Rural Affairs, Islands and Natural Environment Committee

Meeting date: Wednesday, January 12, 2022

Official Report 655KB pdf

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Budget Scrutiny 2022-23

Item 2 is consideration of the Scottish Government’s 2022-23 budget. I welcome to the meeting Mairi Gougeon, the Cabinet Secretary for Rural Affairs and Islands; Caro Cowan, the head of European Union exit at Marine Scotland; and, from the Scottish Government, Shiree Donnelly, the head of finance; James Muldoon, the head of the agriculture support policy development unit; and Philip Raines, the interim deputy director of the rural economy and communities directorate.

I ask the cabinet secretary to give an opening statement.

Thank you very much, convener. When I made my first appearance before the committee in September last year, I set out the priorities for the rural affairs and islands portfolio, so I am pleased to come back today and set out how we intend to fund and support those priorities in the coming year through the Scottish budget that was presented by the Cabinet Secretary for Finance and the Economy to the Scottish Parliament in December.

The budget was published one year after the first Covid vaccinations were rolled out, and it comes at a crucial juncture for Scotland. As the emergence of new variants demonstrates, we must remain vigilant in responding to current and emerging public health challenges, and work out how to manage those risks sustainably into the future. We must be mindful of the need to recover sustainably from the impacts of the pandemic. For rural and island communities and businesses in particular, we must also do what we can to mitigate the impacts of Brexit.

However, despite all of that—particularly the fact that we are in the middle of a global pandemic—the United Kingdom Government has cut the funding that is available for the Scottish Government. The UK spending review in October also fell short of the Scottish Government’s ambitious capital spending plans. That has constrained our ability to invest in the infrastructure that is required to support our economy and public services and to deliver the green jobs and technology that are required if we are to reach net zero.

The Cabinet Secretary for Finance and the Economy has been clear that this is a budget of choices and that there are areas in which she would have wanted to go further. In the face of those pressures, the Scottish Government is firmly committed to using the full resources at its disposal to make Scotland fairer and greener.

One of my key priorities is to support rural industries and businesses during the pandemic and in the aftermath of the UK Government’s decision to leave the EU. Much-needed cash flow into our rural areas will come through my commitment to keep basic farm payments at the same level throughout this session of Parliament, with more than £630 million to be provided in on-going agricultural support in 2022-23. We are also maintaining support worth £65 million for our most fragile and marginalised areas.

Rural businesses, especially those that are involved in exporting food to the EU, are still absorbing the extra costs and barriers that were created by the loss of freedom of movement and free trade with our biggest export region, so we will continue to support our world-class food and drink sector in its recovery, supporting it to thrive and flourish into the future. The investment in Scotland’s rural businesses and communities provides them with a secure foundation to create growth, prosperity and opportunity, and I want to help them to do that. The budget provides funding to help to build that future.

As part of that, we are investing more than £8 million in the coming year in Scotland’s islands. That includes funding to create the first-ever islands bonds and the first-ever carbon-neutral islands, to support population retention and growth and to create innovation and energy hubs.

When I was at the committee in September, I spoke about the immense potential that Scotland’s rural and island areas have and their vital role in achieving net zero and enhancing biodiversity. Transforming our agricultural and marine sectors will be key to securing all of our futures.

We are investing £25 million to start work on transforming farming and food production in Scotland, so that we can be world leading in sustainable and regenerative agriculture. We are also delivering a new round of agri-environment investment as part of an overall budget of £36 million to support biodiversity. The new agri-environment climate scheme application round will open later this month and, in addition, I have made a commitment to future rounds until 2024. That is essential while we explore other ways in which farmers can be supported to deliver a nature-rich Scotland. Alongside that, to protect and enhance our marine environment and increase offshore renewable energy generation, we are increasing marine resources by almost £10 million.

Allocating funding between those different priorities is difficult, but I believe that the balance that we have achieved for the coming financial year is proportionate, particularly as we approach our multiyear resource spending review in the spring. We will fully support Scotland’s rural economy and our people during these difficult times. At the same time, we will provide the funding that will enable rural businesses and people to continue to build towards a sustainable future and help them and Scotland to become fairer and greener.

Thank you, convener and committee members. I look forward to our discussion this morning.

Thank you, cabinet secretary. I will kick off with some questions before moving on to other members.

Are there still areas of on-going uncertainty given that other parts of the UK have advanced their future policies on rural support but Scotland is some way behind on that? What are the implications of that uncertainty? Is the rural affairs and islands budget expected to change during the current parliamentary session? Are there any anticipated implications for this portfolio from the medium-term financial strategy and the resource spending review?

I do not agree with your assertion that we are lagging behind the rest of the UK. Part of our process in developing future policy is the work that is being taken forward through the agricultural reform implementation and oversight board taking a co-development approach with the very people the policies will affect. That is why we have established the national test programme, which no doubt you will want to discuss later. It is important and vital that, in developing the future programmes for support, we are taking the approach of working with our stakeholders. That is also why we and the previous Cabinet Secretary for Rural Economy and Tourism committed to a period of stability and simplicity for the sector while we go through this period of transition. That has also been absolutely critical here.

You also asked about the further impact as we look at the resource spending review. The review and the medium-term financial strategy will build on last year’s five-year capital spending review. They will all come together to give a comprehensive picture of Scotland’s multiyear public spending plans. As the committee will be aware, the UK Government’s three-year spending review took place at the end of October last year, and it told us that, overall, the block grant is less than the current aggregate for 2021-22. That is why I said in my opening statement that this year’s budget has really been about those hard choices. The Cabinet Secretary for Finance and the Economy has also been really clear about that.

