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- 16 - Economics and Econometrics
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- University of Exeter
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- 16 - Economics and Econometrics
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- Environmental
- Is this case study continued from a case study submitted in 2014?
- No
1. Summary of the impact
The University of Exeter’s Land, Environment, Economics & Policy (LEEP) Institute is a world-leading research centre focused on the development and implementation of the ‘Natural Capital Approach’ (NCA). The NCA seeks to integrate the environment into decision making through the systematic assessment of the benefits that nature provides to both society (e.g. flood mitigation, clean air and greenspace for recreation) and business (e.g. reducing costs and improving return on investment). LEEP’s work has:
Accelerated the adoption and application of the NCA in public bodies and private sector organisations through the development of government-endorsed, open-access tools for the valuation of hundreds of millions of pounds of environmental benefit flows
Solved strategic, investment and operational challenges through the quantification and valuation of organisations’ dependencies on natural capital
Incentivised environmental improvements through the design of innovative ‘Payments for Ecosystem Services’ schemes, delivering over GBP500 million of cost savings for businesses and their customers
2. Underpinning research
The LEEP Institute is a world-leader in the development of the ‘Natural Capital Approach’ (NCA) [3.1], a transformative framework for decision-making with regards to the natural environment. The NCA characterises the natural environment as a stock of valuable capital from which an array of services flow (e.g. clean water, carbon sequestration, recreational greenspace, etc.). These ‘ecosystem services’ support both economic activity and human wellbeing but, being delivered outside markets, do not command prices. As such, their value can be overlooked in public and private sector investment and decision-making. The NCA seeks to quantify and value these services and use that information to guide decisions towards the optimal and sustainable use of natural capital.
LEEP research has been influential in the widespread adoption of the NCA through a number of channels. It has: (i) provided robust evidence regarding the magnitude of natural capital values, e.g. through the development of tools such as ORVaL [3.2]; (ii) developed innovative mechanisms and schemes designed to address natural capital problems, bringing about natural capital change; (iii) demonstrated application of the NCA in practice to transform public and business decision-making.
LEEP research has been pivotal in developing the international understanding and application of the NCA. Bateman & Mace [3.1] present a framework for natural capital analysis and decision-making that links ecological and economic perspectives. The framework unites and clarifies sometimes disparate understandings of the approach that have emerged over recent years.
LEEP research has also made pioneering contributions to the development of accessible forms of natural capital valuation tools and techniques, which have enabled public and private sector practitioners to more readily adopt natural capital approaches. Day developed the world-leading Outdoor Recreation Valuation (ORVal) model. Unique in both scale and detail, ORVal estimates the daily visit choices of every adult in England and Wales to every publicly accessible greenspace site. The model delivers estimates of both the demand for access to the outdoors and the value generated by that access. ORVal was used by Day in 2020 to analyse the value of greenspace under COVID-19 pandemic lockdown [3.2]. An open-access, online version of ORVal is available at: https://www.leep.exeter.ac.uk/orval/.
Binner & Day’s research [3.3] moved environmental valuation beyond standard, static analyses. Through the development of sophisticated dynamic-models of the integrated environment-economy system, Binner & Day were able to explore property market responses to localised reductions in air and noise pollution. They reveal how interventions designed to improve the environment for disadvantaged populations can, instead, be captured by the relatively wealthy through gentrification of such areas and associated property price increases.
Building on these complex modelling approaches, the LEEP team broke new ground through their pioneering integration of economic and natural science models in valuing environmental change in the UK. This body of research underpinned development of the Natural Environment Valuation (NEV) suite of models - a spatially-explicit, integrated modelling platform which quantifies and values the cascading effects of land use change through ecological and economic systems. NEV links drivers of change including policy, market forces and the environment to impacts on food production, carbon sequestration, water quality, flood mitigation, biodiversity and numerous other ecosystem services. For example, using NEV models, LEEP researchers revealed the costs of climate-induced land use change across a range of critical ecosystem service flows [3.4].. Day and the LEEP team created an online, open-access version of the NEV model [3.4], known as NEVO (Available at: https://www.exeter.ac.uk/leep/research/nevo/).
Many organisations and businesses are increasingly aware of the flow of value they receive from natural capital assets outside their immediate control. LEEP have also worked to design innovative ‘Payments for Ecosystem Services’ (PES) schemes that can incentivise the owners or managers of those assets, to maintain or enhance those value service flows. LEEP expertise in auction design and theory [3.5] has been central to the development of a range of auction-based PES applications. Additionally, Smith and Day’s [3.6] research reveals the efficiency gains that can be realised through the coordination of multiple buyers in PES schemes.
3. References to the research
Bateman, I.J. and Mace, G.M. (2020) The natural capital framework for sustainably efficient and equitable decision making, Nature Sustainability https://doi.org/10.1038/s41893-020-0552-3
Day, B.H. (2020) The Value of Greenspace Under Pandemic Lockdown. Environmental and Resource Economics, 76: 1161-1185, https://doi.org/10.1007/s10640-020-00489-y
Binner, A.R. and Day, B.H. (2018) How Property Markets Determine Welfare Outcomes: An Equilibrium Sorting Model Analysis of Local Environmental Interventions. Environmental and Resource Economics, 69:733–761, https://doi.org/10.1007/s10640-016-0101
Bateman, I.J., Agarwala, M., Binner, A., Coombes, E., Day, B.H., Ferrini, S., Fezzi, C., Hutchins, M., Lovett, A.A. and Posen, P. (2016) Spatially explicit integrated modeling and economic valuation of climate change induced land use change and its indirect effects, Journal of Environmental Management, 181: 172-184, http://dx.doi.org/10.1016/j.jenvman.2016.06.020
Lindsay, L. (2018). Shapley Value Based Pricing for Auctions and Exchanges. Games and Economic Behavior, 108, 170-181. https://doi.org/10.1016/j.geb.2017.10.020
Smith, G.S., and Day, B.H., (2018). Addressing the collective action problem in multiple-purchaser PES: An experimental investigation of negotiated payment contributions, Ecological Economics, 144, pp 36-58. https://doi.org/10.1016/j.ecolecon.2017.07.020
4. Details of the impact
Working with both public and private sector organisations, Day and the LEEP team applied innovative NCA methods that have: (i) accelerated the application of natural capital values into decision-making through the creation of freely-available decision-support tools ( ORVal and NEVO) recommended and used by government, and directly benefiting business practices; (ii) helped to solve strategic, investment and operational challenges linked to natural capital issues; and (iii) designed and helped deliver pioneering ‘Payments for Ecosystem Services’ (PES) schemes, bringing about environmental change and millions of pounds of cost savings, to business and their customers. This work has been developed within the context of the UK Government’s ambition to improve the environment, and recognition of the investment potential of adopting a NCA [3.1], as set out by the Government's advisory Natural Capital Committee in its 2020 Progress Report on the implementation of the UK government’s ‘25 Year Environment Plan’ [5.1a].
Accelerating the adoption and application of the NCA in decision-making
Day and Binner’s development of two ground-breaking tools, ORVal [3.2] and NEVO **[**developed from 3.4], have benefitted business and accelerated both the adoption and application of the NCA. Both tools were powerfully endorsed by the UK Government’s Department for Environment and Rural Affairs (Defra), in its highly influential 2020 guidance ‘Enabling a Natural Capital Approach’ [5.1b, c]. The uptake of both tools has had a major impact on decision-making across national and local government, businesses and the third sector, generating significant benefits for society.
