Rt Hon Lord Lilley

    Peter Lilley:

    My Lords, unlike all those who have spoken from home, I am old enough to have been vaccinated and feel relatively secure in this place, but it is comforting to know that many of them are so much younger than they look.

    As is usual with debates on agriculture, this debate has been dominated by those speaking for the landed interest—farmers, landowners and, to a limited degree, environmentalists. It is right that we should hear their concerns. We want a healthy agricultural sector and a beautiful environment. However, we rarely hear from consumers and taxpayers, so I will say a few words from their point of view.

    I understand that the Government are bound by the pledges made during the election and the referendum to maintain agricultural payments at the level set by the EU for a number of years. Instead of making direct payments to farmers and landowners, the Government intend to phase them out, replacing them with payments to farmers for providing public goods, maintaining the environment and protecting biodiversity.

    This raises a number of questions. First, should we continue the same level of spending that we have inherited from the EU? Virtually all speakers so far have assumed that we should or will do so. That raises a second question: what level of environmental goods do we want? It would be an extraordinary coincidence if the cost of the environmental and public goods we think that the taxpayer wants and is prepared to pay for were exactly the same as the previous level of subsidy, inherited from the EU. After all, we used to get a beautiful landscape as a by-product of farming. It was by accident, not design, and certainly not the result of paying farmers over the centuries to farm in an aesthetically enjoyable way. The presumption must be that we do not need to spend all the EU subsidy on environmental goods indefinitely.

    The third question is whether these payments are really intended to provide an income roughly equal to the loss of direct subsidy payments. Farmers and several noble Lords seem to assume that they will, but if the payments for environmental goods are equal to the additional cost to farmers of providing the environmental benefits, they will not replace the subsidy income they have lost. For example, if payments compensate for the loss of income resulting from land taken out of production for reasons of biodiversity or otherwise, they will not also offset the loss of subsidy income. Likewise, if the payment equals the opportunity cost to farmers of their or their employees’ time spent on environmental goods instead of on farming, it will not provide any net income to compensate for the lost subsidy. Similarly, if the payment simply meets the cost to farmers of resources and equipment that they have to buy in or hire to provide environmental goods and services, they will not provide any replacement of the lost subsidy.

    However, farmers and most noble Lords who have spoken assume that these environmental payments will replace the lost direct subsidy or a significant part of it. They in effect assume that they will be paid for environmental goods above the cost to them of providing those goods, and probably that they will be paid for providing environmental goods and services which they would have provided anyway as a by-product of farming. We should doubtless be grateful for that, but we should not necessarily expect to pay for it.

    I hope that in this and the other House we will look at the long-term costs of subsidies to farming and see whether they can perhaps be phased out. I happened to become a good friend of the late and sadly lamented Michael Moore, the former Labour Prime Minister of New Zealand, who phased out, very dramatically, all subsidies for agriculture in New Zealand. We should learn some lessons from that experience. The first lesson he told me was not to do it as dramatically and overnight as New Zealand had to in the crisis that it faced—any phasing out of subsidies should be sensible and over a period of time.

    However, we should recognise from New Zealand’s experience that the taxpayer’s interests and agricultural interests are not always as diametrically opposed as they might seem ex ante. Although the abrupt removal of subsidies in New Zealand dramatically reduced average farm incomes, within five years they had reached and exceeded the average incomes before the subsidies were removed. It seems that a lot of the subsidy that was previously given to the agricultural industry in New Zealand—it may be the same here—ended up not in the incomes of farmers but in the margins of suppliers of fertiliser and other agricultural products. In the long run, when farming not for subsidies but for the value of the products produced, the productivity growth of agriculture was greater and the opportunities for increasing productivity were much greater than people had supposed.