Examination of Witnesses (Questions 280-299)
MR ELLIOT
MORLEY MP, MISS
SARAH NASON
AND MRS
SUE ELLIS
25 JANUARY 2006
Q280 David Taylor: I worked in the
public sector a long time. Efficiency savings are regularly cited
by top managers in organisations when all they have done is to
delete from the establishment posts which have never been filled
and called them efficiency savings. I am not saying that is quite
how it worked with the Environment Agency. Could you cite a couple
of key examples of really hard-headed decisions which have led
to significant efficiency savings?
Mr Morley: I really think, in
all fairness, that is a matter to put to the Agency because, as
an independent body, how they manage their budgets, where they
find those savings and how they apply them are quite properly
matters for them and their board.
Q281 David Taylor: They get their
budgets from Government.
Mr Morley: That is true, and from
some charges.
Q282 David Taylor: Yes, of course.
The Environment Agency spends about £3 million a day of our
money in the present financial year, of which about £2 million
a day comes from government grants-in-aid and so on, and the remaining
£1 million a day comes from charges and things of that kind.
Do you believe that this is the best form of finance that a large
Agency of this kind can depend on and utilise?
Mr Morley: I think there has to
be a combination of grant-in-aid and revenue that it raises in
charges for the work that it does. As I said earlier, Chairman,
I think the charges should be no more than are necessary to carry
out their functions. Conversely, I also think that it is important
to check that grant-in-aid provided by the public purse is not
being used as some kind of subsidy for industrial functions when
those should be quite properly making a contribution. To be clearer
in terms of efficiency, may I say that we do have a joint efficiency
programme between the EA and Defra in terms of looking at their
budget. The Environment Agency itself is benchmarked in relation
to its efficiency targets. It has an efficiency target of over
2.5% year-on-year, incidentally. If my memory is right, they have
managed to achieve that target. Again, that is a question that
you can put yourselves. At the moment, the Environment Agency
is the second largest financial contributor to Defra's efficiency
portfolio and is forecasting to deliver at least £106 million
over the SR04 period.
Q283 David Taylor: It sounds like
a phrase written by an accountant in some ivory tower. I spent
years doing that, so I am not very impressed by it.
Mr Morley: It is entirely up to
you to talk to the Agency about that. We would expect a body like
the Environment Agency, amongst all our agencies, of which we
have quite a large number in the Defra family, to scrutinise their
budget effectively to make sure that they are applying their funds
as efficiently as they can.
Q284 David Taylor: How much freedom
of movement does the Agency have in terms of the grant-in-aid
which is transferred to them? Is it in tightly controlled pools
of expenditure? The RSPB in particular said that there should
be less ring-fencing of finances which would allow the Agency
greater flexibility. I am going to ask you a question in a moment
about oil storage regulations but that one will do for the moment.
Mr Morley: It is true that some
of the Agency's funds are ring-fenced. That is done because they
are carrying out functions for a specific purpose and they are
funded for the specific purpose which they are carrying out. Not
all their funds are ring-fenced in this way. The Agency does have
some flexibility in relation to its budgets. For example, it can
determine its own priorities and it can move funding around within
its own finances. It is a combination of both.
Q285 David Taylor: You described,
right at the very start, one of the important responsibilities
of the Environment Agency as pollution control. There is a number
of basic regulatory regimes that are associated with that, such
as the oil storage regulations. I do not want to go into too much
detail. How important are those to the delivery of government
objectives? Why is it that the Agency has just £80,000 annually
and nationally, as I understand it, for this regime? That can
only cover a public information campaign, which means that many
sites for the oil towns are hardly every seen by the Agency from
one year's end to another, perhaps even one decade's end to another.
Mr Morley: You need to take a
risk-based assessment on a range of regulatory functions and oil
storage is one of those. These, of course, are matters which can
be reviewed. I know that a number of parliamentary colleagues
have raised issues about oil storage regulations, some of the
functions of which, if my memory serves me right, are for local
authorities and not just for the Agency.
