Official Report 509KB pdf
Our second item of business is evidence from the Cabinet Secretary for Rural Affairs and the Environment, Richard Lochhead, who is the chair of the Scottish Government’s agricultural holdings legislation review group, on the interim report that the group has produced. Today’s session follows an evidence-taking session with stakeholders two weeks ago.
We welcome the cabinet secretary, Andrew Thin, Iain Mackay and Hamish Lean. All of them will be able to take part, as they have done before. I invite the cabinet secretary to make an opening statement.
Thank you very much. Good morning to the committee. It is a pleasure to be here with you this morning.
I am pleased to have the opportunity to make a few opening remarks about the review group’s interim report. Before I do that, I ask my colleagues to say a little bit about their backgrounds and their roles in the group. I am grateful to the talented and hard-working members of the review group, who have helped to make the report so effective.
I am a tenant farmer on the Isle of Mull. I am also a member of NFU Scotland and work with the new entrants groups in the NFUS and the Scottish Government.
I fulfil a wide range of roles in rural Scotland and, I hope, bring a broader perspective to the group.
I am a solicitor in private practice based in Aberdeen. I have been accredited by the Law Society of Scotland as a specialist in agricultural law since 2000.
We welcome the opportunity to provide the committee with an update on the progress so far. The interim report was published on 20 June and marked an important milestone for the future of tenant farming in Scotland. I am pleased with the warm response that we have received from all the stakeholders. They, in turn, have played an important part in the success of the review so far.
Over recent years, we have all aimed to support the tenant farming sector and improve relationships between tenant farmers and their landlords. Although some changes have started to work, the committee knows as well as we all do that tenant farming is a complex and emotive area in agriculture and that agriculture itself is not a static industry. Tenant farmers and, in particular, those who wish to join the proud tradition of tenant farming in Scotland still face many practical problems. Tenant farming is a cornerstone of Scottish agriculture, and it can also play a role in supporting vibrant and sustainable rural communities across the country. That is why I as minister am absolutely committed to bringing forward better solutions.
I knew that the task was never going to be easy—indeed, my four aims for the review group were ambitious and very challenging—but we have already worked hard at meeting them and delivering our vision for a dynamic sector. Of course, our vision is of a tenancy sector that gets the best from the land and the people farming it, provides for new entrants and forms part of a sustainable future for Scottish farming.
You will be aware that, as part of the process, we set eight aspirations for the future of the tenanted sector. I will not go through those aspirations just now, but I know that the committee discussed them at its recent evidence session. We have engaged with the industry to ensure that we have support for those aspirations and, since then, we have focused on identifying the barriers to achieving them. During the process, we met and talked to more than 300 people and received nearly 80 pieces of written evidence; we also held open meetings in Islay, Bute, Ayr, St Boswells, Dumfries, Stranraer, Inverness, Blair Atholl, Glenlivet, Turriff, Inverurie and Perth. As members will see, those meetings, of which I attended only a small number—the review group attended most of them—have taken place right across Scotland and have been a very important part of the process.
On our visits, people took time out away from the spring lambing, the calving, the silage making and whatever to talk to us, and many who wanted to express their views opened their homes to us. Indeed, conversations often happened behind closed doors because of the nature of some of the issues that people wanted to raise.
We are very grateful to the stakeholder organisations, which have discussed the issues very frankly not only with us but with each other and have made great efforts to facilitate the visits and wider engagements that have taken place across Scotland’s farms. Their willingness to engage with each other and to have honest and frank discussions has been one of the most positive outcomes of the process.
A great example of that proactive approach is the joint initiative on rent reviews that has been announced by NFUS, the Scottish Tenant Farmers Association and Scottish Land & Estates and which of course was in the news just a couple of weeks ago. Andrew Thin played a very important role in brokering that agreement, which aims to bring stability and peace of mind to those involved in the rent review process in light of the very prominent uncertainties that have been reported in the news recently. I strongly welcome the dedication and co-operation that have been shown by all three organisations and, in particular, by their representatives Nigel Miller, David Johnstone and Christopher Nicholson. As minister, I very much look forward to the development of the initiative, and I urge the whole industry, including land agents and their legal representatives, to follow the recommendations in the joint memorandum. It is really important that all sides of the industry throw their weight behind it and make it work.
Over the summer, we have focused on the next stage of our work and the three main workstreams, which are: first, establishing a stable and effective framework for secure 1991 tenancies; secondly, creating a new and flexible framework to stimulate diverse other tenancy arrangements; and thirdly ensuring a much more supportive, wider, cross-cutting context for the whole of the country’s tenant farming sector. Although it is necessary for the group to have space to develop its thinking in private, we will continue to draw on advice and seek contributions from individuals on specific issues over the coming months. In the autumn, we will engage further with stakeholders to discuss our thinking around potential draft recommendations and, by late autumn, we will begin to prepare our final report.
At this stage, it would be wrong for me or my colleagues to comment on specific details of our most recent discussions before our views are fully formed and agreed, but against that backdrop we look forward to today’s discussion and will be as frank and as open as we can with you about many of the important issues that people will want to hear about and you will want to ask about.
I thank you for the opportunity to discuss this matter. Indeed, having read the Official Report of your helpful and illuminating evidence taking over the past week or two, I thank the committee for its work, too.
Thank you, cabinet secretary.
I want to talk about the group’s remit and whether there are any limiting factors to developing the recommendations for delivering the vision for the sector. In particular, I want to focus on remarks that were made by Christopher Nicholson of the STFA. I get the sense that tenant farmers around the country are the absolute anchor of rural communities; indeed, Mr Nicholson talked about the future of tenant farming families and their wider role in fragile rural communities to ensure that the group considered that particular aspect.
The remit has been more process driven, but it seems to me that the realities of life in the countryside in many places—particularly in the islands—mean that the tenant farmers are the grass roots of farming, as it was. We need to have a focus that allows them to choose where they live, as well as how they live.
That is a good question to start. As I said in my opening remarks, one of our key aspirations is to ensure that tenant farming plays a key role in underpinning our rural economy. That is why so many of the issues that the review group is addressing are important.
