In order to diversify, capital grants are vital

CLA Senior Business Economics Adviser Charles Trotman blogs the importance of capital grants

When the UK formally left the European Union last year, we were told by government that the replacement to EU funding, known as the UK Shared Prosperity Fund (UKSPF), would provide capital grant incentives to encourage rural businesses to diversify. Of course, this was a decision we fully welcomed along with other rural organisations.

It was with real disappointment (and shock) that, during the Comprehensive Spending Review in November 2021, the Chancellor announced that funding under the UKSPF would actually be short by some £1.9bn between 2022 to 2025 and, as importantly, the amount of funding available for capital grant schemes would be substantially reduced. In practice, the opportunities for supported diversification projects would also be significantly scaled back.

But there appears to be a silver lining on the horizon. The Environment Secretary, George Eustice, said at the 2021 CLA conference that Defra was considering a bespoke capital grants programme to be funded from the unused funds of the agricultural budget. This is welcome and follows CLA lobbying on such a scheme

However, the declaration came with a sting in the tail. Rather than rolling over previous EU schemes that finished at the end of 2020, the new scheme would be redesigned with new rules put forward and would begin in April 2023. This means further delay at a time when direct payments are being substantially reduced and landowners will be looking at alternative income streams.

So why the delay when the UKSPF is already up and running? It has to do with how the remaining EU funds are actually accounted for. Under a principle called N+3, the UK can allocate funds up to three years after the end of a scheme. In the case of the UK then, this means up to 2023. This is despite all EU rural development funding having already been allocated by 2020 and despite there being unused funds under the agricultural budget for both 2021 and 2022.

But, as we are now looking forward to a new capital grants scheme, what should it look like? We believe that it needs to be locally delivered as local problems are easier to address through local solutions. And we already have seen that the Leader approach works well at this level. In addition, it is important that the new scheme takes a thematic approach that can focus on diversification projects that can stimulate the local economy as well as help in raising productivity.

If there is a greater push towards diversification in the rural economy, and Defra figures suggest that over 60% of farmers and land managers have already diversified, then there needs to be targeted financial support through capital grants that incentivise and a programme that can be delivered efficiently whilst representing value for money. For future diversification to work, capital grants are vital.

Key contact:

Charles Trotman
Charles Trotman Senior Economics and Rural Business Adviser, London