British forestry policy: Time for a change?

British forestry policy time for a change?

:

Philip Stewart

The author explains how forestry policy in the UK has been subject to review at random, and with very little real change. He argues that ideally, forestry policy should be approached only within the context of a comprehensive policy for the countryside but that membership of the European Economic Community prevents this from being practicable. After an outline of the history of British forestry policy, the author discusses the main justification for the present programme and looks at the broad outline of an alternative. This paper is also an explanation of why the author changed his views since taking part in a study by the Centre for Agricultural Strategy. Keywords: forestry Commlsslon

policy;

UK; Forestry

Philip J. Stewart IS Lecturer In Economics at the Commonwealth Forestry Institute, South Parks Roads, Oxford, OX1 3RB, UK.

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‘To cite only the most important studies: Forestry Commission, The Wood Production Outlook in Britain, 1977; Centre for Agricultural Strategy, Reading, Strategy for the UK Forestry Industry, 1980; R. Miller, ‘State forestry for the axe’, Hobart Paper 91, lnstttute of Economic Affairs, London, 1981; R. Grove, ‘The future for British Association of Nature forestry’, Conservationists, 1984; CountrysIde Commlssion, ‘A better future for the uplands’. Paper 162, 1984; Nature Conservancy Council, ‘Nature conservation in Great 1984; Forestry Commission, Britain’, ‘Broadleaves in Britain’, Consultative Paper. 1984.

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one of the first attempts ever made by a government to set out its intentions for the management of woods and neighbouring land. mainly for the conservation of game. The Statute of Woods of 1543 was one of the earliest codifications of approved silvicultural practice.’ After such a promising start. it is perhaps regrettable that Charles I1 did not emulate his cousin Louis XIV by setting up an organ comparable with the French Service des Eaux et Forets; he had. in John Evelyn, a subject who would have made an admirable job of establishing it. Evelyn’s lecture to the newly founded Royal Society was to be the textbook for a century of silviculture.’ Developments in the 18th century made it seem that a forest service was not needed. Private landowners. in the lowlands, drawing on Evelyn’s prescriptions, managed and extended their existing woods, mainly as coppice-with-standards. and planted many hedgerow trees. Only the royal woods - a miserable relic of the medieval domain - were allowed to fall into dereliction. and even here the appointment of Commissioners of Woods in 1X10 gave hope of improvement. However, if woods were being well enough managed in the lowlands. those in the uplands were being destroyed throughout this period. to make room for grazing animals.’ The 19th century saw the collapse of this luissez-fflirr prosperity. The decline in demand for firewood, too bulky for a newly urbanized population, was soon followed by the loss of outlets for oak. as cheap, imported softwood came to be fnvoured for construction. and iron ships replaced wooden ones. The abolition of duty on imported wood in 1X67 took away any remaining incentive to ‘buy British’. The widely practised system of coppice-with-standards thus lost its profitability. At the same time the spread of reliable sporting guns led woodland owners to see game once again as the principal product of their woods. For a densely inhabited industrial country, it was a remarkable reversion to medieval values. This major change in woodland USC took place in the 19th century without any guidance from government. Timber supplies were not a source of any anxiety. for the Empire was large and the world still larger, and Britain with its industrial exports was well able to import wood. However, if luissez-,foire was good enough for home, it was not considered right for the colonies. The appointment of the German Brandis in 1856 to organize forest exploitation first in Burma then in India brought continental ideas on forest policy into the Englishspeaking world.’ When his assistant Wilhelm Schlich set up the Forestry school at Cooper’s Hill, Britain began to produce a stream of diplomaed professionals with a new point of view to express. Thanks to the influence of Brandis and Schlich. it was the German tradition of softwood plantations that was absorbed by this new generation of British foresters, rather than the French school of semi-natural silviculture. Retrospectively this has been attributed to the absence of large areas of natural forest that could have been managed by French methods. but in fact there were still well over a million hectares of indigenous woodland and as yet very few coniferous plantations; French ideas would in fact have been more appropriate to the circumstances. It was not long before the new professionals were heard on the subject of British forestry policy. In 1907 the appointment of a Royal Commission on Coastal Erosion and Reclamation of Tidal Lands gave

was

‘P.J. Stewart, ‘Tudor standards’, Quarterly Journal of Forestry, Vol 76, 1982. 3J. Evelyn, ‘Sylva or a discourse of forest trees’, Royal Society, 1664. 4This process has not been documented in detail for Enoland and Wales. For Scotland see M.L. Anderson, A History of Scottish Forestry, Nelson, London, 1967. %ee f-f. Hesmer, ‘Leben und Werk von Dietrich Brandis’, Abh Reinisch-Westfal, Akademie der Wissenschaft, Vol58, 1975.

