6Funding
112.UK expenditure on environmental protection was 0.8 per cent of GDP in 2015.203 The environment is a fundamental public service, on which physical health, mental health, and wellbeing depend. It should be treated as valuable national infrastructure in the same way as the NHS, transport and education. Measuring expenditure on environmental protection is not straightforward due to the range of government activities and departments involved. For example, a figure of £5.1 billion for environmental objectives was reportedly spent by central government in 2015–16, although this is split between departments such as DEFRA and the Department for Business, Energy and Industrial Strategy. Local Government expenditure also adds to this figure, as does around 35 per cent of the EU budget spent in the UK.204
113.The Plan is not fully costed, nor does it set out detailed proposals on how its measures will be funded. However, it does refer to various funding streams, in particular: existing funding, specific new commitments, the leveraging of private investment and the redeployment of Common Agricultural Policy (CAP) money through its proposed replacement. Existing funds are referenced throughout in the context of the upcoming spending review, or subject-specific strategies.
114.Natural England’s evidence highlights that “[The Government] cannot rely entirely on existing funding mechanisms” to deliver the Plan.205 To deliver the Plan’s new ambitions, such as the £5.7 million to support the creation of the new “Northern Forest”, and the £200,000 to develop new soil health metrics, additional funds will be needed.206 The Secretary of State has acknowledged that the main source of funds for the Plan is currently anticipated to be the redeployment of the CAP payments (currently worth £3.2 billion p.a. to the UK).207 He suggested that private sector investment will need to be established and this could be achieved through the ‘net gain’ principle or other natural capital tools, yet plans to leverage private sector investment are, at this stage unclear.208
European Union Funding
115.Our predecessor’s report on The Future of the Natural Environment after the EU Referendum acknowledged the significant proportion of funding for environmental protection (particularly biodiversity) which comes through European Union mechanisms. Primarily this comes through the CAP, but other funding includes the EU LIFE programme, the LEADER programme for rural economies and the Horizon 2020 research and innovation programme.209 The National Audit Office has calculated an implied annual EU contribution of £720 million a year to UK environmental protection, climate change adaptation and the low-carbon economy from European Structural and Investment Funds.210 The RSPB said in its evidence:
Of the three main sources of public funding only the EU funds have remained stable in recent years but their future is threatened by the UK’s departure from the EU. UK Government funds for wildlife conservation have been falling and are projected to fall to 2020.211
116.Our predecessor’s report recommended that any new system for agricultural support after leaving the Common Agricultural Policy should:
be refocused to provide a better balance between support to agriculture and environmental protection. Policy should have clearly detailed objectives linked to the delivery of public goods, including the promotion of biodiversity and other environmental objectives, rather than simply providing income support to farmers. The nature and range of the public goods to be delivered through a new funding regime must be carefully considered and supported by strong evidence of the benefits they provide and the market failure they seek to remedy.212
117.The Government has since launched a consultation on introducing a system of “public money for public goods” to replace CAP after leaving the European Union. Environmental protection has been portrayed as a key part of this - though the consultation also talks about other aims, such as “promoting agricultural productivity”.213 The replacement of the CAP was considered a significant opportunity by many witnesses. Dr Simon Pryor from the National Trust described leaving the CAP as the opportunity to “unpack and dismantle the biggest single obstacle” to meeting environmental protection targets.214
118.The hopes for CAP reform were tempered by a concern that it is unclear how the transition to a new system will work; how long and at what level funding will be maintained; and how the replacement system will operate. The WWT has urged that, “To provide certainty, the Government should establish a process for a long-term, science-based allocation of funding for the new system”.215 The Environment, Food and Rural Affairs Committee has recently reported on the Government’s consultation and concluded:
We are concerned to hear that there have been minimal discussions between DEFRA and the Treasury over the future funding of the new agricultural policy. There was a legitimate fear among our witnesses that without early commitments to funding levels, well in advance of 2022, promises on funding levels following the transition period cannot be “guaranteed”. Any new stewardship scheme must be sufficiently resourced to achieve the Government’s commitments to restoring the natural environment. The Government should commit, in response to this Report, to fully fund the future agricultural policy and ring-fence the funds that are released from the withdrawal of Direct Payments to fund the rural economy and the environment.216
119.The reallocated CAP funding is not expected to be sufficient to provide for the ambitions and targets set out in the Plan, and it can only operate as part of a greater whole. Dr Pryor stated:
In estimates ourselves, working with RSPB, have done around is that […] if we redeployed the whole of pillar 1 and the pillar 2 stuff217 we could probably afford to deliver existing targets so we will need additional funding to deliver the new and more ambitious ones.218
120.We asked the Secretary of State whether this was a fair assessment:
It is a broadly fair assessment. There is a commitment to preserve in cash terms to the end of this Parliament £3 [billion] that we currently spend on agricultural support, but of course we hope to change the basis on which that money is allocated.219
121.We have previously asked the Secretary of State whether he would consider increasing the proportion of CAP funding delivered through Pillar 2 as a measure to increase funding for environmental protection prior to leaving the European Union. At the time, he said the priority was ensuring certainty for farmers.220 Since then, the Government has committed to a longer transition period before the introduction of a CAP replacement scheme.221
122.In principle the redirection of Common Agricultural Policy money towards environmental protection is welcome. However, the details of the scheme are still to be decided. It is unclear how the scheme will be administered and it may not be introduced until 2024. Nor will this step alone be enough to deliver the Government’s ambitions. The near-term priority must to be ensure that funding for public goods and environmental protection - already inadequate - is not reduced further as result of leaving the European Union.
