I am grateful for the opportunity to raise the question of afforestation in Scotland. Some 90 per cent. of forestry activity in the whole of the United Kingdom takes place in Scotland, and an increasingly rapid scale. During the past 10 years alone, an additional 750 sq miles of trees have been planted in Scotland, of which almost 99 per cent. have consisted of sitka spruce and lodgepole pine, which are conifers not native to Scotland. Indeed, in some parts of Scotland, such as the world famous—I hesitate to say this, but it is true —flow country, more than one third is under forestry ownership.
In Scotland, unlike in England, there is no protection of environmental interests arising from the national parks. The environmental damage has been pointed out by the Nature Conservancy Council, the Royal Society for the Protection of Birds and the Countryside Commission, all of which have expressed concern at blanket afforestation.
There is also widespread concern among the fishing interests—for example, about the damage to salmon beds, which may interest my hon. Friend the Minister, and the damage caused through the increased acidification of ground water.
However, the nub of the argument is that ecologically important wild land is being destroyed. If the environmental argument was all that it was necessary to consider, that would be sufficient in itself. However, the National Audit Office studied the issue and has produced a report, which was presented to the House on 4 December.
I agree with the hon. Gentleman. The NAO commissioned Peider to consider the economic effects of forestry and to review the impact of afforestation —the first major review for some time. It made some startling conclusions. First, it strongly questioned the value of planting trees on poor land. It also questioned the value of planting trees for externalities—the social costs, whether there is a benefit to rural employment, whether there is a balance of payments argument, whether there is a strategic benefit, and so on. I should be surprised if my hon. Friend the Minister rehearsed any of those arguments in the light of the conclusions in the report.
The report also concludes that afforestation would be of greater worth to the nation if it were carried out on better land. That is hardly surprising, and it is worth explaining exactly what is happening in Scotland. Land is bought at £100 an acre by a private forestry company on behalf of an individual who is paying tax at 60 per cent. He pays the company fees of about £400 a year to cover the management for the first six years. He receives a grant of £100 an acre. The £300 net is set against tax, which means a net cost to the investor of £120. After 10 years the crop is sold to the institutions, which now own half of the forestry land in Scotland. Capital gains tax has to be paid only on the land, not on the trees. Taxable income has been converted into untaxed capital. In the flow country, the cost of afforestation is about £1,100 per hectare. A grant of £240 per hectare is available, and 60 per cent. of the remaining costs are covered by schedule D. In the flow country alone, the public subsidy has been 68 per cent. of the total sum invested, amounting to £12·2 million.
Mountain forestry has about 40 staff. The employment losses in other activities are not known, but the cost to public funds is about £305,000 per job. My hon. Friend the Minister will doubtless argue that the jobs will last for a period. If we are to be charitable and say that they will last for five years, that is still a cost of £61,000 per job. On the figures of the Highland board, which is hardly the most frugal of spenders, the costs are £2,000 to £6,000 per job. That means that we are talking of a cost per job that is 10 times that which applies to the most costly jobs to be created by the Highland board. Even with the next generation of bulk tree planting, there will be a further subsidy paid by the taxpayer of £11,000 per job. It is hardly surprising that the National Audit Offices report concluded that it was unclear whether the Exchequer costs of tax incentives estimated at £10 million a year in grants to private forestry
were matched by commensurate economic benefits in national economic terms.
If the system were merely wasteful and did not damage the environment, it might be worthy of consideration, but, because tax relief is given regardless of where the trees are planted, investors look for cheap land. That is the only part of the transaction on which they do not have a tax shelter. This means that they look for the most environmentally sensitive, most remote and wildest country in Scotland, and the least productive in terms of tree planting. There are few farmers, certainly in my constituency, who pay tax at 60 per cent., yet the subsidy to encourage the planting of trees is available only to higher rate taxpayers. The effect is to exclude farmers and local people from the business of planting trees and to bring in a new generation and class of absentee landlords, consisting of pop stars, snooker players and others who are anxious to convert high marginal tax income into a tax-free capital gain.
The scheme means that the forestry companies, which make their money on the management charges in the first six years, are interested only in the first few years of the plantation's life. They are not interested in long-term management because the plantations are sold off to the institutions. Permission to plant merely involves agreement to provide a grant. Tax relief is given for planting whether or not it has been approved by the Forestry Commission. Investors can plant in areas against the wishes of the community and with the strong disapproval of the commission, and all they sacrifice is the planting grant. They still get the tax relief. That is why a number of owners have gone ahead, to considerable public consternation.
