Cattle Compensation (England) Order 2006

My Lords, first, I apologise to the noble Viscount. I am making inquiries about his letter, so far to no avail. I will have to do my best, but I am grateful to him for having written to me before this debate. The order covers animals affected with bovine TB, brucellosis, and enzootic bovine leucosis—EBL. Previously, the compensation arrangements for those three diseases were different. This order therefore introduces a much-needed rationalisation. We recognise that bovine TB is the most significant animal health issue facing our farmers. The decision to introduce new compensation arrangements for owners of cattle affected by TB is important, so I thank the noble Baroness for introducing this debate. There is substantial objective evidence that using individual valuations to determine compensation resulted in widespread over-compensation and the unjustified use of taxpayers’ money. The evidence includes a report on TB compensation issued by the Wales Audit Office, which concluded that the compensation was between 50 per cent and 100 per cent higher than underlying market prices. Two reviews were carried out by Defra’s internal audit service; and separate studies were carried out by the University of Exeter and the University of Reading, which both concluded that substantial numbers of farmers made a net profit from their TB breakdown. There has also been regular and worrying feedback from experienced field staff. The system had therefore to be substantially revised; there was no alternative. I am interested to know whether the other political parties represented in this House believe that there was an alternative or whether they take the view that we had to act on behalf of the taxpayer. The old system was not fit for purpose. The Government would be failing in our responsibility to taxpayers and farmers if we did not deal robustly with the independently-identified problem of over-compensation, ensure that there was every incentive for farmers to introduce good biosecurity measures—those incentives do not exist at the moment, this is an added incentive—and take action to minimise the risk of cattle being infected with TB. Under the new system, compensation will be determined using table valuations based on average sales prices for 47 predetermined cattle categories, drawn up in consultation with the industry. To support the system, sales data are continuously collected by an independent service provider from a large number and wide range of sources across Great Britain. These sources include store markets, prime markets, rearing calf sales, breeding sales and dispersal sales, as compensation for disease will be based on real prices achieved for the same category, but for healthy animals. There are many precedents for table valuations. Indeed, until August 1998, compensation for TB reactors was based on table value or 75 per cent of the individual market value, whichever was less. It is strange, therefore, for others to object to table valuation systems when they had that same policy themselves. The NFU proposal was basically to retain individual valuations, but to introduce a team of monitor values to oversee the system. Of course we considered that carefully, but we concluded that such a system would introduce a huge extra bureaucracy without tackling the over-compensation problem. That was because a team of monitor valuers would rarely be able successfully to challenge an over-valuation, particularly when the animal would no longer be alive. I want to emphasise that, in developing the new system, the views of stakeholders have regularly been sought and, where possible, action has been taken to address the concerns raised. As a result of such consultation and dialogue, we introduced a number of changes to our original proposals, including an increase in the number of cattle categories to be used, from 29 to 47. We also deferred the scheme’s start date to allow us to investigate fully the concerns raised by stakeholders. I am aware that the Committee on the Merits of Statutory Instruments has questioned whether Defra has given sufficient time and effort to considering the impact of these proposals, and whether the problems that have been recently identified mean that the 2006 order may imperfectly achieve its policy objectives. In fact, the Government have invested a huge amount of time and effort in developing the new compensation arrangements. The work that has been in train since the NAO published its review on TB compensation in 2003 has included two consultations, many meetings with stakeholder groups and analyses of livestock sales data. The 2006 order does not mean that policy objectives will be achieved imperfectly. It makes no change to scheme details, but clarifies transitional arrangements by ensuring the fair and consistent treatment of cattle owners whose cattle are identified as reactors before 1   February, but which have not yet been valued. The   basic scheme stays exactly the same. These amendments deal with TB only. As I said, Defra recognises that some stakeholders remain opposed to the idea of using table valuations to determine compensation. However, we believe that   using such a system will introduce greater transparency. Interested parties will know at the start of each month how much compensation will be paid, and there will be objectivity because compensation will be based on contemporaneous sales data. Of course I am aware of the concerns about under-compensating for high-value pedigree cattle. Such cattle account for 50 per cent of compensation payments made under the old system and could not be excluded from the table valuation system. In response to stakeholder concerns, we introduced separate tables for pedigree and commercial cattle, based on separately collected market prices. The compensation advisory group will be able to look at how the system is working, including for high-value pedigree cattle. I was asked why there was no appeals mechanism in the new system. Under the new table valuation-based compensation scheme, cattle owners receive compensation equivalent to the average price achieved in reported sales of disease-free animals across Great Britain for the same category. As the criteria for determining an animal’s category are clear and objective, we do not believe that an appeals mechanism would be justified. Indeed, the proponents of the so-called appeals system seem to suggest that any farmer who considers that his cattle are worth more than the average should be able to appeal for an individual evaluation. That would completely undermine the table valuation system. Moreover, it ignores the fact, as other speakers in this debate have done, that we are basing the compensation for disease-affected animals on the market price for healthy animals, although these animals are not healthy, alas. Unfortunately, they have caught a disease and, whether they are high pedigree or not, they are not of the same value as healthy animals. Of course, any system of table values will involve averages, with individual farmers affected differently depending on whether the cattle are above or below average. In the case of this system of TB compensation, however, all farmers gain because—I repeat myself here as this is an important point—they are being compensated for a disease-affected animal using a price based on the value of healthy animals. I do not want to exclude future improvements to the table valuation system that we have introduced, provided that the interests of taxpayers are fully respected. We have therefore agreed to establish a cattle compensation advisory group to help to monitor the new arrangements. Perhaps I may summarise our arguments. We have not introduced a new system because the old one cost us too much; rather, we have put in place a new scheme because a series of independent reports showed that in many cases compensation was paid far in excess of the value of the animal culled. There were also widely differing rates for different diseases, which did not make sense. Although it is true, and we accept, that the Government have a responsibility to give farmers a fair price for slaughtered animals, it is equally true that we also have a responsibility to the taxpayer to avoid serious over-payments. I remind the House that taxpayers include farmers, who pay tax like everyone else. Is it seriously being questioned whether farmers pay income tax?