Rural Economy and Connectivity Committee

Meeting date: Wednesday, February 19, 2020

Official Report 729KB pdf

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Budget Scrutiny 2020-21

Item 6 is budget scrutiny. This is our second session on the Scottish Government’s budget for 2020-21. We will take evidence from the Cabinet Secretary for Rural Economy and Tourism on issues related to the budget that fall within his rural economy responsibilities.

I welcome the witnesses: the cabinet secretary, Fergus Ewing; Annabel Turpie, the Scottish Government’s director of agriculture and rural delivery; Shiree Donnelly, head of finance, agriculture and rural economy; and Richard Rollison, deputy director in the directorate for economic development.

Cabinet secretary, I invite you to make an opening statement of up to three minutes.

We want to maintain and grow further a prosperous rural economy in Scotland. The budget seeks to create as much certainty and assurance for our farmers, crofters, foresters and producers as possible while recognising their ability to deliver a positive contribution in the face of the climate emergency.

Setting our budget has been made very challenging because of the decision by the UK Government to delay announcing its budget. It is even more challenging because of the uncertainty surrounding future funding that comes with leaving the EU, the lack of clarity on future trade arrangements and, just this morning, the alarming news about a lack of ability to employ people in the rural economy. All those things present real and present concerns for our farmers, crofters and producers, who could face a loss of markets and/or excessive tariffs.

The budget is focused on providing as much stability as possible and on supporting our rural businesses and communities in playing their key part in transitioning to a net zero future.

The total capital spend has increased by £67.5 million, and resource spending has increased by £81.6 million. Scotland planted 11,200 hectares of new woodland last year. Building on that achievement, the budget contains significant increases in spending on forestry, including £5.8 million to support tree planting, and investment of £40 million in a new agricultural transformation programme.

Our rural enterprise agencies play a key part in delivering a strong, inclusive, low-carbon economy in rural Scotland. That is why we have provided £28 million to deliver the new south of Scotland enterprise agency and £58 million for Highlands and Islands Enterprise to support rural businesses and communities and to unlock economic opportunities across that region.

We will invest £6.6 million in our world-class food and drink sector. We want to protect our reputation for higher welfare and environmental standards, and we will do that by spending £22 million on animal welfare and food safety.

In real terms, this is an increased budget for the rural economy. The clear focus on support for rural Scotland, alongside programmes that will allow for the transition to a low-carbon future, strikes the right balance in a difficult financial year and will result in strong and vibrant rural communities.

Cabinet secretary, many other parties have complimented you on your new role. On behalf of the party that you and I are in, I compliment you on that, too. You are well respected, and I welcome you to your new role.

Can you explain how the evidence and information in the national performance framework influence your budget plans? Has the NPF ever caused you to make any specific changes to those plans? If so, can you give examples?

Thank you for your kind and unexpected remarks. It is a great privilege to be the tourism minister once again and be a voice for tourism in the Cabinet. We have a great tourism sector in Scotland, which terrific people are involved in. I look forward to that work.

In response to your question, the first chapter of the budget summarises the primary and secondary national outcomes in a narrative section that covers, for example, the need to promote wellbeing and to address climate change. This budget does that in a way that no previous budget has done. I am particularly pleased that the rural economy is making a major contribution to tackling climate change.

Chris Stark—who used to be a Scottish Government civil servant but is now chief executive of the UK Committee on Climate Change—said that we can achieve the target five years ahead of England precisely because the landmass asset that we have means that we are primary or even monopoly providers of some of the carbon sequestration solutions.

I am very pleased that the £40 million agricultural modernisation fund, which I was able to announce at the NFU Scotland annual conference on 7 February, will play a part in that, as will other measures such as Roseanna Cunningham’s peatland restoration commitment, which has also been groundbreaking.

Overall, we are contributing to the national performance framework at a high level of influence. I would be happy to address any further questions from members on that, but I will stop there for now, as I want to be brief today.

How is the spend that is allocated within the rural economy portfolio monitored against the national outcomes that are related to that portfolio? The areas covered include communities, the economy, the environment, health, fair work and business, some of which might not be in your sphere.

Is the 40 per cent cut in the technical assistance budget affecting the Scottish Government’s ability to monitor the outcomes of the Scottish rural development programme?

The national performance framework has indicators, and we are obliged, in an independent way, to state whether the status is improving, maintaining or worsening. That is how the indicators work. The information is published as soon as the data becomes available.

The cuts to which the member alludes have no impact on our ability to monitor the outcomes of the programme. SRDP monitoring is carried out annually in line with EU requirements. It is the responsibility of the rural development operation committee—alongside reporting to the EU—to monitor the quality of implementation of the programme and to monitor the programme by means of financial output and target indicators. I hope that that provides some reassurance.

Good morning. I have a number of questions. The first relates to Scotland’s economic action plan, which falls within the committee’s remit, particularly as it relates to Highlands and Islands Enterprise. HIE faces a real-terms reduction of 6.5 per cent in its total budget and a 15 per cent real-terms cut in its resource budget. Given that one of the headline actions in the Scottish economic action plan is to provide significant funding to that body, why is its budget being reduced?

We are committed to working with HIE through programmes and interventions, in this portfolio and others, to support the economies and communities of the Highlands. The budget provides £53 million of support for HIE, including a stable capital budget of £25.5 million. It also includes a doubling of the financial transactions from £1 million to £2 million.

However, I acknowledge that there has been a reduction of 13.6 per cent in the resource budget, and HIE will need to focus and profile its resources very carefully over the next year.