The grant of £100 per acre is payable regardless of the size of the plantation. This creates an enormous incentive to produce blanket afforestation. The fact that the tax device depends on the institutions buying after 10 years or so from the initial investor means that there is a tendency to produce large plantations, because the institutions wish to deal in large parcels with a value of about £250,000. There is an urgent need for control of this activity and some sort of strategy to ensure that the right trees are planted in the right places. It is wholly disingenuous for the forestry companies and others who have strong interests in these matters to try to represent those of us who are concerned about what is happening as being anti trees. On the contrary, we want trees to be planted where they will do best. We do not believe that the system should be operated in the interests of a tax shelter.
The regional advisory committees, responsible for making recommendations, should consist of wider interests. At the moment they are dominated by the forestry interests. The tax relief that is available should be conditional on approval. The Minister should review whether tax relief is an appropriate mechanism by which to subsidise tree planting and that when tax subsidies are provided they are justified. The National Audit Office report suggests otherwise.
No doubt the Minister will have considered the arguments about job creation advanced by the forestry companies. As regards job creation, one should consider tourism, which is the major creator of employment in Scotland at the present time. The Forestry Commission employs almost the same number of employees as it did in 1935—3,000 square miles of plantation later. My hon. Friend the Minister and his colleagues in the Scottish Office scored a notable victory this week with the news that a new paper mill is to be established at Irvine.
The import substitution argument has a long way to go. Private forestry companies tell us that we are importing £4 billion worth of timber and that we need to grow our own to avoid such imports. They do not tell us that two thirds of those imports are in finished products—chipboard and paper. They do not tell us that the tropical growth rate of trees is five times quicker than it is in Scotland. They do not tell us about the impact of imports from the developing countries.
The Minister may grumble, but perhaps I should read these words:
It is by no means clear that import saving has any special merit. Participation in international trade gives the opportunity for a country to achieve an overall higher level of economic welfare by allowing production resources to he concentrated in activities to which the country is best suited. The resulting output can then be traded for goods which can be produced more cheaply in other countries.
Is that a quotation from Adam Smith or some Right-wing economist? It is a quotation from the Forestry Commission published in "Wood Production Outlook 1977." I agree with the Forestry Commission, but it is strange that it does not heed its own advice.
One of my constituents announced to the local press that hill farming had had its day and that trees were the answer to the problems of the rural areas. If this present system is allowed to continue, hill farming will have had its day. Hill farmers will be forced out of business. They will sell out because of the inflated land values that result from the capitalised benefit of the subsidies.
When the Minister replies, I hope he will give some figures. What is the difference in cost to the taxpayer between traditional hill farming and forestry? I understand —no doubt my hon. Friend the Member for Dumfries (Sir H. Monro) will correct me if I am wrong—that land that would support 200 ewes over six years would get a total subsidy of £14,400. I understand that that is broadly equivalent to 500 acres of the type of land used for forestry, and that same ground would receive a public subsidy of £140,000 over six years—10 tiimes as much. I know that there are problems of overproduction, but they are greatest in the lowlands, in the more fertile areas. If we are concerned about that, we should be planting trees there, saving far more, and leaving the hill farmers and the traditional patterns of Scotland as they are.
Surprisingly, I agree with practically everything that the hon. Gentleman is saying, and it applies in my constituency. I strongly agree that there is a case for reviewing the tax incentives that are being used. Is there not a case for some kind of planning controls to prevent undesirable planting, such as that about which he has been talking.
I am grateful to the hon. Gentleman for his support. I am concerned about what is happening in my constituency, and that must be evident from the fact of this debate. I find it difficult to imagine that Stirling district council coming on the scene would improve matters, and I am not certain that the planning process is the right way to deal with this matter. It does not cope with the nub of the problem—the system of subsidies and grants, which is driving planting and production into the wrong areas. The matter needs a far more radical overlook than the hon. Gentleman has suggested.
Each generation is simply the trustee for the next. We in Scotland have a comparative advantage in our uplands in one thing—the marvellous native scenery, with its opportunities for tourism and sporting and leisure activities. It would be perverse for this Government, of all Governments, aided by our financial institutions, to subsidise their destruction.
I am glad that my hon. Friend the Member for Stirling (Mr. Forsyth) has had the chance to raise the subject of forestry in this short debate, because, despite the need for one, we have not had a major debate on forestry for a long time. This need is made more apparent by the many excellent reports that we have had in the past 12 months, from the Forestry Industry Committee of Great Britain, the National Audit Office, the Nature Conservancy Council, the Countryside Commission, the Foresty Commission, the new Verney report for the Country Landowners Association and that from the Royal Society for the Protection of Birds. All are asking important questions, and all are worthy of a major debate. I hope that we shall have one soon. They all want to know where we are going in forestry.
