Examination of Witnesses (Questions 20-39)
LORD BACH,
MR JOHNSTON
MCNEILL,
MR IAN
HEWETT AND
MR JOHN
O'GORMAN
11 JANUARY 2006
Q20 David Taylor: We shall be examining
them in some detail. Give us the headings.
Lord Bach: The headings are, fairly
simply, the number of customers—farmers—who claimed
went up from 80,000 to 120,000, a 50% increase.
Q21 Chairman: You did not know that
was coming?
Lord Bach: We knew that there
was going to be an increase. I think it is more doubtful that
we estimated it would be 50%. I do not suppose we saw this coming
completely either but we also had a 1,000% increase in the annual
numbers as far as land registration and land registration changes
were concerned. Those are headline figures: 80,000 to 120,000
customers and a 1,000% increase in land registration change requests.
One of the reasons for that was that the land change notifications
came not just of course from new customers, the extra 40,000 I
have mentioned, but from many existing customers.
Q22 David Taylor: I want to restate
the question because it is not being answered.
Lord Bach: It is existing customers
who had already put in claims for previous subsidies on certain
land and maps which were considered to be correct but added land,
as they were entitled to do, because the single payment scheme
is based on hectares of land.
Q23 David Taylor: The question was:
with hindsight what could you have done, very briefly indeed,
to ensure that payments could have been made earlier in that window,
not to be slip sliding almost imperceptibly out of February into
March and so on?
Lord Bach: I do not accept I am
afraid, with respect, that it is slip sliding. It certainly moved
from December, which would have been the ideal, to February but
that was in January last year. Since that time, I believe the
RPA have done everything within their power and have been given,
I think they will agree, considerable resources to try and get
over the many technical difficulties that there are in establishing
a scheme like that. What we have to be aware of all the time is
that if we get it wrong and we do not do it in the proper way
there will be disallowance from the European Union. That disallowance
will cost farmers as well as costing the taxpayer.
Q24 David Taylor: There is nothing
you could have done—that is what you are saying in short—with
hindsight, to have avoided the present position?
Lord Bach: I cannot think of anything
I could have done although others may well think of things I could
have done.
David Taylor: We have not heard about
interim payments yet and what the process for that might be but
we will later.
Q25 Chairman: Can I pursue this question
of the size and volume of work that you had to do which came as
something of a surprise to you. Mr McNeill, when you were talking
to Accenture, they being experts in the field of complex system
operation would no doubt have pressed you very hard on size and
scale of task. When you outlined to them what was involved, did
you have any inkling that you were going to see the kind of volume
of work which has subsequently emerged?
Mr McNeill: Yes. There had been
some work to identify the size of the new customer base but that
was perhaps of less interest to Accenture than their requirement
for us to clearly define what we wanted them to build. In systems
development terms—
Q26 Chairman: The Minister has just
cited this additional volume of activity as a contributory factor
to the slowing down of the timetable that you would ideally have
liked to have followed. Therefore, I take it, because it was in
the Minister's high level answer to our questioning, that he identified
this additional volume as an important feature. If you are going
to design a system, there have been many government IT systems
that have not correctly anticipated the volume of work which they
were then subsequently going to have to cope with and failed as
a result. I can remember this Committee probing on some of these
issues when we conducted our original inquiry into the RPA and
the IT changes. Why were you not able more accurately to specify
the volume which clearly has had an impact on your ability to
deliver?
Mr McNeill: As the Minister mentioned,
the volumes related to areas such as the Rural Land Register.
We have constructed a new digitised Rural Land Register in line
with EU requirements to have that in place by 2005 as part of
the original change programme and contract with Accenture. We
would normally have expected about 10,000 IACS 22s, notifications
of additional land or changes to land and, as we have mentioned,
we are at 100,000 plus. That was as a result of 40,000 new customers
telling us about land that they wished to claim on under the new
scheme and it was also about existing customers telling us about
land which we were not aware of previously. That was a very considerable
demand. Under the IACS regime we certainly were of the view—and
I suspect the Commission would be of the view—that we should
have been aware of all that land in that the declaration signed
on the application forms states that we are being told about all
of the land on the farm. That was a major shock to us, to be perfectly
frank. Had we known that there was going to be that volume, we
could have looked at the volumes that the system could handle;
whereas we could only look at the normal requirements. When we
specified this system in 2003[4],
when we were talking to Accenture, we had had a lengthy contract
procurement and specification. We were specifying without any
understanding of SPS requirements. We were specifying on our normal
business requirements.