I know that this matter is very important to everyone in the Highlands, just as it is to me. I had a very positive discussion with Lorne Crerar on Monday of this week, and senior Scottish Government officials attended the HIE board yesterday to make clear on my behalf my commitment to working with HIE to manage budgets and to consider potential in-year pressures in a way that continues to meet the needs of businesses and communities across the region. I refer, in particular, to support work on the Cairngorm funicular railway and the wider Cairngorm masterplan. The feedback that I have had from my officials who attended yesterday’s meeting was that it was a constructive and workmanlike exchange, and that dialogue between me and HIE will continue throughout the year.

At the same time, we must recognise the many other interventions that we are making. City deal finance is new, and there is massive investment in other areas such as road transport. As members know, the dualling of the A9 is continuing, with the Luncarty section coming to completion fairly soon; there is also investment through rural development, the European maritime and fisheries fund, affordable housing, capital investment and the agricultural transformation programme.

Looking at things in the round, it is clear that there has been an injection of far greater levels of investment than before, and that that plays a part in promoting the economy through improved transportation and in other ways in the Highlands and Islands.

It is very positive that there is engagement between your senior officials and HIE, and I hope that that continues. I note what you said about Cairngorm, but the Highlands and Islands is of course much bigger than that single project. What assessment was made, if any, of the implications of the budget reductions for the organisation? I acknowledge what you say about various other strands of Government work, but what are the implications for the organisation—which, after all, has played a significant role in moving things on the Highlands and Islands?

First, I give my personal assurance to Mr Finnie that the close engagement will continue and will be overseen by me personally.

Secondly, there has been extremely thorough joint working in relation to managing the in-year pressures. We have examined individual items of expenditure in a great deal of detail, and we are absolutely committed to ensuring that the economic benefits of Cairngorm, for example, continue to be fully realised but, as Mr Finnie says, there is far more to the Highlands than that. We are working closely with Lorne Crerar and his board to ensure that HIE’s ability to support economic development in the whole of the Highlands and Islands is not impaired. I give my personal assurance that that is something that we will do.

11:30  

There has been much press coverage of the issue, and some of the figures that have been quoted in the press are grossly misleading. I can go into that if the committee wishes. There has not been an enormous reduction in the HIE budget since 2007. Sadly, that has been misreported.

We appreciate that this is a difficult budget for the Scottish Government this year all in all, and we have had difficult decisions to make. However, I am confident that we can work through those various matters with HIE. Mr Rollison is ready to answer any further questions if members wish to go into any more detail and if time permits. If there are specific, more detailed questions, I would of course be happy to answer them in writing.

I have a brief question to ask, if John Finnie is finished.

I am conscious that there are a whole load of questions to come, although I could spend all morning asking questions. I will leave it at that, however. Thank you, cabinet secretary.

Cabinet secretary, you mentioned the funicular railway. According to the HIE estimates, repairs will cost around £10 million—the agency does not know exactly. I could not find anything in the budget for any spend on that this year. If, once all the surveys have been carried out, the works start this year—which you have said you would be keen to see—how will you find the funding for them?

My understanding is that there has been no final estimate. We should be careful about this, because the situation needs to be addressed as a matter of urgency. We have indicated to HIE that the project is important to Scotland as a whole, and it is therefore appropriate that funding is prioritised to support the work.

You are right that it is HIE’s intention to repair the funicular, and we are working in close partnership with it to ensure that the provision of the relevant information about the cost of the repairs is sufficient for budgetary decisions to be made. Once we reach that stage—which is a priority—we will work closely with HIE to address the funding pressures that will ensue.

Given that the timing of that is not certain, it is difficult to make more precise allowance for it in budgetary terms, but I am happy to provide assurance that the task is a priority, as the Scottish Government accepts in working with HIE to deliver it. The funicular is hugely important to the local economy. It gives access to snow sports and summer activity. People with limited mobility, for example, can enjoy the mountain experience: they can go to the top of Cairn Gorm and enjoy the unique experience there.

There is a lot of work to be done on the business plan, on the use of natural resources, on renewable energy and on all-year-round use. By comparison, and to strike a cheerful note, the Nevis range has diversified away from snow sports, and a substantial part of its revenue—most of it, in fact—now comes not from skiing or snow sports but from a variety of other areas, such as renewables, mountain biking and other activities near the base. That shows what can be done. Locally, there is a desire to be positive about the situation, and that is certainly how I am approaching it.

Mr Rollison has a lot more information—

I think that—

I know that we are short of time.

Given the tightness of time, I would like to move on. This could drift into a constituency question, for which I should criticise myself.

My question is related to the Highlands and Islands Enterprise budget, as its per capita funding is the same as the budget for the south of Scotland enterprise agency. As the committee noted when it was scrutinising the South of Scotland Enterprise Bill, its financial memorandum anticipated that the budget would be £32 million for 2020-21. The actual budget is around £28 million. What is the reason for the shortfall of more than £4 million compared with the projected budget?

There has not been a reduction at all; there has been an effective doubling of the money for the south of Scotland. Between 2019-20 and 2020-21, we have increased our overall funding commitment to support the south of Scotland economy from £13 million to £28 million. The figure to which Mr Smyth alludes was that contained in the financial memorandum to the South of Scotland Enterprise Bill. The figures in the memorandum were clearly stated as illustrative and were based on the HIE spend profile at the time. At that time, the spend profile included a high element of non-cash budget, which has since reduced. Non-cash items are technical accounting adjustments, such as appreciation.

