Environment and Rural Development Committee, 01 Nov 2006

Meeting date: Wednesday, November 1, 2006

Official Report 277KB pdf

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Budget Process 2007-08

Item 3 is the budget process 2007-08. We are glad to have the Minister for Environment and Rural Development with us as we scrutinise the Executive's draft budget 2007-08. We agreed this year to focus specifically on the Scottish Environment Protection Agency's budget, and we took evidence from representatives of SEPA last week. Today, we will be considering a range of issues arising from our evidence session with SEPA, general issues to do with the draft budget and the development of spending on environmental and rural development schemes.

I thank the Executive for the written briefing that it circulated to members and welcome the minister, Ross Finnie, and David Dalgetty from the Scottish Executive Finance and Central Services Department.

Members will remember that Ted Brocklebank raised a point of order at the previous meeting and that I suggested that he raise it again this week. I invite him to do so now.

Thank you, convener. I raise this point of order with absolutely no disrespect to the Minister for Environment and Rural Development. As we are all aware, the Minister for Finance and Public Service Reform has confirmed that the report of the independent budget review group—the Howat report—is now complete, but he has refused to publish it prior to September next year. That is in complete contrast to the promise that he made in November last year and May this year to publish the document when it was complete. How can committees be expected to consider the budget process if they are denied access to such an important report? I intend to request that the committee decides not to go ahead with examining next year's budget until we have access to the report and are able to glean from it information that might help us in our deliberations.

Thank you for that. You are now asking the committee to do something, whereas last week your point of order was about the role of the Executive. It would be helpful to us if Ross Finnie would address that point in his opening remarks. We will have to decide how to deal with Ted Brocklebank's point of order—either later today or when we come to consider our draft report.

It would be wrong of me to pre-empt what the Minister for Finance and Public Service Reform might want to say in response to Ted Brocklebank's perfectly valid point of order, which relates to the publication of the information. The review group was engaged in a process to assist with the next budget round; it was not to do with the budget for next year. We have the financial settlement for up to the end of next year. The review group exercise was undertaken to assist the Executive in considering other options in the period 2008 to 2013. Although I think that it is proper for the Minister for Finance and Public Service Reform to respond to Ted Brocklebank's point of order, I suggest, with respect, that the matter does not necessarily interfere with the committee's consideration of next year's budget, because whatever is in the report is germane not to next year, but to the settlement beyond that. That might not answer Ted Brocklebank's point, but I hope that the information is helpful to him.

I do not want to intrude on the time available for members' questions. The numbers that we have set out in our background brief are our 2004 spending review plans for 2008. As usual, our final budgets will not be determined until we present the annual budget to Parliament next January, when we will be able to assess the latest position.

I know that members will have found it slightly difficult to make comparisons, because, as we note in our proposals, two major changes have been made. The first is the transfer of £14 million from my water budget to the communities budget, which was made in the context of the new determination of charges in Scottish Water's investment programme. That will relieve development constraint on the provision of affordable housing by funding the share of the water infrastructure costs that would normally fall to the developer. The other main change, which is purely technical, results from the decision by the Treasury to change from 2006-07 how spending by departments on common agricultural policy support and European Union structural measures is recorded.

I apologise for those changes, which are not easy to follow, but I hope that the technical paper, which we sent in advance, provided a satisfactory explanation of them. I assure members that the changes are purely presentational and that there are no substantive changes to our previously published plans, and no changes to our plans for gross spending under the affected measures.

I will explain briefly why there are some incomplete elements in the budget. I suspect that the committee will have a particular interest in the impact on future budgets of the new seven-year Scottish rural development programme, which should start from January 2007. I had hoped that we would have been able to share our conclusions and detailed proposals on the basis of a draft programme submitted to Brussels for approval. Sadly, the preparation of the draft programme has become bedevilled by a series of delays to the finalisation of the EU implementing rules and, latterly, the intervention of the European Parliament on the matter of national voluntary modulation, to which it is opposed in principle. The United Kingdom is pressing in particular for an amendment that will provide for regional variation in the rate of national modulation within member states. The ability to apply different rates has been important in ensuring that the financial provision meets the specific needs of a Scottish rural development programme. We are actively pursuing the matter with the Commission, which has said that the position will not be resolved until early in 2007. Moreover, it has advised us that, until the regulation of national voluntary modulation is resolved, it will not be competent for us to submit any proposal that includes such a provision. That, of course, is very unhelpful.