Q27 Chairman: With respect, ministers
in the United Kingdom Government agreed to the model for the introduction
of the single farm payments into the United Kingdom. You are quite
right. There were new people who could claim who were not previously
able to—for example, those in the field of horticulture.
Given that you as a government would have had to have thought
through carefully what you were agreeing to, I am surprised that
it has come as a surprise to you that there is this volume of
new people. I appreciate the point you make about existing customers
but you have not explained how you scoped the size of what you
were trying to do in terms of the system and the workload. Did
you carry out any kind of analysis to see what the impact of the
policy that ministers had agreed was going to be?
Mr McNeill: When we first scoped
the work as part of the procurement, we obviously looked at normal
day to day business requirements and scaled them up to specify
what we required. We were not aware that the mid-term review would
have such a significant change or that we would have so many new
customers. Once we sat down with Accenture in the summer of 2004[5]
and we started to look at requirements, it became clear they were
of the view that we should be able to scale up the system which
they had developed. Indeed, we had built a new land registry with
1.6 million parcels of land already on it, a significant piece
of work. They were of the view at that time that we should be
able to scale up but the IACS 22s did not arrive in one block.
As we started to run the scheme, so customers increasingly made
us aware that they had particular requirements. As it became clear
that we were not going to be able to deal with that, we had to
consider other mechanisms and have done so. The remaining mapping
of land is not an issue in terms of SPS payments because some
time ago we took the decision to outsource that work to a major
contractor—in fact, the contractor who built the first land
registry—and it is no longer in the critical path for payments.
Q28 Lynne Jones: In view of the change
in the way that the payments were going to be distributed from
activity to a land based distribution, should you not have anticipated
that land holders would have been scouring, making sure that every
last bit of land that they held was going to be registered? Should
you not have anticipated that there might have been a big increase
in land registrations?
Mr McNeill: Our advice was that
it was a requirement of the IACS regime, that has run for some
considerable length of time, that we were supposed to be notified
of all land on holdings, even if perhaps particular claims were
not being made on those.
Q29 Lynne Jones: There was no incentive
for people to do that, was there?
Mr McNeill: Apart from the declaration
they signed on the form that says they have told us that. I accept
that there is no financial incentive for them but as I understand
it our advice at the time was that we were supposed to be aware
of their holdings.
Q30 Mr Williams: I hope the Minister
would agree with me that the purpose of having the seven month
window that the EU Commission set up is not that national governments
can delay payments to farmers; it is that the difficult cases
that always arise here can be accommodated within the seven month
window. Surely it must be the intention of the EU Commission and
national governments to make the payment at the beginning of the
window rather than half-way through it. As a result, English farmers
have a collective £1.6 billion hole in their bank accounts.
Barclays Bank tell us that that is probably going to cost them
about £25 million in interest rates and arrangement fees
and all that goes with added debt. Does that figure ring true
to you?
Lord Bach: I do not know what
figure is there but quite clearly if farmers are not paid on 1
December but are paid in late February or March there will be
a cost to them. That is why we would have like to have paid on
1 December. I may not have been in this job long but I do not
understand always what the Commission intends when it, for example,
gives a seven month window for payment. I have spoken to the banks.
I have had a meeting with the banks and, as I understand it from
what they have told me—Barclays of course was included among
those I saw—the banking representatives suggest that no
viable business will fall because of the sums involved. The total
interest bill, as I understand it, for UK agriculture is over
£500 million, £0.5 billion per year. That £25 million,
although regrettable—any extra interest is regrettable—is
about 2% set against an annual average change in income that there
has been over the course of a number of years in farmers' incomes,
which you will know very well, Mr Williams, from your constituents.
Q31 Mr Williams: We were all a little
disturbed to hear you say that although it is your intention to
make full and final payments you are also considering possible
interim payments. Have you a system set up so that those interim
payments can be paid if full and final payments are not made,
because obviously the cash situation of English farmers is going
to deteriorate very significantly.