In reality, from the point of view of the historical funding provided over this financial year and part of 2018-19 to the south of Scotland economic partnership, the budget has effectively risen from £13 million to £28 million. In addition to that, the borderlands deal provides £85 million from the Scottish Government but only £65 million from the UK Government. Incidentally, the UK is supplying £200 million for the English part of the borderlands deal. There is a £20 million lower contribution for the borderlands deal from the UK Government—of £65 million, as opposed to £85 million from the Scottish Government. I would be very grateful for support from members for my representations that that is unfair to Scotland, and that the UK Government should at least match the Scottish Government’s contribution of £85 million, instead of imposing a niggardly reduction of £20 million for the south of Scotland. I hope that all parties, including the Secretary of State for Scotland, whose constituency is in that part of Scotland, will agree that it is wrong that that area should be short-changed in that way.

The failure with the borderlands agreement is something on which you will not get me to disagree, but I am not here today to have an argument over which Government is cutting spending most compared with what it promised.

The reality is that the south of Scotland economic partnership is a very different body from the south of Scotland enterprise agency. The partnership brings existing bodies together to the table, with their own staffing and resources, whereas the south of Scotland enterprise agency is a new agency that will start work on 1 April. When they gave evidence to the committee, your officials were very clear that the projection of the budget for that agency would be up to £42 million after the initial interim period. The financial memorandum was clear: it was £32 million. All the evidence given to the committee said that that would be the projection for the agency’s budget. What decision has the Government taken such that it believes that Highlands and Islands Enterprise and south of Scotland enterprise need less money than you thought they would need this time last year?

I am afraid that I completely disagree with Mr Smyth’s analysis. I have already said that the figures in the financial memorandum to the bill were stated as being indicative and illustrative. That is almost always the case, incidentally.

Moreover, the comparator was based on an HIE figure that included high non-cash budget items such as depreciation. The difference between the two amounts relates entirely to a reduction in non-cash accounting items.

I would have thought that it was good news that we are going from a budget of £13.2 million for SOSEP this year to a budget of £28 million in the coming year. We are doubling the money. I would have thought that even the Labour Party would accept that as a pretty good outcome for the south of Scotland. I am astonished that this line of questioning should be pursued in such a way. However, each member is entitled to pursue whatever arguments they think may have any validity.

I am astonished that you think that the financial memorandum to the bill is worthless. You put the figures on the table in the first place. I will ask you one more time: what is the basis of the decision to reduce funding? We talk about the HIE budget having increased significantly. It would have been in the region of £130 million, had it risen each year since 2007 based on inflation. There has been a systematic reduction in that amount, however.

People in the south of Scotland are concerned about whether you intend to make further reductions in the HIE budget. If you do, that means that we will never get to the £42 million figure that your officials gave to the committee when talking about the anticipated budget for the south of Scotland enterprise agency.

I am afraid that, again, I respectfully disagree with Mr Smyth. He pointed out in a press release that the budget for HIE was very high in 2007. He failed to point out that, in 2007, there was no business gateway, and Skills Development Scotland funding was entirely different. The nature of supporting economic development has substantially changed since 2007. You are comparing apples with pears, Mr Smyth.

Regarding the financial memorandum to the South of Scotland Enterprise Bill, I have clearly indicated why the budget is £28 million. The basis on which I set out and confirmed that in oral evidence when the bill was going through was very simple. The principle that we are applying here is that there should be broad parity in funding between HIE and the south of Scotland agency pro rata and per head of population. We are endeavouring to put that principle into practice, while recognising that we must of course scale up south of Scotland enterprise by recruiting staff. We are in the course of getting offices and taking on staff. That process is on-going. We have an interim chief executive and a chair, and we are moving to appoint a board and staff.

All that work is being done, but it will take time. New bodies need to walk before they can run, as everybody will recognise. However, the commitment to double the money for the south of Scotland—

It is not doubling it; it is for a different organisation. This is nonsense.

I would hope that everybody would welcome it.

It is for a different organisation, convener.

I do not think that you will get any further with the cabinet secretary on that, Colin, so we will move to the next question.

We are doing budget scrutiny on the rural economy, so I wonder if I could direct the attention of members and the cabinet secretary to the economic action plan, which I presume the cabinet secretary is aware of. That plan was originally produced in 2018, and a refresh was recently distributed to members.

I am trying to get to the bottom of this. A number of key initiatives within that economic action plan relate specifically to the rural economy. We have gone through the rural economy budget and indeed the entire Scottish budget for this year, but those initiatives are notably absent. I will point the cabinet secretary towards a couple of specific things, and he could perhaps enlighten me about how they will be funded. The first is the five-year food and drink export plan, which the economic action plan makes great hay with. The other is the creation of a food and drink academy. Where is the funding for those initiatives coming from if it is not in the coming year’s budget?

The Scottish Government support for both those initiatives—the export plan and the food academy—is provided through our food and drink budget of £6.6 million in 2020-21. The five-year export plan, in which we invest £500,000 per annum, is funded jointly with SDI and the industry. In the main, that programme supports the provision of 15 in-market specialists around the world. I have met almost all 15 of them, and they do a terrific job for Scotland. They are salespeople for Scotland’s food and drink, I have met them on several occasions, and they are returning very large amounts of extra business for major Scottish food and drink producers. That is a great thing.

The reason why Mr Greene and other members may ask that perfectly reasonable question is perhaps that that component is a joint exercise with SDI, which has an export ambition and therefore recognises that food and drink is in the vanguard of exports, particularly given the success of Scotch whisky—at least until the recent Trumpian tariffs that were unilaterally imposed.

The food and drink academy represents a new programme that will be taken forward this year, in partnership with the industry. The principle of the programme is to provide intensive support to and collaboration with about 50 businesses with high growth potential. It is a very exciting programme. I could say a lot more, but I always like to be brief, so I will park it there.

