Select Committee on Environment, Food and Rural Affairs Minutes of Evidence


Examination of Witnesses (Questions 20-39)

Wednesday 18 June 2003

SIR BRIAN BENDER, KCB, MR PAUL ELLIOTT, MR ANDREW BURCHELL AND MR DAVID BILLS

  Q20  Mr Lepper: Would Mr Burchell wish to add anything?

  Mr Burchell: Perhaps I could refer back to the accounts for the year before and the Comptroller and Auditor General's opinion then, which was actually more serious in the nature of a disclaimer. He did refer then to the measures that we were starting to take even during the course of last year to deliver further training to embed resource accounting and budgeting, the action I took to set out more formally the financial responsibilities for senior managers within the organisation over budgetary control and monitoring, and indeed when you look at the qualification on the 2001-02 accounts I think it is fair to say that he refers there to further progress on embedding resource accounting and budgeting. I think the action we took last year has been reflected in the improved nature of the qualification, although still disappointing. I think having a true and fair opinion on the closing balance sheet for last year does actually provide us with a very robust basis for moving to unqualified outcome for the 2002-03 accounts. In terms of the work we are doing on embedding resource accounting and budgeting, we are effectively tackling that through three strands. On people we have developed a financial competency framework whereby all staff within the Department who have a finance element to their jobs have to assess themselves against a competency matrix on different levels and identify the training requirements. We are in the process of up-skilling the finance function both within the finance directorate and throughout the organisation. The Comptroller and Auditor General's report also referred to the need to improve our systems. At the moment we run two systems on accounting and on budgeting and we are moving this year towards a single integrated system. Also, we are improving our processes in terms of our period end processes at the end of each month, which should improve the quality and timeliness of the financial monitoring information we get in the management accounts each month. Therefore, taking those three things and building on the unqualified opinion in relation to the closing balance sheet, we are cautiously optimistic that we are moving in the right direction.

  Q21  Mr Lepper: Could I just ask one thing there. The underspend was part of what was commented on. If a director of a particular department within Defra sees his or her department heading for an underspend how does the system ensure that that cash gets redistributed, as it were, or used throughout the system?

  Sir Brian Bender: Shall I begin and then again Mr Burchell may want to supplement. We have monthly financial management information which goes to budget holders and the management board. We have quarterly reviews and a mid-year review, which is quite serious in the sense that if there are underspends against profile we would expect re-allocation unless the part of the Department underspending has a very good reason. The other issue is of course the possibility of end-year flexibility. In the case of 2001-02, because we had made a rather massive claim on the reserve the Treasury rules say you cannot carry money forward from one year to the next. If we do not make a claim on the reserve we can carry money forward and it may be that we would prefer to carry money forward than actually re-allocate it. So that would be a decision that would be taken, probably around the end of the third quarter, that it is better to carry it forward rather than re-allocate it from Directorate A to directorate C. For example, if the underspend was in the England Rural Development Programme we might take the view that it was better not to lose it from that but to try and catch up the following year.

  Mr Burchell: Perhaps I could just add in relation to underspends, the issue is probably more acute in relation to capital programmes. That is not unique to our Department, it is unique across Government, I think, as reports pick up. One way to tackle that is when one is allocating funding to different projects and programmes, on capital in particular, you take a very close look at the capacity of the organisation to actually do all of that work in terms of the skills required and the business analysis because very often, if you take IT as an example, very often it is not a technical solution it is more a business solution, which may be IT driven in some cases. Certainly this year when we are putting together a capital programme, on the IT in particular we have taken a hard look at the capacity to actually carry out all these projects and manage a portfolio in a way that therefore should help to mitigate the risk of underspend.

  Mr Lepper: Thank you.

  Q22  Mr Jack: Your Department, if I have understood the numbers correctly, has got a 2% increase over the next two years in terms of your resource budget. If that is the case, you are facing a real terms reduction in the resources that you have available and yet so far you have laid out an impressive list of things that you would like to achieve. Clearly that means internal savings. Could you just give the details to the Committee as to how those savings are to be achieved and how much in cash terms will that result?

  Sir Brian Bender: I will answer the last part of your question but I will ask Mr Burchell to comment on the opening point first, perhaps.