If we want active agriculture in this country, tenant farming plays a crucial role in delivering that and if we want tenant farming and family farming to be the bedrock of many of our rural communities, farmers need to attract investment and they need access to land—they need land to farm. That is why those issues are so important for the future of Scotland’s rural economy.
I assure the tenant farmers of Scotland that the driving aspiration of all our work is to ensure that their contribution to Scotland’s economy and to putting food on our tables continues.
I am sure that we will come to those points in more detail in a minute, particularly the ability to ensure that there is more land for letting. When we look at the way in which land has come out of agricultural use, we must ask whether more land will be made available. We must look at that reduction of hundreds of thousands of hectares of agricultural land in driving the outcome of the group’s work. It seems to me that the reductions—1,006 fewer holdings since 2007—suggest that we need to find some way to release the land for more tenancies, start-up units and so on.
I will ask colleagues to chip in, because this is a broad and important subject. The key point to make is that, yes, there has been a decline in tenanted land in Scotland. That is one of the primary reasons why we are all here discussing the issue.
The statistics illustrate that there has been a substantial reduction in let land—a reduction of 42 per cent since 1982. However, a reduction in let land does not equate to a reduction in land in agricultural production. A lot of that land is now owned and therefore the land—not all of it, but much of it—is still being farmed. That is an important point from Scotland’s perspective.
The thrust of the question was whether the review group will propose measures to increase let land in Scotland. That touches on a range of areas from fiscal measures and taxation to some of the recommendations that we may make. I invite my colleagues to come in on what was a broad question.
Scotland has one of the lowest percentages of let land in Europe. It is worth making that contextual point. Of course it is absolutely correct to say that just because land has gone out of tenancy it does not mean that it has gone out of farming—it may well still be in farming. However, we are missing an opportunity there, because we are not enabling external capital to come into the sector. Traditionally and historically, people invested in land as a low-risk, low-return investment. In recent times, investors have come to see land as a low-return, high-risk investment. That makes them nervous and that is why there is less investment in tenanted land.
As we set out very clearly in the interim report, it is fundamental that we address confidence in the sector: confidence among tenants to invest and—I stress this—confidence among landowners to invest. It is not one side or the other; both sides must be confident. It is a fundamental truism of any economy—whether we are talking about this sector or about retail in urban Edinburgh—that unless investors are confident, regardless whether the owners of the shops are the tenants of the shops, the sector will not grow.
I do not know whether any of the surveys looked at how the land is being used. It is no longer tenanted in the traditional fashion. I know that we are talking about farmed in hand land and the like, but is the land as productive as it would have been were tenant farmers active on it, from the point of view of Scotland’s gross feed product?
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The big picture is that although there is a decline in let land, which is defined as land that is let for more than a year, there is also more owned land, more agricultural production and more seasonal lets. Of course, they are very relevant statistics for the future of tenant farming because anyone who wants to farm land under a tenancy will want some kind of long-term security, and a predominance of seasonal lets or owned land, which reduces the amount of land that is available for letting, clearly influences to what extent they can have that security.
That is why the issues that we are discussing—about giving certainty and confidence to the whole of the sector but particularly to tenant farmers so that they feel that they can make a living and have the critical mass of land available to make that happen—are so important.
The utilisation of land is very important. It is not just about creating more tenancies; there are tenancies out there that are in tenancy just now, from which we would like to aid people to retire to allow a new generation into those tenancies so that the land is properly utilised. The economics that goes along with that in rural areas is really important as well.
Thank you, Mr Mackay, for that comment. Can I pursue that point to try to get some sense of how significant it is? As a layman in this context, I have no idea how productive land can be and how much more productive it can be if it is well managed. Are we talking about a factor of one to three—ranging from somebody who manages land well to somebody who does not—or would good management make the land 10 per cent more productive rather than three times as much?
I cannot give you technical figures but if you look at Quality Meat Scotland’s figures for the top third and the bottom third who produce in this country, you will see a massive gap. There is a lot of room for improvement of utilisation of land in this country.
We move on to some of the aspirations of the review group.
When Nigel Miller was in front of the committee recently, he said in relation to the aspirations:
“We must be a lot smarter. Rather than doing what we did before, we have to create new opportunities. We must consider ways of encouraging more diverse use of the rural economy. We must also be a bit more imaginative.”—[Official Report, Rural Affairs, Climate Change and Environment Committee, 6 August 2014; c 3940.]
What smart and imaginative approaches is the review group considering in order to meet the eight aspirations that the cabinet secretary referred to earlier?
Fundamentally, it is about new letting vehicles. One of the workstreams that the group is looking at is a form of agricultural tenancy that would allow for flexibility of arrangements between landlord and tenant, with a view to encouraging more land to become available for let and to allowing the parties a certain latitude to negotiate the terms of their own particular agreement, subject to certain fundamental safeguards being in place.
Is that the same, essentially, as contract farming?
No. Contract farming is different—in essence, it is driven by two main motivations. First, there is a fiscal motivation. The owner of the land wants to be seen as a farmer for taxation purposes, particularly in regard to inheritance tax and the reliefs that are available for agricultural property but also, historically at least, because of a fear of security of tenure if they let out land.
In a contract farming arrangement, the “farmer” contracts with someone who might, in other circumstances, have been his or her agricultural tenant. The contracting arrangement provides for the actual farming policy on the farm and usually provides for a basic return returning to the farmer, a return being paid to the contractor and a surplus being divided in whatever proportions the parties have agreed on. However, the new letting vehicle would not be contract farming in that sense. It would be a landlord-tenant relationship.
Given that the industry is calling for smart and imaginative approaches, has it made any suggestions about things that might be implemented that you are considering, beyond what we have just discussed?
Yes, we have had many suggestions from the industry.
I would like to step back slightly and contextualise your question. A large chunk of the tenanted sector is made up of secure 1991 act tenancies. In a sense, they provide the backbone of the tenanted sector. In addition to that, we need to develop a range of much more flexible letting vehicles, to use the term that has just been used. If we look forward over the next 20 years, there will be a backbone to the industry and there will be an innovative and flexible new bit. That is how all industries develop—ideas develop in one bit and get transferred into the other bit.
