Tuesday 16 November 2010

Channel 4 Dispatches: Riding Europe's Gravy Train

Last night's programme was a fair insight into the waste and self-serving corruption that goes on in the EU, none of this was particularly new to me, but it's good to see it broadcast every now and then.

Of mild interest was the section on farming subsidies. From their own summary:

The programme also looks at the system of agricultural payments, which are supposed to help those British farmers struggling to earn a livelihood and continue producing food. Dispatches shows how millions of pounds in grants have ended up going to some of the best known - and richest - landowners in the country.

Well yes, we knew that as well, and we also knew that subsidies paid to tenant farmers end up pushing up the rents they pay; if the tenant farmer spends the money on improvements which then legally belong to the landowner, being part of the land, then clearly the rental value of the farm increases, of which the programme gave a few real life examples.

(Even if tenant takes the money as a straight subsidy, this either pushes up the rents and/or enables supermarkets, who are effectively large urban landowners with a retail division, to bid down the price they pay for agricultural produce, to the extent that a lot of farmers sell milk at a loss, comes to the same thing.)

Apparently some landlords (they singled out The National Trust, although I am sure they all do it), who actually write into the tenancy agreement that the rent is £x per acre, plus 50% of any farm subsidy payments.

But what was surprising is that anybody saw this as surprising, if you see what I mean. If all taxes come out of rent, then all subsidies accrue to rent as well.

14 comments:

Bayard said...

The Nazional Trust, for all their touchy-feely public image, can be hard-nosed bastards when it comes to being landlords.

Sobers said...

As your farming correspondent I would like to correct a few errors:

1)Any improvements that a tenant makes to a farm have to either be removed at the end of the tenancy or if fixed, compensation is due to the outgoing tenant from the landlord. That's for old-style Farm Tenancies that last a lifetime (and can be passed on two generations). Modern Farm Business Tenancies (FBT)are much shorter affairs (typically 3-5 years) and there is little incentive for a tenant to spend any money improving the farm.

2) The Landlord cannot 'write into the tenancy that the rent is £X + 50% of any subsidy'. Rents are usually arrived at by a tender process: the landlord will set out what subsidy (if any) he has available on the land and will invite bids on that basis. Landlords cannot themselves claim subsidy, it has to be the person actually farming the land. So if the landlord has subsidy entitlement he cannot claim it himself, and the rent on top from the tenant. He must lease the subsidy entitlement to the tenant and then get it back in the form of rent. The usual formula to arrive at the rent level is 'Subsidy + £X/acre', where X is the rent the tenant bids.
If the Landlord has no subsidy entitlement to rent to prospective tenants he must just invite bids on that basis, and will end up with a considerably lower rent. The level of which will depend on the level of subsidy entitlement that the prospective bidders may have, its location, productivity, etc etc.

While subsidies undoubtedly raise farm rent levels, they do not do so by 100% of the subsidy level. And the biggest driver now is the price of the produce - with grain at £150/tonne, rent levels for arable land have risen dramatically. Of the extra £150-200/acre in revenue available as a result of higher wheat prices, a good third of that will end up in landlords pockets due to higher rent bids.

Mark Wadsworth said...

B, and they are The Ultimate NIMBYs.

S, thanks for extra details, but when you boil it down, the bulk of the subsidy (50% to 100%) goes to the landlord (or the supermarkets).

And the programme featured a real-life Land Agent (corduroys, Barbour jacket etc*) and a real life farmer who both stated as a matter of fact, some tenancies entered into a few years ago had included a formula saying "Rent = £x per acre plus 50% of subsidies" and it seemed perfectly plausible to me.

Ditto increases in grain prices. PS, apparently, you can buy and sell the subsidy streams quite separately from the land, like buying a new flat with or without a parking space.

* Amazingly, women Land Agents wear this uniform as well - I bumped into a woman wearing a sensible shirt and cord's on the train recently, who didn't look lesbotic, so I asked her why she was wearing cord's and she sighed and said "Because I am a Land Agent".

Scott Wright said...

Bayard: I see what you did there.

Naziional trust indeed!

I did a project on them as part of one of my Uni modules and it seemed to me like a lot of their wage bill is jobs for posh little daddy's girls who can't get one elsewhere.

Sobers said...

