Can Defra prove that nature-friendly farming is value for money? – Inside track

Ahead of Rachel Reeves’ first budget, speculation was rife about funding for farming. Underspends during the Conservatives’ tenure had left many nervous across both the farming and environment sectors. Against a tough economic backdrop, Environment Secretary Steve Reed faced a big challenge: to prove to the chancellor that his department was worthy of investment, or risk cuts to a budget already stretched thin, where the cost of inaction could jeopardise both our planet and farmers’ livelihoods.

Seventy per cent of land across the UK is farmed, meaning farmers are key not only to feeding the country, but also to reversing nature’s decline and cutting greenhouse gas emissions. With British farming in the midst of a period of change following Brexit, and climate change-induced wet weather severely damaging harvests, it was vital that the budget supported farmers on all these fronts. So, did it deliver?

Funding was secured – for now
A sigh of relief greeted the news that Rachel Reeves had maintained the farming budget for 2025-26, including a 38 per cent increase in funding available for the Environmental Land Management (ELM) schemes. These pay farmers to deliver ‘public goods’, like nature restoration, carbon sequestration or public access. They replace the old EU schemes which simply paid farmers based on the amount of land they managed. The decision to phase these out faster, particularly for the most profitable farms, was welcome, allowing more to be spent through ELM. The much discussed underspend in the last government’s farming budget was rolled forwards into this year’s budget. Though a point somewhat lost on the day, civil servants later confirmed £2.6 billion would be spent this year. It is reassuring to see the government embrace all three of the ELM schemes and recognise that working with farmers to tackle the climate and nature crisis is key to boosting food security.

It was also positive to hear that £200 million per year of new capital will be invested in tree planting and peatland restoration over the next two years. This will help farmers to create nature-rich habitats that store carbon, reduce flooding and improve water quality.

Inheritance tax changes have cast a shadow
Yet, these positive announcements were quickly overshadowed by the fallout over the inheritance tax changes. With some farmers already struggling under incredibly tight margins, many felt this decision failed to understand their reality. Though, in a budget that made difficult cuts across departments, the principle of ensuring the wealthiest pay their fair share of tax seems fair. In any case, it is clear the current £2.4 billion annual budget is not offering enough support to farms on the lowest incomes, and is insufficient to meet nature and climate targets.

The pressure is now on to do more to prove that farming is worthy of more investment in the upcoming spending review, due in spring.

Looking to the long-term
The Department for Environment, Food and Rural Affairs (Defra) must make the case to the Treasury that it needs a larger budget going forward, both for farming and day to day spending. Many farms face an uncertain future and the ambitious farming schemes, which can help to  shore up farm livelihoods while helping to meet environmental targets, need to be able to deliver.

By spring, Defra must prove that ELM funding offers value for money. Spent well, it should be, particularly given that housebuilding – one of the government’s biggest priorities – is being held up in some parts of the country by failure to clean up polluted water catchments. Changes to land use and management on farms, supported by the ELM budget, could address this. More broadly, improving infrastructure to reduce sewage pollution is going to take time, but faster progress to clean up water could be made by incentivising farmers to manage their land differently.

To deliver value for money, government needs to act to change the direction of travel in ELM consists of three schemes. We welcome Defra’s commitment to get the Higher Tier Countryside Stewardship and Landscape Recovery schemes up and running soon. These are more ambitious than the entry level Sustainable Farming Incentive scheme and, by paying farmers in return for more environmental work, they offer the taxpayer far better value for money. They have more potential to help the least wealthy farms struggling to make a profit, many of which are in the uplands where they can do more for nature. Currently, most support is going to large arable farms in the south east which are already profitable from food production. Upland farmers and those in national parks are missing out at present and would benefit from the lifeline this funding can offer them.

Funding for smaller farms should be protected
We think funding for the Higher Tier Countryside Stewardship and Landscape Recovery schemes should be ringfenced, ahead of their re-opening, to prevent the Sustainable Farming Incentive swallowing all of the £1.8 billion available for ELM in the next financial year. This would guarantee money goes to the farmers and environmental projects that need it most.

One major concern is that, without well enforced regulation, some of the farming budget will merely end up paying polluters. Strong regulation will be key to proving the farming budget offers value for money, as well as being central to the government’s pledge to clean up our rivers. Loopholes must be closed and regulations enforced to stop the pollution of rivers like the Wye from industrial megafarms. Unless rules are better policed, most farmers who follow the rules are put at a disadvantage when some are allowed to persistently cut corners and costs. We need strong, independent and well-resourced regulators, with protected funding. Natural England and the Environment Agency, who do this important work, are still waiting for their budgets to be confirmed.

Overall, did Steve Reed rise to the challenge? The real test still lies ahead. The budget’s protection of the farming budget was very welcome but, with the spending review fast approaching, the clock is ticking for him and his department to prove what ELMs can do and secure adequate funding for the future.