123.The Government should, in its response to this report, guarantee to at least match existing EU funding for the environment in real terms for five years after the transition period ends, or in the event of no deal.
Urban Funding
124.The major new potential funding stream in the Plan is the CAP replacement, which is naturally tied to rural environments. Georgia Stokes argued, “the plan undervalues the current value of nature in our urban areas”.222 She further stated that: “brownfield sites can be enormously valuable for biodiversity”.223 The benefits of urban greenery to human health, both psychologically and physically, as well as their value as areas of biodiversity raises the importance of protecting and promoting their health. The Royal Society of Biology have stressed that:
Natural capital management in the built and urban environment should be a high priority with a large portion of the population living, investing in and being influenced by urban settings.224
125.The Secretary of State accepted this case during his evidence to us:
With the benefit of hindsight, one of the things that we need to do is to think about the effective funding of environmental enhancement in urban areas.225
126.The debate over environmental funding has been dominated by CAP and rural payments. Urban environments are equally important and do not receive the same attention in the Plan. As we have heard during inquiries ranging from soil health to heatwaves, “green infrastructure” and environmental protection in urban areas has significant public health and social benefits, as well as their own intrinsic value. The Government should set out in its response to this Report how it intends to take forward more effective funding of urban environmental enhancement and what steps Whitehall departments are taking to consider how green infrastructure can achieve their departmental goals.
Private Investment
127.As noted in the previous two sections, further investment will be required to deliver the Government’s ambitions in the 25 Year Plan - above existing EU funding, existing UK government funding and the prospective redirection of CAP money. The RSPB remarked that:
UK Government funds for wildlife conservation have been falling and are projected to fall up to 2020. For example, we estimate that between 2010 and 2020 DEFRA’s budget will be cut by more than half in real terms. The major “arm’s-length” funds are also facing decline: Lottery due to a decline in income and Landfill Tax due to declining use of landfill.226
We also note the reallocation of the revenue raised by the Aggregates Levy away from environment restoration after extraction to the Treasury.
128.The Government has repeatedly committed to “encouraging private investment in natural capital”.227 The Health and Harmony consultation on the future of farming suggested that incentives could be offered to the private sector in return for work which will improve the environment for public benefit.228 Previously there have been some successes in unlocking private sector funding: low carbon has become an increasingly significant factor in financial decision making - though there is a long way to go - and, since 1991, 70 per cent of new woodland has been planted by private landowners.229 However, efforts by the Green Investment Bank to create markets for natural capital were unsuccessful.230
129.The Plan sets out a key role for natural capital thinking and environmental net gain in generating private finance, stating that:
By measuring the benefits of natural capital improvements we will sharpen the business case for private sector investment and help to unlock new markets, funding streams and private finance for natural environment projects.231
130.However, in the view of the RSPB, private investment could be combined with private sector regulation, it could also incentivise innovation, and thereby lower costs.232 The importance of ensuring that private investment was not only encouraged by regulation, but also desirable for investors was reflected in the evidence. We heard the most significant problem is how to unlock private sector funding. Submissions from industrial groups, such as the Aldersgate Group, stated that in the past the lack of “a recognised and reliable stream” had rendered the private sector unwilling to invest.233
131.Dr Benwell, on behalf of Wildlife and Countryside Link, argued that there were four levels to Government action which could unlock private sector funding. His suggestions highlighted the need to bring environmental concerns into focus for business. Dr Benwell stated that the four levels were as follows:
The first is their overall treatment of green growth, the second is the regulation and target setting, the third is market-making and the fourth is certification.234
132.In some areas it is unlikely that private funding will be obtained. Dr Pryor cited the example of public access and enjoyment of activities such as walks in the countryside, for which it would be difficult to provide a reliable revenue or monetary value for to the private sector.235 In cases such as these the Government needs to provide funding as they are public goods.
