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LAMMA 2019

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Spending Review: Defra facing 15 per cent cut to its budget

Defra faces cuts of 15 per cent to its day-to-day budget, a lower headline figure than anticipated, Chancellor George Osborne has announced.
Defra is facing 15 per cent cuts to its resource budget over the next four years
Defra is facing 15 per cent cuts to its resource budget over the next four years

Defra is facing cuts of 15 per cent to its day-to-day resource budget, Chancellor George Osborne has announced.


While the full details are yet to emerge, the headline figure is lower than anticipated after all Departments were asked to submit proposals for cuts of 25-40 per cent over the course of this Parliament.


Delivering his Autumn Statement and Spending Review, Mr Osborne said: "Defra’s day-to-day budget falls by 15 per cent in this spending review.


"But we are committing over £2 billion to protect 300,000 homes from flooding.


"Our commitment to farming and the countryside is reflected in the protection of funding for our national parks and for our forests - we are not going to be making that mistake again."


The Department for Energy and Climate Change’s resource budget will fall by 22 per cent.


The Chancellor said support for low carbon electricity and renewables would more than double but revealed the Renewable Heat Incentive would be ’reformed’ to save £700m. While RHI funding will increase to more than £1.1bn, spending on it will be nearly £700m less than expected


He outlined the Government’s commitment to the shale gas industry by ensuring communities benefit from a ’shale wealth fund’ which could be worth up to £1bn’.

Strong funding settlement

Defra said the resource savings of 15 per cent in real terms by 2019-20 would be delivered through ’efficiencies within the department and across its network’.


It revealed plans to save £123m by reducing its administration budgets by 26 per cent by 2019‑20.


"Through its ambitious efficiencies programme, Defra will become a more streamlined, digital department, sharing back office functions like IT, human resources and finance with its network bodies to reduce unnecessary bureaucracy, and devolving roles to the local frontline to ensure effective service delivery," Defra said.


The Department said it would continue to reduce ’costly bureaucracy and red tape’, aiming to securing net savings to business of £470 million by the end of the Parliament.


It highlighted other key elements of the settlement, including:


  • Protection of flood defence funding, including the £2.3 billion six-year capital investment programme to better protect over 300,000 homes
  • Flood defence maintenance funding will also be protected, and Defra will work with the Environment Agency to generate 10 per cent efficiencies by 2019-20 with all savings reinvested to better protect another 4,000 homes
  • Over £130 million capital investment in Defra’s science estates and equipment, including funding to enhance national outbreak response capabilities
  • The Chancellor announced a new Precision Agriculture Innovation Centre and £50m funding for two agricultural technology centres
  • £3 billion investment to safeguard England’s countryside through the Common Agricultural Policy, and protection of over £350 million funding for public forests, National Parks and Areas of Outstanding Natural Beauty over the Spending Review period.


Defra Secretary, Elizabeth Truss, who appeared to have negotiated a better deal than at one time seemed likely, welcomed Defra’s ‘strong funding settlement’.


She said: “With today’s settlement we can now plan for the future.


“This strong funding settlement means we can press ahead with our vital work to protect the country from floods and animal and plant disease, put in place stronger protections for our natural landscape and deliver on our commitments for a cleaner, healthier environment which benefits people and the economy.


“Everyone has a part to play in eliminating the deficit by 2020 and, through its ambitious programme of efficiencies, Defra will go further to become a more modern organisation, streamlining services and doing things more strategically.”


NFU president Meurig Raymond said the final settlement was a relief after the expectation the cuts would bite much deeper.


"There is relief from the industry in these times of austerity there is a 15 per cent reduction, rather than 30 over the next four years," he said.


"I have been reassured by the Secretary of State’s office the flood budget will be maintained and the animal and plant health budget will be maintained and might be slightly increased. Let us hope they can deliver on those promises."

Budget surplus

Mr Osborne outlined how he intended to deliver £20 billion of Departmental cuts across Government in this current Parliament.


This will ensure the Government moves into a budget surplus of £10.1 billion by 2019-20, despite the forecast for the 2015/16 deficit rising to £73.5bn from a forecast of below £70b in the July budget.


