Scotland Rural Development Programme (SRDP) 2014-2020 Stage 2: Final Proposals

1. Purpose and intended effect

1.1 Background

The current Scotland Rural Development Programme (SRDP) has run from 2008 and will end on 31 December 2013. The EC have produced draft proposals for the next Rural Development Regulation (RDR) which will cover the period 2014 - 2020. Therefore, this is not a new policy initiative, but a replacement for the current SRDP which will allow leverage of investment into our rural areas. The SRDP will deliver towards EU objectives, but will be tailored to meet the needs and priorities of Scotland.

2.2 Objective

Scotland's rural areas cover 95% of the country and it is important that these, often remote and fragile areas are supported to deliver the benefits outlined at 1.3 below. The Scottish Government provides financial support for these areas (currently used to match fund the SRDP), however, the EU RDR allows us to access EU funds for additional investment in our rural economy. In order to meet the requirements of the EC RDR (which is to be finalised in Europe) we must prepare an SRDP which sets out how support for rural development will be planned and implemented. Therefore the objective is to meet the requirements of the EC regulations to enable us to leverage further support for rural land managers, businesses and communities through providing various grants and funding streams. This will help deliver towards a range of priorities - both EU objectives for rural development, and SG priorities as identified through a SWOT analysis exercise. Annex A shows how these objectives and SG priorities are clearly linked to the National Performance Framework.

1.3 Rationale for Government intervention

The rationale for government intervention is based on public goods (for, example environmental benefits that would not be provided if left to the market) and market failure (for example small businesses unable to afford the high information and transaction costs associated with innovation if left to the market.)

The SRDP will allow SG to access EU funding to support Scotland's rural areas - which cover 95% of the country. Funding helps us meet our environmental aims, and makes our rural communities a more sustainable and attractive place to live. Agriculture is an important element of the Scottish economy with 17% of people in remote rural areas directly employed in agriculture, forestry & fishing, contributing £3bn to the turnover of our Food & Drink Industry. Public subsidy plays a vital role in ensuring continuity in supply of Scottish produce, environmental benefits and the delivery of wider public benefits.

Without government intervention, the social and environmental benefits that are realised through rural development funding would not result. Rural land would be less well managed, with the potential for land to be abandoned and the quality of our natural environment to decline. Furthermore, the agriculture sector makes a significant contribution to our greenhouse gas emissions and therefore interventions which help support the reduction of emissions will contribute to meeting our climate change targets. The support for rural businesses and communities is crucial in helping these fragile areas survive.

2. Consultation

A communications plan is in place for development of the SRDP 2014 - 2020.

2.1 Within Government

Extensive consultation is being undertaken throughout the design of the SRDP proposals - both for policy developments and delivery implications. Key policy leads throughout Scottish Government have been involved in the development of the SRDP 2014 - 2020, along with senior management. In addition to SG, other public sector consultees include Highlands & Islands Enterprise, Scottish Enterprise, Scottish Natural Heritage, Forestry Commission Scotland, National Parks and Scottish Environment Protection Agency.

Consultation within Government and the management approval process takes place through regular meetings of the SRDP 2014 Reference Group, the Service Design Committee and the CAP Strategic Board.

2.2 Public Consultation

Partial - Consultation with key stakeholders has been an integral part of the development of the SRDP. Two stakeholder events have been undertaken (March and October 2012) In addition eight stakeholder working groups were established in April 2012 to inform development of certain aspects of the SRDP, and regular meetings are held with key stakeholders.

Two public consultations will be issued. The first ran through May and June 2013 and outlined the broad priorities and principles. This included a series of 14 information roadshows which attracted over 500 attendees. A second consultation was launched in late 2013 with final proposals. The BRIA will form part of the second consultation.

We will consider carefully the results of both consultations which will help to inform the final shape of the new programme.

2.3 Business

Which businesses have you had face-to-face discussions with?

Since March 2012 we have worked with stakeholders on our plans for the next SRDP. These have included organisations that represent businesses that will use the SRDP e.g. National Farmers Union for Scotland, Scottish Land and Estates, Scottish Council for Voluntary Organisations (SCVO), HIE, Scottish Enterprise.

