Finance Committee, 19 Apr 2005

Meeting date: Tuesday, April 19, 2005

Official Report 270KB pdf

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Environmental Assessment (Scotland) Bill: Financial Memorandum

We resume to deal with the second item on our agenda, which is scrutiny of the financial memorandum to the Environmental Assessment (Scotland) Bill. The bill was introduced on 2 March by Ross Finnie, the Minister for Environment and Rural Development. The committee agreed that it would undertake level 2 scrutiny of the bill, which involves taking written evidence from organisations on which costs could fall and oral evidence from Executive officials.

From the Executive we welcome Sandy Cameron, deputy director of sustainable development directorate, environment group; Jon Rathjen, bill team leader; and Janet Brunton, deputy bill team leader. We have submissions from Scottish Natural Heritage and the Scottish Environment Protection Agency. We also received submissions from the Convention of Scottish Local Authorities and Historic Scotland, which arrived late and were circulated to members on Friday.

As is our normal practice, I ask the witnesses whether they want to make a brief opening statement, after which we will proceed to questions.

Thank you for inviting us to give evidence today. The Scottish Executive believes that the bill, if enacted by the Scottish Parliament, will have three major benefits: it will improve the protection of Scotland's environment; improve the quality of public policy making; and create more open government in Scotland by giving the public rights to comment on the environmental effects of policies, plans and programmes.

Those benefits will have resource implications. All Scottish public bodies preparing policies, plans and programmes will need to comply with this good-practice legislation. We have worked hard to assess the costs as accurately as possible. We have identified the main areas of uncertainty, such as the number of plans that are likely to be produced each year and the likely average cost of preparing an environmental assessment. We have used a consultancy report to help us and supplemented that work with internal surveys in the Executive and discussions with key officials in the Executive and other public bodies. We continue to work on those matters with stakeholders such as COSLA. That work has resulted in a set of soundly based and robust costings. However, we have been cautious, and our calculations are in the upper range. The total additional costs should not be as high as stated. For example, environmental assessment work is already carried out. Indeed, some councils now carry out full strategic environmental assessments. Undoubtedly, costs will fall as public bodies gain expertise in the preparation of reports and the use of environmental data.

We will deliver a number of important supporting initiatives. We will provide comprehensive guidance, encourage the use of standard templates for environmental assessment, capacity build and undertake a case-tracking project to reduce costs without reducing quality in order to achieve the benefits of the bill with best efficiency. Crucially, we note the downstream benefits in avoiding environmental damage. Investing in careful consideration of environmental issues now should save costs in sorting out environmental damage in the future.

Thank you. A cursory look through the submissions, particularly those from SEPA, SNH and Historic Scotland, reveals that the one thing that they all have in common is the fact that, far from thinking that you have been over-generous with your allocation, they suggest that the funds have not been allocated as generously as they might have hoped. That theme runs through the various submissions that we have received.

My questions relate to the SEPA submission. I understand that SEPA commissioned its research from the Babtie Group, as did the Executive. SEPA argues with your figures. In its submission, it claims that although the financial memorandum says that the total cost to SEPA and SNH will be £1.35 million, of which £675,000 is attributable to SEPA, in its view £900,000 is a more realistic figure. Why do you think that there is such a disparity between the Executive's figures and SEPA's figures, given that they are based on the same research?

The Babtie research was carried out some time ago and a lot of work has been done since then. The figure of £1.65 million, which is for the costs of the consultation bodies' work, in essence combines the figures with which the three consultation bodies provided us—£300,000 for Historic Scotland and £1.35 million for SEPA and SNH. I am not aware of a contradiction there.

You disagree with SEPA's figures; SEPA stated that its costs are more likely to be just under £1 million at £900,000.

The figure that we have quoted in the financial memorandum is £1.35 million for SNH and SEPA, with which I think they agree. If I read SEPA's evidence correctly, the disagreement relates to the fact that it says that the funding allocation that it has received in the three-year settlement ahead is lower than it had expected. That is perhaps where it is saying that the funding shortfall lies. The Executive allocates a gross budget, so it allocated £35.5 million this year. It is for SEPA to decide what it gives to each priority in its work. It is a little difficult for us to talk about exactly how much money has been given to the priority of SEA in SEPA's work, because the Executive gives SEPA a bulk figure for all its priorities.

