House of Commons - Environment, Food and Rural Affairs

Select Committee on Environment, Food and Rural Affairs Sixth Report

SIXTH REPORT

The Environment, Food and Rural Affairs Committee has agreed to the following

Report:

RURAL PAYMENTS AGENCY

1. The Department for Environment, Food and Rural Affairs (Defra) sponsors a large number of agencies and non-departmental public bodies.[1] This Committee's intention is, over time, to examine the work of these bodies.[2] We published a report into the work of the Countryside Agency last year.[3] We have a appointed a rapporteur to examine the work of Horticulture Research International. And we have regularly taken written and oral evidence from other associated public bodies in the course of our various inquiries. As part of this continuing programme we announced on 24 July 2002 that we would carry out a short inquiry into the Rural Payments Agency (RPA).[4] We appointed a Sub-committee for the purpose, which took oral evidence on 28 January 2003 from the Agency's Chief Executive, Operations Director and Finance Director.[5] We also received memoranda from Defra, the RPA, the National Farmers' Union and an individual farmer, Mr Michael Read. We are grateful to all those who contributed to the inquiry.

2. The Rural Payments Agency is a new Executive Agency formed following the merger of the payment work of MAFF's Regional Services Group and the former Intervention Board. The role of the Regional Services Group, which was part of the former Ministry of Agriculture, Fisheries and Food (MAFF), was to deliver services to farmers (such as a reception service for farmers bringing claim forms for Common Agricultural Policy (CAP) subsidies and giving general advice), to police expenditure under CAP programmes and to contribute to broader strategic policy in the English regions.[6] The main work of the Intervention Board, one of MAFF's Executive Agencies, was the provision of price support for food producers, processors and traders.[7]

3. In July 2000, the Minister of Agriculture, Fisheries and Food announced his intention to bring together the payment functions of the Regional Services Group and the Intervention Board under one roof, in order to "provide top quality customer service using modern electronic systems".[8] In November 2000 Mr Johnston McNeill, former Chief Executive of the Meat Hygiene Service, was appointed Chief Executive of the new organisation, which at the time was to be known as the CAP Payments Agency (CAPPA). Before Mr McNeill took over responsibility for CAP payment administration, due on 1 April 2001, the Agriculture Committee of the previous Parliament took oral evidence from him in February 2001.[9] CAPPA, by then renamed the "Rural Payments Agency", was established on 16 October 2001. It is now the single accredited paying agency responsible for CAP schemes in England (and for some United Kingdom-wide schemes) and is responsible for spending more than £2 billion each year.[10] The Agency's Annual Report and Accounts for its first year, 2001-02 , were published in November 2002.[11]

THE RURAL PAYMENTS AGENCY

The Rural Payments Agency (RPA) is the paying agency responsible for all Common Agricultural Policy (CAP) schemes in England and for certain CAP schemes throughout the United Kingdom. The RPA was formed on 16 October 2001 when it took over the payment functions of the Regional Service Group of Defra and the Intervention Board.

The RPA's Mission Statement is:

"To be a customer focused organisation that pays valid Common Agricultural Policy claims accurately and on time."

Payments are made under CAP schemes to about 80,000 farm businesses and 2,700 traders. The RPA also buys and sells produce as a way of supporting market prices for certain commodities; this is called intervention buying and selling. The Agency also funds paying agencies in Scotland, Wales and Northern Ireland. In total the RPA disbursed £2.7 billion in 2001-02.

HM Treasury funds the payments in the first instance. The RPA then claims most of the amount from the European Union's European Agricultural Guidance and Guarantee Fund (EAGGF).

The RPA has its Headquarters in Reading, and other offices in Carlisle, Exeter, Newcastle and Northallerton. There are also offices in Cambridge, Crewe and Nottingham (which will close in December 2004) and offices in Bristol and Worcester.

The average number of full-time equivalent employees in 2001-02 was 3,161.

The Change Programme

4. Under the Government's Spending Review 2000, £130 million of ring-fenced funding was provided to "streamline and modernise the system of administering claims under CAP".[12] To achieve this within a certain timeframe a "Change Programme" was initiated on 1 April 2001, the aims of which are to:

ensure 95% electronic delivery capability for CAP schemes by 2004, with the facility for electronic submission of claims for all schemes;
reduce the cost of CAP administration and the risk of disallowance;
reduce the average time taken by a claimant to complete a claim for CAP payment;
pay all valid claims submitted electronically within 2 weeks of the start of the payment window (or 3 weeks from the date of receipt where no payment window exists); and
improve the levels of staff and customer satisfaction, measured in annual surveys, by 5% per annum.[13]

