Written evidence submitted by The Scottish Community Alliance
The Scottish Community Alliance is comprised of Scotland’s leading community sector networks. These organisations have community based memberships and address a wide range of issues which impact on community life. These include housing, transport, energy, land stewardship, allotments, food security, financial services, business development and the environment. The 18 national networks that have formed the Alliance have a collective membership of over 1,200 local groups which engage more than 100,000 local people directly in their work. They employ 5,500 fte, own or manage quarter of a million hectares of land and have an annual turnover of approximately £600 million.
Land reform is an area of special interest to several SCA members and a number have already submitted responses to SAC on behalf of their memberships – Development Trusts Association Scotland, Community Woodlands Association and Community Land Scotland and Nourish Scotland.
This response reflects a collective view of these networks and is intended to amplify some of the key messages conveyed in their more specialised responses.
How does Scotland compare to other countries in terms of the pattern of land ownership?
Research indicates that Scotland has a highly concentrated pattern of land ownership and in comparison with other European countries lags behind in terms of the proportion of small holdings and community ownership.
What are the benefits and disadvantages of the current pattern of land ownership, and to what extent is this pattern sustained and reinforced by subsidy and taxation arrangements?
Having such a concentrated pattern of land ownership severely restricts the number of people who are able to influence key decisions on land use irrespective of whether they live on and depend on that land for their livelihoods. This lack of parity between landowners and those who live and work on the land has fostered a set of relations in many parts of rural Scotland that has no place in the modern age. However, the current arrangements of tax relief and subsidy to large landowners give the appearance of institutional support for the status quo.
Is the current system of land tenure in Scotland the most efficient model for food security?
We do not believe that the current pattern of land ownership promotes any real consideration of what is the most efficient model for food security. The system of subsidy and tax relief is more likely to drive the land use decisions of large landowners. SCA supports the view of Nourish Scotland that the best way to deliver food security is through short supply chains that can supply a healthier diet to local communities. To deliver this vision Nourish have argued that land must be viewed, not through the prism of the rights of landowners, but as a public asset that can deliver public benefit to the whole community. SCA also supports the view of Nourish Scotland that food security is about much than simply ensuring that Scotland has enough food to physically feed all of its citizens. It is, at the very least, about ensuring that everyone in Scotland has access to an adequate and reliable supply of affordable, nutritious food.
In particular, is the current land ownership pattern contributing to, or inhibiting, economic and community development? Is it socially just?
The landowners make the case that having so few people own the land is in itself a key driver of the rural economy which delivers many social, economic and environmental benefits, including the development of vibrant communities. It can be no coincidence that they are the only group who make this case. The relatively few examples of where local people have been able to take land into community ownership have demonstrated beyond any doubt that the appetite and capacity exists within communities to take control of their own affairs and make a success of it. By no measurement could the current pattern of land ownership be considered socially just – it is outmoded and affords rare privilege and the concentration of wealth to the few at the expense of the many.
Given mounting political interest in, or commitment to, a programme of land reform in Scotland, what form should this programme take?
SCA would broadly support the detailed submissions of CLS and CWA and in particular the proposals which argue that the land reform process should be properly supported in financial terms by a Land Fund and both promoted and technically supported by the establishment of a new Land Agency.
What sort of subsidies and grants are available to landed estate owners in Scotland? What are the advantages and disadvantages of the subsidy regime? In particular, are support payments being capitalized into land values and making these higher than they otherwise would be?
The financial incentives on offer to wealthy investors to become owners of estates are laid out in the promotional materials that estate agents and surveyors use to market Scotland’s estates. The current tax and subsidy regime is a principle marketing tool of their business. Ironically, one of the main criticisms of the process that enables communities to own land is that it requires significant public subsidy by way of grant support. One man’s tax relief and agricultural subsidy is another man’s lottery grant.
How does the tax regime affect the way in which land is owned in Scotland? For instance, does it offer landed estate owners the opportunity to minimize the tax they pay, thereby increasing the value of land, adding to speculative interest (on the part of those looking for ways to minimize or avoid tax) and making it less likely that it will be made available to others?
The specifics of the tax regime are beyond our area of competence but it seems that to make the ownership of land an opportunity to avoid the payment of tax, encourages not just more ownership by individuals of great wealth who have no intention of living on the estates but it also places the ownership of large estates into the vagaries of offshore tax exemption schemes which in turn makes it very difficult to identify the actual owners of the land in question.
How easy is it for communities in Scotland to take ownership of land and other assets? Should it be made easier in the light of the substantial achievements of existing community ownership groups?
Although Scotland’s existing land reform legislation puts it ahead of the rest of the UK in this respect, SCA would support the positions of DTAS, CLS and CWA with respect to the need to make the process easier to operate if genuine advances are to be made.
