should last. This is a major change from the present legislation, which gives tenants virtual lifetime security of tenure. This provision of the Bill is the key to encouraging more letting of land. It is also the focus of most criticism from those who are opposed to reform. But I am afraid the logic of this opposition defeats me. I can only conclude that those concerned cannot understand that the letting of land is a wholly voluntary activity on the part of the landlord. The landlord will let land only if he is convinced it is in his best interest to do so. We have to create the right conditions for this. The most important of these is to allow the parties freedom to agree on the length of term for their own tenancies. I am encouraged that there is now a broad consensus on this point within the industry as a whole.

For tenancies of a fixed term of more than two years, at least one year's notice but less than two years' notice is required to be given when either party wishes the tenancy to end on the agreed date. Otherwise, the tenancy continues as a tenancy from year to year. The same period of notice is required to end a tenancy from year to year. Unlike the present legislation, there will be no grounds on which tenancies can be terminated with shorter periods of notice except when both sides agree terms for the surrender of the tenancy. Also, there will in future be no grounds for issuing notices to terminate the tenancy before the agreed date or to recover possession of part of the holding unless the tenancy agreement contains provisions which allow for the exercise of such options. Even in such cases, the mandatory period of notice will still be at least 12 months. Tenancies which are for fixed terms of two years or less and periodic tenancies which run for periods of less than a year are not covered by these provisions and are therefore subject to common law rules.

Clause 8 of the Bill sets out the tenant's right to remove fixtures and buildings, subject to certain conditions. This represents a simpler version of the corresponding provision in the Agricultural Holdings Act 1986.

Part II of the Bill contains provisions on rent. Again, those will give parties more freedom than the present legislation to agree their own provisions both in relation to the level of rent and in relation to the frequency of rent reviews. On the level of rent, the parties will be able to agree that the rent should be fixed for the whole of the tenancy by stating explicitly that there will be no rent reviews at all. Alternatively, they will be able to agree that the rent should be adjusted according to some objective criterion. In both cases, the parties will be clear from the outset as to the intended result. If they do not agree such arrangements, they will be able to provide for rent reviews at a frequency of their own choosing. And if they make no such provision, either party will be able to demand a rent review every three years.

An important point concerns the method of determining rent at a review. When a review takes place, the parties may of course agree on the new level of rent between themselves. Alternatively, they may agree the basis on which it is to be set and jointly ask a third party to determine it for them. However, if the question is referred to an arbitrator then the Bill requires that he must set the new rent on an open market basis. This basis is described in more detail in Clause 13.

Part III contains mandatory provisions on compensation for tenants' improvements. The definition of an improvement is a general one which goes somewhat wider than that in the present legislation. Broadly speaking, a tenant's improvement is defined as any physical improvement made on the holding or any intangible advantage obtained for the holding by the tenant which is capable of increasing the value of the holding. This will allow the tenant to be compensated when he has contributed to securing intangible advantages, which will include planning permission, for example, and other items, some of which may not yet have been thought of. Provided that the landlord's written consent has been obtained for the making of improvements, the landlord will be required to pay full compensation at the end of the tenancy for all improvements remaining attached to the holding that have been provided by the tenant through his own effort or at his own expense. Unlike the present legislation, these provisions will override any agreement to the contrary and so there will be no scope for the value of the compensation to be written down. Also, a tenant will be able to demand arbitration if the landlord refuses consent for an improvement or if there is disagreement after the end of the tenancy on the amount of compensation to be paid.

In Part IV of the Bill, Clauses 28 to 30 set out the procedure to be followed for resolution of disputes arising under the Bill or under the terms of a farm business tenancy. There are three main points to note about these provisions: first, they provide unilateral access to independent arbitration, which will guarantee a simpler and cheaper alternative to the lengthy procedures of the courts. Secondly, they leave room for the parties to make use of some alternative disputes resolution procedure of their own choosing, if they wish. Thirdly, the arbitration procedures to be used will be those of the Arbitration Act 1950, which are the procedures used in other sectors and which are widely regarded as less cumbersome than those of the present agricultural holdings legislation.

The remainder of Part IV contains various provisions on a number of matters, of which I shall only mention that the proposed commencement date for the Bill is 1st September 1995.

I trust that this brief explanation of the main points of the Bill will be sufficient to introduce today's debate. In concluding, I should like to make clear that this is not a measure that has been dreamt up overnight by the Government and foisted on an unwilling industry. We began consultation on possible reform nearly four years ago, and we have developed these proposals in close consultation with the industry. It is true that the resulting package is fully consistent with wider government policies in terms of deregulation, greater market orientation, as well as with giving individuals greater freedom to manage their own affairs and the responsibility that goes with it. But the reason that we are bringing forward this Bill is not primarily a political or a philosophical one: it is that there is general agreement that action to boost the tenanted sector is long overdue, and this is the best way that we and others have identified in which to do that.

We regard it as of the utmost importance that the package of reforms contained in the Bill is fully supported by the main agricultural organisations representing both tenants and landlords. The changes that it will bring about will help to create opportunities, encourage investment and benefit the rural economy. By giving British agriculture an infusion of new blood, it will put it in a stronger position to adapt to future changes. With those aims in mind, I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Earl Howe.)

3.48 p.m.

Lord Carter

My Lords, I begin by thanking the Minister for his usual lucid explanation of what is a fairly technical Bill; and say from these Benches how much we look forward to the maiden speech of the noble Earl, Lord Yarborough. Also, like the Minister, I declare an interest as the owner-occupier and tenant of agricultural land. I thank the Minister for confirming that, as in so much else that this Government do, they are taking a giant leap forward with complete freedom of contract into the mid-19th century.

I say at once that this is a very important Bill so far as agriculture is concerned. Opportunities to review agricultural holdings legislation do not arise very frequently. It is therefore very important that we make sure that the Bill meets a genuine need and will result in an improvement on the present situation.

It is a fact on which we can all agree that there is a marked decline in the let sector of agricultural land. I entirely understand how the figure of 35 per cent. that was quoted by the Minister for the amount of rented farmland is arrived at. But I have always suspected that the true figure is considerably less than 35 per cent. The recent RICS survey New Farms and Land, 1995–1997 estimates a figure of 27 per cent. for land in England and Wales, let on a full agricultural tenancy with no share in ownership. But even that figure may overstate the position as I believe that it includes what I would describe as arranged tenancies; for example, if land is let to a partnership where the landlord is effectively a partner, so that termination of the partnership ends the tenancy, even though the landlord in that partnership may be acting through a company or whatever. At a guess, it may be that the true figure for land let on a fully secure lifetime tenancy at an arm's length rent and with no aspect of arrangement is perhaps not much more than 20 per cent. to 25 per cent. of farmland in England and Wales.

It is generally agreed that the decline of the let sector has not been good for farming and steps should therefore be taken to stop the decline and, if possible, reverse it. It is also felt that the traditional division between landlords' and tenants' capital and their responsibilities has worked well for farming and that, if farming is to have the new blood that it needs, there must be a way in that does not require substantial investment in land. I happen to believe that the whole proposition is debatable. I am sure that the arguments both for and against will be fully rehearsed as we go through the Bill.

The Labour Party has a good record on improving the situation for tenants. As the Minister said, the 1947 and 1948 Acts gave farm tenants security of tenure for the first time and the 1976 Act provided for succession of tenancies. The Conservative Party, for entirely understandable, historical reasons—which is a polite way of saying that most landlords vote Conservative—has tended to move in the opposite direction. The 1984 Act ended tenancy succession and the Bill that we are considering effectively ends the lifetime security of tenure for all lettings after 1st September 1995, except for the very special and what I suggest are likely to be the very rare cases, where the landlord agrees to such a provision in the farm business tenancy.

We therefore looked at this Bill with great care and regretfully concluded that it will not provide the security of tenure for tenants that we should like to see. I am sure your Lordships will agree that a tenanted farm is not just a source of income; it is a home for the farmer and his family. We would all agree that the family farm has an important role to play in the stability of our rural structure. We should like to see a Bill that would encourage that. I have to say that in our view this Bill does not do so.

Your Lordships will also be aware of the old saying, "Live as though you are going to die tomorrow; farm as though you are going to live for ever". In other words, have a care for the land and leave it in good heart. Model tenancy agreements, with which we are all familiar, include provisions relating to good husbandry. The RICS survey, to which I referred earlier, showed that the agents surveyed confirmed that the great majority of units that they expected to let within the first two years of the legislation becoming operational would be on five-year agreements. That is short-termism with a vengeance and shorter than some agricultural rotations.

Much has been made of the fact—indeed, the Minister mentioned it—that the industry, however defined, has agreed to these proposals. The working party of the National Farmers Union, the Country Landowners' Association, the Tenant Farmers' Association and the National Federation of Young Farmers' Clubs have worked hard. They are to be congratulated on that. Indeed, knowing many of them, as I do, as friends and colleagues, I am sorry that we cannot give them the unequivocal support from these Benches that they would like. They will be aware that support for their views is not unanimous within the industry.

A number of tenant farmers' action groups have expressed their concern. The Farmers' Union of Wales, for example, is strongly opposed. I am sure that my noble friends Lord Cledwyn and Lord Prys-Davies, will deal adequately with those matters when they come to speak. At this point, I must say that there is considerable attraction in the concept of retirement tenancies as proposed by the Farmers' Union of Wales.

It is quite clear that landlords like the proposals in the Bill. Anything which shortens tenure increases the potential value of their land. The CLA publication Land Statistics, 1993 shows that the average price of vacant possession land sold in England in 1993 was between £1,400 and £1,500 per acre. The average sale price of let land in the same period was about £900 per acre.

It is, and has been for a long time, a feature of the agricultural land market in the UK that vacant land has always been worth more than let land, usually at least 50 per cent. more. It is interesting that, on the other hand, a commercial property let on a long lease on a good covenant is worth more than a vacant property. Most land agents with whom I have discussed the matter are of the view that land let on a good covenant on a farm business tenancy for five to 10 years, reverting to the owner at the end of the tenancy, will have a value of not much less than vacant possession value. That may have been a factor at the back of the CLA's mind when it supported the proposals.

The other factor which cannot be ignored in the whole matter is taxation. Much has been made of the fact that current inheritance tax rules militate against the letting of land. That is probably so. In the Labour Party we have already made it clear that we are prepared to consider the possibility of equalising inheritance tax relief between let land and owner-occupied land, but only in a way which would be financially neutral to the Treasury; in other words, this is a matter for consultation and is not a commitment. If we were to do that—if any government were to do it—and use scarce fiscal resources to provide taxation relief for the owners of let land, it seems to me to be entirely reasonable that those owners should show their commitment to the business of letting land by having proper tenancies with long tenure.

The Minister has already given the House a full explanation of the Bill so that I shall merely indicate those areas where we feel that it needs amending either because of faulty or ambiguous drafting, or as a result of the omission of important items. I suppose that the biggest surprise in the Bill is that it is silent about the criteria to be met in drafting a farm business tenancy. Beyond definition, rent review, notice to quit and compensation, the Bill gives no direction regarding those matters which a modern agricultural tenancy should include. So far as I can see, these new farm business tenancy agreements do not even have to be in writing. There is no mention of quotas or set-aside—two matters which are central in considering the tenure of agricultural land nowadays. We shall be tabling amendments to set out the criteria which must be met if a tenancy is to be agreed under the Bill.

Another matter that I should like to see in the Bill in relation to the farm business tenancy, particularly if there are to be such short-term arrangements, is some requirement on both landlord and tenant to agree what happens to the housing of the tenant at the end of the short tenancy. As I said, a tenanted farm is not just a business, it is also a home for a family.

I have also been advised that there is a technical flaw in the drafting of the Bill, so that in certain circumstances an existing tenant with full security could inadvertently lose that security. I believe that this is a technical matter. I am sure that it was not the intention of the Government. We shall be discussing the matter with the Minister and tabling amendments to redress the situation, if indeed it exists.

There is no mention in the Bill of conservation or of good husbandry. Again, we shall address that omission either on the face of the Bill, or perhaps by proposing a code of practice or an obligation on the Government to provide guidance on these and related matters.

I entirely understand the free market ideology with which the Government approach this matter. I understand and expect that the Government's reply to all these observations will be that under freedom of contract the landlord and tenant can agree more or less what they like. If the scales were equal between landlord and tenant, that might be so; but they are not. We believe that it is important to ensure that tenants receive proper protection under statute if they enter into a farm business tenancy.

The feature of the Bill which does meet with our full approval is the proposal dealing with compensation for tenants' improvements. For too long tenants have been at a great disadvantage when it came to dealing with compensation for improvements. The Bill puts that right for new farm business tenancies. It would be nice to think that we could use the Bill to end the injustices to existing tenants and we may wish to investigate that matter when we consider the Bill in detail.

