House of Commons - Environmental Audit

Select Committee on Environmental Audit Third Report

THIRD REPORT

The Environmental Audit Committee has agreed to the following Report:—

COMPREHENSIVE SPENDING REVIEW: GOVERNMENT RESPONSE AND FOLLOW-UP

Introduction

1. The Environmental Audit Committee published a report on the Comprehensive Spending Review and Public Service Agreements in February 1999.[1] In May 1999 the Treasury submitted the Government's response to the Committee. This was reported to the House and made publicly available in October 1999 and is appended to this report.[2]

2. The second Comprehensive Spending Review (CSR 2000) was announced in the November 1999 Pre-Budget Report. We decided to publish a short report to follow-up on our original findings and recommendations in the light of the Government's response and subsequent announcements by HM Treasury.[3] We were grateful for evidence submitted by the Council for the Protection of Rural England (CPRE) on these matters.[4]

The Committee's report

3. The Committee identified a number of shortcomings in the first CSR with regard to the implementation of Government commitments on putting the environment at the heart of policy-making:

important Government's commitments to sustainable development and environmental protection did not appear to be reflected in the CSR's overall terms of reference and it was left to the Deputy Prime Minister to 'remind' Cabinet colleagues by letter during the process of the significance of sustainable development and the need to bear it in mind;[5]

the Treasury was unwilling to monitor the consideration given by other departments to sustainable development and environmental protection in undertaking their reviews and there was confusion over the role of the Department of the Environment, Transport and the Regions in this regard;[6]

no documentation was made routinely available on whether spending programmes reviewed were subject to environmental appraisal, or even screening, and so neither this Committee, nor any other external body, was in a position to assess the extent of compliance with the Government's commitment to 'putting the environment at the heart of government';[7]

the Government had not used the last CSR formally to tackle environmentally adverse subsidies identified by the Government Panel on Sustainable Development;[8]

departmental aims and objectives coming out of the process, collectively did not reflect the Government's stated overall commitment to sustainable development—there were significant gaps and inconsistencies;[9] and

the omission of commitments to 'greening government' from the Public Service Agreements, a central mechanism for holding departments to account, suggests a lack of real concern on the part of the Government for that process.[10]

The Government's response

4. The Government's response was welcoming in tone but rather short on substance. It rightly points to a number of spending decisions that will improve the resources available to environmental protection and we accept that such resources have been significantly increased.

5. We remain concerned, however, that departments' efforts to meet the challenge of integrating economic, environmental and social considerations cannot be verified on the basis of the information produced. The response merely repeats assertions made in evidence to the original inquiry that, where significant, sustainable development and environmental implications were considered.[11] We are therefore unable to 'sign off' the CSR process with regard to its consideration of environmental impacts, nor the wider issues of sustainable development.

6. The Government has accepted the need "to bear the Committee's views in mind when preparing for the next review of public spending" and "to consider how the procedural weaknesses which the Committee has identified can be remedied".[12] We consider below whether these commitments have been implemented on the evidence available so far.

Spending Review 2000

Government announcements

7. In the Pre-Budget Report 1999 the aims of the next CSR were set out in the following terms:

The process will include thirteen cross-cutting reviews on: Welfare to Work and ONE (the single work-focussed gateway); Sure Start and services for the under fives; young people at risk; support for older people; the criminal justice system; anti-drugs initiatives; crime reduction; local government finance; government intervention in deprived areas; rural and countryside programmes; publicly-funded science and research; conflict prevention in Sub-Saharan Africa; and nuclear safety in the former Soviet Union.[14] We welcome the strong emphasis on social issues evident in this programme of work. However, we were surprised not to see more explicit reference to the environment for complete coverage of the sustainable development trinity, not least in the light of growing recognition that "environmental problems are a component of social exclusion and an issue of social justice".[15]

Overall aims

8. We hope that detailed guidance on the conduct of the review will emphasise the need to integrate environmental considerations into work on this programme with particular reference to: healthy and secure communities, higher productivity (which should include higher productivity from the use of natural resources); and sustainable growth (which should include the aim of environmentally sustainable growth).