A consultation on initial proposals ran from 1 May to 30 June. This included a series of 14 roadshows around the country, over 500 people attended, the majority of those represented businesses that will be able to access support under the SRDP. Further discussions will take place throughout the second consultation.

The main business groups are also represented on the current Programme Monitoring Committee (PMC) e.g. NFU Scotland, Land and Estates and CONFOR.

3. Options

3.1 Option 1 - do nothing

Under this option there is no SRDP for 2014 - 2020.

The SRDP is necessary to access EU funding of (in the current programme €679.2m) to support the further development of rural Scotland, it also provides State Aid approval for the funding. Without this funding there will be a significant reduction in the resources available to support rural Scotland. There will be some on-going commitments entered into under the SRDP 2007 - 2013 so we would hope that these would continue to deliver some benefits for the duration of the contract, but it is unlikely that new contracts would be issued. In addition, without an SRDP in place, we would not have EU State Aid approval to make payments, and would have to seek separate approval. There is a high risk that we would not receive State Aid approval from the EU, as we would not be meeting their Rural Development requirements of producing an RDP. Therefore, the 'do nothing' option would not be acceptable, either to Ministers, the EU or key stakeholders and is considered for comparative purposes rather than reality.

3.2 Option 2 - Introduce a new SRDP to meet requirements of EC regulation

The aim is to deliver an SRDP that meets EC requirements and audit standards. The advantages of this option over option 1 is that it would allow for a range of schemes that allow businesses and communities to receive financial assistance in return for delivery of economic, social and environmental benefits. This must be done in line with EC requirements as stated in the RDR. Therefore, there are no non-regulatory options to implement the RDR, however it is not intended to gold plate or go unnecessarily beyond legal requirements. At this stage the exact details of the new SRDP are still being considered, however this option can be split into two sub-options:

2(a) National Delivery - priorities, targets and budgets set and managed at a national level. Some regional delivery will be used for administrative purposes e.g. regional assessment, and approval of applications up to a certain threshold, following clear guidance. Higher value applications would be considered nationally.

2(b) Full Regional Delivery - priorities, targets and budgets set and managed at a regional level. All aspects of the SRDP decision making would be managed at a regional level with data being aggregated at a national level.

3.3 Sectors and groups affected

The following have been identified:

• Potential applicants/beneficiaries including farming businesses, forestry businesses, food processing businesses and businesses in the wider rural economy, and community and voluntary organisations.
• Local and regional authorities
• Trade and business organisations
• Economic and social partners
• Stakeholder organisations and NGOs, including
  • National Farmers Union Scotland
  • Environment LINK
  • The Royal Society for the Protection of Birds
  • Scottish Enterprise
  • HIE
  • Highlands & Island Agricultural Support Group
  • Scottish Land and Estates
  • Scottish Crofting Federation
  • Quality Meat Scotland
  • CONFOR
  • Scottish Council for Voluntary Organisations
• Senior management through the CAP Strategic Board;
• The Cabinet Secretary and Minister
• The Cabinet Secretary for Rural Affairs and Minister for Environment
• The wider Scottish Cabinet - particularly Cabinet Secretary for Finance, Employment and Sustainable Growth, and the Cabinet Secretary for Culture and External Affairs.
• The Rural Affairs and Climate Change Committee and wider Scottish Parliament.
• Key policy areas including European Structural Funds Division; Food, Drink and Rural Communities Division; Agricultural & Rural Development Division; Natural Resources Division; Tourism and Major Events Division; Forestry Commission Scotland; SNH; Historic Scotland; Tourism
• SEARS partners
• RPID (audit and competence, area office staff, finance, IT)
• Customers not represented by the organisations above

An Equality Impact Assessment has been undertaken for the SRDP to consider the impacts of the SRDP of those in equality groups. A Strategic Environmental Assessment is also underway to consider the environmental impact of the SRDP.