I welcome your brevity.

Thank you for clarifying that, cabinet secretary. I guess you are saying that we do not need to look for a line in the rural economy budget for the plan, because it will be funded through the SDI line. Apologies: I have not had time to go through the budget and find that line to see whether it is up, down or flat.

That is fair enough. The plan is a collaborative effort.

The industry will obviously play its part in that growth, too.

You have clarified that the funding for creating the food and drink academy will come from your budget. Is that the case?

I can go and check that. Because we are in partnership with SDI, we did an overall deal. I was keen to press SDI to make a sizeable contribution to food and drink from its budget line. From memory, I think the amount is £20 million, so we got a fairly sizeable chunk of that after a bit of internal discussion.

We look forward to getting clarity on where to find your portion.

We will clarify that.

I am sure that you are more than capable of arguing your case for your element of that funding.

Thank you.

Another part of the Scottish economic action plan is relevant to the rural economy: the £110 million in grant support for business research and development. Is there a line for that in the 2020-21 budget? Will rural businesses be able to access that support and, if so, how?

11:45  

In the 2017 programme for government, we set a target to double business spend on research and development from £870 million to £1.75 billion across the whole of government, between 2017 and 2025. To support that, we committed an extra £15 million on top of the £22 million already provided by Scottish Enterprise to support business expenditure on R and D. The £110 million that has been referred to covers the three years from 2018 to 2021. The additional £15 million for R and D comes under a national programme that is available to businesses across Scotland, and the baseline £22 million is part of the SE budget, not my budget, although our rural enterprise agencies will obviously support the activities concerned.

The Scottish Government has stated that it will develop a global climate emergency skills action plan—that has a nice, easy acronym. Is that plan under way already? Will funds be allocated to it? Will that include upscaling the rural workforce so that they can play their part?

I think it will be published in September this year, and I believe that Skills Development Scotland will be funding it. The initial plan’s focus will be on those critical sectors that were identified in the 2019 programme for government. One of those sectors, obviously, is agriculture, with land-based skills coming under the action plan, so the answer is yes: we will be looking to play our part, as is correct, along with oil and gas, construction, hydrogen, manufacturing and a comprehensive plan to tackle climate change.

To summarise, the theme of my line of questioning is: how confident are you that the budget that you have been allocated for the rural economy will help the Government to meet the objectives that are set out in its economic action plan? Do you feel that you have been allocated enough resource and finance to play your part in helping to meet those objectives?

Yes—broadly speaking, I am confident. The budget is a difficult one, for reasons I will not repeat but, broadly, I am.

Turning to the skills that are required for our rural areas, some relevant issues have been raised this morning, with Scott Walker and Andrew McCornick talking about the UK immigration changes to be made for employees in our rural areas. Our rural skills depend on EU citizens working on our farms, crofts and rural areas. What does the cabinet secretary think about Scott Walker’s comments? He tweeted this morning that the

“proposed new immigration system will not deliver the skilled staff needed for the farming, food and drink industries. We need a system that recognises the different regional requirements across the UK. Scotland-specific work permits would do that.”

I am interested in your thoughts on that. Andrew McCornick, the president of NFU Scotland, said that the announcement from the UK this morning was a “disappointment”. Our rural economy depends on our skilled EU citizens, does it not?

Just before you answer that, cabinet secretary, you mentioned the matter of skills in your opening remarks. We are specifically examining the budget. I know that you want to answer that question, and I will give you some leeway. However, I ask you to be as brief as possible on this, please.

Scott Walker and Andrew McCornick spoke very well, and I thoroughly endorse what they said on the radio this morning. I heard Andrew speak then, and there was also a press release. The matter is very serious.

I subsequently got an email from a very experienced forestry contractor, who said:

“Who’s going to clean the prawns landed in Peterhead? Who’s going to clean the hotels and serve the breakfasts? Who will assist in old folks homes? Who will plant the trees? Who will assist the tree nurseries? Who will work in the slaughterhouses? Who will work in the fish processing factories?”

I do not know the answers to those questions, because the rules that have been set are, frankly, a ligature around the rural economy.

The reason I said “broadly” in answer to the previous question is that, although I am broadly confident that our action plan can cope with the challenges ahead, what we cannot do is cope with impossible consequences of absurd policies imposed from London on who can be in Scotland that are quite repugnant to most people in Scotland, as Ben Macpherson has eloquently said in the media over the past 24 hours.

I asked that question because we are trying to better understand the skills that rural employers need, so that we can provide individuals with accessible education and skills, and upskill and reskill the current workforce. That is especially important if there are going to be challenges finding employees. The actions required may need resources, so this is indeed a budget-related question. How will we fund that upskilling and reskilling and support wider education and skills development?

At the south of Scotland convention, which met a few weeks back, I and the Deputy First Minister and other ministers addressed that point with representatives of colleges and universities in the south of Scotland. We have already provided £6.7 million through the south of Scotland economic partnership to support the skills and learning network there. We can do much more, building on that good work in the south of Scotland, working with those who are helping young people and equipping them with skills in areas such as forestry and farming. The Ringlink scheme is a good one, for instance. There is also work going on in textiles. We are doing and will continue to do a lot of good work in that regard.

I am excited about the south of Scotland enterprise agency. We are delivering it for the south of Scotland, it will be there, it will have double the budget, and it will have committed, enthused people working to regenerate the south of Scotland economy. In particular, it will look to help with the skills challenge, especially for younger people, so as to allow more of them to stay in the south of Scotland—they will not necessarily have to leave their native heath to find work elsewhere.