SEPA also argues that it will have to provide much wider support for responsible authorities beyond the statutory SEA stages. What is included in the quoted figures? Do they anticipate the cost of providing the wider support that SEPA is talking about?

Yes. We expect SEPA to do a range of things. We expect it to manage the statutory elements of responding to the screening stage and the scoping stage. Beyond that, it has work to do in the provision of data and in the explanation of the data that it holds. However, it does that work already; it is a current obligation. There might be a more intense demand for the data, but it is used to handling that work.

The other work that SEPA is talking about is in areas such as responding to consultations, which is not a statutory SEA obligation. SEPA has to go through a scoping stage, but when it comes to the public consultation it is just another consultee like everybody else. It has a choice. It already has a good go at the material at the scoping stage and a lot of input, which we expect will reduce the amount of work that it has to do at the later consultation stage—work that it already does. It might do other informal work, such as dealing with people who call to ask its advice about the process. That will be additional work, but it is part of the relationship that it has with the stakeholders. We are not building new relationships; we are just talking about another aspect of existing relationships.

So you are saying that the miscellaneous costs for consultation authorities have been taken into account in the figures that you have provided.

Indeed.

I want to focus on the position of responsible authorities, particularly local authorities. Fairly strong language is used in the COSLA submission that we received. It states:

"We also believe that the Scottish Executive itself is hugely underestimating the scale of SEA … COSLA does not believe that the assumptions made accurately reflect the cost to responsible authorities, specifically local authorities."

How do you respond to that?

In the financial memorandum we have tried to consider the gross costs. We have shown the maximum possible—in a number of cases we have shown it with a plus or minus 25 per cent margin of error. We have assumed that environmental assessments will be carried out by consultants. The estimated cost of those consultants is higher than that in the equivalent legislation in England. In practice, we would expect most public bodies, certainly those of a significant size, to develop expertise to do the work in house, which would be cheaper than consultancy rates. Our view is that COSLA's concerns are not justified. We think that what we show in the financial memorandum—with a maximum figure of something around £14 million for the whole public sector—is right at the top end. We do not share COSLA's concerns that we are underestimating costs.

COSLA chooses to unpack issues such as the costs associated with creating the skills set required to do the work, perhaps across more than one council department, which is an interesting issue that needs to be addressed. It also questions your estimate of the number of SEAs that might have to be undertaken in a single year and says that, in a sense, the bill creates rights for people to ask for assessments to be carried out and therefore may create an expectation that they will be undertaken. Its estimate of the likely load is significantly different from your assumptions. Do you have comments to make in response to that?

On expertise, COSLA is right to some extent. Clearly there is a need to build up expertise in this area. We are working closely with COSLA on an initiative in which we will be taking some of the cases that are already being processed under the current regulations and considering some of the issues that arise in terms of workload and skills.

We have considered carefully the issue of the public's ability to ask for cases to be considered. Clearly the cases that are covered by the European regulations, which are already in force, are strictly controlled. There is little that we can do to affect that. We have transposed the European regulations.

The bill will cover a wider range of cases—the partnership agreement made a commitment to introduce SEA for all policies, plans and programmes. We are proposing that with those policies, plans and programmes that are likely to have no—or minimal—environmental effect, the responsible authority, which would be the local authority, would be able to say, "We don't need to proceed to the next stage." Plans for schools have been given a specific exemption. That means that we will consider taking on to the next stage only those cases in which there is a reasonable argument that there will be significant environmental effects. That will involve significant work for local authorities.

It is clear to us—although we cannot quantify the extent of the trend—that progressive local authorities are already doing a significant amount of work in this area, even though it may not be formalised in quite the way that is required under SEA. Indeed, we have already come across cases in which local authorities have done full SEAs when they were not statutorily required to do them.

I will pursue that shortly, after I have asked a related question. As the minister has just told us, we anticipate that a planning bill will be introduced later on in the year. There is every chance that it will have a significant effect on the planning process, if the consultation and the outcomes from it are anything to go by.

In the Environmental Assessment (Scotland) Bill, you propose a change that will be implemented in advance of the introduction of the planning legislation. There is no reason to suppose that that change will be co-ordinated effectively with the outcome of the planning reform process. Is now the right time to be introducing such a significant change for local government, when the whole system to which it relates is likely to be thrown up in the air and to have a different shape when it lands?

Of course, that change has already taken place. Many of the local authority plans that would be affected by a planning bill are covered by last year's transposition of the European regulations.

