The land of Scotland and the common good: report

Section 11 - Crown Property Rights

11.1 Background to the Rights

1 The abolition of feudal tenure in Scotland by the Scottish Parliament ended the Crown's position as the Paramount Superior or ultimate owner of all land under feudal tenure. However, a diverse range of other Crown property rights continue to be part of Scotland's system of land ownership. As described earlier, in Section 1 of this report, the distinct legal and constitutional identity of the Crown in Scotland means that Crown property rights in Scots law are different from those in the rest of the UK and belong to Scotland.

2 Scotland's Crown property rights are of ancient origin and continued to be managed in Scotland following the Union of Crowns in 1603 and Union of Parliaments in 1707. However, in the 1830s, the administration and revenues of most of these Crown property rights were transferred from Scotland's Lord Advocate's responsibilities to a Whitehall government department, the Commissioners of Woods, Forests, Land Revenues and Public Works.

3 That department had evolved into the Commissioners of Crown Lands by 1924, following the creation of the Forestry Commissioners ( FC) in 1919. At this time over 100,000 acres of Crown land in England was transferred to the FC, with one small area in Scotland. There were two Commissioners of Crown Lands, the Secretary of State for Scotland for Crown lands in Scotland and the Minister of Agriculture for Crown lands in the rest of the UK.

4 In the 1950s, the UK Government decided to replace this arrangement with a new statutory corporation with an appointed board of Commissioners modelled on the FC. The Crown Estate Act 1956 created the Crown Estate Commissioners ( CEC), with the Crown property rights and interests managed by the CEC to be known as the Crown Estate. This Act was then replaced by the Crown Estate Act 1961, which continues to be the legislation governing the operations of the CEC.

5 While the Crown property rights and interests managed on behalf of the Crown by the Crown Estate Commissioners ( CEC) are called the Crown Estate, there can often be confusion between the organisation and the property it manages as the CEC has branded itself as The Crown Estate since the 1990s.

6 The general duty of the CEC under the Crown Estate Act 1961 section 1(3) is, ' while maintaining the Crown Estate as an estate in land', ' to maintain and enhance its value and the return obtained from it, but with due regard to the requirements of good management'.

7 The CEC is a statutory corporation that reports to the Treasury and transfers its net revenue surplus (profit) to the UK Government's Consolidated Fund for use in public expenditure. The CEC is formally accountable to the Chancellor of the Exchequer and the Secretary of State for Scotland, who each have powers of direction over it. The Secretary of State for Scotland has responsibility for matters relating solely to Scotland, reflecting the distinct status of the Crown property, rights and interests managed in Scotland as part of the Crown Estate.

8 At devolution, the Scotland Act 1998 reserved the CEC's management of the Crown Estate in Scotland to Westminster and that remains the case. Fig. 9 provides a list of the Scottish Crown property rights which currently make up the Crown Estate in Scotland. The list also includes an indication of the 'modern acquisitions' which the CEC has purchased as investments.

9 The Crown Estate does not include all of Scotland's Crown property rights and, at devolution, the Scottish Government became responsible for the management of these other rights. The example of the Crown right to ownerless property has been described earlier in the Report ( Section 7). The other Crown property rights for which the Scottish Government is responsible are described later in this section. They are not of commercial value and some are archaic, such the Crown's right in Scotland to 'larger whales'.

11.2 The Crown Estate in Scotland

Response to Devolution

10 The reservation of the CEC's management of the Crown Estate in Scotland to Westminster in the Scotland Act 1998, means that CEC is not accountable in any formal way to either Scottish Ministers or the Scottish Parliament for its operations in Scotland.

