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1 INTRODUCTION

"There has to be an appeals process: prior to that we were perceived as acting as judge, jury and executioner"

"I recognise that the current system has not delivered to the farming community in Scotland what they thought it would deliver."

Andy Robb, Director and Chief Agricultural Officer, SGRPID
20 April 2008

1.1. These frank comments neatly encapsulate the context in which this report has been prepared and in this introductory section we trace the history which lies behind the current state of disillusionment to which their author refers.

1.2 Agricultural subsidies have been part of British farming for a very long time. To some ears the word "subsidy" may carry the suggestion of a "hand-out" but it is important to be clear from the start that what we are talking about is aid to which eligible claimants are entitled as a matter of legal right and not something which can be given or withheld in the unfettered discretion of the executive. A desirable concomitant of that is a robust and independent mechanism for challenging perceived wrongs in the way claims are decided.

1.3 One form which such means could take would be to simply leave it to aggrieved claimants to seek redress in the courts. As we shall see that is exactly what some of the United Kingdom's fellow member states of the European Union do. It certainly provides a robust and independent means of redress but the confrontational and adversarial nature of litigation and its formality, timescale and expense, at all events in Scotland and the other jurisdictions of the United Kingdom, are such obvious disadvantages that it is not surprising that historically an alternative mechanism was available in Scotland for challenging decisions taken by the Department of Agriculture, in its various forms, over the years ¹. Although, for reasons which are explained below, that mechanism was, rightly in our view, not judged appropriate for handling appeals from the wide range of complex agricultural aid schemes which has evolved more recently, it is nevertheless relevant to note its existence. It was called the Scottish Agricultural Consultative Panel (" SACP").

The Scottish Agricultural Consultative Panel

1.4SACP was a Non-Departmental Public Body set up under powers given to the Secretary of State for Scotland by section 73 of the Agriculture (Scotland) Act 1948. Its members were farmers, land consultants and the like; people associated with agriculture in one way or another with wide knowledge of, and widely respected within, that industry. As an appeals mechanism most of the work of the Panel had to do with Less Favoured Area cases although it also dealt with things such as appeals against non-payment by the Department of claims under capital grant schemes.

1.5 The Panel worked by appointing three of its number to investigate the facts of a particular case and report back to their colleagues. Departmental officials accompanied this sub-panel on its visit to the farm in question but took no part in its deliberations. The sub-panel's recommendation would be ratified by the full Panel at its annual meeting and then invariably accepted by the Department.

1.6 Some of our interviewees spoke highly of SACP and its effectiveness. Its key strengths were seen to be its independence from the Department and the fact that its recommendations were always accepted by the Department, virtues which found a certain resonance among critics of the present appeals regime. It was seen as genuinely independent, despite its relative informality.

1.7SACP was not, however, well equipped to become a comprehensive appeal mechanism capable of covering the wide range of increasingly complex aid schemes which became available over time and in the course of the 1990s events combined to make it unlikely that it would outlive that decade. It was abolished in 1998 when certain of its functions were transferred to the Hill Farming Advisory Committee, now itself abolished by the Natural Environment and Rural Communities Act 2006.

The impact of IACS

1.8 In 1993 a revolution took place in the administration of agricultural aid schemes within the European Community. On 27 November of the preceding year the Council of the European Communities had promulgated Council Regulation ( EEC) No 3508/92 establishing an integrated administration and control system (quickly to become known by the acronym " IACS" or as "the IACS" ) for certain community aid schemes. The schemes involved were the principal agricultural aid schemes operating within the Community, in particular aid for arable crops and for beef, veal, sheepmeat and goatmeat production as well as certain measures for farming less-favoured areas. The purpose of the new Regulation was to create a unitary system for the delivery of agricultural aid in the foresaid areas of production throughout the Community. Prior to that, the various aid schemes had been administered and controlled by the individual member states under separate rules for each scheme.

1.9 The foundational Regulation just referred to was followed swiftly, on 23 December 1992, by European Commission Regulation ( EEC) No 3887/92 laying down detailed rules for the application of the new scheme, certain provisions of which came into effect on 1 February 1993 and the remainder on 1 January 1996. All agricultural aid in the areas mentioned has since then been delivered through the IACS mechanism.

1.10 Some of our interviewees spoke of the advent of IACS as having changed everything. Whereas previously there had been flexibility and areas of discretion, the new system represented, in their eyes, a European straitjacket of rules and regulations which were being applied too rigorously and inflexibly. That the new system was intended to be robust and robustly applied became clear from judgements of the European Court of Justice in a succession of references from various domestic courts ². The role that farmers themselves had to play in the correct administration of the new system was also made clear by the Court:-

"The grant of aid under the IACS involves procedures relating to a large number of applications. The effective protection of the financial interests of the Community in such a context entails that the recipients of aid take an active part in the correct implementation of those procedures and take responsibility for the correctness of the amounts granted to them under the IACS." ³

1.11 Although the provision of an appropriate (or indeed any) appeal mechanism in each member country is not a requirement of the IACS itself, in the United Kingdom, as experience of the new system grew in the later 1990s and the Human Rights Act 1998 was enacted, forbidding public bodies from acting in ways incompatible with rights under the European Convention for the Protection of Human Rights and Fundamental Freedoms (" ECHR") ⁴, a view developed that existing arrangements whereby Department officials were seen as, in Mr Robb's words, "judge, jury and executioner" would not do. By 2000 that view had developed to the point that the provision of a new appeals/review ⁵ system became one of the early priorities of the newly established Scottish Parliament. Similar steps were taken in the rest of the UK at or around the same time.

