Single Payment Scheme – A regulatory load of farm yard manure

Paul Rice, of the UK200 Agricultural Group, look at the

Single Payment Scheme – a regulatory load of farm yard manure

As this article goes to print the deadline for payment of the 2005 SPS (30th June) has passed and the final "final" date for the submission of the 2006 application form (10th July) has just gone. Both of these are significant within the administration of the SPS. Firstly because the Rural Payments Agency ("RPA") becomes liable to a penalty for any payment not made by the end of the payment window (1st December - 30th June) and secondly because after that date applicants are subjected to a 100% penalty that will have accrued at 4% per day from the 15th June (the revised date for submission permitted by the Commission for this year alone). Both of these dates are important but with a different emphasis.

Whilst Ministers and spokesmen for RPA were saying throughout last year payments would be received by the end of January - then February, then March - as a matter of law RPA always had until 30th June. Hence some comments in the press such as farmers being told that they should not have budgeted on receiving SPS payments before the end of June, appear rather brusque.

However once the 30th June was past there is a Commission regulation that specifies how much a paying agency will be penalised. Commission Regulation 296 of 1996 states that if one month late there will be a penalty of 10%, 2 months 25%, 3 months 40%, 4 months 70% and 5 months 100%. As the total unpaid at the end of June was around £20m, the minimum exposure is £2m (if all paid by the end of June) and maximum is £20m (if nothing paid by the end of October). This money does not come out of the funds allocated for SPS, but will come out of the running costs of Defra. In reality it is borne by the ordinary taxpayer but in the grand scheme of things these are not huge sums of money and may not attract banner headlines.

Although these are not large sums, they will be substantially larger than the amount of interest farmers will receive on their late payments. A balance of £20,000 receives less than £3 per day for every day not paid after 30th June if the delay is down to the RPA. Hopefully, the qualification that it must be the fault of the RPA resulting in payment of interest will not be interpreted too strictly. Late payments and queries over payment of interest can be referred to the Ombudsman who can decide whether or not there has been "maladministration" in the actions of a public body. If this is found, the Ombudsman can award interest.

It has been interesting to observe the farming press commentaries on the question of late payment and the way that those commentators have been looking at the penalties for late payment and ignoring, apparently, a much bigger risk.

The SPS is still an IACS (Integrated Administration and Control System) scheme. This means the RPA has to be satisfied every penny is properly claimed, paid and accounted for. The regulations setting up the scheme specify cross-checks which have to be undertaken before a payment is made. Some examples are the RPA has to be satisfied that all the land that is being used to activate payments is eligible land, and is on the RLR, that the entitlements being used are validated. The RPA thought it was ready to make payments having performed these checks in March. However it was only when the process commenced did various problems manifest themselves and the payment process ground to a halt.

A political decision was then made and acted upon almost immediately to make partial payments. What has been clear from the various comments is these payments must have been made without the necessary checks undertaken. If this is the case then this could be a much more significant problem than simple late payments.

If the RPA gets its administration wrong, makes payments that are not properly checked then it is penalised by the Commission. The penalties are not borne by the farmers out of the SPS but by the Exchequer. There are various rates of penalty but anything other than a mere technical breach can attract a penalty (known as disallowance) of 5% or even 10%. If a penalty of 10% is imposed on the partial payments made in the spring (which isn't impossible) then the disallowance could equate to £70m. As an illustration of what has happened in the past, in 2002 the RPA was late in paying under the bovine schemes because it was putting systems into place. It suffered disallowance in excess of £20m.

At the moment you might be of the view that the general public seems somewhat ambivalent towards the plight of the farmer and that not much noise outside the industry is being made. Will that change once we know how much the UK will be penalised for the way that Defra and RPA have administered the SPS? Only time will tell how much any disallowance will be which may dictate whether the general public become more interested.

In the meantime – so what? Partial payments are permitted under the regulations but only on validated data so, on the face of it, RPA is in breach for that - as well as making late payments. Farmers and organisations such as CLA, CAAV, NFU and TFA can complain but, it appears, to little avail. Disallowance takes years to filter through so the general public will not tune in to what it might mean to them until well after the event. Therefore the advice has to be to deal with the RPA to the best of your ability, comply with any request for information (even if already given) and get on with your core business of farming.

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