Agricultural subsidies reform in the UK: delivering climate and nature benefits
In the UK, agricultural subsidy reform represents a significant shift from primarily supporting agricultural livelihoods and food production towards paying farmers for delivering environmental goods and services to help deliver the UK’s net-zero carbon and biodiversity conservation commitments. National statistical agencies will also collect data annually to assess progress against these goals.
Farmer prepping fields on a farm in Devon, UK (Photo: Red Zeppelin, via Unsplash)
Why was subsidy reform needed?
Agriculture is a relatively small sector of the UK economy, but it covers around half of the country’s land area, supplies approximately 60% of domestic food consumption and employs around 1.3% of the UK workforce. Livestock farming, including dairy, accounts for around two thirds of the value of agricultural production, while crops such as cereals, vegetables and plants account for around 30%.
The environmental pressures associated with agriculture are wide ranging, including methane emissions from livestock, agrochemical pollution, soil degradation, biodiversity loss, declining hedgerow length and changes in woodland cover.
For example, hedgerow length in England declined by 25% between 1984 and 2011. The sector both influences and is influenced by climate change and nature loss.
Following the UK’s departure from the European Union (EU), the UK government sought to reform agricultural subsidies, moving away from land-based payments under the EU Common Agricultural Policy (CAP) towards a system that rewards farmers and land managers for delivering environmental benefits.
The EU CAP Basic Payment Scheme (BPS) provided payments linked to the amount of land held by farmers. Although payments had already been decoupled from production, the primary objective remained supporting agricultural livelihoods and domestic food production, with environmental outcomes playing a secondary role.
Reform of the UK’s Agriculture Act in 2020 was intended to support the UK’s net zero and biodiversity objectives while continuing to support domestic food production. While agricultural policy is devolved in the UK, with England, Scotland, Wales and Northern Ireland developing their own approaches within budgets determined by the UK treasury, here we focus specifically on England.
Repurposing subsidies for sustainable land management
The central objective of the reform was to move away from payments to farmers and instead fund actions that deliver environmental benefits.
The 2020 Agriculture Act established a seven-year agricultural transition period beginning in 2021 and provided the legislative basis for the Environmental Land Management (ELM) approach. The Environmental Improvement Plan, published in 2023, subsequently set targets for restoring or creating wildlife-rich habitats by 2042, with farmers expected to contribute significantly to achieving these.
The reform was primarily a repurposing of existing agricultural support, rather than a reduction in the overall funding commitment. The UK government committed to maintaining annual agricultural funding at around the previous CAP level of £2.4 billion. Around 75% of this support – approximately £1.8 billion – was subsequently allocated to the new environmental schemes.
The Environmental Land Management (ELM) approach was introduced in 2021 to incentivise sustainable land-management practices, including:
- Creating and restoring wildlife-rich habitats
- Improving water quality
- Increasing resilience to flooding and drought through nature-based solutions
- Creating new woodland and managing existing woodland
- Improving soil health
- Reducing carbon emissions, and
- Supporting food production alongside environmental objectives.
Three schemes were designed to operate at different scales:
- Sustainable farming incentive (SFI): provides funding for adopting environmentally sustainable farming practices, including improving soil health and pest and nutrient management, and reducing chemical fertiliser use. Payments are generally based on hectares or other relevant units, with agreements lasting three to five years.
- Countryside stewardship: provides finance for measures linked to local environmental priorities, including biodiversity, habitat and woodland management. It operates through multi-year agreements with specific environmental goals and payments linked to those activities.
- Landscape recovery: supports large-scale, long-term and collaborative restoration projects. Projects cover more than 500 hectares and are designed around bespoke, project-specific approaches, including cofinancing from farmers, landowners and private investors.
Progress on delivering the environmental actions farmers and landowners have committed to under the above schemes will be captured through the data collected by the UK Organisation for National Statistics (ONS) and specialist bodies such as the Joint Committee for Nature Conservation, which monitor the UK’s net zero emission and biodiversity targets.
The transition has also included technical assistance for farmers. Initiatives such as the Farming Investment Fund have been used to help farmers improve productivity and environmental outcomes.
However, there has been criticism that insufficient support has been made available to help farmers adopt more ambitious environmentally friendly practices. A UK Parliament Environment, Food and Rural Affairs Select Committee report recommended greater investment in technical assistance and encouraging farmers to share knowledge on successful environmental interventions.
Implementation has also revealed tensions between environmental ambition, agricultural production and the design of the new subsidy schemes. The schemes became oversubscribed, alongside concerns about their implications for food production.
Area limits were introduced for some SFI schemes in March 2024, and SFI subsequently closed to new applications in July 2025 after DEFRA cited full allocation of the available budget. The schemes are now being reformed, including through a £100,000 annual payment cap and a greater focus on farms under 50 hectares.
However, this could have the unintended consequence of reducing access for larger farms and discouraging investment in environmental restoration or protection on larger holdings, including areas containing potentially fragile habitats.