Q286 David Taylor: How tolerantly
do you treat a response by the Environment Agency in relation
to a criticism that you may enter against their reforms that their
finances are too tight to be able to deliver properly? When the
Committee went to see the Environment Agency before Christmas—and
I was not part of that group—I hear that one comment made
was that there is tight resourcing and a lack of adequate financing
in some areas.[18]
Are you sympathetic to that type of attitude?
Mr Morley: I think it is fair
to say, Chairman, as you will know from your own experience, that
there is not a government body, department or agency that would
not like a bit more money in relation to how it functions, and
that includes myself, Chairman. The Agency's budget has increased
substantially in some areas, like flood and coastal defence, and
in that area by 40% in real terms since 2002 alone. In relation
to its functions, I come back to the point that the Agency does
have flexibility in determining where it wants to put resources
in relation to its functions and priorities and where it thinks
that the money needs to go. On the wider picture of its overall
budgets, its responsibilities and its functions, we are about
to embark on the CSR07 major spending review, and of course we
would expect the Agency to bring to us their business plans and
proposals for that budget round in relation to there functions.
That would be considered in the normal way.
Q287 David Taylor: You are reasonably
content, as one of the responsible ministers, that the £1,000
million that is allocated to the Environment Agency through grant-in-aid
and other forms of finance is effectively used in the great majority
of cases to deliver the Government's agenda?
Mr Morley: In terms of how the
Agency applies its budget, I do think it applies it effectively,
yes.
Q288 David Taylor: Has it been looked
at by any of the audit bodies in recent times?
Mr Morley: It does go through
an audit process and through the National Audit Office process.
Of course, I have regular meetings with the Agency. I go through
that and approve its corporate plan, and I also attend its board
meetings and talk to the board as well, but not all board meetings.
Q289 Chairman: Who actually determines
the basis of the cost recovery model that the Agency must follow
in recouping its charges for those areas where it makes a charge?
Mr Morley: The Agency does a lot
of the development work on that itself because the Agency is best
placed in relation to its staffing times, staffing requirements
and resource requirements, but they do consult with our own department.
There is also Treasury guidance in relation to cost recovery,
which they would be obliged to follow, like all agencies and all
departments. Sue Ellis has a lot of involvement in relation to
this on the waste side.
Mrs Ellis: The Environment Agency
does have a charges group which includes people from the Department
with an interest in specific areas. For example, one of my members
of staff attends that group to look at waste charges specifically
across the piece.
Q290 Chairman: The reason I ask the
question is that there is a sort of tension between those in the
commercial world, who may feel that they are being charged too
much, and the requirement at the Agency to recover costs. I suppose
there are issues of transparency as to exactly what costs they
are recovering and whether those are fair charges. Unlike a commercial
transaction, there is not anybody else you can go to for the functions
which the Agency performs. In the model, who ensures that their
charging regime is fair?
Mr Morley: They do have to produce
a regulatory impact assessment, particularly when introducing
new directives, and the charging is addressed in the RIA. Within
that, of course is how the charges have been calculated. Those
have to be approved by the Department, of course. I often talk
to various stakeholders who tell me that they think that some
of the charges are a bit on the steep side. It is quite right
and proper that they are challenged and that the Agency justifies
how it has come to its conclusion.
Q291 Chairman: Nobody disagrees with
the fact that there should be a proper cost recovery, but because,
from what we can see, there is a lack of transparency, you have
a monopoly provider of permits and of the services that are charged
for, but you have no idea how the price is set.
Mr Morley: It is set on in the
Treasury guideline. The Treasury guideline is that the costs,
in terms of the permits or the functions, are no more than the
costs to the Agency in terms of carrying out its duties. The Agency
will include how it has calculated those costs within the RIA.
Q292 David Taylor: Is that on a marginal
cost recovery basis or an average cost recovery basis?
Mr Morley: I would not have thought
it would be marginal cost recovery. Incidentally, the Environment
Agency has its own Charges Review Group which looks at these issues.
It would be on the minimum cost which allows them to carry out
their functions. I would hazard a guess that in some functions
there may well be a marginal cost basis, but you would probably
average that out.
Q293 David Taylor: Would you write
to us separately on that, please?
Mr Morley: Yes, certainly.