A great many of the suggestions that we have had from the industry have been about how to ensure stable, confident relationships in the backbone of the tenanted sector—the bit that is made up of secure 1991 act tenancies. To a much smaller extent, we have had some reasonable suggestions about the flexible bit of the industry. In particular, we have had some quite good suggestions from the landowning sector. Landowners invest the capital and they see that as an area of opportunity. There is a growing recognition—I would not put it more strongly than that—that those who are involved in the backbone bit of the industry depend on the innovation that is driven by the other bit of the industry. One feeds the other over time.
It is fair to say that we still have our work cut out to come up with a really good answer on the innovative bit. The answer is not only about flexible vehicles; it is about how we get people who are not in the industry and who are doing something else, but who are the real innovators in life, into the sector to drive change through it. That will be extremely difficult, and I do not think that we should hide from that.
To get innovation in the industry, we need to create opportunity. The innovation is out there—there are plenty of examples of agricultural practitioners who are highly innovative. Many modern ideas are being developed in agriculture. It is very hard to legislate for innovation; what we need to do is create the opportunity.
I entirely agree with Mr Mackay’s last remark. On that very subject, given that one of the aims of the review is to encourage new entrants and to make it easier for them to enter the industry, have you looked at the example of share farming, which is practised in New Zealand and, I am sure, in other countries, which provides that outcome?
We are very keen on all such examples from the rest of the world. Another positive element of the review is the good information that we are gathering about what is happening in this country, on which we have an extremely good set of data for the first time ever, and in the rest of the world. The interim report is good in that way, because it looks at what is happening not just here but in the rest of the world, and we have to learn from that.
Over the past few years, as minister I have often had share farming mentioned to me. The review group has the opportunity to focus on such new ideas and how they could be implemented in a Scottish context.
In a way, this industry is not that different from others. Any industry that suffers from high barriers to entry struggles to innovate and develop. If we are talking about someone becoming the sole proprietor of a farm, the barriers to entry are pretty high. The level of capital involved is enormous. It is possible to lower those barriers significantly if a landlord puts up the capital and allows someone to become a tenant, but they will still need quite a substantial amount of working capital.
The workstream on new entrants and innovation is looking at a route map that draws from not just other countries but other industries. In other industries, on the whole, the normal way in for innovators is that they start working in the industry, then they start doing a bit in their garage while they are still working in it, and then they use stepping stones to make their way through it. In that workstream, we are trying to map out the stepping stones through the industry.
That is quite reassuring—thank you.
We will move on now. Nigel Don has a question about the right to buy.
I heard what the cabinet secretary said about the 1991 workstream, so it might be that you will not be able to say much in answer to my question, but I would like to know where you think we might be going in relation to the right to buy and 1991 tenancies.
Or any others.
Indeed.
Clearly, we want to consider that issue, because we cannot look at the future of tenant farming in Scotland without looking at the right-to-buy debate. As members are aware, many tenant farmers want us to address that issue, and it has featured to a great degree in our work so far. Many people have told the committee that there are circumstances in which the right to buy is perhaps the only way forward and is the best option. We have recognised that in our interim report.
We have a lot of work to do over the next few months in order to reach a final view on what role the right to buy has to play. However, clearly, there are examples where it is difficult to see any alternative ways of allowing land to be used productively and enabling the family concerned to have a better and more viable future.
That is where we are at the moment. We recognise the case that has been put to us, which is that there are circumstances in which use of the right to buy could be justified, but we have a lot of work to do with regard to the circumstances in which it could be implemented, what the consequences of that would be and how far it should go.
The evidence that we have heard suggests that a lot of the issues might be dealt with by modifying waygo or the right of assignation. I take it that you are considering those issues as ways of dealing with 1991 tenancies.
Yes. There are many issues to be addressed with regard to ensuring that tenant farming remains attractive. As I said before, the primary ingredients are assuring people who want to take on a farm that it is going to be viable, that they will be able to get a return on investments that they make in the farm, and that they will be able to plan for a long-term future on the farm.
Iain Mackay, who is sitting next to me, is a tenant farmer. He is in a much better position than I am to explain what is required to make a living out of tenant farming, but in terms of the wider approach, the issues that I outlined are what we are thinking about.
That is absolutely right. The issue is about building confidence and assuring tenant farmers that they will be able to remain on the farm long enough to see a return on investments that they make. There is no doubt that the return in agriculture is a long-term one. The landowner also has to be aware that he is investing for the long term, too. There is no short-term return in land ownership or agriculture. We need to build towards security and towards a position in which tenants and landowners have confidence in each other.
That is a conversation that we are having. All those issues are addressed in the report and are crucial with regard to giving people confidence about investments in farms and who will get the return from that.
I get the impression that this is a work in progress. We look forward to developments.
I, too, look forward to developments, because the issue needs to be settled. There is no doubt that the mere mention of the right to buy has over the years had a huge impact on the amount of land that people have been prepared to let.
I agree that confidence is key to this issue. As Andrew Thin said earlier and Iain Mackay has just said, those on both sides of the equation must have confidence. The landlord must have confidence when it comes not only to investing, but also to letting the land in the first place. My question is simple. In a situation in which a right to buy exists, how do you instil confidence in landlords to let land, especially if the right to buy is absolute rather than pre-emptive? Is it possible to achieve that level of confidence with an absolute right to buy in place?
We live in a world in which there are always going to be debates about all kinds of issues. All political parties in the Parliament have a responsibility to ensure that landowners have long-term confidence when it comes to decisions to let land.
10:00However, I have paid close attention to the debate for many years, and I think that we should not get bogged down in thinking that the amount of land that is being made available to let is influenced only by the right-to-buy debate. There are a range of factors out there. Land is a valuable and overpriced asset in Scotland, and land ownership is therefore seen as a good thing. Another factor is the way in which the common agricultural policy is delivered and how payments are distributed.
There is a question of flexibility, to which Andrew Thin referred. We all meet farmers in our constituencies. A farmer will own one farm, he will have another farm that he lets, and he may have a series of seasonal lets over and above that. I was speaking to a farmer last week in my constituency about all those things. They involve business decisions by farmers. There are a range of commercial considerations and business decisions that influence how land is let, when it is let and what vehicles are used.
