Finance Committee, 19 Sep 2006

Meeting date: Tuesday, September 19, 2006

Official Report 219KB pdf

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Aquaculture and Fisheries (Scotland) Bill: Financial Memorandum

Item 2 is consideration of the financial memorandum to the Aquaculture and Fisheries (Scotland) Bill. We decided to adopt level 2 scrutiny, which involves taking written evidence from bodies on which costs fall and oral evidence from Executive officials. I welcome officials from the Scottish Executive Environment and Rural Affairs Department: David Ford is the bill team leader—he must have done something really good in a past life; Dave Wyman is head of the aquaculture health and welfare branch; and Dr Pauline Munro is group leader in the Fisheries Research Services fish health inspectorate. David Ford will make a short opening statement before we proceed to questions.

Thank you for giving us an opportunity to explain the financial aspects of the bill. I am the bill team leader and I might field some questions to Dave Wyman and Pauline Munro.

The bill is a product of the Executive's strategic framework for Scottish aquaculture, which was developed from work undertaken by the ministerial working group on aquaculture. The working group, which was set up by ministers, included stakeholders from aquaculture, freshwater fisheries and environmental non-governmental organisations. The strategy document, which was published in 2003, envisaged an industry code of practice that would be backed up by legislation to deal with non-compliance with the code. The bill is finely balanced to minimise additional cost burdens in the light of the Executive's commitment to support the aquaculture industry. The bill's provisions on freshwater fisheries were drawn up in collaboration with the freshwater fisheries forum, which is an open stakeholders forum that represents the majority of anglers.

Part 1 of the bill regulates for the control of parasites on fish farms and shellfish farms and for the prevention of escapes of fish from fish farms. There will be costs associated with inspection and enforcement, which will fall to the Scottish Executive through the fish health inspectorate. There should be no extra costs to fish farmers and shellfish farmers over and above those that would fall to them anyway in meeting the standards of good practice set out in their respective industries' codes of practice.

Part 2 provides a range of powers to tackle a virulent salmon parasite known by its Latin name—which, for the benefit of members who are not familiar with it, I will pronounce carefully—Gyrodactylus salaris. Experience in Norway and other countries has shown that that parasite, which lives in fresh and brackish waters but cannot survive in seawater, can kill between 90 and 95 per cent of affected salmon.

Part 3 amends existing freshwater fisheries legislation in a number of ways and makes one technical amendment to sea fisheries legislation. We do not anticipate any new costs associated with these measures.

Part 4 of the bill contains a number of miscellaneous provisions that carry potential costs for the Scottish Executive—notably, the powers to make payments and the provisions on the movement of fish.

Finally, I will clarify an issue that I gather is not readily understood. People have asked why two sections deal with the Scottish ministers' powers to make payments for fish disease: section 19 in respect of Gyrodactylus salaris and section 29 in respect of fish destroyed. Section 29 provides a power for the Scottish ministers to make payments for fish destroyed using their existing powers to control diseases of fish. The bill will extend those powers to cover the disease gyrodactylosis, which is caused by the parasite Gyrodactylus salaris. However, unlike other diseases of fish, action on Gyrodactylus salaris—

We can call it GS from now on.

Fair enough.

Action on GS could directly affect stakeholders other than fish farmers who have their fish destroyed, such as owners of non-salmon fishing rights and landowners whose property is affected during the construction of barriers. For that reason, particular provision has been made in respect of GS in section 19. There are no plans to compensate for losses other than direct losses. The reason why fish destroyed are specifically excluded from section 19 is that they are already covered in section 29.

We are happy to answer questions as well as we can.

Andrew Arbuckle has assumed responsibility for being our fish expert, so he can start.

I am glad that I can just say GS, although I spent all weekend learning the Latin name.

Among the more open-ended aspects of the bill are the provisions on compensation. You said that there are two proposals for compensation. I know that the boundaries are different, but do you envisage the compensation schemes operating at the same levels?