Cross-cutting reviews

9. With respect to the cross-cutting reviews: work on rural and countryside programmes, as well as nuclear safety, clearly will involve important environmental issues. However, we would also expect to see the implications and opportunities for promoting sustainable development and environmental protection feature particularly in the reviews of:

local government finance (looking forward to the implementation of the new powers for English local government contained in the 1999-2000 Local Government Bill on economic, social and environmental well-being);

publicly-funded science and research (for which the current rather limited aim is to ensure that "science which is supported from public funds in England is being properly conducted and exploited to the benefit of the economy at large");[16] and

Government intervention in deprived areas (to take account of the fact that people living in poverty suffer the worst environments and usually have the least redress or escape; and build into regeneration initiatives relevant environmental themes such as improving domestic energy efficiency, public transport services and air quality).[17]

Sustainable Development Strategy

10. Since the last CSR, the Government has published its own Sustainable Development Strategy for the UK, A better quality of life and a full set of sustainable development indicators which include a 'headline' set of 15.[18] The Government's response describes the strategy as providing "a framework for future policy making" and the headline indicator set as "an essential tool" to prevent policy-makers from simply paying lip service to sustainable development. The Government commits itself to using "the principles and indicators of sustainable development to inform its policy decisions".[19] In the light of these statements we find it astonishing that the announcements set out above contain no reference to this framework or indicators. We look to the Government to establish a clear link between the sustainable development strategy and indicators and the rationale and criteria for putting together, and deciding, departmental bids as part of the current CSR.

11. In our original report we recommended that guidance should spell out clearly that departments should take into account their contribution to sustainable development in their spending reviews and they should report their overall approach in the resulting documents. The Government replied that "it would be happy to tell the Committee in due course what the review guidance will say on this point". We assume that this material is available now that the review is underway and would like to receive it to assure ourselves and Parliament that it is adequate and has been promulgated in a timely fashion. We would expect that such guidance reflects our original recommendations and the points made above.

12. We regard the absence of a specific cross-departmental CSR on making progress towards sustainable development, in support of the new strategy, as a missed opportunity. This seems particularly to be the case given the Government's own analysis that "sustainable development is the cross-cutting issue most affected by overt policy conflicts of policy and interest ... the problem is primarily one of policy conflicts which are inadequately resolved, and where the institutional framework for doing so is not up to the job."[20]

The role of the Treasury

13. In the Government's reply to our report great emphasis is placed on the importance of sustainable development being "integral to departments' own appraisal of their programmes" and not an "externally imposed obligation". Indeed the Government goes so far as to suggest that Treasury's 'policing' of departments' performance in this regard "could even be counterproductive".[21] We cannot help but feel that this betrays a disappointing immaturity in the system. We cannot take seriously the proposition that monitoring and assessment by Treasury of an important part of how Government allocates expenditure runs a risk of producing a backlash from piqued departments. We have no doubt that this is not the case with regard to financial and economic impacts of policies. We do agree, of course, that sustainable development should be integral to departments' own assessments of their expenditure needs and hence bids. But we feel that some mainstream assessment of performance is merited by Treasury just as it will presumably be monitoring departmental submissions for other impacts. Perhaps lessons from the Cabinet Office/DETR review of the quality of environmental appraisals accompanying Cabinet papers[22] could be applied here.

14. To encourage the 'voluntary' integration of sustainable development into departments' own appraisals the Government suggests building in a "requirement on Departments to involve their Green Ministers fully in the preparation and conduct of the review, and also to recommend the Sustainable Development Unit (SDU) to departments as a source of expertise on environmental issues".[23] We whole-heartedly welcome with this but would ask what on earth Green Ministers and the SDU were doing during the last CSR? When we asked the Deputy Prime Minister in January 1998 how sustainable development was to going to be taken into account in CSR decisions across the board he replied "that is precisely what the Green Ministers should be doing." In the light of this reply, taken together with the original mission of the SDU to provide support and policy advice on environmental integration for all departments, we can hardly welcome the Government's response on this point as an innovation.[24]

15. We believe that the Government must commit itself to a centralised monitoring system. We feel strongly that the Treasury should accept responsibility, with support from the DETR, for facilitating and monitoring departments' integration of environmental and social impacts into their CSR bids. For the Treasury specifically to take a lead on this would represent the sort of 'mainstreaming' that would bring sustainable development and environmental integration out of the ghetto. We would not regard this as a "policing" function but rather the provision of vital clarity and encouragement on objectives as well as feedback on effective practice.