To conclude, I am fully aware that the Bill is seen by many in the agricultural industry as a step forward. I am not sure that all those involved have thought the matter through as they should. In their anxiety to improve on the existing situation they have acquiesced in the introduction of a new system of letting which is likely to do little more than regularise the present mish-mash of share farming, contract fanning, and the Gladstone v. Bower arrangements mentioned by the Minister when he introduced the Bill.

There are many areas which we shall need to consider. I referred to the RICS survey, which indicates the amount of land that agents may be prepared to let, largely from the existing sector, in the first two years. But the great imponderable is the amount of land that will be offered for farm business tenancies after 1st September 1995 from the owner-occupied sector, which may wish to take advantage of the new arrangements.

I believe that the amount of land offered will be much less than the Government expect unless we can amend the Bill either here or in another place to make letting more attractive to both landlord and tenant. I can see the attractions for the landlord in the proposals in the Bill. But how many current owner-occupiers will be encouraged to let their land as a result of the Bill? Will they face a halving in their relief from inheritance tax? How many current contracting or share farming agreements will be regularised as a result of the Bill? They will not be new lettings, but merely a reordering of the existing situation. The key question is: how many new lettings will be encouraged with full and good security of tenure for farm tenants under the provisions of the Bill? We do not believe that there will be nearly as much land as the Government and others expect.

It is fair to say that this House is particularly well equipped to examine this Bill and improve it. We shall certainly do our best from these Benches to play a full part in that process.

4.2 p.m.

Lord Beaumont of Whitley

My Lords, I am pinch-hitting today for my noble friend Lord Mackie who is unavoidably away on parliamentary duties in Paris, which I slightly regret but I bet he does not. And I feel that to a certain extent speaking on this Bill is where I came in, for my father was quite a large landowner—applying the adjective to both nouns—and I well remember growing up during the war when there was a great deal of discussion about tenants. For instance, how satisfactory the good ones were; how one got rid of unsatisfactory ones, and how to take farms in hand when one wished to farm one's own land—a prospect which had suddenly become attractive as opposed to 10 years before in the 1930s and as opposed, to a certain extent, to today.

It is in that context that I wish to extend a warm welcome to the noble Earl, Lord Yarborough, in his maiden speech. His grandfather and my father were close friends towards the latter parts of their lives and blood from the Brocklesby hounds ran strongly in the pack which my father bred in Kildare.

When I read agriculture at Oxford, most of those taking an agricultural degree intended to farm, if they possibly could —this was the period immediately after the war—the land owned by their fathers and were faced with various problems as a result.

There has always been a power struggle between landlords and tenants. In spite of my background, my sympathies have always been on the side of the tenants because, unlike the Thatcherite farmer featured so prominently in yesterday's Sunday Telegraph, I recognise a lot of truth in the aphorism that "property is theft". I believe that landowners themselves are merely tenants, a truth which the best of them would acknowledge. But I am delighted that we have reached a point where we have a Bill which is agreed by most of the major interested parties. I know that there is some opposition, and I look forward to hearing of the improvements which the Labour Party will put forward during the course of the Bill and in the Committee stage of which we shall play our full part. I look forward also to hearing about the attitude of the Welsh farmers' union, about which my noble friend Lord Geraint—who is considerably more qualified than I to speak on this matter—will have something to say when he winds up.

My party takes the same view as I do in welcoming the Bill. It said in a recently published issue of A Living Countryside, The tenanted farm sector must be retained not just as a route into farming for those with limited capital, but also as an essential option in a mixed farming economy". The only sad but I suppose inevitable thing is that the Act will only apply to new tenancies and will take an unconscionable time to work through the system. It is surely right that in an area where there is no longer an excessive power on either side of the bargaining counter, both sides should be free to bargain, and one advantage that we are likely to see from this freedom is tenancies of a reasonable length as opposed to the present choice between life on the one hand and very short, almost legal fictions, on the other.

The second advantage which I underline is that with free bargaining there is greater opportunity to load tenancies with various ecological and environmental conditions if both sides desire them—and it is to be hoped and expected that increasingly both sides will. It is true that the Bill throws into high relief the need for certain tax reforms to make the tenancy and farming of occupational country more equitable for all concerned. But I have no doubt that the attention of the Chancellor will continue to be drawn to that problem.

Finally, it is an enormous and welcome change to receive in this House a largely popular and agreed measure piloted by the Government. If one could believe that one swallow made a summer and that this occasion heralds the end of the pattern of government Bills being both obnoxious and unworkable while all agreed measures are passed on to the Private Members' Bill circuit with all its drawbacks, we would be more than happy; we would be ecstatic!

4.8 p.m.

The Earl of Yarborough

My Lords, I am pleased to have this opportunity to speak here today on the Agricultural Tenancies Bill, not because I am any expert on agricultural tenancy law but because I was fortunate enough to inherit an estate in Lincolnshire where the majority of the land is tenanted. It is an arable estate and we are able to provide relatively large tenanted holdings of over 400 acres on average. We have always been fortunate in the tenants we have had. Many families have had successive generations on the same farm and they have formed the backbone of the estate.

I am very pleased that this measure is being presented and that it should benefit the rural economy. The farming industry is facing ever more rapid change and this Bill should create the flexibility necessary to adapt to those changes more effectively. Much has changed over the last 50 years, especially where I come from. Up until my great-grandfather's day, all employees had it written into their contracts that they were to attend church and, even more recently, all our tenants' leases had a clause stating that they should walk a hound puppy. My grandfather had particularly firm views on estate management and even God's wisdom was not safe from them. While reading the lesson in church one Christmas morning from Luke, chapter 2, he got to the bit where the shepherds left their flocks to go in search of the baby Jesus. At this point my grandfather stopped, looked up at the congregation and said "If they'd been my shepherds, I'd have sacked them!"

Since 1948 agricultural legislation has created a situation whereby the landowner cannot let out land for a reasonable length of time without giving his tenants lifetime security of tenure. Even in our instance of investment farming, where the land is good and a long tenure is desirable, we have found the present law too restrictive. Our experience is probably less dramatic than that of the struggling hill farmer, but still illustrates the good that this Bill can do for the rural economy as a whole.

In the past 12 years, the number of tenants on our estate has fallen by 20 per cent. That has happened for two main reasons. First, technological advances in farming have meant that farms have had to be amalgamated to provide a larger, more cost-effective acreage. These high-tech methods have resulted in the much lamented decline in the rural population but also in much greater efficiency. Most landlords have welcomed this efficiency but the social damage to life in the country has been terrible. I am sure everybody would be happy to see this trend in declining populations reversed or at least halted in some way. A decline in tenancy means a further decline in rural populations and representation. With each lease that is not renewed, not only does the potential tenant lose out but also all his potential employees. In our case, probably about 20 livelihoods have been lost by losing these tenancies.

The second reason for the decline in our tenant population is that we have opted to take land in hand in situations where neither lifetime leases nor very short-term agreements would be suitable. At present, the alternative to lifelong leases on arable land is limited to Gladstone v. Bower agreements—for over one year and under two—or a special dispensation from the Ministry of Agriculture for not more than five years. In some instances, these leases simply do not fit in with the circumstances. For example, a landlord may wish that his child should take on a farm in 10 to 15 years' time, but will be unable to arrange it so he will have no option but not to renew the lease. Even regardless of specific instances, these leases are too short for general farming purposes and leave the tenant no incentive to care for the land and buildings of his holding. By granting tenants statutory rights to compensation for improvements to their holdings, the Bill will safeguard their interests and enable them to farm responsibly on a shorter lease. If this clause can be drawn up in a way that will avoid tiresome and expensive arbitration and amending legislation, I think that the Bill can solve these problems.

Setting aside the important issue of fiscal incentive, the Bill has the widespread support of all the major farming organisations. It is a great step forward in the landlord/tenant relationship. It offers greater flexibility. It allows for diversification within the tenancy agreement. I am sure that it will give a great boost to the rural economy as a whole. Thank you.

4.12 p.m.

Lord Northbourne

My Lords, I deem myself extremely fortunate to speak after the noble Earl, Lord Yarborough. I do not know how his ancestor got that dreadful reputation in the game of bridge, but clearly the noble Earl is better at speaking in your Lordships' House than playing bridge because he had a number of aces and kings in his hand. He made an excellent speech. He is a large landowner in Lincolnshire, which gives him authority in speaking on this matter. He also demonstrated recently, when he was attacked by three men with baseball bats when going out cubbing, that he is likely to be a doughty contester for the cause of his party in your Lordships' House. I hope that we shall hear much more from him.

I greatly welcome this Bill. It acknowledges, really for the first time, agriculture as a business. It treats farmers and tenant farmers for the first time as grown-ups, able to negotiate, with the help of professional advisers, proper agreements for their tenancies. From 40 years' experience as a Fellow of the Royal Institution of Chartered Surveyors and as a farmer, I have seen the need for something of this kind, and I am delighted to see the Bill before your Lordships and likely to go on to the statute book.

There were, I believe, some people who feared—and perhaps there still are some who fear—that under this arrangement the only tenancies that will be granted are short-term tenancies. The noble Lord, Lord Carter, said that the Royal Institution of Chartered Surveyors' survey foretold that most of the tenancies would be five-year tenancies. I think, with due deference, that the noble Lord may have misread "five years or more". I have before me the statistics and I see that tenancies for between 10 and 15 years significantly exceed the tenancies that are prognosticated for the five-year period.

Lord Carter

My Lords, I referred to the tenancies that are likely to be let in the first two years after legislation. If the noble Lord looks on the chart he will see that the majority are for five years.

Lord Northbourne

My Lords, I have to say that I do not agree with the noble Lord. We shall have to meet and discuss the chart outside the Chamber.

The purpose of the research was to determine what would happen if the legislation was put in place. The 148 chartered surveyors who took part in the survey and who manage 3.25 million acres believe they will let 156,000 acres—that is to say, 4.8 per cent. of their management —for five years or more under a farm business tenancy. If that projection is extrapolated to all of the managed land in this country, it is likely that around 1 million acres will be let under this kind of tenancy. That will be additional to the existing tenancies under the Agricultural Holdings Act.

The Bill will probably need to be amended on certain issues. I am particularly concerned about the arrangements for arbitration for compensation on improvements. I acknowledge fully the importance of there being provision for compensation for improvements, but I think that there might be two difficulties. In this case I am looking at the matter particularly from the landlord's point of view. There may be difficulties from the tenant's point of view which I have not noticed. One difficulty might be the requirement to find a very large sum of money at 18 months' notice. That is particularly the case where a tenant may be putting up a corn storage and cleaning and storage complex. If finance terms are negotiated when the building or plant is put up, it can be purchased on a lease purchase or a hire purchase arrangement. If, five years after the building has been put up, when it is partly paid off, the landlord has to try to re-arrange finance, he may find it very difficult indeed to do so. That kind of consideration will have to be looked at when we come to setting down amendments at the Committee stage.

The other area where I would be concerned about improvements from the landlord's point of view is that the directions to the arbitrator should be quite clear that the improved value of the holding created by the improvement is the value to a normally competent tenant and not to a specialist tenant. I have built up a very substantial business growing lettuces and salad plants and packing them for the supermarkets. That involved an enormous investment in irrigation, packing plants, and so forth. It is very improbable, had there been a landlord, that that landlord, when I retired, would be able to find another tenant who wished and was able to go on with the same business. We have to look again at that area of concern.

Another area of concern is the housing of the tenant at the end of the agreement. A major emotive issue in the landlord/tenant question is the fact, as the noble Lord, Lord Carter, said, that the farm is the home of the farmer and his family. One of the problems is that, even if the farmer wants to make provision for his housing at the termination of an agreement, it is difficult for him to do so, or he does so on less favourable terms than those of a normal employee because he cannot get the benefit of mortgage interest relief. That point needs to be looked at.

It may also be worthwhile to try to think a little creatively about this issue. Is it not the case that many estate owners would have houses into which a retiring tenant farmer could move to spend the rest of his days? If so, does the present legislation provide a vehicle by which such a person could be given a tenancy for his lifetime, or for the joint lifetimes of he and his spouse, which would come to an end and which would not give them statutory rights? I am not sure to what extent the provisions of the shorthold tenancy accommodate a life tenancy or a tenancy for life.

Finally, I believe that other noble Lords have already referred to the need for tax reform to reinforce the effect of this Act. I believe that also to be extremely important.

4.20 p.m.

