Item 2 on the agenda relates to the Scottish Executive's budget proposals. The purpose of this item is to hear a general explanation of the budget. We then have a couple of weeks to consider what we have heard. After that there will be a further opportunity to obtain information at an informal question-and-answer session. We then have to report formally our views to the Finance Committee. [Interruption.] I have just been informed that there is a slight problem with the recording equipment. I will suspend the meeting for a couple of minutes so that we can get it fixed.
Meeting adjourned.
On resuming—
We seem to be in business again. As I said, some of the points that we raised earlier will be explained to us. We will have another opportunity at an informal meeting in a couple of weeks to pursue the issues that are raised by the responses. After that, we will have to meet formally and agree our report to the Finance Committee.
We propose to spend no more than 10 minutes on giving the committee a broad overview of the budget, during which we will deal with some of the questions that the committee has raised. Members may then follow that with questions if they do not understand our explanations.
As the secretary of the department said, our spending is dominated by the £300 million to £400 million that is spent on the common agricultural policy market support scheme. Such schemes are mandatory in Scotland, as they are elsewhere in the UK and across the European Community. They are entirely reimbursed by the European agricultural guidance and guarantees fund, which is known as the EAGGF.
I will briefly cover the impact of the value of sterling, particularly on the first line of table 6.1, "Market Support (CAP)". Expenditure on the reach of the schemes involved in this—the payment rates—is set in euros. As sterling appreciates against the euro, or as the euro weakens against sterling, the sterling equivalent falls in the UK. It has been falling markedly over the past couple of years. The payment rates are based on a set of operative dates for each of the schemes—each scheme has its own dates. It is the sterling-euro rate on a particular day that determines what the payment will be in sterling. That then determines, as David Dalgetty has pointed out, what we draw down from the European guidance and guarantee fund.
I will ask Duncan Macniven to say a word about how the Forestry Commission fits into this, and how the separate Scottish system works. Members will appreciate that the Forestry Commission is not part of my responsibility.
The Forestry Commission is an odd beast. We answer, post-devolution, to the three administrations—we have a GB department—and we dance to their tune. With a lot of flexibility, it is possible to deal with matters differently in different parts of the country.
Thank you. Obviously, we will get another chance to ask questions later, but I suspect that colleagues may have some questions now.
On the other hand, the amount being modulated is being matched by a similar amount. Is that coming out of the Scottish block?
As you acknowledge, deputy convener, the consultation period on modulation has just finished and ministers have not announced their final view or what they would use the modulation funds for. In principle, however, you are right: the payments that are to be modulated would be the on-farm payments—the £300 million or £400 million of payments under the livestock and arable schemes. The modulation that is being considered would start at 1.5 per cent in 2001. The proposition then would be for that percentage—which, in Scotland, might represent £10 million or £11 million—to be matched by funds from the Exchequer. It would not be part of the block-grant arrangement.
Does that imply that, as the payments are calculated in euros, the matched sum depends on the value of the payments at the time that they are made?
Yes.
Okay. I do not think that I want to pursue that.
My understanding is that there cannot be separate modulation rates within a member state, although I will make an effort to find out whether that is right.
The Finance Committee has asked us to consider whether the targets and objectives in the budget are appropriate. SERAD has two targets: to support 280 on-going and new core research and development projects and to award 40 per cent of the flexible fund contracts by open competition. It would be helpful for us to know the current position as regards those targets.
The targets in the document are not the sum total of the targets to which those managing the budget are working. We could enlarge on that in the more detailed session that you are planning.
I have a different opinion, but I do not want to get into that debate now.
What is the easiest way in which to ascertain how much the Scottish Executive spends on rural affairs?
The pat answer is to parry with a question and ask how one defines rural affairs. The department's spend is largely devoted to rural affairs, although some of the science spend has a rather tenuous link with rural affairs. We are in the science programme, supporting the Scottish and UK science base. The benefits that flow from the research that we are funding will not accrue to rural Scotland exclusively. Clearly, other elements of the Executive support rural development in Scotland—for example, the enterprise and lifelong learning department supports Highlands and Islands Enterprise. The question is not easy to answer. However, if Mr Lochhead assembles a commentary on overall Executive spend in rural Scotland, we would certainly try to assess it.
That would be helpful. I am interested in what David Dalgetty called the domestic element—the cash that comes out of the Scottish block that is not linked to European funding—which he said accounted for roughly a quarter of the budget figures.
In the quarter that we get, the biggest amount is for the research and science-based spending. A small part of that quarter is devoted to things such as the crofting building grants and loans scheme, the crofting counties agricultural grants scheme and, strangely enough, the rural development measures under objectives 1 and 5(b). Those are marginal, structural agricultural schemes, which—ironically—are part of that money.
How much of the discretionary element of the funding comes out of the Scottish block?
Some £160 million, give or take.
How does that compare year on year?
The figures are rising slightly, but in real terms the amount is broadly flat.
Do you have percentage indicators for that?
We could supply those figures.
Since the comprehensive spending review in 1998, there has been a modest increase in provision for our agri-environment scheme spending. We fund about 60 per cent of that spend from our domestic money. There has also been an increase in the capital provision in the order of £6 million for the Scottish Agricultural College and the Scottish agriculture and biological research institutes. As John Graham suggests, those are relatively modest increases.
Do you have percentages to compare what is happening in other departments?