11 This lack of accountability in Scotland over the management of the Scottish Crown property rights which make up the Crown Estate in Scotland, was compounded by the CEC's response to devolution in 1999. Two years later, the CEC radically downgraded its management arrangements in Scotland and centralised the control over its operations in Scotland to London. ^[1]

12 Historically, the CEC's predecessors since the 19th century had managed the administration of the Scottish Crown property rights and revenues for which they were responsible, through legal agents in Scotland. When the CEC was created in the 1950s, it continued and developed this Scottish based approach. At the time of devolution, the CEC's operations in Scotland's were one of the CEC's five distinct business divisions, with separate accounts and its own headquarters in Edinburgh and a senior member of staff as the Manager of the Crown Estate in Scotland. ^[2]

13 Then, in 2001/02, two years after devolution the CEC ended Scotland's position as a distinct business division and integrated its operations in Scotland into the CEC's other business divisions in the rest of the UK (Urban, Rural, Marine, Windsor). The post of Scottish Manager was discontinued, separate accounts were no longer kept and the CEC no longer gave a specific report on Scotland in its Annual Reports. The CEC also sold its Scottish HQ building and opened a new Edinburgh Office in rented accommodation nearby. ^[3]

14 This was an major change for a public body to make at that time against the flow of devolution. The CEC explains the change in terms of administrative efficiency, but the change could be seen as a tactical decision to minimise engagement with the new devolved Scottish Parliament, because of the longstanding issues in Scotland over the CEC's operations here. The Crown Estate in Scotland was, for example, one of the major land reform issues identified at the time of devolution by the Scottish Office's Land Reform Policy Group under Lord Sewel. ^[4]

Lack of Progress

15 The longstanding issues over the CEC's operations in Scotland have been considered in recent years by a sequence of parliamentary committees and other public interest inquiries. The most comprehensive and detailed of these was the authoritative Crown Estate Review Working Group ( CERWG) report on 'The Crown Estate in Scotland' (2007). ^[5] This was produced by the six Highlands and Islands local authorities, the Convention of Scottish Local Authorities and Highland and Islands Enterprise after a two year inquiry. The CERWG report recommended the devolution of the CEC's responsibilities in Scotland.

16 In 2009, the CEC operations in Scotland were highlighted as a prominent issue in the report by the Calman Commission on Scottish devolution. The following year, an inquiry by Westminster's Treasury Select Committee into the Crown Estate recommended much more accountable management arrangements in Scotland. In 2011, the consensus recommendations in the report of Holyrood's Scotland Bill Committee included the devolution of the CEC responsibilities in Scotland. Then, in 2012, Westminster's Scottish Affairs Committee published a major report on 'The Crown Estate in Scotland' which also recommended the devolution of the CEC's responsibilities in Scotland to the Scottish Government. The Scottish Affairs Committee has also recently repeated its call for the devolution of the CEC's responsibilities in a follow up 2014 report on the Crown Estate in Scotland.

17 The Review Group considers that the evidence to these inquiries and the cross party agreement in Committees of both Parliaments that the CEC's responsibilities should be devolved reflects a very wide consensus in Scotland that this should happen because of the public benefits it would bring. However, despite all these inquiries and reports over nearly 10 years, there has been scarcely any improvement in the situation.

18 One measure relating to the public accountability of the CEC in Scotland was included in the Scotland Act 2012. However, the change only converted the CEC's tradition of having a Commissioner on the CEC's Board with knowledge of Scotland, the 'Scottish Commissioner', into a statutory appointment upon which Scottish Ministers would be consulted. As Gareth Baird, the Scottish Commissioner then and still said, this will have no significance for his role. ^[6]

19 There has also been slow progress with the other measure to improve the public accountability of the CEC. The UK Government's one positive initiative in response to the Scottish Affairs Committee's ( SAC) report of March 2012 was to propose annual Inter-Ministerial Meetings about the CEC's operations in Scotland, with these meetings involving the Secretary of State for Scotland, a Treasury Minister, a Scottish Minister and representatives from the CEC and CoSLA. ^[7] An 'officials group' to support the Inter Ministerial Group met in February 2013 to agree terms of reference for the Inter- Ministerial Group and the first Inter-Ministerial Meeting was to have taken place in March 2014, but was cancelled. The UK Government has still to provide an alternative date for the meeting, two years after the original recommendation.