On your wider point, if SEA is to work as efficiently as possible, it is vital that it routinely forms a part of any public planning process. That applies not just to local authority plans, but to steps that the Executive takes on matters such as economic development. The assumption is that environmental consequences should be considered when alternatives are weighed up. In our view, the nature of planning is not sufficiently different that a special problem arises. It is simply that consideration of environmental consequences will be a fundamental part of the policy-making process.

But from a statutory point of view, planning is separate. Anyone who has local authority experience knows that the obligations on elected members and officials in the context of planning are guided by a legal framework that is different from that which applies in most other local authority contexts. Again, I put it to you that the planning process is likely to be disturbed significantly when the legal elements of the application of SEA come through. Is work on the bill and on planning reform being properly co-ordinated with regard to the overall implications for local government in particular? COSLA has made it clear that it would have preferred a different mechanism, whereby SEA was trialled and implemented over a longer timescale.

Throughout the process, we have been working extremely closely with planning colleagues. There is no doubt that the full consequences of SEA will be taken into account in the planning bill. There is no gap in that regard.

The financial memorandum is useful in that it shows how we have looked ahead at the cycle of plans, which last for three, four or five years; indeed, many plans have an even longer cycle. You suggest that we are imposing a duty on local authorities in the short term, but the reality is that new plans trickle in in quite small numbers. That has proved to be our experience under the regulations and I am sure that it will continue to be the case under the bill. Let us say that the bill is enacted in early 2006—that is a reasonable estimate. It would affect new plans—some of which have a five-year cycle—that are produced after that date. We are talking about a slow build-up over quite a number of years. If we were to delay the bill for another year or two, that would not have a significant effect. Since the regulations came into force in July, we have had about 12 or 14 plans to deal with. Our desks were not suddenly covered with huge piles of cases on day one. There will be a gradual build-up over time.

I do not think that delaying the bill by a year would make much difference. The SEA directive was introduced back in 2001, so the concept of environmental assessment has not bounced on to the scene in a matter of hours. Slow progress has been made over a number of years and SEA will continue to be incorporated into the system gradually. The process is about more than planning; it is about changing the way in which we develop plans, programmes and strategies across a range of subject matters. Environmental assessment does not have implications just for planning; its implications are broader than that.

I do not take that as a comfort; indeed, that makes matters more complicated. My point is that planning is the area that is most likely to be directly affected by the bill. It is almost inevitable that planning will face significant legislative change in the next 12 months. The fact that the bill's impact will extend beyond planning means that some co-ordination between planning departments and other local authority departments will be necessary. As that requirement has not explicitly been taken account of, COSLA feels that its members will be presented with significant problems. The breadth of the impact of SEA is a compounding rather than an alleviating factor.

It is easy to identify which members are former councillors from their concerns about the planning system. I concur with the comments that have been made. Planning officers are already overburdened with work, but that is not an issue for the Finance Committee.

It has been pointed out on several occasions that the Executive's financial estimates are at the top end. Does the Executive have any plans to review the costs of implementing the bill after a year, or at some other point down the line?

We will certainly review the costs, but it is important to emphasise Jon Rathjen's point, which was that we are talking about the costs that will be incurred once the full system is up and running and we are processing the plans that will come in at the top of the cycle. We mentioned the costs on the consultation bodies such as SEPA and SNH. Those costs will start to kick in only once the regulations are in place and the bill's provisions have been commenced and in operation for more than two years, which is when the larger number of cases that it covers will start to come in. We will monitor such matters, on which we are regularly in close contact with bodies such as SEPA.

I do not want to labour the point, but there is a divergence of views on how much it will cost to implement the bill. Your views on that are different from those of SEPA, for example. How would the Executive respond if SEPA thought that more money was necessary to ensure that the bill worked?

I am sure that SEPA would make well known its views to the SEPA-sponsoring division and the minister and that its representations would be taken into account when its annual allocations were made.

What is your response to COSLA, which feels that extending SEA beyond the regulations will strain the responsible authorities too much and that going about the process in a more measured way would deliver better outcomes in the longer term?

Arguably, we have gone about our work on SEA in a measured way. Last year, we introduced regulations that cover half the cases that will be covered by the bill. The fact that the number of cases will build up relatively slowly means that we will be on a learning curve. We are already considering the lessons that can be learned from the first cases. We do not see that as an insuperable management problem. The legislation is a priority for Scottish Executive ministers and, when they appear before the relevant committees of the Parliament, they will, no doubt, stress that.

