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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