 It's good morning, and welcome to the sixth meeting of 2018 of the Environment, Climate Change and Land Reform Committee. I want to remind everyone present to switch off mobile phones and other electronic devices as these may affect the broadcasting system. We have apologies today from our colleague, Claudia Beamish. The first item on the agenda is for the committee to consider whether to take item 3 in private. Are we all agreed? Yes, we are agreed. The second item on the agenda is to take evidence on stage one of the Crown Estate Bill. The first evidence session is to hear from Scottish Government officials on the background and content of the bill. I therefore welcome David Mallan, head of Crown Estate Strategy Unit of Marine Scotland. Mike Palmer, the deputy director of the aquaculture, Crown Estate Recreational Fisheries, European Maritime and Fisheries Fund, European Division of Marine Scotland. That's quite a title. Douglas Kerr, also the Scottish Government's legal directorate. Gentlemen, good morning. Let's kick this off by looking at the duties in section 7 of the bill. Can I ask how you think those might make a difference to the way in which the Crown Estate assets are managed? Yes, good morning. I'll perhaps kick off by outlining what the Scottish Minister's policy perspective on that is and perhaps my legal colleague Douglas Kerr could add if there's anything else that is worthy to say. The first thing to highlight is that this is a reform of the duty that exists in the Crown Estate Act 1961, which requires the manager to maintain and enhance the value of the estate and the return obtained from it, but with due regard to the requirements of good management. The reference to good management was never actually defined and has sometimes been interpreted as requiring good stewardship and other times has been interpreted as to include the ability to take account of other factors. There are some examples of the Crown Estate commissioners in the past and Crown Estate Scotland currently stepping into that second interpretation at a smaller scale. However, it has always been on the part of the existing managers awareness about the legal virings to do that. Therefore, the Scottish Minister is thinking about what the long-term framework for the management of the Crown Estate in Scotland should be. The Scottish Minister has wished to make it more explicit that the wider factors, the economic, the social and the environmental benefits that can arise from decision making can properly be taken into account. We would expect that, through the more explicit ability that a manager will be more encouraged and, in fact, will be careful to take account of those opportunities before reaching final decisions. I am particularly focused on the environmental wellbeing aspect. If one considers the role of the Crown Estate in leasing seabed for activities such as salmon farming or offshore wind turbines, as I would interpret at the moment, the Crown Estate performs that duty with a view to generating income, but it takes no account of the environmental impacts of salmon farming or those relating to offshore wind farms. We have had some contention around those in the east coast of Scotland. How will that be different or will it be different at all in future? The short answer is that we have to wait and see how managers use that new discretion, but also to try to add to that the existing decision making on the part of the manager of Crown Estate assets sits within a wider context of licensing by Government for activities to take place. There is already a fair amount of environmental assessment that takes place before any activity can take place in the sea. The Crown Estate lease provides the ability for an actor to secure the exclusive use of a space. Over time, with the new duties, there will be an increased spotlight placed on the environmental and the social. In the wider economic consequences of that, there will be a more narrow return that can be obtained from the lease to the Crown Estate. I am trying to get an understanding about what purpose is served by adding environmental wellbeing in here. I welcome it, but I am not quite understanding what difference that makes, because at the moment we are essentially relying on Marine Scotland, SNH and whoever to consider the environmental impacts of those activities. What duty does that place specifically on the Crown Estate? I think that we have to look at section 7 in the context of section 11. Section 11 is about transactions such as sales and leasing. Up until now, it has been a best consideration focus profit maximisation for the Crown Estate. Section 11 also contains reforms that open out the possibility of the wider factors being taken into account. I think that we could view section 7 on the part of Scottish ministers that they wish to see across the whole range of activity of the Crown Estate that consideration for the social, environmental and economic in a wider sense. Without section 7, we would be reliant only on section 11 when it comes to transactions rather than the whole ethos of how the organisation is operating. Could you envisage a situation perhaps in future where the Crown Estate before it allows the lease of the seabed engaging with the other agencies to see if there are any concerns around the environment, for example, before it enters into an arrangement? Yes. To be fair to Crown Estate Scotland, a lot of that discussion does already happen. There is also the context in the decision making that you referred to, convener, the presence of the national marine plan, which sets that context and gives a direction for all consenters, including Crown Estate Scotland or a future manager of Crown Estate assets. Over and above that, I think that that should provide even more explicit requirements for a manager to look up front at the extent to which the wider factors will play out, not just the return to the Scottish Crown Estate. Mike Palmer, perhaps you want to come because I'm interested in how you see this interaction. If I may just add, I think that the extra duties and powers that are placed on local managers are part of the overall balance that Scottish ministers will wish to see developing in terms of the management of the Scottish Crown Estate. So there is an ethos of encouraging greater and stronger local stewardship of assets, greater community empowerment, but alongside greater community empowerment