Net Gain
133.The Government has emphasised the potential of the ‘net gain’ principle as a mechanism to encourage private sector investment. The Government announced in the Plan that it would embed a principle of ‘environmental net gain’ in development.236 This is a change from the current approach as set out in the National Planning Policy Framework (NPPF). Net environmental gain would mean that any development project must be accompanied by an improvement to the environment of at least an equal level to any damage caused.
134.The current approach in the NPPF is restricted to seeking biodiversity gains where possible.237 The Plan seeks to explore strengthening this, and broadening it to include “wider natural capital” and to “deliver benefits such as flood protection, recreation and improved water quality”.238 During our hearing on 18 April, the Secretary of State, said:
We can also secure additional money for environmental enhancement through the application of the net gain principle that I discussed with Zac [Goldsmith MP]. It is also the case, as some of your witnesses have pointed out, that we can make markets in certain areas using natural capital tools so that, for the sake of argument, water companies and others can invest in environmental enhancement upstream and that can be another source of money.239
He added that environmental net gain and net biodiversity were, “Part and parcel of the same package”.240
135.The first test of the implementation of the principle of environmental gain is the NPPF. The Chartered Institute for Ecology and Environmental Management (CIEEM), who praised the notion of net environmental gain (for which it had previously released guidance), was concerned that the NPPF did not reflect the aspirations of the 25 Year Plan. Its analysis suggested that the wording in the new draft of the NPPF was a “little stronger”, but there was no “line of sight to the Plan. Similarly, there is no mention of halting biodiversity loss”.241
136.Furthermore, although the principle of net environmental gain was welcomed, there were some significant caveats to this support. One major concern was that when set alongside natural capital thinking, the principle of net gain could see one form of environmental good exchanged for another, more easily valued asset.242 As Dr Wray argued, different environmental assets “cannot substitute for each other. It does not matter how much clean water you have if you do not have any air to breathe”.243
137.Dr Benwell articulated the major concerns of the NGOs, arguing that:
it is really important that Government create those firewalls between different natural capital assets so we are not exchanging one element of nature for another, and that it guarantees that net environmental gain means increased build quality and additional funding and compensation for damage rather than a way to short-circuit the planning system.244
138.We put these concerns to the Secretary of State. He said:
As conceived, that is not the intention. As interpreted by some, it could be. It could become a licence to pollute … but it does mean inevitably, if there is development, that there will be in almost every case an—what is the word?—alternative future use of that land that might be even more environmentally enhanced but that does not occur.245
139.A robust and legally enforceable principle of environmental net gain carries with it potential benefits and could unlock significant private sector investment in green infrastructure. However, there are also potential risks for the environment, particularly biodiversity. Much will depend on the detail of the proposals. We are concerned by the Government’s decision to move from “net biodiversity gain” to the broader concept of “net environmental gain”. It should set out why this has happened and its timescales for developing and introducing the concept.
140.When implementing net gain, the Government needs to put legally enforceable protections in place to ensure that different aspects of the environment are not traded off against each other and that it doesn’t become a “pay to pollute” scheme. There should be a clear transfer of existing commitments between the 25 Year Plan and future policy documents such as the National Planning Policy Framework to ensure that the aspirations of the Plan are carried over.
