Rural Affairs and Environment Committee

Meeting date: Wednesday, November 24, 2010

Official Report 492KB pdf

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Draft Budget Scrutiny 2011-12

Good morning. Welcome to the public part of the committee’s 26th meeting of the year. I remind everyone to turn off their mobile phones and BlackBerrys, as they impact on the broadcasting system. Aileen Campbell is not in attendance; Sandra White is here as a substitute.

The first public item is evidence on the Scottish Government’s draft budget 2011-12, which was published last week. We must report to the Finance Committee on the draft budget before the end of the year, as it concerns matters within our remit. We are joined at the table by our adviser, Jan Polley, whom I thank for coming. We will hear from a panel who represent a cross-section of interests from the rural affairs and agriculture sector. I welcome Jim McLaren, president of the National Farmers Union Scotland; John Ford, director of finance and corporate services for the Scottish Environment Protection Agency; Lloyd Austin, head of conservation policy for Scottish Environment LINK; Professor Richard Aspinall, chief executive of Macaulay Land Use Research Institute; and Ian Jardine, chief executive of Scottish Natural Heritage. We are grateful to them all for agreeing to come here at relatively short notice. I thank those who have been able within that time to provide us with written evidence.

We do not have much time today because of other pressing commitments, so we will go straight to questions.

I will combine a couple of questions. The question is directed mainly at SNH, SEPA and Macaulay Land Use Research Institute, but that is not to say that others should not give an opinion. What level of resource and capital efficiencies are required for 2011? How likely are you to achieve those targets? Are you doing anything on shared services to help deliver them?

You ask about efficiencies, but two things will be necessary in SNH’s budget next year: efficiencies and cuts. Part of my job is to maximise efficiency, so that we minimise cuts.

SNH has managed to deliver its efficiency targets to date. We expect to deliver more through efficiencies over the next year. At the moment, I cannot give you an absolute target on which I am willing to stake my reputation, but we will need to produce a figure. That will be done by looking at many of our corporate functions, reviewing the way in which we do things to try to reduce administrative costs and handling times, and reviewing our property to see whether we can drive efficiencies out of that.

The process will include looking at sharing property, as part of the shared services agenda. We are looking both at bilateral shared services opportunities, by developing the arrangements that we have with the Crofters Commission and the national parks, and across the public sector at potential shared efficiencies in training, in property management and, with the Scottish Government, in financial and human resources transactions. All that work is live at the moment. I can go into more detail if the committee would like me to.

Since 2009, SEPA has had in place a major change agenda to review how the organisation delivers its services. A key component of that is looking at how we deliver our regulatory functions. We are in the process of reviewing that. The intention is to deliver our outcomes and objectives with a lower cost base by focusing on a more risk-based approach to regulation and ensuring that our associated scrutiny is in line with that.

In the past, we have delivered our efficiency savings; on a number of occasions we have exceeded the targets that the Scottish Government set for us. At the moment, we believe that we will be able to live within the budget of £39.4 million that has been allocated to us. We will achieve that partly through our transformational change programme, which will change the way in which we do things and ensure that we need fewer staff to do them. A voluntary severance programme has been launched in the past few weeks to reduce our staffing levels.

We are also looking at the non-staff side of our expenditure. That includes looking at sharing services in terms of buildings and their associated running costs, and sharing other services where we can. We already have a number of shared facilities management services in place with other organisations and we are discussing with some of them how we might take that further. Information technology services is another big area in which we are looking to see how we can reduce our costs while maintaining the quality of service.

Before the next witness answers the question, will you clarify something for me? You mentioned a more risk-based approach to regulation. Will you clarify what that is and how it will reduce costs?

We want to focus on where the potential for major environmental harm will come from. That is the nub of it. Where there is less risk of environmental harm we might be able to lighten the regulation that has hitherto taken place. For example, we will look at increasing the number of registrations and simple licences rather than requiring companies to make applications. We will look to regulate those with what will, in effect, be a lighter but proportionate touch, and we will focus resources on the areas that have the greatest potential to harm the environment. By taking that approach we can do the work with a lower level of resources but still achieve our environmental objectives.

As a research institute that is similar to the Scottish Crop Research Institute, Moredun Research Institute, the Scottish Agricultural College and the Rowett institute of nutrition and health, we are in a slightly different position from SEPA and SNH. For the past few years we have been increasing our income from sources other than Scottish Government rural and environment research and analysis directorate funding. We have done that quite successfully. We have managed to increase income at a faster rate than the increase in costs, and that has led to increased productivity while maintaining the amount of funding that goes to research.

I am sure the committee is aware that, since 2008, we have been discussing the creation of a new institute in Scotland by putting together the Macaulay Land Use Research Institute and the Scottish Crop Research Institute to create what will be called James Hutton institute. That name was announced a couple of weeks ago. The new institute will be much larger, and its primary intent is to project Scottish science more effectively and make it more competitive internationally, bringing in a wider range of sources of income. It also involves a look at the structure of the organisation to see what we can do in putting the two organisations into one. There will be a few, but not many, savings in terms of staff. Mostly, it should just be much more effective. That is a concrete and positive response to the economic situation.

My impression of the Macaulay is that it is more of an applied institution, so my follow-up question might not be fair. There is some concern that, as institutions emphasise the applied side more and more heavily and get the money in there, the potential for more speculative research might be lost. Is that a concern at the Macaulay?

No. We have scientists who are concerned to balance applied and fundamental science, so in so far as we are able to apply to organisations that support fundamental science, we will take care of that. Except in specific circumstances, the institutes are not able to compete for funding from the Natural Environment Research Council or the Biotechnology and Biological Sciences Research Council, which are the two big research councils for food security and living with environmental change—those are their main programmes. RERAD has managed to get us a capacity to bid, and we are now bidding to the research councils for funding in food security and environmental change. Much of that is fundamental science.