LAND USE POLICY January

1985

17

them their chance. The terms of reference of the Commission were extended in 190X to include the question of ‘whether it is desirable to make an experiment in afforestation as a means of increasing employment during times of depression’. Going far beyond this brief, the Commission proposed an enormous reforestation scheme, far larger than any ever put forward since.” The 1YOYproposal was for the state to plant trees on 60000 ha a year for 60 years to create a publicly owned woodland estate of 3.6 million hectares (mha). They also offered as an alternative the planting of 30000 ha a year over 80 years, making a total of 2.4 mha. Compared with the Forestry Commission’s million hectares in 60 years, even this lesser proposal was very large. However, the cash flows that they forecast were realistically modest. amounting to an internal rate of return of 3.4%. The main reason given for these proposals was a coming worldwide scarcity of timber and rise of prices. the result of the over-rapid exploitation of the virgin forests. The commissioners considered warnings of a ‘prospective Timber Famine’, but rejected the phrase, though they accepted much of the associated analysis. However, they recognized the fact that many of the exporting countries ‘realizing the danger of the position, are now giving increased attention to forest conservancy and to rc-afforestation. Timber saved in this way will help to increase the supplies. and, to that extent, will tend to diminish the gravity of the outlook. .’ They ncverthelcss concluded: ‘That it will in any sense over-stock or even satisfy the market, your commissioners do not believe.’ Predictably, the government ignored the recommendations of the Commission. Opinion had not been prepared for anything so radically new, corresponding to no currently felt need. Only some major national event could make such ideas appear relevant. An event of this importance was to come only five years later in the shape of the first world war. Dcpcndcnce on imported wood suddenly seemed very perilous when shipping was so urgently needed for more pressing purposes.

The Acland Report

‘Second Report (on Afforestation) of the Royal Commission on Coast Erosion, the Reclamation of Tidal Lands and Afforestation, Cmd paper No 4460, 1909. 7Reconstruction Committee, Forestry SubCommittee, Final Report, Cmd paper NO 8881, 1918.

18

The Reconstruction Committee that examined post-war policies set up a forestry subcommittee usually known as the Acland Committee, which reported in lY17.’ Its leading figures included F.D. (Later Lord) Acland, Lord Lovat, Lord Stirling-Maxwell and R.L. Robinson, all and Professor Sir William Schlich future Forestry Commissioners. whose inclusion, despite the prevailing anti-German feeling, was a tribute to his personal qualities. They came out with proposals similar to those of the Royal Commission but on a much smaller scale: the establishment of 715000 ha of conifer plantations and 40000 ha of The report recommended a commitment to reforest broadleaves. 480000 ha in the next 40 years, after which a review should be conducted in the light of changed circumstances. The target was for an initial planting rate of 8000 ha per year, increasing eventually to 13000 ha. It was envisaged that at first, three-quarters of the new plantations should be undertaken by the state on land acquired for the purpose, one sixth by state action on private land on a profit-sharing basis, and one sixth by local authorities and

LAND

USE POLICY

January

1985

British forestry policy: time for a change?

private owners. It was hoped that later more of the planting would be privately done. The Acland Committee repeated the arguments of the Royal Commission though in more emotive terms. Most notably, they adopted the alarmist term ‘timber famine’, entitling chapter IV section 2 ‘Precautions against a famine of coniferous timber.’ However, their chief argument was a new one: the need for Britain to be self-sufficient in timber in the event of a three year war. This they calculated to require the ability to produce 22.4 million metres of softwood per year without unduly compromising post-war production. They did not argue that their programme would be financially rewarding: ‘profitable afforestation with the high rate of interest now ruling, if timber prices remain at theirpre-war level, is likely to prove the exception rather than the rule’. To accomplish this programme, the committee recommended the setting up of a Forestry Commission with the duties of carrying out afforestation, of encouraging and improving the management of existing woods, of compiling forestry statistics and of watching and reporting on the general forestry position. In other words the Commission was both to recommend policy and to execute it. There was to be one commissioner appointed by and answerable to parliament - virtually a minister of forestry. It is interesting to note that what was envisaged was in fact a state-owned enterprise, three decades before the start of nationalization. The recommendations of the Acland Committee were put into effect in the Forestry Act of 1919, which has remained the basis of policy to this day. There have been changes in the target rate of planting, in the structure and involvement of the private sector, in administrative ministerial responsibility and above all in the justifications given for the policy; but the essential element has remained unchanged - statefinanced establishment of industrial conifer plantations.

Policy since 1919

“Committee on National Expenditure, Second Interim Report, (Cmd paper No 1582, 1922). sfosf-War forest Policy, Report by HM Forestry Commissioners, Cmd paper No 6447, 1943.

