Wednesday, 18 June 2025
An accelerated cut to direct payments in 2025 caught many by surprise, leading to concerns over cash-flow and dealing with lower than expected income. Following the Spending Review, Defra have announced that in 2026 and 2027:
- The first £30,000 received from direct payments will be reduced by 98% (compared with 76% in 2025)
- Any amount over £30,000 will be reduced by 100%
What do the changes mean for farm businesses?
We will use our (farms on a spreadsheet) to explain.
Table 1 shows direct payments received by the AHDB 455 ha virtual arable farm between 2020 and 2027. Reductions in direct payments began in 2021.
Table 1. Direct payments received by 455 ha virtual arable farm
|
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
|
|
A |
£104,850 |
£90,380 |
£74,653 |
£58,925 |
£37,986 |
£7,200 |
£4,800 |
£2,400 |
|
B |
£104,850 |
£90,380 |
£74,653 |
£58,925 |
£37,986 |
£7,200 |
£600 |
£600 |
Source: AHDB
A = Direct payments received by farm based on linear reduction from 2025
B= Direct payments received by farm based on new reductions announced in June 2025
If reductions in direct payments continued in a linear fashion from 2025, (Table 1 row A), the farm would receive £4,800 and £2,400 respectively, in 2026 and 2027. Due to the latest announcement, the farm will only receive £600 in both 2026 and 2027. This is the maximum all farms are expected to receive in 2026 and 2027.
If we carry out the same exercise on our smallest virtual farm, the 105 ha virtual dairy farm, the farm is expected to receive £466 in both 2026 and 2027.
Table 2. Direct payments received by 105 ha virtual dairy farm
|
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
|
|
A |
£23,300 |
£22,135 |
£18,640 |
£15,145 |
£10,679 |
£5,592 |
£3,728 |
£1,864 |
|
B |
£23,300 |
£22,135 |
£18,640 |
£15,145 |
£10,679 |
£5,592 |
£466 |
£466 |
Source: AHDB A = Direct payments received by farm based on linear reduction from 2025
B= Direct payments received by farm based on new reductions announced in June 2025
Reductions in direct payments were designed so that larger farms, which received higher direct payments than smaller farms, would experience a relatively steeper cut in their support compared with smaller farms in absolute terms. This is evident from Tables 1 and 2. However, the accelerated reduction in direct payments in 2025, and now for 2026 and 2027 will affect all farms and so it is important to plan ahead and budget accordingly.
Applications for the Sustainable Farming Incentive (SFI) have been paused, with details of the new iteration of the scheme due to be released later this year. Applications for Countryside Stewardship Higher Tier are due to open, on an invitation only basis, this summer. Exploring different income streams and getting the most out of your farm business is imperative for farm businesses, especially under current circumstances, as well as trying to plan ahead as much as possible.