there is a wish from Scottish ministers to ensure that due consideration is taken of these wider societal benefits that local managers should be seeking to pursue and to achieve. So up to now it's been a very commercial ethos, if you like, that's been pursued by the Crown Estate commissioners and Scottish ministers are seeking to broaden that out as part of the kind of trade-off, if you like, between local empowerment and letting go of some of that national management down to local level. Thank you, convener. Good morning. So if we move to this new ethos, then as you said previously, the machine had been there essentially to produce yield on assets, so there'll be a loss of focus on that objective. So how would you expect this to reduce the yield on the assets given this change in focus and direction and how much would you expect the yield to be reduced by given the tightness of the Scottish budget? There is a primary duty in the bill to increase the value of the assets and there is a response. Sorry. How will you measure value then? Well, there is a reference to seeking to achieve market value, which is clearly understood as a term and is defined in the commercial world as a concept. So that is written into the bill to seek to achieve market value except in circumstances which again are defined in the bill. So there is that primary duty on local managers to pursue market value to increase the value of the overall assets. So that isn't being lost in any way. There is a balance however to be struck in the eyes of Scottish ministers with these other considerations around social, environmental considerations and therefore it's about achieving a balance between those two but not losing sight of either one, if you like. Therefore, to pin you down on this, would you expect to yield from these assets to reduce as a result on this new focus? I think our overall expectation would be that the crown estate as an entity overall, a set of assets overall, that we would expect the yield to be rising because that also would be of benefit to Scotland and Scottish ministers' intentions are that across all of these elements, across the economic sphere, across the environmental and social spheres, that there should be benefit occurring to Scotland from the way in which the crown estate in Scotland is managed. So Scottish ministers would not wish to lose sight of that financial benefit alongside the others. So Scottish ministers would be expecting to see the overall yield being protected and rising indeed. Presumably some of that overall yield would not be coming to Scottish ministers, it would be going to local authorities. There have been commitments made indeed for part of the yield from those assets to go to local managers. Thank you. Mark Ruskell. Given the new objectives around the environment and social wellbeing, I'm just wondering how that could change relationship with the regulator. So, for example, you look at SEPA, currently undertaking a sector review of salmon farming, bringing forward new regulations. My impression is that Crown Estate Scotland has been only very loosely involved in that. So would you see going forward a different relationship with the regulator, perhaps a tighter relationship? How would you anticipate that changing? I have lots of discussion with Crown Estate Scotland and other regulators as well. My sense is that there is already a lot of dialogue that does take place. There is a partnership approach to many activities on the part of the public sector within Scotland. Around the margins, there may be new discussions that take place, but I think that the relationships are already there. My point is that we haven't really seen Crown Estate Scotland embedded into some of those processes, particularly around regulatory reform. Would you expect that to change or not? Do you think that the level of engagement that Crown Estate Scotland currently has with SEPA over a sector such as salmon farming is adequate, or would you expect that to increase as a result of the new objectives that are coming in? As I said, there is already involvement by Crown Estate Scotland in a lot of initiatives. As people understand that Crown Estate Scotland is here as an interim manager, they may be more involved directly in discussions. I think that what change we can anticipate through the bill proposals and the implementation of them is that there are more managers and discussions that could be had with regulators on a one-to-one basis. My colleague said that there is a wish to balance the local discretion with a national framework. The strategic plan that we see as a means by which there can be an outline of strategic intentions and there can be a way in which regulators, in an efficient way, can have that dialogue with the manager of Crown Estate Scotland. Over and above that, there may also be specific initiatives that managers could get involved in. We just have to wait and see. It is quite difficult to see that there is not really a blueprint on what the future looks like, because there is not yet full knowledge of the local ambitions for management of Crown Estate assets. With the best in the world, I think that everyone would like to see the manager of a Scottish Crown Estate asset involved in those types of discussions, but I think that we start from a fairly good foundation, and the question is how much more is needed as the changes play out. On the new discretion of social environmental good, I wonder where the final decisions on the social environmental good are made. If you take the example that the convener gave about salmon farming, let's say that Shetland Islands Council has control over the waters and decide on environmental grounds not to allow an application for a salmon farm to go ahead, is that their final decision or could that operate our lobby Scottish ministers? Where does the power lie? Is it with the devolved local managers or is there some kind of process where it can be overruled? The power does lie with the manager. The duty that they have to have regard to and the discretion that they can choose to take account of. At the end of the day, they will have to be able to defend their decisions. It is also a decision that is not taken in isolation. It sits within the wider context of the regulatory framework that exists in Scotland, including the regulations that govern the environment and the context for decision making, such as the national