The CEC

20 The Review Group considers that the key issue is not about improving the CEC's public accountability, but ending its responsibilities in Scotland. As the Committee reports calling for those to be devolved have shown, the CEC is an inappropriate type of organisation to be responsible for the management of Scotland's seabed.

21 The CEC is a statutory corporation with a statutory duty to manage the Crown Estate " to maintain and enhance the value of the estate and the return obtained from it". ^[8] This a financial remit to generate revenue for the Treasury and as the CEC's Annual Reports reflect, the CEC's core business is operating as a major commercial property investor measuring its performance against industry sector benchmarks. The nature of the way it operates in this role resulted in the Treasury Committee considering it necessary in its report on the Crown Estate, to emphasise for clarity, that the " CEC are a public body charged with managing public resources for public benefits". ^[9]

22 The CEC's operations in Scotland are a very small part of the CEC's overall business. Over 95% of both the capital value of the Crown Estate and the CEC's annual revenue are in England. Scotland accounts for only 4% of the capital value and 3% of the CEC's revenue. ^[10] The scale of this disparity reflects the very different natures and histories of the Crown and Crown property in the two countries over the centuries. ^[11] The CEC manages a very substantial portfolio of urban property in England, with particularly major holdings in London. The property value of the Crown Estate is now over £8 billion, with urban property accounting for between 75-80% of the capital value during the ten years to 2011 and 70-75% of the CEC's annual revenue. ^{[12] [13]}

23 The composition of the Crown Estate in Scotland is very different, however, with hardly any urban property and only four rural estates. In Scotland, the CEC's main business is developing marine activities involving the seabed and foreshore. Since devolution, while there has been very little change in the capital value and revenue levels of the Crown Estate in Scotland, coastal and offshore marine activities have increased from 50% to nearly 70% of the CEC's revenue from Scotland. ^[14] These marine activities include marine renewables, which although in a relatively early stage of development, are of enormous potential benefit to Scotland's coastal communities and the general betterment of Scotland. ^[15]

24 A fundamental problem with the CEC's responsibility for managing Scotland's seabed and much of the foreshore, is that the CEC's legislation gives it only a financial objective. Therefore, subject to meeting the standards required of any owner of land, the CEC's approach is based on maximising capital values and annual revenues. The CEC's interpretation of its financial remit in these narrow terms has been raised with the CEC in the Committee inquiries mentioned above. However, the CEC firmly maintains that its legislation requires it to pursue this approach. The CEC argues that it has no flexibility to alter its charges, for example, for the use of an area of seabed to accommodate other public objectives rather than only generating money for public funds. The CEC is not prepared, for example, to make any distinction in its charges between a private developer carrying out a commercial development and a public body carrying out a public project, such as the use of areas of seabed required for the columns of the new Forth road bridge.

25 The CEC's commercial approach has long been recognised in Scotland as completely inappropriate in Scotland's marine environment. The great majority of that environment, whether measured by length of coastline, number of coastal communities, harbours, inhabited islands or other features, is in the Highlands and Islands. The levels of the CEC's charges have been heavily criticised over many years in this region as a constant drain against the socio-economic objectives of public policy, with the CEC's charges resulting in economic leakage out of many marginal local economies. ^[16]

26 The CEC's approach means that, for example, while public funds in Scotland are used to subsidise lifeline ferry services to island communities, the CEC is maximising the revenue which it can extract from the use of piers and slipways by these services. The Review Group did note that the CEC confirmed that it had varied its standard terms to allow the laying of inter-island broadband cables to go-ahead on the west coast. However, the CEC clarified for the Group that the variation did not mean that they had foregone any potential income, but rather re-structured the contract so that some of the charge would be deferred until after the cables were laid. ^[17]

27 The CEC also give a high profile to money they invest in coastal and marine developments in Scotland, including their new Local Management Agreements. However, the CEC has clarified that they are all commercial investments based on the rate of return that the CEC will receive from them. ^[18] Also, as the CEC cannot make loans, cannot invest in companies and has to maintain the Crown Estate as an estate in land under its legislation, these and other investments are all in property with the rents charged by the CEC providing a commercial rate of return. While the CEC has highlighted its capital investment in Scotland as one of the benefits of its role, the Scottish Affairs Committee report in 2012 showed that the CEC had taken around £10 million more capital out of Scotland through sales since devolution, than the CEC had invested in Scotland. ^[19]