Addressing environmentally damaging subsidies

16. We welcome the Government's commitment that it "will continue to look for opportunities to tackle unjustified subsidies."[25] However the reply goes on to define again what would constitute such a subsidy rather than set out any plan for addressing them. In our report on the 1997 Pre-Budget Report we noted that the total value of environmentally damaging subsidies may be in excess of £20 billion per annum and we expressed some concern that there was no evidence of a strategic approach to address this issue in line with the Statement of Intent.[26] The Government Panel on Sustainable Development has similar reservations which are summarised in an annex to this Report.[27] We consider that the Government should review and report on what it has done so far to tackle this issue, and should set out in an action plan with relevant deadlines and targets how it intends to identify and reduce the environmentally damaging subsidies which remain. The Committee has previously recommended the establishment of a Green Tax Commission. Were this to be created as perhaps a 'Green Budget Commission' it might be well placed to perform such a strategic review.

Environmental appraisal and spending programmes

17. We were disappointed that the Government did not respond to our comments on the balance of spending between roads and rail. Our report discussed in some detail the figure of £1.1 billion and how it related to overall budgets over the period of the review, and we concluded that the balance of spending between roads and rail did not appear to have been addressed. The Government's response merely repeats the figure of £1.1 billion and takes no account of our analysis.[28]

18. We were concerned that the Government's response cites expenditure which may be primarily directed at economic and social objectives, such as the £5 billion on housing, while failing to quantify adequately the environmental costs and benefits of such programmes; and that some of this expenditure may be addressing symptoms rather than causes. In our report on Energy Efficiency, for example, we pointed out that the amount spent on subsidising the fuel poor was some £3.6 billion over the next three years—three times the amount of resources estimated to be directed to energy efficiency property improvement schemes in the same period.[29] This perhaps is just the sort of area where a further cross-cutting review might yield benefits for the exchequer, the environment and people in genuine need.

19. The Committee has already questioned the extent to which environmental appraisals are being incorporated into departmental policies in its 1999 report on Greening Government and concluded, in the CSR report, that the Government has not been meeting its commitments in this regard.[30] The Government's response refers to the Deputy Prime Minister's letter (see above), standing Treasury and DETR guidance on policy appraisal and the Cabinet Office requirement for significant environmental costs and benefits to be identified in Cabinet submissions.[31]

20. Nothing in the Government's response on this subject allays our concerns about environmental appraisal within the context of CSR work. We note that in its response to our first Greening Government report, the Government promised to introduce new arrangements for the reporting of significant environmental costs and benefits in Cabinet papers and (as referred to above) to review the impact of that guidance by the end of 1999.[32] We await with interest for the conclusions and lessons of that review to be published and taken on board. We will be revisiting Government's progress with policy appraisal and the environment in a review of the Green Ministers' First Annual Report to be published shortly.

Departmental objectives and Public Service Agreements

21. Given the overarching nature of sustainable development and the fact that it should provide the framework in which all policy formulation is carried out, we are surprised to find that the Government is having to consider formally whether to incorporate sustainable development into the remit of all departments and NDPBs. We note the Government's satisfaction that 8 departments have set performance targets in their PSAs related to sustainable development aims (including Treasury's reference to development of the tax system to underpin sustainable development and deliver environmental objectives).[33] This emphasis does not really address the criticism that seven main departments do not refer to sustainable development and, of those that do, two have no related performance targets.