Yes you can indeed buy the subsidy stream separate from land, but have to have land to claim the subsidy. If you the right to (say) an £80/acre subsidy on 100 acres, in order to claim that £8000, you need 100 acres in your sole control to do so. You can rent it or own it, but you must have it before you get the cash. So only working farmers can claim the cash, but of course that then allows them to bid up rents, as you said.

Mark Wadsworth said...

SW, land value tax will sort out the Nazional Trust, next.

Sobers, in principle, you may be right, in practice what we end up with is this. Tim Worstall covered this a year or so ago, with a completely different and rather more official source which I can't be bothered to track down.

Robin Smith said...

What interests me is why we pay particular attention to the EU on the topic of corruption.

It's just as bad in the UK. And its worse in the Private State in general. Do we need any more evidence for that?

Are we diverting attention?

All corruption is bad, at home or away. If we deny this we are asking for PROTECTION.

Mark Wadsworth said...

RS, you approach the subject in your way; I do it in mine.

Supposed right-wingers seem to agree that the EU is bad, because of corruption, rent seeking; one the one hand, I am keen to highlight how bad the EU is, once we have agreed WHY it is bad, then we can look at the UK government in the same light. Similarly, once we have agreed that land subsidies are futile, we are half-way to accepting that land taxes are innocuous.

Robin Smith said...

MW: I agree. If we agree that innocuous is the correct strategy, then we must go on by focusing our energy on the points of least resistance:

1) The banks
2) VAT
3) The EU

NOT

1) The land
2) HOI
3) The UK

Imagine we were fighting a war, you as our general, scary thought! Do you target the point of most resistance. Or least?

But first we have to get people to agree that this is all right or wrong. A moral decision as always. So what is the exact question that will light that fire that everyone can understand immediately?

Until the fire is alight, nothing will avail.

Mark Wadsworth said...

RS, exactly!

But as we also agreed yonks ago, the Achilles' Heel of Home-Owner-Ism is the simple question: "Do you want to children to be able to afford a house, and settle down and have grandchildren while you're still young enough to enjoy them, or do you want your heirs to be sitting round hoping that you die so that they can sell your house?"

As to "morals", I prefer to appeal to people's 'enlightened self-interest' rather than morals - don't forget we live in a country in which the descendants of the Norman Land Snatchers are still treated as semi-divine.

Robin Smith said...

Yes on the HOI slammer. I scared some Mum to death the other day using that one. She no longer speaks to me and I hear her rallying call now on forums even harder for HOI.

That is the effect of self interest. I see a very similar psychology when the scare mongering of Peak Oil is used. People just close ranks and protect themselves even more.

Not disagreeing essentially. But there must be a better question that can get a huge mass of people to object. We dont have it yet. I think because that requires we think of "collective self interest"

I realise that is a tough call.

Lola said...

It's also true of Pubcos. If you are a successful publican tenant and you increase the profitability of the pub, the pubco ups the rent to capture the result of your efforts and skill. Why would you do it? Hence landlords tend to try and game the Pubco and do as much cash business as they can.

Mark Wadsworth said...

RS, I suppose there is a difference between

a) 'enlightened self interest' (if I pay LVT, then it's better than paying VAT, income tax, council tax etc*) and it's good for future generations of my family; and

b) 'naked self interest', which is basically being bribed with your own money. The footsoldiers of Home-Owner-Ism, who are in the middle of the earlier Venn Diagram lose out from it, of course, the real gains are in the hands of the HO elite on the right hand side.

* The cynics always say that's a non-starter - the government would just have LVT ON TOP OF income tax, VAT, council tax, which seems highly unlike to me.

L, it strikes me that running a pub is a mug's game unless you own the building. LVT would sort all that out, of course - the publican/freeholder would only see his ground rent increased IF the whole are became more desirable, and not if he is a beacon of profitability in a sea of gloom.

Robin Smith said...

Lola: The pubco story is appalling. They are really screwed to the floor.

The question I always ask a 'landlord'(tenant!), and it usually gets me a lock-in, is:

"So who is getting all your wages then. And is that right do you think?"

Its the last bit that usually makes the night a long one.

The big problem of appealing to the pocket is it tends to divide people rather than unite. It may get action at an individual level for the self but the appeal is never spread and is jealously guarded. If you can get agreement on a central question that IT IS JUST PLAIN WRONG, the idea spreads like a virus. No intellect is required. No pocket is harmed.

EU, VAT, BANKS seem to be classics here. It only requires intuition to see and feel it.