Mr Osborne said day-to-day spending across Whitehall departments would fall by just 0.8 per cent in real terms, a lower rate than seen over the previous Parliament.


Defra’s budget has been heavily hit over the past five years, cut from more than £3 billion in 2009/10 to just over £2bn in 2015-16.


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How Defra's budget has been diminished over the past five years

How Defra's budget has been diminished over the past five years

Reaction and analysis

NFU chief economic adviser Gail Soutar said the industry would need to wait for more details before understanding the full impact of the headline 15 per cent budget cut on farmers.


She said: "It is reassuring that the flood defence budget will be ring-fenced and that the Government will prioritise spending on animal and plant disease prevention, for example by continuing to invest in implementing its 25-year strategy to eradicate bovine tuberculosis.


“The Chancellor also said he would invest £12bn in capital infrastructure and a boost to the Government’s digital service.


"We are disappointed that there was no mention of how farmers, many of whom are among the 5 per cent who struggle with broadband access, will benefit from improved broadband facilities.


"We need a firm commitment from Government to deliver superfast broadband for all – what we don’t need is an increased divide between urban and rural communities


“We are pleased that the Chancellor said that tax credits would not be cut from next April, as previously planned as this will help many farming families who are experiencing falling incomes.


“It is disappointing that the Government has decided to end the micro employer relaxation of PAYE ‘on or before’ reporting from April 2016. This will impose a significant additional burden on many agricultural businesses engaging seasonal workers at harvest time.


"Larger employers will, however, be concerned at the rate of the new Apprenticeship Levy of 0.5 per cent of payroll costs from April 2017.”


Country Land and Business Association president Ross Murray said the CLA would work with Defra 'to help them ensure the cuts do not impact on crucial front line services such as tackling animal and plant pests and diseases, and flood prevention'.


"We will also advise Ministers on areas where there may be opportunities for cuts," he said.


“We will work with HMRC to understand how plans to digitise the tax system will work for rural areas that have significant difficulties in areas such as online registration for farming basic payments.”


He added: "This statement set out bold ambitions to deliver 400,000 affordable homes across the country.


"It is vitally important that these policies deliver for rural communities who are in desperate need of new homes. We will continue to work closely with Government to ensure the direct investments and planning reforms work for rural people.”


Sean McCann, Chartered Financial Planner at NFU Mutual said a new measure reducing the time when Capital Gains Tax must be paid from a maximum of 20 months to 30 days after selling a buy to let property would affect the many farmers who have diversified into buy-to-let.


He added: “The Chancellor’s surprise announcement of 3 per cent extra Stamp Duty on buy to let and second home purchases is yet another blow to buy to let investors.”


Tim Price, NFU Mutual rural affairs specialist, said: “Concerns that cuts to police budgets would result in poorer policing of rural areas were allayed as the Chancellor decided not to make the widely-forecast cuts to their funding.


”For the long-term, the announcement of a new Precision Agriculture Innovation Centre and £50m funding for two agricultural technology centres are great news which should help farmers become more efficient and better to compete in world markets.”


NFU Scotland’s Parliamentary Officer Clare Slipper added: “As we were told in the Chancellor’s March 2015 Budget, farmers will have the tax option to average profits between two and five years. This is a welcome move that will prove a very useful tool following a disastrous 2015 for many Scottish farm businesses.


“NFUS also notes the government’s commitment to move tax administration online. The government’s ambitions for the digital revolution are laudable, but rural Scotland continues to lag behind its neighbours in digital connectivity. It is essential that the UK and Scottish Governments continue to develop a strategy and commit funding to ensure Scottish farmers are able to keep up with this pace of change."


Nick von Westenholz, chief executive of the Crop Protection Association said: “We recognise the pressure on government to find savings and accept that reductions in public spending are inevitable.


"Whilst we still need to examine the detail, we are pleased that it appears Defra’s budget has not been cut as deeply as anticipated. However, we are concerned at any cuts which diminish government’s policy capacity across agriculture, and in particular on crop protection issues.