The 2000 Scheme

1.12 Approval by the Scottish Parliament of the Agricultural Subsidies (Appeals) (Scotland) Regulations 2000 ( SSI 2000 No. 347; "the 2000 Regulations") brought into being, with effect from 9 November of that year, the system which, with minor amendments ⁶, we have today.

1.13 It comprises three stages. Stage 1 is an internal review conducted by officials of the relevant department, originally the Scottish Executive Environment and Rural Affairs Department (" SEERAD"), now the Scottish Government Rural Payments and Inspections Directorate (" SGRPID"). It may take the form of an oral hearing but may alternatively, as most in fact are, be disposed of on the basis of written submissions. There is no charge for a Stage 1 review.

1.14 Stage 2 is a review conducted by "such persons (who may include a member of the staff of the Scottish Ministers) as [the Scottish Ministers] consider appropriate" ⁷. This has become known as an "external review" in as much as it is conducted principally by persons from outwith, albeit appointed by, government. However the power to include on such "external" panels a member of staff of the Scottish Ministers (in practice a member of staff of SEERAD/ SGRPID) has always been used and has become, as we discovered, a major area of dissatisfaction among users of the system. One of the ways in which practice has been improved, however, is that such staff members are no longer appointed as chairs of review panels, something which was commonly done in the earlier days of the system. There is a fee of £100 for a Stage 2 application.

1.15 Stage 3 is an appeal, on fact or law, to the Scottish Land Court. Subject to the possibility of a special case on a question of law being stated for the opinion of the Inner House of the Court of Session in terms of section 1(7) of the Scottish Land Court Act 1993, the decision of the Land Court, unlike recommendations made by the panels at stages 1 and 2, is binding upon parties ⁸. The fee for lodging an appeal with the Land Court is also £100 but, given that at this stage one is talking about formal litigation, that is likely to be the least of the costs involved. A sixty day time limit applies to applications for each stage of the review process.

1.16 Initially the 2000 scheme worked well. In particular, timescales for the disposal of appeals were reasonable. In time, however, that began to change. That change can be dated from the introduction of the Single Farm Payment (" SFP") Scheme pursuant on the European Common Agricultural Policy reforms of 2003. Whilst it had been thought that the sharp reduction in the number of schemes being administered as a result of the abolition of the old, production-linked, "legacy" aid schemes would lead to a reduction in the number of appeals, the reality was a larger than anticipated volume of SFP entitlement appeals which more than offset what would otherwise have been a reduction. But before the volume of SFP appeals had become apparent, the numbers of employees deployed to policy teams which had dealt with legacy scheme appeals within SEERAD had been dramatically reduced and their knowledge and understanding of the schemes lost. The result was a significantly smaller number of people available to deal with a workload which had increased rather than diminished.

1.17 Appeals are now processed by an Appeals Secretariat within SGRPID at Pentland House, Edinburgh. It has a staff of six and their work includes administration of appeals in terms of correspondence and collation of case papers, setting up and servicing Stage 1 and 2 panels, reporting the ensuing recommendations to the Minister and communicating the eventual outcome to the applicant. Where cases proceed to Stage 3, the Scottish Land Court, Appeals Secretariat staff assist the Office of the Solicitor to the Scottish Government in preparing the case to be presented to the Court. Although Secretariat Staff are dedicated exclusively to the processing of appeals they are dependent on reports and information from Area Offices and on guidance as to scheme administration from scheme experts within Pentland House, Edinburgh, the headquarters of SGRPID. They also require such scheme officials to be available to sit on Stage 1 and Stage 2 panels. Accordingly Appeals Secretariat staff, although working exclusively on appeals, are not in control of the length of time it takes to process an appeal and the other officials, on whose assistance they rely, have other commitments and priorities.

1.18 These factors have resulted in timescales for the disposal of appeals which are completely unacceptable, with some appeals, including ones of no great complexity, taking several years to be disposed of.