5. Defra's memorandum of November 2002 states that "the Change Programme remains on schedule for completion by the end of 2004".[14] According to the RPA's Annual Report "it will be 2005 before all the new systems and structures are in place and the benefits the new Agency will bring . . . can be fully realised".[15] As well as permitting electronic delivery of the RPA's services, it is envisaged that the Programme will allow Defra to deliver savings of £35.9 million per annum from 2005/06, of which £10 million is accounted for by reduced employment costs.[16] The relevant Public Service Agreement target for Defra under Spending Review 2000 was to "achieve a reduction of 10% in the unit cost of administering CAP payments by March 2004, and 95% electronic service delivery capability for such payments by March 2004".[17] This has since been put back by a year as part of Spending Review 2002 because of staff being diverted to help deal with the outbreak of foot and mouth disease in 2001.[18]

6. New procurement projects in civil central Government are subject to Gateway Reviews by the Office of Government Commerce (OGC). The Gateway Process examines a project at critical stages in its lifecycle in order to provide assurance that it can progress successfully to the next stage.[19] The OGC accordingly began a review of the Agency's Change Programme reporting at the Gateway 1 stage in March 2001. While this report confirmed that the Programme could move to the next stage, the review team also assessed it as "high risk".[20] Following approval at the third Gateway in January 2003, [21] the RPA signed a £35 million, seven-year contract with the management consultant and technology services company, Accenture, to develop the systems necessary to bring the Programme to fruition.[22]

7. The Chief Executive of the RPA, Johnston McNeill, described the OGC's Gateway 3 report as "very, very positive" and was "very pleased with the supplier [Accenture] that we have on board". [23] The importance of the new IT system cannot be exaggerated: it will facilitate all of the activities of the Agency. In recent years there have been major problems with some new large-scale Government IT projects. Given the scale of the Change Programme and the consequences of failure, we hope that the management team is right in their belief that the Change Programme will be a success. Defra should monitor the progress of the Programme to ensure that the timetable for its implementation is adhered to and that it represents good value for money.

Late Payments

8. Two of the Agency's key performance targets listed in the Annual Report relate to the processing of claims:

to process at least 96.14% of valid IACS claims by value within the EU deadline; and

to process at least 98% of valid CAP claims within ministerial deadlines and all claims within the set EU Commission deadlines or in their absence 60 days. [24]

Neither of the above targets was met in 2001-02 due to "a combination of industrial action, causing late AAPS (Arable Area Payments Scheme) payments, relocation of resources in response to the FMD outbreak and the introduction of the LW(D)S (Livestock Welfare (Disposal) Scheme)". [25] According to the National Farmers' Union "payments arrive erratically and are frequently late . . . Particularly serious problems occurred with both the 2001-02 arable payments and the 2001 bovine payments".[26]

BOVINE SCHEME PAYMENTS

9. The Integrated Administration and Control System (IACS) is the European Union's expenditure control mechanism for making payments under the Common Agricultural Policy (CAP). Farmers who want to claim payment under IACS are required to submit application forms for each applicable scheme. Difficulties have arisen in the United Kingdom as a result of a requirement under European legislation to cross-check all bovine subsidy information gleaned from IACS forms against the Cattle Tracing System (CTS) database, which is run by the British Cattle Movement Service (BCMS), and which was "designed primarily to meet animal health policy objectives". [27] No cross-checks could be made in 2000 because the CTS was not completed until the end of January 2001. During 2002 the RPA decided not to apply cross-checks as they knew they would find animals missing on the CTS and hoped to persuade the European Commission by substituting other controls. [28]

10. When the Commission insisted that the cross-checks be made the RPA experienced "difficulties in making 2001 bovine scheme payments principally as a result of discrepancies identified between claimed animals and data notified by producers to the British Cattle Movement Service".[29] The "enormous number of anomalies" revealed by the checks needed to be investigated which led to delays in payment.[30] According to the annex to the memorandum submitted by Defra in November 2002, these discrepancies arose "because of the failure by cattle keepers to notify the CTS when animals are born, die or are moved".[31] However, in his oral evidence to us Mr McNeill conceded "that on reflection this is more administrative error on our part than the farmers".[32] Efforts should be made to clarify the reasons for the difficulties experienced, so that past mistakes can be learnt from.

11. As a result of these difficulties 19% of unpenalised claims for 2001-02 were paid after their deadline of 30 June 2002.[33] In addition farmers were penalised where they were deemed to have failed to update information on the CTS.[34] In a letter from one such farmer, Mr Read, attention is drawn to the sheer complexity of the rules of registration governing the CTS and the IACS system.[35] The United Kingdom will also incur a "disallowance", which is a financial penalty imposed on a Member State by the Commission when it identifies control weaknesses in the operation of the IACS system. The Commission has decided to impose a disallowance figure of £14.346 million on the United Kingdom in respect of bovine schemes for the financial year 2000.[36] This is a high penalty.