You said that you are not able to compete. Is that in a set of rules?

RERAD supplied some funds to those programmes as a match. For every £1 that it put in, we can get £2 back. They share the cost, if you see what I mean. They buy us into those programmes and into the ability to compete. We have to be competitive. In other competitions, we are still not able to bid in our own right, but we have dealt with that by going in as collaborators and working with universities and other partners who can bid. In those cases, we become a subcontractor. That is not ideal, but it solves the problem that you raise, which is how to get funding for fundamental research.

What would be your ideal?

11:15

As the amount of money we get from other sources increases, we will have more capacity to focus on the overall balance of funding. RERAD’s funding is not by any means solely for the applied side; we also use it to generate fundamental work, including many of our publications. Indeed, we think that it serves a double duty in allowing us both to solve applied problems and to develop advanced science generically. To give you a specific number, I think that we would like 25 to 30 per cent for fundamental science with the rest happily balanced under the institute’s mission orientation with regard to applied science.

As I do not have the responsibility that other witnesses have—of implementing these budgets—my comments will simply be observations from the perspective of non-governmental organisations that are keen to see the delivery of environmental and rural affairs outcomes.

I observe that the environment and rural affairs budget, particularly when it is net of the European Union contribution, is very small compared with that in many other portfolios—indeed, budgets for aspects such as agri-environment have historically been very low compared with those in other parts of the United Kingdom and Europe—so in considering efficiencies within that context we must be careful not to throw the baby out with the bathwater. We are happy for efficiencies to be made through the sharing of administrative services and so on, because such measures release resources to deliver core functions and outcomes, but in making these efficiencies—or cuts, depending on how they are applied—we must not pare away certain key statutory functions such as implementing the regulation that was mentioned or meeting international commitments to biodiversity, climate change targets and so forth.

Other efficiencies can be found in so-called win-wins, where two or more policy outcomes are secured with the same resource. Funding for environmental protection or improvement might also deliver social and economic outcomes with, for example, well targeted agri-environment measures improving biodiversity, water quality or access to the countryside as well as supporting farm incomes and employment or investment in green infrastructure, including the creation and maintenance of natural habitats and opportunities for access, enhancing health outcomes and community development. Indeed, Glasgow University research published in The Lancet has shown that access to green space can reduce health inequalities. If we join up our thinking and apply resources strategically, we have the opportunity to achieve win-wins and make better use of those resources.

Like Mr Austin, I have the luxury of not being charged with delivering any cuts to services on the back of this reduced funding. Nevertheless, I want to make two points. First, there should ideally be no dilution of outcomes in our research institutions. As Richard Aspinall said, we might be able to make some efficiencies and cost savings with the new institute, but research is vital to the future of Scotland’s rural sector. We have thrived as a result of that work and must protect as many of these outcomes as we possibly can. Secondly—this point does not really apply to SNH—I recognise that agriculture makes a modest contribution to SEPA’s income, but farmers still see it as a large amount of money.

My plea is that we continue along the route that Scotland’s environment and rural services has started on, look to generate more efficiencies and seek other ways to fulfil our European Union regulatory burdens and demands without passing more costs on to the industry, whether the agriculture industry or other industries that pay charges to SEPA. We need to find more efficiencies and smarter ways of doing things. We need to avoid duplication and go even further down that road. It is no holds barred for considering opportunities within the sector to achieve that.

As Jim McLaren raised the issue of fees and charges, perhaps it would be helpful for the committee to get a sense of what consideration has been given to the pressure on SEPA to increase the fees it charges. Will increases be tapered in? In which areas will they be most keenly felt? Can the witnesses give the committee any indication of the likely implication of increases? That is probably a question for Mr Ford.

This year, we restricted our charge increase to 1 per cent. We have gone on record as saying that, next year, there will be no increase in charges at all. That is to enable charge payers to get the benefit of the efficiency savings that we envisage ourselves making in that year.

That is welcome, but only if it does not result in even steeper increases in subsequent years. Do you have a view about what will happen two or three years hence? I know that the budget is only for 12 months, but have you any impression at this stage about what is likely to ensue as a result of the decisions to try to bear down on the fee increases over the past year or so?

We expect the transformational change programme, in which we are taking costs out of the organisation, to impact on charges as well. It is likely that there will be gainers and losers. We aim to allocate the appropriate and proportionate level of resource to areas where the greatest environmental risk is. That will effectively restructure our current charging schemes. I could not possibly say what the outcome of that will be, as we are working our way through our major change programme.

Are you saying that there will be more punitive punishments for serial offenders but rewards for those whose track record on compliance is more positive?

I am not sure that I would use the word “punitive”, but there will be a scale of charges and we would like to provide incentives for companies to deliver better for the environment.

Mr Jardine described the trade-off between efficiencies and cuts, but you are not saying that SEPA will look to the scale of fees to enable it to dampen down the cuts that it may need to make.

No, that will not be the case.

Does anybody else want to say anything on that?

There is still a lot of scope to reduce the burden of charges, particularly on things such as water extraction. There are ways of doing it much more cheaply. On farms, we are familiar with inspection regimes. Mainly through quality assurance, the whole farm business can be audited, checked and quality assured for something like £150 a year. Records, environmental obligations and everything we do on the farm can be checked for that level of cost, but one licence to extract water from one point would cost in excess of £600 a year subsistence charge. There must be far smarter ways of doing that.

Do you want to come back on that Mr Ford?

I do not disagree with what Jim McLaren says. The whole basis of a better regulation programme is to look for smarter and more effective and efficient ways of delivering services; to work with industry to see how that might be done; to look for where we may be able to find collaborative approaches with others, as we have done through the SEARS programme; and to see where we can extend those approaches.

Would that extend to the disposal of sheep dip licences? I declare an interest as a sheep farmer.

I am afraid that I could not go into that level of detail at this point.

The point is noted.