Q294 Mr Rogerson: Just rounding of
the discussion on charging policy, do you think that a disproportionate
amount of funding that the Agency gets comes from the charging
as opposed to grant-in-aid?
Mr Morley: No, I do not think
there is anything disproportionate about it. The largest amount
comes from grant-in-aid but I do firmly believe in the polluter
pays principle. I do think that when you are carrying out regulatory
functions, particularly in order to ensure that there is no pollution
and that there is proper management, then of course the Agency
needs to carry out those functions properly. It is worth saying,
Chairman, that in relation to the way the charges are applied,
that encourages good practice; we should not forget that function
of it, too. I would not say the charges are disproportionate.
Q295 Mr Rogerson: You have just stated
your belief that the polluter pays principle is the best way to
go. In the way that the charging structure works in terms of permits,
is it not fair to say that in some cases those who are abiding
by the rules are paying for the cost of enforcement?
Mr Morley: There is a risk of
that and that is why I am a very strong supporter of risk-based
approaches. The idea of risk-based approaches is that you can
evaluate in relation to a number of criteria—their record
and membership of professional bodies—various organisations
that the Agency deals with in relation to those companies that
have good performance so that you can take some of the burdens
off the good performing companies and thereby direct more resources
to ensure that there is enforcement of the poor performing companies.
I very much support that approach.
Q296 Mr Rogerson: Do you think there
could be a mechanism of a fining system so that those caught out
could bear more of the cost than the permit side of this?
Mr Morley: I think there is an
issue in relation to environmental fines. They have increased
in recent years. Sadly, I think there are still examples where,
in my view, the fine does not reflect the severity of the offence.
I still think there are some issues to look at there.
Q297 Lynne Jones: On that point,
you may be interested to know that industry representatives said
that they would agree with an increase in fines. There are many
compliant industry users but there is concern that the cowboys
are getting away with it and then the compliant industries are
having to bear the costs.
Mr Morley: Absolutely and I think
that is a very good point. Those companies that break regulations
are doing so often to give them a competitive advantage by cutting
corners and costs in terms of competing with decent companies
that are applying the proper health and safety and environmental
standards. I think it is quite right and proper that we should
have levels of fines which reflect that but also reflect that
some of the illegal activities are potentially very profitable.
I think the fines should also reflect that in terms of deterring
the activity.
Q298 Lynne Jones: Is the Government
going to do anything about that?
Mr Morley: We have been talking
about a review in terms of a wider concept of environmental justice
and thinking about whether there is a case for special training
for magistrates, dedicated courts, different forms of fines, remediation
penalties, for example. We are thinking about whether there is
scope for that.
Q299 Mrs Moon: I want to take that
further, if I may, Minister, by looking at the sources of income
in the 2005-06 budget. There is nowhere there that you can demonstrate
the income that has come from your policing role and from fines
on those illegal operators unless it is under "other income".
Would it not be appropriate also to be able to demonstrate the
sort of success, if you like, of you following the polluter pays
principle and demonstrate that those who are polluting and breaking
regulations are being forced to contribute to this system? It
is not clear and it does give those who abide by regulations a
negative message that the good are not rewarded.
Mr Morley: I think there is a
case for this both in terms of some of the money going back in
relation to enforcing perhaps to the sector it came from but also
the concept in some cases where you may get environmental damage
that is not deliberate but due to poor management. Instead of
having a fine, they would actually have to contribute to the clean-up
or remediation. These are wider concepts. In terms of how fines
are applied, currently the bulk of them to go to the Treasury
and into the Consolidated Fund. The Treasury will argue that the
fine income which goes into that fund does go back in relation
to aspects of how the money is recycled back to the Agency through
grant-in-aid, for example. That would be their argument because
they would prefer to have that flexibility within the Consolidated
Fund rather than ring-fence fines. There is an argument for this.
You may have noticed that we have introduced this within the Clean
Neighbourhoods and Environment Bill where local authorities are
now allowed to keep some of the fines that they generate through
environmental crimes to use for enforcement. We are not against
the concept, but there are two sides to that argument.
18 The Committee visited the Environment Agency on
8 December 2005. Back
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