Rural Development Committee, 23 Oct 2001

Meeting date: Tuesday, October 23, 2001

Official Report 177KB pdf

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Budget Process 2002-03

We move on to consideration of the budget process 2002-03. The committee is to take evidence from the minister on stage 2 of the budget process. Committee members will recall that the convener, Alex Fergusson, wrote to the minister on 4 October and raised various issues that arose from our stage 1 report, namely the declining share of the total Executive budget that is devoted to rural affairs and the decision-making process on the underspend of £66.8 million. I invite the minister to make some opening remarks.

I will go straight to the main issues in the convener's letter. As I said when I wrote to the committee in September, I am not consumed by day-to-day measurement of my share of the overall Executive budget; that is not how I want to deal with it. I explained when we met in May that our plans for 2002-03 were set out before the foot-and-mouth outbreak. I also said that the immediate significant costs of dealing with the disease fell to the United Kingdom Exchequer but that the Executive would have to make an assessment of its long-term impacts. That continues.

In the meantime, we addressed some of the short-term issues through our £10 million foot-and-mouth disease package, which included £2.5 million to assist the recovery of the agriculture industry. Through the rural partnership fund, we are also providing more than £2 million of match funding for sums raised by the voluntary sector to relieve hardship that has been caused by foot-and-mouth disease.

I continue to discuss with my counterparts elsewhere in the United Kingdom what additional common agricultural policy or Great Britain-wide measures might be appropriate. On the Executive's spending, we will have to take stock of the position in the 2002 spending review. At that time, we will make a judgment on the continuing problems for Scotland's rural areas and what priority we wish to accord them as we decide our spending priorities.

My basic point is that the relative size of my budget can increase only at the expense of other Executive programmes. When I wrote to the convener, I noted that the committee had not suggested which other Executive programmes could be reduced to give the rural affairs budget more.

I play my part in collective consideration of overall Executive priorities. I seek to use to best effect the resources that I secure in that process. As long as resources are finite—and they always will be—there is no escaping the need for hard choices to be made between competing priorities.

On the allocation of cuts in my budget, and given what I have just said, the competing priorities meant that the budget reallocation was a classic case of having to adjust the management of finite resources to meet the needs of changing priorities.

I was, as I always am, party to the collective considerations. I believe that the contribution that has been made from my budget is deliverable without significant impact on my programmes. As the plans were set during the 2000 spending review, I considered first where there might be possibilities for savings based on later estimates. I then examined other areas in which we could expect to use end-year flexibility. For example, it was possible to consider giving up £3 million that was earmarked for spending in 2002-03 and 2003-04 for a new fishery protection vessel but still to allow that project to proceed—I am confident that we will be able to meet those one-off capital costs from EYF resources.

For the £1 million a year that is taken from the forward budget for Scottish agricultural and biological research institutes capital in 2002-03 and 2003-04, I am adding this year £2 million to the budget, to allow the bodies to advance their capital expenditure.

The final point in the convener's letter concerned the 2001-02 underspend. The underspend that matters is that which relates to departmental expenditure limit spending. The aggregate provisional underspend for my budget is some £66 million, but more than £21 million of that relates to CAP annually managed expenditure. The EYF rules do not apply to AME spending, because that is determined entirely by demand and is funded through the UK Exchequer. Therefore, demand rather than the budget determines the amount that is spent.

The provisional DEL underspend throughout my whole budget is some £44 million, of which £25 million is attributable to rural affairs. The committee will have ample opportunity to examine the detailed position later, but it is important to say that the larger underspend related to the rural development level 2 programmes. That was largely attributable to the European Commission's late approval of our Agenda 2000 rural development plan—the convener will recall that that occurred in December 2000—which our spending plans for 2001-02 assumed would be approved much earlier in the year.

Parliament will shortly see the Executive's autumn revised budget, in which we will propose the allocation of the 2001-02 EYF resources. Proposed additions to my rural affairs portfolio will amount to some £44 million, including £25 million for the fisheries decommissioning scheme.

As time is short, I have tried to address the principal points that were raised in the convener's letter. I will pause there. Mr Dalgetty and I will be happy to answer the committee's more detailed questions.

Just under 30 minutes are available, so I ask members to be succinct, if not brief.

Minister, when you and I discussed the budget at stage 1, I think that we agreed that the aftermath of foot-and-mouth might change some of the budget priorities, particularly the way in which modulated funds were used. How are the foot-and-mouth issues being addressed? How is that money being allocated from the budget?