3.4 Benefits

Option 1

On-going contracts would continue to deliver some benefits for the duration of the commitment, providing State Aid approval was received. However, there is a risk these benefits may not be sustained if there is not the potential for further funding to continue and/or expand on the work done to date e.g. environmental benefits delivered through a contract from the SRDP 2007-2013 may be lost if there is no funding to continue or enhance the environmental actions taken to date.

Option 2

Benefits will be delivery of further funds to support rural Scotland, and therefore deliver public benefits through the outcomes as identified by the EC and SG (as outlined in objectives above) which include economic, environmental and social benefits.

The full budget is not yet known for the SRDP 2014 - 2020, although it is likely to be reduced (in real terms). The current SRDP will have delivered some £1.2bn when the programme closes on 31 December 2013. A summary of what has been delivered by the current schemes give an indication of what could be possible under a future SRDP:

• £65.5m annually to around 11,500 farms and crofts under the Less Favoured Area Support Scheme.

Rural Priorities

• Fourteen Rural Priorities funding rounds have been held over five years as well as continuous approval for specific Agri-Environment and forestry projects - approving 9,049, contracts have been agreed worth over £613 million. This includes over £167 million to support business development, over £377 million for agri-environment and forestry and almost £68 million to support rural enterprise and rural communities.
• Forestry Challenge Funds were launched during 2009 with over £5 million of funds allocated to 124 different projects.
• Skills Development Scheme - 53 projects with funding of £5 million.
• Starting in 2008 and operated on a non-competitive basis the Land Managers Options scheme has paid out £30 million in support to 11,466 participants.
• Over £5.7m to almost 2,000 projects under the Crofting Counties Agricultural Grant Scheme.
• Food Processing, Marketing and Co-operation has made 175 awards totalling £47m supporting investment of £163m and expecting to safeguard or create about 8,500 jobs.
• LEADER - over 2,200 projects awarded with over £63m committed.

Overlapping regulations that already affect organisations and individuals are being identified and considered through the Red Tape Review. This is a joint industry-agency working group to consider how to reduce the red tape associated with farming, fulfilling a Scottish Government commitment to look at how best to help farmers free up time for farming by further reducing on-farm inspections and bureaucracy.

These benefits would apply across options 2(a) and 2(b), however, with option 2(b) there is a risk that benefits would not apply consistently across Scotland due to regional differences in targets and budgets. There is also a risk that best value for public money is not delivered under 2(b), as without national oversight of priorities (as identified by the SWOT analysis) it will be difficult to target these Scotland-wide issues.

3.5 Costs

Option 1

Despite this being a 'do nothing' option there would be costs to the SG associated as commitments entered into under the SRDP 2007-2013 can last a number of years so there are on-going financial costs (assuming State Aid approval was granted). If there were no SRDP 2014 - 2020 then we would not be able to access EU funds for these commitments so they would have to be paid solely from SG resources. This would also have resource costs for staff and IT to manage, audit and monitor these on-going contracts. However, once these contracts are completed, and if there were no new SG funding these costs would cease.

There would be limited costs to businesses, except for those with on-going contracts who would have to ensure they are compliant with the schemes.

There would also be an economic, social and environmental cost to this option. Without on-going support for projects to support rural Scotland we would expect to see a lack of investment in rural businesses and communities, a potential decline in environmental outcomes such as biodiversity, water quality and businesses becoming unviable, land abandonment and potential rural depopulation which would have a knock-on impact across rural Scotland, not just for the types of business that the SRDP could support.

There is a high risk that legal and political commitments would not be met e.g. management of designated sites, biodiversity targets, forestry targets, supporting of Scotland's key growth sectors (particularly tourism and food & drink).

Option 2

The SRDP is part funded by the SG so there are financial implications in implementing the SRDP The current SRDP has delivered some 1.2bn funding, this is roughly split 50:50 between EU funding, and domestic funding. There are also resource implications for the actual delivery of the grant schemes, however as this SRDP would follow on from the previous, these costs have been built into forecasts and forward planning.

There will be some costs to businesses applying for financial assistance for the application process. If an application is successful, businesses will incur any agreed costs for carrying out the project (not all schemes offer to cover 100% of the costs) and the costs of ensuring they are compliant with the schemes.

