Select Committee on Agriculture Minutes of Evidence

Examination of witnesses (Questions 40 - 59)



  40. Why was the PSA target to develop methods to benchmark the return from the commercial forestry on the FC estate against equivalent private sector forests and set an increased rate of return? You are telling me you know the answer.
  (Dr McIntosh) We know in terms of the timber production side. What the Treasury were looking for was some sort of expression of how the whole forest business was performing, not just the timber production side, but all the subsequent restocking of that, the amount we spend on recreation, conservation and heritage, could they find some way of benchmarking that with the private sector? I think it is quite obvious that the private sector does not have quite the same objective as us, so it must be very difficult to come up with a clear comparison.

  41. I understand these are discussions that have taken place since the spring. When are you going to come to the conclusion of them and get on with it?
  (Dr McIntosh) I think the conclusion probably of everyone, including Treasury, is that it is too difficult to do that. We probably have not asked the right questions in the first place.

Mr Todd

  42. It is another of these Treasury objectives that, perhaps, did not get thought through too closely before it was set.
  (Mr Bills) I think you are right. It was a discussion where we were saying that the community expectations of forestry were driving our costs up—the grade of paths, the toilet blocks, the information, the interpretation that we do—so we put up our hands and said, "We need a bit more money", and they wanted to see some benchmarking exercises done.

Dr Turner

  43. Going back to the very first question, it does sound as though it might have been easier if you had separated out some of your roles and did have something at the commercial end which was a bit more stand-alone and a bit equivalent to the other commercial producers.
  (Mr Bills) That is one of the things we will be looking at in this quinquennial review. At the end of the day you can separate out the roles, but the same thing is going to happen on the same forest. These things are going to happen on the one forest. So, do you want a situation which, dare I say, might be a bit like the rail situation where you have many people managing what is on the one forest, or should we have an integrated approach? I think most people in forestry, or anyone—I guess I would say this, would I not—would say that if you can integrate it and have proper approaches to sustainable management for the benefit of forestry, under the one management authority, then that will be the best way of doing it. Of course, the danger is then to say—and this is the situation we are in now within the United Kingdom—that the timber income has to pay for these otherwise valuable programmes. There is not a lot of logic in saying that because timber prices are down, we cannot pay for habitat action plans, or the maintenance of SSSIs, or all-ability trails. Why do we connect those to timber prices? The funding that we have does connect them at the moment.

  44. You say you are discussing that with the Treasury?
  (Mr Bills) Yes.

  45. You said to me that there would be some logic in a bit more transparency so that comparisons were at least reasonably possible?
  (Mr Bills) That is correct.

Mr Todd

  46. If we turn back to the money issue, in the previous financial year, the last one, you pitched in for a supplementary estimate of £13.1 million?
  (Mr Bills) Correct.

  47. Even to keep it in that, you had to increase timber production, which one has to say, in a falling market is a perverse response and one which I am not too surprised that your private sector competitors were a little concerned about. It would not have done them any good in those circumstances either. You have pitched in this year for an £18 million supplementary estimate. Is that going to be enough? It is going to have to be, is the answer, I suppose.
  (Mr Bills) There are still some discussions going on. It is more to do with the devolution responsibility. We are still in the transitional stage of defining a settlement for Scotland and Wales. One of the reasons why the settlement this year was so big was that there was a £10 million cutting rights sale, which in the end was found to be ultra vires and not good value for money, even if it had been legal.

  48. Whose idea was that one?
  (Mr Bills) That was Treasury's idea.

  49. That turned out to be ultra vires and poor value?
  (Mr Bills) Poor value for money, yes.

  50. I do not think that featured in great prominence in your paper.
  (Mr Bills) I think it is fair to say that it is probably off the map now.

  51. I do not know that it needs be off the map for this Committee. Can you perhaps add that to the note you are going to send us?
  (Mr Bills) Yes. We had a major study to establish the position.

  Mr Todd: That is of some assistance I think. What is emerging from this is that the relationship between yourselves and the Treasury is a complex one which we need to understand if we are going say anything of much use in our report on this.


  52. When you come to supplementary money, it is the Treasury that dishes that out, irrespective of where you are going to spend it, is it?
  (Mr Bills) During the transition from predevolution to post-devolution, there was a period of a couple of years which basically was the Comprehensive Spending Review programme, where, because we had agreed on a certain funding framework, it was agreed that if that was impractical, if that framework did not work and England got access to the reserves, Scotland and Wales would get access to the reserves too, if necessary. There is some discussion between the legislatures now about whether or not access to the reserve to fix the problem in Scotland and Wales is necessary. Having said that, the Treasury at this stage have made a contribution which goes a long way to solving the problem.

Mr Todd

  53. This is the £18 million?
  (Mr Bills) Yes, it covers that cutting rights and land sales shortfall.

  54. I think it would do us some good to set out in a little more detail this process because it is skidded over slightly in the paper. How far has this discussion about the new funding mechanism advanced? I think the question George asked indicated that one of the dimensions would be the separating out of environmental activities from commercial activities in some sense or other, but presumably there has to be some approach to dealing with the fact that your commercial income fluctuates quite violently due to factors largely beyond your own control and how to respond to that in the Treasury environment. What is the thinking that is emerging there?
  (Mr Bills) It has been discussed in the context of this review of the FE Agency. It is an FE problem which obviously affects the Forestry Commission's spending. We have yet to complete the first stage of this agency review process which is really when we come up with options for ministers to decide. They choose the option and we go away and work up in more detail. We have been considering such avenues as a non-departmental public body, for example, unallocated provisions, DUPs, so that we can carry forward gains and losses. We tend to forget that there were many years when we handed money back.

  55. One could imagine this as a sort of insurance model. In the good years you paid in and in the bad years you took out.
  (Mr Bills) Yes.

  56. That would mean some placing of a straitjacket around the funding that is generated so it is not snatched by the Treasury in the good years and you have to beg for it back in the bad.
  (Mr Bills) That is correct. The one that I personally favour—it has yet to go before ministers—is one where the recreation, conservation, heritage programmes are funded notwithstanding timber prices; and that the enterprise on its timber harvesting and trading account has to make ends meet. If it does make a lot of money, it hands it back. If it does not, it maybe has to sell assets to make ends meet. The other things which the Forestry Commission does which have little to do with timber production we can guarantee delivery of.

  57. The options which are coherent with other government objectives—the Rural Development Programme, for example, is dotted with initiatives of the kind that you would be familiar with within your own funding mechanism.
  (Mr Bills) Precisely.

  58. It is hard to argue why those should be based purely on the success or otherwise of Dr McIntosh selling his timber.
  (Mr Bills) We do these other things in two areas. They come through the grant and licensing system and also through our own public estates which Bob is involved with.

  59. When are we expecting these discussions to finish?
  (Mr Bills) We are hoping to conclude our part one by the end of this calendar year. Depending on what ministers decide, we have to work up in more detail as well as review the objectives of the FE and that kind of thing.

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