The amounts that would be paid would depend on the view that ministers took of the individual circumstances of each case. The reason for the different powers is not so much the level of compensation but to whom it would be paid. If there was an outbreak of a fish disease such as infectious salmon anaemia, ministers would use the provisions in section 29. If there was an outbreak involving GS, they would probably use the provisions in section 29 and section 19. They would use section 29 to compensate or make payments to fish farmers and section 19 to make payments, if required, to other directly affected stakeholders, such as riparian owners.

You will have heard the Minister for Finance and Public Service Reform discuss the difficulties with state aid. Are the compensation schemes that you envisage acceptable to the European Union?

We are not yet in a position to say that. It is likely that any payment scheme would come under the ambit of state aid and we would have to seek state aid clearance from the Commission. We have read the submission from the British Marine Finfish Association, which suggests that we present a generic scheme to the Commission to get preapproval. That is an interesting idea and we are interested in pursuing it. However, we cannot make any promises. It might be that a generic scheme would not be sufficient because it might be missing some of the required detail.

I know that fish farming is not a large industry in the European Union. However, are there any member states—or, indeed, states elsewhere in the world—that have such a compensation scheme?

I believe that there are one or two in the EU. I cannot speak for elsewhere in the world.

The financial memorandum gives an example relating to infectious salmon anaemia, stating that the cost to the public of an outbreak on a farm could be £1 million. If there were outbreaks on several farms, the bill could be quite considerable.

That is a fair observation. Again, it would fall to ministers at the time to make decisions relating to the scope and scale of an outbreak.

To go beyond the costs given in the financial memorandum, I will make a point about the ISA outbreak in 1998. At that time, the salmon farming industry estimated that its losses were of the order of £30 million, which is quite a frightening figure. However, farming practices then were different to current practices: it was not uncommon for fish to be moved from area to area, which meant that fish that were infected with ISA were moved before the disease became apparent, so a number of areas were infected.

Through the industry's code of good practice, we now have a presumption against movements between areas. That means that, were ISA to strike again, we would hope that it would be contained within the area of the outbreak.

Although you have minimised risk in that situation, you still have the problem of GS looming over you. Some of the actions that are proposed in the bill—blocking up rivers and so on—have major cost implications. We will not know the exact details until we have the independent report on how it is intended to deal with GS. When do you expect that report to come out?

The taskforce report is virtually complete. It should be published in the next month or so. It has yet to be put to the minister. An economic impact assessment is also under way. It goes through various scenarios that we would be faced with were GS to arrive. At the moment, we have some data that clearly indicate that the benefits of tackling an outbreak would far outweigh the costs of tackling an outbreak. However, we do not yet have the final report.

Mr Ford, you said that, under the bill, people would be compensated for loss of stock and that they would also be compensated for a loss of business because of an outbreak of GS.

I do not think that I was saying that.

You were talking about losses that would be experienced by riparian owners and other people of that sort.

That would be a direct loss. We envisaged a situation involving chemicals being added to a river in a way that killed all the fish in that river. If a riparian owner had a business involving fish that were not salmon—trout, for example—which would not be killed by GS, but which would be killed by the treatment, that would be a direct rather than a consequential loss, which, under the European convention on human rights, would be likely to require the option of the payment of compensation.

That is quite an important clarification. I was thinking of what happened following the foot-and-mouth outbreak, when compensation was paid only for loss of stock. No compensation was paid for loss of business, either to farming communities or to those that relied on tourism.

That is absolutely right. We would seek to match the terrestrial approach.

There could be an issue of precedent.

It seems that rights in relation to fish that are not salmon and which would otherwise survive are a special case.

I turn to the inspection provisions in the bill. Do you believe that sufficient resources have been allocated to the risk-based approach to inspecting for sea lice? Only one inspector will be responsible for visiting 300 farms from the top of the Shetland Isles right down to the south-west of Scotland. Have sufficient resources been allocated to that?

I believe so, because the scenario to which you refer is the one in which compliance with the code of good practice is high. As David Ford has said, in such circumstances we would adopt a light-touch approach. We would inspect only a percentage of fish farms—as well as using credible intelligence to decide which farms should be inspected, we would select a random sample of farms for inspection.

In a similar vein, you have allocated £11,000 for travel, subsistence and overtime. Given that we are talking about some of the more remote and inaccessible parts of the country, will that sum be sufficient?