As there are no more questions about fees and charges, we will turn to efficiencies. Mr Ford mentioned the introduction of an early severance scheme in his organisation in the past couple of months. Are the other organisations already using early severance schemes? Are there any indications that those schemes are meeting efficiency targets? Do your organisations expect to continue to offer early severance schemes? Obviously, you must ensure that key expertise is retained. How does that tie in with flexible working? Are staff more willing to be more flexible in their work?

The initial indications are that the uptake of the SEPA VS scheme will be sufficient to deliver the level of savings that we are looking for, commensurate with delivering our environmental objectives. The scheme is in place, and it looks like it will be successful.

SEPA has always had the full range of flexible working arrangements, from part-time working to job sharing to reduced hours and eight-day fortnights. Such arrangements have been and still are available for staff to take advantage of. We are more than happy to meet any member of staff or any group of staff that comes forward and says, “Rather than someone leaving a post, we would all be prepared to work reduced hours,” and to discuss that approach.

SNH has run a voluntary early severance scheme that has been successful enough for us to do what we need to do next year. It is likely that we will lose 44 posts in the organisation under the scheme. That will save us around £1.5 million a year.

It is gratifying that we have not been inundated by requests from staff desperate to leave the organisation; it would be a strange chief executive who complained that his staff seemed to quite like working in his organisation. Many of our staff are very committed, which means that they are also quite open to discussing ways of working flexibly.

We will need to be more imaginative across the public sector; we will need to consider options such as homeworking to reduce office costs. We will need to keep all sorts of flexible working options open. In December we will have a series of meetings with staff, basically to discuss that matter with them and to get their ideas. However, to date, I have been extremely gratified by the realism and flexibility of staff. They realise what the situation is and they want to do what they can to help.

Flexible working schemes have been widely used for a while in the Macaulay Land Use Research Institute. We manage staff changes by turnover. We are constantly replanning and developing strategies for areas of work that we wish to concentrate on, and we can accommodate that through staff leaving for new posts in other places. Continual restructuring is not a problem for us because of our staff turnover, but we retain critical mass and corporate memory. We are quite happy with that.

11:30

On the skills mix, are there opportunities in your organisations, with some training provided, for people to switch? If people want to leave, can you—rather than recruit somebody else—switch a current staff member with a little bit of retraining?

Yes. We have a redeployment and retraining process in place for members of staff. SEPA has had a system for a long time in which we move staff within operations and science and between those two major groups in the organisation. That will continue.

I can confirm that SNH does that, too, but I should also say that we did not approve all the applications in the voluntary early severance scheme. There were applications from individuals who had skills that we felt we could not easily replace. That was taken into account in the scheme.

I ask Professor Aspinall to elaborate on the concept of corporate memory. I am a great believer that it is important not to allow that to be lost. Will you expand on the dangers of corporate memory loss, the need to prevent it and ways of preventing it from happening?

Thank you for the question. I agree with you: corporate memory is important for all organisations, but with research it is particularly important for understanding the provenance, use and utility of data sets and for understanding the contributions of science in programmes in the past, in order to avoid reinventing and redoing the same programmes. SAC calls it “re-search”—finding things that have been done before and using them effectively because they become contemporary and relevant again. Science moves on by developing new things and having new ideas, but many of the basic data and the experiments that have been carried out in the past are informative.

It has therefore been important to us that we retain people in the organisation who have the memory and who understand and remember the projects that have happened in the past and how they are relevant to the questions that are asked now, so that we can build on the work rather than start from nowhere.

The research environment attracts people who stay. I returned to the Macaulay institute in 2006, having been away for nearly a decade. I asked the staff to put up a hand if they had been there when I left, and they were surprised by how many had been—at least two thirds had been there for at least that decade. There is a long history of retention.

On retraining, scientists of course work on their skill set, which evolves over time. We offer retraining to scientists as well as to administrative staff. They tend to apply the expertise to a new question or area of investigation, which often leads to insights and broadens their ability to deal effectively with what are now interdisciplinary and broad questions.

We aim to keep corporate memory, and that happens. We also mix staff up so that they learn from one another. People have roles that they continue over time, but we ensure that, if someone is leaving, we retain the experience, expertise and knowledge that they have developed.

Do other witnesses agree that corporate memory is important for corporate governance structures, both across all the regulatory bodies and in general?

There is a general nod of agreement to that from the witnesses.

John Scott’s point about corporate memory reflects one of our observations. We have no responsibility for the statutory sector staffing arrangements, but in our discussions with the Government and agencies we have encouraged what I would call a strategic approach and a long-term perspective that takes into account the corporate memory and the need to ensure that core functions and statutory responsibilities are fulfilled. If we take a short-term, “How can we make the cuts as quickly as possible?” approach, because of where volunteers for early severance come from and for other reasons, we can inadvertently cause a loss of expertise in key areas, a loss of corporate memory and so on.

I am delighted to hear Ian Jardine reflecting that SNH appears to be taking that approach by not approving some applications and by thinking about where staff can be lost, where they should be protected and so on. It is important to take such a strategic and long-term perspective in order to maintain functions. The same would be true in thinking about the structure of all public sector organisations. It needs to be done slowly and carefully, and an eye needs to kept on the organisation’s core functions and outcomes.

Following up on Lloyd Austin’s comment about needing to take a strategic and long-term approach, and not taking immediate decisions, you will be aware that some of the political heat about the current budget is being generated because it is for 12 months rather than for three years. It might be easier for Lloyd Austin and Jim McLaren to say, but do any of the witnesses have any observations about the inherent risks in looking at a 12-month timeframe rather than one of three years or longer?

I will comment briefly, then let Jim McLaren in. It is swings and roundabouts, to some extent. I am sure that the gentlemen here today would be delighted to have more of a long-term indication in order to plan their management. On the other hand, everyone knows that there will be an event in May next year, so it would be a foolish chief executive who made commitments beyond then.