LAND USE POLICY January 1985

The new policy was called into question only three years later by the Geddes Committee on National Expenditure.’ They took the arguments advanced by the Acland Committee one by one and rejected them all. Above all they scorned the idea of homegrown timber ever being competitive. It would in any case, they said, be grown in the wrong places, far from the consumers and wood-using industries and from road, railways and ports. As for providing jobs in rural areas, ‘to create employment on an uneconomic basis cannot be justified’. They recommended that the Forestry Commission be merged into the Ministry of Agriculture and that all planting on inaccessible land should cease. It was only by the insistent use of political influence that the Commission was saved. The next major review was, like the Acland Study, carried out during the second world war. However, the 1943 Report on Post-War Forest Policy was conducted not by an independent body but by the Forestry Commissioners themselves, in their capacity as policy advisors. The combination of a wartime context and an interested review body produced a predictable plea to confirm and intensify the 1919 policy.” The 1943 report called for an increased target, to take account of rises in the level of peace time consumption and to allow for a war lasting more than three years. It recommended a final total of 1.2 mha of new

plantations, including those which had been created since IYIY. :IS against the original target of 0.7 mha. A further 0.X mha of ‘effective’ forest was to be created by restocking preexisting woodlands. leaving 400000 ha for recreation. amenity :rnd conservation. No criteria were suggested for deciding which two-thirds of the old-established woodlands were to bc sacrificed in this way. Still less was it considered that their loss would be at all regrettable. The incentive for the private sector to collaborate should be :I dedication scheme under which owners would get grants for reforcstation in return for a commitment to good management. Since the judges of management practice were to be the Forestry Commission, this proposal W;IS to extend to the private sector the silvicultural norms of the state’s plantations. What wx not foreseen was that post-war levels of income tax, by adding greatly to the value of tax relief, were to provide a still more potent motive for private forestry. The military argument was even more dominant in the lY43 report than in that of 1017, and no financial analysis of the proposed investment was offered. On the dangers of world shortage, the commissioners declared ‘that. provided there is reasonable conservation, the Northern Zone possesses ample potential supplied for mankind’. The 1943 recommendations were adopted by the post-war Labour government and formed the basis for a quarter of a century of continuity. The most important additional development was the maintenance of felling licences, originally conceived as a ‘temporary’ wartime measure. These strengthened the control of the Forestry Commission over private forestry and gave it the means to protect old-established woods - a possibility that was not used as it might have been. The Acland Committee had proposed in lY17 that its recommendations should be reviewed after 40 years. By chance, but with almost uncanny exactitude, it was in 1957 that the strategic argument for afforestation was at last questioned. The Zuckermann Committee suggested that it was ‘less meaningful to consider our forest policy in relation to war-time needs than in a primarily economic and social light’. However, arguing that the return on forestry was slightly better in the uplands than that on stock-raising. they concluded that afforestation should go on at the same rate. though in closer integration with farming. I” It was not until 1972, SO years after the Geddes Report, that the economic justification for forestry was again officially questioned. The Treasury sponsored an Inter-Departmental Cost-Benefit Study. which concluded that industrial afforestation was uneconomic and that its sole justification was social - the provision of employment in depressed rural areas.” In view of the fact that their criterion for profitability was Net Present Value at 10% interest. the conclusion of the anonymous authors was inevitable and could have been reached without any deliberations. However. their assessment was broadly realistic and it came at an opportune moment, just as the economic difficulties of the present era were beginning. The government nevertheless decided that. even if the reasons for ‘°Foresfry. Aqriculture and Marc~inal Land. HMSO, Fjor&zh, UK, 1957. afforestation had changed. the programme was still justified. A “Forestry in Great Britain, an InterMinisterial statement of 28 June 1972 maintained the Commision’s Departmental Cost/Benefit Study, HMSO, target of planting and re-stocking at 22250 ha per year. This was Norwich, UK, 1972.