There are two distinct elements in the modulated funds. Fifty per cent of the funding is tied absolutely to the descriptions in the rural development regulation. The remaining 50 per cent is funded directly from the Treasury and is more flexible. It is curious that in some of the fundamental elements to which we direct expenditure to support agriculture, foot-and-mouth may have changed the pattern of demand, but I am not sure whether it has changed the nature of demand. The geographical spread of applications for the programmes may have changed, but we are unaware of a range of other elements on which the agriculture community seeks more support. However, the level of desire and applications has increased and changed geographically.

You will be aware that Dumfries and Galloway Council and Scottish Borders Council, for example, sought additional funding to help with marketing and promoting the industry. Has it been possible to provide that from the budget?

I will deal with the marketing issue. I do not wish to be disrespectful to Dumfries and Galloway or any other part of Scotland, but we must understand that improving the consumption of or increasing customer confidence in red meat throughout Scotland, with particular emphasis on the Scottish quality beef and lamb labels—I hope that members saw in their newspapers at the beginning of the week that Quality Meat Scotland has just launched a campaign—has as much to do with other parts of Scotland as it has with Dumfries and Galloway.

The figures are easier to interpret than in previous years, but it is still quite difficult to scrutinise the department's budget. I looked through our notes and noticed that Forest Enterprise had capital charges of £40 million and a total budget of £56.4 million for 2000-01. That £40 million under the heading of capital charges—whatever they may be—is the equivalent of two thirds of the overall fisheries budget.

The end of the previous financial year coincided with the fishing crisis. As we know, the Executive decided not to fund a tie-up scheme, for which the fishermen had sought £5 million. Am I right to say that, at the same time as the Executive was turning down that request for £5 million, the rural affairs budget was underspent by £25 million? If I heard the minister correctly, he said that £25 million of the £44 million underspend was directly related to the rural affairs budget. Does that mean that the minister had full discretion over that £25 million?

Richard Lochhead has raised two questions. I am glad that, like me, he finds the figures slightly easier to understand. Convener, you will appreciate that I am reluctant to make the figures too easy, as that would remove the mystery behind being an accountant and, as I am a professional accountant, that raises a conflict of interests for me.

Let me make a serious point. I do not accept Richard Lochhead's proposition. I am reluctant to get into an argument with you, Richard, about the figures that you quoted—that is, the £5 million against the £25 million underspend—but I do not accept the proposition behind that £5 million. I recall from the Scottish Fishermen's Federation submission that the fishermen were not looking for a one-off payment. We have had this argument before: your view is that the request was for £5 million, but that is not my view, because there was also some recurring expenditure. We will not agree about that, but, in the context, I did not think that I had £25 million available at the time. Having secured £25 million, I made a judgment and, with the agreement of the Cabinet, I decided to spend that money on a decommissioning scheme. That was a reasonable priority in relation to the fishing industry at the time.

I will make a point about future flexibility. The £5 million would have been a one-off payment for that year. You are right to say, minister, that there would have been recurring payments. That issue will not go away, because the cod recovery plan covers a five-year period. I hope that you will accept that the £25 million payment for the decommissioning scheme was not a one-off payment, as future investment will be required. The World Wide Fund for Nature said today that if we do not invest, we will lose our fishing industry.

If there was a £25 million underspend at the end of the previous financial year, will the budgets have flexibility in future in order to enable your department to respond to the continuing difficulties in the fishing industry? The European Commission is working up new proposals, which will require investment from the Scottish Executive, but are you making allowances for that investment?

As I said, we will be announcing the details shortly.

The revised autumn budget will be announced within the next two weeks.

The matter is under consideration. Several issues are involved, including the final position on the cod recovery plan and paid tie-ups. We must also consider which element of the fishing settlement the fishing industry will be expected to make its living from, whether through quota or other mechanisms that are brought into play.

We are sensitive to all of that and to the timing of reports, which may be difficult. The problem in some cases with EYF moneys is that, to get them spent, you have to have them on programmes PDQ. We are cognisant of the need to be aware of developments in the fishing industry.

As the minister is a chartered accountant, perhaps I could ask him a technical question that arises out of his last response. I understand that the DEL proportion of the underspend in the financial year to 31 March 2001 was £45 million. Of that, around £20 million was for fish decommissioning and £25 million was general underspend. Am I right in saying that the EYF rule allows 75 per cent of the underspend to be carried forward to the next year? If so, a quarter of the underspend—£6 million—cannot be carried forward and is therefore lost to the rural development budget.

