This week’s budget might best be described as underwhelming.
There was little in it to help the UK prepare for Brexit. The only good news was that plans for an increase in fuel duty were put on hold. This is a boost for rural areas, because one of the big sources of income difference between urban and rural areas are transport costs. This outcome was not entirely the fault of the Chancellor. He was squeezed between demands to be more generous and the harsh reality of falling economic growth rates for the UK economy in the years ahead.
That means more borrowing, more debt and more interest charges. The outcome will be less money for areas outside the traditional big voting battle grounds of health and education. That is not good news for farmers who need a new support package for agriculture, to replace what will be lost as a result of being out of the CAP. In the context of overall government spending the amount involved would be modest, but farmers should have no expectations that the Treasury will regard agriculture as a priority. The case for doing so is strong and well made by the farming lobby. That case is accepted in Brussels, since core funding for the CAP has never been under any threat, but it has no traction in a Westminster parliament dominated by urban issues.
Solving this will not be easy. Back in 2016, in the run up to the Brexit referendum, the EU farm commissioner, Phil Hogan, said the choice facing farmers was the certainty of the CAP, with all its problems, or a gamble on the generosity of the British Treasury. They opted for the latter, and now that commitment is being tested. The assurance then was that the funding would be available for a world-class support structure for UK farming and the environment, because it would not longer be paying money to Brussels. This and the lure of escaping EU regulations persuaded many farmers to vote to exit the EU.
Many who did so are still convinced it was the right decision on a long term basis. There is some disappointment that we are not seeing the bonfire of regulations we would have hoped for from leaving the EU. However the big problem is less to do with regulation than funding. The hope that there would be £350 million a week ‘spare’ as a result of leaving the EU has gone, at least for now. That means farmers will be fighting with other parts of the economy for funding, with the government deciding its priorities.
Sluggish growth will make funds tight, but the other big issue is the EU divorce bill. This started at £18 billion, is now up to an offer of £40 billion. If reports are right Brussels is suggesting it might open trade negotiations if the figure is increased to around £50 billion. That will be a short term issue, but like any divorce settlement it will leave the person paying it with big short term financial problems. This was never expected, but Brussels has the whip hand in the negotiations, because the UK is desperate for a trade deal that gives it access to the EU-27 market. That means we will be paying out billions to buy something we already have as members of the EU. The difference will be that rather than having it as a legal right, it will be on the basis of a negotiated deal. We may also be forced to go on paying an annual market access fee after the divorce bill is settled.
What is even more bizarre is that this is being offered not to access the market, but to persuade the European Commission to negotiate access. Markets are a two way trade, and as a net importer from the EU it means the UK will be paying to give others access to our market. On food, for example, countries like Ireland, the Netherlands, France, Denmark and Poland are big suppliers into the UK. They stand to lose out as a result of Brexit. The other side of that coin is that tariffs on their products would create opportunities for UK suppliers. However by paying us £40 or £50 billion to Brussels they will get free access to the UK. This was never expected when people voted to leave the EU. It all adds to the financial pressure on the government that is making a post-Brexit support package for agriculture far from certain.