20

LAND USE POLICY

January

1985

confirmed by a Ministerial statement of 24 October 1973 which also announced a new dedication scheme for private owners. A differential was to be introduced in the grants to encourage the planting of broadleaved trees. After a change of government, the new scheme was brought in in 1974 with a provision that owners would undertake ‘to discuss arrangements for public access’. ” To take account of the fact that the Forestry Commission was now considered in effect as a social service, its accounts were restructured. A target rate of 3% return on investment was introduced, and the difference between interest computed at this rate and at the official Treasury rate for other public investments was henceforth to be regarded as ‘the Forestry Subsidy’. This is in fact a rather unsatisfactory concept; since the Treasury rate rises and falls with changes of policy making, the size of the subsidy is very variable. The new definition of policy was reflected in the objectives adopted by the Commission in 1974. Emphasis was placed on its role as Forest Authority, promoting knowledge and good practice of forestry, always with regard to ‘the desirability of conserving the natural beauty and amenity of the countryside’. In uneasy conjunction with this was its role as Forest Enterprise ‘producing wood as economically as possible’ by ‘the extension and improvement of the forest estate’. The difficulty of conciliating these two roles arose both out of the sparseness of the Commission’s staffing in the areas where the bulk of the population is located, and out of the fact that the most economical way to grow timber is not necessarily beautiful. The change of government in 1979 did not bring any great alteration in policy. However in the ministerial statement of 10 December 1980, ‘to reduce our dependence on imported wood’ was the first of the justifications given for continuing afforestation at broadly the rate of the preceding 25 years. The social objective thus slipped back to second place, but the economic analysis of 1972 was forgotten. The main innovation was a shift in emphasis to the private sector, which had been wilting in the uncertainties of the previous years. A simplified grant scheme was to replace dedication and part of the Commission’s estate was to be sold off to private buyers. It began to seem that whatever the complexion of government, the forestry lobby would find ways of safeguarding upland conifer planting, using job creation and the interests of a state-owned enterprise to appeal to the Labour party and arguing private investment to secure Conservative support.

Arguments from military and trading strategy

‘*A convenient source for ministerial statements is to be found in the annual reports of the Forestry Commission. 13Estimates based on several sources are collated in the study by Centre for Agriculture Strategy, see reference 1.

LAND USE POLICY January

1985

Two main arguments have served as basis for the policy. The military need has not been officially mentioned since 1957, and one must hope that there will never again be circumstances in which it could be revived. In any case, with the present stock of standing timber the UK could, with some privation, survive several years without imports of wood. Advocates of the policy have increasingly fallen back on the argument from world shortage, which was the foundation of the 1909 proposals. In its current form, this argument is based on projections that suggest that world demand for wood at constant real prices will treble over the next 40 years to 9 billion cubic metres, while supply from existing forests and planned plantations will only have doubled to 6 billion. The estimated price rise of 2% per annum would make investment just competitive.”

“David Ricardo, Principles of Political Economy and Taxation, first published 1817, now available in many editions.

22

The forecasts of trebled consumption are questionable, being founded on the assumption that real income per head will continue to grow rapidly in the richer countries. Such a future looks less likely now than it did in the booming 1960s and it is in any case most undesirable for reasons of equity that so much of world growth should happen in the already industrialized world. If it is assumed that real growth in income per head in the richer countries will be relatively slow or even negative and that several major countries among the poorer ones will succeed in enriching themselves, then the growth in world wood consumption will probably be less than the projections. It is true that changes of income have a greater effect on demand at low levels of income than at high ones, but the absolute result is smaller since the base to which the rate of change applies is much lower in the poorer countries. The forecasts of production, on the other hand, are unduly low, since they take into account only existing forests and planned afforestations. Such a basis for calculation is perfectly adequate for the temperate countries where it is already too late to add materially to the wood-producing capacity that will be available in 40 or 50 years’ time. In the tropics, however, plantations can be fully productive after only 10 or 20 years. If a few large tropical countries undertake major plantation programmes as late as the 202Os, that will be sufficient to make a substantial difference to world supplies in the 2030s. With rates of return of the order of 12-15X they already have a high incentive, and rising prices would add to this. The quantity of extra supply needed to satisfy the bullish demand forecast by the Centre for Agricultural Strategy (CAS) study at present prices would be 3 billion cubic metres. The whole of this could be produced by about 150 mha of tropical plantations. Spread over 40 years and several major countries, such a total is not outside the bounds of the possible, representing only 2% of the total land area of the tropics. Even a considerably lower plantation rate, combined with slower growth in demand, would make for real price rises well below 2%. The price to British consumers will of course depend not only on the world price but also on the exchange rate. If overall trading performance is poor enough, the British price of world wood may yet rise by more than 2% per annum. However the way to defend the trading position is to invest in those industries in which British efficiency is greater than that of other countries. The foundation of sound trading policy is the Principle of Comparative Advantage, which was formulated and given a mathematical proof by Ricardo in 1817. I4 It is perhaps both the most widely accepted and the most often neglected of economic truths. Simply expressed, it states that if each of two countries specializes in that which it produces relatively efficiently, exporting its surplus to the other, both will be able to consume more than if each were self-sufficient. Its application in the real world poses problems in the definition and measurement of relative efficiency. Allowance must also be made for the risks of dependence on too few exports and for the fact that relative efficiency changes. It has been suggested that the existence of massive and persistent unemployment abolishes this principle, but it is difficult to believe that it will cease to matter how efficiently labour is used or that there will cease to be problems in stimulating employment without aggravating inflation. It is more likely that the concept of employment as the main source of

LAND

USE POLICY

January 1985

Briksh forestry policy: lime for a change?