As I have already said, even though we face hard choices, the budget that we have produced for this portfolio supports our agriculture, fisheries, and rural populations right across Scotland to recover from the twin crises that we are facing, as well as helping them to start their journey towards future transformation.

At the moment, it is not possible for me to predict the outcome of the resource spending review process, because it is a Government-wide exercise and it is currently out for consultation. Again, I come back to what I stated about the Government’s priorities. The Cabinet Secretary for Finance and the Economy has outlined three key priority areas: to support progress towards meeting our child poverty targets, to address the climate change challenges that we face and to secure a stronger, fairer, greener economy. In order that we can do that, I have already committed to continuing with the pillar 1 direct payments and not lowering that basic payment scheme rate throughout the current parliamentary session. The pillar 2 payments include the reopening of the eighth round in 2022. We are further committed to developing future rounds up to and including 2024. I have already mentioned the national test programme.

We have worked hard towards the key priority areas that have been identified across the Government, and I feel that the budget that I have put forward and what I am proposing for the portfolio go a long way to achieving that.

Regarding the outcomes that you are looking forward to, when it is clearer which policies will be put in place for rural and agricultural support in the future, do you expect the budget requirements for that vision to go up or down in the future?

As I have said, I have already committed to maintaining the current level of payments. When we are going through such a huge period of change, with so many uncertainties for people, to be able to give that commitment about maintaining the same level of payments is critical. That is something that I have already committed to in relation to the pillar 1 payments. It is also a matter of trying to give certainty and future clarity when it comes to future rounds of AECS.

When it comes to further rural development, you will see the commitments that we have in the budget to increase the budget for that in some areas. For previous EU schemes such as the LEADER programme, which has been vital for our rural areas, we have had to supplement that funding with our own domestic funding to ensure that we are still investing in our rural communities. That is a commitment that we have made, and we will be continuing to invest for our rural economy in the particular areas concerned.

I want to ask a general question. You have commented on the fact that there have been hard choices to make in this budget round. When you are creating budgets, the budget headings do not remain constant, and there needs to be some flexibility to ensure that budget is allocated to appropriate areas. Would the cabinet secretary please outline some of the changes that she has made to ensure that rural and island Scotland has fairer allocations to meet the challenges of EU exit and to recover from Covid, as well as for continuing to develop our rural and island economies?

The member has raised an important question. As the Cabinet Secretary for Finance and the Economy said, we have faced some difficult choices right across Government in relation to the budget settlement. We have undertaken careful work to identify the key priority areas, looking at the areas that we need to invest in and need to protect. That always includes difficult choices throughout the process.

Referring back to one of my previous responses and to the LEADER programme, over the course of the past year, we had invested to introduce a tests of change programme, looking to invest with our own domestic funds. That funding has been vital for our rural communities, and I note the sheer diversity of the projects that it has been possible to fund. I think that the overall funding amount for that was £3 million over the past year. There has been an increase in that budget for this year.

There has also been an increase in the budget for Marine Scotland in the region of £10 million, identifying the work that needs to be done to protect and enhance our marine environment. We are looking to offshore renewables, too, and to the extra resource that we need to be able to put in place to deliver on the ambitious commitments that we set out in the programme for government.

There are a number of different areas where we have considered the spend and where we have either increased resource, readjusted spend or reprofiled it over the coming years. For example, as I mentioned in my opening statement, we are looking to invest more than £8 million of funding for the islands, and that will be critical for our island communities.

There are areas of spend right across Government that impact on rural areas and on our island communities that do not necessarily fall within the remit of this budget, but that will continue to be very important.

That leads me to my next question. Covid and EU exit cut across all portfolios. Are there other budget allocations and other portfolios that rural areas might benefit from? In your introductory remarks, you talked about the decrease in the funding settlement from the UK Government. What difficult decisions have you had to make as a result of that?

09:15  

As I said, there are a number of areas of spend in portfolios across Government that will impact on rural areas. An example of that is the spend on, and support for, the enterprise agencies, particularly South of Scotland Enterprise and Highlands and Islands Enterprise. The investment in those agencies is at the highest level that it has been since 2010-11. There is also funding for VisitScotland.

The funding for the three enterprise agencies and VisitScotland has been protected. That will be vital because the enterprise agencies provide advice, support and targeted funding opportunities across their areas, which helps small businesses to grow and develop, thereby creating jobs and, ultimately, sustaining our rural communities. Alongside supporting some of our more traditional rural businesses that are based in food and drink, tourism and the creative industries, they are promoting the growth of new, innovative rural growth industries, such as renewable energy and the space sector. They also have a critical role in helping us to achieve our net zero ambitions.

There are also significant contributions from other national programmes. An example is the green jobs fund, given the importance that the growth in the environment-related sector will have in rural areas. There is also the five-year place-based investment programme. Even though that is not directly within my portfolio, rural communities can be expected to benefit from that support.

You asked about where the decrease in funding from the UK Government has had an impact. You can see that impact in the replacement of EU funds. We were promised that they would be replaced in full, but that has not transpired. The European maritime and fisheries fund is an example that I have used previously. Just over £14 million has been identified to replace that fund, but our entitlement should have been in the region of £62 million. We also expect a shortfall of around £95 million in funding for agriculture up to 2025. If we had received what we were promised and the funds had been invested in fully, that would have enabled us to go further in our proposals.