marine plan, in the case of the example that the convener gave. As I mentioned, the strategic plan that is contained within the bill for the wider and longer-term approach to the management of the assets should set a context for the manager. They would also have to, through the bill, have regard to that strategic plan, so local discretion. However, there are some kind of context to that decision making that are provided for through the wider regulatory framework and policies and legislation, as well as this bill. I might add that in terms of your question about where the power lies, the bill is drafted in such a way as to give ministers the discretion to decide on a case by case basis whether a transfer should be made to a local manager. There will be a very careful process of consultation and scrutiny of proposals that will be brought by the local manager for the way in which they wish to manage that asset, which would be undertaken before any decisions were made to make that transfer to the local manager. There would be checks and balances, if you like, in place in order to make sure that a very considered decision was taken by Scottish ministers on a case by case basis before the transfer was made. Can I just take you back to your answer to John Scott about what was envisaged in terms of income generation? In the financial memorandum, there is a speculation around the range of possible financial costs to the Scottish Government, where it suggests that there is a potential, and I stress potential, for a drop in income around local authority ports and non-operational ports and jetties. It speculates that the range would be zero to medium, which over a five-year period is put at anywhere between £2 million to £10 million. There appears to be an anticipation of the possibility of a drop in revenue from one aspect of the current income. Given that that is the case, do you still hold to the view that, overall, the expectation is that there will be an increase in income? I think that Scottish ministers would, overall envisage, be a substantial opportunity for the overall value of the estate to rise. There may be some elements of the estate that would not be expected to return as much in the short or medium term as other elements, but there are other opportunities, for example offshore in the marine environment, where it is felt that there is quite a high likelihood that that one could quite significantly increase the revenues from the overall estate. Clearly, it is not something that we can guarantee or know exactly how that will pan out in the future, but the current indicators are that— When there is an obvious one, but that is dependent on the UK Government's attitude towards financial support. John Scott, do you want to come in on that? I am intrigued by the concept that income will fall in some areas and therefore other areas will have to work harder and income will be greater for all those other areas. Would you care to be more specific? Are you talking about rents of properties, of farm rents, or what are you expecting? Where is the income expected to rise in that regard, given that others will fall? I will refer to David here on the detail. Just in very general terms, it is almost a statement of that. There will be some assets that could be expected in any one year, indeed, to deliver more revenue than others. That is something that it is not possible to predict with total accuracy from one year to the next. It is often dependent on the wider economic context in which one is managing the estate. Is there a business plan for the furtherance and development of this project? Crown estate Scotland interim management, which is the current national manager, has a business plan and a forward strategy for managing the estate. Clearly, as we move to the legislation and into a period where there is the potential to transfer down to a local level, the overall dynamic of the management of the assets will change. We will be looking at individual business plans and strategies drawn up by local managers, but at the moment, yes, there is a national level planning regime in place. I do not know, David, if you wanted to. I was just going to try to add by saying that I think Mike was looking at it in both dimensions, the first dimension being that the more narrow return to the Scottish Crown estate from a transaction, but also the second dimension being like a national accounting framework. When we think about the duties that would apply to a manager, the default would be a commercial approach unless they can demonstrate that those wider benefits can be expected to accrue. Where those wider benefits accrue, it is tolerable in the national sense to experience a reduction in that income, even though the fiscal framework accounting resulted in there being an overall reduction to the Scottish block. That reduction in the revenue obtained or the capital obtained could be expected to be accompanied by wider benefits that will accrue to Scotland as a whole. Overall, there should be at least a neutral or favourable position. If I may add, in the financial memorandum, the scenario that is contained there is painting a range from no change, which could be how managers choose to run and manage the assets to the scenario where the maximum is where, effectively, there is no charge and no revenue equivalent to what is obtained at present, zero revenue. Probably the truth lies somewhere in between, but until managers have the ability to fall their own priorities locally within that national context, the precise changes in the existing income level are quite difficult to predict. Have projections been made at all or not really? We have, through the work on the business and regulatory impact assessment for the consultation paper and building on that through the financial memorandum, looked at the potential consequences over the next five years and looked at the various scenarios. Underlying that are some assumptions and quite a lot of work that we have done with our finance colleagues and with our economists and stakeholders as well. Can I just be absolutely clear? When we talk about management of an asset, to what extent does the revenue accrue to the manager and to what extent does it remain with the Crown Estate? If I can cover this one and by all means, if I have missed anything, but the manager is responsible for the management of that asset and revenue generated, the gross