Built as a front-end interface to the Outdoor Recreation Valuation (ORVal) model [3.2], the ORVal website is a game-changing online and open-access valuation tool. The UK government’s landmark 25 Year Environment Plan described ORVal as “ ground-breaking” and “ world-leading” [5.2]. Other examples of government endorsement include: HM Treasury 2018 Green Book [5.2]; Department for Communities and Local Government’s 2017 Housing White Paper [5.2]; and Public Health England’s 2020 guidance to local authority public health and planning teams [5.3].
Through these endorsements and open-access, online accessibility, ORVal has been widely adopted in many contexts. Examples include: (i) calculating ‘public realm welfare values’ in a successful GBP250 million business case for Forward Funding made to the Housing Infrastructure Fund in 2018 for the ‘Old Oak’ regeneration development delivering 25,500 new homes; (ii) supporting Kent County Council’s business case to fund its Rights of Way Improvement Plan (2018-2028) and as evidence in a related Public Enquiry; and (iii) preparing the first set of Natural Capital Accounts for greenspace in London’s public parks in 2017; where ORVal-derived recreation value accounted for over GBP17 billion, some 19% of the total gross asset value ( GBP91 billion), supporting the case for continued or improved public funding of the parks [5.3].
Survey evidence demonstrates that use of ORVal has also delivered improvements to practitioner’s working practices in terms of improved quality, efficiency, flexibility and productivity and has led to better evidenced decision-making [5.4]. Additionally, ORVal has become the ‘go-to’ tool for a range of private sector businesses, including Mott MacDonald, AECOM, JBA Consulting and Eftec [5.4]. Director of environmental consultancy Eftec, said it had “ inspired” them and was “ a game-changer” [5.4].
In writing to personally thank Prof. Day and the LEEP team for their work developing ORVal, Defra’s Deputy Director of the Environment Analysis Unit wrote:
“*ORVal has, without precedent…. been uniquely empowering in the way it enables non-specialists rapidly to access and to understand the substantial public value provided by accessible natural environments, and how this varies spatially.*” [5.2]
Funded by Defra (2016-19), LEEP also developed NEVO, an open-access, online version of the Natural Environment Valuation (NEV) suite of models [3.4]. A unique application, NEVO is unprecedented in bringing the power of integrated modelling to the fingertips of practitioners needing to assess a diverse range of environmental costs and benefits arising from changes in land-use in the UK.
Launched in October 2019, NEVO was recommended by the Committee on Climate Change [5.3], an independent, statutory body advising government on building a low-carbon economy and preparing for climate change, and the National Infrastructure Commission for the natural capital analysis of the ‘Rail Needs Assessment’ [5.3]. NEVO is being used by the Environment Agency for a variety of different purposes, including a judicial review of Diffuse Water Pollution Plans [5.4]. A diverse range of local organisations, such as Shropshire Council, The Rivers Trust and a National Park, are using it to assess the effect of potential land-use change on, for example, carbon sequestration, river water quality and biodiversity [5.4].
Environmental consultancies also use NEVO in their commercial practices as a knowledge-gathering, high-level screening and analysis tool [5.4]. Mott MacDonald’s Environmental Scientists [5.4] found that NEVO’s accessible interface enabled them to upskill staff, routinely introduce welfare values into environmental assessments (which would previously have been impossible) and boost their commercial capability, stating that:
“being… an early adopter of these tools [NEVO & ORVal] provides a large reputational benefit… and with that a commercial advantage.” [5.4]
Furthermore, Eftec consultancy reported that 33% of their annual turnover related to work on projects which incorporate values derived from NEVO and ORVal [5.4].
Using the NCA to solve strategic, investment and operational challenges In partnership with numerous businesses, organisations and public bodies, LEEP has developed tailored evidence and advice through natural capital valuation and application of the NCA [3.1-3.4].
Day and team worked with South West Water (SWW) on the natural capital evidence that underpinned their Price Review 2019 (PR19) submission to the Water Services Regulation Authority (Ofwat). SWW's ‘Upstream Thinking’ Environmental Programme Manager credited this work with enabling SWW to adopt a ‘natural capital approach’ to their investments, which helped them convey their PR19 submission more effectively to Ofwat [5.5a]. Furthermore, he states that the success of adopting this approach “ was reflected” in their achieving ‘Fast Track Status’ (with a cost saving to SWW of GBP 200 million), in addition to securing funding of GBP 15 million for natural capital investments [5.5a, b]. LEEP’s partnership with SWW, in collaboration with others at University of Exeter, led SWW to commit £21M co-funding in their 2020-25 business plan to establish a dedicated research centre at the University of Exeter, the Centre for Resilience in the Environment, Water and Waste (CREWW).
[5.5a, b].
Advice and evidence provided by LEEP to consultants AECOM on the public benefits of river quality improvements, underpinned by LEEP methodological advances [3.2; 3.3; 3.4], also supported Yorkshire Water’s (YW) PR19 Business Case for investment in waste water treatment and 5 year Asset Management Plan. These contributions enabled YW to adopt a NCA and more effectively evaluate how the GBP772 million of customer money allocated by Ofwat for environmental improvements could be spent, for example, on improving sewage infrastructure or enhancing river water quality [5.6].
LEEP’s engagement with diverse non-academic partners has underpinned a number of other major investments. The Natural Environment Research Council funded GBP5 million South West Partnership for Environment and Economic Prosperity (SWEEP) programme (2017-2022), led by Bateman, with partners in the University of Plymouth and Plymouth Marine Laboratory, is delivering NCA solutions to over 200 businesses, public and third sector bodies in the South West, across a wide range of sectors. It has contributed to, or informed, 23 different private and public sector policies, strategies, business or management plans, including the Environment Agency’s GBP140 million ‘Coastal Modelling and Forecasting Strategy’ and Cornwall Council’s GBP30 million ‘Forest for Cornwall’. [5.7a]. Likewise LEEP’s new ‘Dragon Capital Chair in Biodiversity Economics’ (set up in May 2020) is a GBP1.6 million investment by the Dragon Capital Group focused on delivering natural capital solutions to problems of global biodiversity loss [5.7b].
‘Payments for Ecosystem Services’ schemes - incentivising environmental improvements
LEEP has also pioneered the application of ‘Payments for Ecosystem Services’ (PES) schemes [3.5; 3.6], in both public and private sector organisations, incentivising landowners to deliver environmental services through changes in land management.
Working with Anglian Water in 2016-17, LEEP designed the first PES scheme to eliminate pollution from the pesticide Metaldehyde in the catchments of strategic water supply reservoirs. The highly innovative scheme encouraged complete within-catchment participation and was described by Anglian’s Head of Environmental Quality as a “real game-changer”, explaining that it saved Anglian Water GBP 500 million in avoided costs; “a bill that customers would somehow have borne all or part of” [5.8].
From 2017 to present, LEEP has worked with EnTrade, a company implementing PES auctions for a variety of clients in the UK. Responding to various issues with EnTrade’s auction implementations, LEEP proposed a first-of-its-kind, uniform-price design. This was adopted by EnTrade and implemented on behalf of Wessex Water (WW) in a scheme seeking to reduce agricultural nitrate pollution in Poole Harbour. The new design delivered a 30% fall in the price the water company had to pay to land owners for each tonne of nitrate removal activity. As reported by Entrade’s Production Manager, this saving convinced WW to expand the size of the scheme doubling nitrate removals from Poole harbour and delivering a GBP 6 million saving to the water company and, as a consequence, the water company’s customers [5.9].