Natural Capital
The Plan makes frequent references to natural capital thinking as a key underpinning concept, in accordance with the Natural Capital Committee’s (NCC) advice. The NCC argued that the natural capital approach could transform the perception of the environment from an obstacle to development into a necessary condition of “sustainable economic growth”.246 The intention is to “place science and economic evidence at the forefront of decision-making [to] yield the best return on every pound spent”.247 Its third report to Parliament, found that benefit: cost ratios ranged from 3:1 to 9:1 across a range of natural capital investment areas.248 The Plan acknowledges this economic value.249
141.The natural capital approach was welcomed by most stakeholders who commented on it; the RSPB remarked that it has the “potential to increase investment in nature and improve environmental decision making”. However, there were concerns that if implemented poorly it could cause harm.250 Dr Benwell called it a ‘Jekyll and Hyde’ measure, that could be good or bad depending on implementation. Ruth Davis noted that:
We are in a context in which the overall common good, public good, of the environment has not been valued and measured in a way that enables it to be taken into account in decision-making that is broadly dominated by economic analysis, cost benefit or whatever.251
142.Whilst much of the evidence supported the approach in principle, with reservations about how it might be applied in practice, there was opposition from some who saw it as incompatible with international law and distorting environmental protection away from areas such as, wildlife, where economic value might be hard to quantify.252 A key point, made by ClientEarth in particular, was that natural capital could only be a part of the picture when considering how to protect the environment, because its conception of the value of nature is narrow.253 The Secretary of State appeared to accept this when giving evidence to us:
One of the things about metrics, about the natural capital approach and so on, is that they provide very useful tools for holding the Government to account and for valuing nature. Ultimately, the value of nature cannot be captured in numbers. It goes beyond that. There is an intrinsic—depending on your point of view—cultural or spiritual or other value in nature, in wildlife, in its richness and variety. That is where it becomes difficult. Government have to be held to account. You have to have those metrics. You also have to recognise that no basket of metrics and no set of incentives on their own are enough if you do not also have a country and politicians within it who recognise that.254
143.Natural capital thinking could offer a means to promote awareness of the importance of nature to other Government departments, businesses and developers. It could help secure funding for environmental protection and help quantify some of the benefits that we derive from nature. As the Government itself states, returns on these investments are higher than conventional infrastructure. However, the concept also brings with it the danger that the environment becomes a commodity for sale. As with net gain, much will depend on the detail. The Plan’s implementation must recognise that natural capital is not, and cannot be, the sole measure of value or guide to protecting the environment. Legal protections cannot be replaced by an economic valuation. Irreplaceable natural capital, such as ancient woodland, plants and wildlife, which cannot easily be assigned an economic value, must be protected. The Government should set out detailed plans for implementing its natural capital approach in its response to this report. It should set out its position on introducing a statutory basis for natural capital accounting.
203 This was in line with the average for the 28 countries of the European Union, see National Audit Office, A Short Guide to Environmental Protection and Sustainable Development, Sept 2017
204 An average of £720 million a year between 2014–2020 (nominal prices at 2017 exchange rate) is spent through structural funds. Source: National Audit Office, A Short Guide to Environmental Protection and Sustainable Development, Sept 2017
207 Q161; Department for Environment, Food and Rural Affairs, Health and Harmony: the Future for Food, Farming and the Environment in a Green Brexit; February 2018; National Audit Office, A Short Guide to Environmental Protection and Sustainable Development, Sept 2017
209 For details see The Future of the Natural Environment
210 National Audit Office, A Short Guide to Environmental Protection and Sustainable Development, Sept 2017, p.13
212 The Future of the Natural Environment, para.59
213 DEFRA, Health and Harmony: the future for food, farming and the environment in a Green Brexit, February 2018
216 Environment, Food and Rural Affairs Committee, The future for food, farming and the environment, Sixth Report of Session 2017–19 (HC 870), para. 36
217 CAP funding is divided into two “pillars”. Pillar one is primarily direct payments to farmers. Pillar 2 is primarily concerned with rural development.
221 DEFRA, Health and Harmony: the Future for Food, Farming and the Environment in a Green Brexit, February 2018
227 DEFRA, Health and Harmony: the Future for Food, Farming and the Environment in a Green Brexit, February 2018
228 DEFRA, Health and Harmony: the Future for Food, Farming and the Environment in a Green Brexit, February 2018
229 DEFRA, Health and Harmony: the Future for Food, Farming and the Environment in a Green Brexit, February 2018; Environmental Audit Committee, Green finance: mobilising investment in clean energy and sustainable development, Sixth Report of Session 2017–19 HC 617
230 Environmental Audit Committee, Green finance: mobilising investment in clean energy and sustainable development, Sixth Report of Session 2017–19, HC 617
231 25 Year Plan, p 144
236 25 Year Plan
237 25 Year Plan
238 25 Year Plan
241 Chartered Institute of Ecology and Environmental Management (ENP0060); Chartered Institute of Ecology and Environmental Management supplementary written evidence (ENP0108)
242 Q19; Brexit & Environment (ENP0063); British Ecological Society (ENP0102); British Property Federation (ENP0019); ClientEarth (ENP0085); Co-ordinating Group of the Debating Nature’s Value network (ENP0013)
246 Natural Capital Committee, Annual Report 2018, Fifth Report to the Economic Affairs Committee
247 25 Year Plan, p 133
248 Natural Capital Committee, The state of natural capital: protecting and improving natural capital for prosperity and wellbeing, January 2015
249 25 Year Plan, p 141
Published: 24 July 2018