I do not have a lot to say about the one-year budget. Who knows what is down the track? The suggestion is that more pain is to come—that is pretty obvious—and the question is about how quickly it comes.

I have a comment on staffing. NFUS has no say or particular involvement, but I have a twofold observation. First, the unavoidable danger with voluntary early severance schemes is that it is hard to get the right people to leave. If an organisation has a strategic vision or plan for focusing its efforts, and the people who are required for that decide that they want to leave, it is difficult to manage that. I do not envy anyone who is facing the challenge of delivering through that method, although I appreciate why it might have to be done in that way.

Secondly, on the veterinary surveillance budget and how it affects SAC—it is not represented here today but I know that it has made a submission—the budget figure suggests that the veterinary surveillance budget has increased from £4.8 million to £5.2 million. That masks some changes that have happened to the budget. For example, pension liabilities and suchlike have been moved across into that figure. The fact seems to be that there has been a real cut of £0.5 million in SAC’s ability to carry out veterinary surveillance work, which is really unfortunate. That might well have to happen ultimately, but in the meantime, John Kinnaird is carrying out a review of the veterinary surveillance operation. I am not sure of the date when it will report, but it has not reported yet, if I can put it that way.

In the meantime, the SAC is faced with the challenge of deciding where to make cuts against a budget drop that it has already been informed about before the outcome of the review is known. That is unfortunate. Again, the question is: where does the SAC go? What staff does it make redundant? Where does it make cost savings in the absence of the results of the work that is being done to inform that decision and with the cuts that are coming down the track? Those are just observations, convener. The situation is a challenge for the SAC.

Before we move on, I have some questions on voluntary or early severance. Might you have to introduce a compulsory scheme in the future? Given that under voluntary or early severance you might lose people who have key skills, do you see your budget for consultants going up? Your organisation might be given a specific task, but it might not have anyone in-house who can deal with it, so you might need to take on a temporary consultant. There has been criticism from some quarters about the budgets for consultants in some public sector organisations. However, the real reason for using a consultant is possibly that you want someone to come in for a specific task.

I am happy to answer that. There are two issues here. Obviously, the issue of compulsory redundancies is an extremely sensitive one for staff. You will have seen the statements that were made along with the budget about pay policy, which make it fairly clear that the Government is anxious to avoid compulsory redundancies in the public sector. We are all asked to see how we can do that. I take that as an indication that we should speak to the unions on the basis of our being willing, as an employer, to offer a no compulsory redundancies agreement for the year. However, we might need some help regarding the flexibility that we will need in order to do that. The intention and the strong steer that I have had is that we are expected to get to a position in which we do not, for this budget period, need to move to compulsory redundancies. In terms of staff morale and keeping people motivated, it is important that we succeed in doing that.

I am sorry, but I have forgotten the second half of the question.

It was about consultants.

I do not envisage the budget for consultants going up. For some time, we have been trying to ensure that we use consultants only when necessary. The unknown is that we sometimes need appropriate specialist advice; in such cases it is cost effective to employ consultants. For example, we used specialist tax consultants to get VAT rebates, which was a good use of money because it paid for itself. However, I can see that in fields such as human resources and finance one sometimes needs very specialist and very specific advice. We will continue to need advice on those occasions.

A further point relates to other points that were made earlier, which is that across the public sector we must get better at using the skills that we have. If Scottish Natural Heritage does not have an expert in a particular area of employment law, perhaps SEPA or the Scottish Government does. We need to get better at sharing such resources.

I will pick up on a couple of points about the one-year budget, which Ian Jardine touched on in passing and which Liam McArthur touched on earlier. I will do so in relation to SNH and SEPA in particular. Are you, in practice, budgeting for one year or have you got an eye on years 2 and 3 in a slightly less formal sense than you may have had in the past, when you had actual visibility and figures? Are you nonetheless looking at a three-year horizon, given some of the decisions that you might have to take?

The short answer is yes. As you quite rightly say, we have a budget for one year, but we are scenario planning for the following three years so that we can clearly get a handle on what potentially needs to be done.

Just to confirm, we have a one-year budget but strong hints about direction of travel as well, which we obviously have to plan for.

Moving on from that—

I am sorry—Professor Aspinall has something to add.

It is perhaps worth noting that the research institutes are slightly different in this context because the funding from the budget is a proportion of our total income, not all of it. In addition, the research programme is planned for five years, albeit that the budget is for one year. So, our planning ties into corporate memory and succession planning that is designed to look over five years and beyond, with the new institute coming. We also do a range of other things beyond the work that is commissioned by RERAD. It is important that we hold that capacity in the institute. So, the one-year budget is not a problem in the research institutes, because we know what is coming up and we plan for that.

11:45

That is helpful. I will move on to some of the detail with regard to SNH and SEPA, although other panel members may want to comment, too.

To what extent might you have to stop activity that you are currently doing or have been doing for a long time? Will you try to reduce current levels of activity? I guess that SEPA, in moving to a more risk-based approach, has given some indication of that.

SNH employs a lot of staff directly, but also has a lot of grant-aid programmes. Will they, rather than the core staffing element, take a bigger proportion of the budget reductions that are required? What will the balance be?

SNH said that it will would make savings of £1.4 million a year from the voluntary severance scheme, but that the total required savings are closer to £7 million, which leaves a big balance to be found. You also said that the voluntary severance scheme would be helpful in this budget, which implied that you might have to move to compulsory severance in the next budget.

Can you talk about the grant-aid programmes first, and whether you will need to stop any particular activity?

I am happy to do that, but I will enter a large caveat at this stage. At the moment I have my budget from the budget statement, but in running the organisation I need the other side of the equation, which is the grant-in-aid letter that tells us what the Government’s priorities are. I also need to have a conversation with my board on 7 December about priorities. Exactly what we will do next year will depend on the steers that Government gives us on priorities, and the views that arise from the board discussion. To date we have been scoping out some options for the board and suggesting things that we could do.

