Rachel Reeves’ announcement today confirmed that Defra’s annual budget for nature-friendly farming would be maintained at £2.4 billion. Considering the rumours of significant spending cuts in the build-up to the budget, you would be forgiven for thinking that Defra has dodged a bullet by securing the same amount of money going forward. Whilst this outcome is better than many expected and retains a significant budget for nature-friendly farming, the picture is far from rosy.
Notwithstanding that the farming budget hasn’t increased since 2007, meaning a real terms funding cut after inflation, the fact remains there is not enough money in the pot for Defra to do everything it needs to do. Independent analysis on behalf of The Wildlife Trusts, RSPB and National Trust conducted earlier this year found that £3.1 billion needs to be spent on nature-friendly farming and land management annually in England to meet the UK Government’s own legally binding targets. Calls for a budget increase were echoed by farming groups.
This money needs to be spent on supporting farmers to adopt sustainable practices, such as reducing pesticide use, planting hedgerows and managing soil to reduce erosion and pollution.
It also includes more funding for nature, restoring habitats such as peatland, woodland and species-rich grassland. Both nature-friendly farming and habitat restoration are needed to meet the UK Government’s targets to halt nature’s decline by 2030 and to meet Net Zero by 2050 – and the new Environmental Land Management (ELM) scheme will be the primary driver for achieving these objectives on land.
Whilst it is welcome to see an additional £400 million announced over the next two years for peatland restoration and woodland creation, today’s budget still represents a significant shortfall that leaves Defra with some important questions. First amongst them will be how to ensure optimal value for money, with no room for profligate decisions. This means a change in tactics from Defra, who have to date prioritised farmer uptake into the new Sustainable Farming Incentive (SFI) over return on investment for the taxpayer. This has been exemplified by a complete “free choice” approach within the Sustainable Farming Incentive, high payment rates for basic actions and an additional “management payment” of up to £2,000 for simply entering into an agreement.
With a budget that will be straining at the seams and significant uptake into new schemes largely achieved, now is the time to tighten up the Sustainable Farming Incentive and turn a high-uptake scheme into a high-outcome scheme. The accelerated shift of funds from the old Basic Payment Scheme into new schemes has bought Defra some breathing space, but reforming low value for money actions, introducing more precise targeting of investment in the right areas through advice and spatial mapping, and reinvesting the management payment to drive outcomes are all needed to turn the Sustainable Farming Incentive into an effective mechanism of environmental delivery.
Alongside a rejuvenated Sustainable Farming Incentive, Defra will also need to focus greater attention on the schemes designed to support more ambitious, targeted, or whole farm actions, such as restoring floodplain wetlands, creating habitats for target species and managing designated sites for nature. These include a revamped Countryside Stewardship Higher Tier, a successor to the EU-derived scheme of the same name, and the new Landscape Recovery scheme, which supports groups of farmers to work together and make space for nature at a landscape-scale. It is not yet clear how the extra £400 million for trees and peat will be administered, although it is expected to be similar to the previous Nature for Climate fund.
Not only are these schemes expected to deliver the majority of habitat creation needed to meet the UK Government’s nature and climate targets, they are also the schemes that will typically benefit farmers who need the most support. Areas of marginal farmland with low food production but high potential for nature restoration stand the most to gain from these schemes, securing a sustainable income in return for public goods. There is huge demand from farmers for these schemes, with both the Higher Tier and Landscape Recovery schemes oversubscribed.
Despite this, the number of scheme agreements for delivering ambitious environmental action has declined by a staggering 80% in the past decade. It is expected that Defra and Natural England will need to process between 3,000-4,000 Higher Tier agreements each year to meet environmental targets. Yet, rather than ramp up action in this area there has been no round of applications this year and further detail on the future of this scheme is yet to be released. Currently, just 1% of the farming budget has been spent on Landscape Recovery. There is a clear gap between current funding and what is needed.
The danger is that without sufficient budgetary control measures within the Sustainable Farming Incentive, funding for Higher Tier and Landscape Recovery could quite quickly be cannibalised, which would hamstring the UK Government’s ability to effectively achieve critical environmental outcomes. There is a clear need for a ring-fenced budget for these more ambitious schemes to protect funding for nature-based solutions and support marginal farming businesses.
Finally, Defra should look more closely at how a rising regulatory baseline can alleviate pressure on the farming budget to achieve environmental outcomes. Currently, some of the payments within the Sustainable Farming Incentive represent low value for money and arguably are simply basic good practice – actions such as maintaining buffer strips alongside water courses and ensuring that fertiliser applications are appropriate to crop needs. Moving these basic actions into a rising regulatory baseline over time would free up budget to spend on more impactful actions, whilst supporting farmers to transition to more sustainable farming methods.
Getting these schemes right is not just a matter of hitting arbitrary targets, it is essential to secure a prosperous future for all of us. The decline in nature is predicted to result in a 12% loss of UK GDP in the coming years – more than the impact of both the 2008 financial crisis and the Covid-19 pandemic. Unmitigated climate change is set to cost the UK billions each year. Climate change and nature loss are the two greatest threats to UK food security.
Ultimately, more funding will be required to achieve nature and climate targets on land – whether from the public purse or as a result of private finance. But with Defra’s farming budget constrained to £2.4 billion, some urgent course correction is required to get the agricultural transition back on track.