  Mr Burchell: I think we need to draw a distinction between the SR 2002 outcome which, as the report said, indicated an increase in our departmental expenditure limit of 2.7% per annum, which is a real terms increase, with the actual bottom line resource numbers here. It is possible to reconcile the SR 2002 figures with the resource tables but budgets are not static. The numbers which are reported in the departmental report are on total resource budget terms and therefore do also include annual managed expenditure as well as departmental expenditure and the annual managed expenditure (which is principally CAP support payments) was forecast to go down over the planned period and that is why it looks as if our total resource budget is going down, which indeed it is, but that is principally due to a decline in the forecast of the annual managed expenditure rather than the departmental expenditure limit. Similarly, in terms of the reconciliation between the Spending Review figures and the resource totals at the bottom. Typically the Treasury, when they publish Spending Review settlement outcomes, strip out one-off time limited items, such as investor safe budgets, capital modernisation fund budgets and also they tend to strip out inter-departmental budget transfers. When you add all these things back in then the numbers change compared with the outcome. Also, since the Spending Review last year the Treasury has reduced the cost of capital from 6% to 3.5%, so again that impacts on the numbers. So it is quite a complex process of reconciliation to move through from a departmental expenditure limit, which is the focus of the SR 2002 outcome, to the figures here.

  Sir Brian Bender: However, we would like to find more money to fund the things that the Department and Ministers would like to do and that is the purpose of the Activity Baseline Review that I was describing earlier to Mr Lepper. How much we will find from that I would not like to say at this stage but one area where we are looking to make some savings would be on the Over Thirty Months Scheme, which is part of the Departmental Expenditure Limit, rather than Annually Managed Expenditure starting this financial year, and if the Food Standards Agency recommend (as they are consulting on doing) radically changing it then while we would still be required to test animals the cost of that testing would be significantly less than the cost of administering the Over Thirty Months Scheme. So that is an area where we would look for some savings over the period.

  Q23  Mr Jack: Are you not able to give us a figure for a target for, for example, your overall cost improvements in whatever way you are going to derive that because that might give us an indication as to your efficiency gains?

  Sir Brian Bender: Yes.

  Q24  Mr Jack: What would that number be?

  Sir Brian Bender: We are committed (says my brief) to making efficiency savings over the three financial years of £16 million, £38 million and £85 million and much of that will be sought from the administration budget. Therefore, in order to do that each directorate is looking for 3% efficiency savings year on year, but that is the administration budget. The answer I was giving earlier related additionally to the programme budget where there would be, we would hope, larger sums involved. We do not have at this stage a target for the savings we are looking for from the activity baseline review. That is actually one of the things we are discussing now and we are discussing next week with our Ministers. It is an exercise which will be concluded in the autumn.

  Q25  Mr Jack: I have to say as an observation you may be following Treasury rules on how certainly the resources section, chapter 5, is laid out but it does not provide you with an easy to read commentary about what you are doing. For example, you talk about the Curry Commission, funding will rise to £200 million, but when you try and pick out in this plethora of detail where Curry appears and what is happening it is very difficult to do and yet it is an absolute flagship part of your Department's programmes because if I look at chapters 1—4 there is very little in the way of relationship, in the way the report is laid out, to any of the financial information that is contained in chapter 5. So we really cannot put activity and funding together in an easy format. Is there any reason why we are getting this sort of confusing picture?

  Mr Burchell: I think part of the difficulty we had when we had the Spending Review outcome is that many of the strategies which were being formed to inform business plans were still in the process of being developed. For example, work is still continuing within the Curry implementation group within the Department through programme management to actually put the definition on the precise budget allocations and linking those to activities in the same way that we are still working on the Animal Health Strategy, which is part of the strategy on farming and food, again developing the policies, the activities and the expenditure requirements to actually inform that. Part of the difficulty is that we have not got the level of dis-aggregation going forward because not all the work and the strategy development has been completed to actually provide that amount of definition.

  Sir Brian Bender: If I understand your question—and no doubt the Committee will reach a formal view on this—one of the issues you would like us to consider for next year is dis- aggregating in what is currently the activity chapter rather than the financial chapter at least some of the main headlines.

  Q26  Mr Jack: Yes. For example, I took one topic, which was flood protection, and I tried to find out what Defra was doing and I found on p 107 a reference to a further allocation of 15 million in 2004-05, 40 million in 2005-06 and then it is going to have 150 million the third year, so I think is this a cumulative figure or an annual figure? Then I turn up table 3 and I find capital resources down there. Then I turn to another page, 116, and I find a third set of figures talking about resources in some unnamed currency for flood and coastal defence. It is quite interesting that pounds is only discoverable in this by the time you get to page 117. Perhaps you could tell us what currency Defra are working in?

  Sir Brian Bender: Pounds.

  Q27  Mr Jack: Why is it that if I want to get a complete picture of both capital and resources for your expenditure on flood and coastal defence, which as you will know has been a key area of public concern, I have to say I find it impossible to get that picture from this document.

  Mr Burchell: First of all, let me illustrate by means of flood defence and then move to the more general criticism. In relation to flood defence the actual sources of funding are quite complex. Apart from the capital grant from Defra, much of the funding comes from local authority levies and are not therefore part of our departmental expenditure limit. So there is clearly a disconnection between the spend that actually goes on flood defence through the Environment Agency and our departmental resources.

  Q28  Mr Jack: With respect, I thought we were in the era of joined-up Government?

