Following the Money (Part 2)

Part One began to explore the resources which Scotland’s public bodies can bring to bear on protection of our natural world through rural land management. This second part considers how public policy effort on land management and caring for nature has been changing over recent years. Setting out the scale of change over time is not as simple as one might wish; not only is there scope for debate around how much effort is directly, or indirectly, relevant, but also definitions and expectations change over the years. This post aims to paint a big picture, while trying to side-step numerous rabbit-holes of unhelpful detail.

In summary, annual government expenditure supporting rural land management in Scotland is around £1bn per annum, directly employing around 4000 people. This hasn’t changed much in cash terms over the last 15-20 years, but gradual annual growth in cost per job affects how this can be spent. Within the total, it’s harder to distinguish expenditure on caring for Nature – probably around £150m per annum. But this would double if so-called ‘greening’ payments to farmers were included; there’s need for debate around what should be eligible and what represents value for money….

The even broader-brush understanding of recent trends in overall government funding for UK public bodies (i.e. in the 21st Century) has been a perception that a decades-long trend of gradual annual growth in budgets since the 1950s was fairly abruptly reversed in 2010. The global financial crash of 2008/09 and bailing out of banks up-ended the balance of public finances leading to successive ‘austerity’ budgets – reduced cash spending year on year through the decade which followed. This has had a big impact, reducing the capacity of public bodies to address the growing challenges we face. Most recently, response to the Covid pandemic inflicted another large shock to the system, the consequences of which are still to be fully expressed. In addition, rural land management post-Brexit now also faces particular challenges because the dominant farming subsidies are no longer framed by the EU Common Agriculture Policy, and must be replaced with a new approach1.

As we shall see, these general perceptions may be rather over-simplified. Despite rhetoric to the contrary, public expenditure as a proportion of the economy still seems to be on an upward long-term trend2.

Figure 1 – UK public expenditure as % of Gross Domestic Product 1978-2021 (ONS)

Figure 1 is for the UK rather than Scotland, but the latter will show a broadly similar track. There certainly was some decline through the 2010s but, even before the pandemic spike from 2020, the 2019 figure of around 35% is still higher than the level from 1985 to 2004. How have Scotland’s public bodies fared within this bigger picture? Of course, the value of expenditure (per £) changes over time, but the figures which follow are first presented in ‘nominal’ terms, ie expressed as cash values at the time it was allocated3. I will return to the value issue later.

Figure 2 – Source: Economic Report on Scottish Agriculture

Taking in turn the rural sectors used in Part 1, farming is the land management sector with the greatest geographical coverage and attracting easily the greatest annual support expenditure; at least £750m out of the land management total of around £1bn, more than support for all other land uses put together. Since 2005, the core of farm support has been an annual direct payment (previously, but no longer, linked to production) currently totalling around £420m per annum. Other direct payments to farmers bring the annual total to around £580m. There’s no clear trend to this core annual payment, despite policy changes over the years. Hence the cash totals for 2020 are much the same as for 2005, although they rose to a peak in 2009 before declining until 2015.

In addition to these direct farm payments, there’s a variety of indirect costs supporting rural land management, such as animal health and veterinary services, running costs for relevant public bodies including the Crofters Commission, Scottish Land Commission and especially RPID (see below). Figure 3 suggests that the total has more than trebled over the years; however, the composition and presentation of this budget heading has changed, so it is possible that some costs from earlier years were buried elsewhere in the SG budget. Perhaps the most important increase in recent years has been the cost of the information technology supporting the direct payment system, rising strongly since 2011 following some adverse EU audits of Scotland’s payments system.

Figure 3 – Source: SG Budget documents

The delivery of farm support is overseen by the Scottish Government’s Rural Payments and Inspections Division (RPID), once part of the old Department of Agriculture and Fisheries for Scotland (DAFS, 1961 to 1990) before going through a succession of name changes. It’s hard to track what has happened to this body in terms of staff numbers, within the much larger whole of the Scottish Government. In 2019, a Freedom of Information request stated that RPID had 620 staff (full time equivalent) costing £31m, out of the larger SG Agriculture & Rural Economy directorate of just over 1000 FTE, with a paybill cost of £49m4.