Whatever is finally agreed, we will still commit resources over the next spending review period, which runs to 2010-11 and beyond. As we have an inescapable duty to operate a multi-annual rural development programme, we have no option but to take decisions now, in advance of wider spending review deliberations. For that reason, the resource implications of the programme that I propose to Brussels will be a matter for collective ministerial consideration and agreement in the Executive.

I have been particularly concerned about the situation, especially in relation to possible delays to the less favoured area support scheme, which makes vital payments to 13,000 hill farmers. Traditionally, payments under the scheme have been made in the spring; however, as a result of new rural development regulation requirements regarding cross-compliance and, from 2008, the streamlining of LFASS applications with single farm payment applications, it will not be possible to make those payments until very much later in the year.

I have therefore proposed to the European Commission that we make a supplementary payment in 2006 in recognition of the possible additional financing costs that might result from such delays. A while ago, we proposed that the supplementary payment should amount to a further 16 per cent on top of the 2006 payment, which would give a total of £10 million. Although the payment will have no impact on the 2007-08 budget that is under scrutiny today, I thought it right to assure the committee that I propose to take action to address the implications of Scottish rural development programme delays.

Thank you. As you have raised a huge number of substantial issues, I will set aside an hour for our discussion, although it would be great if we could finish in less than that. Nevertheless, I reassure everyone that they will get a chance to ask their questions.

I suggest that we follow up issues that emerged in last week's evidence-taking session with SEPA; focus on general issues in the 2007-08 budget; and then discuss the development of spending in rural development schemes. Are colleagues happy to work through those three policy areas instead of dancing around the budget? It means that they can ask questions on different sections, as long as they do not take too long.

Members indicated agreement.

Eleanor Scott will kick off on issues that emerged from our evidence session with SEPA.

One of the issues that we discussed with SEPA was the definition of waste, which, although it might be seen as straying slightly off the issue of the budget, nevertheless impacts on the organisation's activities. It has had to levy certain charges because regulations define particular products as waste even though common sense would suggest otherwise. For example, topsoil is defined as waste if it is moved from one site to another but, if it is put through a riddle, it becomes a product, which removes it from the waste classification. Furthermore, on waste-to-energy matters, common sense prevailed with products such as tallow but not with small waste oil burners. What action is the minister taking to ensure that we have a more reasonable definition of waste?

There are two ways of looking at the matter. I have to say that I am concerned about—and find it difficult to understand the reasons for—some of the regulations, particularly with regard to the example of topsoil that you highlighted.

As regards products that genuinely fall within the ambit of the animal by-products regulations—tallow being a case in point—I thought for a while that we should be redefining what waste is, to use Eleanor Scott's phrase loosely. However, I am now not entirely sure that that is the right way to go, because the risk is that people would argue that waste was not really waste if it could be defined in a variety of ways.

I have been pursuing the Department for Environment, Food and Rural Affairs and Europe and asking them to give more thought to which processes could be defined. That would mean that if one had a product that was described as waste at the outset, but which was then subjected to a clearly defined process, it could be removed from the definition of waste. Such an approach would probably avoid that mischief; it would also relieve the nerves of people who have seen the improvements to the environment that a clear definition of waste can bring. With modern technology, there is no reason why we cannot use such by-products, but the regulations positively militate against the reuse and recycling of such material. I am engaged in that issue, but it is not easy to resolve given the strong body of opinion from people involved in the initial definition of waste. That makes things difficult.

We have to take a more progressive view of the definition of waste. We have good examples of that in Scotland. Elements of biodiesel by-products qualify as products, although some of those elements are more difficult to define. That is not progressive thinking in a modern context. We can make use of animal by-products in certain areas, but again we have difficulties getting out of the definition mischief.

We need some urgency in this area because the regulations militate against the progressive use of such material.

I want to follow up on the waste issue. Last week, we discussed with SEPA its environmental targets and where it had and had not been successful. The work that the Executive has done on the strategic waste fund to promote recycling has led to a huge change in local authorities' work.

What about your targets for minimising, recovering and managing waste? What overview is there of the spending of the strategic waste fund on incineration? It has been suggested that a series of incinerators is planned to deal with the municipal waste that does not go to landfill and is not linked to energy-from-waste schemes. That takes us back to Eleanor Scott's point about having a more sustainable approach to waste in general. Do you have figures from local authorities on their approaches to energy-from-waste schemes? Will any of those be developed when the next round of incinerators is discussed? The matter is not mentioned in your briefing.