  Mr Burchell: Yes. What I think your comment (which is fairly made) does highlight is the need for us in the future, particularly in relation to both reporting on past progress and also putting forward future plans, to provide a more thematic commentary around some of our core strategies. Part of the problem we faced over the last year was that we were working on what our corporate strategy was and I think now we have got the corporate strategy which identifies the key things which we need to concentrate on together with the work we have been doing on delivery planning, which actually provides an indication of all the things we are doing to support achievement of a particular target. It also indicates the relative importance of those activities. I think we need to work harder to provide a more thematic commentary and also give you a bit more light and dark about what are the important things we have achieved rather than a list.

  Q29  Mr Jack: One of the themes we have taken up is the overall rural responsibility of Defra and trying to bring some of these factors together so that this annual report gives us an overview would be welcome. Just as an aside, on page 116 under "Support for LFAs" I do not understand the strange symbol which appears in there. What does that mean?

  Mr Burchell: It says in the footnote it represents less than £500,000.

  Q30  Mr Jack: I see. Let me just move on to one final thing. The Chairman alluded to Lord Haskins and listening to him this morning you could well be what is left of Defra! So given that you will have an awful lot of capital land, I see that the Department's fixed assets value is £507 million but I note that in each of the next five years your target for disposal of sales of any of that is £5 million a year, which I reckon is about 3% of your total asset sale. What are you doing to make your Department light on its feet in case you do have to make some changes in the use of your land and buildings, which I think forms the bulk of your fixed assets? As I say, flexibility is the key word forward. What are you doing to become more flexible in the use of this capital base?

  Mr Burchell: In terms of the figures over the planned period on land and buildings, much of that increase reflects the work of the Valuation Office Agency in terms of revaluation where in some—

  Q31  Mr Jack: I am sorry, Mr Burchell, you may not have understood my question and forgive me if I did not pose it properly. Mine was a very simple one. The net book value was £507 million, as stated on page 108, and on the same page you are talking about assets being disposed of at a rate of £5 million a year for the next three years from sales of its surplus assets. So my conjecture was that is 3% of your assets over the next three years. If you are going to have to be more flexible are you taking steps, for example, to go into the field of sale and leaseback or other arrangements so that if you do not need all your future capital and if there are only four of you who are going to be running Defra in the future you can dispose of this asset?

  Mr Burchell: In relation to land and buildings, we did cover asset utilisation in our departmental Investment Strategy published in December. The land and buildings—our track record on utilisation is very good. Approximately only 3% of our space was vacant in March 2002. In relation to what happens if you end up with a change in the organisational structure of the Department, of course these buildings are actually occupied by people who may under future organisational changes be transferred to another organisation, in which case assets get transferred as opposed to being disposed of. So the consequences of an organisational change, in the same way as a machinery of Government change, would lead to asset reallocation and transfer rather than disposal.

  Q32  Paddy Tipping: Let me put things in a slightly different way. Let me see if I have got this right. There is no real development money in the Department so you are trying to generate it by looking at your activities, reviewing your activities and making 3% savings year on year in administrative costs. Is that it in a nutshell?

  Sir Brian Bender: The increase overall in real terms in the 2002 Spending Review was, I think, just under 2.8%, which in Whitehall league table terms was not bad considering we were not the Department of Health or the Department for Education and Skills, but we are a department with a large agenda and therefore what we are looking to do is to see how we could reallocate to what are the priorities, because with the fiscal situation as it is it would be certainly unwise of us to look forward to massive increases in the 2004 Spending Review.

  Q33  Paddy Tipping: Tell us about these 3% year-on-year administrative savings. Those are larger than many other departments have tried to achieve in the past, without any success I have to say. Is it achievable?

  Mr Burchell: A large proportion of the efficiency savings actually occurs in year 3 as a consequence of—

  Q34  Paddy Tipping: They always do. They are always at the back end!

  Mr Burchell: In relation to the regional restructuring programme and the creation of the RPA and Spending Review 2000 and the changed programme currently underway both in respect of the RPA IT system, and also the ERDP IT system, we expect those two to deliver the bulk of the efficiency savings over the planned period and they actually materialise in the third year and then actually roll out further, particularly in the case of ERDP IT.

  Q35  Paddy Tipping: If I have got it right, across this year and next year you are looking for staff savings (yourself and your agents) of 11% for 1300 jobs. That sounds quite a lot and most of those are in the RPA, but you have just told me that the RPA savings are not going to come until year 3.

  Mr Burchell: There are RPA savings occurring even between 2003-04 and 2004-05. I think you must be referring to table 6 of chapter 5, where we do have a decline in the number of full-time equivalents. That is essentially due to reductions of the RPA which are planned already under the regional restructuring programme as per the Spending Review before last and also the consequences of outsourcing our IT.