I do not carry them in my head.
You suggested that the figures were relatively flat for the rural affairs department. I would like to see some comparisons with the figures for other departments.
We could produce some comparisons; they would show, for example, that spending in the health department is rising more rapidly than spending in the rural affairs department.
My final question is on the fisheries figures, which go from 6.7 to 7.5 to 5.0 to 4.9. Can you explain that decline?
We are operating a grant scheme, so we are dependent, to an extent, on what projects come in, when they are completed and when the grant becomes payable. With such spending, we quite often find ourselves supplementing the originally planned provision in year, either because a particularly attractive project comes up or because there is a bunching of payments on a series of projects to which we have become committed. Factors such as those lie behind the figure of 7, which I think appears for one of the years in the line that you are looking at. David Dalgetty knows more about the detail.
The standing baseline provision for fisheries reflects the nature of the regimes. On the farming side, the common agricultural policy not only provides for a great deal of individual farm support to farmers, but requires us to give that support. It is not a matter of choice—there is provision for, and a requirement to pay, large sums of money to farmers.
Do any budgetary implications flow from the Executive's commitment to the community right to buy and rights of access in the land reform proposals? If so, where are they in the budget figures that are before us?
On access, the budgetary implications are found in the Scottish Natural Heritage budget, which is part of the rural affairs department but not part of the rural affairs budget that you are looking at. In other words, it is the province of the Transport and the Environment Committee, which is where the forecast impact of the access legislation is found.
The figure is £10.78 million.
That fund will support activities that flow from the right-to-buy legislation. That lottery funding is completely outside the Scottish block arrangements.
In that case, in what way is the budget that is presented to the Rural Affairs Committee today different from the budget that was presented in the regime before devolution and before the rural affairs department came into existence? Has the presentation changed?
Apart from the fact that, in the previous year's presentation, the environment spend was included in our chapter because we presented the budget by official department rather than by ministerial portfolio, the range of spending that is covered in the report is the same as before, because the functions of the department are, in essence, the same. David Dalgetty is closer than me to the preparation of the document. Have I missed any significant differences?
No. In previous years, we would not have had this interesting discussion between the legislature and the Executive over the detail of the proposals.
I am trying to tease out the change in the direction of the budget. Am I wrong in suggesting that the direction has not changed very much? Here today, the Rural Affairs Committee is examining the rural affairs department. However, when you said that SNH was for the Transport and the Environment Committee to examine, I got the feeling that we seemed to be back to the old department structure, which covered only agriculture, fisheries and food. Is the department now really a rural affairs department, or has there just been a change of name?
The manifestation of the existence of the rural affairs department is probably coming through elsewhere in the work of the Executive; it is not coming through in a huge new spend from the department. That is largely because, as we have explained, so much of our spending is EU determined and EU dominated. The functions for which we are responsible as a department—agriculture and fisheries—are heavily dominated by European regimes. Shifts are certainly going on elsewhere in the Executive, in the attention and priority that is given to rural Scotland as a result of the existence of a rural affairs department and a Minister for Rural Affairs.
Control of the budget seems to be elsewhere, however.
That would be true for any of the policy issues that run across the Executive. Other people control budgets that are of interest to those promoting the cross-Executive policy, be it sustainable development, social justice or what have you.
To what extent would it be fair to say that, although the Minister for Rural Affairs has an overarching interest in rural matters, that is not necessarily mirrored by his department, which is more like the traditional department?
That would be a fair statement of the position but, as I said to Mr Rumbles, the Minister for Rural Affairs is not alone in that. For example, the Minister for Communities is in the lead on the Executive's policies on social justice but does not, by any means, control all the key budgets that contribute to social justice, such as education, health and so on. The Executive is working corporately in all those areas.
On discretionary versus non-discretionary funding, how much of the Scottish Executive block of £16.5 billion will come to your department?
The answer is essentially the same as the figure that I gave you earlier—around £160 million of our spending sits inside the block.
Are you saying to the committee that, of £16.5 billion, the minister is directing around £160 million to your department?
That is right.
That is a tiny percentage of the block.
Yes. My response would be along the lines of the point that we made earlier. The bulk of the expenditure is constrained by the EU framework within which it is made; it is funded by Europe directly. The department is in some senses an agent of the Commission in administering CAP measures in Scotland.
Another way of looking at the situation is to recognise that the influence that the minister can exercise on the direction of EU-funded spending and of the spending that is settled at UK level is extremely important. As it happens, that is the business that he is in this afternoon, at one of the periodic meetings of the agriculture ministers in London. That is how we try to ensure that EU spending is directed at the priorities that matter to Scottish agriculture.
There is time for one final question, from Elaine Murray.
I presume that the figures in the tables in "Investing in You" are in cash terms rather than in real terms.
That is right.
Have you considered presenting the figures in real terms?
Unless I am mistaken, there is a table at the back that presents the figures in that way. That happens for each chapter of the report.
It is table 6.10.
Can you break the figures down further than that? The table shows only headline figures, and no analysis of those figures.
We do not do that systematically. The figures have been presented like this for the first time this year in all chapters of the departmental report, but only for the main spending blocks. The CAP element so distorts the comparison that it would be of doubtful value to present those figures in aggregate terms.
Thank you for your attendance and your answers, gentlemen.
Meeting closed at 16:15.