To ask the Scottish Government what progress it has made following its announcement in July that it would be offering farmers and crofters a loan worth up to 95% of their 2019 CAP BPS and Greening payment in September to help address concerns regarding the risk of a no-deal Brexit in October and to maintain cash flow in the rural economy.
I am pleased to confirm that the first batch of National BPS Scheme loan offers started to be posted out on Friday 23 August 2019 to 16,570 farmers and crofters. Already 7,500 farmers and crofters have accepted their loan offer.
This means 95% of the currently eligible 2019 claim population of farmers and crofters in Scotland will have received a loan offer before the end of August. Compared to the initial loan offers issued in 2018 this is an increase of over 2,500 farmers and crofters receiving a loan offer this year. These offers are worth over 389.4 million to the rural economy. The official exchange rate will not be announced until the end of September but based on an average August rate this is around £355.2 million.
There are around 800 BPS/Greening claimants to whom we have been unable to make a loan offer yet. My officials are working extremely hard to ensure all remaining eligible farmers and crofters receive their loan offer as soon as possible.
In line with my commitment the majority of loan offers are being made at 95% of anticipated 2019 CAP Basic Payment Scheme and Greening payment, capped at a maximum of 150,000. This is an increase of 5% in the percentage of payment offered last year, meaning more farmers and crofters will receive more of their entitlement through the loan scheme as early as we are able to process responses to the offer of loan.
We increased the level of loan payment to address concerns around the risk of a Brexit No Deal in October and to maintain vital cash flow within the rural economy. We would encourage businesses to consider how they can use these payments to meet ongoing costs and support investment decisions but also consider how it might help them prepare for leaving the EU.
The cap is there to ensure that the eventual CAP payment should be large enough to permit us to recover the loan. This level of loan also ensures that no one is at risk of breaching their State Aid limit.
We expect to start making payments in early October to those who apply before the deadline included in their letter. We cannot pay loans any earlier because Basic Payment Scheme entitlements are set in euros. Under EU legislation and the euro exchange rate for calculating Direct payments 2019 payments will not be known until 30 September 2019. The rate is based on an average of the European Central Bank exchange rates set in September.
The official EU CAP payment window does not open until 1 December. We are offering farmers and crofters access to up to 95% of their CAP BPS and Greening payment ahead of this.
We offer loans in Scotland rather than advance payments because there are specific EU rules around advance payments which at this stage of processing 2019 claims would mean we could not make advance payments. By offering loans from domestic funding we are not constrained by EU rules.
We do not offer loans at 100% of claim value because at the time of calculating loan offers we have carried out no validation on the claim and do not know whether there has been any change to the land eligibility or indeed whether all payment entitlements are available to be paid on.
The new Land Parcel Identification System (LPIS) has improved our confidence in basing loan offers on un-validated claim data. However the level of over declaration found at land and livestock inspections in recent years is still around 2%.
The value of loans will be deducted from the farmers and crofters 2019 CAP BPS payment once that has been made.? This is the approach taken to the previous BPS loan schemes.
If we were to pay loans at 100% then we would likely need to recover directly from more businesses. As well as adding an additional administration cost it would also deflect the positive response that the advance loans receive from the industry to date.
Where loans are fully recovered from the farmers and crofters 2019 CAP BPS payment, Scottish Government will meet interest costs in compliance with state aid rules.
State Aid refers to the use national resources to support and incentivise businesses. There are many different State Aid regulations. The regulation which applies in this instance is 1408/2013 which is the Agricultural de-minimis Regulation.
Agricultural de minimis allows farmers and crofters to receive 20,000 over a three-year fiscal rolling period. For the National Loan Schemes it is the interest foregone (calculated at market rates) and not the actual loan amount that is the State aid element.
We include an estimate on the total amount of state aid farmers and crofters have received from the national loan schemes in the current and two previous financial years in their NBPSS19 loan offer letter.