In 2020, the Forestry Commission (FC) launched its GBP50 million Woodland Carbon Guarantee (WCG) to support woodland planting over 5 years by offering guaranteed prices for carbon sequestered in growing trees through a series of auctions. LEEP worked with the FC to design an auction which encouraged competitive applications [5.10]. The Head of Economics at Scottish Forestry explained that it “would have been difficult … to design the auction effectively without [LEEP] input”, which was “instrumental” and allowed the FC to support woodland planting, which would not have otherwise happened, by incentivising future CO2 removals at a carbon price of about one third of the government’s estimated values required to meet climate change targets. The FC considered this “a very successful outcome” that had “impressed” H.M. Treasury [5.10].
5. Sources to corroborate the impact
(a) Natural Capital Committee (2020) Interim response to the 25 YEP Progress Report Defra (2020); (b) Enabling a Natural Capital Approach (ENCA): Guidance for policy and decision makers to help them consider the value of a natural capital approach; (c) Tools Summaries. https://www.gov.uk/guidance/enabling-a-natural-capital-approach-enca
Letter, Deputy Director, Environment Analysis Unit, Department for Environment, Food and Rural Affairs, 15/04/2019.
Publicly cited references of the ORVal and NEVO use in respect of the NCA, e.g. Natural Capital Accounting, to inform strategic decision-making, etc. Compiled Dec 2020.
Survey of users of the online tools ORVal and NEVO, Apr 2020.
(a) Interview transcript, 23/10/2019; Email correspondence 25/01/2021 UST Environmental Programme Manager, SWW - CONFIDENTIAL, available on request; (b) Letter, Managing Director, SWW 31/01/19.
Letter of testimony, Associate Director of Environmental Economics, AECOM 14/01/21, referring to contribution in 2017/2018.
(a) SWEEP Mid-Term Evaluation Report to NERC (Apr 2020); (b) Dragon Capital Group, May 2020, ‘Dragon Capital supports new Chair in Biodiversity Economics at University of Exeter’, https://www.dragoncapital.com/news/dragon-capital-supports-new-chair-in-biodiversity-economics-at-university-of-exeter/
Interview transcript, Head of Environmental Quality, Anglian Water, 28/09/2020.
Interview transcript, Production Manager EnTrade (a Wessex Water business) 17/09/2020.
Interview transcript 17/09/20; email correspondence 27-28/01/20, Head of Economics, Scottish Forestry Commission.
- Submitting institution
- University of Exeter
- Unit of assessment
- 16 - Economics and Econometrics
- Summary impact type
- Economic
- Is this case study continued from a case study submitted in 2014?
- No
1. Summary of the impact
The Tax Gap (the difference between tax liabilities and what is actually collected) is a major concern to government, with the UK’s being £31 billion annually and the EU-28’s, €1 trillion.
Informing UK Tax Policy: Engaged research by the University of Exeter’s Tax Administration Research Centre (TARC), provided the UK body responsible for tax collection (HMRC), with powerful, robust confirmation of existing Tax Gap estimates for self-employment income, additionally identifying relevant economic sectors most prone to under-reporting, and so informing their tax gap reduction strategies.
Informing International Tax Policies: Internationally, research underpinned: (1) the Greek Tax Administration Authority’s decision to restructure its national tax auditing strategy (at a cost of €160 million); (2) changes to the Bulgarian National Revenue Agency’s VAT Tax Gap measurement process; (3) the Rwanda Revenue Agency’s re-evaluation of its tax auditing strategy; and (4) strengthened the work of the prominent EU Tax Gap Project Group. Additionally, Kotsogiannis was asked to work with the International Monetary Fund to evaluate their world-leading TADAT tool, to improve performance of tax assessment globally.
2. Underpinning research
The Tax Gap is the difference between the amount of tax that should, in theory, be paid, and what is actually paid. Measurement of the Tax Gap is an important tool in helping governments to understand the relative size and nature of non-compliance, and then to develop effective strategies aimed at reducing the gap. Better understanding and measurement of the Tax Gap is a top priority for all revenue agencies. The UK’s HMRC estimates the UK income Tax Gap to be in the region of £12 billion annually and in the EU-28 it is estimated to be over €50 billion a year. Corresponding annual UK Tax Gaps relating to all forms of tax are estimated to be £31 billion (UK; 4.7% of total theoretical tax liabilities) and €1 trillion (EU-28).
The major piece of research [3.1] underpinning this impact case study is the outcome of a longstanding close collaboration between the UK’s HMRC, and Professors Kotsogiannis and Myles of the University of Exeter Business School Tax Administration Research Centre (TARC). HMRC representatives sit on TARC’s Advisory Board and a PhD was delivered thorough this research (Ana Cinta G. Cabral).
The TARC/HMRC collaboration was consolidated through a research project led by Kotsogiannis (2013-2017) on Tax Gap measurement, which specifically focused on the UK’s Self-employment Income Tax Gap – estimated to be £1 to £2 billion annually [3.1]. The project was commissioned directly and co-developed with the HMRC. Its aim was to contribute to improving understanding around some of the more challenging areas of tax gap estimation. The research [3.1] builds on the existing literature, which utilises the expenditure-based methodology to measure income tax non-compliance, and exploits the differing opportunity for under-reporting of the two employment groups, the self-employed and employed.
As income from employment is subject to ‘withholding taxes’, there are minimal possibilities for under-reporting, and thus the income of the employed is assumed to be accurately reported. Through observing the expenditure pattern of the employed, the level of income necessary to sustain a certain level of expenditure can be ascertained. Therefore, any discrepancies between the income reported by the self-employed and the employed, at a certain level of expenditure, can be used to elicit the extent of hidden income by the former group. A key research finding was that the discrepancy observed is due to the taxpayer’s decision to under-report their tax liabilities, as opposed to being due to reasons related to the heterogeneous behaviour of occupational groups and the differences in their preferences, or by consumers saving and consuming differently, or error in measuring the variables of interest [3.1]. This is an important finding and innovation because, when events are studied that do not lend themselves to measurement (as with the under-reporting of income), there might be several other explanations that challenge the underlying assumptions of the analysis, and could potentially bias the results, in this case, leading to a false attribution to income under-reporting.
Following several robustness tests, the research [3.1], confirms that the results are not caused by different preferences between the self-employed and the employed. It shows that, on average, the self-employed report only 80.4% of their true income (or the self-employed income-gap is 19.6%). Given that self-employment income in the UK for the period of study (2010–2012) represented 5.5% of GDP, this translated into an estimate of unreported taxable income of 1.6% of GDP.
Further analysis [3.2], carried out in collaboration with HMRC, identified the economic sectors which are contributing to the UK’s Hidden Economy (defined as the economy operating outside formal channels) with the highest risk of income under-reporting.
The initial major piece of research [3.1] subsequently led to cooperation with a number of other national revenue authorities, including the Bulgarian National Revenue Agency (BNRA). With the support of the BNRA, TARC was awarded £100,000 by the Alan Turing Institute (2018-2020) for the project ‘Detecting Anomalies in Networks: The Case of VAT’, which investigated Value Added Tax (VAT) fraud, being a component part of the Tax Gap. The project was delivered in collaboration with University College London. Insights obtained from the work with HMRC [3.1] were combined with Bulgarian administrative tax data, and resulted in a report and scientific contribution analysing how the VAT Tax Gap, resulting from fraud, can be minimised in Bulgaria [3.3]. Using an algorithm, the research identified 8,000 registered traders from the Bulgarian tax base, previously categorised as low risk, that were in fact non-compliant.
