Capping Confusion to Continue

The issue of whether direct payments will face ‘capping’ under the reformed CAP remains unresolved, and may continue to be so for some time.  In our report on the reform deal at the end of June, we stated that some financial elements of the package had been left to one side, including capping of payments.  It was hoped that these could be quickly tied-up, but it looks likely that this will now have to wait until early September.  Therefore, uncertainty reigns on what may result.

To recap, EU Heads of State rejected mandatory capping when they agreed the EU Budget (Multi-annual Financial Framework) in February.  This would have left the decision to limit payments for the largest subsidy recipients to Member States.  However, the European Parliament (EP) has always been keener on capping (and pan-European harmonisation of rules).  The Parliament also thought that Heads of State had acted outside their powers by setting policies that were meant to be reached by co-decision. 

To appease the Parliamentarians, a compromise was tabled by the Irish Presidency.  This was what we reported, with a compulsory 5% reduction in aid rates above €150,000 – known as ‘degressivity’.  As this has not yet been formally agreed, it is possible that the EP could still look to change things.  These topics will now be discussed in early September.  It is thought that Farm Ministers will resist quite strongly any efforts by the Parliament to increase the scope of compulsory capping/degressivity, but they may be forced to concede a little. 

There does seem the strong likelihood of further optional measures being available.  Member States could introduce higher levels of degressivity on a voluntary basis.  These could be up to 100% – hence ‘capping’ in the true sense of the word, with an absolute maximum payment per business.  Under this scenario, reductions could also be banded – much like the original capping plans.  Also seemingly retained as an optional element within the compromise proposals is the facility for Member States to subtract salaried labour before applying any reduction to direct aid.

So what does this mean for UK farmers?.  DEFRA has always been against any form of capping and would only be likely to implement the minimum level required – i.e. 5% above €150,000; if this is what is finally agreed.  This is despite any funding raised being transferred to Rural Development spending, on which DEFRA is very keen.  The devolved administrations could take a different view.  Capping would only affect a few (big) farms, so perhaps would be relatively popular in the industry – especially if it was seen as creating more funding for Rural Development and/or lowering the modulation rate.  There is a current within the Welsh and Scottish administrations of ‘small farm good; large farm bad’ which capping would nicely tap into.  However, we think it is unlikely that any government would want to use the salaried labour option, due to the massive administrative complexity it would entail.