You mentioned the Scottish Government’s commitment to maintaining payments and some difficulties, shall we say, about the UK’s commitment at the other end of the balance sheet. I am sure that the committee will want to put this question to a UK minister at some stage, but has the UK Government explained its position on that to the Scottish Government? What have you said to the UK Government? What communication channels have you tried to set up with it to explain the Scottish Government’s position?

We try to engage with the UK Government on those matters as much as possible and we work as closely with it as possible. However, despite assurances that we would have discussions about future allocations of funding, those have yet to transpire. We have regular monthly meetings with the devolved Administrations and the UK Government at which we discuss a number of items of mutual interest across agriculture, marine policy and various other sectors. In spite of that, the meaningful discussions that we were assured would take place are yet to happen. However, we make representations repeatedly to the UK Government.

The Scottish Parliament information centre papers that we have been given show a 2.6 per cent real-terms decrease due to inflationary pressures. Is there anything that the Scottish Government can do to mitigate that decrease, given that you have a decreased budget coming from Westminster?

That comes back to some of the points that I raised previously on the replacement for the EU funding for marine. We are also facing a funding shortfall for agriculture. Again, we had been promised that those funds would be replaced in full, but that has yet to transpire. We have an allocation of £14 million for our marine industries when we should be able to expect to receive something in the region of £62 million, and there is also a £95 million shortfall in agriculture spend.

Obviously, if those funds were available to us, that targeted spend would help those industries. It would also help us towards a transition to net zero and would enhance the work that we are undertaking on climate change and enhancing biodiversity. It would help us to achieve all those aims. We continue to make representations on that to the UK Government, to ensure that it upholds its obligations and the promises that it made to replace those funds in full.

I have a follow-up question. Have you had engagement with the UK Government on the inflationary pressures that your budget will face, given that that inflation has been a relatively new thing and that it has been rising exponentially? Have you had negotiations about that shortfall?

The interaction that I have had with my counterparts in the UK Government has related to the shortfalls that we have faced in the funding for agriculture and marine. I would have to check back to see whether that specific point on inflation has been raised, but I will be happy to come back and confirm that either way, unless officials have that information.

Good morning. There is an increased budget allocation of £10 million for Marine Scotland. What is that intended to support, and what assessment has the Scottish Government made of additional Marine Scotland operational costs that are associated with EU exit?

The extra investment that we have made for Marine Scotland has been vital because, since the UK left the EU, nearly 500 new obligations that relate to the marine environment, which were previously undertaken by the European Commission or by member states, have been transferred to the Scottish ministers; there are also 86 new powers. That means that we need to have more resource and to focus resource on managing all of that.

We also have ambitious targets when it comes to what we want to achieve in the marine environment. In the Bute house agreement with the Scottish Green Party, we have committed to establishing highly protected marine areas and to implementing management measures for our marine protected areas and our priority marine features. Given all the commitments that we have made on enhancing conservation and our marine environment, it is vital that we have the resource to put into supporting that work.

In an earlier response, I touched on the work that needs to be done on offshore renewables. Again, it is vital that we have in place the resource to enable us to support and deliver on all the commitments that we have set out and the transition that we need to make in some of those areas. That is what that £10 million will enable Marine Scotland to do.

Earlier, you touched on the EMFF. Given the current situation with replacement funding, what is happening with that, and with the UK seafood fund in particular?

That has been a source of frustration for us in the Scottish Government. Obviously, we welcome any additional funding. However, a key issue with the £100 million that has been allocated through the UK seafood fund is that it duplicates the funds that we already have. We have in place the marine fund Scotland, which replaces the previous EMFF. The £100 million fund from the UK Government looks to duplicate and replicate some of our funding through that.

Ultimately, that is direct spending on what is a devolved area. Given that we have our own priorities and that we work closely with our stakeholders and with industry in Scotland, we think that that resource should be given to the devolved Administrations, because we can best determine the priorities and how to spend the funds. However, unfortunately, the UK Government has decided to progress with its plans.

Mercedes Villalba has a supplementary question. [Interruption.]

I am afraid that we cannot hear Mercedes. We will try to sort out the technical problem.

The next questions are from Ariane Burgess.

Good morning, cabinet secretary, and thank you for your responses so far. You mentioned the UK Government’s £100 million seafood fund. I understand that funding will be allocated across the UK on a competitive basis. Will you expand on that? I am aware that competitive funding can be challenging—we talk about postcode lotteries and such things. Although the funding sounds like a good idea, what will the impact be on Scotland? You started to touch on that, but I would love to hear a bit more about it.

No problem. As I said, we welcome any additional funding that comes to Scotland, but the main problem is that it involves direct spending in a devolved area. We have our own set of priorities, but the UK Government will determine, according to its priorities, how it will spend its £100 million fund, on which we, in Scotland, have had no say even though it will affect industries and sectors that are critical to us. We have had very little involvement in the design and development of the fund, let alone any input into how it should be spent.

The concern, especially for our industries and stakeholders that would have an interest in the £100 million fund, is about duplication with the marine fund Scotland and what we are already trying to do. That causes confusion. Given that we are talking about a devolved area, we hoped and expected that the funding would be given directly to the Scottish Government, because we are best placed to determine how the money should be spent on our industries in Scotland.

I will pull back a little and shift to questions on business development. From the SPICe paper, we have learned that the increased capital budget will support

“business viability, competitiveness as well as creating and safeguarding employment in rural areas”.