Lord Bach: Yes. We have such a
system set up and we hope that is a responsible thing to have
done. We have been developing on a contingency basis a system
to make those partial payments. I can tell the Committee if you
want me to the rather long and tortuous route that we have had
to take in discussions with Brussels in order to get ourselves
into a position where we can make partial payments. We are ready
to make partial payments if we have to but we think there are
disadvantages in partial payments against full payments, obvious
disadvantages. Farmers deserve the full amount. The other issue
involved here is this whole business of not being able to trade
entitlements. We are keen—I am pushing as hard as I am able
to—that we should start to make full payments at the end
of February.
Q32 Mr Williams: Perhaps you could
tell us a definitive date on which you could make interim payments
if full payments were not possible?
Lord Bach: That would be by the
end of February. I can give you a %age, if I may. It is something
which I do not think we have announced before. At the moment our
intention would be—of course we do not want to do this—60%,
but that is not set in stone.
Q33 Chairman: 60% of what?
Lord Bach: Of the total amount
that we estimate each farmer would be entitled to.
Q34 Chairman: If you are telling
us that you hope by 14 February to know the definitive sum, it
will be 60% of a number you will have worked out by 14 February.
Lord Bach: No. We will have worked
it out in a number of cases but we will be making some sort of
estimate as far as that is concerned. There are some cases that
are very simple and others that are more complex.
Q35 Chairman: What is the 60% going
to be of?
Mr Hewett: The regulation that
was adopted by the EU on 12 October last year and published at
the end of November facilitating partial payments said that a
partial payment could be made on claims which were fully validated
and where the payment made no risk to the European fund. There
are two elements there. If we were to invoke partial payments,
it is likely to be because we have not completed the validation
on all claims which means that some claims will be partly validated.
There will be a proportion of claims which are fully validated
and on which we could pay 60% of the full entitlement to that
individual beneficiary. For those claims which were not fully
validated, we would either be able to pay an element of the 60%,
so 60% on whatever proportion of the claim was validated, or we
would take a view that the partial payment would come under a
de minimis threshold if, for example, there was a payment
of less than 100 euros involved as a partial payment. There is
a considerable number of claims which would come under that de
minimis threshold based on some data that we ran on the partial
payments development system back in November.
Q36 Chairman: If you had to go down
the interim payment route, when would all final payments be made?
Mr Hewett: That is one of the
difficulties of invoking partial payments. It would have an impact
on the determination of definitive entitlement for the whole population
and on the payment of either the balance or full payments, full
payments in the case of those customers who do not receive full
payment.
Q37 David Lepper: Could I clarify
something that the Minister said about the UK being subject to
a disallowance from Europe if particular deadlines were not met?
What would be the scale of that disallowance and at what point
would we and therefore English farmers be subject to it?
Lord Bach: I was not talking about
the context of when the money is paid. However, if we went over
the seven month period—that is 30 June—we might be
subject to disallowance. That is 30 June. When we would also be
subject to the disallowance if we claimed that we knew exactly
what each farmer was owed under the single payment scheme and
then an audit afterwards turned out to show that we had those
figures wrong. The EU would, as they do I think across the board,
at least have the right to disallow some of the expenditure. I
believe the matrix runs between about five[6]
and 25%, but I have an expert on disallowance.
Mr Hewett: Mr O'Gorman is the
policy expert. I am at the implementation end. There is a regulatory
framework for key and ancillary controls which we have to adhere
to such as undertaking a compliance monitoring inspection on a
proportion of our claim population and, for the first time with
the single payment scheme, a cross compliance inspection on a
proportion of our claim population as well as validating claims
against this framework of key and ancillary controls. If, when
we are subject to audits either through the National Audit Office
that acts on behalf of the European Commission or the European
Commission itself or indeed the European Court of Auditors, those
audits decree that we have not abided by those key and ancillary
controls all of the money which has been reimbursed from Europe
can be subject to a flat rate disallowance ranging from two to
25%. There is also a sliding scale of disallowance should we fail
to meet the payment window of 1 December to 30 June.
Q38 David Lepper: You are confident
that we will not become subject to that disallowance?
Mr Hewett: That is part of the
discussions we have regularly with the Minister, to update him
on where we are against both timeliness and also our ability to
adhere to key and ancillary controls.
Q39 David Lepper: 60% was the figure
in terms of interim payments.
Mr Hewett: That is the figure
that the Minister mentioned but he did say it is not yet cast
in tablets of stone.
4 Note by witness: this should be "2003". Back
5
Note by witness: this should be "2003". Back
6
Note by witness: should read "two". Back
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