The debate about letting land covers a range of vehicles, but the right-to-buy debate is only about secure tenancies. No one on this planet has ever suggested—as far as I am aware—that there should be an automatic right to buy for other kinds of land; it is suggested only in relation to secure tenancies.
I hear what the cabinet secretary says, and I have no doubt that he intends that to be the case. However, the issue has been the elephant in the room since 2002, when his colleague Fergus Ewing first mentioned it in the Rural Affairs Committee.
With great respect, cabinet secretary, many of these things—short-term lets, annual lets, grazing lets and other contract farming—have come in as a way around letting land on any sort of permanent basis.
I hear what you say, but I think that the biggest inhibitor to people letting land has been talk of the right to buy. I have not got a question; I just want to say that I hope that, whatever the review group comes up with, even if it includes a right to buy in some form, it can put a lid on the fear that has been engendered by the issue being up in the air and remaining the elephant in the room. It has been the greatest constriction on land being let in Scotland.
That is a fair point, and I think that I speak for the review group when I say that we are determined that the review will be a landmark review that will allow us to move on. We want to come forward with substantive and fundamental changes and, no doubt, some radical proposals that will allow us to give certainty to everyone in agriculture on that subject. We want the review to give us a vision, and we will put the tools in place to make it happen.
There is quite a close correlation between the CAP and the amount of land that was let and then taken back in hand. Right to buy plays a part in that, but it has too often been the elephant in the room. Farmers say that that is why they are taking land back in hand, when it is actually to do with the way in which the CAP was paid in the past. It was far too easy for people to claim agricultural subsidies and not actually carry out agricultural activity on the land.
We have probably taken the issue as far as we can, but I share the cabinet secretary’s aspiration in that respect.
I want to make two brief points. First, confidence comes from certainty, so what matters is that people feel that they know what is going to happen. That is a fundamental point.
Secondly, we need to understand what is driving the calls for a right to buy. That has been at the guts of the review. If we do not address that question, the calls will continue, and so will the uncertainty. That is another fundamental point. The review group could say that there should or that there should not be a right to buy, but it will not produce certainty unless it also addresses the reasons behind the calls for a right to buy. A big challenge, particularly for the landowning sector, is to understand what has led to the calls, and to address those causes.
I do not disagree.
I hear what the cabinet secretary says about there being no alternative with regard to dealing with the impasse with some secure tenants. We look forward to seeing how you work through the difficulties in dealing with that.
However, it is clear to me that land could be let in the way that is possible in crofting. I have mentioned this before, but I would like to know what the cabinet secretary thinks about it. There is a right to buy for crofters—that has been the case since 1976. We have also subsequently made it possible to create new crofts that do not have a right to buy attached to them. Is that one of the considerations that you might take into account in relation to the creation of new holdings for rent for agriculture?
Yes—we are looking at that. We are, of course, aware of the recommendations of the land reform review group with regard to smallholdings, and we are aware that, in some parts of Scotland, one can turn a smallholding into a croft and therefore get the right to buy—
It can be done only with great difficulty, it has to be said.
I have no doubt, but that does not apply to smallholdings in other parts of Scotland. However, we are taking on board the issue that the convener has raised. I do not know whether others want to comment specifically on smallholdings.
I do not want to comment on smallholdings, but I have a comment to make. As the cabinet secretary said, the conversation around the right to buy has concerned 1991 secure tenancies. Over the next 20 years, we need to expand significantly the supply of other types of tenancies so that we have a much more flexible and diverse range of tenancies. There is no suggestion at the moment that there will be a right to buy as part of that. If we are successful in addressing the underlying causes of the calls for a right to buy, that will lead to significant stability.
Fine. Jim Hume has the next question.
We have covered some of the points that I was going to ask about. I would like to put on the record my view that we need to get trust back into the system. Obviously, waygo and the right of assignation are important, but it would be interesting to hear people’s thoughts about rent reviews and so on, which could also be up for reform. How far can we go in that regard? Scottish Land & Estates has stated its concern about the possibility that the report would concentrate only on 1991 tenancies. It considers that the issue should not be looked at in isolation.
With all that in mind, what do you think you can get out of all this reform? What sort of timeline are we talking about? I do not think that we can get trust and confidence back into the system until everyone knows where they are and can move on.
You mentioned rent reviews; I might ask my colleagues to talk about that. Andrew Thin, in particular, has been heavily involved in the issue recently.
There is a range of important issues, but with regard to the timescale, the Government wants to legislate as soon as we can, once we have the recommendations. We cannot give an exact timetable, because we do not know what the recommendations will be, how many will require legislation and how easy or otherwise it will be to legislate on them. I am confident that some of the recommendations will not require legislation.
All I can say is that, at this point in time, we are determined that certainty will be given to the industry as soon as is practicably possible, and that we will legislate as quickly as possible, using whichever vehicle is most appropriate. Various opportunities are coming up in this session of Parliament, but I cannot give a cast-iron guarantee on any of the issues until we know what the recommendations are. This depends on the complexities and the legal issues surrounding the recommendations.
On other issues, it is probably an appropriate time to ask colleagues to give one or two examples of what they see as key issues that have come up in the various meetings that have been held around the country in the course of our work so far. Andrew Thin might want to speak first, because rent reviews have been mentioned.
I will go first, which will give the others time to think.
It is important to be clear that confidence is not just the job of Government. The industry initiative on rents is a powerful signal of what could and, I hope, will be done. The Government has had an important catalytic role in that, but it has been industry-led.
We are thinking about and will very probably make some recommendations, not for Government but for the sector. Those will be around issues relating to the potential role of self-regulation, which is effectively what the rent agreement is about—it is guidelines combined with self-regulation—and the importance of leadership in the sector. In my experience of working in other parts of the economy, having industry bodies at loggerheads with each other damages confidence, and having industry bodies working in a constructive and collaborative environment strengthens confidence. Leadership is very important, so we will need to say something about that.