My hon. Friend has raised the issue of import saving and we need to ask whether it is more economic. Are we producing more jobs through the Forestry Commission or through private forestry? In my part of the world, the most afforested region in Britain, I doubt whether we have as many jobs in the forests as we used to have when the same ground was in agriculture. Would the cash flow from the new idea of substitution of agriculture by planting trees be effective in the long run were a tax incentive not an important point to the average farmer?
I wish to highlight the point made by my hon. Friend about the environment. I am a member of the NCC and we are concerned about the planting of sites of special scientific interest. The examples of the Caithness flows, and of Islay, which my hon. Friend mentioned, are important. Can we afford the management agreements that are necessary to conserve these sensitive areas from afforestation? I support what my hon. Friend said about tourism and the scenic beauty of Scotland. The more that I drive about Scotland, the more infuriated I get at seeing some of our more beautiful areas becoming a blanket of foresty. This will be to the detriment of the tourist trade that we require in the years ahead.
I support the many private forests that have been planted on existing estates. I am more concerned about the major planting by private forestry groups that my hon. Friend mentioned. Unless we look carefully at where planting should take place, my hon. Friend will be only too right about the problems that will occur now that the controls that we used to have through grants are a failure, and the private forestry groups can go ahead without grants and still receive sufficient income through tax relief. Clearly we must look at that in future if we are to get the right planting of the right trees in the right place. We need broadleaf planting as well as the conifers that are presently being planted. I share the view of my hon. Friend the Member for Stirling that we should have a major debate on forestry to enable us to look at all these issues. I hope that the Minister will tell us that he will pass our views to the Leader of the House.
I have listened with interest to my hon. Friends the Members for Stirling (Mr. Forsyth) and for Dumfries (Sir H. Monro). It will come as no surprise to my hon. Friend the Member for Stirling when I say that I do not entirely agree with everything that he said. I find it difficult to reconcile some of my hon. Friend's comments and his pessimistic assessment of the worth of forestry, with the stimulating news that came only days ago that the internationally renowned Kymmene-Stromberg corporation of Finland, better known at Kaukas, has decided to go ahead with the building of a new pulp and paper mill at Irvine in Ayrshire.
That mill is a £200 million-plus project. It is a major addition to Scotland's industrial base and to the nation's forest products industry. Indeed, it is the largest ever single inward investment to Scotland. In full production, the mill will use 200,000 tonnes per year of Scottish timber. That timber will come from trees planted many years ago by people who had faith in forestry and in the jobs which would one day be realised. The timber may be spruce. I know that some people criticise spruce and, if I have time, I will come back to that. As hon. Members know, that species is grown extensively precisely because it meets the need of the market.
About 1,000 jobs will be created or protected by this development in Irvine, many of them in areas suffering at present from high unemployment. The jobs will not just be in Irvine but, I suspect, in constituencies like those of my hon. Friends and certainly in constituencies like mine where I expect to see jobs in the forests and in the haulage industry as a result of this project coming to Irvine.
This mill is part of an ever-increasing payoff of the policy of forest expansion, a policy that has consistently been supported by successive Governments, but with notable success by the present Government. The decision to invest in the mill was taken by hard-headed business men who looked in depth at the forest industry in Britain. I compliment the Forestry Commission on the work that it has done to get this project to Scotland. The leading parts were played by my right hon. and learned Friend the Secretary of State for Scotland, the Parliamentary Under-Secretary of State for Scotland, my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Lang), and my hon. Friend the Member for Eastwood (Mr. Stewart) when he was Industry Minister at the Scottish Office.
I shall deal with that in a moment. My hon. Friend the Member for Stirling tended to suggest in his speech and has just said in his intervention that afforestation is taking place on the wrong land. I heard criticism that the timber is of the wrong species, that the planting is being carried out by the wrong people and, in any case, it is a waste of public money.
To a certain extent much of the campaign against forestry has come about in recent months because of problems in an area known as the flow country in the north of Scotland. My hon. Friend the Member for Dumfries spoke about that. This controversy arises from a fear that much of this extraordinarily large area is about to disapper under a blanket of conifers planted in a totally uncontrolled way. No planting there has taken place without being carefully considered and cleared through the consultation procedures of the Forestry Commission. Only about 17 per cent. of the area has been planted or has been given approval for planting. On the other hand, large parts of the area have already been designated as sites of special scientific interest with more designations to come, and, with much of the land unsuitable or unavailable for forestry, the scope for further planting is limited. There is, therefore, no question of most of this area being covered by forests.