5ee estimates in H. Leith and R.H. Whittaker: Primarv Productivitv of the Biosphere, Springer \jerlag, Berlin, 1975. The productivity of managed SyStemS iS Of course higher but is likely to be limited by the same physical constraints. 160ne possible system for the tropics is coppice-with-standards. See P.J. Stewart, ‘Coppice-with-standards - a system for the future’, Commonwealth Fores&y Review, Vol59, No 2, pp 149-154.

LAND USE POLICY January 1985

income for the bulk of the population between 16 and 65 will have to be abandoned. Whatever the refinements needed for the analysis of some products, it is hard to imagine that anyone could make a case for Britain having a comparative advantage in the production of timber. The growth rate of forests is at best a third of the level widely achieved in the tropics, whereas grassland grows at more than half the tropical rate, (since it is the relative efficiency that counts, it does not matter that our absolute growth rate is lower for both grass and trees).‘” Moreover, temperate pasture is not subject to erosion like that in the tropics, and when soil consumption is reckoned into the cost, our relative efficiency in grass is still better than when primary productivity alone is considered. When the overall use of British resources is examined, it is still harder to believe in any comparative advantage in forestry. With a rate of return of about 3% on capital, it comes far behind most alternative investments. It looks increasingly as though the key to British trading future lies in services and in goods whose production involves skilled labour rather than physical resources. In traditional manufacturing, including the wood-processing industries, Britain faces growing competition from the countries that possess the resources and are investing in the capacity to process them at home. In any case, for the most economic use of the world’s transport, it is best to process bulky materials close to their source. There remains the objection that, even if British efficiency in timber production is relatively low, it is risky to rely too completely on foreign sources. What, happens, it is asked, if a major exporter cuts off supplies for ideological reasons, is convulsed by civil war or joins with other exporters to force up prices? Taking these three risks in order: ideology has never greatly affected trade, as witness America’s furnishing of essential food to the USSR, and civil war is unlikely to affect more than one or two supplying countries at any one time. As for an organization of timber-exporting countries, it is unlikely for tropical hardwoods which, being luxury goods, have a high price elasticity of demand, so that it is in the interest of the producers to lower prices and sell more. A softwood cartel is less improbable, but it would have to involve more countries, even now, than the unmanageable OPEC. The argument from comparative advantage proposed here may seem to depend perilously on the prospect of seeing softwood plantations established in the tropics in the next 40 years. Despite the progress in research into tropical conifers, much remains to be learnt before large-scale planting can be undertaken with confidence. The whole question of ecological viability and soil conservation under even-aged monocultures is open, and more complicated silvicultural systems will probably be needed.16 It would be wrong, though, to imagine that softwoods must be conifers. The tens of thousands of tropical tree species include many ‘soft hardwoods’ that are promising as-potential conifer substitutes in many uses, including pulp and paper making. Only a century ago, of course, conifers were regarded as hardwood Substitutes

in

many

uses

In any case it is not only tropical countries that have a comparative advantage over Britain. The ravages of wind-damage in British plantations cancel out the superiority they have in growth rate over other temperate regions. Sparsely populated countries with large areas of unfarmed land at low altitudes enjoy economies of scale and a facility

23

of extraction that enable them to undercut British producers. Curiously, the lack of integration with farming is also a weakness of forestry in Britain. The example of Scandinavia shows that it is easier to maintain a rural labour force when farm and forest jobs go together. Britain’s town-based contract workers are less economic than the tree-tending farm labourers of Norway, Sweden and Finland. The remarkable thing about comparative advantage is that. more than a century and a half after Ricardo, self-sufficiency still has such appeal for public and politicians. The absurdity of such attitudes is apparent to many people only when an cxtrcmc example is given ~ such as Richard Body’s fantasy of growing Britain’s bananas on Ben Ncvis. ” (In fact the siting of the hypothetical industry in the Highlands was necessary to make sure that no one was fooled: a proposal to grow bananas under glass in Kent would no doubt find enthusiastic supporters.) The question is whether growing spruce trees rather than bananas on Ben Nevis is different in kind or only in degree.

Social objective

“R

Body, Agriculture, the Triumph and the ‘Shame, Temple Smith, London, 1982. “A full analysis is given by C.J. Inglis, ‘A forest employment model for the highland region’, Scottish forestry, Vol32, pp lOl110, 1978.