Lord Dixon-Smith

My Lords, I too begin by saying how much I enjoyed the speech of the noble Earl, Lord Yarborough. I should declare my interest. I am an owner occupier. I used to be proud of my status as a yeoman farmer although my friends have long held that to be a fiction. I am not sure what my elevation to this House has done to that particular status. I am also a member of both the National Farmers Union and the Country Landowners' Association. That said, I hold no brief to represent their views. Indeed, I believe that I would be somewhat disappointed if they did not disagree, at the very least, with the tone of some of the things that I say.

In the debate on the gracious Speech I described the Bill we are reading for the second time today as bold and imaginative. The House will be relieved to hear that I do not intend to repeat all that I said on that occasion, but I hope for noble Lords' forgiveness in repeating my view that this is what I call "catching up" legislation. It will be interesting to see in time whether those who are leading the way ahead wish to be caught.

Statistics in the report of the Central Association of Agricultural Valuers for 1993 dealing with tenanted farms handled by the association in that year make interesting reading. The trend, which has gone on for a long time, of agricultural land transferring from the tenanted sector into the owner-occupied sector continues. Overall, in a survey covering more than 230,000 acres, over 33,000 acres were sold by landlords in that year to sitting tenants. A further 14,000 acres were taken in hand by the owner on the cessation of a tenancy. In other words, if my analysis is correct, some 20 per cent. of formerly tenanted land that was, so to speak, "on the market" in that year, has ceased to be so. I wonder why. It will be interesting to see whether the Bill, with its creation of farm business tenancies—a novel type of tenancy that transforms the traditional meaning of the word—can reverse the trend.

There are other forces at work. The landlord-tenant system was unquestionably the most appropriate way of organising fanning one-and-a-half centuries ago. In those days it could take a full day just to travel round a large estate—and that without doing any business on the way. Working the land was labour intensive and the man management and cultural problems of a really large unit were insuperable. Today you can span the globe in 24 hours. Mechanisation, which is continually improving, means that only small numbers of increasingly sophisticated and skilled craftsmen are required to work the land. Add to that the intensifying pressure for the raw materials of the food industry to be produced at ever lower levels of unit cost and the trend is set. That will apply just as strongly in the specialist organic farming sector—of which my noble friend Lord Clanwilliam is such an able advocate—as it does in the more traditional agricultural field.

With these pressures, farmers will have to be able to organise for themselves a structure that meets the needs of the times. I do not believe that the taxpayer who all too often is the ex-redundant miner, the ex-redundant steelworker, the ex-redundant carmaker or the ex-redundant city worker, will for long wish to bear the social cost of keeping the countryside populated when he realises that the beauty of our landscapes can be maintained and even enhanced despite the fact that there may be fewer people working directly in fanning.

And so to the Bill itself. The creation of farm business tenancies should be supported although there may be argument about some clauses in the Bill. The measure should be supported because it brings change to the present legal structure for agricultural tenancies that marches well with developments on the ground. But we must not be sentimental. We cannot bring back the past. The world and farming are moving on. The legal framework for landlords and tenants must move also or else it will be swept aside as irrelevant by the march of events.

4.25 p.m.

Lord Cledwyn of Penrhos

My Lords, it is a pleasure to congratulate the noble Earl, Lord Yarborough, on his excellent and witty maiden speech. It is clear that he is knowledgeable and experienced in agricultural affairs and the House looks forward very much to hearing him on these subjects in the future.

The noble Earl, Lord Howe, reminded us that farming organisations generally have given the Bill a welcome and that reform of the tenanted sector is urgently necessary if the long-term decline to which he referred is to be halted. We must accept that a decline has taken place. In 1900 90 per cent. of the land was let but by 1990 the figure had fallen to 35 per cent. We also know that the Bill follows the agreement made by the agricultural organisations last December. It therefore deserves our constructive attention.

I must, however, emphasise that reform of the land law and of tenancy law in particular is a sensitive subject, not least in Wales. These were major political issues a century ago. They were one of the contentious subjects adopted by Lloyd George as a parliamentary candidate and a young solicitor in Caernarvonshire. The 1875 Act, to which the noble Earl referred, and subsequent legislation, did not give tenants at that stage the security they sought and deserved. Lloyd George and others were concerned to obtain security of tenure for tenants who had been evicted from their holdings by many landlords on political and religious grounds. I was told of a great uncle of mine who was deprived of his holding and his living in Caernarvonshire because the landlord disliked his politics. He and his family had no alternative but to emigrate to America, as did so many others at that time.

Things have changed. The old prejudices, thank heaven, have gone. But the sensitivity remains, and it would be a great mistake for the Government to neglect it. We must look carefully at the Bill and analyse it to ensure that it does not take us too far away from that element of security which is essential if farmers are to farm efficiently. I shall return to that in a moment.

There is one question which must be asked and answered by Ministers: will the Bill result in more successful and efficient tenant farming? We are told that the present system has discouraged new lettings of agricultural land. There is an element of truth in this, but we must not overlook the fact that today it is generally the son or another member of the family who succeeds his father. He has acquired experience. These days he has usually been to one of the agricultural colleges.

There is, I agree, an argument for broadening the scope of opportunity, but in so doing we must not deprive young local farmers of what has become their reasonable expectation.

I appreciate that Clause 2 provides that existing tenancies covered by the 1986 Act will not be affected, and I welcome that. But we must look very carefully at the new tenancies, which are to be called farm business tenancies, because the Bill imposes a range of new regulations and it may not be easy to adapt to them. Clearly, the Bill expects the farmer to be a businessman, but there are very good farmers who will not fit easily into that frame. I know plenty of good businessmen who do not know the difference between a Friesian and a Welsh Black!

The Royal Institution of Chartered Surveyors, to which reference has already been made, gives the Bill its general support and makes this important statement in its paper: Nothing should be signed before the 1st September, 1995, if people want to take advantage of a Farm Business Tenancy. When the Act comes into force there will be serious pitfalls for those who do not take good advice. Indeed because the parties are largely free to set their own terms they will need to have regard to the general law of landlord and tenant, common law and case law as well as tailoring an agreement which suits their particular circumstances". That is sensible advice.

The institution is preparing advice on all the relevant issues. We should be grateful to it. I know that the farmers' unions and the Country Landowners' Association are ready to help. I should add, as a former country solicitor, that my colleagues in practice will be very glad to help as well. In fact, their assistance will be essential in the drafting of agreements. It is an ill wind which blows nobody any good.

Finally, there is one fundamental point which I must stress; namely, that the farming industry is not a short-term affair. It is a long-term enterprise. Whatever emerges from the Bill, that reality must always be borne in mind. It relates particularly to the traditional livestock farm. The farmer must look ahead. He must plan ahead. He must invest substantially in stock, machinery, quota rights and so on. You cannot build successful farms on the basis of short lets. With short lets, the tenant farmer would face worry and uncertainty and would not be able to plan properly for the future. And when the farmer on a short let goes to his bank for some financial support, what will be the response of the bank manager? He will say regretfully that he cannot help with so short a tenancy. The Government must bear that in mind when they promise increasing opportunities for young people. They must look at the reality of the situation and the problems which face young farmers and prospective young farmers in the countryside.

There are communities in Gwynedd which depend on the farming industry and which consist mainly of fairly small traditional farms. I do not want to see them disappear. I want to preserve those communities. Tom Williams's great Agricultural Act of 1947 set the industry on a course which made it the most successful in the world. We should not forget that achievement in this debate. Of course, reform and change are inevitable, but we must take care not to destroy the foundation of the industry. The Bill must be studied and dealt with bearing that in mind.

4.34 p.m.

Lord Stanley of Alderley

My Lords, in common with other Members of your Lordships' House, this is the third time that I have taken part in a Bill to revitalise the landlord and tenant system. I believe that this Bill will help. It comes, as my noble friend Lord Howe said, with the wholehearted support of the industry, although I accept the point that was made by my neighbour the noble Lord, Lord Cledwyn, that there is great sensitivity in Wales about the landlord problem. It may be that my family is at the back of that.

However, I have to repeat what I said on 20th July 1976 in col. 59 of Hansard. At that time I said that the only way really to help the tenant, particularly the young one looking for a long-term tenancy, was to stop penalising the landlord on the taxation front. I accept that since 1976 the 15 per cent. investment income surcharge has been lifted and that most new institutional landowners, whom I disliked intensely at that time, have gone, most of them, I am pleased to say, having lost a lot of money. However, inheritance tax relief on owner-occupied land is at 100 per cent., whereas on tenanted land it is at 50 per cent. Therefore, any prudent landlord will think very carefully before saddling his children with that extra liability. So if we really want the tenanted sector to flourish, we must make the tax equal between owner-occupied and tenanted land. I accept that the Government may not want to do that because they believe that it would cost the Treasury more.

I must declare an interest. I and my family before me have been landlords for many centuries. I am also an owner-occupier but, more importantly, I am a tenant and my heart has been, and still is, in the practice of farming rather than in landowning, so I go along with the idea of evening out the tax burden which would be at the expense of the owner-occupier—in other words at my expense—rather than the Treasury.

The Bill could cause some problems, but I am sure that they will be raised in Committee. Indeed, noble Lords have already referred to some. I refer, first, to the problem of scarcity value causing uneconomically high rents. That point has been made by my noble friend Lord Howe, the noble Lord, Lord Carter, and obliquely by the noble Lord, Lord Northbourne.

I am also worried about subletting and am concerned that we consider how we should deal with the value of improvements. The noble Lord, Lord Northbourne, said that he would look at that from the point of view of the landlord. I strongly suspect that I shall look at it from the point of view of the tenant.

I refer finally to housing, which has been mentioned by the noble Lord, Lord Carter. Although I was sorry that the noble Lord was so critical of the Bill—it was obviously painful to him to take such a line—I fear that his hair will turn grey before the Bill leaves the House. As I have said, I am concerned about the problem of housing, which was also raised by the noble Lord, Lord Northbourne. I imagine that a tenant could be evicted after, say, 10 or 15 years when he has a wife and two children. Unless we give some thought to that, I fear that we could well return to another 1976 Act, which was caused by some of these problems, but which as I am sure your Lordships will remember was either preceded or followed (I cannot remember which) by the 1976 Tied Cottage Act. It might be worth your Lordships rediscovering that Act. Indeed, I have got it out of the attic.

That fear will encourage landlords to let to existing well-established farmers rather than younger ones, but there is nothing new in that. It has always been true that the only way into farming is patrimony, matrimony or parsimony. You can never get away from those three. I got in on matrimony, by the way.

So far as it goes, I welcome the Bill. I realise that my noble friend the Minister will rebuke me, and say that I should know that I should not deal with matters such as taxation and housing; but he knows me well enough to be aware that I do not pay a great deal of attention to some of the rules by which he tells me I should abide. I have to point out that after 18 years neither Socialist nor Conservative governments have grasped the vital tax nettle. Politicians may now be so far away from practical fanning that they do not know what a nettle is or what it can do to stifle growth.

4.40 p.m.

Lord Middleton

My Lords, I join with other noble Lords in congratulating my noble friend Lord Yarborough. He has the great advantage of firsthand knowledge of that marvellous farming county, Lincolnshire. I only hope that the length of this afternoon's debate will allow time for those beautiful Brocklesby foxhounds to be fed this evening, but I am sure that that has been taken into account.

It must be plain by now that the object of the Bill is to launch a rescue operation for the agricultural landlord and tenant system in England and Wales. As to the questions: first, why should it be rescued; secondly, what economic or social benefits does the system provide; and, thirdly, why does it have to be rescued now?—the first and third questions have been answered clearly by my noble friend Lord Howe. As to the second question, I say merely that the fundamental problem for British agriculture is the availability and cost of capital. Under the landlord-tenant system, the part played by the owners of agricultural land in the provision of the industry's capital requirements is a very significant one.

That was acknowledged by the committee of inquiry under the chairmanship of the noble Lord, Lord Northfield, which was set up by the party opposite in 1977. We have already heard a quotation from the consequent report from the noble Lord, Lord Carter. The noble Lord, who was a member of that committee, will remember the section dealing with the contraction of the let sector. I quote from paragraph 579 of that report: We attach very considerable importance to its retention … we want to see a continued variety of forms of tenure: by its very existence, it supplies an important part of this and has a major role to play in British agriculture. We therefore conclude that there is a good case for retaining a healthy and reasonably substantial let sector". A farm tenancy provides a farmer with the opportunity to borrow from a landowner on very favourable terms the land and fixed equipment through which to earn his living. He can go into business unencumbered by a massive bank loan to acquire land. Someone has said that if the system did not exist, it would have to be invented. Yet, as has been pointed out, that admirable system is in decline. It may not continue to exist. By the Bill the Government are attempting, quite rightly, to reinvent it. The system has been in decline throughout this century.