We have not finalised our plans. A number of local authorities are using the area waste plans to avoid unnecessary duplication of what is expensive capital investment. My department is currently assessing some substantial bids from local authorities that are feeling a little pressured because of problems in fulfilling the requirements of the landfill directive and the consequent penalties that we can impose on them if they fail to do so. I have some sympathy with them because of that pressure.

My department and I have a clear approach: the hierarchy of waste has to be maintained. When local authorities make submissions, they have to justify their approach—which is difficult, because control over the waste stream is not entirely in their hands. They must also be clear that their projections do not imply unrestrained growth in municipal waste.

We then have to look at the projected reuse and recycling elements, the composting elements and the projections for both green waste and food waste. We then come to assessing the local authorities' view of the residue, which is fundamental. Beyond that, we are clear that any incineration must be combined with recovery of heat. We are not interested in simple incineration. A local authority might choose to go down that route, but it certainly will not be funded by the strategic waste fund. We are trying to set reasonable targets for recycling, reuse and composting and to ensure that by any international comparison with countries that are leaders in this area, such as Austria, the level of residue waste that might be subjected to thermal treatments is kept to a minimum.

Right. I wanted to ask about that, because the paperwork suggests that there is a target of 30 per cent for recycling and for compostable waste, which still leaves 70 per cent of the waste stream—

That is where we started. In our discussions on all the submissions, we have made it clear to local authorities that those targets, which were set three or four years ago, are no longer acceptable, and I do not think that any local authority is balking at that. After all, the Tayside group of Perth and Kinross Council, Dundee City Council and Angus Council have already reached the figure of 30 per cent, so it would be nonsense to say that the target for that group of councils would remain 30 per cent. However, we are still working through the detail. The only assurance that I can give you is that, once we have assessed what has happened, the target will certainly be considerably in excess of 30 per cent throughout Scotland.

Okay, so there will not be a perverse incentive. That is what I was trying to establish.

There is no way that we will spend public funds to end up with a 70:30 split.

So any project that involves waste being incinerated or burned in some way automatically has to include energy produced from waste.

Absolutely—if it is to be funded by the strategic waste fund.

Local authorities will not be allowed just to have incinerators.

I do not have powers to prevent local authorities from entering into their own private arrangements, but if they are applying to me to use the strategic waste fund, they will not get a penny—

There is nothing to prevent them from entering into a public-private partnership arrangement.

I do not have powers to prevent local authorities from doing that, although I am bound to say that if they can get a grant from the Executive, the PPP option would appear unattractive. I am outlining the factual position.

The truth is that probably the only local authority that has a major incinerator is Dundee.

There is also Shetland.

Sorry—and Shetland. However, if I may say so, its incinerator is on a rather different scale.

It is more about the principle.

The principle is clear. A local authority that applies for money from the strategic waste fund will not be funded unless it is achieving energy from waste.

Will you set targets for each area that are higher than the existing targets?

Indeed.

It would be interesting to get in writing a bit of feedback on each area.

Yes. I will have to wait a little while to give you that information because we are in serious negotiations and, with all due respect to the committee, I do not wish to prejudice those negotiations. I am anxious to share the information, but I need to get a little further down the line before I can release it.

There are no other questions on SEPA, and I sense that members want to move on to general issues in the draft budget.

I ask the minister to turn his attention to flooding. Clearly, there is the general issue of climate change and its impact on Scotland. Extreme weather events are likely to become more frequent and flooding issues will continue to move up the political agenda. In light of the tragic events in the Highlands that we have seen on our television screens in the past week or so, what consideration have you given to increasing funding for flood prevention schemes in the next year or two?

Although central Government will meet up to 80 per cent of the cost of flood prevention in Moray, which I represent, that leaves 20 per cent to be found by the local authority and council tax payers. The council will have to divert resources from other budgets to make up that 20 per cent. There is a huge burden on the small number of councils in Scotland that have to cope with extreme weather events in their areas. Do you take that into account in your funding analysis and plans for future budgets?

When we talk about the future, we are talking not about next year but about the next spending round. You raise two or three issues. Quite properly, the scheme has strict criteria attached to it. When a local proposal is devised, the authority has to state that it will reduce the prospect of serious flooding recurring to an acceptable level—it may be once in 10 years; I cannot remember. That measurable engineering standard, which is in regulations, must be met by the work.