How easy is it for tenant farmers in Scotland to buy their farms? Should they be granted an absolute right to buy? Would such a right be compatible with human rights conventions and declarations?
This is an area that lies out with the scope of SCA and its members. However it would appear to be contrary to the interests of natural justice that a tenant farmer is effectively dis-incentivised from investing in his farm as any added value the tenant farmer creates is passed directly onto the land owner through the increased rentals and higher land values. It would also be consistent with previous views of SCA members that it is better that more people (rather than less) have a real stake in the land and therefore it would be preferable that tenant farmers are given the opportunity to exercise an absolute right to buy.
Is there a case for establishing a Land Agency to facilitate both the expansion of community ownership and the creation of new, especially “starter”, tenancies on land acquired for this purpose?
We would support the overwhelming position of our members that there is a clear need for an independent organisation that can fulfil a range of functions including the negotiating between potential buyers and sellers, brokering of the terms community buy outs, promoting the land reform agenda more broadly and advising Government on issues of public interest and sustainable development
How easy is it for land in public ownership to be transferred to communities and other private individuals, where that would be in the public interest? Should steps be taken to make it easier? For instance, should the UK and Scottish Governments compile a register showing land and assets for disposal? Should there be changes in the way in which such land and assets are valued? What UK Treasury rules are relevant to this area?
SCA supports the position taken by Community Land Scotland and Community Woodlands Association and in particular would endorse the points that have been raised with reference to the importance of public bodies holding and publishing registers of their assets, the replication of the National Forest Land Scheme across other parts of the public sector, and the very significant constraint on this aspect of our sector’s development – the interpretation of state aid rules by public bodies which is being used to constrain the acquisition of public assets by community bodies. A paper setting out the issues as they relate to State Aid is attached at Annex 1.
Should a Land Value Tax of some sort be introduced in Scotland, as a replacement or addition to council tax and business rates?
As has been argued elsewhere the current regime of tax concessions and land subsidies is in part responsible for concentrating the ownership of so much land in the hands of relatively few. If the tax regime could encourage greater levels of productive land use and at the same time balance the benefits of private ownership against the broader public interest, we feel that land use and land ownership would reflect greater levels of social equity and justice. Whether Land value Tax is the mechanism to achieve this is beyond the knowledge and expertise of the Alliance.
ANNEX 1
State Aid and how it impacts on the community sector
A paper prepared by Scottish Community Alliance for Scottish Parliament Local Govt and Regeneration Committee
1 State Aid: defining the problem
State Aid refers to forms of assistance from a public body, or publicly-funded body, given to selected undertakings (any entity which puts goods or services on the given market), which have the potential to distort competition and affect trade between member states of the European Union.
The State Aid rules were designed to protect the operation of the free market and to facilitate a level playing field for major commercial interests with the capacity to trade across member states of the European Union; it seems improbable that they were intend to inhibit the regeneration of some of our most disadvantaged communities or to restrict the growth and operation of locally based, not for profit social enterprises.
For an investment to be considered a state aid it must satisfy all of the following criteria: the support must be from state resources, confer a selective advantage, have the potential to distort competition, and affect trade between Member States. Where investments are assessed to be a state aid, support to an organisation is capped at 200,000 euro in a rolling three year period. Any additional investment beyond this de minimis level can only be made through approved schemes or under General Block Exemption regulations.
The de minimis regulations provide a useful mechanism to enable small scale state intervention where project appraisal indicates that all the criteria for state aid apply, however, blanket approval under de minimis is being used as a substitute for project appraisal against the state aid criteria. This approach is an attractive, risk-free option for civil servant and local government officers, but its cumulative effect is to severely constrain future development options for community bodies.
The perception across the community sector is that civil servants and local government officers are taking an overly risk-averse approach which focuses on the potential problems rather than the pursuit of solutions. Our experience is that if officers see the slightest possibility of a State Aid issue they will treat it as an insuperable barrier, rather than carry out an appropriate and proportionate appraisal. There is growing evidence that Scottish officials are taking a much harsher line than their counterparts south of the border.
The current interpretation of the rules is impacting negatively across a raft of Scottish Government policy areas, including: public service reform and the implementation of Christie Review recommendations, regeneration and community empowerment, land reform, rural transport networks, food and energy security, and the localised reduction, reuse and recycling of waste.
2 State Aid rules: unfairly impacting on Community Organisations
Community organisations understand that they are subject to EU competition rules. However, the current interpretation (and in some cases mis-interpretation) of those rules is unfairly impacting on their current and planned operations. There are a number of aspects to this impact.