As my noble friend the Minister reminded us, at the beginning of the century the proportion of tenanted land by area was about 80 per cent. of all farmed land. When I entered your Lordships' House 23 years ago, that proportion was 50 per cent. The reasons for that change are well known, and I do not have to rehearse them.

The growth of owner-occupation was a healthy trend, and the balance of about half the land farmed by owner-occupiers and half by tenants seemed about right. Since then, well-intentioned legislation and taxation, through policies where good intentions were less obvious, have accelerated the decline. The proportion of land farmed by tenants is believed by the noble Lord, Lord Carter—I believe that he is right—to be about 25 per cent. But the worrying thing is that only a small proportion of that 25 per cent. is due to new lettings.

I referred to legislation. My noble friend the Minister has rightly called it a tangle. The 1976 Act was a killer in that respect, as those of us who opposed its passage in the House said that it would be. The supply of land to let dried up. But that piece of folly was not the only cause of the fall in the number of farms offered by owners for renting. Despite some alleviation by this Government, fiscal disincentives discouraged owners from letting. Some young owners have found it more profitable to farm land themselves than to let it. As my noble friend Lord Stanley reminded us, the institutions which rushed in to invest in tenanted land rushed out again when the going got rough. Other ways of organising land ownership and management have been devised.

All those factors, plus a good deal of prodding in which I was closely involved, persuaded the Government to produce the Agricultural Holdings Act 1984—another attempt to cure the patient by legislation. I had grave misgivings. The Act was based on a not very satisfactory compromise within the industry arrived at with enormous difficulty. I feared that it would not be effective in producing more tenancies. However, I supported the Bill in the House because I felt that any measure which might possibly prop up the system was better than nothing. I felt too that there was a faint chance of something better turning up.

After a bit of a lurch backwards over legislation to compensate tenants for their milk quotas, 10 years later the Government have produced something better—much better. Ten years is a long time to see what is needed and to act upon it, but in that time there has been a vast amount of legislation of a much higher priority. I suppose it has probably taken all that time to get all the parties in the industry to agree. That they have done so, and are backing the Bill, is a matter for congratulation to their leaders. I am bound to say that I am disappointed by the lukewarm attitude of the party opposite, despite the agreement and enthusiasm of all interested parties.

This is the last chance to save the system from terminal decline by means of legislation. It could be called a deregulation measure, because it gives parties to a future arrangement between landlord and tenant a chance to break free from all previous legislation. Except in regard to compensation for tenants' improvements, the parties can negotiate virtually any terms that they wish. I see nothing threatening in that. I last spoke on farm tenancies about four years ago on a Motion tabled by my noble friend Lord Stanley, and to which he has referred. At that time I quoted the then president of the CLA who said: There are those who will be alarmed by a call for such freedom to negotiate. I do wonder why. Landlords asking unreasonable conditions will get no tenants. Unreasonable tenants will get no farms". Those words should perhaps guide us during the Bill's passage. But this measure alone will not save the landlord-tenant system in agriculture. Fiscal disincentives remain. So the complement to the Bill must be reform of the fiscal regime to bring the tax treatment of let land, as my noble friend Lord Stanley said, into line with owner-occupied land. I am not sure that I agree with him as to how that should be done, but we can look at that matter later. That would then release the potential for continued expansion in a revitalised rented sector. Nevertheless, this Bill is an essential first step. It is in itself a breakthrough and I congratulate the Government on its introduction and offer the Bill my wholehearted support.

4.50 p.m.

Lord Elis-Thomas

My Lords, it falls to me, although with a voice which is not as strong as I should like, to second the congratulations from the Cross-Benches to the noble Earl, Lord Yarborough, on his contribution and to welcome him to this House. As a nominated Member, perhaps I may say that he provides some argument for the intelligence of the hereditary principle. But I shall not take that argument further this evening.

For me, the test of the Bill is its contribution to sustainability—whether it creates the concept for sustainable development as it applies to agriculture and what contribution it makes to that. Sustainability can be taken in different ways. There is the sustainability of the general environment, which must be our major context.

In that regard, I have an anxiety about the Bill; namely, that it does not talk enough about the environmental content of any agricultural tenancy agreements and new business farm tenancy agreements that are made. It will come as no surprise to the noble Earl on the Front Bench, because I have spoken on this theme before in this House, that I believe that we should write an environmental obligation into new legislation which has an environmental impact. Farm business tenancies are not just a matter for the free market between landlord and tenant. They have an environmental impact which should be registered. In that context, I am concerned that reductions in public expenditure which may be determined tomorrow in another place may have an impact on the very effective environmental agricultural schemes which have been produced by MAFF in England, the Scottish Office, the Welsh Office and the Countryside Council for Wales. The environmental contents of agricultural enterprises must be addressed.

The other form of sustainability is that which applies to agricultural skill within communities. That is another form of sustainability. It is a cultural and generational sustainability. That was the traditional argument in favour of the previous legislation: that there should be a right of lifetime tenancy and succession on a basis of agricultural skill.

Those who have argued for the Bill on the basis of deregulation do not attract my immediate support because deregulation as a philosophy and as an effective form of management to me smells too much of an ideological position and not enough of a practical application. It may well be that when we are "contractorising" everything, we should be contractorising the management of agriculture. But it seems to me that we must have sterner arguments in terms of the effective use of the land resource and agricultural skills.

I am impressed by the fact that the CLA, the NFU and the Tenant Farmers' Association and the young farmers clubs have come together to produce this package. As someone who lives in Wales, I regret that the Farmers' Union of Wales did not feel able to subscribe to the package for its own reasons. I know that its policy is directed towards lifetime tenancy and in Committee I shall wish to support or move any amendments which seek to secure assurances from that viewpoint.

The Farmers' Union of Wales has a particular anxiety about the impact of the Bill on the livestock sector and areas where agricultural enterprise is perhaps based more on sheep and hill cattle. Therefore, in the context of the HCLA income position and environmental, market and other pressures, it is concerned that the Bill may bring about a further undermining of the viability of longer-term tenancies.

However, it seems to me that its argument is based on the fact that in principle it would want lifetime tenancies. If landowners feel unable to make such tenancies, then it seems to me that it should concentrate its argument more on the fiscal and general aspects of agricultural policy because after all, a tenancy is a freely agreed understanding between landlord and tenant. Therefore to try to legislate further for control over that area in a reducing market is to reduce the amount of land which will become available.

We must address also the other issue of sustainability; that is, how we can ensure that the longer-term performance of our agriculture industry is improved by the Bill. That is not just a matter of improving productivity. It. is a matter of ensuring efficient productivity within environmental and social parameters. Again, we need to see the Bill in the context of the future of the common agricultural policy of the European Community and the future of environmental policy as it relates to the CAP and to look for ways in which to encourage diversification in the countryside in the most positive way possible.

I should like an assurance from the Minister that nothing in the Bill will prevent farm enterprise from diversifying. It seems to me that we are now in a situation in which we must look at countryside policy in a comprehensive way. We must say that agricultural production and food production is an essential part of countryside management as is environmental and land management and the ensuring of countryside sustainability in environmental and landscape terms for future generations. All those aspects come together in the farming enterprise.

The farming enterprise is important because it provides a clear productive base in countryside life. If we can increase that prospect for younger farmers—and I think we have the support of younger farmers in doing that—we can create a context in which the countryside again will appear to be a sharp end of imaginative community life.

Far too often the countryside is produced and reproduced as an image of tradition, an image of the past and an image of practices that were inherited. For goodness sake, we must look to the 21st century! I feel that I speak here for the young farmers' clubs of Eryrys and other parts of Wales. We must look to the countryside as a place where young people will feel they want to live; where people coming from the city will feel they want to live; where people from outside Wales and other parts of the European Union will feel they want to live. We must see that in a European framework.

The countryside should not be seen as merely a repository for traditional practices. It must be seen also as an area where young people feel that they can invest and have a future. That requires a feeling of security; not just a feeling of security of tenure, but security of income and enjoyment of the facilities within the countryside.

For all those reasons, I have some reservations about the Bill which I shall wish to develop further as we talk it through. But basically I believe that we are now in a situation in which traditional forms of landlord-tenant arrangements no longer apply. However, we have what is, for me, the fundamental test of seeing the Bill in terms of its contribution to the sustainability of life in the countryside. That means security not just of tenure but security of income and the ability to contribute to countryside life, which again contributes to the broader life of the region and to the broader life of the diversity of urban and rural society.

4.59 p.m.

Earl Peel

My Lords, I am aware that there are some who are not perhaps as happy about this Bill as others. But I believe that the majority of people who have an interest in the well-being of the countryside warmly welcome it. Like my noble friend Lord Stanley, I was rather disappointed in the reaction that I heard from the noble Lord, Lord Carter, on the Opposition Front Bench. However, I was, perhaps, a little encouraged when the noble Lord, Lord Cledwyn, said that he would pay "constructive attention" to the Bill. I very much hope that we can expect constructive attention from the Benches opposite. I believe that through the Bill we have a very real chance, as the noble Lord, Lord Middleton, said, of actually bringing something forward which will really help bond the landlord and tenant system for the future. That is what we are talking about.

Congratulations are due to the Government for acting so positively, and also to all sides of the industry for coming together in the way that they have. I know that it has not been easy. I know that many a meeting has gone on long into the night to try to produce this balanced package. I congratulate everyone on having produced such an acceptable Bill; and special attention is due to the Royal Institution of Chartered Surveyors which has done so much in such an impartial way by acting as honest brokers.

As has already been identified by many speakers, there is a need for change. As we all know, agriculture is going through a difficult time. There are the uncertainties surrounding the agricultural policy and the flexibility of GATT. Unless there is a real will and a realism from all sides of the industry for flexibility and dynamism I believe that the traditional land tenure is under threat. The fact that there has been such an increase in Gladstone v. Bower agreements is a testimony to that. As my noble friend the Minister said in his opening speech, conditions must be right for landlords to let land. That is absolutely fundamental to the whole question. That reality is every bit as important as the other realities mentioned by noble Lords opposite.

The 1976 Act, which worked—and I can only describe it in this way—so effectively against market forces, put the landlord-tenant relationship into a strait-jacket from which it has been trying to escape ever since. We had the various Acts of the 1980s and no doubt they helped considerably. But this Bill addresses, for the first time, the problems in a thoroughly comprehensive way. As the noble Lord, Lord Northbourne, said, it treats both parties in a grown-up fashion. That is why I believe that the noble Lord is absolutely right: it identifies the real strengths of the Bill.

The landlord-tenant system has proved the test of time, despite efforts to derail it. As the noble Lord, Lord Middleton said, it has provided opportunities for young people—and those not so young—to enter farming at a comparatively low cost. It has also given those who want to let land an effective means of having that land managed. But, as in any relationship, for that relationship to work, whether it be business or personal, there must be confidence. That confidence comes from flexibility on both sides. I believe that that is what the Bill creates.

The number of acres occupied by tenant farmers has declined rapidly, as was mentioned by many speakers, thus producing a reduction in the number of those entering into farming. I believe that that needs to be addressed, not just in simple farming terms but also as part of an overall desire to establish more permanent jobs in the countryside.

The RICS predicts that an extra 1 million acres will become available to let—and this is somewhat different from what was said by the noble Lord, Lord Carter— soon after the Act comes into force". I hope that the institution is right. I have to say that, like the noble Lord, I am a little sceptical about it. I suspect that there will be relatively few extra farmers created. I should have thought that short term tenancies, to which reference was made, will be taken up either by existing tenants or by owner-occupiers. However, I do not believe that that matters. Clearly, some people will come into the industry for the first time. Surely that is to be welcomed. But I fear that the decline in agricultural holdings, the increase in size brought about by market forces and the need for economies of scale are bound to happen. The long-term prognostications for the number of people on the land is bound to drop.

There is a further point that I should like to make which I believe has been referred to by virtually every speaker. I refer to the absolutely essential matter of tax incentives. All we are asking for is that let land and in hand land be treated the same. We are not talking simply about income tax schedules; we are talking about capital gains tax and inheritance tax. I am sure that my noble friend on the Front Bench is only too aware of the strong feeling that exists on the matter. I very much hope that he will—and I am sure he will—mention that to his right honourable friend the Chancellor of the Exchequer. Of course, it is a little late for tomorrow, but at least we can but ask.

Inevitably, there are certain aspects of the Bill that are contentious. Indeed, there are one or two points about which I am not particularly happy. For example, I came across the term "intangible advantages". I suspect that that will need tightening up. Equally, I am somewhat concerned about the compensation for planning permission. It is a tricky subject which, unless dealt with carefully, could end in difficulties in the future. However, I know that the latter are important matters of detail which will be dealt with later in Committee.