We are interested in the financial aspects rather than the policy aspects.

COSLA alleges that, at a meeting with ministers, it

"voluntarily offered to trial SEA across council services in two or three local authorities",

which it believes

"would help quantify the resource implications of the Bill."

However, it adds:

"Regrettably, we still await the start of this pilot."

Why not take advantage of that offer?

The simple answer is that we have taken advantage of that. We have worked with COSLA and have met it to discuss suitable cases to track forward. We have put a project plan together, which is currently with COSLA to consider, and we have taken active steps. It is important that we consider some of the early cases and the implications for resources and cost, and we are doing that. Perhaps there is a timing issue to do with evidence and the process, but that work is happening.

The focus of the bill is obviously on the assessments that are to be made. One of the points that COSLA might have made but which it did not make strongly in its submission is to do with the monitoring of the specific recommendations that are made. Do you see that purely as something that local authorities should subsume under their existing responsibilities, or do you recognise that additional burdens will fall on responsible authorities, especially local government, as a result of the outcomes of SEAs, which have not been quantified in the financial memorandum?

That is a very difficult area to quantify for the simple reason that the provisions of the bill ask local authorities to describe how they will monitor. Until we have hard evidence of how they will do that work, it will be extremely difficult to put costs to it. A lot of monitoring activity is already under way, much of which is being undertaken by responsible authorities and by a number of environmental agencies; however, it is not yet clear whether there will be additional needs. It is quite likely that there will be some additional data and monitoring needs, but we do not know what those will be.

In part, it is in the hands of the responsible authorities to set out how they intend to deal with monitoring, so it is quite difficult for us to comment. We are not imposing a monitoring regime; we have left it as a fairly light provision in the bill. We have said that authorities must look out for and take account of unforeseen effects. I know that it is quite an odd thing to try to monitor for an unforeseen effect, but the whole process of SEA is designed to reduce damage to the environment—to reduce the risk of things happening. The fact that there should be less environmental damage and the fact that it will be more predictable—because the authorities will have done more analysis beforehand—mean that the monitoring job should be easier at the end of the process. Monitoring should be a more predictable job.

I can see how one might think that when approaching SEA as a theoretical model. However, in practice, it is likely that the developments that are subjected to those monitoring processes will be contested and that a local authority will be tied into either doing the monitoring itself or supervising the monitoring process. It is almost inevitable that there will be additional burdens for local government arising from SEAs. The Executive cannot say that SEAs are a good idea and that it will—however adequately or inadequately—deal with the start-up costs that are associated with them, but that, because we do not know what the outcome will be, significant financial implications are unlikely. I suspect that the monitoring will have significant financial implications.

In the financial memorandum, we state that we understand that monitoring is an obligation and that we know that it will have implications, although we do not know what they are at this stage. Some of the work that we are doing on case tracking may help us to find some answers to that. Indeed, as is normal practice, we will review the bill after a number of years to see what its impact has been and how it has operated in the field. Such a review may shed a bit more light on the area.

We have talked about SEAs in the context of local plans across local authority areas or parts of local authority areas. The bill will allow, and perhaps encourage, people to request SEAs for specific, significant projects that developers or other public agencies put forward.

I was involved with a huge reservoir and water treatment plant project in East Dunbartonshire. The fact that the project was to be in that local authority area imposed a significant burden on the local authority, not just in the planning process but, subsequently, in the carrying out of strategic environmental assessments and the monitoring of the environmental impact of a major project that cost £100 million. Even before the new system is introduced and a framework of legal requirements is set up, a significant cost to local authorities arises from projects that happen to take place in their areas. You will be aware of that from the example that I gave, if from no other. Is there any sense that, under such circumstances, there will be a burden on the developer to pay at least part of the cost of carrying out the SEA that is necessitated by a project? In the example that I have cited, the developer was Scottish Water, but I presume that housing developers and other developers will propose projects that will have a significant environmental impact, which will require SEAs.

The difference is that the bill is not about individual building projects, which would be covered by environmental impact assessments; it is about public sector-generated policies, plans and programmes that in a sense set a framework for individual development projects that developers come along with. It would cover a Scottish Executive economic development plan, and it would probably cover the industrial regeneration plan that is proposed for the Borders. However, it would not cover a company's individual application, under the planning system, to build a factory.