As you say, the scheme was designed to release 80 per cent Government support for flood prevention schemes. I know that difficulties have been experienced in your constituency and in relation to the Tweed—particularly where it goes through Hawick. In those two areas, particular difficulties have been faced in town centres.

The budget for next year has not been altered, but there are technical and financial issues around the need for more adaptations in response to climate change. There is also the issue of the percentages that local and central Government should contribute. We are not yet at the relevant stage in the next spending round so I am unable to comment further, but the three issues that you raise need to be closely examined.

As the minister said, the budget beyond 2007-08 will be decided in the next spending review. The figures that are presented at the moment are the SR 2004 figures, and in the SR 2004 plans the budget for flood defences was increased from £14 million per year to £42 million per year—it will rise to £42 million per year next year. An increase in the budget was built into the spending plans and is in the budget for 2007-08. The issue is the pace at which local authorities are able to come forward with proposals to use the budget, but a great many projects are well in hand.

I press the minister on my point that a few local authorities in Scotland face an unfair burden. Local authorities that are not hit by huge flooding problems do not have to divert money from other budgets to find the 20 per cent contribution. At present, budgets are tight. As flooding is an increasing problem in Scotland, can I take it that the minister's mind is not closed to reviewing the percentage of the costs that is funded by central Government and increasing the budget in the months ahead? He said that the final budget will be presented in January.

I might be slightly more constrained this year because we are still in the settlement for 2004-07; our flexibility is far more constrained than when we are at the beginning of a four-year budget cycle, so I do not want to raise expectations.

We have to consider the regulatory issue and the criteria that have to be met. Our preliminary thinking about the next spending round is that the issue of flooding will have to be raised again. I will certainly bear the matter in mind. I do not wish to be obdurate about it, but I am operating within a much tighter framework because there is only one year of the spending review to go.

I want to follow up on what Richard Lochhead said about the recent flooding in the north of Scotland. You will have heard the reports and will know that the problem was not with big river systems but with small burns, which caused a lot of damage in small communities. How should local authorities react? Big flood prevention schemes do not apply because we are talking about a series of small, localised events. Is there a strategy and is there funding for dealing with smaller watercourses? Such watercourses can do a lot of damage in the sort of weather that we seem to be getting more and more frequently.

I would have to look into that in more detail, but I am happy to do so. If the spread of damage is within one local authority's area, issues might arise to do with developments on flood plains. We would have to consider the communities that had been affected by flooding and by climate change. There is no reason why such communities would not qualify for help. Although each individual community might be very small, there might be schemes for river-basin management or coastal management, and the communities might qualify as long as the net effect reached the level at which flood prevention measures would be required.

That is interesting. Thank you.

We will obviously discuss climate change and extreme weather again, and this afternoon the Deputy Minister for Environment and Rural Development will give a statement on last week's events.

Does Ted Brocklebank want to move us on to a new topic?

Yes, I want to ask one or two questions about what the minister had to say about the less favoured area support scheme, but before I do—

We are still on general issues; we will come on to rural development.

Fair enough. I will wait.

Are there any other general questions on the draft budget?

I want to ask about efficiency savings. What scope is there for further efficiency savings? What is the present situation?

My department covers agriculture, fisheries and forestry, and a whole suite of bodies such as Scottish Natural Heritage, the Deer Commission for Scotland and SEPA. Historically, those bodies have operated slightly independently—often, but not always, from separate premises. I have felt for some time that, to provide a better service to customers who seek environmental or other advice, it would be a great improvement if most of the bodies were co-located—or all of them, although I do not think that that will be possible. Merging a lot of the back office staff and some of the expenditure, and not having to maintain so many buildings, would have a big impact, given the number of buildings and pieces of land operated by the Scottish Executive Environment and Rural Affairs Department. There could be economic efficiencies and we could improve the quality of the service to the customer.

When the single farm payment replaced all the subsidies, I clearly remember you saying that administration would be simplified and that savings would therefore be made. Has that actually happened?

Not to the extent that I would have wished. As the single farm payment came closer to implementation, I became depressed by the almost weekly delivery of a further complication and by the need for staff at Pentland House to write and rewrite new programmes.