It is most important that the Bill should be perceived to be fair. By and large, I believe that it is. Our overriding need is clearly to strive for a balance which will work to free up the agricultural industry. I believe that that has been achieved through the Bill. As I said, I also believe that all parties should be congratulated. I very much hope that the Bill will achieve what I believe it can achieve.

I conclude by pleading with the Opposition to take this opportunity to bring both sides of the industry together so that we have something which we can all work towards in the future, thus giving confidence to both landlord and tenant.

5.7 p.m.

Viscount Addison

My Lords, perhaps I may first declare an interest in having successfully experienced three different landlords while a tenant farmer, on the same holding in Lincolnshire over a period of 20 years. I trust that those same three landlords gleaned the benefit of me as a tenant. I must say that my noble friend Lord Yarborough, whom I must most warmly congratulate on his maiden speech and whose land reached close to mine, was not my landlord. However, his hounds knew most of my farm.

Prior to the Second World War, the countryside was a mosaic of habitats, including small mixed cropped fields, hedgerows, woodlands, ponds and wetlands which held an immensely diverse range of wildlife. Specialisation and intensification—heavily supported by production-oriented policies—resulted in an increase in arable land and a decrease in habitats and wildlife which depend on them.

Since the Second World War, we have seen a 32 per cent. increase in arable land and a loss of 34 per cent. of improved pasture. While hedgerows have suffered huge losses as a result of economic incentives to intensify land use, the Government should be congratulated on creating various schemes which encourage the planting of new hedgerows. Since 1984, over 8,000 miles of new hedgerows have been planted in Great Britain, and that includes 2,200 miles of relaying existing hedgerows and 1,000 miles of new hedgerows funded by the Government's farm conservation scheme. Many more new hedgerows have been planted under the countryside stewardship scheme, and individual schemes run by local authorities.

In the forthcoming Environment Agencies Bill, the Government should again be congratulated on not only bringing forward new measures to protect hedgerows of particular importance, but also on introducing new provisions to create free standing national park authorities for England and Wales. The 10 existing national parks, excluding the Broads, cover a total of 3,385,677 acres, much of which is agricultural land.

The RSPB and other organisations support the Agricultural Tenancies Bill as it will enable landlords to prescribe conservation targets and management practices when negotiating tenancies. County councils in England and Wales own over 360,000 acres of agricultural land involving over 5,400 tenant farmers. Many county councils include specific conservation practices in tenancy agreements and this is to be welcomed.

I pick up on the speech of the noble Lord, Lord Elis-Thomas, and his mention of sustainability. If the Government are to meet their commitments under the hiodiversity convention and the sustainable development plan they must seek to influence those activities and policies which have the greatest impacts upon the countryside and its natural resources. As agricultural land makes up 70 per cent. of Britain's land surface, the RSPB is particularly keen that agricultural activities should be carefully modulated to take account of the needs of wildlife conservation. Therefore I wonder whether my noble friend the Minister will consider issuing advice in the form of a code of guidance to county councils, the Ministry of Defence and the Crown Estate on the desirability of including species and habitat targets and specific conservation practices in new farm tenancy agreements. The industry agrees with the principles of the Agricultural Tenancies Bill and we should give the Bill our undivided support and wish it well on its passage.

5.11 p.m.

Lord Prys-Davies

My Lords, as the Minister rightly observed, there is a wealth of expert knowledge on this subject in your Lordships' House, and indeed that has emerged in contribution after contribution in the course of the debate. It is therefore with considerable diffidence that I venture to speak in this debate. However, I assure your Lordships that I am not a complete outsider as I was particularly fortunate to be brought up in a Welsh rural community and I am indebted to that community.

I should also like to thank the Minister for his brief survey of the history of landlord and tenant legislation over the past 150 years and for having guided us so clearly through the Bill. But I trust that he will not be impatient with the wise advice which my noble friends Lord Carter from the Labour Front Bench and Lord Cledwyn, a former Minister of Agriculture, have tendered. Obviously, my noble friends Lord Carter and Lord Cledwyn are in need of no support from me. Nevertheless, I should like to emphasise one or two central points which they have made. I apologise if I briefly go over again some of the ground which they have covered.

We have heard this afternoon a great deal about the problems facing new entrants from outside into the farming industry. I think we are all conscious that there is a problem: the shortage of let land. That is the common ground. I for my part would accept that there may be a case for some change in the present law on agricultural tenancies. But that is a long way from saying, as many people do, that this Bill offers the right solution and will on its own revitalise the tenanted sector.

I think we have had few figures quoted by the Minister in this debate. I believe it would be helpful to the House if he could forecast, if he is able to do so, how many acres of land for rent are likely to be freed within five years of the passage of this Bill. I should also like to hear the Government's view on the forecast by the accountants, Grant Thornton, that the Bill will make less land available for letting than is anticipated by the Royal Institution of Chartered Surveyors. It would be interesting to have the Government's view on those assessments.

The Minister has quite rightly reminded us that this Bill has been four years in gestation; but there are many farmers in Wales who believe that the farm business tenancy solution proposed by the Bill will not discharge the high hopes placed on it. What they fear is that painful problems will be stored up against the day when the business tenancy ends and it could therefore, if they are right, be a recipe for trouble.

We have heard from many speakers that at the end of the tenancy the tenant will have no right to renew the tenancy. But added to this—I am glad that this has been acknowledged by a number of speakers from the other side of the House—the tenant, or former tenant as he would be, may be unable to find new land to rent. He could therefore be, as we have heard, not only out of business but without a home for his wife and his family. I would have thought that that situation speaks for itself. Is there not a real risk, I feel bound to ask myself, that in the longer term the farm business tenant and his family will be paying too high a price for such a tenure?

A wholly legitimate pressure for more let farmland—I accept that it is legitimate—should not be allowed to produce a simple solution which could lead to painful consequences for the tenant. I thought that that point was very well made in an eloquent letter by a Mr. Harrison, a Northumberland farmer, in last week's Farmers Weekly. In a sense, looked at the other way round, it would not be surprising, (would it?) if people, unless they have retained their homes, were put off from entering into a business tenancy. There is something else. I ask myself: is it fair for the Government to open up a path which can prove to be troublesome at the end of the journey?

It is against that background that I should like briefly to make two points. We know that a part of the concept of the farm business tenancy is derived from the Landlord and Tenant Act 1954; but we also know that the Bill, as drafted, does not provide for the right of renewal which is available to the business tenant under the 1954 Act. Would it not be an improvement, and would it not be fair to the tenant, to include in the present Bill at least the right to renewal of the tenancy subject to prescribed conditions? Perhaps we may be told by the Minister, when he replies to the debate, why it is that a right of renewal available under the 1954 Act in respect of the tenancy of a shop or of an office will not be available to the tenant of a farm. I may say that I am not the only one who did not find the arguments against the right of renewal, which are advanced in paragraph 5 of the 1991 consultative document, to be convincing. As a matter of interest, I note that the reasoning given in 1991 was abandoned in the 1992 document. Perhaps the Minister can enlighten us on that when he replies to the debate.

I should like to go back briefly to what has been mentioned by my noble friend Lord Cledwyn about the position in Wales. The Minister in his opening speech took us along a panorama of landlord and tenant legislation. However, there is an impressive tale that can be told about the struggle between landlord and tenant in Wales, to which my noble friend Lord Cledwyn referred, and which led to the setting up in 1893 of the Royal Commission on Welsh Land Tenure to explore tenants' grievances. Given that history, a century later Welsh tenant farmers are wary of the Bill. I hope that the Government will appreciate their anxieties.

It was said by the Minister this afternoon, and it was said in the debate last Wednesday on the loyal Address, that this solution is fully supported by the main organisations representing both landlords and tenants. I wonder whether the Minister's advisers have really read all the submissions from Wales. I find it very hard indeed to find evidence that they have done so. We know that the Farmers' Union of Wales does not support the concept. I very much hope that the Minister will not dismiss their objections as the objections of people who are oblivious to reason or diehards, to use the words which were rather unfortunately used.

5.20 p.m.

The Earl of Courtown

My Lords, perhaps I may join other noble Lords in congratulating my noble friend Lord Yarborough on a fine maiden speech. I hope that we shall hear more from him in the near future.

It is with great pleasure that I find myself able to speak in the Second Reading of this Bill, which is so important to the rural economy. As a chartered surveyor in the rural practice division of the RICS I am very aware, as I know other noble Lords are, that the industry has been discussing the revision of the agricultural holdings legislation for some time. That has enabled the various interest groups to be in some agreement, with the RICS providing its knowledge of the industry from its role as adviser to both landlord and tenant.

Today the industry can show only little evidence of new lettings becoming available. Glancing through a recent edition of the Farmers Weekly, the only opportunities available were two Gladstone v. Bower agreements and a five-year Ministry licence, both examples of short-term agreements. None of that can offer great encouragement to the new entrant.

It is therefore evident that action is required. Tenancies under the 1984 Act, being lifetime agreements, and those under the 1976 Act, with two successions, have had an enormous effect in discouraging landlords from letting their land on the open market. We therefore have a plethora of various types of different agreements that enable landowners to keep control of their land and be classed as farming in hand, and therefore to benefit from the resultant taxation treatment. No matter what legislation we have before us, it will take a great deal to persuade landowners away from highly successful alternative forms of farming agreements.

Landowners and tenants must be made aware that the Bill will provide them with the legal framework to form a clear-cut relationship, with the landowner receiving a regular income agreed between the parties to the tenancy, and the tenant being aware of his obligations and the length of the term. Arrangements such as share-farming are often not clear and certainly without a regular income, not to mention the legal minefield that may occur in some thinly disguised agreements where rent is paid in everything but name.

I have already mentioned the requirement of gaining the confidence of the industry, but probably the most important requirement is suitable financial conditions. By that I mean comparable relief between let land and in-hand land.

I am also concerned that some of the statistics do not point to much more land becoming available. The RICS has produced some interesting information, but I am somewhat concerned—and on this matter I agree with the noble Lord, Lord Carter —that they do not show that fully equipped tenancies, let for a term that will encourage long-term husbandry, will come on the market.

The picture that becomes clear from the information available is of a situation in which the majority of units let under a farm business tenancy will be let for a term of less than 10 years. Most of those units will be bare land units which will tend to be let to existing farmers rather than new entrants.

Having expressed my concerns, overall I am hopeful that this legislation will provide the right framework. I was particularly glad to see that there is no retrospective effect on holdings let under the Agricultural Holdings Act. I am also glad to see that certain mandatory matters cover various important areas, such as notice requirements, notices to terminate a farm business tenancy, notices if necessary to trigger rent reviews and also notices before the grant of a tenancy. I am also glad that the position relating to service of notices, which in the past has led to difficulties and been unclear, is more clearly defined in Clause 34 of the Bill.

Tenants' improvements is another area in which I am pleased to see changes. The position under the Agricultural Holdings Act is complicated and could be described as being weighted against the tenant. The Bill now proposes that should a landlord refuse consent for a tenant's improvement the tenant will now have the opportunity to apply to an arbitrator for the consent and thus enable compensation to be paid by the landlord to the tenant at the end of the term. In addition, the tenant will be able to apply for planning permission without fear of the landlord serving a notice to quit under the required case provision in the 1986 Act and, at the end of the term, the tenant will be able to claim compensation for the consent on termination, whether or not that consent has resulted in the improvement being carried out.

Another area in which improvements have been made is dispute resolution. That has been made much simpler. As I understand that part of the Bill, the parties to a tenancy will be able to put mechanisms in the agreement to provide for the appointment of umpires or experts before going down the costly and time-consuming route of arbitration.

Freedom of contract will enable landowners and tenants to prepare agreements to suit their own needs as well as the requirements of the holding. Terms can be agreed to reflect the varying conditions of a holding. For example, in the case of a holding with many listed farm buildings the resulting repair responsibility for those buildings must be equitable between the parties. For a holding which has a high environmental value the landlord and tenant can agree a farming standard and rental value which will take such factors into account.

The whole basis of the Bill is a meeting of like minds, that of a willing landlord and a willing tenant. To enable the legislation to work, freedom of contract and flexibility are of prime importance. In particular, I refer to the length of term. It would be enormously detrimental to have a minimum term, which would defeat the whole concept of the Bill.

We will be mistaken if we expect a massive number of holdings to become available. The confidence of the industry must first be gained. I feel that with this Bill we are going some way to achieving that aim. Having passed through the legislative process, I hope that this Bill will provide a relatively simple piece of legislation compared with past attempts at revision of the landlord and tenant system in England and Wales.

5.27 p.m.

The Marquess of Hertford

My Lords, I too should like to congratulate my noble friend Lord Yarborough. I thought his speech outstanding. I once had the pleasure of galloping over some of his land, and the rather less intense pleasure of falling into one of his very big ditches.

