Examination of Witnesses (Questions 1-19)
MR RICHARD BROADBENT, THE EARL OF CRANBROOK, MR MICHAEL WHITING AND MR NEIL CARRIGAN
MONDAY 5 NOVEMBER 2001
1. Order, order. Good afternoon. This is a meeting of the Committee of Public Accounts of the House of Commons. This afternoon we are considering the Comptroller and Auditor General's report on the Landfill Tax Credit Scheme which is covered in Part 4 of the report on HM Customs and Excise Appropriation Account 1999-2000. I welcome everybody to the Committee and in particular I welcome our main witnesses who are: Richard Broadbent, the Chairman of the Board of HM Customs and Excise; Lord Cranbrook, the Chairman of ENTRUST; Mike Whiting and Neil Carrigan who are the joint acting Chief Executives of ENTRUST. Thank you for coming to answer our questions this afternoon. May I start with you, Mr Broadbent? Welcome back after such a short stay away from us.
(Mr Broadbent) It is a pleasure.
2. Figure 3 shows that there are complex relationships between the public and private sector for landfill tax and the credit scheme. What problems has this caused you in monitoring the operation of the Landfill Tax Credit Scheme and the effectiveness of ENTRUST as its regulator?
(Mr Broadbent) This scheme is a complex scheme. It is part of the purpose of the scheme that it brings together large numbers of different bodies, not least ENTRUST, contributing landfill site operators, environmental bodies, third party contributors. There is no doubt that as a result this scheme is complex. If you ask me, as you did, what particular problems that gives Customs in overseeing the scheme, I should probably point to two. One is simply an issue of complexity. There are many relationships between these bodies and it takes a fair amount of administration to make sure that they are all tracked and watched properly and carefully as they should be. We probably spend relative to similar other taxes rather more time on this tax because of its complexity. I was particularly pleased to see in the Comptroller and Auditor General's Report that as a result of those controls this scheme is operating satisfactorily. The other area I would point to as causing particular difficulty is what I would broadly call transparency. Because there is a large number of different bodies interacting with each other and because all those relationships cannot be monitored, it is not always easy to be sure who is taking which decisions with what outcomes. Transparency is of course part of the price this scheme pays for delivering to relatively small, relatively unsophisticated bodies, funding for charitable purposes.
3. Somebody might comment that it would be a lot easier for you just to levy the tax and then give out the money for appropriate environmental projects as grant-in-aid.
(Mr Broadbent) It would undoubtedly be much simpler, but that would come with a cost. The cost would be a loss of the private sector status of the scheme which is important in the sense that it qualifies it for matching funding, for example from the EU, for environmental projects. It would come at the loss of the small bottom-up parish-council-level schemes which central government is quite bad at supporting. You would certainly get simplicity but it would not be free.
4. One of the problems is that there are several years between the tax credits being paid and the money going into environmental projects. Is this a worry for you?
(Mr Broadbent) Yes, it is a matter of concern for us. It is partly a function of the fact that the scheme is both new and, partly through the efforts of Lord Cranbrook and his colleagues, has grown very rapidly, which is very much to their credit. It is easy to forget when this scheme was first created that many people thought it would not work at all and that landfill site operators would not contribute money. The fact that they have says a great deal for the efforts ENTRUST made. Because the scheme is growing there is a lag which means money is being committed and not spent and that is a concern. We have spent some time working with ENTRUST to make sure that their systems are adequate to track it. We are satisfied that tracking is taking place and as the scheme matures the percentage of funds spent relative to those committed is going up and is probably now nearer 65 per cent than the earlier numbers in the scheme.
5. To what extent do these arrangements increase the scope for irregularities and fraud?
(Mr Broadbent) In relation to fraud I would judge probably not at all; fraud in the sense of money being siphoned off to line the pockets of people. Probably if it were a public sector scheme you would not see very different levels of fraud. We are reasonably satisfied that the level of fraud in that sense is low. There are two known cases and two cases under investigation and that is out of about 9,000 projects. If you ask me about irregularity in the sense of there being potential for conflicts of interest, for it not being certain quite who is driving decisions, then yes, there are some concerns there. It is not irregularity in the sense that it is against the objects of the scheme. One of the objects of the scheme was to set it up in a way which allowed for these small schemes, lower level schemes, local schemes to be funded. Undoubtedly, because it is not wholly transparent, there is the potential for conflicts of interest to arise and I should be more concerned about that area than I would be about fraud per se.
