Examination of Witnesses (Questions 120-139)
MR RICHARD BROADBENT, THE EARL OF CRANBROOK, MR MICHAEL WHITING AND MR NEIL CARRIGAN
MONDAY 5 NOVEMBER 2001
120. What you are saying is not simply as the report says in paragraph 4.20, that you consider revocation to be too extreme, but that you have no other possible sanction.
(Lord Cranbrook) Exactly.
121. You also said earlier that you had discussed ways and means to get increased powers. Do you recall that comment you made earlier?
(Lord Cranbrook) Yes.
122. Can you tell me five of those ways and means which you have discussed to get increased powers? Five powers you have actually asked to have and with whom you have had discussions about getting those powers.
(Lord Cranbrook) We felt it was very important that third party contributors should be identified. We brought this up in discussions with Customs and Excise and as a result of that the regulations were changed and the new regulations introduced at the beginning of the year 2000 required the identification of contributing third parties to us by landfill operators. That is an example.
123. That is one.
(Lord Cranbrook) You asked for five.
124. I am open to bids. Give me as many as you can think of. You said you had been discussing ways and means to get increased powers. Here you have given me very properly an increased power which you have negotiated. What I do not understand is if for a long time you have been concerned and have been thinking about suspension as one of those increased powers, why you did not negotiate that as well.
(Lord Cranbrook) We have been debating about suspensions but suspension is a very complex issue. We have not yet succeeded in defining exactly what suspension might involve and this is exactly the kind of discussion we need to pursue with Customs.
125. You need to pursue with Customs or you already have been pursuing with Customs.
(Lord Cranbrook) These things have been on the table in discussions but so far no solution has been found whereby there could be an intermediate sanction before revocation.
126. Mr Broadbent, that has put it fairly and squarely on your shoulders, has it not?
(Mr Broadbent) Yes. Although it is very important that any changes which were made to the regulations were agreed to be workable with ENTRUST, it probably is our job to make sure that ENTRUST have the ability to do their job.
127. And they do not.
(Mr Broadbent) In this area there is an uncertainty. We have been discussing suspension. Interestingly ENTRUST took the initiative themselves to start a system of warning letters which do not have statutory backing, a system of three letters at increasing levels of warning. Those letters were very, very effective in reducing the backlog, then rather held our hand from troubling Parliament with new regulations to make one more change. This is a scheme which is evolving and we cannot lay regulations every few months to change it. If the situation remains as it is, the letters of warning remain effective, we may feel relatively able to wait until the next opportunity arises to produce a set of regulations rather than one particular point.
128. It may be more problematic now because we have now just told the world that these three warning letters actually have no statutory backing and therefore people can go on and do what they like.
(Mr Broadbent) In which case we shall need to act and we shall be troubling this House with a resolution.
(Mr Carrigan) The effect of the warning letters in practice has been that they have been very effective in bringing forward information in a more timely way.
129. Let us look at the compliance levels. This has been touched on by a number of my colleagues but I want to be clear about something. Ninety companies are less than 80 per cent compliant. Is that correct? If one is monitoring compliance, one is presumably doing it for a reason. Every time any of this Committee have asked how it is that two thirds of all the companies were non-compliant the response you lot have given us has been that you felt they were minor breaches and they were not really important and we could not do anything to them because of that. Why do you bother to monitor it then? What is the point of monitoring it if you are not going to do anything with the information?
(Mr Broadbent) The information has been acted on. I shall not repeat the analysis of the nature of compliance. This table sets out the statistical results of a test against 21 tests of compliance some of which are material, some less so. The reason you monitor compliance is so you do know what actions to take. As was explained, largely as a result of the compliance, particularly in terms of information flows, a system of warning letters was introduced which has changed the level of compliance and significantly improved it.
130. Can I just clear up what Mr Whiting said? You made a statement in response to David Rendel's questions on this. You said all of those are now fully compliant. May I just clarify? Was this the balance of the 26 or was it all those in that figure?
(Mr Whiting) The ones in that figure.
131. What we are looking at is all those organisations which are in Figure 7 which were shown as non-compliant, some 400-odd organisations. They are now all fully compliant.
(Mr Whiting) Yes.
132. One hundred per cent compliant.
(Mr Whiting) When we go for the next visit we may find them non-compliant again for some small reason, not because of any financial fraud, nothing like that, but administrative error may account for them not being fully compliant next time you go.
133. Lord Cranbrook, right at the beginning you were talking about the time lag of five months and the £150 million or £120 million which Mr Whiting said it was probably standing at, at the moment. You said you recognised early on that this was a major concern. Those were your words earlier on to the Committee.
(Lord Cranbrook) I did not write them down, but you did, so I am sure you are right.
134. What have you done to change that? It was a major concern. What have you done to address that concern?
(Lord Cranbrook) We do not have it in our regulatory power to speed up the spend. There is relatively little we can do, but we do observe that the ratio between money which is yet to be spent and money which has been spent within the scheme is progressively changing, so the inflow is more nearly matching the balance which is as yet unexpended.
135. You told us that this was a major concern early on. Now you are telling us that actually you found there was nothing you could do about it so you did not bother.
(Lord Cranbrook) It is not within the capacity of the regulator to insist that money is spent with any particular time lag.
136. At the moment it is not, but presumably, in exactly the same way as you were having discussions about ways and means to get increased powers, you could actually bring that within the powers of this scheme.
(Lord Cranbrook) You are absolutely right and we have discussed it.
137. So why have you not, if it was a major concern?
(Lord Cranbrook) Because it was a major concern we have held numerous discussions on exactly that issue and we have enhanced our understanding of what is happening.
(Mr Carrigan) We have and understanding what is happening is very important here. The main reason for this difference between expenditure and income, which is apparent, is because the income is reported very quickly, the expenditure is reported after it has taken place. For many reasons, the bodies which are receiving the income are holding on to it, for instance until they get all the funding together for a project, because it would be irresponsible to start the project with only 25 per cent of the funds in place and to fizzle out a quarter of the way through, because they are using the landfill tax credit funds to match funds from another source. It is important to recognise that this money is in the scheme awaiting spending, much of it committed to projects but not all of it committed to projects, but it is under regulatory scrutiny. We know it is there.
138. Let us cut to the chase. The point is that it is a major concern. You can tell me why it is happening and I understand that, but it is a major concern. I presume it is a major concern because it causes problems for Customs in terms of matching up the contributions. Is that not right?
(Mr Broadbent) There have been problems in the past matching up contributions although I am glad to say they have now been resolved.
(Lord Cranbrook) The unspent money is not a major regulatory concern because it is within the scheme, it cannot be spent otherwise than in the scheme and any interests on that money, if it is not immediately being spent, remain within the scheme and we have ensured that—
139. But it is a problem for Customs in matching the contributions to the tax credits claimed.
(Lord Cranbrook) No.
(Mr Broadbent) No, it is not.
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