An important ingredient in the mix is the role of professional intermediaries or agents, or whatever you want to call them—they are often not intermediaries in the true sense, because they are working for one side—in helping to build confidence. To operate in a politically sensitive and astute manner is absolutely fundamental. It is important that at the end of the process the review group is absolutely clear about where our recommendations are not for Government but for the players in the sector. I very much hope that all the players in the sector will listen to that and play their part—I am sure that they will—because it is vital that they do so.
Diversification is another key issue. It plays a huge part in allowing investment in often fragile rural areas and making the agricultural holding more dynamic and resilient. Ensuring a smoother transition with diversification would help.
What has encouraged me is that, as the group has progressed, it seems to have galvanised thinking among the stakeholder bodies, which are now promoting initiatives to fix the problems in the sector. SLE’s recent announcement about an amnesty in respect of compensation claims for improvements is a good example of that. An out-going tenant claiming compensation for an agricultural improvement is hidebound by procedural rules, such as the necessity to have served a notice in advance of carrying out the improvement and so on. That issue was raised with the group at various meetings across the country. SLE is proposing a means of fixing that by, in essence, doing away with the need to have served a notice in advance. That is a helpful suggestion. Another example is that the discussions among the stakeholder groups, which were facilitated by Andrew Thin, led to the recent announcement about the rent review initiative.
Two weeks ago we had SLE, the NFUS and the STFA here; we saw quite a difference in their body language and the words that they were now using, which we all thought was quite constructive. Of course, we have to bear in mind that not everybody out there is a member of the NFUS, SLE or the STFA. Those bodies might be leaders, but they are not rulers.
On the point about consensus, at the previous meeting both the NFUS and the STFA expressed the view that it would be helpful to have a mandatory code of practice for land agents in the sector. I am sure that you will have taken reams of evidence on the issue of the conduct of rent reviews. Is that something that the review group is likely to come to a view on or to make recommendations on, or does that sit outwith what you are trying to do?
That question links in very nicely with Jim Hume’s final point, which is that although there is a lot more constructive working across the sectors, ultimately the people whom you met and with whom we deal do not have control over what every single landowner, landlord or tenant farmer in Scotland does. That leads us to the debate about voluntary versus statutory approaches. Clearly—and not just from a selfish, Government point of view of not wanting to legislate too much—the voluntary route is the best route to building a better atmosphere; it leads to more constructive relationships and a better environment in which to live and work. That is our preference, of course, and we welcome the recognition from all sectors that working together is important and that we have many common objectives.
10:15A main issue is the need to recognise that we need people in this country to work the land and produce food. That is in the interests of everyone, whether they are a landlord, a tenant or a member of the public, and we want to support it. It is in everyone’s interests to drive towards that and to make it happen, for commercial reasons as well as for the national interest.
We will consider carefully the extent to which we have to go down the statutory route. We cannot rule it out: legislative change in one shape or another will result from the review. However, the extent of it, and where that route might apply, is still to be decided and will be guided by experience.
We know about the court cases and the controversial issues, and we will be guided by how the sectors respond to those issues. If there is an inadequate response, we will be left with no option but to consider the statutory route. If there is a good response, and things improve, that will take the heat off the need for a statutory solution.
Good morning, gentlemen. I remember attending a meeting in the Tore hotel in 2002 on the right to buy. Andrew Thin was there as an adviser. It was the inaugural meeting of the campaign for the right to buy.
I lodged a motion on that very subject at the Scottish National Party conference later that year, which I think may have helped to move the SNP’s position on the issue. I am very interested in the subject. That was 12 years ago, and we are still talking about it.
I believe that, when it comes to issues such as investment, improvements, compensation, waygo, retirement, the releasing of land and succession, many of them—or a good few of them—could be dealt with through assignation. I know that it is not a magic bullet, but Christopher Nicholson of the STFA said in oral evidence to the committee:
“Assignation is potentially a real game changer”.—[Official Report, Rural Affairs, Climate Change and Environment Committee, 6 August 2014; c 3955.]
It may not be a magic bullet, but it is pretty important for the viability of secure tenants and for ensuring that investment continues in the future.
We have already touched on the issue of assignation, but I would like the panel to elaborate on it. Assignation, along with certain other changes to, for example, the need to register and the right to buy, may well be a way forward that would allow us to deal with the right to buy.
I agree with the cabinet secretary—I have not heard anybody, other than some members of NFU Scotland, say that the right to buy would apply to non-secure tenants. Every political person I have talked to, apart from one or two on the landowners’ side, has made it clear that that would not be the case. I have certainly never talked about any kind of right to buy other than in relation to secure tenants, and no one at the inaugural meeting did, either.
Would assignation be a game changer? Could it deal with much—if not all—of the problem?
The issue is very important and is dominating much of our thinking. Members of the review group might want to come in on that point, because it relates to opening up opportunities for future farmers and the security that new entrants or farmers who want a more secure tenancy are seeking. The question of whether assignation could play a role in that regard is very relevant.
One big issue in the debate is that of opportunities. We all meet farmers in our constituencies throughout Scotland who want to farm until they drop because they do not see any way of moving on or opening up opportunities for others to take over their business or their tenancy. Assignation is crucial to that. It is a central issue, and it could be a game changer if we were to find a way of reviewing the flexibilities around it.
One concern that I will put on the table and which I think Nigel Miller reflected on in his evidence to the committee is that, as soon as you attach a financial value to anything in life, those with the deepest pockets see an opportunity and there is always the danger of consolidation. I do not want to get into the position in agriculture that we have in the fishing industry, where there has been consolidation as a result of attaching a value to something that is a fundamental right.
Assignation could be a game changer, but we would have to think very carefully about how it would be introduced and whether a financial value would be attached to it. Certainly, if it could be done, it might open up opportunities. Given that the review group is thinking and talking about the issue, the group members who are with me might want to give their views.
We are taking a very serious look at all aspects of assignation, which ranges from, at one end of the spectrum, a simple right to assign a secure 1991 act tenancy as a secure tenancy to a third party to, at the other end, a right to assign a tenancy that, as a result of a conversion process, becomes a fixed-duration tenancy of some sort, and everything in between. We are conscious of the possible unintended consequences that the cabinet secretary has described. For example, introducing assignation as an exit route for tenants to fund their retirement will not necessarily allow tenancies to move to new entrants, because the outgoing tenant will, quite rightly, want to sell at the highest possible price.