No. That is not necessarily the case. Any Government has to take a view on its overall commitments. The Minister for Finance and Local Government agrees with other ministers that 75 per cent of any departmental underspend will, except in certain circumstances, come back to the relevant minister for adjustment. The Cabinet will review the 25 per cent to ensure that particular pressure points in the overall Executive budget can be managed properly.

Does that mean that £6 million was lost, but that it may be returned?

That is possible. It depends on the arguments that are made for it. The matter has to be seen in the round. As I said at the outset, we have to look at the overall Executive budget and to where its priorities lie.

In agriculture circles, there is a strong feeling that the top-slicing of modulation—taking money away from what might be called agricultural grants and putting it into environmental grants—takes money away from agriculture at a time when agriculture needs it. At stage 1 of the budget process, you agreed that there was a case for revisiting the priorities for modulation. Would you consider doing that now? Would you put more money back into agriculture rather than into schemes that a lot of farmers cannot get on to, such as the rural stewardship scheme?

Bids may be unsuccessful, but it is wrong to say that farmers are not eligible to apply for such schemes. Under current regulations, the only persons who can access the moneys that are put into such schemes are persons in agriculture. As Jamie McGrigor is well aware, a wider debate is taking place across Scotland among those who are associated with land management and wider rural development. They wish to have access to rural development schemes because of the very title of those schemes. At present, those schemes are for the purposes of agriculture only.

I do not share Jamie McGrigor's view. I expect the agriculture community to make a range of production outputs. Clearly production—whether livestock, arable or potatoes—is a key element. We also expect the agriculture community to make a significant contribution to the environment. If it is to do that, we must have schemes that compensate people for participating. As we are moving with the flow of European policies, it is better that we move our schemes in that direction.

I seek clarification. The budget lays out that CAP support will fall during the next few years. The explanation is that enlargement and the like will affect it. Are the figures in the budget—I want to say guesstimates—an assumption or are they based on any other research or knowledge that you have?

I have lived for many years with the methodologies for assessing those numbers. With the introduction of modulation and the need to forecast the revenues that would be raised by rates of modulation and therefore how much money we have to spend on rural development measures such as agri-environment measures, we are trying to refine our forecasting methodology for forward CAP spending. It is difficult to forecast the sterling value of a range of CAP measures for two or three years ahead on the basis of decisions not yet taken by the Commission and the Council of Ministers on the rates of payment under those schemes. We try our best to make those forecasts as realistic as possible. The best we can do is try to limit the risks of being too far wrong in our forecasting.

Why is spending on crofting grants and loans falling?

Some savings in that area were planned, but the revised baseline for 2000-01 still leaves scope for growth. It is slightly lower than we originally budgeted when those figures were published, but the £3.4 million is still ahead of the outcome figures by well over £1 million. Although I have made some reduction in the spending, it has not reduced the scope for more grant to be allocated than in 2000-01.

I was tempted to ask hard technical questions but, not being an accountant, I might have got the wrong end of some of them. I will therefore stick to a general point.

I am interested in some of the policy directions and the vision that the forward strategy for agriculture sets out. Will you reassure us that the budget that has been set is adequate to meet those policy commitments? Is there flexibility to deal with those commitments in the years to come?

There are two points to make on that. One of the first things that we have to consider is one of the big questions that were in my mind when I embarked on the strategy. As the minister, I have to distribute £500 million to £550 million pounds' worth of support to the agriculture sector. I could think of all sorts of good reasons why I should do that, but it struck me that it is a substantial level of support. I wanted to have a better handle on what the output and outcome would be.

I am not necessarily of the view that we need more money in agricultural support in general. We need to do two things. First, over time—a relatively short period, I hope—we need to refocus some of the support. Secondly, within the context of the strategy, we need to try to do what has been needed for some time, which is to recognise what has been found in far too many operations in agriculture—that the level of subsidy masks market signals.

While I believe that there are good structural reasons for a substantial level of support in Scotland, we have to try to improve dramatically the actual amount that any individual farm achieves from its produce. I do not want the strategy to be thought of as requiring another multimillion pound spend. It aims to ensure that the agriculture community, all other things being equal and given the level of support that it has, can reach a more sustainable level of production on its own.

I have a short supplementary question that relates to something I raised at stage 1. The budget papers show that support for agricultural training does not have any money allocated against it for the next three years. In the context of the forward strategy, can I be assured that the door will not be closed to considering providing some support?

