Considering potential RD policy instruments

The broadest approach in economic and policy literature tends to divide policy instruments into:

• Regulatory instruments – ie those affecting property rights (prohibitions, creation of new rights of use or access);

• Economic instruments – ie policies which affect the relative costs and benefits of individuals choosing to take certain actions (incentives, disincentives);

• Information or advisory instruments – those which enable people to make better decisions, on the basis of a fuller understanding of issues or situations.

The category ‘economic instruments’ can be further subdivided into:

• positive instruments (incentives or rewards) – eg payments (one-off investments, or regular

multi-annual payments), loans or loan guarantees, tax breaks or tax offsets;

• negative instruments (disincentives) – eg taxes, levies or charges.

In practice, most policies include a combination of these kinds of instrument in one or more ‘packages’; for example:

• regulation to set a baseline of acceptable behaviour (also referred to as the ‘reference level’

- OECD), prescribing the limits of what is permissible, and determining sanctions to be

applied to those who fail to observe these limits; PLUS

• economic instrumentsto encourage positive and discourage negative behaviour above the

baseline or within the acceptable limits defined by regulation; PLUS

• advice and information to promote understanding of the rationale for the policy, the

evidence upon which it is based and other aspects which increase peoples’ willingness to

work towards achieving its goals.

In respect of policies which are defined at the European level, another facet of policy is also relevant – the principle of subsidiarity, and its implications for policy design. Subsidiarity means enabling detailed policy responses to be determined at the most appropriate level within the hierarchy of EU, national, regional and local layers of public governance and administration, to maximise efficiency, effectiveness, transparency and accountability. Thus, policies at higher levels can be designed to effect or facilitate change at lower levels within the policy hierarchy, rather than making these changes directly themselves.

Seen from this viewpoint, EU policy does not commonly seek to dictate all details of how a policy achieves its goals, but rather, it sets a framework of principles, standards and approaches which oblige or encourage national or regional administrations to act. The choice of the precise ingredients in the policy package can therefore be, at least in part, a decision for Member States and/or regions to make, assisted by the framework that exists at the European level.

Rural Development under Pillar 2 of the CAP is an EU policy devised principally as a financial

instrument, to assist Member States to promote rural development actions and goals

throughout their territories. Thus at the EU level, it is not directly concerned with regulatory

instruments, but with economic and advisory ones. In rural development interventions, it is possible for governments to seek to regulate – for example, where spatial planning policies prohibit new development in the countryside in order to protect key environmental assets from irreversible loss. It is also possible for them to use the negative economic instruments of taxation, levies or charges in pursuit of RD goals. For example, some Member States tax chemical inputs in farming in order to discourage levels of use that could harm the environment. Local taxes are usually levied on rural businesses in order to fund the maintenance of local collective facilities and services. However, there are constraints upon acceptable actions at EU level in respect of these kinds of instrument, derived from agreed areas of EU competence. European RD policy cannot generally use regulatory instruments, taxes, levies or charges to pursue its aims, nor tax breaks / offsets. The range of instruments available is generally confined to investments or regular payments, loans or loan guarantees, and information and advice. Nevertheless, the approaches can be applied with respect to different layers in the policy hierarchy, generating a further point of differentiation in the choice of instruments available. The instruments can be used to provide:

• Direct support to the ‘final beneficiaries’, to achieve certain behaviour. These final

beneficiaries can be private individuals or groups, as well as public authorities; or

• Indirect support which enables other layers of the policy hierarchy to provide an institutional

framework to promote RD goals. So, funding can be used to support the application of regulations or negative economic instruments by regional administrations, public agencies or local municipalities. For example, it can help regional authorities to operate regulatory processes in respect of land reforms, purchases or consolidations. The most common example of an indirect economic instrument used in this way is where EU funds support ‘technical assistance’, which enables national or regional administrations to enhance their capability to deliver a broad range of RD policy goals.

If we view the potential range of appropriate policy instruments including both direct and indirect support, we arrive at four main categories of European RD policy instrument:

1. funds for the management of regulatory processes by public bodies which promote RD aims (eg land reform or consolidation)

2. regular payments to deliver goods or services on an ongoing basis, made to private individuals, groups or public authorities (eg targeted income supports, landscape maintenance, biodiversity management, rural transport maintenance, support for village groups or regular events)

3. one-off investment funds, loans or loan guarantees to stimulate actions or projects, offered to private individuals, groups or public authorities (eg modernisation aids for farms, funding for R&D in effective environmental management techniques, support to plan and set up rural tourism networks, technical assistance)

4. funding to provide information or advice to promote RD goals, which can again be given to private individuals, groups or public authorities (eg farm environmental advice, public health information for remote communities, advice on how to plan for successful new rural business ventures).