Another aspect of assignation that we are looking at is widening the class of family member who would be entitled to have the tenancy assigned to them. We are actively considering all such issues.
Assignation will undoubtedly be a game changer if we get it right, but consolidation is the challenge that we have to face. I want to put to one side the issue of new entrants—as I have said, we need a route in for new entrants; they are not going to enter the sector in one jump—and give the committee an example of the quite innovative thinking that might help. If the right was to assign to a limited-duration tenancy but the tenancy lasted until the incoming tenant was 65, the value would depend on how young the incoming tenant was. That might help a great deal with the point about consolidation, and it is certainly the kind of thinking that needs to be done here.
Just to back up Andrew Thin’s comments, I would suggest that assignation cuts across a lot of issues and resolves a lot of problems. It is probably not a route in for new entrants, although funding for new entrants is available through the Scotland rural development programme. As Andrew has suggested, if there was a timescale element and some SRDP funding was available, a new entrant might be able to afford an assignation.
Thank you. That is fine.
As far as assignations are concerned, would you consider it apt for the landowner of the farm where the tenancy was being assigned to have the right to take on the assignation when it became available?
That is a very controversial question. After all, we are trying to protect let land and tenancies in Scotland. We have not reached any conclusions; that particular issue came to prominence in the initial stages of the review and in the interim report, and we have to look at all the issues that the committee is discussing today. We are trying to give you an idea of some of the options that are being discussed, but we would have to think carefully about the consequences of such a move for the amount of let land available in Scotland and so on.
I will leave it at that for now, convener.
Good morning. I want to take the panel back to investment in relation to secure tenancies, which we touched on earlier. I will preface my question by saying that I agree with my committee colleague Jim Hume that there was a positive atmosphere when we took evidence from a range of groups recently.
The investment section of the interim report goes from paragraph 117 to 122. Paragraph 118 says:
“SLE believes that tenants are currently subject to broadly equivalent flexibilities and constraints to those that characterise the owner-occupied sector. SLE state lenders tell them that what matters most is a clear and robust business plan regardless of whether the business operates on owned or rented property taking into account the wider assets of the business.”
However, I have heard remarks and evidence from STFA and individual tenants in South Scotland, which I represent, to the effect that investment is extremely difficult, perhaps specifically because they are tenants. Will the panel comment on that, in the context of taking forward the review?
We met some bank representatives to make sure that we understood what we are talking about here. The situation is not that different from the one in other parts of the economy. Anyone who lends money will look first at the person to whom they are lending it and assess whether they are competent and credible and whether they have a track record. Secondly, they will look at the person’s business plan and whether it stacks up. Thirdly, they will look at issues around collateral. It is in that third area that tenants find themselves in difficulty, because they tend not to have collateral to any great extent, so that is where we have focused our attention.
That links back to the point about assignation. Part—but, I stress, only part—of the attraction of an assignation route is that it can create collateral, which would strengthen the tenant’s ability to invest. It is not a magic bullet: if a tenant is not credible or does not have a business plan that stacks up, they will still not get investment. However, assignation would undoubtedly help, and that is the message that we got from the banks.
It becomes increasingly difficult if someone is a new entrant, because they have no history and no credible track record. They might have a fantastic business plan, which might be better than the business plans of some of the older, more established tenants, but all that the banks are looking for is credibility—the person’s history. Some of the vehicles that we are considering, such as share farming options, would give people the credibility that would put them in a position to be able to get finance.
In answer to a number of questions, mention has been made of the variety of tenancy arrangements that exist outwith the 1991 act secure tenancies. There are a wide range of them, which I do not need to repeat.
I was unable to be at the meeting two weeks ago at which the committee took evidence from stakeholders, but there was quite a discussion about those arrangements. Some of the discussion became quite focused on freedom of contract. It would be fair to say that completely opposing views were expressed by the Royal Institution of Chartered Surveyors and the NFUS, which seemed to be quite in favour of that, and STFA, which in its submission said that business tenancies
“are patently not the answer for the tenanted sector in Scotland.”
There is obviously a wide range of views among stakeholders on the value of some of these things. STFA also said that it was “deeply disappointed” that the future of limited partnership tenancies seemed to be beyond the range of the review.
To start a discussion on all of that, will the panel say whether the group has found that the range of current tenancy arrangements has helped or hindered the journey—if I can call it that—towards the vision that you have? Are there lessons to be learned from the farm business tenancy system south of the border? Do you envisage such a system having a place in the future, or do we need more innovative ways of approaching the issue?
10:30
In the debate on the options for delivering greater confidence and security, the first thing that any prospective or existing tenant will say is that they need to know that they will have a farm to farm for a substantial amount of time in order to allow them to invest and make a living. That is why security of tenure is so important in the debate about how we give long-term certainty to tenants as well as landlords. Many people argue that freedom of contract provides exactly the opposite of that, and that long-term security is not the central aim of freedom of contract.
However, picking up on what Andrew Thin said earlier, I think that if we look at the needs of Scottish agriculture and Scottish tenant farming, it is clear that we need flexible vehicles out there. We need a mixture of provision, because Scotland is extremely diverse. We all meet farmers who have a variety of arrangements in place, because they have to adapt. I always feel silly talking about what farmers do when I sit next to Iain Mackay, but from my experience of speaking to farmers, I know that, in some cases, they have to be able to adapt year on year—hence the existence of seasonal lets—while needing the core activity to be secure in the long term. The freedom of contract that is being pursued south of the border is not that popular with many tenant farmers I speak to in Scotland, but it is clear that we need a range of vehicles and that, in some circumstances, we need more flexibility.
I will let others come in, because there are others here, including a farmer, who have taken a close interest in the matter.
Richard Lochhead is absolutely right. The core business needs to be secure, but it is also necessary to have dynamic movement, which is what the availability of other land provides. Structured arrangements fit in with the agricultural system, but the tenancies that work really well have a secure hub. Whether it takes the form of an owner-occupier or a good long-term tenancy, a secure base is vital to any agricultural business that is trying to grow.