Because of the concern expressed by conservation interests, my right hon. and learned Friend the Secretary of State for Scotland has set up a working group, including the Nature Conservancy Council to look at future land use patterns in this area with the aim of identifying a reasonable balance between forestry, conservation and other land uses. Conservation interests need to define their requirements and develop with other land use interests the best strategy to meet conservation and social and economic needs. This process will be greatly assisted by a major research project being undertaken by the Royal Society for the Protection of Birds into the effect of existing plantations on bird habitats. This project is being funded by the Forestry Commission and Fountain forestry, the company that is carrying out much of the planting in the area. I read with interest that the hon. Member for Caithness and Sutherland (Mr. Maclennan) opened the local office of Fountain Forestry in Laid at the end of last week.
I understand the need for forestry planting to think not just about the birds and the butterflies but about the view. Nobody appreciates the value of tourism more than I do, representing as 1 do an area that accounts for one tenth of the total bed nights passed in Scotland. The tourists like the forests. They provide nice walks and a nice habitat. As the forests mature they will improve. For a variety of reasons we are seeing forests that are very much all one age. If one goes to some of the continental countries and looks at forests such as those in Finland and the Black forest in Germany, not that I have ever been there but I am sure it is similar, one sees a range of things. I am amazed that the conservationists are all in favour of the Black forest in Germany but do not seem keen that we should create forests of a similar type in Britain.
The Forestry Commission has a statutory duty to seek a reasonable balance between the needs of forestry and the environment. It has updated its conservation policy to stress the need to increase the environmental value of its whole estate. It has drawn up conservation plans for each of its forests, set up local consultative panels involving the voluntary bodies to seek advice on the environmental aspects of managing those forests and shown its willingness to make conservation a major feature of its management.
The private sector has not been slow to respond. In November 1985 Timber Growers United Kingdom published its booklet, "Forestry and Woodland Code", designed to encourage the highest standards—including environmental standards—in forest design and management.
Part of my hon. Friend the Member for Stirling's case against forestry is the assertion that much of the poor quality and insensitive forestry is a direct result of the present forestry tax relief. The fiscal arrangements for private sector planting do not determine the type of planting that takes place. That is influenced by practical forestry considerations such as the availability of land and its price and the future needs of the market place. The deicions reached on planting proposals under the commission's consultation procedure are not affected by the financial standing or the tax position of the owner of the land.
As my hon. Friend pointed out, there have been two cases where planting has gone on when the commission refused to give grants. As I have said many times from the Dispatch Box, we do not like that but it is only two cases among innumerable cases of forestry planting applications over the years. We should not be so obsessed with those two cases that we try to devise an enormous system to prevent such things happening. If the incidence was to increase, as I have always made clear, we would then look at it. However, two cases against the number of forestry grant applications we have had over the years, does not justify setting up considerable procedures other than those already in operation.
My hon. Friend referred to the National Audit Office report. He will not be surprised when I say that taxation matters are primarily the concern of my right hon. Friend the Chancellor of the Exchequer, and the NAO report will be considered by the Public Accounts Committee of the House. The House will appreciate therefore, that I am not in a position to offer a specific response to the points raised in the report, but tax reliefs for forestry have a very long history, and have been seen by successive Governments as a legitimate and effective means of encouraging investment in forestry. Anyone investing in forestry has a long time to wait to get his return, and that investment will simply not take place without the right incentives.
What the report has to say about the low economic returns from investing in the planting of poorer land is not new. That has always been recognised. But forestry has been deliberately confined, by successive Government policies, to the relatively poor and inhospitable sites in the uplands, because of the overriding priorities accorded to food production and by reason of the contribution that forestry can make to socially fragile areas. As my hon. Friend said the situation is changing as a result of the problem of agricultural surpluses. The establishment of forestry on better quality land will provide a promising alternative use, and the NAO report indicates that on better land there are opportunities for achieving financial rates of return significantly higher than 5 per cent. The argument for sitka spruce will still be there because it grows well in our climate and it is what the market wants. That is what the new plant at Irvine will want. It does not want any other species.
In return for the public investment in forestry we have a productive estate of about 2 million hectares that provides enough timber to meet 12 per cent. of our needs and which will meet 20 per cent. by the turn of the century. That is significant. Downstream, we have seen about £500 million of private investment going into the timber-using industries since 1980. We have created a modern timber industry that currently provides or supports some 40,000 jobs in Britain and more than 12,000 jobs in Scotland. That is important for the rural areas and it is important for the places that the timber using industries set up.