The next questions are from Peter Chapman.

Sorry—is that right?

Have I missed someone? I have. I was just seeing whether you were following, Peter—and you were following better than I was.

Next on my list is in fact Stewart Stevenson. Gosh—I will pay for leaving him out.

Not at all, convener.

I have a couple of questions that relate to some of the practicalities around our having left the EU. I will ask both questions together, although they are different.

The first is simply about what provision there is in the budget and what related work is being undertaken under your portfolio to replace some of the functions that are currently fulfilled by the EU. One example is the oversight of permissible pesticides, which falls within your interests.

The other point is in the same domain, but it is a different question, and it is of particular importance to the three of us here who represent areas in the north-east. It concerns the need for additional certifying officers for export health certificates for fish exports. I recognise that that falls under trading standards services, which are provided through local authorities; I simply ask whether the Government is working with local authorities on that particular issue. It is a substantial issue for the north-east, where figures for the number of export health certificates that will be required in the future vary from as little as four times as many to as much as 10 or 12 times as many.

There is quite a lot in there. Generally, processes that have been carried out at EU level by the likes of the European Food Safety Authority up until now have to be converted into national processes. That is a post-Brexit process that has not yet begun.

The Health and Safety Executive has a role to play. It is a reserved body, as members will know. There is an expert committee on pesticides to inform the longer-term approach with scientific advice. I think that the consultation on that is not due to take place until the end of the transition period, so that may not necessarily have budgetary consequences in this coming financial year.

Broadly speaking, we do not have a budget for things that were done at an EU level. We do not have staff for them, we do not have a budget for them, and there is no plan for them. Those are all post-Brexit issues, and I do not know that I can add too much more on that.

On the issue of EHCs, I have been spending a huge amount of time, quite rightly, with representatives of the fishing industry and fish processors, in Mr Stevenson’s constituency and elsewhere. The DFDS facility in central Scotland is a hub of excellence. I have visited it, and we are working closely with South Lanarkshire Council, which has a speciality in this area. It will need more compliance officers. The estimate is that there may be a need for a couple of hundred thousand EHCs, with an estimated cost of between £7 million and £15 million. Incidentally, the impacts for Northern Ireland could be even greater.

Sticking with Scotland, we have said to the UK Government that we are talking about a Boris Brexit bill, which is directly resultant from the UK Government’s decision to eschew dynamic alignment with the EU. All it had to do was to agree to dynamic alignment with EU regulations. Then, there would have been no need for EHCs. Because the UK Government is not doing that and because it wants a different type of regulatory regime model, that cost will arise.

On Monday of this week, in congratulating the new Secretary of State for Environment, Food and Rural Affairs, George Eustice, on his appointment, I asked him whether the UK Government would pick up the tab for a Boris Brexit bill. The answer is no: businesses will have to pick up the tab. I suspect, sadly, that that is just the first of many such instances.

It is not just that: the sheer extra bureaucratic impost of all those export health certificates is troubling, as is the issue of delayed delivery of perishable goods to European markets in what is an extremely sophisticated, just-in-time delivery system. I am afraid that the answer is quite a gloomy one, and I am seriously worried about the north-east economy and the impact on processors, especially in the shellfish sector on the west coast and the inshore sector; this is a very hot issue.

I am very disappointed that the UK Government’s initial view is that it will not pick up the tab for that bill that it has created. It seems illogical and unfair, but perhaps it will be forced to do a U-turn on that at some stage in the future. I thank the convener for allowing me to air that point today, because it is very serious indeed.

The cabinet secretary mentioned the DFDS facility in Lanarkshire. One issue that I have been made aware of but which I do not fully understand concerns situations where containers contain goods from multiple suppliers. The administrative arrangements for that are very unclear, as are the financial implications. Is that a subject on which you are working?

Yes. A particular risk arises with a lorry that is carrying 20 different individual consignments, for example. If there are 19 valid EHCs but there is one that is not valid or is absent, what happens to the other 19 consignments? Do they get to go through, or is the whole consignment held up? That is the sort of practical worry that businesses are grappling with—unnecessarily.

I will now turn—I hope that this comes as no surprise—to Peter Chapman, who has the next question.

Heart attacks aside, I will get on to my questioning now.

My understanding is that the cabinet secretary previously set out that £90 million of convergence funding would be distributed in 2020-21. However, the budget documents show that £95.7 million has been allocated for the coming year. Where has the additional £5.7 million come from, and what will it be used for?

I think that there has been an element of confusion here. Let me try to clarify the matter—although I did make this clear in Parliament, I think on 23 January, in a statement or in comments in the chamber. We will be distributing the first tranche of the convergence money in this financial year—2019-20. The total sum earmarked for that is £90 million.

For the next financial year, which is what we are talking about today, the residue—which is a separate pot—is £70 million of the historical convergence moneys, subject to one technical caveat concerning the first tranche of the Bew money. There is the historical convergence money of £160 million—£90 million this year and £70 million in the budget year 2020-21, which is the year that we are considering. Alongside that, there is the additional money that Lord Bew recommended should be applied to Scotland, which is £25.7 million, with a further £25.7 million in subsequent years.

12:00  

It is easy to be slightly confused on this point. I hope that that sets out the overall position accurately. I am looking at my officials to make sure that I have done that—I think that I have.

The convergence money for this year will be paid by the end of March. I stress that all recipients, perhaps including some of those present, will happily receive their first payment before the end of this financial year. That might help them, for example, to make investments in taking steps on climate change, and I recommend that they do so. They are free to access our agricultural modernisation fund of £40 million. It is good to have the opportunity to make those constructive points this morning.

