The 2015 Spending Review: what's at stake and why it pays to invest in nature

While some of us have been off on our summer holidays, spare a thought for those civil servants that were tasked with developing departmental spending bids over the past six weeks.

In late July, the Chancellor George Osborne charged non-protected departments with producing plans for 25% and 40% cuts in their resource budgets and that these plans should be submitted by 4 September ie today!

Defra is one such department and our economists have been trying to understand the options and implications for spending reduction plans. I thought it would be useful to share their thinking to outline some of the choices that the government faces and to be clear about which areas need to be defended.

First some guiding principles...

...the free market is very good at providing many things like affordable cars and loom bands but it has a poor track record on the environment. For that reason, protection of the environment relies heavily on the public purse (and market controls through regulation).
...the Chancellor has said that departments should do nothing that undermines manifesto commitments which is a good thing as there are many laudable aspirations in the Conservative Party manifesto
...value for public money is key, which should help Defra defend existing investment in nature. There is a growing understanding of the value of the natural environment to society (see stats below) in part thanks to the work of the Government's own Natural Capital Committee

The scale of the challenge

Public spending that is protected includes the NHS, Ministry of Defence, overseas aid and education and this collectively makes up nearly two-thirds of the Government's overall budget.

Figure 1 shows the revised total resource budget savings projections from the summer budget and our estimate of the savings required in the non-protected departments.  It is clear that some non-protected departments might need to make cuts over 40% in 2019-20 in order to meet the overall objectives.

Figure 1: Estimated yearly budget cuts.

When considering the impact of any future cuts it is worth remembering recent history as Defra has already made 36% real terms spending cuts since 2010.

The pie charts in Figure 2 show the gross change in Defra’s funding since 2010 and the consequences of a 40% cut. We’ve made some assumptions about a couple of spending areas (the Rural Payments Agency which administers CAP payments and the flood defence budget) which we feel are less likely to be squeezed to give an idea of what might happen to more vulnerable parts of the budget.

Figure 2: Pie charts representing net DEFRA cuts since 2010 in 2015 and 2020 after 40% cuts.

Given that Defra has at times been labelled the department for floods, plagues and pestilence, it is likely that other budgets for areas such as animal health and biosecurity will also be politically difficult to cut.

While it could be argued that the first wave of savings will have led to efficiency savings with no discernible affect on environmental outcomes, this analysis suggests that the next wave of cuts cannot be achieved without government abandoning core responsibilities.

It is worth remembering just how tiny DEFRA’s budget is. In truth the total abandonment of natural environment spending and more would win the government only a 0.2% saving in its overall budget where it needs to make 40% savings across unprotected budgets.

Of course, all of the departments will have moral claims to the public purse. Yet, it is hard to see how DEFRA, which has already cut by 36% can achieve even a 25% cut without abandoning, not merely cutting back, on important manifesto promises, legal obligations and in the long run losing more overall than we save in tax money.

Why it pays to invest in nature

In recent years, large amounts of data have been accumulated to demonstrate that money spent on protecting the natural environment is a wise investment as well as a moral obligation.  For example...

• The NEA suggests that if the UK’s ecosystems were properly protected and enhanced then they could add an extra £30 billion to the UK economy. Neglect and loss of the free services that nature gives us may cost as much as £20 billion to the economy per year.
• The impact of non-native invasive species costs England £1.3 billion a year and the UK £1.7 billion.
• Some models predict the total exhaustion of global fishstocks by 2050 but restoring depleted fish stocks in Europe would lead to £2.7 bn additional annual revenues and 100,000 new jobs.
• £10 billion is spend on tourism in England’s rural areas each year in large part due to the quality of the natural environment.
• Increasing UK woodland cover from 6% to 12% has increased carbon sequestration worth £680 million per annum.
• Government's own figures suggest that the cost-benefit ratio of managing our finest wildlife sites - SSSIs - is at least 1:8

Of course, responsibility for action is not exclusively reliant on government intervention - wildlife charities like the RSPB are willing to play our part and already do great things for nature.  Business and land managers can increasingly provide support but none of this can be done without basic funding from government to create the foundation for environmental protection.