28 This narrow focus of the CEC on charging the " best consideration in money or money's worth which in their opinion can be reasonably obtained," has long been criticised as an inappropriate remit for delivering the optimum public interest outcomes in the use of Scotland's seabed and foreshore. ^[20] In the face of all this criticism within successive reports, the Review Group is concerned at the lack of progress being made in ending the CEC's responsibilities in Scotland. This is all the more surprising given the small amounts of money involved and the fact that the continued operation of the CEC in Scotland does not even seem good business for the Treasury.

29 The Scottish Affairs Committee established in its inquiry that, for 2010-11 when the CEC's gross surplus revenue in Scotland was £9.9m, only about £5.7m of that was net surplus or 'profit' after costs. ^[21] The gross surpluses were at similar levels to this in 2011-12 and 2012-13, indicating a similar general level of profits. ^[22] This modest annual net surplus to the Treasury from the CEC's operations Scotland, was then substantially reduced by the Coastal Communities Fund ( CCF) set up by the UK Government. Under this scheme, the Treasury gives an amount equivalent to 50% of the CEC's marine revenues calculated on a regional basis, to the Big Lottery to distribute as grants in those regions. Scotland is divided into two regions and, because nearly 70% of the CEC's revenue in Scotland is from marine activities, Scotland received back an amount equivalent to a high proportion of the CEC's total net income from Scotland. Thus, in 2010-11, when the net surplus was about £5.7m, the amount Scotland received back through the CCF was £3.9m ( i.e. equivalent to nearly 70% of the £5.7m). In the two subsequent years, the CCF amount has been £4.1m and £4.8m.

30 These figures illustrate that the Treasury is deriving virtually no net income from the CEC's operations in Scotland. The question of whether the CEC's continued operation in Scotland might actually result in an annual net deficit to the treasury has also arisen within Committee hearings. ^[23] This position was arrived at on the basis that, because Scotland's percentage contribution to the net income that the CEC transfers to the Treasury each year is less than Scotland's population share, Scotland receives more back under the Barnett Formula than it contributes.

31 The Review Group considers that ending the Crown Estate Commissioners' involvement in Scotland would deliver wide ranging and important benefits in Scotland. The Group recommends that the Crown Estate Commissioners' statutory responsibilities in Scotland, under the Crown Estate Act 1961, should be devolved to the Scottish Parliament.

11.3 Future of Crown Property Rights

32 There seems a broad agreement between the Scottish Affairs Committee report recommendations and the positions of the Scottish Government and Scotland's local authorities, that ending the CEC's responsibilities in Scotland should be a two stage process. After the devolution of the responsibilities to the Scottish Parliament, there should then be further changes to decentralise the management of some Crown property rights where appropriate and to abolish other archaic rights.

33 Ending the CEC's involvement with Scotland's seabed opens up opportunities for huge improvements. No other maritime country in Europe has an equivalent to the CEC operating its marine environment. The CEC would no longer be running its own system of approvals determining who can use Scotland's seabed, based solely on its narrow financial objective and unaccountable to public policy in Scotland. Scotland would, like elsewhere, be able to have an integrated multi-objective system of permissions operated through the Scottish Government directorate, Marine Scotland, to cover both the activity involved (license) and the use of the seabed (lease). As the Scottish Affairs Committee report sets out, while the overall plans for Scotland's marine environment would flow from the centre out, the distribution of any financial benefits from the uses of the seabed should flow the other way, with the local areas most closely associated with developments benefiting first. ^[24]

34 The Review Group considers that the agreement between the Scottish Government and the Western Isles, Orkney Islands and Shetland Islands Councils announced by the First Minister in the 'Lerwick Declaration', appears to demonstrate a commitment to the decentralisation of CEC responsibilities if they are devolved. ^[25] The Group considers however, that whatever arrangements might be reached to decentralise the control and use of the seabed, the overall integrity of Scotland's ownership of its own territorial seabed should be maintained and safeguarded in the long term national interest. The Group considers that, as at present, the only areas of seabed which are not to be retained in national ownership, should be of limited extent and adjoining the shore.

