Farmers to lose out in spending round

By Robert Harris

BRITISH farmers stand to lose 150m if the government sticks to its spending plans, according to a new report.

The document is sponsored by the NFU and other groups representing one-fifth of the UK economy, including engineering, steel and aerospace, .

It highlights the damage done by existing economic policy to the traded sector – businesses that export or compete with imports.

It urges the government to use the forthcoming spending review and future Budgets to improve prospects.

At the launch in London this week, Richard Macdonald, NFU director general, said: “The fact that farming and other industries are working together illustrates the depth of feeling on this issue, and the depth of the crisis in our industries.

“Stability in some parts of the economy has been achieved at a high cost. It is very important that the government recognises this.”

The study, Re-balancing the Economy – An Alternative Approach to Economic Policy, carried out by Oxford Economic Forecasting, says the effect of Chancellor, Gordon Browns, last budget, which injected 16 billion of cash into the economy, was inflationary.

This led the Bank of England to increase interest rates to prevent the economy from overheating.

That, in turn, has made Sterling more attractive to investors, boosting its strength.

Euro-based agricultural subsidies have tumbled in value, imports are cheaper and exports less competitive.

The service sector has boomed, increasing output by 10.4% over the past three years. But agriculture and manufacturing industries achieved barely a 10th of that.

If government policy continues unchanged, farming output will fall by 0.8% in the next four years. This could cost the industry 150m.

The report suggests alternatives to government spending which would allow the whole economy to flourish, without costing a penny.

It warns against a pre-election spending spree which would fuel further interest rate rises. Longer term, it highlights two ways to reduce exchange rate pressure.

If government were to invest its 16bn spend, for example on capital items like transport infrastructure and workforce training, rather than spending it immediately on public-sector wage demands and running costs, this would encourage higher private sector investment, too.

The net effect would boost the UK economy by 0.5%, and agriculture by 0.2%.

Investment could also be encouraged by granting 100% first year capital allowances.

This requires a smaller shift away from existing government spending levels. Although costing about 10.5bn in Year One, that would plummet to just 2bn thereafter.

“In real terms, farmings net worth is 25% less than four years ago,” says NFU chief economist Si(tm)n Roberts.

“There will be no improvement until the exchange rate is brought down to a more sustainable level.”