We may begin to see more efficiencies in the next year, although I had hoped that we would see them rather earlier. I think that we will achieve them, but I have been disappointed by the complexity of the regulation, which has caused us to have to rewrite programmes. We were very reluctant to stand anyone down, because we were aware that south of the border the system for implementing the regulation was becoming more awkward and we were anxious not to lose control of it.

What about Scottish Water, which is the main source of expected efficiency savings?

It is meeting its targets. Today, tomorrow or the next day we will receive the report from the Water Industry Commission on Scottish Water's performance, which the commission monitors. I am given to understand that Scottish Water is meeting its targets for financial efficiencies.

Further to the waste issues that we raised with SEPA last week, I want to ask about your future budgets in that area. Nothing is going into management of commercial waste, the waste stream that accounts for most waste in Scotland. Do you see resources being made available in that area post 2007?

I have been encouraged by a number of local authorities that have had very constructive dialogue with the small business sector. That does not quite answer your question, but I would like to develop the point. The first authority that took a really proactive stance on the issue was Perth and Kinross, which is in active discussion with the small business sector. The council has said that it is prepared to increase capacity within the local authority but that small businesses will have to meet the cost for that. It has asked what can be done to improve efficiency so that the local authority is not providing a de facto subsidy to the private sector.

The basic principle that I have outlined must be applied to the rest of the private sector. In a sense, the private sector is responsible for dealing with that waste stream. We place statutory duties on local authorities to uplift and deal with biodegradable municipal waste, which is why we assist them in funding the service. However, a more collaborative approach is needed. We raise the issue with the small business sector and the Confederation of British Industry whenever we talk to them. At the end of the day, the polluter-pays principle must apply to them. We need to get the co-ordination right, because there may be capacity issues with which local government could assist. However, that cannot be at the expense of increasing the municipal cost burden.

We will return to the issue next year. As members have no further questions on general issues arising from the draft budget, we move to spending on rural development schemes.

I want to question the minister on the less favoured areas support scheme. Before I do so, I will respond briefly to what he said about my point of order. Although I accept what he said, it is a fact that in November last year and, I think, again in May this year the Minister for Finance and Public Service Reform said that he would publish the report, which seemed to suggest that he thought that it would be helpful to us in our consideration of the budget. Perhaps the minister and the committee will take that point on board when we come to make decisions.

I want to question the minister further on the fact that it appears that 13,000 hill and upland farmers in Scotland, most of them tenants in very vulnerable situations, will now receive in the autumn of next year less favoured area support scheme payments that they would normally receive in the spring. That is extremely serious for many people who at that time of year feed into their budget a sum of money—I think it is about £61 million, but the minister will keep me right—that amounts to £4,000, on average, for each tenant farmer. The payment sees them through until normal livestock sales and so on happen in early autumn. If they are no longer to be paid in the spring, that will cause extremely serious problems. Indeed, many of those tenant farmers—who occupy some 85 per cent of the land mass of Scotland—might struggle to survive. Can the Executive really do nothing more to help them?

Before we get to your prediction that the Scottish agricultural industry will come to an end tomorrow, which you have an infinite capacity to suggest, I want to make it clear that Scottish farmers receive more than £500 million of support, £450 million of which comes through pillar 1 and £60 million of which is provided through the less favoured area scheme.

There is no doubt in my mind about the importance of less favoured area support—that is why I increased the amount available when I came into office. LFA funding had been reduced to £55 million and the budget that I inherited showed that it would be reduced progressively from £55 million to £50 million and from £50 million to £45 million; I think that it was set to decrease even further. We should therefore put matters in perspective.

I will come on to the potential lateness of the payments. Members will recall that last year there was a significant change in the schedule for the payment of the £450 million as a result of the move away from separate payments—there used to be payments for cereals and sheep, as well as numerous beef-related payments, including the suckler cow premium, the extension beef premium and the slaughter premium—to a single payment. Although the issue is serious, we should be cautious about how much emphasis we attach to it.

There are two possibilities. The European Commission is anxious because the commissioner is disinclined to utilise voluntary modulation. The commissioner is equally disinclined to give this country its fair share of rural spending. In 2000, we got a settlement of between 3.5 and 3.8 per cent, when any decent rural study, such as the one that was done by the Macaulay Land Use Research Institute, showed that we should have had nearer 7.25 per cent. Our settlement was a substantial underpayment. There is no suggestion that it will be revised, but it has been suggested that the ability to use voluntary modulation should be removed. In the past few days, the Commission has said that the easy way out is to forget about voluntary modulation. It has said that our payment will not be adjusted and that we will just have to get on with things. That is not a good prospect for Scotland.

