Written evidence submitted by NFU Scotland (FSG0011)

Submission

financing of the scottish government

How effective is the Barnett formula in calculating the amount of money made available to Scotland for providing essential public services?

The UK Government announced at the Autumn 24 Budget that from 2026-27 the Barnett formula will apply to funding for agriculture. Previous to this, Scotland received £620 million from HM Treasury as a ring-fenced, multi-annual funding settlement for agriculture and rural development. This equated to 17 percent of an overall settlement for the UK - which reflected Scotland’s historic share of the EU Common Agricultural Policy spend within the UK.

NFU Scotland has repeatedly stated that without adequate funding from the UK Treasury, ambitions in relation to high-quality food production, tackling climate, nature restoration and thriving rural communities will not be delivered by Scottish agriculture. In addition, many farms across Scotland would cease to be viable which would lead to significant socio-economic and environmental challenges.

NFU Scotland has previously underlined that 17% was not sufficient given the unique qualities of Scottish agriculture and all that we deliver in relation to UK climate change and biodiversity. We have repeatedly called for an increase in the allocation of the UK’s farm support and rural development budget across the four nations of the UK to better ensure policy needs are met and policy outcomes can be delivered. Scotland’s large area of Less Favoured Area land (some 54 per cent of the UK’s total) means it is less productive and faces higher operating costs. Farmers and crofters in these areas struggle with lower yields and harsher environmental conditions, making it harder for them to compete without targeted financial support. More funding, not less, is needed to ensure that Scottish farmers and crofters in these regions can remain sustainable - both economically and environmentally.

What was the original design intention behind the Barnett Formula, and to what extent has it fulfilled this purpose?

NFU Scotland does not believe that the Barnett Formula should be used as the baseline for agricultural funding.

The change to the current 17% ring-fenced funding is a major risk for Scottish agriculture and we have underlined this to the UK Government. Scotland’s farmers and crofters cannot deliver what is being asked of them, in the wider interests of us all, without financial backing and while it is now the sole responsibility of the Scottish Government, we are concerned with the UK Government’s decision to have made these significant changes without any consultation or consideration as to the potential impact on Scotland’s rural communities.

The 2019 Bew Review (which focused on how the Common Agricultural Policy (CAP) funds should be allocated across England, Scotland, Wales, and Northern Ireland and also considered the unique agricultural circumstances of each nation) concluded that Scotland should receive a greater share of the UK agricultural support budget because of the scale, type and characteristics of farming and crofting in Scotland set against today’s policy objectives of food, climate, nature and people. Scotland punches above its weight on these issues but its share of support remained locked into historical production only related claims. The concern now is that, as part of the block grant, agricultural and rural support funding in Scotland no longer has the protection of a ring-fence and, depending on Scottish Government decisions, may decline. While the block grant in total may continue to increase, there is no requirement for the Scottish Government to pass on a proportionate share to farming and crofting.

The previous UK Government set out a ring-fenced, multi-annual commitment, meaning the Scottish Government couldn't spend it elsewhere which gave the sector some certainty over the coming years. The new UK Government has decided to apply the Barnett formula for future funding for the sector and removed ringfencing.

We understand that the Scottish Government is now solely responsible for future funding for the sector and we urged them to allocate sufficient money to our farmers but we remain disappointed that the UK Government has made this decision.

How transparent is the UK Government’s decision making regarding the application of the Barnett Formula?

There was no consultation with the agriculture sector or the Scottish Government in relation to the decision for agriculture funding to be moved to the Barnett formula.

Within the existing devolution settlement, what steps could the UK Government take to offer Scotland more financial certainty?

More financial certainty would be provided if the UK Government agreed to set out a multi-annual commitment to agriculture funding. Our sector needs a multi-annual commitment from either the Scottish or UK Government as it will provide certainty and enable investment.

The agricultural sector used to have 7-year funding commitment that provided certainty under European Union’s Common Agricultural Policy. The previous UK Government offered a commitment for the term of the parliament which meant there were five-years of certainty. The current Government has, as yet, not provided any multi-annual funding commitment for our sector which is an issue. The Autumn 2024 Budget provided an annual amount, and at the same time set out a major change in relation to future funding in that it removed the ringfencing and reduced the current 17% of DEFRA funding to the Barnett formula for Scottish agriculture. These were not welcomed.

January 2025