I would love to hear your thoughts on which areas should be developed in rural and coastal communities. What business development are you looking for?

I understand that the titles that we use in the budget sometimes do not do justice to what is involved. You have mentioned a critical part of the budget that, as you have outlined, will support business viability and competitiveness and will ensure that we safeguard employment in rural areas.

The budget heading includes a number of important funds. For example, it includes the Farm Advisory Service, the knowledge transfer and innovation fund, the food processing, marketing and co-operation grant scheme, the crofting agricultural grant scheme and the small farms grant scheme. The budget is providing support and ensuring that there is flexibility around transformation. We are also providing direct increases for a lot of those schemes, which will be critical as we go through the journey of transformation across agriculture, farming and crofting.

There is a provision for financial transactions within that, which supports the quick and early payment of farmers, crofters and land managers. There is quite a lot under the business development heading. Again, a lot of the funds are vital to the transformation programme that will be undertaken.

09:30  

I have a quick supplementary question on that. You have listed all those great programmes, and it is good to hear that some that were already in place will continue.

Will you take a moment to underscore what business development and support will help us in the just transition? In your opening remarks, you talked about the twin emergencies. Where can people who really want to start taking action around the climate and nature emergencies go? Business development will be critical for that, so it would be great to hear your thoughts on where we should head if we want to start taking action.

You are absolutely right. That is why the business development element is so important. Looking at some of the funds that are listed, I note that the Farm Advisory Service has been critical in offering advice and support to farmers. That service will continue to be important as we develop future policy and embark on the transformation programme. We must have that source to provide advice and support to farmers and crofters as we go through this big period of change. There is also the knowledge transfer and innovation fund, which has been really important in helping to encourage innovation in agriculture. Again, that will be really important, given the climate emergency and biodiversity crisis that we face.

So much good work is already going on, but the funds enable us to kick-start specific projects, to tease them out and to look at things that might work or could potentially go on to be done at scale. Enabling such innovation and ensuring that we have knowledge transfer will be absolutely critical. We have certainly heard that from stakeholders as well.

That is great to hear.

We will now try to bring Mercedes Villalba back in.

Thank you, convener. Is it working now? Can you hear me?

Yes. Go for it.

Perfect. Good morning, cabinet secretary. I have three questions. The first is on the overall budget allocations to different areas. As far as I can tell, there is a big disparity between agriculture and aquaculture. It looks as though there is about £36 million for agri-environmental measures alone, versus £20 million for fisheries as a whole. Will you tell us a bit about the thinking behind that?

Yes, absolutely. In relation to the agri-environment climate scheme, the £36 million budget that is set out is our financial commitment for previous rounds of the scheme. With AECS, people enter into contracts for five years. We ran a limited round over 2021 and we extended contracts in 2020, so the amount that is set out for AECS in the budget is the commitment that we have already made to fund those projects. It is not possible for me to prejudge the 2022 round that we opened for AECS, for example, and say what the spend on that will be next year. I hope that that helps to explain why there can be variations in what that budget looks like.

Thank you for going into that.

My next question is about the Marine Scotland budget. It looks as though that has grown by around 45 per cent since last year’s budget. Targets have been missed or pushed back for important policies such as the marine protected areas network, which was due in 2015, and for ensuring good environmental status and ending wasteful practices such as discarding. Has the additional funding that Marine Scotland received in previous budgets been appropriately spent?

I was going to say that the funding that Marine Scotland has received has been appropriately spent. Again, however, I note that a lot has changed, even just over the past year. We declared a climate emergency and a biodiversity emergency, and we face similar challenges in the marine environment to the challenges that we face on land. As I outlined, the extra £10 million in resource will really help Marine Scotland to face up to some of those challenges, as well as in the drive for offshore renewables, which I mentioned earlier. We need to ensure that we enable that work, which is currently at the planning and consenting stage, to be done, and that we have in place the resources to scale it up.

We also had the Bute house agreement with the Scottish Green Party, which led us to look at our priorities, reprioritise some areas and put in place some ambitious commitments. That is why the extra investment in Marine Scotland is so important.

Ambitious commitments are definitely important, but the most important thing is that they are actually met and delivered. I hope that we can look forward to that.

My final question is on the marine fund Scotland, which I believe is £14.5 million. Around the world, in the wake of the 26th United Nations climate change conference of the parties—COP26—the environment and sustainability are increasingly being seen as important, and citizens and campaigners are calling for them to be prioritised. However, funds are being targeted at things such as getting larger trawlers in order to be more energy efficient, or getting more efficient nets, rather than looking at moving away from unsustainable practices such as dredging and trawling.

Will there be conditions attached to the £14.5 million for the marine fund Scotland to ensure that there is a drive to use more sustainable measures in fishing?

We have tried to ensure that the marine fund and any funds that we have align with the priorities that we have set out. We set out priorities in our future fisheries management strategy, but—again—a lot has changed over the past year. That was the first year of the marine fund Scotland, so we are seeking to evaluate the programme and look at what was achieved as a result of the funding that was spent. We want to ensure that, when we develop the strategies for these funds, they meet the ambitious priorities and commitments that we, as a Government, have set out and that they seek to achieve those goals.

If the committee would appreciate further information on the projects that have been awarded funding so far through the marine fund Scotland, and on the criteria that have been used, I would be happy to send that on.

Thank you. There are no further questions from me for now, convener.