If one looks at the arithmetic, as I have done, one finds that we will have to reduce substantially our total spend on rural development, certainly in the early years of the next programme. At the moment, I am anxious to maintain an adequate rural development spend, both on support for agriculture and on the wider rural environment and diversification agenda. That is why I have proposed that an additional sum—not an interim payment—of £10 million be paid to assist the farmers affected while we try to obtain a more comprehensive resolution to the situation that will allow us to have a fuller rural development programme.

I am not a wonderful mathematician, but it seems to me that if you give those farmers £10 million towards the end of this year and they do not get any more until October or November of next year because you will not be making the usual payments of £61 million, which they would expect to receive in May, you will be buying yourself a year. From what you are saying, they will get £10 million before the end of this year and might get some more in the autumn of next year. Is it not the case that you are buying yourself a whole year in which you will not have to pay them the sums of money that they deserve?

I am not buying anything. I do not have a legislative basis on which to make any payment. At one point, I tried to suggest to the Commission that I make a more substantial payment. However, because it is keen to draw a line under voluntary modulation, it is not keen to co-operate on that.

As I said, my problem is that the ending of the rural development regulation means that there is no legislative basis for me to make next year's payments. I am trying to negotiate with the European Commission some form of additional payment within the current regulation to assist the farmers who are in that position.

On the issue of the tier 3 elements of land management contracts being competitive, I would like to deal with the plight of crofters, who have been used to crofting counties agricultural grants and the bull hire scheme being made available on the basis of need rather than competition. Could it be said that, by your decision to make those schemes competitive, you are undermining the basis for crofting agriculture?

No, because I have not made that decision. In fact, yesterday, we made clear to the Scottish Crofting Foundation that those specialist crofting schemes would remain outwith the LMCs.

I am delighted that you have finally come to that conclusion, which has been months in coming—

I think that you are making a speech that was, perhaps, written before the announcement.

It is important that we know these things and the committee is here to ask questions. I did not know that those schemes would remain outwith the LMCs and am delighted that you have given us that assurance. Will you make the new bull hire scheme more workable than the interim scheme has been?

As we discussed with the Scottish Crofting Foundation, we want to examine the way in which the scheme is working. There are issues with the scheme, but the previous scheme did not work properly either. You have probably read the reports that say that the bull hire scheme was not operating effectively. In some areas, it worked as it was supposed to but that did not happen across all the crofting counties. I hope that we can continue to give that level of support. The financial support is contained in the schemes.

The other consideration was whether we would include the crofting counties schemes in the rural development programme. I think that we will do so, as that will automatically extend the state-aid clearance from 2009 to 2013. There is merit in doing that because it will avoid the need for us to have to go through a bureaucratic process of reapplying for state-aid clearance in respect of those schemes.

Will they continue to operate on a non-competitive basis?

They will be outwith the LMC. They will operate in the same way as they currently operate.

Ted Brocklebank asked about the LFASS. You know that my position is that payments should be targeted at the more remote and rural areas. Will the payments that you mentioned be made across the board, or is there any way in which you could consider the issue of need when you make the payments later this year?

I know the argument about areas that are less favoured, those that are less less favoured and those that are less less less favoured.

Perhaps we could call them the least-favoured areas.

Let us get the grammar right.

Yes. In a sense, that argument, which has gone on for a long time, is not helpful, because the regulation simply talks about less favoured areas. It talks about permanent disadvantage and 85 per cent of our rural landmass comes within that definition.

Because I think that there are costs as a result of a remote area being designated as an area of permanent disadvantage, I have indicated that I would like there to be some readjustment. That approach has not been wholly supported, particularly by the National Farmers Union of Scotland, which is reluctant to see any redefinition, notwithstanding the fact that some of its members in the Western Isles, Orkney, Shetland and northern parts of Caithness and Sutherland are the ones who bear those costs. It has therefore been unhelpful.

I will consider the issue, but I suspect that it would be difficult to introduce a new category of need to try to make a supplementary payment under an existing regulation. I think that it would be difficult to rewrite the existing regulation, but I take your point.

I would be grateful if you would consider the matter.