I believe that it will be. The allocation is based on the present travel and subsistence figures for inspectors who travel to make fish health inspections.

Although the figures are expressed as one inspector's time, it is not the case that only one inspector will be dedicated to inspections for sea lice. About 10 per cent of the time of our 10 or 11 inspectors will be spent on inspections for sea lice, so they will not be rushing from Dumfries up to Shetland in one trip.

I take it that a similar principle applies to the control of farmed fish and measures to prevent them from escaping into the wild. An allocation has been made for only one inspector—albeit that that inspector will be extremely well paid, given that the sum that is allocated is £139,000. Will you explain why the figure is so high? Is it the case that that money will be shared among several inspectors, as with inspections for sea lice?

We anticipate that we will require a qualified engineer for that post. That is why the salary is higher.

Is the figure quoted just the salary or does it include additional costs?

It includes all the additional costs, including Fisheries Research Services overheads.

My next question goes back to compensation. One of the consultees expressed the concern that because many small-scale operators do not have sufficient financial resources, by the time any compensation was paid out it would be too late. That is a valid point, especially if there is an issue about having to go to Europe to ensure that the compensation scheme is valid. How do you respond to that concern?

The point that was made is valid. We will examine ways to get round that. The answer is probably not what you would like to hear: the scheme will be worked up and developed through secondary legislation, so we have some time to devote to that.

It should be borne in mind that without the power in the bill, the opportunity for compensation payments to be made is zero, which is presumably a worse scenario for a small fish farmer than one involving a slow or delayed scheme.

Another of the consultees expressed concern that the bill is a salmon bill rather than an aquaculture bill. The organisation that represents shellfish growers wondered why the bill does not cover some of the parasitic diseases that affect shellfish. Would coverage of such diseases have major financial implications?

In its submission, the Association of Scottish Shellfish Growers queried movement restrictions on fish and mentioned the current outbreak of bonamia in Scotland. However, I must point out that existing legislation on fish and shellfish health contains powers to impose movement restrictions and that, because of the bonamia outbreak, there are such restrictions on shellfish.

Yes, but the association highlighted a disease for which no compensation was allowed.

I am not aware of—

At the moment, the bill does not allow for payments to shellfish farms. That is an oversight and we are looking to lodge an Executive amendment at stage 2 to give such farms equal treatment.

Is that in relation to GS?

No. It will cover shellfish farmers for an outbreak of any parasite that might become relevant.

On the mandatory information provision, paragraph 116 of the financial memorandum to the bill says that

"the Scottish Executive collects very little information on the aquaculture industry".

However, although you say that the bill acknowledges the need for a power to insist on more information, paragraph 122 of memorandum says:

"The Scottish Executive believes that any additional costs to other bodies, individuals and businesses are unlikely to be beyond the costs that are currently incurred by the aquaculture industry under existing arrangements".

That seems a bit inconsistent. Surely getting meaningful additional data about the aquaculture industry will mean that the industry itself will have to carry out more work. You seem to discount the possibility that that will cost it anything.

The intention is very much to make the process of collecting the additional information as simple and as straightforward as possible. The current costs cover what companies produce under the Registration of Fish Farming and Shellfish Farming Business Order 1985 and what they voluntarily provide under the production survey, which is what we want to make mandatory.

The power is designed to put on a statutory footing the ability to develop high-level indicators, which was suggested by the ministerial working group on aquaculture. The group considered three indicators—one social, one environmental and one economic—for which, where possible, publicly available information could be used. Although that would indeed be possible with regard to social and environmental indicators, the information used for the economic indicator would not generally be available publicly. That said, we would seek to gather information that companies already give to other Government bodies such as HM Revenue and Customs in a way that does not require more time and effort to be spent. The idea is not to create burdens but to provide useful data that can improve evidence-based policy making.

Given that these are safety-net provisions, what mechanisms are in place to ensure that salmon farmers—about whom we are mainly talking—engage in husbandry practices that as far as possible prevent or, perhaps, do not facilitate the presence of the parasites in question? Have you given any thought to a scenario in which someone who might be up against the wall financially might deliberately introduce a parasite to secure compensation and to solve financial problems that have arisen as a result of unrelated issues? After all, one must consider almost a worst-case scenario. How do you ensure that by introducing such safety-net provisions you do not encourage behaviour that you do not wish to see?