The initial research [3.1] was also developed to estimate the income Tax Gap in Greece in 2018 in collaboration with the Hellenic Republic’s Independent Authority for Public Revenue (IAPR).
Kotsogiannis’ continuing collaboration with UK’s HMRC’s Tax Gap team, and the new work with the BNRA [3.3], subsequently led to the development and presentation of research which considered how revenue agencies can optimally choose the sample of tax payers to audit, with the objective of narrowing the Tax Gap [3.4].
The TARC research portfolio also led to cooperation with the Rwanda Revenue Authority on an original policy report evaluating its audit strategy [3.5]. This delivered preliminary and provisional estimates of the effect of Rwanda Revenue Authority (RRA) audits on reporting behaviour after one and two years following the end of the whole audit process for Corporate Income Taxes (CIT).
3. References to the research
Ana Cinta G. Cabral, Christos Kotsogiannis and Gareth Myles (2019). `Self-Employment Income Gap in Great Britain: How Much and Who?’ CESifo Economic Studies pp. 84–107, https://doi.org/10.1093/cesifo/ify015
Ana Cinta G. Cabral, Christos Kotsogiannis and Gareth Myles. (2016). Moonlighting in Great Britain: An estimation of income under-reporting. Presentation to UK’s HMRC’s Tax Gap Team and Hidden Economy Group. Available on request.
Angelos Alexopoulos, Petros Dellaportas, Stanley Gyoshev, Christos Kotsogiannis, Trifon Pavkov. (2020) ‘Detecting network anomalies in the Value Added Taxes (VAT) system.’ https://tarc.exeter.ac.uk/media/universityofexeter/businessschool/documents/centres/tarc/publications/reports/Detecting_Network_Anomalies_in_the_VAT_system.pdf.
Evangelos Ioannides, Petros Dellaportas and Christos Kotsogiannis (2019). Sample size determination for risk-based tax auditing. J R Stat Soc Series A. 2020;00:1–15. https://doi.org/10.1111/rssa.12618
Christos Kotsogiannis and Luca Salvadori. (2020). `Evaluation of CIT Audits.’ TARC Interim Policy Report. Confidential report evaluating audit strategy in Rwanda. Available on request.
4. Details of the impact
Better understanding and measurement of the Tax Gap is a top priority for all revenue agencies. TARC research has delivered impact to national government tax and revenue collection agencies in four different countries – the UK, Greece, Bulgaria, and Rwanda - generated through collaborative working approaches with national agencies: UK’s HMRC, the Independent Authority for Public Revenue of the Hellenic Republic (IAPR), Bulgarian National Revenue Agency (BRNA) and Rwanda Revenue Agency (RRA). TARC research has provided robust confirmation of existing estimates of Tax Gaps; helped identify the economic sectors which are more prone to under-declaring their tax liabilities; and contributed to national reforms including the restructuring of tax auditing and planning. The research also contributed to the international tax and revenue community through work with the prominent European Commission’s Tax Gap Project Group and through leading an influential International Monetary Fund review of their TADAT tool.
Informing UK Government Tax Policy: The underpinning research [3.1] confirmed HMRC estimates of Tax Gap magnitudes relating to self-employed income in the UK, providing them with “external assurance” [5.1] and a powerful measure of the robustness of their own analytical approach. The research was the “outcome of longstanding collaboration” [5.1], co-developed by TARC and the HMRC’s Tax Gap team between 2014 and 2016, along with contributions from HMRC’s Knowledge, Analytics and Investigations Team and Hidden Economy Team. It was driven by HMRC’s strategy around the validation of its approaches by obtaining alternative measurements of the UK’s Tax Gap, to deepen its understanding of that gap, and provide “ the foundation for HMRC’s strategies which are most effective at reducing the gap” [5.1]. .
The TARC Programme Manager for HMRC explained: “ *Professor Kotsogiannis provided work which supported HMRC’s understanding of the self-employed income Tax Gap. This has been a valuable contribution to HMRC. Estimating the Tax Gap…is an important tool for understanding the relative size and nature of non-compliance.*” [5.1]. As the research also identifies ‘risky sectors’ (i.e. those most prone to tax under-reporting), she further confirmed that HMRC was able to more efficiently target their auditing and tax investigation resources towards these sectors [5.1]: “the research developed the approach to explore under-declaration of second/additional incomes, which are part of the moonlighting hidden economy” and therefore “provided valuable external insight into the key sectors in which this took place” [5.1]. Between 2014 and 2018, Kotsogiannis’ team delivered six presentations (based on **[3.1, 3.2]**) to HMRC’s Tax Gap team which “helped to build shared understanding on the range of analytical approaches” available to HMRC [5.1].
Informing International Tax Policies
European Commission Tax Gap Project Group: The impact of the research [3.1] was extended through Kotsogiannis being invited to present findings to the prominent Tax Gap Project Group, established under the EU’s FISCALIS 2020 programme. Coordinated by the EC’s Directorate General for Taxation and Customs Union, this Group was established to pool knowledge and share experience in existing Tax Gap estimations across the EU-28. In Nov 2015, Kotsogiannis presented to representatives of EU member states’ National Revenue Authorities working on the Tax Gap and the Hidden Economy, and the research was cited in, and contributed, to the Tax Gap Project Group’s 2016 report: ‘The Concept of Tax Gaps. Report on VAT Gap Estimations’ [5.2].
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International Monetary Fund (IMF): As a further measure of the global significance and impact reach of TARC’s work, Kotsogiannis was approached by the IMF to work collaboratively with a team of experts, to evaluate the impact of their world-leading TADAT tool – the International Tax Administration Diagnostic Assessment Tool. This tool assesses the speed of tax administration reforms and intends to improve performance of tax assessment globally.
5. Sources to corroborate the impact
Letter of testimony from TARC Programme Manager. Knowledge, Analysis and Intelligence Group, UK HMRC. (11/08/2020)
European Commission DG TAXATION AND CUSTOMS UNION. The Concept of Tax Gaps: Report on VAT Gap Estimations. FISCALIS Tax Gap Project Group. Mar 2016. https://web.archive.org/web/20200408162300/https://ec.europa.eu/taxation_customs/sites/taxation/files/docs/body/tgpg_report_en.pdf.
Letter of testimony from Directorate of Strategic Planning, Independent Authority for Public Revenue of Hellenic Republic (IAPR). May 2018.
IAPR. Investment and reform plan. 2017. Blueprint requesting €160 million from the government of the Hellenic Republic to finance IAPR structural reforms. Please note, document is in Greek.
Letter of testimony from Director General of the National Revenue Agency (NRA), Bulgaria (26/03/2020).
Email correspondence with Director General, National Revenue Agency, Bulgaria. (28/12/2020). Reference to NRA’s active use of the underpinning R files and adoption of method.
TARC Report. Evaluation of CIT (Corporate Income Taxes) Audits. Interim and Confidential. Prepared for the Rwanda Revenue Authority (RRA). Sep 2020.
Memorandum of Understanding between TARC and Rwanda Revenue Authority (RRA) for collaboration on tax administration research for a 3 year period (2019-2022). Jul 2019.
Email correspondence with Deputy Commissioner, Research & Planning Department, RRA, setting out details for a programme of Capacity Building Workshops (24.11-20-18.12.20) and PowerPoint slides for ‘TARC Workshop on Audit Evaluation, Dec 9th 2020’.
Crotty, J., Kostogiannis, C. and R. Leigh. TADAT: May 2019 Survey Results. Key messages, lessons for capacity development and next possible steps. Prepared for the TADAT Secretariat, IMF. 2019.