6. Would you accept that the very complexity of the scheme is grist to the mill of those who allege that such a complicated scheme could lead to irregularities?
(Mr Broadbent) Undoubtedly so. It was recognised when the scheme was set up that probably it would be scrutinised to a greater than usual degree, including by committees such as your own. The complexity is the price you pay for the scheme being of the nature it is, which is one in which 60 per cent of £400 million of funds have been committed to small local level projects. That probably could not have been achieved by a central government scheme.
7. I see from Figure 3 that the Department for the Environment, Transport and the Regions oversee policy on waste management. ENTRUST ensure that environmental bodies comply with the scheme. Customs monitor ENTRUST. And paragraph 4.7 notes that landfill site operators take decisions on which environmental schemes represent value for money. That is all rather complex. How in these circumstances can we be sure about the effectiveness and value for money of the scheme?
(Mr Glicksman) That is a fair point: it is difficult in these circumstances. The scheme was set up in order to deliver projects at the local level to local projects of interest which would not perhaps have received funding otherwise and which would be in line with the priorities of the local area. Inevitably that has resulted in a rather complex arrangement where it is difficult to establish the value for money and effectiveness of the scheme. It is partly as a result of that that the Government has announced quite recently that it is reviewing the scheme and looking at alternative options.
8. How far have you got in this review of the scheme?
(Mr Glicksman) The Government have only just announced that it is starting a review.
9. So you have not made much progress yet.
(Mr Glicksman) No, it is only just starting.
10. Will you accept that Mr Broadbent is not responsible for value for money, he is responsible for getting the money in? There is a criticism that a lot of this money is simply going on pet projects and not on the macro policy of trying to increase resources into reducing landfill. Do you accept that as a valid criticism? Who is responsible for value for money if not Mr Broadbent?
(Mr Glicksman) The Government as a whole is responsible for value for money of the scheme as such and that is what Ministers have recently announced they are reviewing. There is a process for ensuring that the scheme as a whole is looked at and reviewed.
11. Welcome, Lord Cranbrook, to our deliberations. Paragraph 4.8 notes, "From the start of the Scheme in 1996 to August 2000 environmental bodies have received total contributions from site operators of £285 million of which £135 million . . . has been spent". This means that there is £150 million in bank accounts which could be used for environmental projects. Why is this and what are you doing about it?
(Lord Cranbrook) I also welcome the opportunity to be here. ENTRUST is not a public body, we are a not-for-profit company financed by an administrative charge, which is capped at two per cent. We do not have a nominated accounting officer, so some of the preliminary papers you offered us were not relevant to us. We are a bit untypical of organisations you usually see. It was a very early decision of our board that we should aspire to standards of openness and accountability appropriate to public bodies and in this spirit I am very glad to be able to be here and help you to the extent that we can. You have asked this specific question about unspent money and I shall ask one or other of my acting chief executives to deal with that issue.
(Mr Whiting) The report does not fully bring out the time lag between the report on money coming into us and money being reported as spent. We ask the larger enrolled bodies to report to us half yearly after the year end and the smaller ones report to us annually. We believe that there is an average time lag of about five months in reported spending. It makes some difference to the presentation of the figures. We believe at present about 65 per cent of the total contributions is reported to us as spent. We believe that leaves £140 million, that sort of order, unspent in bank accounts. We recognised this very early on as one of our major concerns. We have a sophisticated risk model and one of the two main planks in that is the amount of money received in total by enrolled bodies and secondly, how much they have not spent and that drives our visits to them to check on money unspent.
12. I am not sure I got what the figure is at the moment. Some information I had was that it could have gone up to £170 million. Is that right?
(Mr Whiting) The total spend now is about £250 million. As at 31 October it is £251 million spent but that has a time lag built in of about four or five months.
13. How much is actually sitting in bank accounts at the moment?
(Mr Whiting) If you allow for the time lag, about £120 million, something of that order.
