Examination of Witnesses (Questions 40-59)
MR RICHARD BROADBENT, THE EARL OF CRANBROOK, MR MICHAEL WHITING AND MR NEIL CARRIGAN
MONDAY 5 NOVEMBER 2001
40. Could I deduce that is in proportion to the amount of unspent money?
(Mr Whiting) It is roughly nine months of our current spending.
41. Will the £120 million be spent in the next nine months? Otherwise are you not going simply to run out of money and not be able to monitor compliance? It seems to me that at the current rate of expenditure the £120 million will not be spent within the nine-month period and therefore you will have a cashflow problem at the end of it.
(Mr Whiting) That is a possible deduction to make. I cannot really argue with that one in great detail. We have £1.8 million in the bank and that is all we have left to monitor as long as we are left to do our job.
42. Customs & Excise, that is a disturbing situation to find ourselves in. We have £120 million to spend, which is a far greater proportion than the £1.8 million in the reserves. What is going to happen? You have given them this four-year period, the Government cannot close them down within 12 months, what is going to happen? Are we going to be left with some projects unmonitored as the result of a potential cashflow problem or are they going to get themselves into worse trouble by drawing down further money on further schemes which they will not be able to monitor? It seems to me they are over trading, to use the technical term.
(Mr Broadbent) I have to repeat that we have not given them a four-year tenure. On the question of the reserves, ENTRUST is run as a going concern, not as a closed end fund. So long as they are a private sector company, I guarantee that is the right way of running it. I believe the directors would be wrong to over provide. They have to run as a going concern.
43. You must have heard the expression "over trading".
(Lord Cranbrook) I believe there is some confusion here about the funds which are held by environmental bodies to be spent on projects and the funds which we have in reserve, which are what we believe will be necessary in order to regulate properly the expenditure of those funds by the environmental bodies. The £120 million you are talking about is the unspent money in the hands of environmental bodies. It is not in our hands. We do not distribute money. We do not give away money. I think these things are all clear to you. What we have in our provision which Mike Whiting was just explaining to you is the necessary provision for the forward regulation of long-running schemes, some of which are three, four, even five years long and we have made adequate financial provision and our auditors have confirmed this. As the Chairman of Customs said just now, we would be in default of company law if we had not done so. We made forward provision in order to regulate what we see as a rundown from any one moment.
44. It seems to me that you have £1.8 million in reserves, you spend £1.3 million a year, probably more than that now, because I see you have recruited some additional staff, so you may have one and one third or one and one half year's income in the bank. On the assumption that you have taken two per cent which is your contribution to pay for yourselves, you have £120 million to spend which by your own admission just now is going to take four to five years to spend. It does seem to me that there is a good chance you may run into a cashflow problem in 15 or 16 months' time.
(Lord Cranbrook) We shall take that point on board. What I should also like to take on board is your really sensible and helpful point about suspensions. I do believe that if the Committee were to follow up the possibilities for suspension of environmental bodies, if they were in a position of partial compliance, this could be an interesting contribution towards the Government's general discussion of the future of the scheme. I hope I have not stepped out of place by saying so.
Jon Trickett: Thank you very much. I shall draw my questions to a conclusion.
45. May I go through the report, which I found more difficult than usual to be honest? I think it is a very complicated area. May I just clarify a few points? Paragraph 4.6 says that the tax credits are not classified as public expenditure. Can you tell me why, please? Why are we not classifying the expenditure in this area as public expenditure? Why?
(Mr Glicksman) The reason is because the decisions on the expenditure are taken by private sector companies rather than by the Government.
46. So if in my part of the world we decided not to pay our taxes to central government but maybe buy a battleship, that would not be classified as public expenditure then.
(Mr Glicksman) In this particular case the decisions are taken in accordance with a piece of legislation which allows this to be done.
47. What you are telling me is that we are bringing ourselves more in line with Europe where some of our European partners may decide to put some money outside the public domain and classify it as not public expenditure.
(Mr Glicksman) I do not know about other European arrangements but this arrangement is provided in legislation for a credit to be provided under certain circumstances. Those circumstances allow for local level decisions by the people making the contributions and the expenditure is then classed as not being public expenditure.
48. This really is taxpayers' money, is it not, just being recycled or not collected in effect?
(Mr Glicksman) It is money which under the terms of the scheme is not collected. The scheme provides for that.
49. As long as I understand for myself that it was really taxpayers' money which has not been collected and is allowed to be utilised in some other manner and we have redrawn the rules to say it is not public expenditure.
(Mr Glicksman) I do not know about redrawing the rules. This particular scheme provides for a credit to be provided against the tax in a particular way and that particular way means that the expenditure is not counted as public expenditure.
50. There is one other matter on which you may be able to answer, but it may not be in your remit. Paragraph 4.6 says, "Bodies may receive no funding if the projects they propose are unpopular with site operators". Who drew up the definition of "unpopular" and who gave the site operators this remit?
(Mr Glicksman) What this sentence means is that bodies may have had aspirations to carry out projects, but the decisions about which projects are funded rest with the site operators. If those bodies have aspirations but they cannot persuade the site operators to fund them, then the bodies will get no funding.
51. We are in a position now where we have granted site operators the opportunity to use taxpayers' money on projects which they consider to be appropriate.