- Submitting institution
- University of Exeter
- Unit of assessment
- 16 - Economics and Econometrics
- Summary impact type
- Environmental
- Is this case study continued from a case study submitted in 2014?
- No
1. Summary of the impact
Research by University of Exeter’s Land, Environment, Economics & Policy (LEEP) Institute:
Led to profound shifts in UK environmental and agricultural policy by informing the creation of HM Government’s 25 Year Environment Plan, subsequent Environment Bill, and underpinning adoption of the transformative principle of ‘public money for public goods’ within the 2020 Agriculture Act.
Enabled the design of UK agricultural policy implementation post-Brexit by providing core evidence to restructure GBP2.4 billion of annual agriculture support payments, under the new Environmental Land Management Scheme (ELMS), regarded as “ the biggest change in agricultural policy in half a century” [5.4].
Embedded environmental value requirements into H.M. Treasury public spending guidelines, ‘the Green Book’, through new sections written in the 2018 revision. All government spending now has to conform to these guidelines, affecting GPB127 billion of public sector investments (to Dec 2020), since the 2018 Green Book revision was published [5.7].
2. Underpinning research
The LEEP Institute is a global leader in environmental economic research. A key concern of this discipline is the methodological development and application of techniques to reveal the role of natural resources as valuable capital stocks, from which an array of services flow into the economy delivering benefits to society. For example, in the context of land use, natural resources underpin the production of a range of marketed goods, such as food and timber, but also deliver a vast and valuable array of non-market ‘public goods’, including water quality, flood mitigation, biodiversity, greenspace to engage with nature, clean air and of course contributions towards addressing climate change. As these ‘public goods’ are not provided through markets, their value to society can be overlooked in private decision-making such that their sustainable provision is dependent upon government policy.
LEEP has a considerable track record of methodological contributions to the development of novel techniques for assessing the economic value of non-market public goods, particularly those associated with land use change (for example Day, Bateman, Binner and Fezzi **[3.1]**). Extending these contributions through pioneering interdisciplinary research combining integrated environment-economy modelling and mechanism design, the LEEP Institute has addressed an array of critical policy questions, many of which relate to land use: what principles should govern land use policies? Where should land use changes be targeted? How should interventions be designed to deliver those desired land use changes?
Within the context of post-Brexit agricultural subsidies, Bateman and Balmford [3.2] provide an influential exposition of the transformative principle of ‘public money for public goods’ within UK land use policy to bring about long-term environmental improvements and greater value-for-money for the public. It recommends adoption of this principle through the allocation of payments to farmers via a range of mechanisms, such as systems of competitive bidding, to incentivise the efficient production of public goods. Bateman and Balmford [3.2] also proposed a tapered reduction in those conventional per hectare subsidies which are not linked to public goods.
Building on LEEP’s track record of environmental-economic research, the complexity of designing new policies impacting on land use was explored through Day and team’s development of the ground-breaking Natural Environment Valuation (NEV) model (2017-2020) with an award of GBP685,000 from the UK government’s Department of Food, Environment and Rural Affairs (Defra). The NEV model is a uniquely-comprehensive, integrated environment-economy modelling suite, working at a fine spatial resolution across the UK [3.3]. It couples representations of agricultural and forestry systems with natural system models to evaluate service flows emanating from (amongst others) food production, flood mitigation, carbon sequestration, water quality, biodiversity and outdoor recreation opportunities.
Recognising that land use decisions in the UK are made by a myriad of private landowners, policy design must be cognisant of the manner in which different policy measures reshape those actors’ incentives. Addressing that issue, Day and team used NEV to explore the use of mathematical programming techniques to identify optimal pricing strategies for policies offering incentive payments to land owners to effect land use change [3.3].
Bateman, Binner, Day and Fezzi provide an example of the NEV model exploring the trade-offs between food production, water quality and other ecosystem services under predicted climate change scenarios [3.4]. This theme is further developed in [3.5] which explores the complex interconnection of climate and agricultural systems revealing the dramatic consequences for food production associated with non-linear climate ‘tipping points’.
Day and team augmented the NEV model with an agent-based simulator of landowner bidding strategies in reverse auctions for land use change contracts [3.6]. With those extensions, NEV became uniquely capable of providing evidence to government to support the design of post-Brexit agri-environment policy; which LEEP was tasked to do by Defra in late 2018.
3. References to the research
Day, B.H., Bateman, I.J., Binner, A.R., Ferrini, S., and Fezzi, C. (2019) Structurally-consistent estimation of use and non-values for landscape-wide environmental change. Journal of Environmental Economics and Management, 98: 102256 https://doi.org/10.1016/j.jeem.2019.102256
Bateman, I.J. and Balmford, B. (2018) Public funding for public goods: A post-Brexit perspective on principles for agricultural policy, Land Use Policy, 79: 293-300, https://doi.org/10.1016/j.landusepol.2018.08.022
Day, B., Owen, N., Binner, A., Bateman, I., Cho, F., De-Gol, A., Ferguson-Gow, H., Ferrini, S., Fezzi, C., Harwood, A., Lee, C., Luizzio, L., Mancini, M., Pearson, R., (2020) The NEV Modelling Suite: A Summary Technical Report. Prepared for Defra. PDF available on request - CONFIDENTIAL.
Bateman, I.J., Agarwala, M., Binner, A., Coombes, E., Day, B., Ferrini, S., Fezzi, C., Hutchins, M., Lovett, A.A. and Posen, P. (2016) Spatially explicit integrated modeling and economic valuation of climate change induced land use change and its indirect effects, Journal of Environmental Management, 181: 172-184, http://dx.doi.org/10.1016/j.jenvman.2016.06.020
Ritchie, P.D., Smith, G., Davis, K.J., Fezzi, C., Halleck-Vega, S., Harper, A., Boulton, C.A., Binner, A.R., Day, B.H., Gallego-Sala, A., Mecking, J.V., Sitch, S., Lenton, T.M. and Bateman, I.J. (2020) Shifts in national land use and food production in Great Britain after a climate tipping point, Nature Food, 1:76–83, https://doi.org/10.1038/s43016-019-0011-3
Day, B., Lee, C., Binner, A., Cho, F., Mancini, M., Owen, N., and Smith, G., (2020). The Natural Environmental Valuation (NEV) modelling suite Auction Simulator: Technical Report. Report to Defra. PDF available on request - CONFIDENTIAL.
4. Details of the impact
Led to profound shifts in UK environmental and agricultural policy
From 2015 to 2020, LEEP research directly shaped the transformation of the UK Government’s approach to environmental and agricultural policy. Through influencing policy principles, developing the content of core policy materials and delivering policy-critical evidence, LEEP has helped guide a profound shift in the policy landscape towards reversing environmental decline, tackling climate change and bringing enduring benefits to society.
Through his eminent position on the Government’s independent Natural Capital Committee (NCC), reporting to H.M. Treasury and advising Defra, Bateman advised government (2015-2020; **[5.1]**) on the valuation and efficient allocation of environmental resources [3.1, 3.2, 3.4]. This advice was delivered through more than twenty official papers to government and Ministers, a series of personal ministerial briefings with the Secretary of State for the Environment and through reports to the Chancellor of the Exchequer.
Through these routes, LEEP research findings and advice were directly incorporated into the seminal 25 Year Environment Plan (25YEP; [5.2]), initially proposed by Bateman and NCC colleagues in 2016. Widely regarded as pioneering, the 25YEP laid out a long-term plan for improving the environment based on natural capital principles and, as such, became “ the cornerstone of environmental improvement” [5.1].