I welcome much of what the minister said about modulation and on the debate that is taking place in Europe. I have previously raised the issue of modulation with him at question time. It is clear that securing regional variation is vital in order to ensure that the level of modulation is appropriate for Scotland. I share the concerns that the minister expressed in his opening remarks about the delay again in Europe in settling the rural development programme.

However, I want to stick with the issue of modulation. What are the minister's views on the performance of the rural stewardship scheme this year? He will be aware that that scheme has caused a lot of angst. Farmers are happy for modulation to take place if they think that they can submit applications under the new schemes that are being funded through modulation, but we have seen this year that payments under the rural stewardship scheme have been skewed in certain parts of the country, and that parts of the country have thought that they have received a raw deal. For example, I received a letter from a farmer in my constituency that said that, under the scheme, only one out of 80 applications in the Elgin area had been accepted. I do not know whether what that letter said was accurate—I will have to check—but I am sure that the minister will have something to say about it. It seems that the goalposts have been moved with respect to the points system that was put in place for the scheme and that many people are unhappy with how it has operated this year. Is the minister happy with the scheme's performance this year? Does he have any plans to make available more cash to help to meet demands under the existing schemes?

As I explained at the outset, we are talking about the final year of a four-year budget settlement. The number of applications that have been submitted under the rural stewardship scheme has doubled, which has resulted in real disappointments that I am well aware of. Those who advised individual farmers were a bit like me in looking for the increase in applications to be along the lines of increases in previous years, but the number of applications doubled in a competitive scheme with a finite limit. Those people indicated to farmers a possible cut-off point of X points, and people worked up schemes on that basis with their advisers, which was a matter for them. If the number of applicants doubles and the goalposts are not automatically moved, the only way of containing the expenditure is by increasing the qualifying level. That is the arithmetical consequence.

I am not satisfied with what has happened because, although we have paid out record sums in our schemes in the past two years, we have been unable to meet the huge increase in demand. We must consider what we can do in the next spending tranche and consider whether there is a different or better way of distributing the money.

With respect to points, there was no discrimination in any area. Bids were assessed using points, and the level of points was fairly uniform. The difficulty lay in a larger number of applicants coming in at below those points. I think that things appeared to be skewed geographically in Richard Lochhead's area and in the Borders. There was no absolute intention to do that—it was a consequence of the formula. I am not happy about that. I am delighted that the number of people who were interested in the scheme doubled. We should not lose sight of the fact that the total amount of money that has been spent in those areas is at record levels. However, we were not able to accommodate many people who wanted to come into the scheme.

You will be aware that new entrants have also lost out, and not just in certain parts of the country. There is a precedent. One of the forestry schemes, which was very successful recently, was topped up by yourself when demand outstripped supply with regard to funding. Can you give any comfort in the short term to those people who have made legitimate applications?

There was a difficult issue with the forest scheme. On the longevity of forestation and planting, there were issues around schemes meeting well-established, agreed targets, which were going to be seriously prejudiced if we could not do something about the situation. There were very particular circumstances around that. With the limited scope that I had in relation to funding, we elected to proceed in the way that we did in response to that particular issue of foresting. No other funds were available in the circumstances.

The issue for this year was not simply the distribution of the resources that were available under the overall ceiling of the EU development plan programme for the year. We went some way towards meeting the committee's concerns when we discussed those matters last year in the context of organic aid. Last year, the specific question was what to do if there was a surge of interest in organic aid. How could it be met? I think that the response was that it would have to be met within the envelope through the redistribution of resources. A particular number of organic aid applications were received.

Any allocation of resources to the rural stewardship scheme this year to allow a greater number of applicants to benefit would have implications for spending over the next four to five years, because the commitments are multi-annual. The minister had to take into account not only the impact on this year's budget, but the potential impact on the freedom to manoeuvre over the next SRDP planning period.

I hope that the minister will review the situation.

I will stick with modulation and the general debate. On the debates that are taking place in Europe and the minister's plea for a regional variation to be allowed—which I support—what is the situation with regard to match funding, given the fact that the regulations allow for Governments not to match fund modulation? If there was a guarantee for the match funding of modulation, that would clearly assist the sector.