I have a final point. I noticed with pleasure that the report includes the sentence:
“At the same time we have heard positive stories of great relationships between landowners and tenants that are overcoming all these issues to enable and promote thriving, modern tenanted farms.”
I am glad that that was mentioned, because there are perfectly good examples all over the country of situations in which those arrangements work extremely well. Have you been able to identify what creates such good relationships? Do they have a unifying factor? “Factor” might be the operative word here—I am not sure. If you have been able to identify such a factor, are you likely to be able to translate that into your recommendations?
There is a specific workstream on the relationship issue because, as you have rightly identified, it is fundamental. It is very difficult for Governments to legislate to make people behave themselves, and a problem for a review such as ours is how we produce recommendations on how to have good relationships.
That said, I think that some clear themes are emerging. They are partly just about people behaving themselves, but they also involve more structural issues such as the so-called intermediaries who are not really intermediaries because they act for one side. The potential exists for short-termism to creep into that relationship, because short-term contracts encourage people to maximise the rent, regardless of whether they damage the relationship in the process.
We will make some pretty clear recommendations, which I do not think will include introducing new statute. I come back to my point that a great deal of what we are talking about will involve the sector recognising that it is from its own behaviour that confidence will grow. It is extremely important that everyone in the sector understands that, if they sit on their hands and wait for Government to sort it, either it will not be sorted or it will be sorted in a manner that might not be particularly flexible and helpful.
One of the main points that has come through from the relationships that work well is that there is close communication. It is as simple as that. We cannot legislate for that; it is a case of communicating and understanding what the other party wants.
I fundamentally agree on that point, and I thank you for making it.
I want to turn our minds to and get some views from the panel on limited partnerships. In its written evidence, the STFA said:
“Limited Partnership tenancies must not be brushed under the carpet or relegated to the ‘all too difficult box’. Their future will have been complicated by the Salvesen Riddell debacle, but STFA would urge the”
review group
“to engage with this group of tenants to explore a way forward for them.”
Obviously other groups will make different comments on the issue, but I want to focus on the context of that comment.
A tenant constituent of mine who has a limited partnership has raised concerns that, post Salvesen v Riddell, mediation is not materialising, and he fears that he will—as he puts it—be railroaded into the land court. To what degree will the review look at that issue, given that it is a serious concern with regard to the future vibrancy of the tenanted sector? I should stress that that is evidence from just one of my constituents, so the issue might not go any broader; nevertheless, I raise it as a concern.
I will give you a quick overview of my understanding of the debate surrounding limited partnerships, and I am sure that my colleagues will want to talk about the extent to which the review group will take the issue on board in the coming months.
Limited partnerships play an important role in agriculture, but I have been persuaded that the origins of such partnerships lie in the fact that they have been seen as an easy alternative to the long-term secure arrangements that might have benefited tenant farming, particularly in Scotland. Our challenge, therefore, is to offer alternative vehicles to limited partnerships that provide the tenancy sector with more long-term security of tenure. Limited partnerships are, by their very nature, less secure and, compared with other arrangements, can be brought to an end quite easily. The challenge that we face is to make the alternatives available and attractive and to ensure that they work.
With regard to Salvesen v Riddell, mediation will be put in place. As we have previously discussed in committee, we want to set up mediation for those tenants who are affected by the ruling. Unlike the usual mediation, which takes place between two parties, this mediation will involve three: the landlord, the tenant and the Scottish Government. That makes things a bit more complicated, and we must get the legalities right before we enter into the mediation proper.
However, that mediation will be delivered, and I have asked my officials to give me a report on what progress has been made so that we can ensure that we deliver it very soon. I am aware of the STFA’s concerns, and I take the issue of mediation seriously. To give you some comfort, I reiterate that we will get the arrangements up and running as soon as possible.
I invite other review group members to come in on the role of limited partnerships and how we can deal with them as we move forward.
Essentially, from a historical perspective, limited partnerships were simply a vehicle to avoid security of tenure. That was the sole reason for their creation.
Since 2003, general partners in limited partnerships who receive a termination notice have been able to extend their occupation for at least three years beyond the end of the limited partnership by serving the requisite notices. The Salvesen v Riddell case was all about the notices that were served on 3 February as the bill was going through the Scottish Parliament. Many landowners panicked—for want of a better word—and served termination notices even though the partnerships were not due to come to an end until several years hence. The question was whether the retrospective legislation, which turned those particular general partners into secure tenants, was or was not within the power of the Scottish Parliament. Ultimately, we discovered that it was not.
According to the statistics, there were about 517 limited partnership tenancies in 2013. As a result, although the issue is very serious for the tenants who are affected, the number of people who have been affected by the Salvesen v Riddell case is relatively small. I can only echo the cabinet secretary’s point about the flexible letting vehicles that we hope to introduce being a way forward that will give general partners opportunities to continue in occupation.
As no one else wants to comment on the issue, Claudia Beamish will ask about the wider cross-cutting context.
We have considered the broad issue of the need for positive relationships. Although such relationships cannot be legislated for, there is an issue to do with leadership, which Andrew Thin raised and other people touched on.
I understand that the review group asked about ways of ensuring that CAP and taxation either have a neutral effect on or positively encourage the letting of agricultural land. Recent CAP reform announcements have included measures under both pillars that are targeted at new entrants, such as eligibility for basic farm entitlements and the ability to apply to the national reserve.
At our meeting on 6 August, we had a broad discussion with stakeholders about the relationships between landlords and tenants. Issues about creating a supportive wider cross-cutting context were covered in the discussion about the review group’s remit, but it has been suggested in evidence to us that there are other issues to take account of. For example, the Scottish Agricultural Arbiters and Valuers Association talked about the importance of taxation and the implications of
“Government intentions to convert significant areas of rural land to forestry”,
and went on to say that
“the hardest but most important area to influence is psychology.”
Do the witnesses wish to comment further on how we might create a supportive wider cross-cutting context? How might review panel members influence the psychology of landlords and potential landlords? In that respect, I am thinking about confidence.