We aim to streamline and improve the application process, and advice available to applicants for the next SRDP which should reduce the costs to both the businesses and the public sector in comparison to the SRDP 2007 - 2013.

These costs would apply across options 2(a) and 2(b), there is a risk that option 2(a) may duplicate administration in each region so incur higher public sector costs.

3.6 Costs and benefits: unintended side effects

There may be unintended consequences of the new programme. Possible negative effects are:

• A lower number of applications than expected meaning the benefits are not delivered;
• High expectations amongst beneficiaries but a lack of funding meaning they cannot be funded;
• Difficulties in distributing the funds even when applicants are successful (delays may be one source of difficulty); and
• Changes in the legislation or in the amount of funds to be distributed between 2014 and 2020.

On the other hand, possible positive side effects could be:

• Examples of an increased awareness of environmental issues - some become environmental enthusiasts following participation;
• Leverage of environmental benefits - rather than funding of un-linked environmental schemes, it is recognised that joining up and formation of wildlife corridors can be very important and facilitated by an awareness of what other previous support there has been in an area; and
• Economic multiplier effects - it is recognised that investment into rural areas has spin-off effects on local areas. This is not unintended, but there may be ways of increasing these effects through encouraging farmers to use local contractors.

4. Scottish Firms Impact Test

Detail the results of your face-to-face interviews. We intend to carry our face-to-face meetings with businesses in the winter during the second consultation. This may be done through stakeholder events or individual meetings.

4.1 Competition Assessment

The SRDP provides support to land managers, rural businesses and rural communities through various funding streams. This support is available throughout the EU so should not give any unfair disadvantage. Indeed one of the main objectives of the EU Rural Development Programme is to enhance the competitiveness of all types of agriculture and to support farm viability. Consequently, the interventions of the programme should have a positive impact on competition.

Impact on small businesses - The proposal does not automatically place additional burdens on businesses. If they choose to access funding they will have to meet the associated criteria, however the design of the programme will allow schemes to be more accessible to smaller businesses, and better targeted and supported.

The SRDP 2014 is not a new policy initiative, but a replacement for the current SRDP. While the SRDP 2014 aims to make improvements including simplification, more effective targeting and ensuring verifiability, it is not expected for there to be wholesale change in the funding availability.

4.2 Test run of business forms

New forms will be introduced and it is intended to test run them, further details will be given at final BRIA stage.

5. Legal Aid Impact Test

The Civil Law Division have confirmed that there will be no significant impact to the legal aid fund.

6. Enforcement, sanctions and monitoring

Grants are delivered, enforced and monitored by delivery partners (RPID, SNH, FCS). Sanction for non-compliance is dictated by European regulations and clearly laid out in guidance. There will be on-going monitoring of the programme, with the Scottish Government required to provide Annual Implementation Reports to the EC.

It is proposed that the SRDP will have a PMC which, according to the RDR, should "the performance of the rural development programme and the effectiveness of it implementation" i.e. the design and delivery of the SRDP". The PMC in conjunction with the Managing Authority, which is the Rural Directorate, oversees the effective implementation of the programme.

7. Implementation and delivery plan

The SRDP 2014 - 2020 will be implemented by key delivery partners (SG RPID, SNH, FCS). It is proposed that implementation builds on the delivery mechanisms from the SRDP 2007 - 2013, albeit simplified and improved where feedback and experience show this is necessary. This is part of the Futures Programme being developed by RPID and its delivery partners.

The new SRDP will be open to applications in January 2015 and will run until 2020, although there will be on-going contracts which will last beyond 2020.

7.1 Post-implementation review

The SRDP programme document will include an Evaluation Plan which sets out how the Scottish Government will monitor and evaluate the programme. This includes details on what measures will be used to assess the success of the programme and how data on these measures will be collected.

8. Summary and recommendation

8.1 Summary costs and benefits table

This section will be completed for the final BRIA once the options have been confirmed through consultation.

Declaration and publication

I have read the impact assessment and I am satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impact of the leading options. I am satisfied that business impact will be assessed with the support of businesses in Scotland.