24

Since 1972 the economic case for forestry has officially been subordinated to the social one (despite the revival of the import-saving argument in the 1980 ministerial statement). The objective has been to help to sustain the rural economy, especially in areas that might otherwise bc threatened by depopulation. This represents a near return to the justification for afforestation suggested in the terms of reference for the Royal Commission in 190X: ‘a means of increasing employment in times of depression’. The labour requirement for forestry varies considerably in the course of a rotation from an initial peak, through a period almost devoid of work to a succession of increasingly demanding years of thinnings and final felling. Because of the irregular rate of planting over the past sixty years it will be some time before the needs stabilize. There is also seasonal change, with the maximum labour requirement in the winter months. For this reason considerable economies can be achieved by sharing workers with agriculture. The current forestry labour force is about 24000 of which 11600 work for the Forestry Commission. Is The 1909 report forecast an eventual permanent labour force of nearly 100000 on 3.6 mha - about 2.8 workers per 100 ha. Productivity increases since then have reduced the figure to 1.4. If productivity continued to rise at 1% per year, the labour force on the present area by the year 2025 would be only 16000. Calculation of the cost incurred per workplace created depends on accounting conventions. Taking the assets at their 1981 valuation of fl .O billion the asset value per Forestry Commission worker is about f86000. In terms of the Forestry Subsidy (currently running at about f17.5 million) the subsidy per job is about fl500 per year. On the qualitative aspects of forestry work, it is by its very nature situated largely in isolated places, often in unpleasant weather. It can be lonely and is carried out in predominantly male company. Its accident rate is relatively high and, with mechanization, the work has become no less noisy than many industrial jobs. The rates of pay are modest and the career structure for manual workers offers few openings. It has proved increasingly difficult to attract labour, and forestry work is often carried out by people based in towns up to 30 miles away. A

LAND USE POLICY

January

1985

growing proportion of the labour force consists of contract teams moving about from district to district. The objective of providing stable employment for rural communities is thus only partially attained. Underlying the whole question of employment there is a contradiction between the job-creating objective and the profit-maximizing (or loss-minimizing) policy of the Forestry Commission. The criterion applied to all its silviculture is net present value. The pressure to minimize costs makes for a steady increase in labour productivity and a declining ability to create and maintain jobs. The contribution of afforestation to rural welfare has also been questionable from the point of view of farmers. Because forestry has been built up as a separate activity instead of being integrated with farming, a certain amount of antagonism has been created. Many of the grievances of farmers are no doubt of minor importance. but they have one good cause to complain: the presence of the state and of tax-avoiding private planters in the market for hill farmland has undoubtedly pushed up land prices and rents. to the detriment of farmers.

Neglected aspects

‘?S. Crowe, ‘Forestry in the landscape’, Forestry Commission Booklet 13, 1966. “‘The objectives are set out in full in Forestry Commission Annual Report 1973-74, pp l&13.

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January

1985

The 1917 recommendations were as remarkable for what they omitted as for what they included. There was no mention of conservation, recreation or amenity. The 1943 report mentioned these aspects briefly. commenting that such benefits could be provided by the 400000 ha of private woodland unsuitable for conversion to commercial forestry. It was only as a result of public pressure that higher priority was given to these objectives. Following criticism in the 193Os, particularly of its work in the Lake District (in the north of England), the Forestry Commission became Forest National Parks were set up more sensitive to public opinion. from 1935 onwards and an understanding was reached with the national parks authorities created after the second world war. In the 1960s great efforts were made to provide facilities for visitors to the forests. The process culminated in the appointment in 1963 of Dame Sylvia Crowe as and in the adoption in 1974 of new objectives.“’ landscape consultant,‘” It is only in the 198Os, and thanks to persistent complaints from the Nature Conservancy Council, that the commission has at last made a major review of broadleaved silviculture and recognized the category of ancient semi-natural woodland, too late to save perhaps half of what remained in 1919 from destruction. This is despite the fact that in its early years, from 1923 when it took over the Crown forests, the Commission had far more broadleaves than conifers in its charge. If the 1984 recommendation are adopted as policy, they will greatly improve the prospects for surviving ancient woods. These changes of emphasis nevertheless give the impression of being cosmetic. It is of course in the nature of forestry that the character of forests today is determined largely by decisions taken long ago; the Forestry Commission is stuck for many years with large areas of plantation laid out before its new objectives were formulated. However, when allowance has been made for this, the fact remains that practically all Commission plantations continue to be made in the uplands with conifers, since it is unable to acquire land on better sites. It can be argued that reforestation in the uplands is in fact restoring

25

British

forestrypolicy: time for u change? the natural tree cover of the boreal coniferous zone and that if there is a lack of native conifers that is only an accident caused by the submersion of our land link with the continent. However, the natural forests of southern Scandinavia include a considerable number of birches, alders and other broadleaved trees. It is doubtful whether a purely coniferous woodland, with its acid litter, its indigestible needles and its lack of nitrogen fixation can recreate or maintain a healthy soil. In the uplands, the private sector has a record similar to that of the Forestry Commission. On lower ground and further south, private woodland owners with a tradition of stewardship have done much for conservation and amenity, though not for recreation. Some assistance has been given by the higher grants introduced for broadleaves and Caledonian pine in 1974. However tax concessions are a far more important influence than grants, and the image of the traditional owner has been confused in the public mind with that of the tax-avoiding investor.