You mention the Bew funding. Have you identified how that money may be utilised?

No decision has been made as to that. I do not want to be picky, but I return to one technical caveat to which I have alluded: that the letter that we received from the then Chief Secretary to the Treasury, who is now Chancellor of the Exchequer, which confirmed our allocation of funding, did not specifically reaffirm the UK Government’s commitment to the £25.7 million, nor indeed did it confirm the second tranche of historical convergence money. We have made allowance for receipt of that in our budget plans because of the pre-existing commitment from the Prime Minister, which was given in a statement to the House of Commons. I am not making a political point here, but we need to get confirmation of that, which I hope will come in the UK budget, whenever that is.

You have announced that the convergence funding will be used to fill the £22 million hole in the less favoured area support scheme budget, to provide additional resource of £15 million for voluntary coupled support schemes, and to support farmers in regions 2 and 3 with an additional £10 million on top of additional direct payments distributed to every farmer—but capped at £55,000 per recipient. Does that account for the full £90 million of previously announced convergence funding?

I think that I previously went over the breakdown of the figure. Incidentally, I would not characterise the issue of the LFASS budget as a whole in that way. In effect, we have made a top-up to the level of support that hill farmers are generally able to receive. That was the specific commitment that I made and that I said I would do my best to deliver.

Broadly speaking, the figures that have been mentioned are correct. I would have to go back to my earlier statements to Parliament, but there is £15 million for voluntary coupled support, with the additional £10 million to be applied to regions 2 and 3 following representations from stakeholders—particularly the Scottish Crofting Federation. I am very pleased that we are able to make the payment swiftly, before the end of this financial year. The intention, of course, is that the second historical convergence money tranche of £70 million will be applied in the next financial year. I reiterate that that money is ring fenced for the farmers and crofters who are entitled to it. I take the opportunity to reiterate that important assurance.

I am sure that we will return to further analysis of the matter, and we will of course keep the Rural Economy and Connectivity Committee fully informed.

Let us turn to the subject of agricultural business development and advice, particularly with regard to SRDP schemes. Level 4 budget figures indicate that business development resource and business development capital have reduced by 14.3 per cent and 8.7 per cent respectively in cash terms. That amounts to a £2.1 million reduction in total. We need some clarity on which SRDP schemes are included in those budget lines. Which SRDP schemes are included in the business development resource and business development capital budget lines, and which schemes have had their budgets reduced?

The schemes involved include the small farms grant scheme, which is a non-crofting counties equivalent of the crofting agricultural grant scheme—CAGS—as well as the Farm Advisory Service, measures for new entrants and the knowledge transfer and innovation fund, covered by the business development resource. The new entrants measures, the crofting agricultural grant scheme and the food processing, marketing and co-operation grant scheme are covered by business development capital.

As the member says, the business development budget has been reduced by £2 million, excluding financial transactions. Spending is front loaded, and the budget reflects the forecast spend under those schemes. That is part of the explanation.

The budget has been reduced for the small farms grant scheme and the Farm Advisory Service. Those schemes have committed the full SRDP allocation of £22 million over the past four years, including around £13 million in support of more than 250 new businesses. Those are indicative budgets, and we will continue to monitor scheme performance, along with the impact of future spending reviews, to ensure that the SRDP continues to develop and build growth across rural Scotland, as far as it is within our power to ensure that.

I have covered quite a lot of ground there, and I hope that I have answered the member’s question.

The situation is a bit clearer, but not much.

You have another question to ask, so you can delve deeper.

It will be good to look back at that response in the Official Report and give the matter some further thought.

Given the continuing challenges with Brexit and the need to respond to the climate emergency, has the Scottish Government considered that there may be a need for increased funding for expert advice, business innovation and knowledge transfer? I am looking back a few years to when there were officers on the ground, giving down-to-earth advice. It would be good to get back to that at some point, particularly in relation to what individual farmers and crofters can do regarding the climate change emergency.

The member makes a very fair point. Quite a lot of advice is provided by people who get out and about; it is not all online, office based or given over the telephone. Some advice is provided directly. Mr MacDonald’s point is well made, however. The Farm Advisory Service provides support to farmers and crofters, and we are currently exploring the option of extending the service contract to the end of 2021, which will ensure continued support. In addition, we have allocated £40 million to the agricultural transformation programme. Those measures are broadly intended to enable us to meet the target of net zero, to improve environmental sustainability and to support land use change.

Mr MacDonald has raised a very important point. If we want farmers to farm more sustainably, there is a need for concomitant relevant advice to be provided. In principle that is correct, and I am happy to state that that will be necessary, not least because we might well be asking farmers and crofters to do things that they might be unfamiliar with—or they might be unfamiliar with the need for the execution thereof, the benefits of the measures or the approach that is to be taken.

That will all take time, and it will need to be done methodically and carefully, taking farmers and crofters with us on the journey and winning hearts and minds. That is the approach that we are trying to take. Advice at a certain stage will be critical, and I am therefore happy to give an undertaking that we will continue to consider the matter very carefully. Extending the option of the Farm Advisory Service contract to 2021 will help initially, I think.

Can the cabinet secretary tell the committee which budget line the funding will come from to deliver the pilots under the anticipated bespoke system for agricultural support for Scotland’s rural economy, which is being worked on at the moment?

Where the funding will come from will depend on the nature of the pilot. It could come from existing budgets such as the agricultural transformation fund or, potentially, from the fund arising from the Bew review, noting the figures that we referred to earlier.