2.1 Community activity addresses market failure, rather than distorting functioning markets
A common feature of the activities of many community-based, non-profit distributing organisations is that they occur in response to market failure. To claim that market distortion results from public investment in circumstances where no viable market previously existed, misconstrues the fundamental principle which underpins state aid rules.
Example: Community transport
The bus industry was deregulated nearly 30 years ago with the intention that the industry should operate on a purely commercial for profit basis. Post-deregulation, bus companies were no longer expected to cross-subsidise loss-making routes from their profitable ones, leaving many parts of the country without an adequate public transport service. Community transport operators have emerged to address this market failure. The regulatory regime for community transport is lighter touch than that for commercial operators, with a system of special permits issued on the understanding that the service is not a commercial (for private profit) business. Notwithstanding this, and the fact that community transport only operates where a commercial operator is unable to deliver an effective and profitable service, local authority officers increasingly cite state aid rules as a reason not to provide the necessary support required to enable community transport projects to operate effectively.
2.2 Community development proposals are stymied by officers’ mis-understanding of the state aid rules
The interpretation and application of state aid rules is a complex process, and those in public bodies charged with project appraisal may have only a limited understanding of the process. A frequent misconception is that a potential investment should be regarded as a state aid if one, or several of the criteria are met, rather than all.
Example: Aberfeldy Town Hall.
Perth and Kinross Council were initially supportive of Locus Breadalbane’s plans to develop he Town Hall and were prepared to lease the building at a discounted rate on a trial basis to give the group an opportunity to test out various commercial ideas. However, officers became concerned about the potential state aid implications of plans for a café.
Their assessment was flawed on two fronts: the potential to give a selective advantage is only one of the criteria which must all be met for an investment to qualify as state aid. Secondly, the proposed level of support from Perth and Kinross Council through a discounted rent would fall well short of the de minimis level of 200,000 euros.
2.3 The blanket use of de minimis provisions is inhibiting the ability of Community Anchor Organisations to deliver community-led regeneration.
The Scottish Government’s regeneration strategy highlights the important role that community anchor organisations (CAO) have within community led regeneration. CAOs are multi-purpose organisations that become involved in a wide range of activities within their communities. The benefits of such an approach are widely recognised.
Such multi-purpose community bodies are particularly vulnerable to the blanket use of de minims provisions, because while the appraisal of state aid is (or should be) made at the project level, the de minimis allowance is cumulative, and calculated at the organisational level, so investment in each of the disparate activities of a Community Organisation (and any wholly owned trading subsidiaries) is aggregated together.
Some funding streams (e.g. Scottish Government Enterprise Growth Fund and Enterprise Ready Fund) do not carry out any appraisal of individual projects, and automatically classifying all their awards as State Aids, with all investments made under de minimis provisions, or through General Block Exemptions. This effectively excludes many of the most active and successful Community Anchors from applying.
Example: Mull and Iona Community Trust
The Mull and Iona Community Trust is a well-established Community Anchor Organisation which engages in a wide range of activity for the benefit of the island communities the Trust represents, both residents and businesses. The following list provides an illustration of the range of work being undertaken by MICT in recent months and the public funding that had been received in support:
While all these projects are unrelated to each other, for the purposes of de minimis calculation the cumulative total is greater than the 200,000 euro limit and therefore the board of MICT are being forced into having to take a view as to whether they can continue to take on new projects or wait until the three year qualifying period has lapsed. The current definition of de minimis level is stifling ambition and preventing progress on the very sort of project which Scottish Government is actively encouraging development trusts to take on.
Example: Kilfinan Community Forest Company
Kilfinan Community Forest Company acquired part of Kilfinan Forest, near Tighnabruaich, Argyll, through the National Forest Land Scheme and are pursuing a wide range of projects to develop the forest. Investment in several of these projects has been approved under de minimis provisions. KCFC investigated the potential for renewable energy projects, including an application for a CARES preplanning loan. Usually if a renewable energy project does not proceed, the loan can be written off as a grant, but in this case (because KCFC are deemed to have reached their de minimis threshold as a result of declaring previous public support received for unrelated projects) it must be repaid with interest.
The CARES loan-writeoff provision was intended to de-risk community investigation of renewable energy proposals: unlike commercial companies who can factor a percentage of “failures” into their business planning, community groups usually only have one or two possibilities for development. The limits to write-off now represent a serious disincentive to future community renewables as it requires the community body to take on a potential liability with the risk of having no obvious means of repaying the debt.
2.4 Misplaced concerns about “market distortion” are severely limiting the expansion of community land ownership
The Scottish Land Fund was established to support rural communities to become more resilient and sustainable through the ownership and management of land and land assets, however the over-zealous application of state aid rules is inhibiting the operation of the fund.