(Mr Glicksman) Parliament have set up an arrangement whereby credits are given against tax for contributions to environmental projects.
52. If I look at Figure 4, it shows quite clearly that the tax credits and the way they can get a contribution from a third party result in the landfill site operator contributing nothing to this scheme. Is that right?
(Mr Glicksman) Yes, this particular example would have that effect.
53. So although they are in a position to be able to contribute nothing to the scheme, they are in control of the scheme and in control of the funds.
(Mr Glicksman) They would have the opportunity to decide which project to contribute to.
(Mr Broadbent) May I try to help? The points you are raising are important. You are absolutely right that it is the basic nature of the scheme that landfill site operators get tax credits and they decide where that tax credit money is spent. The points it may be helpful to add to the debate are first of all that there has to be a third party contributiondoes not have to be but the landfill site operators only get 90 per cent credit and most of them are commercial operators so they seek a third party contribution. This was a deliberate part of the scheme to draw in other contributors who are very many different parties. Secondly, the original purpose of the scheme, when it was envisaged, was that a lot of the money would be spent locally because landfill sites are deeply unpopular installations. Part of the object of this scheme was to encourage landfill site operators to work with local community groups to find ways of spending this money locally to improve the amenity of the area. The scheme has grown hugely since then; the points you make are correct, but that was the original concept.
54. As long as I am not misunderstanding the system. However, they can actually get away with making no contribution. As someone who does suffer from landfill, I have this authority which is very good at providing local schemes. It is called a council. Now we have an alternative system where taxpayers' money is being utilised at the discretion of the landfill site operators within the community. Then paragraph 4.7 goes on to say that around nine per cent of the total expenditure is on administration costs. Whose administration costs?
(Mr Broadbent) The nine per cent is the average of all the environmental bodies, of which there are over 1,000. The bigger ones obviously have rather lower administration costs; some of them are very, very small and have larger ones. Of that nine per cent two per cent is actually the ENTRUST costs, so it includes the cost of ENTRUST as well as the costs of the bodies. We have looked quite carefully at administration costs because the Environment Select Committee asked to look at it. The costs are as they are because of the complexity of the scheme; no-one would deny that. Having said that and done a little bit of work and subject to all the cares you might have about comparisons, they are not out of line with other similar bodies. As a result they are lower than English Nature or English Heritage or the National Lottery Board. Although the scheme is complex and does impose a certain cost, the nine per cent, which includes ENTRUST's two per cent is not out of line.
55. One of the landfill site operatorsand I have nothing against this particular company; I presume it is a company and it was set up alongside the parent companyis BIFFA Award. I notice from the slightly abridged financial statement that they have management charges of £463,000 a year. I take it this is the management charge for this particular landfill site operator, not the operators of the particular schemes.
(Mr Broadbent) I am not familiar with the particular example you are raising and I do not know whether the management charges there are payments to the parent company. It would not be outwith the terms of the scheme for an environmental body to make a payment if it were for services provided, provided it was at arm's length and properly tendered. There are some quite strict rules about the tendering for services provided.
56. Is it possible for a landfill site operator who set up this awards company to service the awards company with management services and be paid by it?
(Mr Broadbent) The awards company would have to make sure that its services had been properly tendered.
57. But it is possible.
(Mr Broadbent) It is possible.
(Mr Carrigan) May I offer a word of explanation about the nature of BIFFA Award? This is actually a scheme operated by the Royal Society for Nature Conservation which is an environmental body and a registered charity, which was appointed by BIFFA Waste as a body to receive and distribute its funds. It was not really a case of BIFFA Waste setting up a company for this purpose: they approached an existing charitable body to carry out the distribution on their behalf.
58. My concern is not what has happened or what is happening but what is possible. That is why I am looking at this complicated area. In paragraph 4.11 I notice that we have members of the board with a background in the waste management industry. Why?
(Lord Cranbrook) The ENTRUST scheme was set up in 1997 by a working party which was run by government. That working party decided that the regulator should be a private not-for-profit company, as we are. That working party appointed two persons to be the initial directors of the company, both of whom were members of the working party, both of whom came from the waste industry. That was the beginning of it all. In our first terms of approval, which came somewhat later but were based on the conclusions of that working party, the working party decided that there should be a distribution amongst this large body of directors of all the interests which they reckoned would be concerned with the scheme, that is to say my board was required to be composed of not less than one and not more than three people with background experience in the waste management industry, from local authorities, environmental groups, academics, lawyers, accountants and industry generally. That was the makeup which was in our original terms of approval, which grew from the then Department of the Environment working party. The requirement of our initial terms of approval was to have people with that background experience and it so happened that on the original board there were three from the waste industry.
(Lord Cranbrook) That was the decision of the working party, in order to make sure that the waste industry was properly represented. The landfill site operators are the people who are at risk. It is the landfill operators who contribute the money against which they can claim tax rebate, but they are constantly at risk of clawback if the environmental body to whom they contribute that money turns out to be non-compliant. It is then under the regulations within the power of Customs to claw back that money, that is to say the contribution has gone, the environmental body has blown it in a non-compliant fashion, the landfill operator is again liable for that tax. So the landfill site operators are extremely keen that ENTRUST should be a firm, resolute and effective regulator and it is the landfill operators above all whose interest it is to ensure that there is strong regulation.