We must separate out the mandatory modulation from the national modulation. We now have a sum within our baseline, which is to avoid annual negotiations on the matter. Our departmental expenditure limit funding provides us cover in relation to the mandatory modulation. We do not have total cover in relation to voluntary modulation. If we increase the rate, I do not think that we have such. I think that Richard Lochhead and I are agreed about the need for it to be geared to our needs, but my fear is that I have 4.5 per cent to assist with the funding of the current programme and, if we lose that battle completely, that money will fall. I would regard that as quite a serious matter.

Could you go over that again? I did not quite understand it.

There are two separate arguments with respect to voluntary modulation. There is the fundamental argument about the Parliament and the Commission, irrespective of the low settlement of rural development expenditure, turning their faces against voluntary modulation. There is an issue about us not even being able to raise 4.5 per cent in voluntary modulation.

That relates to the point that Ted Brocklebank made earlier. I accept that we could simply concede that and make an application now for a reduced rural development programme for the four-year period. Even if we are allowed voluntary modulation, the secondary issue is whether we will be allowed to set the rate at a Scottish level. Those are two related but slightly separate points, both of which are being argued about vigorously as we speak.

I have always found the rural development budgets difficult to follow. It is always difficult to pursue the figures and to discover trends from year to year. Some of them I just do not understand at all.

I want to focus on the organic aid scheme. The organic market is growing, so we would expect our producers to want and be encouraged to take advantage of that. In 2004-05, that seemed to be happening, because the budget for the scheme increased in that year. However, from a high in that year, it dropped the following year to just over a quarter of what it was in 2004-05 and has flatlined since then. Does that reflect the reality? Should we not increase organic aid to encourage more organic production, in line with the organic action plan to which the Executive has committed?

My first response is to share with you that I find the way in which finance officials and others present the matter, with six budget figures, to be slightly baffling. As I come from the private sector, I am much more accustomed to having the actual spending figures for three or four years, to allow one to see the trend of actual spending, not what might or may have been. We then had a best estimate of where we were in the current year and then the budget. That approach allowed us to see the actual trend.

Is there a reason why you do not give the budget figures and the actual outcome expenditure?

I am told that that is just not the way in which we do things. I am talking about my previous experience. When I had a proper job as a chartered accountant, that was the way in which we tended to work. I find the approach slightly baffling, but that is the way that the Government does it.

The budget figure is not necessarily the actual amount of money that was spent in a given year.

Correct. I prefaced my remarks with that comment, because that presentation is what creates the difficulty with the figures on the organic aid scheme. David Dalgetty is delving into the papers to get the appropriate figures, which are found in the Executive's accounts for level 2 spending. My answer to Eleanor Scott is that we have been allocating more resources to organic farming. I do not have the figures in front of me, but I think that, in 2004-05, the budget figure was £6 million or £7 million.

It was £8,440,000.

That spending never materialised. I know, because your Green Party predecessor on the committee asked me that question at least three times during the previous budget process. I do not mean to be cheeky, as the question was perfectly legitimate. That level of spending was never achieved and the adjustments that were made subsequently reflected that. We have been spending smaller amounts.

The spend on organic aid this year is £3.4 million. The problem with the budget figure for 2004-05 is that that was a view that was taken at the time. The important issue is what has been achieved as a result of that spending. The figure for organic aid has been running at £2 million to £3 million and we are set to meet all the targets in the organic action plan. There have been significant increases in the area of land in Scotland that is subject to organic regulation and which is assisted under the scheme. I apologise for the figures. If I could make them more comprehensible, I would.

It would be helpful if it was fed back to whoever produces the figures that we would like some real ones.

I shall report that members of the Environment and Rural Development Committee are volunteering to serve on the Finance Committee. I suspect that that will come as a warm surprise to those on the Finance Committee.

You cannot do that on our behalf. When we decide on our budget report, we will certainly ensure that we raise that issue. Every year we debate the issue of transparency and how impossible it is to track your objectives and targets year on year.

You will find no resistance from me on that.

I thank the minister and David Dalgetty for coming. We have given the budget a good going over, as far as we could.

I ask colleagues to agree to consider in private at future meetings our draft report to the Finance Committee, which will cover all the issues that we raised this week and last week. The Finance Committee will then publish our report as part of the package of reports on the budget. Are colleagues happy to discuss that in private?

Members indicated agreement.

I thank members for attending. At next week's meeting, we will hear from the Deputy Minister for Environment and Rural Development on the Aquaculture and Fisheries (Scotland) Bill, which will be the final evidence session on the bill.

Meeting closed at 13:01.