What's at stake?

The UK Government made a range of commitments in its election manifesto which will need support and indeed the Chancellor has suggested these must not be compromised through spending cuts.  These include...

...spending  £3 billion on the environment through the CAP.  For this commitment to be met, the Exchequer must continue to provide co-funding in order to draw down the money from Europe that we use to pay for agri-environment schemes. Any cuts to this funding would mean sending money back, losing a further £3 for every £1 saved. What's more, this is the single most important funding source for delivering positive land management change for nature and deliver its England Biodiversity Strategy commitments for sites, habitats and species.  

...creation of a 'Blue Belt' of marine protected areas both in the UK and around our 14 Overseas Territories.  In reality this means funding the expansion of the English Marine Conservation Zone (MCZ) network and completion of the Natura 2000 network of Marine Protected Areas at sea.  What's more, commitments to marine protected areas around the UK Oversees Territories (UKOTs) will require some investment while the prize is great given the riches in the seas around those islands.

...delivering a 25 year plan to recover biodiversity.  While there are a range of innovative finance options that can help to underpin the proposed plan, some key capabilities are essential and will provide the bedrock to the realising any ambition that is set. These include...

• a strong, independent champion of the natural environment with the capacity to deliver its statutory obligations for sites, species and habitats.  Natural England is roughly half the size it was five years ago and it is difficult to see how further cuts will do anything other than compromise its core services.  In fact, a properly resourced Natural England can provide timely responses to planning requests and the support that business needs to reduce costs and drive the sustainable development. Cutting NE would prove a false economy.  
• sustained investment in science and monitoring.  Science underpins everything we have achieved so far. It helps us to understand what is happening the natural environment and how to better support it. As the current Environment Secretary, Liz Truss, has repeatedly said, good data can drive positive action for the environment.  And it is clear that a little investment can go a long way.  Monitoring is an excellent example of how government money can enable charitable funding and then leverage far greater commitments from society at large. The combination of small amounts of government spend can support NGOs in providing the infrastructure necessary to mobilise thousands of volunteers to collect data through schemes such as Breeding Bird Survey.  The value of this voluntary action eclipses the spending from government or “other partners”.  It is staggering what this partnership between the State, NGOs and volunteers has achieved over the years.  Indeed, the schemes that enabled the monitoring of birds, bats, butterflies etc enabled the production of the 2013 State of Nature report which highlighted the 60% decline in species (for which we have data) over the past 40 years.  

What should the Chancellor do?

Nature conservation has never been fully funded and government's own assessment has shown that there is a mismatch between ambition and available resource.  We continue to work proactively with government and increasingly with business to try to bridge that gap and we are keen to explore new ways to finance conservation and facilitate the kind of overwhelming public response that can be seen in our monitoring work. That work is however intended to take us forward and we can’t achieve any of it if we start going backwards in terms of the funding we do have and rely on from government.

There is no hiding the fact that significant cuts to DEFRA - especially if agri-environment is affected - could undermine a great deal of the work we are engaged in. That loss would save the government a fraction of a percent of the money it needs to save to meet its objectives but in the long run we'd all lose as we would be adding to our ecological deficit.

So as the Treasury officials reflect on Defra's submission, I hope that there is recognition of the core investment required to deliver its environmental commitments while also exploring how best to align existing spend especially as there is something like £100 billion (from taxes and bills) going into English catchments over the next 15 years (see here).  Finally, we hope that the government chooses this moment to initiate a really creative conversation about new sources of finance such as the ones proposed in the third Natural Capital Committee report.  We are keen to be part of that conversation so that when the results of the Spending Review emerge on 25 November, together we still have the resources to do good things for nature which in turn will be good for people and the economy.

If you were the Environment Secretary, how would you frame your budget bid to the Chancellor?

It would be great to hear your views.