It also introduces greater uncertainty for farmers planning investments in nature conservation or restoration which could act as a disincentive for all farmers to apply.
Creating wind turbine farms like these offshore at Burbo Bank in Liverpool Bay are another example of how governments can boost sustainability by reforming environmentally harmful subsidies (Photo: Stephen Gidley, via Flickr, CC BY 2.0)
Lessons from the UK
Repurposing subsidies can align agricultural support with climate and nature objectives
The case demonstrates the benefits of keeping government investment in the agricultural sector and pursuing broader public environmental objectives while doing so. Rather than solely supporting food production or rural livelihoods, payments can also be linked to environmental actions and outcomes.
This creates the possibility of aligning farm incomes with activities such as improving soil health, reducing fertiliser use, restoring habitats, improving water quality and increasing landscape resilience.
Environmental outcomes need to be clearly connected to overarching targets
Despite the detailed environmental agreements and payments for farmers, it is not clear how individual ELM agreements will deliver environmental targets.
Although the schemes include outputs and measurement criteria, the link to the Environmental Improvement Plan’s overarching targets – including the target to restore or create more than 500,000 hectares of wildlife-rich habitat by 2042 – needs to be clearer.
Without stronger links between individual payments and national environmental outcomes, there is a risk that the schemes will underdeliver relative to their environmental potential.
Financial incentives alone may not be sufficient
Early implementation experience suggests that financial incentives need to be complemented by appropriate regulation, consistent application and technical support. Critics of the reforms argue stronger regulatory standards, incentives for higher ambition and certainty are needed.
Farmers need practical technical support to adopt new practices but are not always willing to pay for it. Supporting greater knowledge exchange and specialist environmental advice for farmers would therefore be important complements to subsidy reforms to deliver strong nature outcomes.
Scheme design needs to account for different farm types and scales
Moving from land-based payments to payments for environmental goods has the potential to benefit smaller farmers who undertake environmental measures. However, focusing only on smaller farms risks compounding the market advantages that larger farms have access to, while discouraging them from addressing negative environmental impacts.
This illustrates a broader point: environmental subsidy design needs to consider where positive and negative environmental impacts benefits occur and target the subsidy or government support accordingly, rather than assuming that supporting a particular category of farm will necessarily maximise environmental outcomes.
Monitoring is key, but environmental improvements take time
The ELM schemes began in 2021 and agreements can last from three to more than 20 years. Consequently, it will take time before their full effects are visible in environmental data.
The ONS monitors agricultural ecosystem health as part of national biodiversity reporting and provides an evidence base for tracking changes in biodiversity, soils, agrochemical pressures, woodland and other indicators. However, meaningful assessment of the reforms and links between repurposed subsidies and environmental benefits will require sustained monitoring over time.
What happens next?
UK agricultural subsidy reform represents a significant shift in the rationale for agricultural support: from primarily supporting agricultural livelihoods and food production towards paying farmers for delivering environmental goods and services alongside food production.
It also has the potential to leverage more private investment into delivering these public goods. As the EU begins the process of the next round of CAP reform there will be lessons from the UK experience (PDF).
The next stage of agricultural support in England will be important in determining whether this shift delivers the intended climate and nature benefits. In particular, future reform will need to address the tension between high demand for environmental payments, limited budgets and concerns about food production, especially during times of drought in the UK in the context of increasing climate volatility.
The experience with SFI demonstrates successful environmental subsidy schemes can generate substantial demand, but also that scheme design and budget allocation need to be responsive to that demand.
A key priority should be strengthening the connection between individual farm agreements and national environmental objectives. Clearer outcome-based targets could help ensure that public funding is directed towards interventions that make the greatest contribution to climate, biodiversity, water and ecosystem objectives.
Further resources
News: Farmers in England face losses under new cap on sustainable farming payments (2026), The Guardian
Enclosed farmland natural capital accounts, UK: 2026, UK Office for National Statistics (2026)
Learning from the past and embracing future opportunities: perceptions of new Environmental Land Management Schemes and private nature markets, K Dewally, Rosalind Bark, Amii Harwood, Andrew Lovett (2025), Journal of Rural Studies
Trade policy review: United Kingdom 2025. Report by the secretariat, World Trade Organization (2025)
Looking ahead to the next CAP Reform – are there lessons to be learned from the UK experience?, Kaley Hart, David Baldock (2023), Institute for European Environmental Policy UK, policy brief
Environmental land management (ELM) update: how government will pay for land-based environment and climate goods and services, UK government (2023)
Environmental improvement plan 2023, UK government (2023)
Environmental land management and the agricultural transition: second report of session 2021–22, UK Parliament Environment, Food and Rural Affairs Committee (2021)
Agriculture act 2020, UK government (2020)
Author
Laura Kelly is an IIED consultant and former director of IIED’s Shaping Sustainable Markets research group