Like many other speakers today, I declare an interest. I am both a landlord and a tenant, and a member of both the Country Landowners' Association and the National Farmers Union, both of which give this Bill strong support.

In 1940 I had the good fortune to inherit an estate in Warwickshire. There were then 24 farm tenants. There are now three, apart from me and my son. That is not merely because death duties reduced the size of the estate, but mainly due to the effect of the Agriculture Act 1947, the Agricultural Holdings Act 1948, and all the other legislation which has been enacted which has given so many rights to tenants and so few to landlords that many—probably most—people in my position have done everything possible to take their land in hand and farm it themselves. Perhaps that was selfish; but I do not believe that it was necessarily good for the industry.

Given time, the Bill may change that state of affairs. It should eventually make it a great deal less difficult for a young man who is not the son of a farmer to acquire a farm tenancy. Agricultural colleges are full of young men who would like to take up farming. The best they can hope for from college is to become a foreman or farm manager. The Bill will provide a much needed degree of flexibility, enabling a landowner and a tenant to make arrangements that suit them both instead of being bound by out-of-date rules.

I realise that to some people the very word "landlord" has an aroma of sulphur about it, no doubt connected with ancient folk memories of evictions, enclosures, and so forth. It is in some ways perhaps unfortunate that so very few country constituencies ever elect Labour Members of Parliament. One cannot help feeling, perhaps wrongly, that most Members of the Opposition know and care very little about what life in the country is actually like—how it works, or how we all live. That could account for their dislike of hunting and shooting as well as a distrust of landlords.

I hope that there will not be too much opposition to the Bill. I am moderately encouraged by the apparent wish of the noble Lord, Lord Carter, to amend rather than to oppose the legislation. It is a good, useful and helpful measure. I sincerely hope that it passes through Parliament and becomes law before the next general election.

5.31 p.m.

Viscount Mountgarret

My Lords, first, I apologise to my noble friend Lord Howe for my late arrival and for missing his opening "overs". The fact that I could not be here on time was because I had to attend a funeral in Norfolk. However, I am delighted that I was not too late to hear the magnificent maiden speech of my noble friend Lord Yarborough whose knowledge of land and farming is reminiscent of that of his much respected late father whom we all miss very much.

I much welcome the Bill, as do all noble Lords on this side of the Chamber. The reasons have been given and do not need rehearsing again. However, perhaps I may make a few points.

Mention has been made of compensation to the tenants. I am all for fair compensation to tenants—indeed to a greater extent than occurs now. However, the principle of compensation for a tenant relates not to his expenses but to that which he leaves behind. If he were so permitted, a tenant could leave behind the quota system, in particular for livestock. At present the quota does not lie with the land but with the tenant. We know that there are difficulties in that respect. However, I hope that my noble friends will consider the issue. Where a tenant retires from farming and takes his most valuable quota for livestock with him, in effect the value of the letting of that holding is reduced in the future because the landlord can offer only accommodation rather than facilities for the land to be stocked. I hope that that quota could be purchased by the incoming tenant, with the outgoing tenant compensated for it.

I am slightly unhappy about Clause 23(3). I may have misread and misunderstood it. My noble friend will correct me. However, as I understand the clause, the tenant shall not be entitled to compensation at the end of any tenancy after the initial tenancy, whether for two years, five years, 10 years or whatever, in respect of any tenant's improvement provided during the earlier tenancy in relation to the land comprised [therein]". If that is so, I do not believe that the position is quite fair. Reference has been made to the Gladstone v. Bower agreements. When shorthold tenancy agreements are renewed, the tenant is entitled to compensation. However, if he takes on the new tenancy, the amount of compensation will be rolled over and carried forward. I do not understand why that cannot occur under the Bill. For instance, if with the landlord's consent a tenant puts up a set of buildings which are worth £20,000, the write-off of buildings is generally about 20 years, which represents £1,000 a year. If his first tenancy were for five years, he would be entitled to compensation of £15,000. However, as I understand the Bill, if he were to continue the tenancy for another five years, at the end of the second five years he will not be entitled to any compensation for the buildings erected during the first tenancy. Perhaps my noble friend will clarify that point and tell me whether I am wrong. If I am not wrong, perhaps that matter could be considered.

I turn to taxation. I see that my noble friend Lord Stanley is in his seat. He believes that he will have the same ticking off that I may receive as I am not a taxation expert. However, if I understood his remarks correctly, I was somewhat concerned that he seemed to come down more in favour of the interests of the Treasury than with regard to the land. The noble Lord, Lord Carter, referred to the issue. He said that his party agrees that it would be better to have the tenanted sector and the owner occupier sector taxed on the same basis. That is all very well. But which way round will that taxation be? Will the tenanted sector join the vacant possession sector, or will it be the other way round? That factor could make a substantial difference. If noble Lords opposite believe that it would be correct to put taxation for vacant possession land on the same basis as that of the tenanted sector, then the chances of the Bill succeeding in the long term will be somewhat reduced.

Lord Carter

My Lords, I did not state that with regard to equalisation. The noble Lord, Lord Stanley, suggested that the relief should be equalised at 50 per cent. It is an interesting idea from the Benches opposite to which we are listening with great interest.

Viscount Mountgarret

My Lords, I am grateful to the noble Lord. I know that percentages or levels of taxation were not referred to. I simply had uncomfortable feelings that someone could deal a card under the table. I hope that my noble friend Lord Stanley was not putting forward such a proposal, or we might find ourselves in gentle disagreement.

Concern has rightly been raised on housing. That issue frightens me because if one seeks to dot too many "i's" and cross too many "t's", one cannot cover every aspect. Properties in the rented sector outside agriculture almost dried up because it was felt that security of tenure for the tenant was sacrosanct at all costs. Of course, I am sure that everyone will agree that people who occupy their homes should be treated properly and not evicted without thought. That would be desperately unfair. We had a successful shorthold tenancy Act. The rented tenanted sector—it is an essential part of the housing and property industry—has now increased.

What shall we do with the agricultural side? It is popularly supposed that farmers will automatically take the farmhouse as well as the land, but that does not always work. Reference has already been made to smaller holdings. Efficiency and the greater size of farm machinery has led to those smaller holdings becoming larger. But that does not necessarily mean that the houses which may be scattered around are all needed by the farmer. If difficulties arose on housing, landlords might feel that they had to let the land separately from the house. That would be unfortunate.

No landlord whom I know would want to see anything but long-term tenancies; whether it is annual, a 10-year term, or whatever else, is beside the point, it does not matter. If you have good farmers and good tenants you want to keep them and see them year in, year out. They become your friends and you work with them. It is a partnership. Therefore, if a good man takes a lease and lives in the house, he is there for a considerable time. However, if a prospective tenant farmer signs an agreement which gives him, say, only three years' security of tenure and the farmhouse is included, he knows beforehand what agreement he is entering into. There is no compulsion on him, no force, nothing; it is up to him. It would be unfortunate if we were sidetracked in the Bill on the housing problem.

Finally, I support the noble Lord, Lord Cledwyn of Penrhos, who said that the Bill stems from a desire to let long rather than short. I wish to quote from the brief of the Tenant Farmers' Association in case noble Lords have not seen it. At the end, the association states: We fear that political uncertainty could be the greatest incentive to let short particularly in the early years … This Bill does not affect the terms of existing tenancies and it is important that any future legislation should similarly avoid retrospection". That is the one point which makes me anxious about the Bill. It was passed in 1976 against all advice and I can still see the noble Lord, Lord Nugent of Guildford, standing and wagging his finger at the noble Lord, Lord Melchett, and telling him: "This Bill will not work. What happens to the succession of tenancies if the whole tenancy sector dries up?". That Bill allowed for existing tenancies under the 1948 Act to be held for three generations. It was wrong to break that contract. I am sorry to have to say it, but only recently we saw the leasehold reform legislation passed by the party to which I have the honour to belong. The legislation tore up the sanctity of contracts on leases freely entered into by people. Here we have a potentially excellent Bill and I very much hope that landlords and tenants will enter into agreements for 10, 15 or whatever number of years so that they have stability on which they can build and something to which they can look forward. However, I should like an undertaking from my noble friend and the Government that any future legislation affecting tenancies will not affect any tenancy entered into under this Bill. Although the Bill sounds good, I am concerned that the absence of such a provision will be a detraction.

5.45 p.m.

Viscount Hampden

My Lords, I apologise for making an unscheduled appearance; but since we have managed to get through 16 speeches in under two-and-a-half hours, I am sure that noble Lords will forgive me if I add three minutes to the time of the debate. One learns many things in your Lordships' House, and last week I learnt not to ring the Government Whips' Office on a Friday afternoon if one wants to speak on a Monday because one's name gets lost.

I must also declare an interest in the debate. Like many noble Lords, I am a landowner and we have been involved with landowner-tenant situations for many generations. While preparing for the debate, I rummaged in the archives to see what earlier agricultural tenancies might help us and I came across a simple one. The rent was a small sum of money—1,500 head of garlic and 12 barbed arrowheads! The only stipulation on the tenant was to appear with a white stick in the park once a year among the reapers. I am not sure what the white stick was for, but the barbed arrowheads were certainly for the Battle of Bannockburn, since that was the date of the lease. So noble Lords can see that we have been involved with landlord and tenant relationships for 700 years.

As to the Bill, we have heard from a number of your Lordships of the broad agreement of the CLA, the NFU and the tenants' association. I hope that I shall not be one of those whom the Minister described as "oblivious to the evidence" in front of me when I say that I have certain doubts about whether the Bill will work. It seems to me that when three parties who do not normally see eye-to-eye manage to get together and agree on something, the time for that agreement has probably passed. However, I may be wrong.

The evidence before my eyes is that for the past 10 years I have been my own estate agent in Sussex. I have 25 tenant farmers with land varying from 1,000 acres to 50 acres, and in all those years I have not received a single inquiry as to whether I had any farms to rent. So I wonder whether there is a demand for tenanted farms. Of course, I have to say that Sussex is Southdown chalkland and Wealden clay and does not yield a great deal. The noble Lord, Lord Yarborough—whose speech we much enjoyed—will know that one of his tenants or neighbours came to a farmers' shoot last week. When he was asked what his yield was, he said that it was 4.5 tonnes to the acre, and I do not think he got another shot that day. He was pushed to the end of the line.

One aspect of the Bill may help. I have a problem which I suspect many landlords have with tenants who are getting on in age: their families do not wish to follow them into the farms; they have seen the light and gone elsewhere. The farmers have got into a situation where they farm to make a living, not a profit; their energy is running down; the farms are running down. They do not have enough money to retire elsewhere; and because the rent is based on pound per acreage and 100 acres at £30 is £3,000, they have a very nice farmhouse for £3,000. However, if they tried to find rented accommodation in the village or the town it would probably be much more. A term tenancy would get round that problem because the tenant would know exactly when he has to give up, and by preparing for it he can help himself. That raises the matter of the farmhouse which was mentioned by the noble Lords, Lord Carter and Lord Northbourne: what does one do about houses for farmers?

I was interested in the contributions from the noble Lords from Wales. I have great sympathy with their position because as a child I was brought up on my grandfather's estate in south-west Wales—a lovely estate which was given to his family by Henry Tudor as a reward for marching from Pembroke to Bosworth Field in 1485 and helping Henry Tudor onto the throne.

Lord Cledwyn of Penrhos

Hear, hear!

Viscount Hampden

My Lords, whether the noble Lord, Lord Cledwyn, will say "hear, hear" when I tell him something interesting about my grandfather, I do not know. He was the only Member able to vote against the Parliament Act 1911 in both the House of Commons and the House of Lords. In 1910 he was Unionist Member of Parliament for Brighton and voted against it. Then, after his father died, he came up to your Lordships' House and voted against it again. So I do not think he would be on the same political side as the noble Lord, Lord Cledwyn.

I am not an expert on reading Bills, but one point which seems important to me in the country is continuity. We know that the 1976 legislation on succession just did not work because it loaded the dice too much in one direction. I was talking about it to my tenant farmers and the ones who have been there for the second and third generation appreciate the environment and the place where they have been brought up. Since the environment seems to play more and more of a part in our deliberations about the countryside, it is important that by passing the Bill we do not stop the continuity of father to son or father to daughter. With that, I welcome the Bill, but it has some worries for us.

5.50 p.m.

Lord Geraint

My Lords, we have listened to excellent speeches from both sides of the Chamber. They have all been very constructive and helpful. I congratulate the noble Earl, Lord Yarborough, on his maiden speech. I must say that he is very fortunate in being young, tall and handsome; he is very able and is capable of delivering a very short speech but one that is to the point on the issue today. I wish him the best of luck in his deliberations in this House for many, many years to come.