1.19 But if the timescale for disposing of appeals has become a cause of irritation among those affected by them, what has become a greater cause of dissatisfaction has been the outcome of many appeals. The explanation of that dissatisfaction lies in the expectations of the farming community referred to in our opening quotations. It was thought that the new system with its provision for an external review by a panel having as a majority of its members persons independent of the Scottish Ministers and appeal, if necessary, beyond them to the Scottish Land Court, would allow appellants to escape what they saw as the straitjacket of "the Department" and enable these independent adjudicators to interpret the relevant law in accordance with notions of common sense, fairness and proportionality. The reality turned out to be different: the adjudicators had changed but the law had not and by and large Stage 2 Review Panels - albeit sometimes through gritted teeth (as to which see below) - continued to interpret that law in much the same way as SEERAD officials had prior to November 2000.

1.20. For all the criticism, however, the present system has produced some worthwhile results. The statistics below show that a not insignificant percentage of cases have, over the years, been successful at Stage 2 and, although the numbers involved are much smaller, that an even higher percentage of the cases reaching it have been successful before the Land Court.

Volume and outcome of appeals dealt with from November 2000 until the end of May 2007

In addition to the number of appeals upheld by a panel, a further 250 at Stage 1 and 5 at Stage 2 were resolved in favour of the appellant prior to a panel review being convened. This occurred in circumstances where appellants supplied further information which had not been produced at any earlier stage. When these cases are included the figures are as follows:

Source: SGRPID Business Services Division Briefing Paper July 2007

1.21 But there is no doubt that the perception of the new system came to be one of disappointment; of a feeling that nothing much had changed and that Stage 2 was not as independent of SEERAD as it ought to be.

1.22 At the same time a suspicion, based on anecdotal "evidence", began to arise among farmers that things were being done better in other member states of the European Union and, even, in other parts of the United Kingdom. That their expectations were probably unrealistic in the first place (because the law itself had not changed) did nothing to temper the disappointment and frustration experienced by many appellants who could not understand the apparent inflexibility of a system which could not or would not resort to the notions of common sense and fairness referred to above in order to avoid what were seen as unjust and even absurd results, particularly in the way of what were regarded as grossly disproportionate penalties ⁹ for innocent errors.

A change of culture?

1.23 As all of this was going on, the European Community's determination to enforce IACS requirements rigorously was also having other effects in terms of the relationship between the relevant agricultural departments operating within the United Kingdom and claimants for aid. In 1998 the European Community imposed a disallowance of £87.3 m on the United Kingdom, £20.6 m of which was applicable to Scotland, as a result of inadequacies in UK Sheep Annual Premium flock record keeping. ¹⁰ That, and the fear of attracting similar penalties in future, seems to have been the driver for the Department's Head Office requiring a change in the relationship between farmers and crofters in Scotland and their local Department Area Offices.

1.24 That relationship, which had until then been close, co-operative and constructive, became more distant. Officials were no longer allowed to give claimants advice, only guidance, and farmers' perception of officials changed from their being seen as public servants, there to help the farmer, to their being seen as "policemen", there to police the various aid schemes.

1.25 It may be thought that the difference between advice and guidance is a subtle one but this changing relationship between the Department's Area Offices and the people they were there, in a sense, to serve was spoken to by so many interviewees from both sides of the fence (i.e. officials or former officials of SEERAD/ SGRPID as well as farmers and their representatives) that we are convinced that such a change did in fact take place and that the evidence we heard was not merely a hankering after better times which never really existed. The situation is not uniform throughout Scotland - traces of former practices remain, we think largely in the smaller offices - but it is sufficiently consistent to amount to a change in culture and we are clear that it has been a change for the worse.

1.26 Although hard evidence of this is difficult to get, it would be surprising if this change has not led, so far as the processing of aid claims is concerned, to applicants making mistakes from which, in former times, they may have been saved by the timely intervention of helpful officials. That said, of course, it should never be forgotten that, as the above quotation from the European Court of Justice tells us, primary responsibility for the accurate completion of forms and conformity with the requirements of the various aid schemes must always lie with the claimant.

Current dissatisfaction

1.27 By the time of last year's elections to the Scottish Parliament dissatisfaction with the present arrangements had reached such a level that the matter was a live campaign issue for the agricultural community and their representatives and it was in implement of his party's manifesto pledge to address the situation that the Cabinet Secretary for Rural Affairs and the Environment commissioned this report, our remit being:-

"To review the operation of the EU agricultural subsidies appeals procedures including,

• the role of officials as panel members;
• the number of stages;
• the panel composition at stages 1and 2;
• associated costs; and
• making recommendations, bearing in mind the need for compliance with the legislative framework and ECHR"

1.28 In accepting this remit we disagree with the view expressed to us by an official of a paying agency in another part of the UK that "there is no need to change the system if it is not delivering wrong results". Even a system which consistently delivers "right results" may have a lot wrong with it. We have no reason to suppose that the system to date has been delivering wrong results (in the sense of results which are wrong in law, rather than results which disappoint one's notions of reasonableness, fairness and proportionality). In any event any "wrong results" arrived at under the legacy schemes will soon be past praying for. Our concern, therefore, has to be that, moving forward, there is a structure and system in place which will allow "right results" to be delivered expeditiously and commands the respect of those who use it.

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