We have identified areas that we think should be protected next year, if at all possible. Those will not come as a surprise: the marine work is in that category, as is the work that we do that has—as Lloyd Austin mentioned—socio-economic or health benefits. The support for the Scotland rural development programme and the staff time that goes into that also fall in that category. We will not necessarily be able to preserve those areas 100 per cent, but we are suggesting that they need to be protected first.

The budget means that we will not be doing some things that we currently do, and we need to present the board with a list of options. We are trying to protect the grants budget in the way that the board has asked us to. We have overheads, which include staffing and property, and we have what we call project funds, which is the money that we give to other people through grants and for research. The board has asked us to ensure that we apply the same levels of reduction to both areas, so we are not increasing overheads as a proportion of overall spending. That is the budget that we will set out to give the board.

It will be difficult to do that in year 1, because—as you suggest—it is difficult to make the reduction in overheads large enough in that time. In addition to the voluntary severance scheme, we have a recruitment freeze, and a number of temporary and short-term contracts that we can stop before the end of the financial year. The figure that I gave—I think that it is actually £1.5 million—is not the total amount that we will save from our costs.

We are trying to balance the budget in that way; it is proving to be difficult, but that is what the board has asked us to do.

That is helpful. Is SEPA thinking of stopping any activities? You have been given comparatively new responsibilities in flooding, for example. How will those be affected by the current budget?

We believe that there will be enough funding in the budget that has been allocated to allow us to deliver in our core areas of climate change, river basin management planning, zero waste, biodiversity and flooding, among other things such as providing policy support to the Scottish Government. Flooding was mentioned, in particular. In the past, funding for flooding was provided on an incremental basis, but from next year it will be built into our baseline budget. Therefore, there will be more certainty about the level of funding in the future, which will allow us to have a better long-term view of the investments that we need to make and the investment funding that is available to deliver our objectives. We welcome that certainty.

On another dimension of the budget, Ian Jardine and John Ford talked about overheads. SEPA and SNH both run decentralised organisations, which have many area offices. Can you reassure me that no centralising tendency will emerge from the budget pressures? It is understandable that people might think that that will happen. I think that I am correct in saying that SEPA and SNH will start sharing offices in Dingwall, in my area. Will the pattern be more one of sharing accommodation than one of drawing back to a central point?

The sector that Lloyd Austin represents is currently the recipient of grant from SNH, and Jim McLaren’s sector might have an interest in the contributions that SNH makes in relation to the Scotland rural development programme. What will be the impact on NGOs of a lessening of grant support, particularly in relation to employment?

SEPA is committed to maintaining its current geographical distribution of staff, but within that we are looking for opportunities to reduce our cost base. One way of doing that is by sharing accommodation. We have done that in Aberdeen and we are considering doing so in Dingwall, as you said. We are looking for other opportunities with SNH and public bodies across the spectrum, to enable us to reduce the overhead costs of providing our service.

SNH is in a similar position. Centralising is not necessarily a geographical issue. For example, we are looking at efficiencies in relation to activities that are done by a lot of people throughout the organisation. We are considering whether it would be more efficient for a relatively small number of people in a central team to undertake such activities, but we are keen to stress that “central” does not imply anything about location and that the small group of people could be in Lerwick, Newton Stewart or wherever. We are very much aware of that.

Like SEPA, we are under pressure to consider property, which means that maintaining all our existing properties will be difficult—probably impossible. However, there are ways of maintaining the geographical distribution. To date, sharing with SEPA has probably been the easiest and most common route for us to take, but like John Ford, we need to consider other options, including sharing with local authorities in some locations, so that we can maintain the geographical spread. We also need to consider options such as homeworking if we are to try to take out property costs while maintaining the location of staff.

I was pleased that Peter Peacock mentioned grants to NGOs and I agree that all aspects of support from the public sector, through SRDP or direct grants, are important to land managers in general and to anyone on the ground who delivers outcomes. Land managers and NGOs deliver those outcomes through Government outputs, such as grant schemes and various systems of advice and regulation. That is an important point.

NGOs—and, I am sure, many land managers—deliver those outcomes at very high value for money. We often have lower overheads than the public sector has, and we are able to draw in other funding, whether it is from membership, lottery money or European schemes of different types.

The outcome per unit of public sector money can be much higher for funding that comes through third parties, be they NGOs or private sector land managers. As we consider where priorities lie in strategically determining where to protect and where to cut, I would argue that we should consider schemes and funding streams that bring a multiplier effect through their delivery by third parties.

Both NGOs and land managers employ people to carry out work, but the types of work that deliver win-wins, which I referred to earlier, are those that deliver wider socioeconomic benefits, including the benefits of employment. We recently publicised the economic benefits of the kite trail in Elaine Murray’s area. Employment in bed and breakfasts and in the wider rural economy has been significantly boosted by that species-focused project, which was supported by SNH. We have to consider value for money not just in the NGO itself, but in the wider economy.

When we think of grants, the SRDP springs to mind first. It has been fraught with difficulties and has attracted criticism, but the fundamental point is that the scheme has paid tens and even hundreds of millions of pounds into the rural economy over its duration, which we must never forget. There is still a significant amount of money attached to it in the budget. We must use it as efficiently as we possibly can—we must get the biggest bang for our buck from that spend.

Drawing down European money is also crucial. We must not, by cutting the wrong parts of budgets, miss the opportunity to draw down match funding from Europe. I hope that such funding has been largely protected, given how the budget has been drafted, so that as much money as possible can be drawn down to match funds.