Each year we hold Liberal conferences in different parts of Britain; sometimes we go to Scotland; sometimes they are held in England, and sometimes in Wales. We have a "Welsh night", and on that particular night sing hymns, songs and arias. Every time we sing the old Lloyd George swansong, "The Land belongs to the People", which we repeat and repeat. Whether it has any effect on our policies these days I am not so sure, but we still sing it.

The noble Lord, Lord Cledwyn, reminded me of how things were at the turn of the century. My grandfather was a tenant farmer. He and my grandmother reared a family of nine, including my mother. She told me many times that my father had to vote for a particular candidate at the general election because if he did not do so he was afraid that he would be turned out. My grandmother did not do the same; she voted for another party. (There is no need to pursue which parties they voted for.) Those are the days that have gone by. Today, things have changed dramatically. In Wales in particular we have more owner occupiers than we have tenants. We are very proud of that—although in the majority of cases they have very small farms and they are part-time farmers.

We have to make sure of one thing: we are here to try to persuade landlords, to encourage them, to let their land. We cannot force them. It is their land. Therefore we have to introduce legislation. It should be our main objective to introduce legislation that will persuade landowners to let their land to the new young entrants that we have in this country. I am in favour of the reform. I declare my interest, as I have done many times before. I am a farmer and an occupier, and I live on the land. In my view that is the best occupation possible.

Today I hope that the Minister and others will forgive me if I "diversify" a little. I feel very strongly about the smallholding tenants in this country. In England, there were 5,044 tenants of local authority smallholdings as at 31st March 1993. At that date, the total area of land held by local authorities in England for smallholding purposes was 133,816 hectares. Looking at the three leading county councils in England, we should congratulate Cambridgeshire council: it has 16,914 hectares of land let to farmers. In Lincolnshire, the council has 10,125 hectares. In Norfolk 9,405 hectares are let. We should also congratulate Hampshire and Wiltshire, which have acquired another 189 hectares and 55 hectares respectively over the past few years.

What worries me more than anything is that we are to have local government reorganisation next year, especially in Wales. The Dyfed County Council has a very proud record of not selling a single council holding in that area. But next year or the year after, Dyfed County Council will come to an end, and revert back to three unitary authorities, of which I am in favour: Cardiganshire, Carmarthenshire and Pembrokeshire. I would like an assurance from the Government that they will do everything in their power to make sure that once the councils return to being unitary authorities—in Wales next year and in other parts of the country later—this policy will continue, and that the Government will urge the county council to carry on helping the local authorities and, if at all possible, give them extra financial assistance in order that more land could be bought by councils and let to young entrants.

As I said, I am in favour of reforming the Agricultural Tenancies Bill. We shall have the opportunity to debate and discuss the legislation at Committee level. There is one union which is against the present proposals. Although I am supportive of the NFU, the Tenants' Association, the young farmers' organisation and all the others which are united in their deliberations to reform the Agricultural Tenancies Bill, the Farmers' Union of Wales is not. I feel duty bound, as 40 years ago I was one of the founder members of the Farmers' Union of Wales and I have its brief with me, to quote a few passages from it in order to be fair to every side in this argument: FUW policy is working-life tenancies to end when the tenant reaches 65 years of age". There is a lot to be said for that policy. (Such tenancies are frequently used by County Councils when letting their smallholdings.) Fiscal incentives are also required, plus a close scrutiny of the way grazing agreements and Gladstone v. Bower agreements are currently used". The union goes on to say that, It must be stressed that farming is a long-term enterprise"— we all tend to agree with that— particularly in the case of a traditional livestock farm. One has to plan ahead and make considerable investment in stock, machinery, quota rights etc. With short term lets, tenants would face constant uncertainty, unable to plan ahead. Looking into the 'crystal ball', FUW believes that the established farmer would gain, resulting in fewer farmers, larger holdings, and little hope for the young farmer/new entrant, to gain access to the industry. Banks could not support an entrant to the industry who only had a short-term agreement. There is a danger that, with short-term lets, onerous terms could be imposed. There is also a danger that entrants would accept any terms in their desperation to enter the industry (as witnessed by the high number of applicants for Council holdings). If it were possible to let farms and land on a short-term basis, then we fear that land could be exploited for short-term gain, but would result in long-term detriment to the land. This might well have repercussions for the environment and the countryside in general". The union says finally that, The farming industry provides the backbone for communities in rural areas. It is our view that, under the proposed new regime, the identity of such communities would be changed and the days of the small, traditional farm would be numbered". I hope that, given the views of the farmers of Wales—although I disagree with some of their points, there are also merits in what they say—many of us on this side of the House will perhaps consider tabling amendments to coincide with the minority view on this occasion.

6 p.m.

Lord Gallacher

My Lords, I should like to begin by offering our congratulations to the noble Earl, Lord Yarborough, on his maiden speech. They may be somewhat belated, coming from the much maligned Opposition, but we congratulate him on what I am sure all your Lordships agree was a witty and erudite speech.

The Bill has the support of most sections of the agricultural industry, but there are certain exceptions. However, as such, it deserves to be seriously considered by your Lordships' House and I am sure that it will be. My noble friend Lord Carter has said that at Committee stage we shall table amendments in an attempt both to improve the Bill and to make it clearer. I am certain that other Members of your Lordships' House will do the same.

Perhaps more than most we are concerned that the Bill appears to be drafted on the assumption that tenants have a legal capacity to trade and to do as they wish unimpeded and unhindered by other factors. That is essentially the heart of the law of contract. But I respectfully suggest to the House that such considerations need serious qualification when one takes into account agricultural business tenancies. The rules which matter are not the rules devised by the Ministry of Agriculture and they are not rules arising from the laws of supply and demand. They are in fact the rules devised by the consent of the Council of Ministers on the basis of recommendations made to it by the Commission of the European Union. Those rules, regarding all aspects of farming, whether they be milk quotas, cereal production, stocking densities or whatever, dramatically affect the capacity of the farmer to farm. Therefore they seriously affect his ability to enter into tenancy agreements of a business character.

The landlords have welcomed the Bill. One appreciates the genuineness of that welcome. They would wish to see more rented land. Undoubtedly they would also wish to see more land available for rent at higher rates of rent. One of the submissions that we have received from one of the groups interested in this matter is that it would not wish to see regular rent reviews in which the rents consistently moved upwards. Again, account would have to be taken of factors such as prices negotiated in Brussels and, in particular, variables such as the important question of the conversion of the European currency unit green rates.

Young farmers are hoping—quite rightly in our opinion—that the passage of the Bill will increase the availability of farms for them. We are producing from our colleges and elsewhere a very large number of highly qualified people for whom the prospects of becoming farmers in their own right are not great. To the extent that the Bill gives them hope, their welcome for it is understandable.

In his peroration, the Minister seemed to assume that the law of supply and demand would be unleashed by the Bill and that we live in an era when free competition is to be stimulated and encouraged. But as was said, the fact of the matter is that Article 39 of the Treaty of Rome and the objectives set under that article for the common agricultural policy, are dominant in this matter and must at all times be taken into consideration. We know that the common agricultural policy determines what we may grow, rear or milk as well as what we are paid for doing so. In addition, there are set-aside, quotas and stocking densities. Indeed, the only remaining variable seems to be the weather. As Mark Twain is supposed to have said, "If you don't like the weather in England, wait a minute." I cannot speak for the weather in Wales, but we have certainly heard a great deal from Wales in the course of this debate.

When the common agricultural policy rules have to be uniform in 12 member states—soon maybe in 15 or 16 member states —where land tenure law is anything but common, taking into account such things as the Code Napoléon and so on, to draft an Agricultural Tenancies Bill without reference to the CAP is a considerable achievement. It reflects Her Majesty's Government's obsession with the free market and market forces. Where those genuinely exist, we say "Give them free rein"; where they do not exist, in our opinion it is dangerous all round to pretend that they do.

Milk quotas are a classic example of rule by Brussels based on the original advocacy of quotas by the United Kingdom. The Milk Marketing Board was abolished to prepare the way for a non-existent free market; one where Her Majesty's Government now seek "freedom" to buy unused quota from other member states. If, in addition, for example, the use of bovine somatotropin is legitimised throughout the Community during the currency of the present quotas, one can see more milk from fewer cows and new uses being sought for pasture land. That is but one example of non-commercial variables.

On the assumption that the Bill provides what Her Majesty's Government hopes for, will there be spin-offs? For example, will investment in agricultural land become more attractive to, say, pension funds, because of fixed term tenancies, or will such funds be put off by the prospect of more public access to land of which they are the owners?

The prospect of change of use is an intriguing part of the Bill. Clauses 17 and 18 require tenants seeking permission to get the landlord's consent to be eligible for compensation for improvements. There does not appear to be any appeal against the landlord's refusal of a tenant's desire to apply for a planning consent. The effect of that is to confer rights on the landlord at a time when, as the Bill itself recognises and as the common agricultural policy changes now encourage, changes of use are part of modern farming and are likely to increase.

In the matter of applications for planning consents, will landlords be able to apply and can third parties also make application? If so, it does not require much foresight to see such applications as farm business tenancies near the end of their agreed span. If big money is at stake, and sometimes that is so under planning law, the final years of a tenancy could be made difficult for a farmer. This could be compounded by the desire of local authorities to bring more of agricultural practice within the scope of planning laws. There appears to be some encouragement for that within certain government departments in this country.

Privity of contract is not a term much encountered in dealing with farm tenancies. It is an issue of considerable importance to certain retailers who were disappointed that a Bill on the subject was not promised in the gracious Speech. Privity of contract may be something for exploration at a later stage of the Bill.

A related matter is the development of a landlord and tenant code, which was instigated by the Department of the Environment this summer. I should like to ask the Minister whether MAFF is taking part in this review. We believe such a code to be vitally necessary under the proposals contained in the Bill.

Reference has already been made to the Royal Institute of Chartered Surveyors and its views about codes. We on these Benches believe that the Government themselves have a specific responsibility for such a code; indeed we may table an amendment to that effect at the Committee or Report stages of the Bill.

As we said, the Bill has been welcomed on many sides of the industry. As my noble friend Lord Carter said, we shall seek to improve the Bill at all stages where such improvements are possible. We already have support for some of the amendments from organisations which support the Bill. We believe that certain of the amendments that we shall table on our own behalf and argue under our own auspices will commend themselves to your Lordships' House.

6.10 p.m.

Earl Howe

My Lords, we heard in this debate, as I felt sure that we would, many perceptive and learned contributions which demonstrated once again the wealth of wisdom and expertise on this subject which exists in your Lordships' House. Before answering some of the points raised, I should like to add my own warm congratulations to my noble friend Lord Yarborough on his maiden speech. It was well-informed, lucid and highly relevant to the problems of the agricultural tenanted sector. I am delighted that he chose this occasion on which to make his maiden speech and I hope that in years to come he will have warm feelings not only about the debate, but also about the Bill and its effects. I look forward to hearing many more contributions from my noble friend in the future.

I very much welcome the support for the aims of the Bill expressed by so many speakers in today's debate. Many noble Lords made the case for the Bill more eloquently than I could do. We worked hard to produce a Bill along the lines that the industry wants. I believe that we succeeded. I therefore confess to a certain amount of disappointment that noble Lords on the Front Bench opposite were not able to join in the wide degree of support for the Bill. I suspect that they may be prisoners of policies developed in the past by others in their party—policies which have not yet been modernised to take account of the current situation on the ground or of the current consensus in the industry on the need for change. I feel sure that noble Lords present today will know from their regular day-to-day contacts with people involved in agriculture that this reform is seen as a high priority. I hope that in later stages we can satisfy noble Lords present, including noble Lords opposite, that we have got the details right.

Although I referred a moment ago to "consensus", I should acknowledge—as a number of noble Lords mentioned, in particular the noble Lords, Lord Cledwyn, Lord Elis-Thomas, Lord Prys-Davies and Lord Geraint—that one industry body opposes the Bill and continues to advocate a statutory minimum term. I refer to the Farmers' Union of Wales. I should like to refer to one statistic in relation to tenancies in Wales. Every year the Central Association of Agricultural Valuers carries out a survey of tenanted farms in England and Wales. That survey, regarded as authoritative, covers not all, but a high proportion of new lettings each year. From the latest survey covering 1993 one can see how many new lettings have taken place as full tenancies, succession tenancies, short-term lets and so forth. I am therefore able to tell your Lordships how many unqualified, fresh lettings the survey found in Wales last year which were granted to tenants unconnected with the estate. In the whole of Wales, north and south, the survey found precisely one such tenancy. That may be an under-estimate because the CAAV survey does not cover every possible letting. But it is astonishing that an organisation whose members include many existing tenants—who will not be affected by the Bill—can continue to advocate a 15-year minimum term in these circumstances. It is surely clear that continuation of lifetime security of tenure or the imposition of a statutory minimum term would simply perpetuate that state of affairs. It would mean slamming the door shut on prospective tenants. If we followed the line advocated by the FUW, then they may as well start advising their younger members to buy tickets for the national lottery because they probably stand more chance of winning the jackpot than of obtaining a full agricultural tenancy.