There is certainly not no support. The Scottish Agricultural College provides a substantial amount of training. It is included in the SABRIs' budget, under Scottish Agricultural College. You will also have noted from the extensive discussions we had with the enterprise networks and others that the historical treatment of agriculture as something apart is no longer acceptable. People in rural communities and in agricultural settings should have equal access to all the training and support mechanisms that are available to other industries. Whisper it gently: I am hoping that someone else's budget, in another place and in another committee, might contribute to that. I am sure that you will support that even if I am criticised for it.

This is to do with the conventions of the draft budget. A line in the draft budget that is less than half a million shows as a zero. There is actual expenditure between £300,000 and £400,000 a year directly in support of land-based training.

That is the Lantra Trust rather than the SAC.

That detail comes out in the in-year budgets but not in this level of document.

I appreciate that.

Midnight oil has obviously been burned by Mr Dalgetty.

There is an indication here of £84 million being spent on rural development—on all the agricultural support schemes and so on. How do we obtain general figures from the Executive about specifically rural issues such as rural transport initiatives, rural enterprise initiatives and social inclusion initiatives in rural Scotland, in which the committee is interested? Your budget quite rightly focuses on agriculture—that is what you are responsible for directly—but you are also responsible for rural policy in general. I feel that the committee should have at least some idea of how much the Scottish Executive is focusing on issues such as rural transport, rural enterprise and social inclusion.

The committee asked that question some time ago—we have done some work on that issue. There are major programmes that have been hugely enhanced, particularly through the transport budget. As you rightly say, there was the money that was paid on the remote and rural health initiative through Raigmore hospital. All those issues are germane; they are matters in which I take a close interest.

I am trying to remember—we did some work on trying to get some broad headings and handles. As I said earlier, extracting and unwinding the detail was hugely complex and the benefit was not proportionate to the time and effort involved.

As far as I am aware, the work is on-going.

We will have to hurry it along. I have been so involved in foot-and-mouth that I may have lost sight of where the information that the Rural Development Committee requested is. I saw a preliminary report that set out what might and might not be possible. I also saw headings that I thought might be helpful to the committee and to the Parliament. I will take that matter on board.

The issue may also be one of focusing on ministers' approaches to the spending review. If there is any way in which we can get a clearer view of that for the Parliament, we might as well start at the front end of the planning process, which is the spending review and ministers' approaches to cross-cutting issues. That would mean that, at the end of the spending review, we could try to drive out some numbers that make more sense.

It is always possible to underspend, but the underspend in the year to March 2001, even looking at it in DEL rather than total terms, seems extraordinarily high. Is the minister concerned that the situation may be likely to recur? If so, might there be a danger of pressure on the rural development department's core budget from Treasury sources and from the Minister for Finance and Local Government?

No. As I said in my opening remarks, the current underspend for my department is £44 million of which £25 million is for rural affairs. The substantial proportion of that is the level 2 programmes budget underspend, which happened because we assumed that the plans would be approved very much earlier than was the case. They have now been approved. That means that, in the following year, I will have a whole year's expenditure.

Given the source of the current underspend, I do not expect that I will continue to have the same degree of underspend. Now that the rural development plans and the level 2 programmes are approved, I have no indication that the level of applications will do other than take up the following year's budget.

Thank you, minister. Other members had supplementary questions, but we have to draw the line somewhere as it is approaching 3.15. I thank the minister and Mr Dalgetty for giving evidence today and for answering our questions.

That concludes the evidence taking on stage 2 of the budget process. I remind members that our stage 2 report must be made to the Finance Committee by 7 November. That requires us to agree our report by 6 November, which is the meeting after next. The Official Report of this meeting will not be available to the clerks until the end of this week. In view of that tight timetable, it may be helpful to follow the practice that we adopted in previous years of appointing two reporters, one from the Executive parties and one from an Opposition party. Is that acceptable to the committee?

Members indicated agreement.

In that case, I ask for nominations.

I nominate Elaine Murray.

Does Dr Elaine Murray accept the position?

I do.

As I dropped out of my professional accountancy exams at the age of 20, I cannot call myself a mathematical genius, but there is one among us—Stewart Stevenson. I nominate him, even though, because he has a clash with another committee, he is not here today.

I will ignore the confession but accept the nomination.

Is it agreed that Stewart Stevenson and Elaine Murray work on a report once the Official Report of this meeting is available?

Members indicated agreement.