Okay. We will move on to Beatrice Wishart.

Good morning, cabinet secretary. You will not be surprised to hear that my questions are on islands issues.

Looking at the budget for Highlands and Islands Enterprise, it seems as though there has been a reduction for HIE where the South of Scotland Enterprise Agency and Scottish Enterprise have both had an increase. I think that we can all agree that business development is very important in supporting rural and island areas. Can you explain the reduction in HIE’s budget, please?

As I said in a previous response, the overall funding for the three enterprise agencies is at its highest level since 2010. With regard to Highlands and Islands Enterprise, the spending power that it has over the coming financial year has not been reduced. The budget has been protected as far as possible, because—as you said—the enterprise agencies have a particular role in supporting economic recovery across the different parts of Scotland.

The budget allocation was based on the agency’s forecast of its needs—it was the non-cash allocation that was reduced. Shiree Donnelly might be able to come in with more information on what exactly that means. The non-cash budgets are utilised for accounting charges such as the depreciation of assets and the needs that are set based on accounting standards.

The reduction in HIE’s non-cash allocation does not affect its ability to continue its work on improving business and community resilience and protecting and creating jobs. Shiree Donnelly might be able to offer more information on that.

As the cabinet secretary said, the non-cash reduction covers accounting items such as depreciation and impairments. The reduction is simply for presentational purposes. It is a separate and distinct budget category and does not impact the spend that is available for rural communities; it is just to reflect the accounting for depreciation.

Is the spending that is available to businesses the same as it has been in previous years?

The non-cash reduction does not impact on the spend that is available to businesses.

I am trying to get at whether HIE has the same as it had last year, whereas other enterprise agencies have had an increase. I am trying to establish what the difference is between HIE and the other agencies.

For HIE, the budget is marginally the same between both financial years in terms of the funding that is available for businesses.

Thank you.

My second question is about the islands bond. Cabinet secretary, I note from the SPICe papers that £300,000 is being allocated for islands bonds in 2022-23, which could potentially benefit six households if they get £50,000 each. Do you think that that is sufficient to mitigate island depopulation? I give you the example of a constituent who has been looking to build a modest house on one of the outer islands. Given the high cost of getting materials to Shetland and onwards to the outer islands, it will cost them £350,000 to build their house, but it might be valued at only around £160,000. How will the island bond help someone in that situation?

I completely understand the points that you have raised. When I was in Shetland in the summer, I heard directly about the increased construction costs and various other issues that people face. The islands bond has never been seen as a blunt tool that will fix all those problems. I have been asked questions in the chamber about the islands bond, and it is just one strand of work that we are looking at to try and stem depopulation and support our populations in fragile communities. Many areas are involved in ensuring that we tackle the other issues that can lead to depopulation. The islands bond is one element that we feel can help to retain populations in fragile areas and repopulate depopulated areas.

As we have developed the bond, I have been keen to make sure that we undertake as much engagement as we possibly can so that, if we implement the measure, we do it right and in a way that will work. There have been a lot of misconceptions about what the bond will do and what it will look like, but that is why engagement is so important. Officials have undertaken extensive engagement so far, and that will continue. That has led us to propose the funding that we have in the budget this year. When you break it down, it looks like it may help only a specific number of households, but it is based on the engagement that we have had, and we are reflecting on the feedback that we have received. As you can imagine, there have been lots of different opinions on what it might look like and the different ways in which it might work.

It is really important that we listen, and that is exactly what we have tried to do. The funding will allow us to test some of the different approaches to the delivery of the island bond at a scale that will enable us to measure and understand the challenges and opportunities that are associated with the policy. The learning from that will allow us to develop a more effective and meaningful intervention for future years.

The commitment still remains with the funding for the islands bond, but the policy is being developed in that way purely based on the listening and learning that we have done along the way. That engagement will continue.

09:45  

Rural fishing communities face additional pressures across the board, including from the changing climate and the need to protect the marine environment. A report from last session’s Environment, Climate Change and Land Reform Committee suggested that inshore fisheries groups should be funded. What consideration did you give to funding them in your budget?

I will have to ask Caro Cowan for the specific information on that.

I am afraid that I do not have the exact detail, so it might be best if we write to the committee with further information on that, if that is okay.

That is fine. I would appreciate that.

Cabinet secretary, the Good Food Nation (Scotland) Bill and local food strategies will start to come through. Will we need any more funding to enable the food sector to deliver on that bill?

In the financial memorandum that accompanies the bill, we have set out some of the costs associated with what we currently expect in relation to the spend. The main costs are administrative and relate to consultation and the publication of the good food nation plans. We have estimated that, for the first year, costs will be somewhere in the region of £30,000 and decrease for subsequent years. We do not expect the costs that are associated with the bill to be a huge burden.

We will move on to further questions on islands.

Before I ask specifically about the islands, I will think about the Highlands and Islands a little and ask about the Crofting Commission, if I may, convener.

Certainly.

The budget for the Crofting Commission seems to be up. Will you say a bit more about the plans for how to use that budget in new ways this year, cabinet secretary? You will be more than aware of people’s frustrations regarding delays when dealing with the Crofting Commission, which, I hasten to add, is not a criticism of its staff.