In writing to thank Bateman for his “ ground-breaking” [5.1] work with other NCC members proposing the 25YEP, the Head of the Defra NCC Secretariat, stated:
“Professor Bateman led the work on land use and agriculture in the initial (25YEP) proposal. (His) advice was therefore pivotal in both proposing and shaping the 25 YEP”. [5.1]
In 2017, the Secretary of State for the Environment accepted the 25YEP proposal and formally requested advice from the NCC on how to “ enshrine the 25YEP in legislation and ensure it is implemented effectively” [5.1]. Bateman was subsequently lead author of the NCC’s influential response, [5.1], the 2017 report ‘Advice to Government on the 25YEP’ [5.3]. Of the 14 policy recommendations set out in this report [5.3, p.6-7], 11 were subsequently adopted by government into the new Environment Bill [5.1; 5.3]. This included advice on the requirement for statutory targets for environmental improvement and creation of the Office for Environmental Protection designed to uphold environmental legislation [5.1], as confirmed in the UK government Spending Review 2020.
Guiding “ the biggest change in agricultural policy in half a century” [5.4], LEEP research and advice additionally laid out the case for replacement of the inefficient allocation of farm support payments under the EU’s Common Agricultural Policy (CAP), with a new system based on the principle of ‘public money for public goods’. This system was formally adopted into the new Agriculture Act 2020 and LEEP’s impact acknowledged [5.1]:
“Professor Bateman’s advice … directly influenced Defra’s post-Brexit agricultural policy. Specifically … research findings as set out in Bateman & Balmford (2018) [3.2] , resulted in the adoption of the concept ‘public money for public goods’ as the central and transformative principle of the new Agriculture Bill”. [5.1]
Enabled the design of UK agricultural policy implementation post-Brexit
[text removed for publication]
Embedded environmental value requirements into H.M. Treasury public spending guidelines
The 2018 revision of the H.M. Treasury ‘Central Government Guidance on Appraisal and Evaluation’, better known as the ‘Green Book’ – the official guidelines used by all government departments and agencies to prepare government spending business cases – provides further evidence of the recent paradigm shift in government decision-making around environmental policy and valuation [5.7].
Bateman, in his pivotal role on the NCC, co-authored ground-breaking sections of the revised 2018 Green Book guidance [5.7; 5.8, 3.4], namely Chapter 6 “Valuation of Costs and Benefits” and Appendix A2: “Non-market Valuation and Unmonetisable Values”. Based on LEEP research and advice, this revision - the first in 15 years [5.8] - updated guidance on appraising environmental values in response to the UK’s adoption of the 25YEP and introduced the notion of ensuring that natural capital stocks did not fall below crucial tipping points [3.5]. These changes elevated the value of ecosystem services to a position of parity with the financial costs and benefits routinely evaluated in project and policy appraisal. Application of Green Book guidance will deliver enduring benefits to society, through the sustainable provision of critical environmental services, such as clean air and water, the fertility of soils, mitigation of floods, climate stability, and the space to connect with nature.
Bateman was subsequently asked by H.M. Treasury [5.7] to deliver a unique cross-government event to present methods for applying the new Green Book guidance on environmental values. This event (April 2019) was attended by economists from no less than 12 of the 24 ministerial government departments, and 7 further government agencies and public bodies [5.7].
In thanking Bateman for his contributions to the 2018 revised Green Book, Head of the Economics Branch, HM Treasury and Editor of the Green Book) wrote:
“My colleagues and I are very grateful for your invaluable advice and input ...[to] the new Green Book. … The resulting guidance is likely to be both enduring and provide a lasting legacy. Your contribution will therefore have a considerable and lasting impact upon the public policy and spending appraisal for many years to come.” [5.7]
Since publication in March 2018, the revised Green Book has been actively used to appraise Government projects and policies. In 2019, a NCC-commissioned review of the official appraisals of over 200 government spending decisions with significant natural capital effects confirmed that the new Green Book guidance had been applied, and so shaped government spending decisions worth many billions of pounds [5.9]. An example is provided by the Defra ‘Biodiversity net gain and local nature recovery strategies’ programme [5.10] which aims to deliver benefits to the environment and society through habitat creation and avoided habitat loss. Approved by the Regulatory Policy Committee’s Impact Assessment in 2019, it conforms to the guidance in sections of the new Green Book guidelines, that were co-authored and based on LEEP research, and delivers a net present value of approximately GBP 8.2 billion [5.10]. All government spending now has to conform to these guidelines, affecting GPB127 billion of public sector investments (to Dec 2020), since the 2018 Green Book revision was published [5.7].
5. Sources to corroborate the impact
Letter from Head of NCC Secretariat, Defra, 25th March 2020.
H.M. Government (2018) A Green Future: Our 25 Year Plan to Improve the Environment, https://www.gov.uk/government/publications/25-year-environment-plan LEEP research cited (p.77;134); Bateman/NCC advice (p.16; 24-30; 135; 141)
Natural Capital Committee (2017). Advice to Government on the 25 Year Environment Plan. Sep 2017. https://www.gov.uk/government/publications/natural-capital-committee-advice-on-governments-25-year-environment-plan
Defra (2020) The Path to Sustainable Farming: An Agricultural Transition Plan 2021 to 2024. Nov 2020. https://www.gov.uk/government/publications/agricultural-transition-plan-2021-to-2024
[text removed for publication]
(a) Letter from Deputy Director of the Environment Analysis Unit, Defra and Economic Advisor, Defra, 1st Dec 2016; [text removed for publication].
Letter from Head of the Economics Branch, H.M. Treasury, April 2019
H.M. Treasury (2018) The Green Book: Central Government Guidance on Appraisal and Evaluation, H.M. Treasury, London. Sections authored: p.47, 63-64, 67, 115, 118-119.
NCC (Mar 2020) The Green Book guidance: embedding natural capital into public policy appraisal, Natural Capital Committee.
Regulatory Policy Committee (2019) Biodiversity net gain and local nature recovery strategies, Impact Assessment. RPC-4277(1)-DEFRA-EA, Department for Business, Energy and Industrial Strategy (BEIS).
- Submitting institution
- University of Exeter
- Unit of assessment
- 16 - Economics and Econometrics
- Summary impact type
- Economic
- Is this case study continued from a case study submitted in 2014?
- No
1. Summary of the impact
McCorriston and Davidson’s ground-breaking research on food pricing and competition issues has led to changes in national and international food policy and food trade reform. From Aug 2013 onwards it provided the UK government with the capacity to better understand, forecast and advise upon food price and food price inflation issues, including during the critical period leading up to the 2016 Brexit Referendum. The Office for Budget Responsibility also used it to update their forecasting method for Consumer Price Index subsets. Internationally, McCorriston’s research contributed to an improved global understanding of food sector issues across Organisation for Economic Co-operation and Development (OECD) countries and also in developing countries, as spearheaded by the United Nations’ Food and Agricultural Organisation, influencing national and international trade and food policy reforms.
2. Underpinning research
McCorriston’s field-leading research focuses on competition in the food chain; a complex and often ignored dimension of food and agricultural markets in both developed and developing countries. These complexities are associated with market concentration in downstream sectors beyond the point of agricultural production (i.e. food manufacturing, distribution and retailing) and where there has been direct manipulation by governments of the structure of food and agricultural markets (e.g. through state-trading enterprises), a particular issue in developing countries.