Impact of tax concessions

“For example f61 would be the average annual value realized by Sitka Spruce of Yield Class 10, on a 50 year rotation at 1982 prices. If planted under schedule D and harvested under schedule B, the post-tax value will be several pounds higher. Compare Centre for Agriculture Strategy report, p 130 (reference 1). “The system has been severely criticized by the House of Commons Committee for Public Accounts, Eighth Report, Session 1979-80. An estimate of the sums involved is given in Appendix II.

Commercial forests may be assessed for income tax under either of two schedules. Schedule B is the normal one and exists only for woodland. It takes no account of actual income and expenditure but assumes a notional income of one third of the prairie value - the supposed rent of unimproved pasture. An owner who wishes to deduct afforestation costs from income may elect to move part or all of the land to schedule D, the usual tax schedule for self-employment. Once under schedule D the forest must remain under it until there is change of ownership (not between husband and wife), and any income from sales of timber is taxed at its full value. There is nothing wrong in principle in these tax arrangements, which simply take account of the peculiarly uneven cash flow in forestry. They are, however, inequitable in three ways. Firstly, the notional income for schedule B is absurdly low - around El per hectare per year, when the actual net pre-tax income of a sustained-yield forest averages 50 to 100 times as much.*’ This takes no account of the cost of creating the asset, but that was borne by past generations and does not enter the present owner’s calculations. Secondly, by switching between schedules, a family can benefit at both ends of the rotation, even being able to replant under schedule D straight after having harvested under schedule B. Thirdly, there is no necessary link between schedule D relief and continuing ownership of the forest; having afforested an area with massive aid from other taxpayers, an owner may then sell it. realizing its full asset value, continuing meanwhile to get fresh relief by afforesting new areas. A plantation is moreover the only appreciating asset that can be the object of schedule D relief. The system amounts to giving handsome presents to high earners at the expense of other taxpayers, to the tune of several million pounds a year.” The system of capital taxation can be used by owners to reinforce the benefits of income tax relief. Forest growth can in theory be regarded either as notional income or as capital appreciation. For this reason changes in the value of standing timber are exempt from capital gains tax. By buying and selling at the right time it is thus possible to make profits that are not taxed either as income or as capital. As for capital transfer tax, its workings are particularly favourable for appreciating

LAND USE POLICY January

1985

Bribsh forestry policy: time for a change?

assets since they can be passed on to the next generation while their book value is low and the tax liability small. In emergency, when past planning has been deficient, it is also possible to postpone payment of tax till there is cash in hand from sale of the timber - a facility not available for other assets. A special feature of capital transfer tax is that the value of woods can be excluded from an estate as long as they are not felled and it is not sold. This removes the burden of taxation altogether from those generations that are unable to harvest the timber, and it takes away one of the disadvantages of species with long rotations. It does not, however, create any positive incentive to plant such trees instead of fast-growing ones. *’ In practice a family will prefer the latter, in order to repeat tax gains at shorter intervals. The effect of these tax arrangements has been to make forestry very attractive to high tax payers. A whole industry has grown up around them, providing accountancy, investment and management services. Inflation has also drawn in the big institutional savers, which find in forests an asset with good potential for real growth. The trend in private forestry, as in agriculture, has thus been back towards large absentee owners. Smaller landowners paying lower rates of income tax have drawn little benefit from the system. Not having large incomes on which to get tax relief from afforestation, they have invested little in making their woodland more productive, and their benefit from schedule B has remained modest. The grant scheme, which should be their chief help, has been inadequate for their needs, covering only a fraction of reforestation costs. Owners of small mixed estates have left their woodlands derelict, and farm owners have had little incentive to establish plantations. There has thus been scanty progress towards integration of agriculture and forestry, despite repeated declarations in favour of it. Whenever there is a call for a change in the taxation of forestry, defenders of the present system protest that any change would destroy confidence and might lead to a dangerous wave of sales and slump in prices. This would no doubt be true of a radical revision, but not of more modest reform. In particular a raising of the notional income of schedule B income tax would not be likely to create panic. Restrictions on the granting of schedule D relief would probably reduce the rate of planting, but it has been argued above that this would be in the economic interests of the country. As for the usefulness of growing timber for minimizing capital taxation, that is in the nature of the asset, and it would be wrong to take away from British forestry its most natural financial attraction. It may be possible to go further and abolish capital transfer tax on owneroccupied landed estates up to a certain maximum value. The application of this tax to renewable resources destroys the natural and ancient motive of working for one’s children and grandchildren and encourages an exploitative attitude to farms and forests, favouring short-term gain over long-term stewardship.