Peter Peacock touched on flooding. We need to be smarter in how we handle it. I am under no illusion about rainfall and weather patterns having changed, with more extreme events taking place, but I am convinced that flooding issues are partly to do with river and watercourse management. We now have in place structures whereby land managers do not routinely maintain watercourse banks or clear out river bottoms or watercourses, because of an administrative regime that makes that difficult or costly to do. This is a criticism not of SEPA, but of the regulatory process: the cost of applying to do those things is often more than the cost of doing the actual work. We must radically rethink all our river and watercourse management structures, the associated costs and how they impact on the flooding that is now happening. People have been doing those jobs for generations, but now they have stopped.

I wanted to raise one issue that has now been partly answered. Ian Jardine mentioned 44 jobs being lost at SNH, and went on to speak about a recruitment freeze and the use of short-term contracts. Where are those 44 jobs being lost?

Pulling together different activities is an eminently sensible idea. I am not sure what Peter Peacock does in the Highlands, but I know that some MPs and MSPs save money by sharing offices. Perhaps John Ford could answer this question. You spoke about moving to a new building and you have assets to sell. Is there a date for that move? What is the likelihood of being able to sell your assets as you move to the new building?

The figure of 44 relates only to the voluntary early severance scheme that we offered to staff. The actual number of posts by which SNH will reduce between now and next year will be higher than that, because of the recruitment freeze and temporary posts coming to an end. I cannot give you a precise figure for that at the moment, but I will be able to provide a precise number nearer the end of the financial year.

12:00

Most of SEPA’s buildings are leased, so we try to match up moves to shared accommodation or other accommodation when lease breaks occur. In the majority of cases, we do not have buildings to sell. Going forward, if we are to sell buildings, that will be difficult in the current commercial market.

Sorry; I had understood that SEPA had assets to sell. You are saying that that is not the case—that you have mostly leased buildings.

We have mostly leased buildings.

When SNH sells a building, the money goes to the Scottish Government—we do not retain the receipt. I presume that it is the same for SEPA.

Do you have anything to add, Lloyd?

Yes. I will make a couple of comments on the SRDP, following on from what Jim McLaren said. I fully agree about its importance to the rural economy and the importance of drawing down European money. We note that the budget for the SRDP as a whole has been reduced by £50 million for next year compared with this year, of which £27 million is Scottish Government spend. Favourable exchange rates have benefited the Government in recent years, so the national spend since the start of the programme has been lower than predicted. We do not think that there will be a loss of EU funding over the duration of the programme, as the co-financing rate in the latter part of the programme will be increased.

We are concerned that the funding for agri-environment programmes has been cut by £10 million for next year. Agri-environment programmes deliver the win-wins that I have talked about before. Well-targeted agri-environment programmes can deliver real biodiversity gains, gains in access to the countryside and so forth. At the same time, because land managers are being paid to manage the land to deliver those gains, they support land management businesses and the rural economy. By contrast, the less favoured areas budget has been preserved and protected despite the cabinet secretary’s assurance, when he increased that budget a year or so ago, that the increase would not impact on other areas. We are concerned about the balance of emphasis across the programme and are looking for areas in which we can get more win-wins, either through those targeted schemes or by increasing the efficacy of the more general schemes in delivering the wider public goods.

We have come to the questions about the SRDP late in the day—you have already volunteered answers, which is brilliant. Thank you very much for them. Where are the main problems likely to arise because of the cuts in SRDP funding? Can you suggest any alternatives? Lloyd Austin has just outlined how he thinks that LFA spending should have been cut and spending in other areas augmented, but others may have different views on that. Should the Government be doing anything to help the most affected areas? I am hugely concerned about the withdrawal of match funding, which is the worst-affected area of the budget. We had just got to that point in the discussion.

For clarity, I did not say that the LFA funding should necessarily be cut. I said that either it could be cut or its efficacy could be increased so that it delivered more public benefit than it does already. Those are two alternatives.

Given the way in which the LFA support scheme has worked in the past, I would be astonished if there was not some slack in it. The figure in the budget is £65.5 million. I think that there will be an underspend in that, but that is perhaps a slightly different matter.

The figure for agri-environment programmes is not alone in showing a reduction of £10 million, as the figure for business development is also being cut by £10 million. I also understand that some of the agri-environment cut is a play on numbers, as some schemes have legacy aspects to them that have ended, which will drop out of that figure. So, it is not entirely a £10 million reduction—some of it was going to go anyway. We must keep things in perspective.

As John Scott said, it is important that we draw down the maximum match funding from Europe.

I am conscious of the time, so my only comment on the SRDP is that I urge the Government to give people long-term signals, whatever it does. Let us not have a situation in which people find in the midst of their applications for schemes that the goalposts have shifted, that a cap has been introduced or that something else has changed. If money is available for only one round a year, in a month that is picked, we should be told now. We can say, “The SRDP will have one round a year—these are the parameters and the rules. If you want to go for it, that’s the date.” Let us have long-term planning and not jumping from one thing to the next.

I appreciate that you do not necessarily want to criticise the Government, but is that a criticism of it for having a one-year budget rather than a longer-term budget?

It is an issue with a one-year budget. I assume that the parameters allow the Government to set out now what will happen in 2011 with the SRDP and whether that will involve three rounds or one round. Let us find out exactly what the plans are. Let us see up front any changes to the rules—such as capping, which has been mentioned, or new priorities for young entrants or whomever the Government wants to target its more limited pot of money on—before people spend money on applying for something that they will be unable to access.

I seek comments on the increase of £7 million for administration costs and compliance improvements. It seems bizarre that compliance and administration costs in the rest of the Government are to reduce by 9 per cent, yet those costs in agriculture are to increase by £7 million. What are the views on that—is the issue red tape?

I can only guess that that increase is associated with complying with EU auditors’ demands for scrutiny and scrupulous administration of the budgets. I am concerned that Scotland will end up with a penalty anyway, because of EU auditors’—

The suggestion to us is that the increase is because

“a new Geographic Information System ... has to be put in place across Scotland to minimise the threat of future disallowance and this means additional expenditure on IT”.

Is that connected with the new mapping system?

Yes—I imagine so.