I understand that. However, when Scottish Water, which is a public agency, produces a strategic plan for its water infrastructure investment, that plan impacts on a variety of local authorities. In the example that I cited, it impacted in a specific way on East Dunbartonshire Council, because of the topography of the area. Scottish Borders Council might provide another case in point. There might be a development plan for the Borders, which would be a public agency plan, but I suspect that private sector developers would have an interest in aspects of that plan. Should all the burden fall on the local authority to deal with what are, in effect, planning applications or strategic development plans that are put forward either by other public agencies or by a combination of public and private sector agencies, which will feed into the broader plan as well as being specific planning applications?

Jon Rathjen may have something to say on that. I understand the point that you are making. The difficulty is that, in the vast majority of the plans that are produced, it is not possible to identify a specific individual private sector developer who would create a development under a particular project, whether it is an industrial development policy, a health service plan or whatever. The issue is problematic.

The bill is quite simple in that it says that there must be one identified responsible authority for each plan. However, it is entirely possible that people will work in collaboration. Through community planning partnerships and linkages with private organisations, it is entirely possible that people will come together to develop SEAs. From a legislative point of view, and because of the timing issue to which Sandy Cameron has alluded, we need to have one responsible authority for each plan to ensure that the assessment happens; however, it is quite likely that people will work together on such things. We have seen examples of that happening elsewhere in the UK, but more informally.

The poor old local authority, with responsibility for its own territory, has to pick up the financial burden. Although the authority may be involved in them, the plans may belong to someone else and may involve others as well. Despite that, it is the authority alone that picks up the environmental financial burden.

That is absolutely true. However, although there are costs, we are working with all public bodies to try to make the system as cost effective as possible.

If new plans cause damage, public bodies—particularly local authorities—have to pick up the cost of environmental remediation. However, the priority is to make local environments better and to avoid environmental damage.

If the legislation goes through, the measures will be implemented around 2007-08.

Perhaps earlier than that, in 2006.

But full implementation will be around 2007-08, which, according to the minister, will be the most difficult year for local authorities.

My question is for Sandy Cameron. How will we factor this new burden into the general local authority settlement? It may have been unfair to ask you that question, but how does the mechanism work in general? We know the broad figures, but how can the resource requirements that you have identified in relation to the bill be incorporated into the local authority settlement in a way that is transparent and is not seen as a simple juggling of figures by the Executive?

Scottish Executive support to local authorities is assessed regularly in the spending rounds. As you can imagine, local authorities have to carry out a huge number of new obligations—although, to be fair, there are sometimes reductions in obligations too. Those changes are taken into account in the way in which the gross figure is assessed. Our colleagues in the Scottish Executive Finance and Central Services Department are aware of the figures in the financial memorandum; the figures will be considered appropriately along with all other issues.

Ministers are saying that, in public sector decision making, we have not previously taken sufficient account of the environment. That applies across the board—not only in central Government but in all public bodies. We are paying the cost of that and ministers are saying that we need to change. A new standard is being established. That standard is already being implemented voluntarily by some local authorities, but it must become the standard for all local authorities.

I agree with Des McNulty's point. I want to be sure that the witnesses are fully aware of the depth of COSLA's reservations about the proposals. Have you had a chance to look at COSLA's submission?

Yes, we have.

You will have noticed that COSLA feels that

"the margins of uncertainty offer little or no comfort especially since there can have been no anticipation on the part of local authorities, in the recent spending round, as to the need to allocate significant resources to the SEA process."

COSLA also believes

"that the Scottish Executive itself is hugely underestimating the scale of SEA."

That is fairly serious criticism.

It is a strong statement. In response, we would say that, in preparing the financial memorandum, we have sought to follow guidance from this committee. We have been extremely careful and cautious in our estimates, and the figures given are at the upper end of those estimates. In a number of areas, we think that costs will be lower because of existing expertise and other considerations.

We believe that Scottish local authorities and other public bodies will become pretty good at producing policies, plans and programmes that take account of the environment as part of the process. That will result in greatly increased efficiency; lower figures than those in the financial memorandum; much better decision making; and a better environment for Scotland.

We understand COSLA's concerns but think that they are misplaced in this case.

I thank the witnesses for their advice. The issues raised by COSLA have been the key elements of our questions. Our report will take account of those issues and of the responses that we have heard.