Almost by definition, farm support is directed to rural land management. A much smaller proportion supports caring for Nature, nevertheless the larger scale means this is still very significant. For example, direct payments from various agri-environment schemes have varied from around £60m declining recently to less than £40m. There’s an annual ‘greening’ payment of around £140m but it isn’t clear what this buys, since there’s no evidence this is ever withheld5. Because of the scale of such payments, these definitional questions deserve further exploration at a later date.

Support for forestry is delivered mainly through the two successors to the old Forestry Commission, first Forest and Land Scotland (FLS) overseeing the national forest on behalf of Scottish Ministers, second Scottish Forestry (SF) supporting and regulating the private sector. FLS is run as a trading company, with annual budget support from SG which can vary. For example, if timber sales and prices are up, taxpayer support can be eased and vice versa6. Nevertheless, the combined scale of public funding for the two bodies as shown in figure 4 has been pretty consistent over the years, until recent growth due to accelerating tree planting to mitigate climate change7. All of this funding, more or less directly, supports rural land management; a significant proportion also supports caring for nature.

Figure 4 – Source: SG annual budget documents

These totals include the costs associated with staff in the forestry bodies. Recent annual reports show a total of more than 1100 FTE, at a cost of nearly £50m per annum. Although these staff are employed on analogous Civil Service terms, some of the funding derives from trading by FLS, so there is considerable revenue supporting these salaries in addition to that shown in Figure 4.

Support for environment dimensions of land management is routed through several public bodies, notably NatureScot (SNH) and SEPA. Figure 5 shows the growth, and subsequent decline, in SNH funding since its inception in 19928. NatureScot/ SNH gains nearly all its funding in Grant-in-Aid from Scottish Government. A fair chunk of this, more than half perhaps two thirds, supports rural land management in one way or another; the balance includes for example marine and urban conservation work. The recent hike in related SG spend seems mainly due to peatland management schemes. By definition, most of this cash will support caring for Nature in some form.

Figure 5 – Source: SG annual budget documents

SNH staff numbers show similar trends to the overall expenditure, as detailed in Figure 6, and have now declined below the start-up year, forced down by cost pressures. The cost per FTE has grown from £20k in 1998, to about £35k in 2007 and now £48k9. Staff costs account for roughly half of annual expenditure.

Figure 6 – Source: SNH annual accounts

SEPA, with a different core role, is funded partly from SG Grant-in-Aid, but also via a range of charging schemes, with fees charged to industry for discharge or emission consents within its regulatory framework. Only a small, yet significant, proportion of this addresses rural land management issues, for example farm pollution and wider issues of freshwater and air quality; all of that proportion, and more, addresses caring for Nature. Overall funding has been fairly steady after some restructuring costs in 2009 and 2010, with a slight trend to depend more on charging income.

Figure 7 – Source: SEPA annual accounts

SEPA staff numbers have been fairly consistent over the period at around 1200 (FTE), despite increasing costs per FTE from £35k in 2007 to around £50k currently. Staff costs account for around two thirds of total SEPA expenditure.

Figure 8 – Source: SEPA annual accounts

Turning to outdoor recreation, the most easily identifiable budget is that for Scotland’s two National Parks, created in the early years of the Scottish Parliament. Figure 9 shows how funding has grown. Quite a lot of this supports rural land management in one form or another, and caring for Nature at least indirectly.

Figure 9 – Source: SG annual budget documents

National parks currently employ over 200 staff (FTE) at a cost per FTE of around £45k.

Other bodies with land management interests have relatively small, but not insignificant, budgets supporting rural land management, usually indirectly. The enterprise agencies, VisitScotland and Historic Environment Scotland have recently had a combined annual budget of around £200m. Even a small part devoted to rural land management or caring for Nature potentially has a big impact. For example, Visit Scotland administers the Rural Tourism Infrastructure Fund on behalf of SG, worth around £10m per annum. While this is mainly devoted to visitor facilities, some spend may help to ameliorate tourism impacts on land management.

