Costs
and savings
95. The seventh of Lord Haskins's guiding principles
for his review was that his proposals must deliver "better
value for money" for taxpayers.[174]
In his Review, Lord Haskins states that, although implementing
his proposals would cost £107 million, cost savings—achieved
through 'efficiency' savings—would be £29 million per
year. These savings would be sufficient for the initial investment
to be recouped within five years of the implementation, which
Lord Haskins proposed would begin in April 2004.[175]
96. Lord Haskins told us that his estimate of the
costs of implementing his recommendations was purposely on the
high side. He said "the actual cost of implementing this
is going to be a lot less, and in a way that is a cost saving".[176]
He also noted that the day-to-day operational costs were "quite
difficult to assess" because "the rising agenda"
made it hard to define a baseline for comparison.[177]
97. Defra's own estimates of costs have developed
over time. The Regulatory Impact Assessment, accompanying the
Rural Strategy, contained no numerical estimate of the cost of
implementing the Government's proposals.[178]
However, in December 2004, Defra sent us a supplementary memorandum,
following the Minister's oral evidence, which provided estimates
of the implementation costs and downstream savings.[179]
More detailed figures were included in Defra's submissions to
our scrutiny of the draft NERC Bill.[180]
98. Defra's latest estimate of the one-off implementation
costs for setting up the new structures of the Modernising Rural
Delivery (MRD) programme is £40 million.[181]
This includes expenditure on redundancy and relocation across
the bodies and are expected by Defra to fall between 2004-05 and
2008-09. Annual efficiency savings are forecast to rise over time:
the MRD target is for annual savings to reach £13 million
by 2007-08 and increase further to £21 million by 2009-10,
although no organisation-by-organisation breakdown of the expected
MRD savings of £21 million in 2009-10 has yet been provided.
The recently refined estimate puts the total savings by 2007-08
at £13.8 million.[182]
Defra argues that the cumulative effect of these savings means
that the MRD scheme should pay for itself within five years -
that is, by 2009-10.[183]
We analysed Defra's figures to try and establish a 'balance sheet'
of expenditure against efficiency savings over time. The results
are set out in Table 2.
Table 2: Estimated costs and savings associated
with the Modernising Rural Delivery programme and the draft NERC
Bill
Notes: na = not available.
1Natural Resources
and Rural Affairs Directorate General of Defra. Not covered by
draft Bill, therefore not detailed in Regulatory Impact Assessment
2RIA also identifies
£2 million ongoing cost associated with Integrated Agency
Source: Defra, Ev p 136; Appendix 26(a)section1
99. We asked Defra witnesses about the estimated
£21 million savings by 2009-10, and in particular what percentage
of the combined administration budget of the relevant bodies it
would represent.[184]
Defra told us that the total administration costs in 2003-04 relating
to English Nature, the Rural Development Service and the Countryside
Agency were about £136 million. Adding the relevant Defra
administration costs, adjusted for organisational changes since
2003-04, gives total administration costs of about £155 million.
At 2004-05 prices this amounts to £158m. Therefore the £13.8m
and £21.0m savings by 2007-08 and 2009-10 represent approximately
9% and 13% of administration costs respectively. This can alternatively
be expressed as a year on year average of 3% per annum up to 2007-08,
and 2.5% between then and 2009-10.
VALUE FOR MONEY
100. In terms of judging whether the proposals represent
value for money, both Lord Haskins and the Minister agreed that
that would depend on the response of the ultimate recipients of
rural delivery.[185]
Lord Haskins said:
The best value the Government can add to this delivery
thing is to provide a better service. That is where the added
value is and for people at the receiving end to say, 'Yes, I know
what the Government is trying to do here and I know what my rights
are and I know what my obligations are'.[186]
101. As Lord Haskins
indicated, the existing duplication within the delivery structure
must be reduced. We broadly support the Government's restructuring
proposals in so far as they are designed to eliminate duplication
of activity and generate efficiency savings by the agencies. But
the rationalisation process should not be a cover for the cutting
of actual budgets required for new and existing bodies to fulfil
their tasks.
102. It is important
to emphasize that the predicted efficiency savings must be realised,
and progress towards meeting them should be monitored closely,
as it will be by this Committee. To assist in this process, the
Department's Annual Report should contain a detailed analysis
of, and report on, progress towards achieving its cost savings
targets. It has been difficult at this stage for us to reach a
judgement on whether the costs involved in the proposed reorganisation
are justified. This is only partly because of the complexity in
clarifying the figures for the expected costs and savings, although
we welcome the additional detailed analysis Defra has provided.
Secondly, and more importantly, the financial balance sheet does
not take account of costs, in the wider sense, to the organisations
involved in the change process. It is inevitable that staff are
distracted by process issues during this kind of transition, and
administrative upheaval can lead to substantive work being neglected.
We hope that the final outcomes of these reforms will outweigh
the disruption caused in planning and implementing them. The best
judges of this will be the recipients of rural services themselves.
174 Rural Delivery Review,
p 170 Back
175 Rural
Delivery Review, pp 101,
103 Back
176
Q 156 Back
177
Ibid. Back
178
Department for Environment, Food and Rural Affairs, Final Regulatory
Impact Assessment: Rural Strategy 2004 including Modernising Rural
Delivery Programme, (London, 2004) Back
179
Ev 136 Back
180
Appendix 26a Back
181
Ev 136 Back
182
Appendix 26a Back
183
Ibid Back
184
Q 580-82 Back
185
Qq 157, 283 Back
186
Q 127 Back