12. The RPA has since made efforts to improve the situation. In December 2002, it announced a review of penalties applied as a result of cross-checks with the Cattle Tracing System in relation to 2001 bovine claims, and undertook automatically to reconsider all relevant claims. Compensation will be paid in the form of interest for late payments.[37] In his evidence Mr McNeill wondered "whether it might be more appropriate if [the BCMS] were to be a part of the Rural Payments Agency; after all we are very heavily reliant upon it, it is extremely important".[38] The Government has subsequently announced that the RPA and BCMS would merge from 1 April 2003.[39] The merger would, it said, enable both organisations to learn from one another, and would mean that a "single point of customer contact" would be provided.

13. However, there is still immediate cause for concern. According to recent media reports, nearly 100,000 claims for advance payments under the 2002 bovine schemes were still awaiting approval five months after the payment window opened on 16 October last year. Furthermore, only about a quarter of suckler cow advance payments had been approved by 12 March.[40] The timetable in both cases requires that balance payments commence in April and are completed by the end of June. [41] In the supplementary memorandum submitted by Defra in January 2003, the RPA identified problems with the suckler cow premium IT system as it was "old, inflexible, at the end of its useful life and extremely difficult to maintain", but had no plans to redevelop it because "it would not represent good value for money to do so now with the redevelopment of RPA IT systems about to start".[42]

14. Although the late payment of bovine scheme subsidies in the last 2 years is partly due to factors not necessarily within the control of the RPA, such as the demands made on staff by the outbreak of foot and mouth disease, it is clear that a major cause of delay was administrative error following the introduction of cross-checks with the Cattle Tracing System. We recommend that the Agency continue to improve liaison between the Cattle Tracing System and the IACS system: for that reason, we welcome the merger of the British Cattle Movement Service with the RPA. Given that the RPA is already undergoing a major Change Programme, this further re-organisation will require good and careful management. Late payment on bovine systems looks likely to continue until the new IT system is up and running. Therefore, we also recommend that the RPA solve the problems of late payment on bovine schemes as a matter of urgency.

Customer Relations

CUSTOMER SATISFACTION

15. Payments in respect of the various CAP schemes are made from the European Agricultural Guidance and Guarantee Fund (EAGGF).[43] The RPA must make payments in line with rules laid down by the European Commission.[44] Therefore while the RPA is a provider to farmers, it must also act as the agent of the Commission. In short the RPA might be argued to have two customers whose differing needs can cause tension: yet in its Mission Statement the RPA declares its intention to be a "customer focused organisation".[45] In his evidence to the Committee the Chief Executive defined customers as "individuals, organisations or intermediaries outside of central government who submit forms to RPA in relation to CAP schemes" and distinguished them from stakeholders who were "organisations or individuals indirectly affected by or interested in ensuring that RPA delivers efficient and effective services/benefits to its customers".[46] According to this point of view farmers are customers, the European Commission and HM Treasury are stakeholders.[47] There is an argument that in trying to address both the national interest and the interests of the Commission there needs to be greater accountability in the way CAP schemes operate. Too often in the past the real purpose of the payment of these subsidies to farmers has been frustrated by bureaucracy and inefficiency.

16. One of the targets in the Agency's corporate plan is to improve customer satisfaction by 5%.[48] The RPA undertook a customer satisfaction survey in the summer of 2002.[49] The result was a "satisfaction index" of 71.7% which put the RPA in the bottom 17% of companies and public sector organisations.[50] We are encouraged by the fact that the RPA identifies farmers and other recipients as its 'customers', but we are concerned at the poor result of the recent customer survey. We hope that the RPA is not expecting the electronic delivery of services to be a panacea; it is essential that at every stage of the implementation of the Change Programme the Agency ensures that the focus on customers is maintained.

IACS FORMS

17. Farmers who want to claim payment under IACS are required to submit application forms for each applicable scheme. The Agriculture Committee of the last Parliament noted that "United Kingdom farmers regard the forms as a considerable burden in terms of the time taken to complete them, their complexity and the administrative process to which they are subjected". [51] The Agriculture Committee looked at the forms used by other countries and was impressed by the simplicity and helpfulness of the Irish form,[52] which remains a good model to work towards. In evidence to this inquiry, Mr McNeill accepted that the IACS form was "particularly complex" and that "farmers would find it very difficult".[53] However, the RPA did "hope to improve the situation . . We are trying to enable [farmers] to make application by using e-technology, on-line, where intelligent systems will inform them if they are putting the correct information on the forms".[54] Now that Accenture had been contracted to develop the new IT system, the RPA's Operations Director, Hugh MacKinnon, said that "the new forms ought to arise as a result of the system development . . . It should be next year".[55] We welcome the prospect that new means of electronic delivery will simplify IACS forms. However, we are not yet fully persuaded that the RPA is treating simplification of such forms with sufficient urgency. The matter should now be given the highest priority.