Food spend is one of the most significant parts of household expenditure; low-income groups are disproportionally affected by food price increases, given their relatively greater spend of household budget on food. Moreover, food retailing, processing and distribution along with the agricultural sector, can account for significant proportions of GDP, employment, exports and imports. In developing countries where food security issues are a primary concern of governments, food chain issues can fundamentally affect human wellbeing.
Understanding the role of food chain competition is important for a number of reasons. Competition in the food chain is an important factor in determining the potential consequences of exogenous shocks - such as oil price spikes, significant trade policy change, or harvest failure - on the food sector and producers and consumers at either end of the food chain. Additionally, the potential effectiveness of government policies, targeted towards agriculture and food consumers, can be affected if the role of price transmission (i.e. how prices in one market affect those in another market) does not take into account the presence of competition throughout the food chain. Over the last 15 years, there has been a global, growing awareness of the importance of competition issues in the food chain, issues brought to the fore by this body of underpinning research.
McCorriston [3.1] provides one of the first expositions of the importance of imperfect competition in food markets and the implications that arise from it. This research emphasised its importance in vertically-linked food chains and its effect on trade and agricultural policy outcomes, particularly for consumers. This contribution focussed primarily on developed countries (particularly the European Union). An extension of the research to developing countries, where buyer - as well as seller market power - characterises food chains, revealed that the benefits of trade liberalization may be oversold to exporters in developing countries. As with imperfect competition, gains may instead flow to marketing firms in developed countries, as opposed to consumers or farmers [3.2].
McCorriston and colleagues explored the role of price transmission by developing a sophisticated time series econometric modelling framework, consistent with an economic model of the food chain with imperfect competition, to analyse the impact of the UK 2000 Bovine spongiform encephalopathy (BSE) crisis. They found that the impact on farm prices was more than double that on retail prices and this, in turn, highlighted the distributional impact of the crisis [3.3].
Davidson, McCorriston and colleagues addressed the consequences of world agricultural prices and macroeconomic shocks (e.g. exchange rates and oil prices) on UK food inflation, this time following the global commodity crises of 2007 and 2011 [3.4]. Results emphasised the importance of exchange rates, as well as world commodity prices, in driving UK food price inflation [3.3, 3.4].
Government manipulation of market structures, designed to deliver food policy objectives were analysed. This is a particular issue in developing countries, where there are concerns about food security. McCorriston and MacLaren [3.5] found that market deregulation, often a requirement of international support packages, was not necessarily welfare enhancing. As an extension to this research [3.6], the authors developed a framework to assess government reforms to food market structures across a variety of different contexts. They showed that policy reforms relating to procurement and distribution did not necessarily guarantee improvements in food security.
Recognised for pioneering advances in the field of global agricultural and food economics, McCorriston was appointed as a Fellow of the European Association of Agricultural Economists in 2020.
3. References to the research
McCorriston, S. (2002), Why Should Imperfect Competition Matter to Agricultural Economists?, European Review of Agricultural Economics, 29, 349-371. doi.org/10.1093/eurrag/29.3.349
Sexton, R., I.M. Sheldon, S. McCorriston and H. Wang. (2007), Agricultural Trade Liberalisation and Economic Development: The Role of Downstream Market Power’ Agricultural Economics, 36: 253-270. doi.org/10.1111/j.1574-0862.2007.00203.x
Lloyd, T. S. McCorriston, W. Morgan and A.J. Rayner. (2006), Food Scares, Market Power and Price Transmission: the UK BSE Crisis, European Review of Agricultural Economics, 33: 119-147. doi.org/10.1093/erae/jbl001
Davidson, J., A. Halunga, T.A. Lloyd, S. McCorriston and C.W. Morgan (2016), World Commodity Prices and Domestic Retail Food Price Inflation: Some Insights from the UK, Journal of Agricultural Economics, 67(3): 566-583. doi.org/10.1111/1477-9552.12158
McCorriston, S. and D. MacLaren (2007), De-Regulation as (Welfare Reducing) Trade Reform: The Case of the Australian Wheat Board, American Journal of Agricultural Economics, 89: 637-650. doi.org/10.1111/j.1467-8276.2007.00985.x
McCorriston, S. and D. MacLaren (2016), Food Security, Welfare and Partial Deregulation of Parastatals, Oxford Economic Papers 68(3): 836-856. doi.org/10.1093/oep/gpw014
4. Details of the impact
McCorriston and Davidson’s research developed the UK Government’s internal capacity to better understand, analyse and model food price and food trade issues. At the time of the Brexit referendum, it underpinned public and ministerial debate around the potential impact of Brexit on UK food prices. Furthermore, McCorriston’s research highlighted the importance of competition issues in the context of global economic reform of food and agricultural sectors, leading to national and international food policy and food trade reform.
Boosting the UK government food price forecasting capabilities; and informing strategic approaches to food policy
McCorriston, Davidson and colleagues developed the UK Food Price Forecasting Tool for the UK’s Department for Environment, Food and Rural Affairs (Defra) in 2011, based on research outlined in [3.4], in response to the global commodity crises of 2007 and 2011 affecting UK food price inflation at the time.
The Tool continued to be used by Defra staff from Aug 2013 onwards, to produce 6-monthly forecasts of UK food price inflation, where none had previously been available. Results were used to brief senior Defra ministers, notably the Minister of State for Agriculture, Fisheries and Food (2015-19) and cross-departmental collaborations, notably with HM Treasury (HMT) [5.1]. They also routinely underpinned Defra’s monthly Food Price Inflation Note, providing context to Office for National Statistics (ONS) monthly inflation reports, and which are sent to the ministerial team [5.1]. Additionally, results from the Tool directly underpinned the hugely influential Methodology Note, co-ordinated by Defra and HMT, entitled ‘ How Defra has estimated the potential effect of import tariffs on UK food prices, May 2016’. This Note provided the only publicly available assessment of the potential impact of Brexit on UK food prices and was used to inform public debate and government ministers, alike, at the time of the Brexit Referendum [5.1].
A Defra Economist also credited McCorriston with embedding understanding of food price inflation drivers into Defra’s wider, strategic thinking:
“it is impossible to overstate the… enormous influence of your ideas, concepts and work around the drivers and forecasting of food price inflation… without (this), *we would have none of the rich, complexity of understanding about these issues that we have today.*” [5.1]
In 2020, the Office for Budget Responsibility (OBR) updated its in-house econometric model used to forecast different subsets of the Consumer Price Index (CPI), drawing directly on research in [3.4]. A Senior OBR Economist directly credits McCorriston’s research and advice with enabling them to become “ more confident in forecasting UK food price inflation” and having “ *enhanced an important aspect of the OBR’s forecasting capability.*” [5.2].
Further contributions to strategic review and policy change are evidenced by other uses of the research [3.3; 3.4]. Specifically, findings informed: (1) oral and written evidence presented by McCorriston on food price issues to the House of Lords Sub-Committee on ‘Responding to price volatility: creating a more resilient agricultural sector’ in 2015 [5.3]; and (2) Contributions to Chapter 7 ‘International Dimensions of Climate Change’ of the UK Climate Change Risk Assessment 2017 Report, specifically on the potential impact on UK food prices due to climate change impact on the global food system [5.4].
In recognition of his field-leading research, McCorriston was appointed to Defra’s Economic Advisory Panel (EAP) in 2018 for a 5-year term to advise on food chain issues and assessments of food and agricultural trade issues.
