Chapter 13 Rural Economy
The Rural Economy budget seeks to support rural communities in Scotland. It does this through the Scottish Rural Development Programme, EU supported Common Agricultural Policy (CAP) financed farming environmental and rural development programmes and through Highland and Islands Enterprise (HIE) and the South of Scotland Enterprise agency (SoSEA). It also allocates the European Maritime and Fisheries Fund (EMFF) to support coastal businesses, infrastructure and communities.
The budget also provides funding for Forestry and Land Scotland (FLS) to support woodland creation and maintenance. It also allocates support for food processing and manufacturing and invests in food and drink related activity. Through our membership of the EU, the Scottish Government receives an income of £512 million. It will distribute £766 million in this portfolio - made up with a further allocation of £253 million from the Scottish exchequer. The budget seeks to support the specific challenges associated with living in remote, rural, coastal and island communities and to support the needs of particular groups, as well as key rural sectors. Research in 2019 showed rural communities were on average at much higher risk from negative consequences of Brexit. This reflects a number of factors including their distance from economic centres, a greater concentration of industries considered particularly vulnerable and the comparatively high levels of funding that such locations receive from EU schemes. Such impacts risk reinforcing existing inequalities caused by rurality and population sparsity.
Key Inequalities of Outcome
Rural communities face a range of unique challenges around access to services and markets, and higher rates of fuel poverty. Many communities also face challenges relating to an ageing and declining population, which can severely threaten local economies and the viability of service provision. The economic development agencies, Highland and Islands Enterprise and South of Scotland Enterprise, which are funded from this budget aim to address these issues in rural areas and coastal communities. Additionally, this budget delivers local outcomes through the EU co-funded LEADER rural development programmes which support the Community Led Local Development model (CLLD). However, much of the funding to support rural communities is delivered through other portfolio budgets, for example, fuel poverty is addressed through the Communities and local government budget and access to services is addressed through the transport budget.
This portfolio addresses issues around rural disadvantage through supporting traditional rural industries, including agriculture, forestry and fishing, and through direct funding to community groups to support rural development across Scotland. Direct financial support for farmers also reduces the costs that farmers need to cover which may help in keeping food prices affordable for low income households.
The evidence for any effects on food prices for low income households is very limited and some may be capitalised instead into inflated land values and rent. More broadly, there is little data on the direct and indirect impacts of the budget on groups with protected characteristics, and where, other than for age and gender, there is little data.
Payments to farmers are split into two parts. Pillar One direct payments (through the EU basic payments scheme) support farm incomes and entail some responsibilities for environmental management (greening). Pillar Two schemes are those which recipients must apply for and meet certain criteria, such as age for Young Farmers grants, or poor land quality for Less Favoured Area Support Scheme grants (LFASS). The most direct consequence of these payments is to supplement a sector that would otherwise make significant losses. Overall average farm income is £35,400 and without direct payments subsidies these farms would make an average loss of £7,400 (as the subsidy from direct payments is on average £42,000). This income, by being tied to land, ensures farmers remain on the land and that the land remains in use. This helps to support rural communities and ensures a productive landscape.
Key Strategic Budget Priorities
The overarching priority is to ensure a sustainable, inclusive and prosperous rural Scotland. We work to ensure that our economic strategy applies equally to all communities of Scotland. Work is being structured around two programmes: strengthening our rural and island communities and maximising the value and sustainability of our land and marine assets.
Equality And Fairer Scotland Implications of The Draft Budget 2020-21
Overall, the budget has had a significant uplift of around £95 million, or 12% relative to 2019-20. This increase this year is due to 'convergence funding' in the overall budget as a consequence of the Lord Bew's review. This means HM Treasury has released more money to the Scottish Government. In addition, there is around £25 million in separate 'Bew monies' on which specific spending decisions have not been finalised in 2020-21. However, many of the individual lower level budget lines have very little, if any, change. This stability is a direct consequence of the long-term nature of EU funding to create a programme over six years, which forms the majority of the portfolio.
The budget is one year of the 2014-20 CAP and Scotland's Rural Development Programme. After allowing for accounting changes, the portfolio has changed by £95 million, around 12%, on an overall spend of £766 million across CAP, Forestry and EMFF. The vast majority of the change is the convergence money, however, there are also some minor movements within the portfolio.
The largest elements of the budget are CAP payments, through a variety of schemes, to around 18,000 farm businesses each year. £262 million is paid as direct income support payments to farmers and £132 million is paid to farmers as part of Greening support for farmers' environmental responsibilities. These schemes' terms and conditions are agreed by the EU with which the Scottish Government is required to comply. Funding levels are, therefore, largely unchanged from previous years.
A further £28 million is allocated for grants under Agri-Environment Climate Scheme (AECS) which is also supported with the EU's finance. In addition, there is £30 million in support for farms and crofts in Scotland's more challenging agricultural areas, such as mountains, through the LFASS with around 12,000 recipients. This scheme has been reduced from £52 million in the previous year due to prior agreements with the European Commission, representing a fall of 42%. The CAP also supports a co-financed £25 million support in 2019-20 direct to rural community organisations through the LEADER programme, which has risen from around £20 million in the previous year.
