My Lords, I declare my interests as a farmer, as set out in the register. As a farmer, I think it would be more appropriate, in many ways, to discuss ways of stopping the rain than water abstraction licences. However, the climate is a law unto itself, and, unlike the Bill, it defies amendment.
I move Amendment 176 and will speak to Amendments 177 to 187, in my name, including Amendment 178, which is also in the name of the noble Lord, Lord Colgrain. They follow considerable discussion with and the support of individual farmers, as well as the National Farmers’ Union, of which I am a member. I record my thanks to the Minister and his colleagues at Defra for meeting me and the noble Lord, Lord Colgrain, listening carefully and responding to some of the issues.
There is no question over the full support of farmers for measures to protect and enhance water quality. The problem comes with the current lack of detail in the clause to revoke or change water abstraction licences—and, secondly, with the disappearance of compensation. Under current legislation, the Environment Agency has the power to revoke or change licences where environmental damage is being caused and to agree compensation. The new power widens the power of revocation or change to meet environmental objectives and removes the requirement to pay compensation.
If these clauses, as currently drafted, are implemented, they are likely to have severe consequences for agriculture and horticulture, particularly in areas where water abstraction has been the norm for many years. We are talking about some of the most productive land in the country, covering livestock, arable, fruit and vegetable and horticultural farming. We are talking about some of the most efficient farms in the land and some of the most technologically advanced farming in England. We are talking about farms with some of the highest investment costs in specialist buildings and machinery—and about some of the most expensive land in the country. Surely this is the type of agriculture that we should be encouraging, because expertise, technology, productivity and returns attract, and will continue to attract, investment and well-qualified and ambitious people. The threat to abstraction licences and the loss of compensation risks undermining all of this and might cause more agricultural production to locate overseas—to countries that have greater water issues than our own and fewer regulations to mitigate abstraction. Is this really what we want?
As far as Amendment 176 is concerned, this is not therefore a question of seeking to change the Environment Agency’s powers to vary abstraction licences. These can and do change when, for example, new environmental evidence emerges, indicating that abstraction is unsustainable. However, it is also a well-established principle that, when licence changes are made, the abstractor can be compensated for the loss of both the asset and the income resulting from that loss.
Farmer abstractors are vulnerable to licence changes because, usually, they lack the capacity to adapt to them in a timely manner. Water companies can engage with the Environment Agency in advance of proposed changes to agree a structured transition to, for example, an alternative water source. The asset management planning process secures the necessary funding for the water company to invest in the alternative intervention, having obtained customers’ agreement on their willingness to pay for it.
The process for farmers is very different. At present, they do not have the benefit of prior engagement with the Environment Agency, so the effect of the licence change on their business is immediate and often without warning. Access to alternative water supplies for individual farms tends to be limited, and it is unrealistic for them to expect that costs incurred in securing new supplies can be passed on to customers.
2.45 pm
To my knowledge and that of the NFU, there have been few historical cases of farmers making claims for compensation arising from licence changes. However, this right to compensation helps to ensure that the Environment Agency uses reliable and transparent evidence in discharging its regulatory duties, and it therefore acts as a deterrent against excessive action and implementation.
Although abstractors will retain their right to appeal decisions taken to change licences, the loss of the right to compensation represents the loss of a significant protection against a blunt regulatory process. Farmers appreciate the proposal of a grace period up to 2028, which will give a sensible length of time in which to
adapt—but the suggestion in other amendments in this group that the cut-off should be 2023 would be unreasonable and damaging to these businesses. If building a reservoir would be the appropriate mitigation, it can take up to two years to get planning permission, and then there is the time taken to build it. Of course, that leaves aside the time taken to appeal.
Amendments 177 and 179 raise the evidential bar, with a view to ensuring some balance between environmental and economic needs. Currently, a farmer could lose access to water not because of a proven direct impact from his or her actions but because of a possible future risk to the environment when all abstractions in the area, including large public supply licences, are taken together. This is unfair and unjustified.
With regard to Amendments 180 to 183 and Amendments 185 to 187, the Environment Agency already enjoys powers to revoke abstraction licences where they remain unused for four consecutive years. The need for additional powers contained in this clause is doubtful, and fair implementation is a problem. The Environment Agency is already engaged in an ongoing national programme to address unused and underused licences, encouraging abstractors to reduce their headroom on a voluntary basis. This is supported by the National Farmers’ Union.
However, for many farmers, an unused or underused licence is not an unneeded licensed volume. There are many good business and agronomic reasons why allocated water remains unused. In addition, the abstractor already has an ongoing regulatory responsibility to justify licensed use. Licensed water volumes equate to those estimated for use in dry years, but volumes of water actually used are dictated by seasonal variations—primarily summer use—weather-related variation, crop rotation, business adaptation and expansion, attitude to risk and so on. As drafted, the Bill proposes that these powers should be available to the Environment Agency where an abstraction licence is consistently underused for a period of seven years. For long-term business planning and investment, this period should ideally be extended to, say, 21 years.
For good agronomic reasons, many water-intensive crops are grown as part of a seven-year rotation, so the irrigated crop is grown once every seven years. Farmers fear that if their one-year-in-seven requirement to use the abstraction licence falls in a wet year, the regulations as drafted will place them at risk of losing access to water. By allowing the licence to continue for three complete crop rotations, the farmer can ensure that he is not disadvantaged by a fluctuating need for water and can invest accordingly. I emphasise that with specialist machinery often costing many hundreds of thousands of pounds and buildings often refrigerated, which can cost several million pounds and is needed for this type of farming, certainty is essential for investment.
Historic cases of claims for compensation following varying or revocation of an abstraction licence are relatively rare. The concern is therefore about the principle of compensation and the protection it affords abstractors by helping to ensure that the Environment Agency uses its substantial powers of variation and revocation only as a last resort. The monetary amount
of compensation is not that relevant in itself, but abstraction rights attached to a farm business constitute an asset value to the farm as well as offering security for crop contracts that the farmer enters into. A water right is therefore used commercially to underpin the farm operation within the supply chain, whether or not the water is actually used.
Current provisions permit claims for compensation following licence change based on one or more of the following four types of loss. The first is mitigation measures: the cost of adapting the business to minimise the impact of the changed or revoked licence. Costs must be reasonable and proportionate. Second is loss of profit: if it is not possible to minimise or overcome the effect of the licence change, the abstractor may claim for any proven loss of business related to the reduction in water compared to that available under the terms of the abstraction licence before the change. Third is the loss of land value: this may be an additional element of the claim if the abstractor owns land and can prove a reduction in property value beyond the loss of profits stated above. Finally comes asset value loss: residual value considering the age and condition of any asset which is made redundant as a direct result of the licence change must be claimed.
It is hard to judge how much compensation a grower might seek following the removal of headroom for a licence—in fact, I am not aware of this situation ever arising. It is logical, however, to assume that if a farmer lost headroom, he would respond by reducing his future cropping area proportionately to maintain his exposure to drought risk. He could lose contracts if his supermarket supplier concludes that there is an unacceptably high risk of crop failure and consequent failure to deliver the contract.
At face value, these clauses alarm and unsettle those farmers and growers who will be affected. Assurance of proportionality is essential, together with close engagement between all parties and clear guidance.