Some pilots will be under way in 2020. Scottish Natural Heritage is piloting an outcomes-based approach to agri-environment support, and I expect that more pilots will be rolled out in 2021 and 2022. The answer to the question is that the funding could take a variety of different routes, depending on the nature of the pilot and what objective it was seeking to pursue.

Going back to fishing, I will ask some of the questions that I have in front of me. In particular, I will focus on where funding might come from to support our fishermen and fish processors in the event that there is a trade deal that is adverse to their interests—given that the Prime Minister’s reneging on previous commitments to stay in the single market and the customs union seems extremely likely. Where is the support going to come from, and how will it be delivered?

We knew where we were with the European maritime and fisheries fund, which was an invaluable source of funding for Scotland over a number of years. The EMFF and other pillar 2 funding—other funding for areas that were formerly funded by the EU—was, in principle, to be replaced by something called the shared prosperity fund. However, beyond those three words, no one really knows what that is. There was a small announcement of additional funding from the UK Government—from Mr Gove, when he was at the helm—but I understand that that has been less than what was available from the EU.

The main point is that, generally, EU funding for farming and fishing was allocated for a seven-year period, and that long-term planning seems to be being replaced with a one-year, year-to-year plan. Most rural economy pursuits are long-term businesses, with investment required over more than a year and involving projects that take longer than a year, such as building a new fishing vessel or developing a new drainage or agri-environment climate scheme. Those things are not generally done in 12 months. The move from a seven-year plan and budgeting period to one-year, annual budgeting is disastrous. I think that the UK ministers recognise that, but the dead hand of the Treasury prevails.

On a separate issue, you are continuing to support the addition of vehicle monitoring systems across the inshore fisheries fleet. That is an important safety measure as well as a monitoring measure. Where is the finance for that coming from? Do you expect to continue to increase the scope of VMS?

I will double-check this, but I believe that that is already funded through the EMFF, so no additional funding is required in the next financial year. With the permission of the Parliamentary Bureau, I hope to provide some details about that next week in a statement on inshore fisheries—if the Parliament agrees to that.

The measures will bring a transformational benefit for safety, traceability and sustainability, and I am very excited about that. We are making good headway, and I hope to share some more information about that fairly shortly in Parliament, if I have the opportunity to do so.

I have a specific question. I am sure that you are aware of the Scottish Maritime Academy in Peterhead and of the role that it plays in training fishermen and skippers and in promoting safety at sea. There is an issue with funding there, too. Can you throw any light on the continued funding of the academy and on funding to train fishermen in the future?

12:15  

I will be happy to look into that matter if the member writes to me. I suspect that that might involve my colleagues, but I am happy to look into the individual issues, and I would be keen to see the good work that is being done at the academy continue, because it is obviously important for the sector.

Another swift constituency question there from Mr Chapman.

A very important one.

Indeed. You will encourage other members, no doubt.

The climate emergency response group recommended that £100 million be allocated to supporting agriculture to transition to net zero emissions, but the budget allocates only £40 million to the agricultural transformation fund. Can you clarify why that is?

Yes, I hope that I can. We are allocated money on an annual basis, not a multiannual basis, and we have to work within those confines. Having said that, I was able to make a strong case for the agricultural transformation programme, and the £40 million that was announced on 7 February is a very substantial contribution, which will allow farmers, crofters and rural land managers to farm more sustainably.

We are not doing nothing at the moment. As Mr Finnie well knows, we are investing heavily in forestry, and the target for peatland restoration was smashed last year. I could also mention on-farm renewables, better slurry and manure management and improved grassland management.

Regarding the existing funding, about a third of the total pillar 1 and pillar 2 funding is attributable primarily or solely to green or environmental schemes such as AECS and forestry schemes. Livestock farming supports permanent grassland, so support for farmers under LFASS or basic payments also contributes to good, sustainable practice.

Of the more than £500 million in total funding, a good chunk—around a third, or more than £100 million—is already attributable to environmental measures. Perhaps there is not a focus on that, however, and it is acknowledged that, for the greening component of pillar 1, for instance, more work could be done to ensure that the outcomes that we want are being delivered.

I am pleased with today’s announcement of the £34 million investment that is going to the new agri-environment climate scheme applicants who were successful in the 2019 application round. I am pleased again to be the bearer of good news.

I readily acknowledge that we are not starting from a baseline of nothing happening and that a lot has been taking place.

On the agricultural transformation fund specifically, do you envisage that additional funds will be forthcoming in future years? What do you envisage the allocations being spent on? Will the interventions be in the form of grants, loans or a mixture of both?

There will be a mixture of grants and loans, which will be spent on a variety of things. We are working on the details of that at the moment. I have mentioned some of the areas concerned—agri-environment, forestry, better slurry management and soil improvements.

An awful lot of farmers are already doing good things, so it is important to avoid the impression that farmers are doing nothing. Emissions have been going down for a while, which is a good thing, and a lot of good practices are being followed. We recognise that monitor farms are doing great work. Many farmers are pursuing agri-forestry schemes and many more want to, and they will now have the opportunity to do so.

Incidentally, the money has to be dealt with this year, so it is obviously a matter of priority that we bring forward details of the scheme reasonably swiftly, although it will take several months to devise the appropriate scheme. I have given some indication of the types of scheme that have been mentioned. I want to ensure, however, that we are not delimiting things unnecessarily or being overly prescriptive. An element of flexibility in the scheme, perhaps for considering projects of which we are unaware, is always desirable in order to prevent any exclusion of projects that could make a contribution to lower-carbon farming.

Emma Harper is next. I ask her to be brief, as I do not want to have to cut down the deputy convener—I may pay for that remark at a later date.