  Sir Brian Bender: The RPA is, for example, closing its Cambridge operation in the months remaining in this calendar year.

  Q36  Paddy Tipping: You will not need reminding that big IT projects are perilous at times. The RPA and Change Programme is not your direct responsibility but I think, Sir Brian, you are on the management board. Is it going to happen on time as planned?

  Sir Brian Bender: I am entirely confident that I am accountable to this Committee and to the Public Accounts Committee for its success, even if I can delegate some of that accountability to Johnston McNeill. The Government has set up a process with the Office of Government Commerce for reviewing through a Gateway Review process, peer reviewing major change, particularly IT projects, and the Rural Payments Agency project went through the third gateway, the one necessary before signature of contract, around the turn of the year (I think it was January) and got a green light. I did actually cross-examine the head of the review team saying that given it is inherently high risk and complex, surely an amber light would be more realistic. The answer was that their view was the risk management and the skills in the team handling this were as good as they could be. They have now placed the contract with Accenture, as I imagine Johnston McNeill told you when he was before the Committee. I am absolutely not complacent about a programme like that and will continue to keep a careful eye on it.

  Q37  Paddy Tipping: Leaving the RPA on one side, what is the turnover of staff like in the Department? What is the percentage turnover? It will vary from level to level but say at the lower paid levels in the Department?

  Sir Brian Bender: I think when I was before this Committee last year the data we had at the time was around 9% between the beginning of June 2001 to 30 May 2002 at the lower grades. At that same level of grade, the least well paid administrative grades, from 1 April 2002 to the end of March it fell to 7.7%. If you take the Department as a whole, the figure for all staff (permanent and casual) for the year ending at the end of March 2003 was 7.2%. If you exclude the casuals then the turnover for all staff was 4.3%, which as a figure is not one that inherently worries me. There may then be more geographical changes and clearly the turnover does get higher, so at grade 7 level up to March it was under 1% and at the administrative assistant level for permanent staff it was about 8%.

  Q38  Paddy Tipping: One of the things that we tend to forget is that this is still a young and youthful department which has had some difficulties getting together. How do you enthuse the people there? How do you make sure that everybody is on board on this enterprise?

  Sir Brian Bender: That is one of the essential elements of the Change Programme. I will give you some indicators first and then try and answer the direct question. I think I may have said this when the Secretary of State and I appeared before this Committee in December. In the staff survey we carried out last year 57% of staff said they enjoyed working for Defra, 15% disagreed; 62% said they were satisfied with their current job, 20% were dissatisfied and 85% said it was a friendly and cooperative working environment. So that is the first indicator. The second indicator is that we have been for the last few months going through the process of re-accreditation as an Investor in People and we have just had a very gratifying report back from the lead assessor: "Defra is a very different organisation to the one I previously assessed. Being accredited as an Investor in People is a real success and one that not all Government departments have been able to emulate." Those are two indicators. How do we enthuse people? I think actually the portfolio enthuses people. I think it is an interesting and exciting portfolio whether one is looking at the environment, sustainable development more generally, rural or the agricultural bit of it. Then these things come down to the qualities of management and leadership, how people in teams can be clear about what it is they are doing, whether and how they understand that fits into what the Department is trying to do. The anecdote on this is the story of the man sweeping leaves in the car park in NASA and when asked what he was doing he said, "I'm trying to get a man on the Moon." I do not think Defra can quite do that in that sort of a way, but in its own way that is what managers should be trying to do, explaining to people where their work fits in, the clarity of the job and I think then building on the natural enthusiasm for a lot of people in the public service.

  Chairman: Lord Haskins is going to cast a little ray of sunshine over all that, is he not? Alan Simpson.

  Q39  Alan Simpson: Sir Brian, I just want to focus on this capacity to deliver, chapter 4. I was very interested to see on page 100 that your reference to the introduction of a multi-year pay settlement was designed to "signal a significant move towards rewarding and valuing performance in the delivery of objectives and the acquisition and use of skills and competencies." It is a bit early in the process to ask you whether that is working or not, but how would we know?

  Sir Brian Bender: If I may, could I just come back on the Chairman's further comment about Lord Haskins. I do think our people in many respects are used to coping with ambiguity and as a matter of fact the staff, for example, in the Rural Development Service, will not know either what Lord Haskins is going to recommend until, say September, or what the Government's decision is until as brief a period as practical after that. Certainly in the two Rural Development Service locations I have been around in the last few weeks of course staff are aware of it, but they are getting on with the job and they are used to working in an environment of, as I say coyly, ambiguity; the question again comes down to management and leadership. If there is to be a change will the managers and leaders lead their people into it or will they feel victims of it? Good leaders, assuming they are convinced of the reason for the change, will lead their people into it. No doubt you will make a few more comments during the hearing on that but I take very seriously the issue of motivating our front-line staff during this period of intense uncertainty.


 
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