That is a very fair point. We should aim to strike a balance and prevent any safety-net provision from being so generous that it becomes a perverse incentive.

We must also remember that any proposed scheme for making payments would be made by statutory instrument, would have to undergo its own regulatory impact assessment and would be subject to parliamentary scrutiny—as you would expect, it would be an affirmative instrument. Therefore, if it was considered that such a scheme was so generous as to create perverse incentives, I would hope that many commentators would point that out.

There does not seem to be any mechanism in the bill to disqualify people from payment on the basis of poor husbandry or deliberate actions on their part. The bill says that the Scottish ministers "may make payments", but I suspect that you could introduce mechanisms that make it explicit that they would be in a position to disqualify people who, they felt, had contributed to their own problems.

The bill is already quite flexible, in that it gives ministers the powers to specify all the criteria to which a company would have to adhere to qualify for compensation. For example, it could become a mandatory qualification to sign up to the code of practice, which could similarly be used to disqualify people who were creators of their own misfortune.

I was going to make the same point.

Would it not assist the Finance Committee and, presumably, the Environment and Rural Development Committee if the introduction of a code of practice to deal with such matters could be made a condition of the introduction of a scheme? That would provide a protection mechanism to deal with the issues that we have been discussing.

I do not know whether that is something for legislation or for better explanation in the accompanying documents, but we take the point.

If, God forbid, every salmon farm suddenly got gyrodactylosis—I assume that it is a highly contagious disease—that would leave the Government liable for a very large bill. Is there a mechanism in the bill that considers the issues for the industry? It seems to me that the bill is constructed to help individual fish farms or river courses in a surviving industry, which makes rational sense. However, in a much more serious situation, I am not sure whether we would have the same argument about the appropriateness or otherwise of a conservation scheme because the disease may not be eradicable. In that context, you might want to adopt a different approach to compensation. Has that dimension been thought through?

Yes, it definitely has. The key point is that the bill contains no compulsion on payments that are related to GS. One of the most important points is that ministers would have to take account of all the consequences of action and inaction, because we must consider not only the businesses but the genetic heritage and what would happen if Atlantic salmon were wiped out. Ministers would have to weigh up their decision in the round and take into account the environmental, economic and socioeconomic views, which they must do under the water framework directive and other European directives.

The most important point is that, were there to be an outbreak of gyrodactylosis, an assessment would be made, the result of which might be that it was too late, the disease had spread too far and eradication was no longer an option. The bill allows for that possibility.

Section 18 of the bill concerns the Scottish ministers' powers to take other measures

"for the purpose of eradicating or preventing or limiting the spread of the parasite".

Why is there not a similar phrase in section 19 to make it absolutely clear that the objective of making payments is to limit the spread of the parasite? That is the payment scheme's purpose; it is not simply open-ended.

Given the way in which the bill is constructed, we could end up with a large financial bill if we do not put the correct principle in place. We have to keep in mind such contingencies when we consider legislation. Although I accept that compensation payments are perfectly reasonable if they protect a viable industry, it would be a different argument if the public purse was used to make good people's losses.

I am not sure what to say to that except that I am quite certain that ministers would not sign up to open-ended commitments. I can speak to the draftsmen and ask them whether it is an option to include the purpose of the scheme in the bill.

In the light of yesterday's wanton vandalism when fish stocks were released, is the team inclined to change the proposed level of inspection, which would have financial consequences? I believe that you have an escapes inspectorate.

Wanton vandalism is not a reason to change the level of inspection. The inspections are based on having satisfactory measures in place to contain fish and prevent escapes. Short of having 24-hour guards, I suspect that the farm in question had satisfactory measures in place. There will always be wicked people doing wicked things.

That brings us to the end of our questions. I thank the witnesses for coming along and inform both them and members that we intend to consider our draft report on the bill on 3 October, which will be in time for our report to feed into the Environment and Rural Development Committee's deliberations on the bill.