Brexit and your estate: what does 2019 hold for estate owners and land managers?
Senior Surveyor Lydia Cox MRICS FAAV and Estate Management Consultant Nick Millard MRICS FAAV REV of Michelmore Hughes Stags discuss why now is the time for South West estate owners and land managers to prepare for the future.
A furious pace of change is usually more associated with urban businesses and city life in general, rather than a peaceful existence in the West Country countryside. However, the scale of the changes in store for the rural economy over the next ten years looks set to be just as dramatic - if not more so - as that facing many urban businesses. As a consequence, the need for the South West’s estate owners and land managers to prepare for the future is equally as great.
One only need consider Brexit and the future post-March 2019 to see the challenges ahead. But Brexit is by no means the only issue. Demographic change and policy inertia have conspired to create a housing crisis in much of the UK. On the health front, bio-security and animal health threats challenge many rural businesses and the associated regulations are unlikely to be relaxed when we are no longer in the EU.
Finally, if this year is anything to go by, climate change is upon us, with summer 2018 often seeing parched grass too poor for second cut.
When it comes to Brexit, the difficulty for estate owners and commentators alike is that the principal characters in charge of Brexit seem reluctant (or unable) to offer very much in the way of clarity on this question.
What we know about Brexit so far:
Financial support from the state will shift from generally bolstering farming income to more targeted schemes. Some money may be aimed at supporting farming costs but other funds will support landowner activities deemed to be in the public interest, such as environmental enhancement, soil and water management.
There will be less support available for overseas labour to play such a key role in the rural economy.
The UK government appears to have moved towards a plan for tariff-free trade and, more importantly, trade which is not inhibited by custom regimes. But EU agreement is by no means certain yet.
How, as a busy landowner, does this help me plan for the future?
The current support regime offers perhaps the most straightforward and brutal test. Take £80 per acre off your farm income and see if the business still works. Yes, you could save some money from the cost of submitting the claim and cross-compliance, if you are confident that the UK Government and devolved administrations are less bureaucratic than the EU. And we can probably count on five more years of digressive Basic Payment Scheme (BPS) payments to bridge the gap. But after that, what will happen?
This is a daunting prospect but things will certainly be easier for the estate owner who starts making plans now, with the benefit of the BPS payments to support changes to the business. It will be far more difficult for anyone who waits for the final details of Brexit to be settled or, worse still, the final BPS cheque to arrive before putting their house in order.
At first glance, Brexit may focus matters on to a single question of trading income. But, in fact, preparing an estate so that it is fit to adapt to future will mean a much wider range of considerations.
How can Michelmore Hughes Stags work with you to consider the long-term sustainability of your estate?
The issues we address include:
Business performance: Does the business generate a surplus? Is that sufficient? What happens if you stress-test it against reduced commodity prices, stagnant rental income or climate change?
Business opportunities: What opportunities are there for new directions or diversification? What skills will be required, whether in-house or from third parties?
Physical stock: Are the buildings in reasonable condition? Are there significant accrued liabilities or debts on the business and how will they be funded? Is there an ongoing investment plan for complying with regulations (eg the latest Energy Performance Certificate regulations coming into force in 2020)? Can you position rental properties to access a premium market?
Ownership and succession: Is the ownership of the estate properly structured, for personal as well as fiscal considerations? Is there a succession plan? Is it fundable? Has this been discussed with the successor? Are the right structures in place to enable/accommodate new business developments?
Planning and development: Are there relevant permissions for the existing uses? What Permitted Development Rights remain and how should they be used? What prospect is there for alternative development?
Finance: Is the right finance in place? Is the proportion of debt to equity manageable? Is there sufficient liquidity and equity to manage new investment requirements? Is sufficient use being made of low-cost capital?
A host of other questions will also arise, some more relevant than others as client and consultant work together to map the future direction of the business. However, planning is only part (and probably the simplest part) of the process. Implementation is the key.
To that end, here at Michelmore Hughes Stags we now look at business planning for farms and estates as more akin to an annual stocktaking process than a once-in-a-generation strategic document.
We find that business planning on a regular basis is more manageable, more current and more readily refreshed. Clearly, an estate’s trading performance needs more routine attention than, for example, its capital values. But up-to-date information on both aspects is essential if an estate is to thrive in these challenging times.
With all this in hand, the future need not look so daunting after all. Forewarned is forearmed, as they say.