Staffing

18. The payment of claims was affected by industrial action in 2001-02. Although this dispute was between trade unions and Defra as a whole, the RPA was targeted because of the visible effect the action would have.[56] It is worth noting that the Agency will be able to negotiate pay deals independently of the Department from 2004.[57] However, as part of the Change Programme, the Agency is to undergo a reduction in staff from "about 3,400 down to just under 2,000".[58] Moreover, in its evidence, the NFU identified a "chronic problem with the recruitment and retention of qualified staff". Farmers had heard from staff in RPA regional offices of "casual staff being recruited and trained, only to be laid off again because funding has run out".[59]

19. The Chief Executive, Mr McNeill, took the view that now that the pay dispute was over the RPA had "probably the best industrial relations of any organisation" he had ever worked with.[60] Nevertheless, any organisation facing such reductions in staff will inevitably face difficulties. Good information is needed and early decisions about staffing issues need to be taken. It will be important to retain experienced and qualified staff. We recommend that the RPA provide details of developments in this area in its Annual Report, and in particular the breakdown of staffing between permanent and casual employees.

Conclusions

20. The Rural Payments Agency is a new organisation which has faced early problems. Some of these were not of the Agency's making while others, such as the complexity of IACS forms and low customer satisfaction, indicate areas which need prompt attention if the payment of CAP claims is to move into a new era of efficiency as promised. We welcome the steps which have been taken, and we urge the Agency to do more. We hope that the RPA will at all times keep its customers — farmers — uppermost in its thoughts.

21. The Committee will maintain its interest in the work of the Rural Payments Agency. We look forward to receiving its Annual Reports and updates on progress in the implementation of the Change Programme.

List of Conclusions and Recommendations

1. The importance of the new IT system cannot be exaggerated: it will facilitate all of the activities of the Agency. In recent years there have been major problems with some new large-scale Government IT projects. Given the scale of the Change Programme and the consequences of failure, we hope that the management team is right in their belief that the Change Programme will be a success. Defra should monitor the progress of the Programme to ensure that the timetable for its implementation is adhered to and that it represents good value for money (paragraph 7).

Although the late payment of bovine scheme subsidies in the last 2 years is partly due to factors not necessarily within the control of the RPA, such as the demands made on staff by the outbreak of foot and mouth disease, it is clear that a major cause of delay was administrative error following the introduction of cross-checks with the Cattle Tracing System. We recommend that the Agency continue to improve liaison between the Cattle Tracing System and the IACS system: for that reason, we welcome the merger of the British Cattle Movement Service with the RPA. Given that the RPA is already undergoing a major Change Programme, this further re-organisation will require good and careful management. Late payment on bovine systems looks likely to continue until the new IT system is up and running. Therefore, we also recommend that the RPA solve the problems of late payment on bovine schemes as a matter of urgency (paragraph 14).

We are encouraged by the fact that the RPA identifies farmers and other recipients as its 'customers', but we are concerned at the poor result of the recent customer survey. We hope that the RPA is not expecting the electronic delivery of services to be a panacea; it is essential that at every stage of the implementation of the Change Programme the Agency ensures that the focus on customers is maintained (paragraph 16).

We welcome the prospect that new means of electronic delivery will simplify IACS forms. However, we are not yet fully persuaded that the RPA is treating simplification of such forms with sufficient urgency. The matter should now be given the highest priority (paragraph 17).

Nevertheless, any organisation facing such reductions in staff will inevitably face difficulties. Good information is needed and early decisions about staffing issues need to be taken. It will be important to retain experienced and qualified staff. We recommend that the RPA provide details of developments in this area in its Annual Report, and in particular the breakdown of staffing between permanent and casual employees (paragraph 19).

The Rural Payments Agency is a new organisation which has faced early problems. Some of these were not of the Agency's making while others, such as the complexity of IACS forms and low customer satisfaction, indicate areas which need prompt attention if the payment of CAP claims is to move into a new era of efficiency as promised. We welcome the steps which have been taken, and we urge the Agency to do more. We hope that the RPA will at all times keep its customers — farmers — uppermost in its thoughts (paragraph 20).

The Committee will maintain its interest in the work of the Rural Payments Agency. We look forward to receiving its Annual Reports and updates on progress in the implementation of the Change Programme (paragraph 21).

1 For a full list, see http://www.defra.gov.uk/corporate/agencies.asp Back