Supporting impact - Scottish Crown Estate net revenue: local authority use and insights

Implications for future distribution

Discussions with Local Authorities highlighted several key themes regarding the use of net revenues in the first two rounds that may influence discussions for future rounds. The general feedback was that the fund was particularly powerful in its size and flexibility (more so for the recipients of high-tier net revenues), which enabled Local Authorities to make locally-relevant decisions, allow leveraging, and support innovation. Here, we highlight some key observations from the findings, and points for future consideration.

Flexibility

The net revenues are a notable source of income, as they offer a high level of flexibility. Effectively, the money can be used in any way that contributes to the benefit of coastal communities. Across round one and two of the distributions, that has included investment in capital and revenue, in activities led by the Local Authorities, in third sector organisations and businesses and in projects that vary from coastal defenses to community capacity building.

Specifically, this flexibility has allowed each recipient to have a free hand when developing and adopting their approach. It is therefore place-specific and allows a targeted response to the needs of that community at that time. The freedom also extends over time and supports changing the approach to allocations from round to round, to keep meeting the needs of coastal communities. These freedoms have also supported innovation and leveraging. Across rounds one and two that has included underwriting activity necessary to unlock large scale coastal defense work which would have otherwise struggled to secure funding, and community capacity building which establishes governance and capability to attract additional monies over time.

Disadvantages of this level of flexibility include that each Local Authority has to put in place its own decision-making structure, and these greater levels of differentiation in approach makes it more challenging to work across borders or in a networked way to maximise national level impact. There is also the risk that monies could simply be absorbed into existing activity – although the requirement for transparency and accountability manages that risk - and that short-term socio-economic projects can naturally become priorities over longer-term environmental benefits.

Observation:
There remains considerable scope for further explorations of these flexibilities and opportunities for innovation as Local Authorities approach round three and the intended green recovery from the pandemic.

There may be a benefit from providing increased support and guidance on working collectively towards national policy priorities that does not compromise the benefits of flexibility and allowing a place-based approach.

Net Revenue Allocations

The allocations of monies to support coastal communities for some Local Authorities is effectively smaller than the Coastal Communities Fund (CCF), as those who were successful through the CCF received sums which were many multiples larger than their current net revenue allocation. For some, in the mid-tier (£40k-200k), that has shifted focus away from specific projects towards community capacity building. For those in the lower tier, the allocation was often too small to be considered separately from other activity.

Observation:
Consideration of ways to address the impact of ending CCF and the establishment of net revenue on mid and lower tier recipients would be beneficial. This could include assessing if a parallel investment structure would address the impact and secure additional benefit for communities.

The de minimis allocation would benefit from being reassessed if a greater scale of impact is sought across the lower tier recipients of net revenues. Increasing it to a sum nearer the bottom of the middle tier (C. £40k) would allow approaches adopted in that tier (and the benefits associated) to be secured in the lower tier.

Annual Allocations

It was also noted that the lack of visibility of income levels from year to year has had a limiting impact on activity across all Local Authorities.

For the largest recipients that has been addressed through the setting and use of risk-appetite, with a modest assumption for future year funding which provides project leads some ability to plan into future years. For most however, the lack of knowledge has biased activity to single year commitments and one-off investments.

Observation:
It is important to note the limiting impact of annual decisions on the distribution of net revenues and the pursuit of strategic/large scale impact. Any steps that support longer term confidence in this income stream will allow a longer-term, and therefore more strategic, approach to be adopted. This could include issuing provisional planning figures – a "not less than £…" budgeting figure for example - to support earlier planning for the subsequent round.

Planned reviews

The majority of Councils are considering adjustments to their approach to round three. The drivers behind the intended reviews vary, including impact and lessons from response to the pandemic, the need to develop a refreshed pipeline of activities, the changing needs of the community and the end of a one-off project. It was also noted by several interviewees that the Council elections, with any changes that may bring, means they are looking at a deeper review at the end of 2022, in anticipation of round four of net revenue dispersal.

Observation:
The timing of this study is good; arriving ahead of Local Authority led reviews of their own approaches for the third round of net revenue distributions. Noting the limiting impact of shortened planning timelines, any responses to this study would ideally be agreed in the Spring/Summer well ahead of Local Authority planning for the fourth round of distribution.

Commitment to proportionate reporting

The current reporting is standardised across recipients who received from £1,000 to over £2,300,000, and gathers very limited information – see Enclosure 2. It does not explore the context of the decisions nor gathers information to enable consideration of transparency and accountability. While the minimal burden of reporting was appreciated by Local Authorities under pressure through the pandemic, a lack of reporting may hinder attempts to share best practice or evaluate the impact of the distribution.

There may be scope to improve the reporting structure without adding undue administration, for example, by asking for information to understand the approach each council has taken to meet their responsibilities (i.e. links to public documents illustrating the process adopted to ensure transparency and accountability), or a summary of the principles and priorities adopted to provide high level context. Furthermore, the approach could be differentiated to reflect the level of revenues received, with those receiving the lowest sums doing the simplest reporting.

Observation:
There is an opportunity to revisit the reporting approach for future rounds to address these observations.

Cross boundary coordination and knowledge transfer

The net revenues are distributed directly to individual Local Authorities and, at present, there is no formal mechanism to support, link or inform activity across Local Authority boundaries. The absence of this mechanism potentially limits innovation, peer to peer learning and development and the impact of projects.

There is evidence of a desire for this sort of activity, as all Local Authorities expressed an interest in understanding how others were approaching the use and distribution of net revenues. A mechanism to systematically support knowledge transfer and transfer innovation would allow some of the smaller recipients of monies to link to larger projects and improve efficiencies. Importantly, it would also improve and facilitate coordination and connectivity of activity across boundaries, and therefore increase impact for communities tackling large-scale challenges.

The development of a forum to support this work would also offer a way to share other ideas, emerging concepts and activity from across Scottish Government and to gather feedback.

Observation:
There is opportunity to consider and adopt mechanisms to support systematic knowledge transfer, and to encourage and coordinate cross boundary projects and collaboration.