As you highlighted, there is an increase in the commission’s budget. As a result of the section 22 report on the commission, a programme of work is under way to make the necessary improvements. The commission has undertaken various pieces of work. One of the report’s recommendations was to undertake a workforce review, of which we are considering the implications, and to look closely at what the Crofting Commission needs to enable it to carry out its functions and deal with the backlog of cases that has emerged. The increase in funding is important to enable some of those changes to take place, to ensure that the Crofting Commission has the necessary resources to enable it to carry out its functions and to ensure that it deals with cases as effectively as it can.

I welcome what you have said and the recognition of the backlog in many of the ways in which crofters interact with the commission. Part of the commission’s function is to tackle derelict or all-but-abandoned crofts and, one might hope that in the future it will deal with the growing problem of speculation in crofts. Is the review of the staff and the budget an opportunity for the commission to do things differently?

You are absolutely right. The review will enable that to happen because it will provide the necessary resources to deal with the backlog, which should then enable the commission to look at some of the other issues that you have talked about, such as tackling derelict crofts, attracting more new entrants and implementing the crofting development plan.

We will continue to monitor the matter closely. I have regular engagement with the convener and the chief executive of the Crofting Commission to discuss on-going issues, look at the improvement plan and ensure that improvements are being made. The extra resource is so important because it will enable that work to take place.

Before I ask about issues relating to the funding of island areas in the budget, I will ask another question relating to islands and, in some ways, to crofting. You are very aware of the housing problems on the islands. We have spoken before about your not being the housing minister, but where, in the Government’s thinking, does the rural housing crisis come into your work?

You are absolutely right that housing is critical. I hear about it a lot; it is continually raised with me. When I responded to Beatrice Wishart, I spoke about how the islands bonds cannot be seen as a blunt instrument that will automatically solve all the problems that are experienced on the islands, because there are so many other vital issues, including housing and wider connectivity.

I have regular engagement through the islands strategic group, which discusses such issues. I also have regular engagement with colleagues across the Government. For example, Shona Robison, the Cabinet Secretary for Social Justice, Housing and Local Government, attended our latest strategic meeting to discuss the Government’s plans for housing. Although the spend in that area does not necessarily fall within my portfolio, an action plan for rural and island housing is being developed and it will look to tackle and address some of the critical problems. The issue is raised repeatedly and we are committed to tackling it.

In relation to what comes under the budget headings, you have talked about backloading some of the things in the islands programme. Can you explain the reasons for that and what that means?

Absolutely. We decided to separate this year’s spending on the islands programme into three strands of funding. We had the islands infrastructure fund, the communities fund and the healthy islands fund—the projects from that fund were announced last week.

We committed to spending £30 million over a five-year period up to 2025—I emphasise that we are still committed to that—but we are proposing a reprofiling of the spend. Putting forward the amount that we have for this year means that we will be able to work on some longer-term infrastructure projects over a slightly longer timeframe and not be constrained by budgetary years. In essence, that means that although there is a £4 million allocation this year, there will be an increase in spend as we move to later financial years.

The budget has £3 million allocated to the carbon-neutral islands project, and the plan is to have at least three carbon-neutral islands by 2040, which supports the Scottish Government’s aim to demonstrate the low-carbon potential of Scotland’s islands as hubs of innovation. How we are progressing with that?

Our initial commitment was to progress with three islands as part of the carbon-neutral islands project, but we have now extended that to six. We have developed internal and external working groups to consider the criteria that will inform the selection of islands that will be part of the project, and we are working across Government with existing policy and funding approaches to ensure that we are not duplicating work in other areas.

We have recently commissioned a mapping exercise, which will contribute to the knowledge of carbon accounting and emissions reductions on islands, ensuring that we avoid duplication when we begin the implementation phase of the project.

We aim to publish a report by summer this year, setting out the steps that we will take to support the six islands to move towards carbon neutrality. The £3 million that we have identified as part of the budget will support the implementation of that over the course of the coming financial year. As with the islands bonds, we want to engage and consult as we progress with the plans, because that will be critical as we proceed.

Before we move away from the islands, cabinet secretary, what contingency funding is available to you to ensure island proofing by addressing any issues that might come up as a result of policies in other portfolios?

I am not too sure that I understand the question. We want to ensure—it is an obligation to ensure—that as we introduce new policy, we carry out island communities impact assessments. Those should be built into the process across Government as we look at any other areas. I do not know whether that answers your question.

Our portfolio concerns issues around rural disadvantage. If policies that are created in the health or transport portfolios, for example, have a detrimental effect on the islands, and given that we have a sort of rural-proofing rule, do you have any contingency budgets to address such disadvantages?

No specific contingency budget has been identified. The whole aim of our legislation is to prevent us from reaching that stage by ensuring that island communities impact assessments are built in to policy and decision making. The assessments are required to evaluate and take into account the impacts of our policies, strategies and services on island communities. Our officials work every day to ensure that the needs of island communities are fully considered as part of existing policies and of any policies that we create in the future.

We will move on to the theme of the climate and nature crisis.

The agricultural transformation budget appears to have been reduced by about 46 per cent. From reading some of our notes, I am not quite sure whether you have just transferred some of that money to other areas of the budget. If you did, what was the purpose of that?

There have been some changes to the agricultural transformation budget. We have committed to £25 million overall in relation to agricultural transformation this year, and part of that funding is identified in the budget this year. There is also the £51 million that has been identified for the national test programme, which is spend that we have allocated over the next three years.

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One of the main reasons for reducing the agricultural transformation budget was that there are no financial transactions as part of that for this year. There are a number of reasons for that. For example, equipment was not available, which meant that it was difficult to identify options for a loan scheme that would be available for capital projects.

