The UK’s biggest landowners will see the payments they receive from the public purse fall sharply from 2021 in what would be the biggest shake-up of farming for decades.

From 2021, a new system rewarding farmers for the public goods they provide will be phased in until 2027 when the last payments based on the amount of land farmed will be made. In place of the £3bn a year farmers currently receive under the EU’s common agricultural policy (CAP), farmers will be expected to sign environmental land management contracts detailing their commitments to protecting habitats, improving flood management and enhancing air and water quality.

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Ministers hailed the scheme, contained in an agriculture bill published on Wednesday, as a fairer way of ensuring that environmental protections are continued after Brexit.

Michael Gove, the environment secretary, called the new bill “a historic moment” that would herald a “brighter future” for farming. “After nearly 50 years of being tied to burdensome and outdated EU rules, we have an opportunity to deliver a green Brexit,” he said. “The bill will allow us to reward farmers who protect our environment, leaving the countryside in a cleaner, greener and healthier state for future generations.”

But ministers refused to specify how much public money farmers would receive under the reforms. The government has currently committed to preserve payments at the level of the CAP until 2022. After that, ministers will set farming budgets on a multi-year basis, but no details of how that will be managed have yet been set out.

Under the CAP, big landowners receive the lion’s share of taxpayer subsidies, based on the amount of land they farm. Some have received millions of pounds from the EU budget, but from 2021 those receiving more than £150,000 a year in direct payments will see these cut by a quarter at first, with the amount decreasing gradually through the transition period to 2027.

The top 10% of recipients currently receive nearly half of the total payments, while the bottom fifth receive only about 2%.

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Smaller farmers will benefit from the cuts to the biggest landowners as the £150m likely to be saved from 2021 will be redirected into new schemes, research and development and support for smaller farms during the transition to environmental land management contracts.

Environmental campaigners warned that the government must ensure that future policies enabled by the bill do not drop key protections. Kath Dalmeny, the chief executive of Sustain, said: “There are welcome measures in this new agriculture bill. Paying farmers for public goods like air and water quality is much preferable to simply rewarding land ownership. However, we would have liked to see a much more explicit link to tackling public health challenges and creating a fit for purpose food system. It sounds like Michael Gove has missed the chance to create new powers to tackle unfair supply chains, bad trade policies or ensure workers are protected. We’ll be calling for the bill to be amended.”

Sandra Bell, the nature campaigner at Friends of the Earth, called for clear environmental targets, including a commitment to significantly reduce pesticide use, which she said was a key cause of wildlife decline.

“For far too long taxpayers’ money has been used to reward land ownership or food production – with too little regard for the environmental impact,” she said. “Working with nature is the best way to safeguard the long-term future of our food – as innovative farmers across the UK are already finding to their benefit.”

The long transition period set by the government for the phase-in of the new payment system reflects the need to determine how much cash farmers should receive in future for public goods, and how the delivery of those goods should be measured. While Gove has repeatedly voiced his desire to reform agricultural payments in this way, the details have yet to be worked out and the agricultural bill will provide only the mechanisms by which the government can change the rules, rather than set out how new rules will work in practice.

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Ministers are understood to want to avoid a situation where the payments from taxpayers are determined every year in the chancellor’s budget. In order to give farmers greater certainty and stability, which they have under the CAP, they will seek to set budgets years in advance. The contracts farmers sign will vary in their duration, and could be up to 10 years long to ensure farmers provide the benefits they commit to.

The government will also seek to allay the fears of small farmers that food production will move to bigger farms, which can produce food more cheaply. Ministers want to protect small family farms by giving them income from the public goods – such as public access to land – that they provide as well as the income they receive from the market for their food production.

There will also be provision for new entrants to farming, for instance, by giving farmers who want to retire a lump sum in place of their future direct payments. There will be grants for farmers to invest in equipment, technology and infrastructure to help them deliver public goods and adopt the new environmental land contracts.

The bill will not solve some of the key dilemmas faced by farmers over Brexit, including the future terms of trade with Europe and the rest of the world, whether UK standards for food production will be maintained at current levels, and farmers’ ability to recruit migrant workers from overseas. Many farmers fear that Brexit will make exports harder owing to new tariffs, and some have faced problems finding seasonal staff for harvests.