Conclusion *3This is contrary to the statement made in a letter to The Times, 13 March 1984.

LAND USE POLICY January

1985

If policy is analysed as a combination of objectives and programme, British forestry policy since 1919 has been a remarkable case of an

then

almost constant programme fitted to changing objectives. This has suited the foresters and forest owners, but it is very doubtful whether the public interest has been served. By encouraging absentee ownership of forests and by seeking economies of scale that make for a commuting labour force. the present programme is failing to contribute to the rebuilding of viable rural supposedly its primary aim. The present salts of communities, Commission forests will do nothing to improve the position. for no arrangement exists to help neighbouring farmers to purchase them. On the contrary, absentee ownership is being increased. worsening a situation that may one day serve as a pretext for the n~ltionalization of all forest land. By continuing to make commercial afforestation of the uplands the main activity, and by encouraging the replacement of existing woods by fast-growing plantations. the programme hardly corresponds with the stated objectives of providing amenity and recreation and furthering conservation. Even if the public comes to like mature coniferous forests - and there is no reason why they should not - most of the plantations are remote from the population centres. The question of conservation is more complex, requiring for its resolution the long-term monitoring of soils and ecosystems, but it is plain that many of the specialists arc unhappy with present afforcstation. So what sort of programme would correspond with the objectives? Certain observations can be made. The first is that the viability of rural communities does not necessarily depend on the traditional primary industries. The development of microcomputers linked through modern communication systems makes possible a completely new dcccntralization of service industries and light manufacturing. It is no longer necessary to think of investment in farming and forestry as the only important ways of stimulating the rural economy. It should also be recognized that the existence of an asset does not necessarily mean that it must be used. Where neither farming nor forestry can be carried on without subsidies or tax rclicf, it would be in the general interest for the land to be left unused. The effect of this would in many cases be a slow reversion to forest and this could be speeded by the planting in appropriate places of seed-bearing trees and by the control of herbivores (by human agency. since there are no longer any large carnivores). Non-use is thus not bound to imply non-management, and the provision of skilled management and research services could be an alternative source of livelihood for the population. Where exploitation of the land is viable, the continued separate ownership of farms and forests leads inevitably to conflicts of interest and contradictions in management. If the repeated calls for integration of farming and forestry are to be heeded, there is need for a policy that favours the creation and maintenance of mixed estates. Whether these should be held by owner-occupiers. or by the tenants of absentee landlords or of the state is a matter of political preference. At present there is no coherent policy on the ownership of either farms or forests. let alone of the two in conjunction. If the affections of the public are to be respected, priority should be given to the preservation and appropriate management of the surviving semi-natural forests, most of which are low-lying, broadleaved woods. Their treatment is a complex subject. and the answers are not simple.

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LAND USE POLICY

January

1985

British foreswy policy: time for a charlgc>?

Most such woodlands are privately owned, so that any policy must be mainly one of providing information and incentives. The present system of grants and tax relief, being aimed mainly at afforestation, is of little relevance to this need. The import-saving argument will no doubt continue to be heard, but it deserves to be restated in a form that does not conflict with the principle of comparative advantage. The import bill could probably be significantly reduced by serious efforts to improve the efficiency with which wood is used, notably by improved preservation practices, by reduction in wastage during conversion, by the recycling of wood and paper, and by the use of waste material as an energy source. Such a policy would be most economically carried out as part of a wider policy to encourage the efficient use of materials. Since most of Britain’s timber is going to continue coming from abroad for the foreseeable future, attention to its sources should form part of British policy. In particular, research into tropical forestry and collaboration in programmes of planting and management should be a major part of all aid to poorer countries. To be of value. such assistance does not need to be tied to commitment to export to Britain. Any improvement to the world’s wood supply will be of benefit to all importing countries. It is also important to save the remaining rain forests from a destruction that might upset the climatic balance of the planet. If it is time to review the policy it is also time to review the arrangements for reviewing policy. At present the Forestry Commission is normally the government’s source of advice. At very variable intervals some other body - each time differently constituted - is asked to report. The reviews of 1922, 1957 and 1972 had little practical effect. It would be to the advantage of all but a few if a regular procedure for review could be set up. The body concerned should represent a wide spread of interests and should remain permanently in existence, in order to monitor events and ensure that its words pass into deeds.

LAND

USE POLICY

January

1985

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