When communities acquire woodlands (e.g. through Forestry Commission Scotland’s National Forest Land Scheme), what occurs is a transfer of assets, not the creation of new assets. Trees do not grow any faster under community ownership, so the volume available for harvest and thus the volume that can enter the timber market is unchanged by any transfer of ownership.
It has been suggested by officials that simply establishing a new market actor is itself a market distortion. We note that the UK Government is preparing to transfer the entire English Public Forest Estate (with a market value of hundreds of millions of pounds) to a new Public Corporation, apparently without any State Aid concerns.
Example: Aigas Community Forest
Aigas Community Forest (ACF) was established by the community in and around Lower Strathglass in 2009 in response to Forestry Commission Scotland’s (FCS) intention to sell Aigas Forest (c. 260 ha) which had been deemed surplus to requirement. ACF’s application to buy the forest to deliver a wide range of economic, social and environmental benefits was approved in December 2009, but their attempts to raise the necessary funding have been repeatedly thwarted, most recently on the grounds of state aid and concerns over “market distortion”. ACF are one of a number of community organisations with approved NFLS applications who are unable to progress until this issue is resolved.
2.5 Interaction between public funding for the community sector and other public funding/ incentive mechanisms.
Funding bodies, particularly if operating either side of the Scottish border, do not appear to prioritise that State Aid compatibility runs across their respective programmes. This has been particularly problematic in the field of renewable energy in relation to the UK Government’s Feed in Tariff, which was declared a State Aid (even though a parallel mechanism, the Renewables Obligation, was not) and automatically incompatible with any form of public funding for ‘purchase and installation costs' of energy generating plant. Uncertainty around the basis of the State Aid decision, and the interpretation of ‘purchase and installation costs' has delayed a number of community projects and led to a loss of public (including UK Government) funding which has inhibited the development of individual projects and the sector as a whole. For example, the Isle of Gigha Heritage Trust lost a grant offer of over £250,000 from the ERDF.
2.6 The burden of working with the State Aid rules can be substantial for community groups
Whilst it is the responsibility of the awarding organisation to inform the recipient that aid is being awarded through the de minimis provision, it is the responsibility of the recipient organisation to maintain a current rolling total of the amount of such assistance received from all sources over a 3 year period, and to inform sources of possible further aid, should the threshold be likely to be breached. This can represent a substantial administrative burden, not least because the threshold is expressed in Euros, and different awards will have different exchange rates applied. Community organisations generally have high standards of governance and these liabilities are taken seriously, and often discourage a group from pursuing a project even when funding is available- or because of the risk it will prevent them from pursuing other projects.
We note that local authorities and some public agencies, who are eligible to apply to public funds such as LEADER, have been able to sidestep this stage of State Aid appraisal by refusing to provide details of previous funding, on the grounds that their organisations don’t keep comprehensive records.
The complexity of State Aid issues and the need to ensure compliance in order to receive commercial finance has contributed to spiralling 'due diligence’ costs from commercial lenders. These are effectively an overhead that the community must include in its project costs, but as they can reach six figures for sub-million pound projects, they represent a significant financial burden and mean that projects must be over a certain minimum size to access this form of finance.
2.7 There is no recourse to a formal appeals process.
Within the UK there isn't an independent appeals process for State Aid decisions, and obtaining an opinion from the European Commission is practically impossible for small projects (and would in any case need to involve the national State Aid teams that would have made the decision in the first place).
3 Scottish Government Actions
There is no single solution the state aid problem, however there are a number of straightforward actions which the Scottish Government can undertake which would greatly mitigate its impact on the community sector
3.1 Improved appraisal of state aid
Scottish Government should set a positive tone, making it clear that state aid should not been seen as an insurmountable barrier or a pretext for refusal, and should also ensure that all those charged with state aid appraisal are appropriately trained and supported to do so.
Civil servants and local government officers need to be empowered to make appropriate appraisals of projects based on a thorough understanding of the regulations and a realistic view of the likelihood of challenge.
3.2 Develop approved schemes for community based activity
A more thorough-going solution is to develop approved schemes for the activities of community based, non-profit distributing organisations, and to ensure that where possible they are covered by General Block Exemptions.
Design and notification of approved schemes would have to be taken forward on a sector-by-sector basis, and it is unlikely that they could ever provide total coverage, however they would greatly improve the situation. Such schemes are part of the normal support infrastructure for almost all commercial business sectors; without similar support the community sector will never develop to any significant scale.
3.3 Access to an appeals process
It would be beneficial to establish an independent (non-governmental) ombudsman for State Aid, with responsibility for managing an independent appeals process. This would also give comfort to those who administer the system and promote a more confident approach within the sector.
October 2013