“It is especially important that government continues to be able to promote UK farming at the European level and deploy its expertise on crop protection issues in Brussels.


“It is also vital that budgetary reductions do not impact on frontline programmes. In particular, where government funding contributes alongside private investment in supporting crucial environmental schemes such as the Campaign for the Farmed Environment, any reduction in public funds must be balanced carefully against the need to protect and enhance our environment.


“Elsewhere there are a number of research projects which have been joint funded by the government and industry and it would be counterproductive to abandon research where significant investment has already been made.


"Through the Agri-Tech Strategy the government has demonstrated its commitment to making the UK a world leader in agricultural technology and innovation; we want to see that work continue.”


Martin Harper, the RSPB’s director of conservation, said: “Although these cuts are smaller than feared it remains clear that there is a growing gap between the Government’s stated ambition to restore nature in a generation and its capacity to do so.


"Today’s announcement creates greater uncertainty for wildlife but it also impacts on the air we breathe, the water we drink and the quality of life we enjoy.”


"The cuts announced mean that wildlife may suffer and legal commitments to the environment may not be upheld unless it is able to either find many more opportunities to ring-fence spending within other departments or to secure innovative finance from business for environmental protection."


Charlotte Morton, chief executive of the Anaerobic Digestion and Bioresources Association, said: “We welcome the government’s commitment today to delivering renewable heat. Indigenous, baseload green gas will continue to be a vital part of UK heating, and ultimately biogas alone has the potential to deliver 30 per cent of domestic gas demand.


"Making RHI funding available for new projects to 2020/21 will clearly help support our industry’s ambition.


“The Chancellor’s decision to delay significant growth within the RHI budget next year, however, leaves uncertainty around the level of funding which will be available for new projects in 2016."

Animal disease fears

Ahead of the announcement, the National Sheep Association (NSA) and Sheep Veterinary Society (SVS) highlighted the need for Defra to prioritise animal health and disease surveillance as it handles the latest round of cuts.


The two organisations acknowledged the ‘huge difficulties’ facing Government departments affected by this latest round of austerity, but called for certain elements to take ‘very high priority in the ongoing budget that Defra is left with’.


NSA chief executive Phil Stocker said: “Animal health, disease and surveillance are essential to protect the efficiency of the livestock sector, to protect our export markets, and to protect public health from zoonoses.”


Tim Bebbington, SVS president, said: “Surveillance for new and emerging diseases and action to control them will be severely compromised as the State Veterinary Service virtually evaporates.


“Already cuts have been widespread and deep; we barely have enough capability now and further cuts will destroy it."


These warnings echoed comments made by the British Veterinary Association earlier this month.


BVA president Sean Wensley said: "Our major concern is that more cuts in these areas could further erode the UK’s preparedness for a disease outbreak, which could have massive implications for animal and human health, animal welfare and the reputation of UK agriculture.”


Questioned on this ahead of the announcement, Mrs Truss insisted ensuring Defra’s ability to respond to emergencies like major disease outbreaks and flooding remains a ’major priority’.

Where the Defra cuts could fall

See our in-depth analysis here outlining how Defra could set about slashing its budget over the next four years.


In summary, measures include:


  • Further redundancies across Defra and its 34 arm's-length bodies.
  • Closer working between Defra's bodies, particularly where there is duplication, for example, Natural England, Environment Agency and Forestry Commission. This includes more sharing of functions like IT, HR and media functions.
  • Removing or reducing spending on various projects. For example, Defra spending on the Campaign for the Farmed Environment is under threat.
  • Devolving policy to local level or, in other words, asking others to do the work. This includes giving farmers and landowners more responsibility to carry out their own flood maintenance work.
  • Reducing spending on research and, in some cases, looking for alternative funding sources.
  • 'Smarter policy', for example using satellite technology to reduce the number of physical inspections on farms.
  • Charging/cost sharing - increasingly charging for services such as environmental permits and licences.
  • This principle will apply in animal health, with, for example, certain aspects of TB control, such as testing, compensation and reactor removal, likely to come under the spotlight in terms of 'who pays?'
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