Sure—I will be quick.

I agree that we need to highlight as a good-news story the good work that farmers and crofters are doing to mitigate climate change.

The agricultural transformation fund, which John Finnie asked about, is funded by loans. I am interested to know how those loans will be repaid and what the terms will be. How does the agricultural transformation fund align with, or even complement, the Scottish national investment bank?

I understand that the bank is intended to provide financial assistance for commercial activities that will be carried out by a wide range of non-public sector bodies including businesses, housing associations, universities, social enterprises and third sector bodies. The bank will also have a wider role, and I want to ensure that any funding that is offered through financial transactions via the agricultural programme will not double-fund activities—that would not be appropriate—nor offer products that compete with the Scottish national investment bank.

As to the costs, we are examining the terms of loans that could be made under those financial transactions. We have to consider state aid implications, the ability of those who receive loans to repay what is borrowed, the length of the repayment period, the interest rates that would be applicable and the type of projects that would be funded. All those factors need to be considered carefully, as with any other public finance scheme, to ensure that value for money is secured while benefit is provided to the applicants.

We will now have questions from the deputy convener, Maureen Watt.

I understand that the rural economy portfolio is the third-highest-emitting portfolio and the most carbon intensive. Has there been any analysis of how the agricultural modernisation fund is intended to bring down the carbon intensity of that portfolio in terms of emissions per £1 spent?

I am no expert on the statistical analysis, but it is a bit unfair to characterise the rural sector as the worst offender. First, it should be acknowledged that an awful lot of progress has been made over the years, thanks to the many farmers and crofters involved.

Secondly, although the sector is, indeed, an emitter, it is also a sequesterer. I am told that agricultural use is responsible for sequestering 9.7 megatonnes of carbon dioxide equivalent; however, that does not give the whole picture, because there are benefits in respect of carbon sequestration and carbon sink through tree planting and peatland restoration, for example. My point is that things have to be considered in the round.

Our ambition is to go further, which is one of the reasons I invited the former NFUS president, Jim Walker, to set up a beef group on the climate. The group met on Monday this week, and it is due to report in March. It is working with bodies such as WWF, which recently produced an independent report that I discussed with representatives of WWF yesterday.

There is more to be done, and we are up for it. This is a very green budget. I know that Mr Finnie and his colleagues will be agog with enthusiasm in their desire to ensure that the budget is passed as quickly as possible, so that we can get on with it and get things done.

I will come back to the deputy convener, because Mr Finnie is lost for words for the moment.

I take your point about the agriculture sector being a sequesterer as well as an emitter, cabinet secretary, but the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019 requires the Scottish ministers to develop

“a whole farm approach to emissions accounting”

and to set out

“proposals and policies regarding … the reduction of Scottish whole farm greenhouse gas emissions through the use of … research … knowledge transfer and advice”.

How will those interventions be funded? One of the climate change plans contained an objective to deliver a nitrogen balance sheet for Scotland, but that is not specified in the budget proposals. How will that be funded, and how will it fit in?

Maureen Watt is correct in saying that we have not yet identified precisely how that objective will be funded, but that task will be carried out in the course of the year. We are, indeed, committed to establishing a nitrogen balance sheet. I understand that that work will touch on a number of portfolios, so the work of identifying who pays will have to be done concurrently, across portfolios, to ensure that the measure does what it is intended to do. It is a pan-Scottish Government development; it is not simply for this portfolio.

You are right in saying that the proposal is not identified in the budget, but that is because we have not yet embarked on the task of devising it, and it will be a cross-directorate task. We will have to work out who should pay, how the cost should be shared and so on. That will depend on the nature of the costs, which I hope will not be enormous.

The UK Committee on Climate Change recommended reducing food waste and the consumption of the most energy-intensive foods. In its climate change plan, the Scottish Government must set out proposals to reduce emissions associated with consumption in Scotland. That should be set in the context that Scotland’s beef production accounts for only 0.3 per cent of the total world production, while the figures for lamb and pork are even lower. Has the Scottish Government committed any spend towards that aim?

Zero Waste Scotland, which is the primary body for dealing with that issue, does not lie within my area of responsibility, but you are absolutely right in everything that you say: the target is to reduce food waste by a third by 2025. We have an action plan that says how that will be done. As I say, that does not come under my portfolio, but we obviously welcome the work that the delivery body, Zero Waste Scotland, is doing.

The role of the rural economy portfolio is plainly to provide healthy food—including for kids, through the food for life programme. Food for Life Scotland does great work in schools, including in Crown primary school, in my constituency, which I have visited. More local authorities are signing up to that programme, which involves good, locally produced fresh food and fresh meat as opposed to processed meat. Those are all good things, and we are working with public bodies to encourage procurement officers to do more on that issue.

We have already increased the range of procurement from Scotland by about 10 per cent. That is on-going work with our partners in local government.

Farm visits help to inculcate knowledge about healthy food among children, which is a good thing. Bodies such as the Royal Highland Education Trust and the Royal Highland Show help tens of thousands of children to learn about farming and healthy food.

I could go on but, as you will know, convener, I always want to be brief.

It certainly concerns me. That is at least the second time today that you have said that.

I must apologise, because four members—Angus MacDonald, Richard Lyle, Jamie Greene and John Finnie—had questions that we are not going to get to. Those questions, which the members notified me that they wanted to ask, will be submitted as written questions to the cabinet secretary.

I am afraid that we have come to the end of our evidence session, taking into account the early sitting of Parliament this afternoon. I thank the cabinet secretary and his officials for attending the meeting.

Meeting closed at 12:30.