I am sure that that is part of the cost, but I wonder from looking at the relevant table whether money has been reallocated, because the current budget contains nothing for compliance costs. I am sure that it is not the case that no monitoring or enforcement is taking place—I would be disappointed if that was the case. Some resource might have moved.

On the SRDP, I add that targeted agri-environment schemes work. It is useful to look around at other parts of Europe. Despite the pressures on its budget, the Department for Environment, Food and Rural Affairs has in its recent spending review moved more resource into the higher-level scheme in England, which is akin to our rural priorities scheme. That scheme delivers environmental benefits on the ground while supporting the farmers and crofters who do the work.

Does anyone want to put on the record their continuing dismay at the low level of SRDP funding that Scotland enjoys, in the context of Europe?

Absolutely. I referred to that when I said that the rural affairs and environment budget is low in general. That derives partly from the historical low budget for pillar 2 payments in Scotland, which comes from decisions of many past Governments.

Those arguments are well rehearsed. We need to move on.

We have talked a lot about research funding and a bit about finding efficiencies through sharing offices. The capital allocations for SEPA and Macaulay are decreasing at a time when they are undergoing significant changes—Macaulay has merged with the SCRI and SEPA has consolidated at least some staff in a single central Scotland location. Against the backdrop of that reduced capital expenditure, it would be useful for the committee to understand whether those processes can progress unaffected. If they will be affected, what are the effects likely to be?

The capital allocation that we have got in the budget is the same baseline capital allocation that SEPA has had in the past. The only adjustment to that has been the removal by Government—by which I mean the UK Government as well—of the cost of the capital element of that, which was a kind of technical adjustment. Basically, the baseline capital allocation is much the same as it was in the past, and it will not affect our planned capital programme going forward.

The way in which capital budgets are arranged changed a couple of years ago. We have done a reasonable short-term job of covering some of the capital expenditure out of surpluses over the past few years. However, if we do not find a way to support capital investment across the institutes, in four or five years’ time significant problems will develop with the institutes’ capacity, in terms of having well-found laboratories with the equipment that is needed to conduct the basic analysis that supports the science.

Scottish Natural Heritage’s capital is down, but we can live with that over the next year without serious consequences arising. We must scrutinise issues such as property, hence the property review, and information systems investments. The difficulty with small capital budgets is that there are lumpy things within them that cause problems.

What is your view of the approach that has been taken to research funding? We are told that the main research providers have been protected. However, how does that reconcile with the fact that there has been 15 per cent top-slicing? There appears to be at least an ambivalent use of the word “protected”.

Are you talking about the top-slicing that affects the centres of expertise and strategic partnerships?

Yes.

We have had some assurances from the chief science advisers at RERAD that we can hope to get access to that same level of funding through the competitive mechanism that surrounds the centres of expertise and strategic partnerships. We have been working on the basis that we will have flattened level funding for the year, through the mechanisms that are in the budget. Although the situation is competitive and opens up new areas of work that we have bid for in a different way, with university partners, we hope and expect that we will manage to achieve flat funding, which is what I take “protected” to mean. We have had, in effect, flat funding since 2005, so we are pleased to see that in there. We will see what will happen with the detail, however.

So the research community is content, by and large, that it can get by.

I think that, under the circumstances, we have actually done rather well. I do not think that there can be any complaints.

We know that there are new ways of doing things and that the RERAD programme has different elements, some of which are new, and we will respond to those and work with them. We are flexible and capable of working in a variety of ways. We would like to be effective as well as efficient in the way in which we go about matters. We recognise that RERAD would like us to work through the strategic partnerships and the centres of expertise, and we know that we are capable of that.

LINK’s submission says:

“LINK and its members will not shy away from assisting in the identification of nonessential or marginal expenditure.”

This could be an opportunity for you—and the NFUS—to suggest what we should not be doing.

12:15

We will not shy away from doing that. We have talked about efficiencies in areas such as administration and service sharing, and we are keen for further work to be done on the SEARS agenda, which Jim McLaren mentioned. There are opportunities there.

I also referred to the value for money that the third sector and the private sector can provide in comparison with the public sector and its overheads. That is an area that could be looked at, as is the potential duplication in the communications and public relations work that some of the public sector does, not in explaining Government policy, but in self-promotion, which other partners might be more able to do. Those are a few ideas.

The most important thing, as has been said, is to have a strategic approach and to focus on what I would argue are the key outcomes, rather than what the submission calls the “non-key” outcomes. The key outcomes relate to international commitments on biodiversity, site designation, water quality, flooding and the marine environment, and the Government’s commitments on climate change and access. We would argue that those are key outcomes, on the delivery of which strategic budget management must ensure that resources are focused.

A lot of what has to happen is about complying with our EU obligations. It is about finding smarter, more efficient ways of doing that. Some of the conversations about how Scotland can fulfil its EU obligations more efficiently and whether that needs to be done in a particular way or whether other methods can be used probably need to take place in Brussels. Again, avoiding duplication comes into it. At a farm level, that will involve talking about farm inspections and finding ways of helping with compliance with the obligations that the Scottish Environment Protection Agency has through things that are already happening on farms.

Another issue to throw into the mix relates to animal health and welfare, and the challenge that we face in getting a sensible, devolved budget for that to sit alongside the policy. We all need to focus on tidying up that rather messy part of the devolution settlement, if possible, and ensuring that we persuade colleagues in Westminster and at the Department for Environment, Food and Rural Affairs, in particular, to deliver to Scotland a sensible portion of that budget. There are enormous opportunities for efficiencies and better spending, given Scotland’s already excellent record on animal health. We do not capture those benefits at present because any money that we do not spend in Scotland simply stays in Westminster.

Would I be right in saying that you are both arguing that the Government could achieve the required efficiencies by doing things smarter and better, avoiding duplication and so on, rather than by saying that there are certain things that Government no longer does?