Overall, the EU Common Agricultural Policy financed element is not designed to, and therefore may not tend to, reduce direct inequalities by protected characteristics. For example, at present 38% of farmers are women but 45% of new entrants receiving grants were women in 2018 - an improvement from around 20% of grant recipients in the previous year. To address this, the government is providing resources to support more women into agriculture. Through other budgets, the government also supports young people training in farming, food production and other rural enterprises to gain skills and qualifications and contribute their experiences to future policy development. While there is significant variation and disparity in the value of many farm holdings, there are some low and very low income farm households who receive payments through these schemes. In addition, payments through this funding help contribute to the wider rural economy, supporting supply chain activity and enabling people to move to and stay in rural communities, thus supporting local facilities like schools, health services and businesses.
The Scottish Forestry and Forest and Land Scotland budgets are associated with an industry that supports 25,000 forestry jobs, through funding for new planting, regulation and monitoring and management of Scotland's forests. These two Forestry agencies distribute around £90 million, of which £27 million is EU funding. This budget has grown from around £83 million in the previous year, an uplift of around 8%. This funding helps to maintain the National Forest Estate which provides access for communities and individuals to activities in forests and woodlands across Scotland. This includes activities to improve mental health and wellbeing and opportunities for outdoor education. It also supports agri-environment forestry and other landscape schemes, contributing to our sustainable development and climate change goals. Forestry has traditionally been a male dominated industry, and only around 30% of Scottish Forestry staff are women, with women more likely to be on fixed term rather than permanent appointments, though there has been work to improve this through the Women in Forestry programme.
There is also £6 million in support for the EMFF (with two thirds from the EU) supporting Scotland's fisheries' businesses, infrastructure and research and development to enable sustainable marine activities. This budget is unchanged. As with the CAP, generally, the main recipients of fisheries funds are older, white, males and it does not, therefore, directly reduce inequalities. However, as outlined above for farming, fishing businesses are also likely to support the described spin-offs and impact positively on different protected characteristics depending on the composition of local communities and businesses, especially across the seafood supply chain. The spend on harbours and infrastructure may help coastal communities in remote areas and may improve opportunities for jobs and economic growth in this area.
The largest single (non-accounting) change on the budget is the convergence monies, with around £90 million extra arriving in Scotland to be distributed. The main output from this will be a large non-consolidated uplift to payments in the Pillar One schemes of around £52 million pounds. This is weighted towards regions with lower agricultural productivity and should mitigate losses in those areas, especially on the Less Favoured Area Support Scheme (LFASS). There is also a specific £13 million – payment to Less Favoured Area farmers to, again, mitigate changes on the LFASS. Additionally, there are £15 million to Voluntary Coupled Support schemes for mainland beef (£11 million), beef island (£2 million) and upland sheep. The two beef schemes support farm types with a near to average income of around £33,000. Upland and LFA sheep farmers have some of the lowest incomes in the sector, with an average farm business income of £21,200. This is significantly below the average household income for remote rural Scotland.
The second largest change is the reduction in the LFASS, which is reduced from £52 million to £30 million – a 42% reduction. The Scottish Government has been obliged to make this reduction by the European Union regulations as this is the maximum that we can now pay under this scheme. Scottish Ministers have committed to doing everything possible to retain the level of funding to the Less Favoured Areas and have been clear that CAP convergence funding will be prioritised for this purpose. These are likely to have negative effects on farm household incomes depending on the type of farm. Overall, this is a 42% cut on a fund that is on average around 31% of a farmer's income, for those who receive LFASS. The average LFASS farm business income in 2019 was around £34,100 which is above the median household income for Remote Rural Scotland at around £27,000 in 2017.
On a straightforward 42% LFASS reduction, Less Favoured Area sheep farms, (predominantly in the uplands, highlands and islands), would face challenges. These farms are more dependent on LFASS – it represented 70% of their income in 2018, compared with 31% of all farms in receipt of LFASS, which explains its differential impact. Wider equalities impacts of the change are not known as there is not data available. However, the additional monies to the sector, through the convergence uplift, LFA uplift and additional Upland Sheep support scheme, should serve to mitigate this change.
There is a rise of £17 million to the budgets for Scotland's rural enterprise agencies – South of Scotland Enterprise Agency (SoSEA) and Highlands and Islands Enterprise (HIE). £12 million is going to SoSEA and £5 million to HiE South of Scotland Agency's budget to support the transition from the South of Scotland Economic Partnership to the full economic development new agency. These increases should contribute directly to inclusive growth, reduce unemployment and assist with the specific rural disadvantage in the regions that they serve.
The largest change in the portfolio spend in the Rural Economy is due to the additional convergence funding. It is being spent partly as a temporary uplift to current schemes and also to mitigate reductions to LFASS that are a consequence of EU commitments and the challenges around continuing funding post-EU withdrawal. This means there is little change to the equalities impacts of these funds overall.
EU support for farming, coastal and rural communities has been consistent and has been the financial bedrock of many farming enterprises. Marginalised rural and coastal communities who receive funding for the EU LEADER programmes may also be at particular risk from EU withdrawal. Support schemes for rural development may help to moderate any damage.
1. Exact amount will vary due to exchange rate fluctuations as it is paid to Scottish Government in Euros.
2. The review by Lord Bews into convergence funding resulted in a £95 million uplift in EU monies that had been withheld by HM Treasury in previous years.
3. This was shown in work on the Brexit Vulnerabilities Index for Scotland: https://www.gov.scot/publications/local-level-brexit-vulnerabilities-scotland-brexit-vulnerabilities-index-bvi/
4. This income data is taken direct from the Farm Business survey unweighted data, which represents only 51 respondents, so may vary from other published figures. However there is no other reliable source to impute income changes hence reporting these figures here.