Relevant research and analysis funding is hard to track consistently over the years, with many changes in the composition and funding arrangements for higher education institutions and research institutes, and evolving presentation in the annual budget documents. The heading includes various monitoring programmes which inform spending in the sectors above. Prior to 2015 funding for the Scottish Agricultural College (SAC, now SRUC) was included in rural budgets, because the colleges provided on-farm advice and research as well as education; now SRUC is part of the higher education portfolio while elements of advice and research remain within these headings. A recent addition would be the newly established Environmental Standards Scotland. The most directly relevant body is probably the James Hutton Institute, spending nearly £40m per annum from various sources and around 500 staff. Scottish Government funding under this heading remains significant at around £80m per annum, as shown in Figure 10, although it would seem to have varied a lot over the years, once a consistent definition has been established. There’s perhaps a change of emphasis to be seen away from farm production in favour of environmental impacts and climate change. Not all of this is directly relevant to rural land management, less so caring for Nature; this deserves further exploration.

Figure 10 – Source: SG Annual Budget documents

The changing value of cash

Combined, all these budgets amount to around £1bn spent each year to support rural land management, a total which Figure 11 shows has changed relatively little over the years in nominal cash terms.

Changing focus from the snapshot ‘still’ picture used in Part 1, to a more dynamic ‘video’ story of change over time presents some new challenges. £1m in 2020 or 2022 is not the same thing as £1m was in, say, 2000 or 1980. Obviously, inflation has eroded value, but more subtle changes also creep in. The easily available CPI or RPI measures of inflation are designed to show implications for household budgets; land management businesses may have experienced a quite different balance of changes to the costs of inputs and value of products. But also, over these years, the overall size of the economy has grown, usually measured in terms of Gross Domestic Product (GDP). So £1m now is smaller relative to a larger economy; this is not the same thing as inflation, and has different implications. For example, 100 lambs to market now must make more, per beast, to keep up not only to account for inflation but also as a share of the total economy – but generally have not done so. Hence making a living from land management has tended to be a bit harder year-on-year. Conventionally, cash comparisons over time are presented in so-called ‘real terms’, for example as “2020 £”, using a ‘GDP deflator’ published by HM Treasury. While often regarded as a proxy for the effect of inflation, in many ways this just muddies the water. So ‘real terms’ allows only approximate like-for-like comparisons; simple cash figures expressed at the time they were spent can be just as valid – recognising that cash now will not buy the same as cash did in the past10.

Figure 11 – Source: sum of sectors above plus indexes for comparison

Figure 11 sketches out the different effect of adopting three different indexes, as recommended by the ‘Measuring Worth‘ website11. These suggest the buying power of our £1bn per year has declined by between 20% to 27% over the fifteen year period.

Adopting any one index depends on how we expect this cash to be spent. In practice, it will all eventually be spent on paying a person for their time, perhaps indirectly (since squirrels or oakwoods do not themselves have a use for cash……). So as well as the 4000 staff employed by these public bodies, other payments will eventually reach a person12. Year on year comparisons here again require care, not only because the annual cost per head changes as salaries follow the trends of inflation and economic growth, but also because ways of working change as new technology comes in and as expectations evolve. For example, following several (thankfully rare) tragic accidents, lone working must now be thought through much more carefully than in previous years, increasing some delivery costs. Another example of special relevance to rural land management is the time, cost and environmental impact of travel; employees are increasingly expected to operate remotely, where possible. Information technology increasingly facilitates online working, but is expensive to establish and maintain (see for example the growing costs of the system for making direct farm payments). So one employee working for one year in 2022 will not be quite the same as one working 10 or 20 years ago.

Our analysis falls some way short of clear trends in expenditure, within the rural land management total, on caring for Nature. We can say it is probably in the range £150m to £300m per year, depending on definitions. Some UK figures for public sector expenditure on ‘biodiversity‘ are published annually13, but there’s currently no Scottish equivalent. Figure 12 shows the trend in UK spend, in this case presented as 2019 £m using the Treasury GDP deflator. The supporting documents suggest this uses quite a narrow definition of ‘biodiversity expenditure’ and, of course, goes well beyond that linked to rural land management, for example extending to the marine environment.

Figure 12 – Source: JNCC – UK Biodiversity Indicators 2021

In summary, annual government spend supporting Scotland’s rural land management has been around £1bn for more than a decade. This is now worth at least 20% less, in ‘real’ terms, than it was at the beginning. Within that total, the trend in spend on caring for Nature (perhaps around £150m) has proved hard to pin down…… Working this out, and what these resources are actually buying, is a subject for future posts in this series….