I am sure that there is scope for doing things more effectively and more efficiently. At the moment, we do not capture any efficiencies that we make on animal health because the money comes only when it requires to be drawn down. Let us grab with both hands a sensible sum and look at clever, smarter Scottish solutions.

Will that be one of the Calman proposals that goes forward? Do you have any advance knowledge of that?

I do not know whether it is advance knowledge, but Calman said loudly and clearly that devolution of the animal health budget had to happen. DEFRA seems to be struggling to identify how much money that should be. No formula for how much that should be has been produced. Sixty-five per cent of the entire UK animal health and welfare budget goes on tuberculosis in England and Wales. TB is not an issue in Scotland. Fortunately—touch wood—we are officially TB free as far as Europe is concerned, so our animal health cost base is much lower. Because of the small nature of our industry, we can make some huge savings there. We have a chance to grab a sensible budget. Ideally, it would be based on livestock units—the UK budget could be split up on a pro rata basis. Scotland would get a great deal from that and we could make some real savings.

I agree with Elaine Murray’s last point. Some savings can be made from efficiencies and securing value for money in non-key areas, but work in all the key areas costs money and, to be done well, must be funded well. When we look ahead, we must be careful not to eat into the resources that are needed to do core work such as implementing the Marine (Scotland) Act 2010 and the Climate Change (Scotland) Act 2009 and meeting international commitments to biodiversity. If we do not resource that at all, not much wood will be left once we have taken off the bark, given that the net EU contribution to the rural affairs and environment budget is very small. Efficiencies and savings can be made, but there is a limit to which we can make them without eating into the core work that Parliament has asked the bodies whose representatives are sitting on either side of me to deliver. We need to be careful with the rural affairs and environment budget.

The final question is from Sandra White.

What do you think the longer-term shape of the rural part of the public sector should be, following the work of the Christie commission? What should merge—we have already spoken about that—what should be protected and, perhaps controversially, what should disappear?

You may not want to respond to that question until you have given evidence to the Christie commission. Perhaps you have not thought about the issue.

To state the blindingly obvious, it is difficult for public sector bodies to say here what we think should happen to us. It is even more difficult for us to say what we think should happen to other people. This is unfinished business. There is scope for us to look hard at the way in which things are done between different bodies, to see whether they are done as efficiently as possible.

Having been involved in various mergers over the years, I think that you should embark on wholesale structural change only if you know what savings you will get out of it, because it is expensive and distracts you from doing other things. SEARS has been mentioned. That was the right step, and we can go further on those lines. The future lies in being more focused on exactly what things we will deliver and who will deliver them, to ensure that we do not duplicate work and that efficient co-operation between public bodies is maximised. Should decisions be taken in the future to change and merge bodies, we will do our best to deliver that.

I have spent the past three years with Professor Peter Gregory from the SCRI talking about the shape of a new institute and what that would do to Scotland’s research landscape in agriculture and environment. Without giving you a definitive answer, I suggest that a new, large institute that aims to project Scottish science and capability not just in Scotland but internationally offers real potential.

Part of the goal of science is to promote economic growth and the health and wellbeing of the human population. Scotland has a fabulous environment, 80 per cent of which is managed, in one way or another, by agriculture. We have aspirations for forestry, to do with climate change, and have a land use strategy. Peter Gregory and I have tried to describe not just the science of such an institute but how it would work with other organisations. We should look to give it a chance to do that—a fair wind, as the chairmen of both boards say.

We have talked about RERAD’s research strategy for the next five years being strongly focused on policy, but we recognise that all the research institutes—including Moredun—aim to work not only on policy but with SNH, SEPA, the NFUS and land managers, and to work more to join the land and marine sectors. There is hope that science in Scotland will provide an evidence base that will enable us to develop smarter relationships with policy customers and policy makers to make that happen.

That sounds exciting.

It must be observed that the structure of governance in the rural affairs and environment area, as well as the areas with which it is interrelated, is an accident of history. There are the organisations that are represented here and those that are within Government, such as Marine Scotland, Historic Scotland and other non-departmental public bodies. As Ian Jardine said, the SEARS process, which has enabled all those bodies to work together closely, has been good.

At the moment, we have no views about specific changes that we would promote or oppose. Rather, we think that any process or review needs to be well thought out, to take place in a way that focuses on outcomes and to take into account the costs to which Ian Jardine referred—the interim costs of any change. We do not promote or oppose any specific measures. However, if changes were proposed, we would want there to be a long-term strategic analysis that involved all stakeholders, including the third sector, land managers and others. We will make submissions to the Christie commission along those lines.

To carry through such thinking, we must think carefully about the structures of Government, the importance of different aspects of regulatory functions and policy implementation functions, and the value of independent advice. One body—the Sustainable Development Commission Scotland, which has done valuable work over the past few years—is up in the air at the moment. The London part of the body has lost its funding, so the Scottish, Welsh and Northern Irish parts are waiting to hear what will happen to them. We do not promote the commission’s retention as a separate body with the same name, but we are keen for its function to be retained. We have no strong view on whether that function is moved to Audit Scotland or to somewhere else, but the commission’s important function of monitoring and scrutinising Government implementation and reporting to bodies such as the Parliament is important and should be retained.

I have a high-level comment to finish. We need to protect our ability to compete and the ability of our world-leading scientific community to continue its research and to keep Scotland on the front foot in that respect. As has been said, what needs to disappear is duplication of effort and unnecessary, burdensome and unaffordable levels of regulation. Ninety-four per cent of Scotland’s land is rural, which makes the Rural Affairs and Environment Committee the most important committee in the Parliament—all power to your elbow.

Thank you for that comment. I thank you all for your contributions and remind you to submit any further evidence that you have in writing to the clerks as soon as possible, preferably by the end of the week.

I suspend the meeting for a few minutes to allow a changeover of witnesses.

12:28 Meeting suspended.

12:32 On resuming—