I fully accept that the Bill will not solve all the problems of new entrants at a stroke. But it will at least open the door instead of slamming it shut. As the noble Lord, Lord Carter, mentioned, this summer the Royal Institution of Chartered Surveyors carried out some research among its members on the extent to which they expected new farms and land to come forward for letting if our proposed reforms are enacted. The results showed that we could expect nearly 900,000 acres or 360,000 hectares of land to be let through chartered surveyors under farm business tenancies. That would increase the area of let land by around 10 per cent. of its current level.

The noble Lord, Lord Carter, claimed that the RICS survey showed that under the Bill most farms would be let for five-year terms. In fact, that is not what the survey said. As the noble Lord, Lord Northbourne, pointed out, the figures were: for five-year terms, 86 farms; for 10 years, 64 farms, and over 10 years, 53 farms. The overall proportion, therefore, was 56 per cent. to be let for 10 years or longer; that is to say, 56 per cent. of equipped farms are likely to come forward for letting.

Lord Carter

My Lords, I am extremely grateful to the noble Earl for giving way. Will he be kind enough to give the House the number of bare land units to be let for five years to enable us to compare the total? I can save him the trouble. If we add the whole lot together— equipped farms and bare land units—we obtain a total of 803 units or farms, of which 453 would be let for five years, and that is more than 50 per cent. of the total. It depends whether one takes the equipped farms or the bare land units.

Earl Howe

My Lords, I am grateful to the noble Lord. My point still stands. While I accept what he says, it is the equipped farms which reveal more tellingly the extent of the intentions in the market.

My noble friend Lord Courtown expressed doubts in relation to the reliability of the RICS survey. I am sorry that he is not wholly convinced by it when he himself is a member of that institution. However, I am grateful for his support on all the other aspects of the Bill.

The noble Lord, Lord Prys-Davies, asked how many extra acres were likely to be available for letting over the next five years. The RICS survey was based on what is likely to happen within two years and we must take account of that. It found nearly 1 million acres of new land, which is a significant amount. Over five years the figure may well be more than that. Indeed, some owner occupiers whose views were not canvassed by the survey may be persuaded to let their land, and that would boost the figure even further.

The noble Lord also commented on the opinion expressed by Grant Thornton that tax benefits of contract farming will outweigh the benefits of the Bill. One must take note of that; it is a respected firm. But Grant Thornton is only one firm, whereas the RICS canvas all surveyors' firms. The majority of surveyors and industry organisations, and particularly young farmers who have a major interest in the whole question, are all more confident about the likelihood of success in stimulating lettings. One must be encouraged by that.

We must constantly bear in mind that a high proportion of current lettings are for terms of one to two years under Gladstone v. Bower tenancies. If we do so, we can then see how the Bill will give many existing tenants the chance of obtaining a more secure tenancy as well as opening up new opportunities. If there is a knock-down argument to the criticisms voiced by the Benches opposite, it is surely that one.

Some people have claimed, as did the noble Lord, Lord Cledwyn, that banks may not be inclined to lend money to tenants on fixed term tenancies. There are two answers to that point. First, it is likely that many new tenancies will be for 10 years or more if we are to trust the indicators. Secondly, I contend—for what it is worth I speak as a former banker—that lenders will not look just at the length of the tenancies. They will look also at the assets of the business and on the ability of the borrower. The latter factor is of course a subjective judgment; but where the tenant borrowed money and invested in an improvement with his landlord's consent, the Bill guarantees him full compensation at the end of the tenancy for the value of the improvement at that time. That is an important factor which I am sure banks will take into account.

The noble Lord, Lord Cledwyn, questioned whether the Bill would, in practice, halt the decline in lettings. I shall simply point out an analogy to him. The revival in the residential rented sector followed a long decline. After the 1988 Housing Act brought in market rents and short-hold tenancies, the number of households renting from private landlords increased by 10 per cent. in the following five years.

There was, apart from the RICS survey to which I have just referred, a CLA survey of landowners in 1989 which suggested that freedom to choose the length of a tenancy could lead to a 33 per cent. increase in new tenancies over a five-year period. That, again, is a helpful pointer. I fully appreciate the sensitivities which were referred to by the noble Lord but I can assure him that our aim, too, is to encourage successful tenanted farming.

My noble friend Lord Stanley predicted that under the Government's proposals existing tenants would take on more land rather than the new entrants. It is something of a counsel of despair to say that we should take no action if existing tenants might benefit the most. We want to benefit existing tenants as well as new entrants. Both of them need more opportunities. Besides, the National Federation of Young Farmers fully supports the Bill, so it clearly believes that its members will benefit. I share that belief.

The noble Lord, Lord Northbourne, referred to the provisions concerning arbitration on compensation. I believe that the noble Lord's points on compensation are covered in the Bill. For example, an arbitrator will be able to take account of the circumstances of the landlord—for instance, whether he can afford to pay any eventual compensation—when deciding whether to give approval for a tenant to make an improvement that the landlord might not necessarily want. I am sure that we can deal with that kind of detail at later stages of our debates.

The noble Lord also expressed his concerns on housing for tenants. Under the terms of the Bill many young people may be more secure than they are at the moment. As we have heard, the recent RICS survey showed that more than half the lettings of equipped farms were likely to be for 10 years or more. We should compare that with the current situation where 75 per cent. of new lettings are for terms of fewer than five years. In future, tenants will be able to make their own judgments when taking on a tenancy. They will know the term date from the start, and with more tenancies available they should have fewer problems finding a new tenancy to take on. I ask the party opposite in particular to reflect on that point before pursuing their reservations about the Bill to subsequent stages.

The noble Lord, Lord Geraint, said that the Government should encourage county councils not to sell their county council smallholdings. The legal position, as I am sure he will know, is that it would be a decision of whatever successor authority took over responsibility from the county council—Dyfed in the case to which the noble Lord referred. I am a little surprised to hear a Liberal Democrat spokesman asking central government to put their own advice above local democratic decisions. As regards smallholdings generally, our reforms would free up the market and make it possible for tenants to move on from county farms instead of staying until retirement. As the noble Lord will know, that is the norm at present.

The noble Lord, Lord Elis-Thomas, mentioned the importance of diversification. I can assure him that it is indeed an aim of the Bill to allow more flexibility for tenant farmers to diversify than they currently have, subject to whatever their tenancy agreements allow. I fully agree with him that that will contribute to the rural economy and help to preserve what I think the noble Lord called "security of income". I am very much in sympathy with the sentiments he expressed.

The noble Lord, Lord Elis-Thomas, emphasised the importance of environmental sustainability and suggested that there should be specific reference in the Bill to promoting environmental benefits. Landlords will have the option of drawing up tenancy agreements to further environmental aims, unlike the situation under the 1986 Act. The fact is that when it comes to mandatory measures it is difficult for the Government to make prescriptions. It is even more difficult for the Government to enforce those prescriptions. But one thing is clear: environmental gains and sustainability will not be promoted by a perpetuation of Gladstone v. Bower-type agreements, as we have at the moment.

The noble Viscount, Lord Hampden, expressed some doubt as to whether the Bill will help the cause of the environment. I am pleased that the noble Viscount concluded that, overall, he probably welcomed the Bill. On his point concerning the regard paid by second and third generation tenants for the environment, I agree that we would not wish to discourage that in any way. But, equally, we do not necessarily get the best results by having, as it were, a closed shop with no new faces coming into the industry. That is one of the reasons why we feel that the balance should be adjusted.

My noble friend Lord Addison and the noble Lord, Lord Gallacher, asked whether the Government could not issue advice or a code of practice on conservation targets or practices. I need time to reflect on what the coverage of such advice would be and who the intended recipients might be. I can say to them that the Bill will allow new tenancies to incorporate more in the way of environmental activities. That is something we can only welcome.

The noble Lord, Lord Prys-Davies, said that tenants should have the right to renew the tenancy at the end of the agreed term, as tenants do under the Landlord and Tenant Act 1954. The simple answer to that point is that a right to renew would defeat the purpose of fixed-term tenancies. Without freedom of contract and without fixed terms, landlords will simply not offer land to rent. Besides, under the Landlord and Tenant Act 1954, the parties can simply apply to the courts for permission to opt out of the right to renewal, so that right is not always available to commercial tenants. If the tenant is good, the landlord is likely to want to renew. That, I suggest, is a much better basis for a continuing and healthy relationship between the parties.

My noble friend Lord Mountgarret suggested that livestock quotas could be passed to the landlord at the end of the tenancy. Livestock quotas, as he will know, do not remain attached to the holding because they belong to producers. While there are those who regret that fact, it is not something over which the Government have discretion. It is laid down in EC regulations. My noble friend also asked in particular about Clause 23(3), which refers to compensation at the end of successive tenancies. I can understand his concern but I think it is based on a misunderstanding. The clause gives an option for the landlord and tenant to settle up on claims for compensation at the end of the first tenancy. Where they do so, the tenants cannot claim a second amount of compensation on the same items at the end of the next tenancy. I hope that that will reassure my noble friend.

My noble friend Lord Peel expressed a worry about the provisions in the Bill for compensation for intangible improvements. I welcome my noble friend's support for the Bill and all the constructive remarks that he made. As to his concerns about compensation, the industry agreement recognises that tenants should receive compensation for intangible improvements that they have secured for the holding. If a tenant has invested time and money in securing a planning permission which adds value to the holding, there is no reason why, provided he has the landlord's consent, he should not be compensated. But doubtless this is a matter which, again, we can discuss further at the Committee stage.

A number of noble Lords, including, notably, my noble friend Lord Stanley, have wondered about the effectiveness of the proposed reforms without fiscal changes. When I have the privilege of standing at the Dispatch Box I speak for the Government, but this is one occasion when I have to say that this particular matter is one for my right honourable friend the Chancellor, although, as has been said, he may not see the record of this debate before he gives his Budget speech tomorrow. But we should note that the prescription which is apparently on offer from the Benches opposite would be to increase inheritance tax on owner-occupied land. I am not sure that many noble Lords or many farmers would find that a particularly appealing proposition.

Lord Carter

My Lords, I am extremely grateful to the noble Earl for giving way. I apologise for having to continually intervene, but let us put the record straight. We have not said anything of that sort at all. We have merely said that we shall be prepared to consult in order to consider the possibility of inheritance tax relief for the owners of let land as long as that can be deemed to be fiscally neutral—in other words, that it will not cost the Treasury any more. As the noble Earl knows, there are many, many loopholes in tax law not only as regards inheritance tax, but generally. All we have said is that as long as there is not any extra cost to the Treasury, we are prepared to consider the matter and no more than that.

Earl Howe

My Lords, I am grateful to the noble Lord. I am sure that that will be helpful to all those who read the account of this debate in Hansard.

The noble Lord, Lord Gallacher, referred to problems of privity of contract. I do not expect significant problems with the likely length of terms for agricultural tenancies. The parties have the option of using break clauses to end a tenancy early or of agreeing terms for the surrender of a tenancy. The Government intend to bring forward proposals for the reform of the law on privity of contract; but in doing so I am sure that they will wish to cover all types of tenancies and not simply agricultural tenancies.

The noble Lord, Lord Gallacher, also commented that there was no reference to CAP rules in the Bill. One particular virtue of that is that it provides more flexibility to adapt to future policy changes whether they be from Brussels, Whitehall or wherever. Parties will be able to respond to circumstances by adjusting their own tenancy agreements rather than being bound by the detailed tenancy legislation.

There is general agreement—even, I venture to suggest, among noble Lords opposite—that the continuing decline of the tenanted sector calls for government action. We have brought forward a set of coherent proposals that command a wider degree of support from all sides of the industry than most people would have thought possible. There is a consensus for change that the Labour Party cannot deny. I say to them that if they really want to help new entrants to farming, as they claim to do, they should join with us and with the rest of the industry and support the Bill. The new leader of the Labour Party has spoken of dealing with issues on their merits instead of routinely opposing every government measure on principle. The Bill provides an ideal opportunity for noble Lords opposite to demonstrate that approach and, by supporting these reforms, to benefit the younger generation of fanners and the future of British agriculture. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

House adjourned at twenty-seven minutes before seven o'clock.