revenue, would be received by the manager. From that gross revenue, the management of that asset and the costs associated with it will be paid for by the manager. If there is a surplus at the end of the year, it is required to be paid into the Scottish consolidated fund. In the hypothetical situation where you have a wind farm on one of the Crown Estates, perhaps the local community council wants to be the manager, but also at the same time the local authority wants to be the manager. There is a significant net income involved. How is that resolved? How do you foresee this bill putting in place a framework for a resolution of a potential dispute such as that? The dispute that you mentioned, if I am wrong, is to do with who should be the manager, whether it is a community or the local authority. That is not impossible to foresee that there is some level of difference or opinion. Scottish ministers would hope that through a due process for implementation of the bill that those issues could be resolved at an early stage in terms of who is the manager. In fact, as part of the implementation plan, rather than just awaiting ad hoc proposals from individual organisations, Scottish ministers are currently contemplating the value of a phased approach. A process that could involve seeking views from communities and local authorities over those who have expressed a view to date on their ambition to manage assets. It can be a considered view as to who, in any one circumstance, is best placed to take on management. As management is decided, there are some duties that apply to a manager, such as the production of a management plan to outline intentions over how the assets will be managed, proposed sales, etc. I would expect, at a practical level, to be quite a lot of contributions to that manager over what should be in that plan so that there is, at a second order, the ability to manage those potential differences in opinions between different parties. In 2015, the First Minister stated that coastal and island communities will benefit from 100 per cent of the net revenue generated in their area from activities within 12 miles of the shore. You might have touched on that earlier, but what is the current thinking on the arrangements for the distribution of net revenue from marine assets out to 12 nautical miles to coastal and island councils? We are in discussion with COSWA about the mechanics of implementing that commitment. I think that the starting point is that, even as we speak, with the devolution of the management that has been secured, we do not yet have a set of audited accounts for Scotland, let alone the assets at a more local level. That set of accounts will only be available at the end of this financial year. Once it is produced and finalised by Crown Estate Scotland and then audited by the Auditor General, that provides the reference point for what the net revenue is. The discussions with COSWA have been looking at a way in which there can be an allocation based on that amount to individual local authorities, probably on an interim basis, given that that will be the first set of accounts. If, presumably, based on your earlier answer to Donald Cameron, it would only be if the local authority was the manager that that revenue would go directly to coastal and island councils? Not in the initial phase, because Crown Estate Scotland, for the year, just going past is obviously the manager. In a broader sense, I think that commitment recognised the point being made that there is some benefit that should be accrued from the presence of these activities taking place on the assets adjacent to the population concern. Ministers so far have sought to draw a distinction between the management and the revenues, so that we do not have to wait until the management is settled before local communities can benefit from the revenue that is being generated. Respective of the manager, coastal councils will benefit from 100 per cent of the net revenue? In the sense that, if I could just slightly rephrase that, if that is all right, irrespective of the manager, we want coastal communities to benefit and the interim arrangements would be through the local authorities. Now, as management changes, we perhaps have a mix of community organisations and local authorities. I think that the unanswered question is whether it is correct that local authorities should be the beneficiaries of that income as the whole system develops or whether there is a need to re-appraise the way in which the money reaches the community. Just following on from that, where there are councils, Highland Council for example, which has some islands, but… The future should like in terms of use of the powers in the bill that exists for ministers, but also potentially in other areas that are not private areas. Then thirdly, the bill includes powers for ministers or trying to state Scotland to provide support costs for the transition of an organisation wanting to be a manager to become a manager or a delegate for that matter as well. I am right in thinking that you actually will empower groups, will be prepared to look at any proposals, legal ones by the way, that will increase assets or encourage community groups within the local areas. Yes. Any reasonable request needs to be properly assessed and a decision taken. I think that the cabinet secretary has made it clear that she is very interested in community organisations that wish to take on management of one or more of the assets. We are also in discussion with Community One Scotland and other organisations about how we can disseminate what the bill enables and how organisations can express an interest. Hopefully, the parliamentary scrutiny process will be important in raising the profile of the set of issues. Thank you, gentlemen. I think that that has been a useful scene set for the work that we are about to undertake. At its next meeting on 27 February, the committee will take evidence from Paul Wheelhouse on the electricity works environmental impact assessment Scotland amendment regulations SSI 2017-451. It will also consider its draft report to the Rural Economy and Connectivity Committee on its inquiry into the environmental impacts of salmon farming and consider its approach to future work on the marine environment. As agreed earlier, we will now move into private session. I ask that the public gallery is cleared as the public part of the meeting is concluded.