22. In addition, as the CPRE point out, there are significant differences in priorities between sustainable development and other issues revealed by comparisons between PSAs. While the PSA for the DETR contains the objective of integrating "the environment with other policies across government..." there is no specifically related performance targets. The Sustainable Development Unit has responsibility for this initiative but, in contrast to the cross-departmental units in the Cabinet Office, no performance target is set in the DETR's PSA covering the SDU's work. In addition, while the DTI's PSA included a performance target in relation to expected competitiveness indicators, there was no equivalent target set for the sustainable development indicators[34] despite Government hopes for their profile and statements about their significance.[35]

23. Moreover, the Committee remains very concerned at the absence of a clear linkage between the revised Sustainable Development Strategy, departmental aims and objectives as reflected in their annual reports, and the objectives and targets contained in their PSAs. If PSAs are to be the main mechanism by which Departments are to be held to account, then we would also expect to see more comprehensive environmental objectives and targets contained in them, to balance the social and economic objectives of sustainable development which are generally better reflected. We repeat our concern that departmental PSAs are particularly lacking in targets reflecting the greening of departments' operations despite a section dealing with the provision of services by each department.[36] We welcome the Government's readiness to cooperate but consider that it is not only a question of providing the Committee with more information.[37] Rather, it is up to the Government to provide as a matter of course a clear structure of objectives, aims, programmes, and targets against which both budget allocations and progress towards sustainable development can be assessed.

Conclusions and lessons for Spending Review 2000

24. As we have said above we are pleased that the Government response acknowledges the weaknesses identified in our report of February 1999 and welcomes the Committee's contribution to the debate. However, on the evidence currently available it seems to be putting few of its words into action in the second CSR. For instance: the sustainable development strategy is not mentioned; there is no action plan proposed for reducing unjustified and unsustainable subsidies, undertakings on the monitoring and provision of environmental appraisals are thin, and we have received no reassurance with regard to departmental aims and objectives and PSAs which are woefully short of environmental targets.

25. For the Spending Review now launched the Government must ensure that:

sustainable development is firmly built into the objectives, process and guidance for the review from the start: the Deputy Prime Minister should not have to remind departments about the importance of sustainable development and the environment this time around;

there should be a clearly auditable framework linking the principles, priorities and indicators in the sustainable development strategy to departmental programmes and spending allocations;

Green Ministers in all departments, supported by the Sustainable Development Unit in the DETR, must be able to demonstrate their integral involvement in shaping policy priorities and departmental bids and ensuring that adequate work is undertaken on contributions to sustainable development and environmental impacts;

the Treasury should ensure that bids include environmental appraisals of the impact of policies, and should ensure that these are made available to this Committee (including screening statements concluding that full environmental appraisal is unnecessary);

the Government should draw up an action plan with targets for identifying and reducing environmentally damaging subsidies and should ensure that new expenditure is addressing causes rather than symptoms;

departments should all include sustainable development as an explicit and consistent high level objective and PSA targets should reflect the greening government agenda including operations; and

while the Government placed the tax regime outside the scope of the original CSR we believe there is a case for taking a broader look at tax and spending proposals together given the number of areas where this divide is bridged particularly with regard to environmental taxes and hypothecation and ring-fencing (i.e. the Landfill Tax, the Climate Change Levy and proposals for the fuel duty escalator). In addition there is the hazy line between subsidies resulting from straightforward public expenditure and those arising from taxation foregone.

1 Third Report from the Environmental Audit Committee, 1998-99, The Comprehensive Spending Review and Public Service Agreements, HC-92. Hereafter 'the Committee's report' or the 'CSR report'. Back

2 Appendix 1. Back

3 See the Pre-Budget Report 1999, Cm 4479 and HM Treasury press release 24 November 1999. Under the heading of Public Expenditure the Treasury Select Committee will also be looking at the process for conducting the 2000 Comprehensive Spending Review, the methods used and the accountability for the various cross-departmental studies see TSC Press Notice 3, 21/12/1999. Back

4 Appendix 2. Back

5 The Committee's report, rec. (a) from paragraph 16 (and see paragraph 11); and rec. (o) from paragraph 60. Back

6 Ibid, rec. (b) from paragraph 17 and rec. (p) from paragraph 61. Back

7 Ibid, rec. (g) from paragraph 38 and paragraphs 28 and 37. Back

8 Ibid, rec. (d) from paragraph 23 and see Annex. Back

9 Ibid, rec. (h) from paragraph 41 and figure 1 on page xvi. Back

10 Ibid, rec. (j) from paragraph 49; and rec. (q) from paragraph 62. Back

11 Appendix 1, paragraph 2. Back

12 Appendix 1, paragraph 3. Back