14. I see from paragraph 4.12 that in 1999 ENTRUST and Lodge Service visited some 420 environmental bodies, of which only around one third were found to be fully compliant with the requirements of the scheme's regulations. What are you doing to improve compliance levels?
(Lord Cranbrook) We are doing a great deal but I should like to make the point that the regulations do allow us discretion as to whether to revoke bodies which have failed to comply. The list of small points on which compliance is tested is quite large and many of the levels of non-compliance are inevitable but not significant. Our task as a regulator is to maintain the overall probity of the scheme and this does require decisive interventions when we identify cases of deliberate misconduct. If we see that there is a small failure in technical compliance, we take steps to work with the environmental body in order to make it compliant and to bring it on stream.
15. The criticism is that you seem to be fairly powerless because you are simply not revoking any licences.
(Mr Carrigan) We are revoking licences.
(Lord Cranbrook) Yes, we are revoking licences.
(Mr Carrigan) There have been several enforced revocations in cases where bodies have been seen to misspend the money or have failed to account for it adequately to us.
16. How many:
(Mr Whiting) A total of ten enforced revocations to date.
17. That does not sound very many.
(Lord Cranbrook) We are fortunate in so far as there have not been many cases in which a body has been forcibly revoked because we have found it to be non-compliant. The sort of things on which bodies are found to be non-compliant are for example failing to report to us a change in the names of their directors.
18. We have received correspondence, some of which I understand you are aware of, setting out a number of matters. I particularly wanted to raise the matter of the resignation of the previous Chief Executive, Dr Richard Sills, in July 2001. Given that the funding of ENTRUST comes at least in part from landfill tax credits, are you satisfied that the amounts paid to Dr Sills on the termination of his contract are proper use of public monies?
(Mr Broadbent) Yes. The amount paid to Dr Sills is governed by a confidentiality agreement on which I have to tread rather carefully. Although I am very happy to answer your questions in detail if you wish, I just have to recognise that I would be stepping outside a confidentiality agreement by doing so. I will answer your question yes, we have looked at the terms. I am personally aware of them and I believe the terms are a proper use of public money. I shall explain in detail why I believe that to be the case, but I would prefer to do that either in writing or possibly privately.
19. I shall be satisfied with that for the time being. Lord Cranbrook, you are going to get asked a series of quite probing questions, but this is a very innovative scheme and I just want to give you an opportunity for a second to look to the future and give a flavour of what you think are the positive points about it and how you think we can improve it for the future; not at any length, but just so you feel that we have not been entirely negative in our questioning.
(Lord Cranbrook) The scheme is very much larger than it was when originally envisaged. When it started I was given a rather large non-executive board and £20,000 and told to go and be a regulator, which was a pretty tricky job to undertake. I believe that in our first nine months or so of activity, for which none of us drew any remuneration or anything like that, we did succeed in persuading the landfill operators that a reliable scheme could be operated and the funds then began to flow. The funds which are now flowing, as you pointed out just now, are large. The things to which they are directed are the sort of things which throughout my life I have felt aspirations towards supporting. The scheme has made an enormous impact across a very wide range of environmental aims, as distinct from the singular aim of the tax which of course is to change people's behaviour. All the scheme's current approved objects continue to meet at least one of the four objectives of the Government's sustainable development strategy. I do feel that this is worth preserving. It has created a genuine bottoms-up system whereby the aspirations of an enormous number of small local groups have been met. You referred to pet projects just now, but a lot of those pet projects have actually been projects which contribute directly towards the Government's sustainable development objectives. There are small schemes in many cities for assisting recycling. There are schemes for collecting white goods and putting them back into the system, there are several schemes for collecting old computers and redistributing them to schools. There is an enormous amount of waste which has actually been withdrawn from the waste stream. Consistently about one third of the funds have voluntarily been offered towards sustainable waste management projects and since the Government proposed a 65:35 split, we have already seen a shift in the funding which is positively directed towards aspirations for sustainable waste management. I do believe not only that the scheme has created new partnerships, totally hitherto unprecedented partnerships between landfill operators and the citizens within a short distance of their sites, between local government and voluntary groups. A very large number of intriguing partnerships have been formed. It is very important to preserve all these things whatever direction the Government may choose to take.