Intra-UK Allocations Review September 2019 1 Contents Intra-UK Allocations Review ................................................................................... 1 Foreword ................................................................................................................... 4 Executive summary .................................................................................................. 6 Introduction ............................................................................................................. 6 The 2013 decision ................................................................................................... 6 Recommendation .................................................................................................... 7 1. Introduction .......................................................................................................... 9 1.1 About the review ............................................................................................... 9 1.2 How the review was carried out ........................................................................ 9 1.3 Governance of the review ............................................................................... 10 2. Farming in the UK today .................................................................................... 11 2.1 The Common Agricultural Policy ..................................................................... 11 2.2 Leaving the CAP ............................................................................................. 12 2.3 Farming across the UK ................................................................................... 12 Farming in Scotland ........................................................................................ 16 Farming in Wales ............................................................................................ 17 Farming in Northern Ireland ............................................................................ 18 2.4 Future support for farming ............................................................................... 22 3. Why do we have convergence funding? .......................................................... 25 3.1 The CAP budget ............................................................................................. 25 3.2 2003 CAP reform ............................................................................................ 26 3.3 2013 European Commission review ............................................................... 27 3.4 2013 Intra-UK allocation of convergence funding ........................................... 29 3.5 Convergence funding beyond 2020 ................................................................ 30 4. Overarching considerations .............................................................................. 33 4.1 Fairness, reasonableness and sustainability ................................................... 33 4.2 The concept of convergence ........................................................................... 34 4.3 A convergence funding formula ...................................................................... 35 4.4 The UK government’s funding commitments .................................................. 35 4.5 Uncertainty ...................................................................................................... 36 5. What did we find? ............................................................................................... 37 5.1 Responses by consultation question ............................................................... 37 2 5.2 Engagement with the UK government and devolved administrations ............. 49 5.3 Engagement with agricultural economists ....................................................... 54 5.4 Key themes ..................................................................................................... 54 5.5 Factors ............................................................................................................ 55 5.6 Summary of stakeholder engagement ............................................................ 57 6. What did we consider? ...................................................................................... 59 6.1 What are the options? ..................................................................................... 59 6.2 Funding methodologies ................................................................................... 61 6.3 Factors ............................................................................................................ 62 6.4 Conclusion ...................................................................................................... 68 7. What should be done? ....................................................................................... 70 7.1 Recommendations .......................................................................................... 70 7.2 Wider observations ......................................................................................... 72 Annexes .................................................................................................................. 75 [1]: Terms of reference .......................................................................................... 76 [2]: The size of the convergence pot ..................................................................... 78 [3] Payments per hectare methodology ................................................................ 79 [4] The Scottish perspective .................................................................................. 83 [5] The Welsh perspective .................................................................................... 93 [6] The perspective from Northern Ireland ............................................................ 97 [7] The English perspective ................................................................................. 101 [8] Letter from Lord Bew to the Secretary of State for Environment, Food and Rural Affairs on the Intra-UK Allocations Review.......................................................... 102 [9] Letter from the Secretary of State for Environment, Food and Rural Affairs to Lord Bew about the Intra-UK Allocations Review ................................................ 104 [10] Letter from Lord Bew to Phil Hogan, the European Commissioner, about the Intra-UK Allocations Review................................................................................ 107 [11] Letter from Phil Hogan, the European Commissioner, to Lord Bew about the Intra-UK Allocations Review................................................................................ 109 [12] Stakeholder engagement documentation..................................................... 112 [13] List of stakeholders who have submitted evidence to the review ................. 119 [14] Glossary Definition ..................................................................................... 121 [15] Abbreviations ............................................................................................... 123 3 Foreword We were asked specifically by the Secretary of State to focus on fairness across the four regions of the UK. It is clear that a desire to reinforce the stability of the UK was part of the underlying rationale for the review. Fairness in this context, we were to learn, is a notoriously subjective concept. We made every effort to ensure that our research was evidence-based. In particular we opened a dialogue with the European Commission and the Cabinet Office, as well as the devolved administrations. We are grateful for the support of devolved administration officials in assisting us with our enquiries. Our objective was to find out as much as we could about the controversial decision in 2013 with respect to convergence funding. We are publishing this report after 7 months of investigation; consultation with over 50 industry, academic, NGO and devolved administration representatives; and deliberations over our conclusions. While we did not receive all the material we asked for, we did receive a very substantial amount of documentation. We have also backed this up with a new layer of statistical evidence. We have been able to agree on factors by which the allocation of the notional ‘convergence’ pot for 2020-22 should be determined, in a way that recognises the historical concern of Scottish farmers and the Scottish Government, based on the EU’s own approach to external convergence. But we are not going to be able fulfil the instruction to recommend a fair solution and to remain within the condition in our terms of reference for our recommendations to be fiscally neutral, because we cannot tolerate a reduction of funding to farmers in any part of the UK. Our recommendation addresses the long-standing concern of those in Scotland that an injustice had been done and, according to the analysis we commissioned, would see a modest increase for Welsh farmers, recognising that they also have not been major beneficiaries from the convergence windfall since 2014. Assuming our request is met, farmers in England and Northern Ireland would see no change. We considered carefully the option of maintaining current allocations, which would have avoided a request for some additional funding. But we are conscious of the need to find a solution that creates a foundation for a sustainable post-2022 funding settlement, without a continuing perceived injustice undermining