Any loans that we might have been able to offer would have had to be at commercial rates to avoid state aid issues and they would therefore have been unlikely to attract a wide range of applicants when compared to existing loan products. There is also no readily available mechanism that would allow commercial-type loans to be administered by the rural payments and inspections division or elsewhere in the Scottish Government.

The overall reduction in financial transactions relates to £20 million, so it made no sense for us to include that in the budget when we knew that there was no realistic chance that it would be used, for the reasons that I have set out.

Is that the explanation that we have in paper 1? It says that questions about how much of the £40 million had been spent in 2020-21 were raised during last years’ budget scrutiny in the Rural Economy and Connectivity Committee. At that point, only £18 million had been committed under a pilot scheme. Was only £18 million committed because there were not enough applications or because people could not get hold of products? What kind of products could people not get hold of and where were they coming from?

As, I am sure, the committee is aware, I am happy to follow up with specifics and further information on the sustainable agricultural capital grant scheme that you are talking about.

A lot of what has transpired has been completely outwith our control or the control of anybody else who applied for specific pieces of equipment. Unfortunately, budgets have not been able to be fully utilised purely because people have not been able to get access to the equipment that the fund would enable them to buy. Again, those issues were entirely outwith our control and that is why, when we look specifically at the financial transactions for this year, we do not include them as part of the budget. There is no point in taking an allocation that we know that we will not be able to spend.

That is also why we did not open another round of the fund last year. If we had opened another round of the sustainable agricultural capital grant scheme, knowing that there were the same issues with the availability of equipment, it would have created more problems. In the allocations that we have made in this budget, we have tried to set out what we know we realistically can spend.

I hope that that is helpful, but if you would like more specific information on the capital grant scheme itself, I would be happy to provide the committee with more details, or perhaps James Muldoon would like to add something just now.

As somebody who has been in farming, I cannot understand why a farmer would not find a way of spending money when there was money available. I would just like to understand what stopped their being able to access that money. What were they not able to buy?

Equipment suppliers were just not able to supply equipment on time. People have been unable to get materials in construction, and we have seen the same issues in relation to agricultural equipment. It just has not been possible to get it. That is not a problem of governance or something that the farmers have not done; the equipment has just not been available for them to access. James Muldoon might have some further information on that point.

James, would you like to come in?

All that I can offer is a bit more emphasis on what the cabinet secretary has said. My colleagues have been in contact with external partners and it comes down to supply issues and manufacturing supply chains coming back online after Covid, and so on. We are in on-going discussions with external partners to monitor the situation and advice is provided to the cabinet secretary on that basis. According to the information that we got, the money was unlikely to be spent, so decisions were made accordingly.

Just for clarity, there is a reduction in cash of about 44 per cent. Has some of that been transferred to the national test programme and the development support programme?

The national test programme comes from funding that was previously ring fenced for agriculture. Some £10 million of the £25 million identified is for the national test programme. The £10 million that we have put in the budget this year is part of the overall £51 million that I announced last year for the national test programme.

Of the £25 million identified for this year, there is the £10 million that I have just mentioned, there is the £5 million capital spend and there is a further £10 million for development support. I hope that that explains the situation.

Thank you for that. Before I let Rachael Hamilton in, I have a practical question. We are very much aware that things such as slurry injection equipment are expensive and it is sometimes not economically viable for smaller agricultural units to purchase them. What consideration is being given to opening up some of these agricultural capital grants to agricultural contractors and people working through machinery rings and so on, who do not have agricultural holding numbers, so that we can get the biggest bang for our buck and the best return for our investment?

Getting the biggest bang for our buck is exactly what we want to do with our spending, and we are identifying an amount that we know that we can spend and that we hope to spend over the course of the coming financial year.

On holding numbers, again, I would be happy to get back to the committee if you know of specific issues with people being unable to access the previous round of the grant scheme. We have been evaluating the scheme and, as part of our discussions with the implementation board, we are considering whether the fund can be better targeted and are looking to learn lessons from the pilot round that was run so that we can better spend the resource that we have allocated in the budget this year.

I know that this session is focused on environmental questions, but I would like to take you back to a point that you made earlier, cabinet secretary.

We know that future farm support is guaranteed until 2024. However, the Scottish Fiscal Commission’s analysis of the Scottish budget shows that there is a risk of there being a £190 million tax receipt shortfall next year, and a shortfall of up to £500 million over the subsequent four years. The Scottish Government also faces slower growth in income tax revenues compared with the rest of the UK. After 2024, where will the agricultural support budget come from?

Again, we have made a commitment about the funding that we have and how that will be spent to give people in our agriculture sector some stability and security by letting them know that they can rely on those grants, which means that they know what their income will be over the next few years.

Obviously, a lot of the spend on agriculture funding across my portfolio previously came from the EU. There are still some legacy schemes that receive funding from the EU, but that will taper off, and all the funding that we get will come from the UK Government. However, as I have said in previous responses, we are not getting the full replacement funds that we were promised. On top of some of the issues that I identified, that means that we will face a £95 million shortfall in agriculture as well as the significant shortfall that we face year on year in relation to marine funding.

That does not really answer my question about where the money will come from in the Scottish budget.

Jim Fairlie asked about the national test programme. The National Farmers Union Scotland has called for front loading of £10 million so that we can support Scottish agriculture in relation to carbon audits, baselining, soil testing and nutrient management. Have you agreed to that?