I realise that my question had rather a long preamble, but I wanted to provide some context.
I am tempted to say that in four weeks’ time the people of Scotland will have the opportunity to deliver financial independence and tax powers to this Parliament, which will enable us to tackle some of the fundamental issues that affect the use of land in this country and to incentivise the creation of tenancies—there, I said it.
Yes, cabinet secretary. You succumbed to temptation.
The issue is relevant. It is ironic that we are spending a lot of time and energy considering serious issues about the availability of land in Scotland for letting, when we could, if we had tax powers in this Parliament, make fundamental changes that would have a big impact. It is an important point. In past years, I have made representations to United Kingdom chancellors about the need to use budgets to incentivise letting, and they have not even replied. I hope that we get a yes vote in September to ensure that from 2016 we have more of a say over such important issues.
The Scottish Affairs Committee has been looking at evidence on taxation. Do you or other members of the panel wish to comment on what the UK Government could do in that regard? It might be helpful to get some balance into the discussion.
I am happy to respond to that, although I am not sure that I can give much balance. I welcome the Scottish Affairs Committee’s consideration of the role that taxation and fiscal measures could play in the land reform debate. Indeed, it relates to your question about cross-cutting issues, to which I will come in a moment.
However, our experience of successive United Kingdom Governments has been that there is zero interest in looking at tax and fiscal measures in relation to land to help with this debate. That is the unfortunate reality: the UK Government and the Westminster Parliament have a track record of not touching tax measures that could help to free up land in Scotland for letting. I hope that that will change one day, and if the Scottish Affairs Committee gives more prominence to the role that taxation can play, that will be a good thing. However, we can take the powers into our own hands so that we do not have to rely on the Scottish Affairs Committee being listened to by unsympathetic Westminster Governments.
10:45As for other cross-cutting issues, I want to mention forestry and land reform. The land reform review group addressed some of those issues and, as you will know, we announced just last week the Forestry Commission let, which is going to a new entrant in the Inverness area. There is a big debate to be had about how we use Scottish land—and publicly owned land—to help encourage let land and new entrants and to create new tenancies. The new starter units that the Forestry Commission has created are bold and radical and they show how things can be done in the future. The land reform review group flagged up a number of measures for taking that debate forward, and CAP payments and how they are applied also have an impact.
Such cross-cutting issues are important. However, there are a number of others, and I invite those who are with me to highlight any that have come to their attention in the past few months.
This might go slightly beyond the remit of the group but, as a farmer, I am passionate about forestry. A great opportunity was missed when grants were given for planting woodlands, because there could have been more integration with agriculture. A lot of agricultural land out there has become unmanageable because the people are no longer there to manage it, but with sympathetic planting those areas could become manageable once again. I am tenanting a place that was planted, and that planting has made the management of the land a lot easier and more efficient. We need to look at those issues and integrate them more closely.
I back up the cabinet secretary’s point about the new CAP, which, along with the closer look at activity and blacklisting, should ensure that land is used properly and that subsidy cannot be claimed merely because someone has an eligible chunk of land.
One of the motivations for choosing 2013 rather than 2015 as the trigger date for land that qualifies for CAP payments was the case made by the STFA and others that we should try not to incentivise the taking of land back in hand in order to take advantage of the new payments. I hope that that move has helped to protect some let land in Scotland.
I hope that you also took account of the fact that the committee unanimously said that that was a good idea.
I was just about to make that point. [Laughter.] The most important contribution, of course, was the committee’s report, which supported the case that had been put by various sectors.
In response to Claudia Beamish’s point about psychology, I think that history has left rural Scotland with a set of cultural attitudes, behaviours, dress and all sorts of other things. Urban Scotland has largely evolved from that position, but it is still quite prevalent in rural Scotland and I think that that underpins, in a cross-cutting way, some of the challenges that we are addressing. At the risk of repeating myself, I add that a key outcome of the review—and I realise that this is only partly in the Government’s gift—is the need for really robust leadership on all sides to move rural Scotland on from that history.
That is good—I think that we have rounded off that topic. We move on to Angus MacDonald, who has some questions about process issues.
The committee has heard that stakeholders are generally supportive of the review group’s work to date, with Scottish Land & Estates stating:
“We are ... quite optimistic that the outcome will be productive and will result in a more vibrant tenanted sector in Scotland.”—[Official Report, Rural Affairs, Climate Change and Environment Committee, 6 August 2014; c 3972.]
Moreover, the NFUS has said:
“the present review process is an opportunity for significant change and a new collaborative approach”.
The comments from that side are encouraging. However, the Royal Institution of Chartered Surveyors has called for a moratorium, signed up to by all the major political parties in the Parliament, on any legislative change for at least 10 years.
Given that certainty has been highlighted as being imperative a few times this morning and that there seems to be a remarkable degree of consensus on the need to maintain stability, do you see that situation continuing in the short to long term? How will you ensure that stakeholders are kept on board throughout the rest of the process and beyond?
The group now has the task of coming up with recommendations and proposals. We are not so naive as to sit here and think that every recommendation that we come up with will be warmly welcomed by every stakeholder in Scotland. We will just have to wait and see. However, I think that it is fair to say that there is a degree of consensus and that we are all trying to get to the same place.
I cannot speak for the other political parties, but one of the Scottish Parliament’s attributes is the ability to reach consensus on a number of important issues. The committee has a key role to play and I will pay close attention to its views. I expect that you will follow up your evidence-taking sessions with a communication to the Government and the review group in particular about what you have debated.
Our aim will be to keep the spirits of co-operation, constructive dialogue and consensus going right to the end. I hope that if we deliver effective proposals and recommendations thereafter, they will attract support and that the Parliament as a whole will believe that the job has been done and that we can move on. That is our challenge as the review group. It is in the Parliament’s hands to take decisions on the issues, but there is hope in that respect.
Thank you for that. We have met in an optimistic mood today, and we look forward to seeing the outcomes of your deliberations by the end of the year. I thank the cabinet secretary and his supporting review group members for their evidence.
We will have a five-minute break while we change panels.
10:52 Meeting suspended.Previous
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