Recognition of ‘Competition in the Food Chain’ issues within OECD countries, leading to international policy reform
In the aftermath of the world commodity crises of 2007-08 and 2011, international policy makers were increasingly concerned with competition issues in the food chain. For example, there were concerns about the impact of increasing market concentration in all stages of the food chain and the transmission of shocks from world to domestic retail markets, and their effect on agricultural producers, firms in the food sector and ultimately domestic consumers.
Based on his profile and research on these issues [3.1, 3.3], McCorriston was personally invited by the OECD Competition Directorate in 2013 to define the policy agenda for the OECD Roundtable in Paris (Oct 2013) on ‘Competition in the Food Chain’, by: (i) preparing a letter to delegates, on behalf of the Chair of the OECD Competition Committee, describing the competition issues and problems to be addressed at the Roundtable event [5.5a]; and, (ii) supplying a landmark report ‘Competition Issues in Food Chain’ [5.5b] for OECD publication which summarised the main competition concerns in the food sector across OECD countries. The Roundtable event was attended by anti-trust authorities (that promote fair competition in markets for the benefit of consumers and businesses) from all OECD member countries as well as national and international stakeholder groups,
In response to the event, submissions were received from 31 OECD member countries, detailing their country-specific issues and outlining their policy responses [5.5c]. The event raised international awareness of buyer power issues in the food chain and developed a shared understanding of actual and potential policy responses and comparative experiences of food sector competition issues amongst OECD member countries.
The highly influential OECD Business and Industry Advisory Committee (BIAC) subsequently advised that competition in the food supply chain industry should receive equal weight in enforcement, as compared to other sectors, e.g. financial markets or high-tech industries. They also advised that policies designed to address distributional or protectionist concerns, may have unintended consequences, and so should not be addressed within competition law, but rather through non-competition law or codes of practice [5.5d].
Furthermore, the event and OECD report authored by McCorriston [5.5b] directly contributed to:
Creation of the EU Directive (2019/633) on ‘unfair trading practices in business-to-business relationships in the agricultural and food supply chain’, through highlighting the range of complex concerns that farmers in OECD countries face when dealing with firms in a highly concentrated food sector [5.6a].
OECD review of ‘Competition Policy in the Mexican Grocery Retail Industry’, through providing the context of competition issues across different food sector environments [5.6b].
Underpinning global acceptance of the links between competition policy and food security, leading to international policy reform
McCorriston’s research underpinned an international acceptance of the importance of competition policy as an instrument of government in promoting food security in developing countries. In 2015, McCorriston was invited by the United Nations (UN) Food and Agricultural Organisation (FAO) to prepare an influential technical paper on ‘Competition and Food Security’ [5.7a], in part due to his 2013 commission from the UK’s Department for International Development (DfID) to conduct a systematic review on the links between trade reforms and food security in developing countries. The technical paper contributed directly to the FAO’s flagship 2015-2016 ‘State of Agricultural Commodity Markets’ report, on the links between trade and food security [5.7b].
The Director of the Food Systems and Food Safety Division, FAO described the FAO flagship report as “ highly influential in bridging the gap between economic research and national policies” [5.8] and the significance of the 2015-16 report’s focus as:
“a crucial issue for the FAO and policymakers to address, as many developing countries are highly dependent on agricultural exports for a significant proportion of their total export earnings while many others are highly dependent on imports for the provision of food staples… therefore key to the development of appropriate policies in many developing countries.” [5.8]
The flagship report [5.7b] and McCorriston’s underpinning technical paper [5.7a] were presented to an FAO ‘expert group’ and attributed, by the Director of Food Systems & Safety, as being an “ important influence” leading to the following “ international impacts”:
FAO support provided to countries involved in renegotiation of the World Trade Organisation (WTO) Agreement on Agriculture and developing the understanding of WTO negotiators;
“instrumental” in developing the FAO work programme within the Trade and Markets Division, “ particularly in guiding deliberations of the FAO Committee on Commodity Problems in October 2016”;
“informing the allocation of resources (staff and financial) to trade related work in support of FAOs Strategic Objective on ‘Enabling more efficient and inclusive agricultural and food systems”.
“influential in recognising the… priority that should be given to competition policy as an instrument of government in promoting food security … (and) *that issues around market competition need to be integral to the development of actionable solutions developed in the process towards the 2021 UN Food Systems Summit.*” [5.8]
The impact of McCorriston’s research on competition issues in developing countries extends further. The 2016 World Bank Report ‘Breaking down Barriers: Unlocking Africa’s Potential through Vigorous Competition Policy’ [5.9] cites McCorriston’s underpinning research [3.3] reflecting the importance and widespread reach of this research. McCorriston also played a leading role in preparing a 2015 report recommending wide-scale reforms to Liberia’s agricultural sector; it being one of the world’s poorest countries and recovering from civil conflict. The report, coordinated by the International Growth Centre (IGC), was delivered to the Liberian Cabinet. Concerns, highlighting priorities for reform in the rice market, were subsequently incorporated into the Government of Liberia’s strategy document “Food and Agriculture Policy and Strategy: From Subsistence to Sufficiency” [5.10].
5. Sources to corroborate the impact
Letter from Economic Advisor, Defra, 8th Oct 2020.
Letter from Senior Economist, Office for Budget Responsibility, 22nd Sep 2020.
Written and oral evidence to House of Lords EU Energy and Environment Sub-Committee (2016) ‘Responding to price volatility: creating a more resilient agricultural sector’. (copy saved on file)
UK Climate Change Risk Assessment Evidence Report: Chapter 7, International Dimensions. Committee on Climate Change, London https://web.archive.org/web/20210219111639/https://www.theccc.org.uk/wp-content/uploads/2016/07/UK-CCRA-2017-Chapter-7-International-dimensions.pdf
a) Draft of letter sent to OECD Member States (2013) in preparation for OECD Roundtable in Paris (Oct 2013) for Special Session ‘Competition in the Food Chain’; b) Background paper prepared for this OECD Secretariat for Special Session: https://web.archive.org/web/20210219111907/http://www.oecd.org/daf/competition/CompetitionIssuesintheFoodChainIndustry.pdf c) Executive Summary of debate and written submissions from OECD Member States for Policy Roundtable: ‘Competition Issues in the Food Chain Industry’. https://web.archive.org/web/20210219111907/http://www.oecd.org/daf/competition/CompetitionIssuesintheFoodChainIndustry.pdf d) BIAC response to discussion https://web.archive.org/web/20210223113054/https://pdf4pro.com/view/competition-issues-in-the-food-chain-industry-oecd-org-521c9b.html
a) Directive of the European Parliament and Council (17 Apr 2019) on ‘unfair trading practices in business-to-business relationships in the agricultural and food supply chain; b) OECD (2019), Competition Policy in the Mexican Grocery Retail Industry.
a) Technical Note: Competition and Food Security (2015). Prepared for FAO by S McCorriston. (p1-9). https://web.archive.org/web/20210219112327/http://www.fao.org/3/i5225e/i5225e.pdf; b) The State of Agricultural Commodity Markets 2015-2016. Trade and food security, FAO, 2015. https://web.archive.org/web/20210219112742/http://www.fao.org/publications/soco/the-state-of-agricultural-commodity-markets-2015-16/en/
Letter from Director Food Systems and Food Safety, FAO, 19th Sep 2020
World Bank Group. (2016). Breaking down barriers. Unlocking Africa’s potential through vigorous competition policy. Cites [3.2] Sexton et al (2007) on p2.
Liberian Rice Importation Policy and Strategy, Ministry of Commerce and Industry, Jan 2016.