Those things are the subject of our discussions with the implementation board, which—as the committee will be aware—I co-chair with the NFU Scotland president, Martin Kennedy. Discussions are on-going as to exactly how the funding will be allocated and how we will progress the spend to implement what we have set out in part 1 of the national test programme, with regard to rolling out the carbon audits, the nutrient management plans and other elements that we will look to introduce over the years of the programme. Again, however, I note that that is all subject to the discussions that we are currently having.

It is on record that the national test programme will be rolled out in spring this year. I hope that the committee and the Parliament can get an announcement very quickly, rather than continually being referred to the oversight implementation board, because we are looking for certainty.

I take you on to the comments from the UK Climate Change Committee, which highlighted agriculture as an area of concern in its 10th annual progress report, “Progress reducing emissions in Scotland—2021 Report to Parliament”. It said that no strategy is in place to achieve emissions reductions and that the ambition is not deliverable.

Farmers need to make decisions and to have the ability to plan, so they need to be given certainty with regard to the schemes that you are supporting in the budget. Why has the funding for the agri-environment climate scheme been cut from £55 million to £34.2 million? In addition, we know that the application system is very restricted and has attracted huge criticism from farmers.

I come back to my response to Mercedes Villalba, because what you have described is not a straightforward assessment of how the budget works, in particular the lines that relate to AECS. The £36 million in the budget line for AECS this year is actually contract spend from previous years to which we had already committed. It also reflects the projects that have been funded through the 2021 round.

It is not possible for me to predict right now, given that we will be opening the 2022 round for applications this month, what the budget for the following year will be. The budget line therefore simply reflects previous contracts and financial commitments that we have made, so it is not quite accurate to portray it as a cut.

In addition, we had to run a more restricted round last year. We had an extension of contracts in 2020 purely because we were not getting the financial certainty from the UK Government to enable us to open another round. AECS contracts run for a period of five years, and without any financial commitment or certainty it was impossible for us, at that time, to reopen a full round.

I know that that was a huge cause of concern and frustration; I heard directly from a lot of farmers about that at the time. However, we were left with little option—or even no options—with regard to what we could do. It would have been irresponsible of us, over the past two years, to open full rounds for the future without having a bit more clarity. I hope that the announcement that has been made about reopening this year, and the commitment until 2024, provides clarity and an assurance that we are committed to continuing the programme.

Given the new Green and Scottish National Party co-operation agreement, do you believe that the Scottish budget, in terms of voting it through, is a done deal? What do you feel is the right way for Parliament to scrutinise the budget? It is clear that you now have partners in the Government who will support the budget. Can you comment on whether there is an agreement for the Government to look at setting the same trajectory as England in terms of environmental goals and the public-money-for-public-goods policy?

On your last point, about taking the same trajectory as England, you will be aware that we are taking a different road because we do not agree with the policy decisions that have been taken in England in relation to future agricultural support. That is why it is vital that we formulate our own policy in Scotland.

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One of the key commitments in the SNP manifesto was about maintaining direct payments, and we have also committed to making half those payments conditional by 2025. That is very much the route that we want to go down, because we want to support active farming and food production as well as ensure that we tackle climate change and the biodiversity crisis that we face. That approach is quite different from the approach that has been taken in England, which has been met with quite a lot of concern from the agricultural sector.

Finally, I reiterate that the Climate Change Committee has said that there is no strategy in place to achieve emissions reductions and that your ambition is not deliverable. It is there in black and white. The agricultural transformation fund has been cut by 88.9 per cent. How are you going to deliver on your ambition when the funds that you have are not being allocated specifically to achieving it?

I do not agree with that assertion at all. I hope that I have been able to explain in my previous responses to you, and in my responses to some of Jim Fairlie’s questions, why we have set out what we have in the budget. There is no point in us allocating money, or looking to protect moneys, in the budget that we know for a fact that we will not be able to spend because of some of the issues that I have outlined, whether in relation to financial transactions or the capital schemes for funding equipment. There is no doubt that, if we did that, and there were huge underspends in budgets and areas that we had not been able to progress as a result, you would be criticising me in my future appearances at committee.

I have set out the realistic level of spend that we can hope to achieve over the coming financial year, while firmly setting us on the path for transformation. Again, I come back to the work of the implementation board in ensuring that we co-develop the approach with our stakeholders and with industry. That is where the national test programme comes in. That work, as it progresses from spring onwards, will be vital, because we need to take the whole industry with us. I hope that some of the measures that we have set out in that regard will enable that to happen.

Sorry, but I completely disagree with the cabinet secretary on that. We are talking about the Bew money, which is £51 million—that is not new money. I cannot see the Government making a commitment to the national test programme.

I have already said that the money that we had identified for that has been ring fenced specifically for that purpose, and for looking at agricultural transformation. That is exactly what we are spending the money on.

I will leave it there, convener.

We move to questions from Jenni Minto.

I return to Jim Fairlie’s questions on the issues with the supply chain for procuring agricultural equipment. Can the cabinet secretary explain what the impact of Brexit has been in that regard?

Brexit has undoubtedly had a huge impact across the portfolio, and has undoubtedly led to a lot of the issues that we are currently experiencing, whether in agriculture, fisheries or our food and drink industry. There has undoubtedly been a huge impact right across the portfolio when it comes to Brexit.

We have no further questions on the budget, so I call this session to a halt. We will come back to discuss EU exit at agenda item 3, after a 10-minute comfort break.

10:18 Meeting suspended.  

10:30 On resuming—