35 There also seems wide agreement that, following the end of the CEC's responsibilities, the ownership of the lengths of foreshore still held by the Crown should be conveyed to the local authorities for the areas in which the lengths occur. The Review Group considers that the scale and diversity of the benefits that could flow quickly and straightforwardly from the ending the CEC's involvement with Scotland's seabed and foreshore, mean that ending that involvement is of profound importance as a land reform measure.

36 The most appropriate reform for each of the ancient Crown property rights in Scotland managed by the CEC, have been described in other reports. ^[26] The ancient Scottish legislation vesting the right to gold and silver mining in Scotland in the Crown as described in Section 10, for example, should be abolished and replaced with a new statute vesting the right in Scottish Ministers on behalf of the people of Scotland.

37 Some of the rights managed by the CEC should simply be abolished, for example, as the Scottish Law Committee has recommended for the Crown's archaic rights to naturally occurring mussels and oysters. ^[27] These species should, like all the other species of naturally occurring shellfish in Scotland, be managed under Scotland's wildlife legislation. The Review Group was surprised to learn, however, that the CEC are proposing to convey these two Crown property rights which have no commercial value to the CEC, to Scottish Ministers as property transactions. ^[28] This transaction would not involve conveying a property, but an entire Crown property right subject to any grants made to others under that right. The Group questions whether this approach is competent in Scots property law, which defines Crown property rights as part of Scotland's regalia. ^[29] If the transaction was accepted as legal, CEC would be able to start selling Scotland's other Crown property rights if it chose to do so.

38 The Review Group discusses the reform of the Crown property right to salmon fishing in Scotland, which is currently managed by the CEC, in Section 31. The only other Crown property right to an animal in Scotland is managed by the Scottish Government and illustrates the archaic nature of some Crown property rights. This is the Crown right to larger whales. This ancient right is obscure and, for example, a rule was made up by government in the 1920s that a larger whale was one which measured 25 feet or more. The right also serves no function. While the right to a large whale might have been good news in medieval times, it is no longer the case and the Scottish Government does not accept any liability for a larger whale that washes up. The removal of a 50 ton whale from a beach to land fill for health and safety reasons can cost many thousands of pounds. ^[30] The clean-up responsibility therefore falls to the local Council. The Council can however apply to Marine Scotland in the Scottish Government for a grant towards the costs, if the whale measures 25 feet or more. Whale strandings on Scotland's coast continue to increase and this arbitrary length for grant support makes no sense, because the length has no necessary bearing on the cost of dealing with strandings. A mass stranding of 'smaller whales' less than 25 feet, can cost more than a single whale over that length.

39 While the right to larger whales should simply be abolished, the Review Group recommends in Section 29 that the various public rights which the Crown holds inalienably in trust for the public over the foreshore and sea should be replaced by modern statutory provisions. These types of reforms to abolish or reform Crown property rights which do not form part of the Crown Estate, could be taken forward now by legislation in the Scottish Parliament as the rights are not covered by the reservation of the CEC's management in the Scotland Act 1998. These property rights are part of Scots law and responsibility for that is devolved to the Scottish Parliament, as illustrated by the abolition of Crown property rights involved in ending feudal tenure in Scotland. The requirement in that reform, as with any now, is to obtain the Crown consent required by the Parliament's Standing Order 9.11. That process is apparently carried out by the Bill Team contacting Buckingham Palace.

40 The Review Group considers that, following the abolition of feudal tenure, there should be further significant reductions in types of Crown property rights in Scotland. The Group recommends that the Scottish Government reviews the current Crown property rights in Scots law and brings forward proposals for the abolition of these rights or their replacement statutory provisions, as appropriate in the public interest.