House of COMMONS









Wednesday 25 January 2006



Evidence heard in Public Questions 246 - 357





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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Wednesday 25 January 2006

Members present

Mr Michael Jack, in the Chair

James Duddridge

Lynne Jones

David Lepper

Mrs Madeleine Moon

Mr Jamie Reed

Mr Dan Rogerson

Sir Peter Soulsby

David Taylor

Mr Shailesh Vara




Examination of Witnesses


Witnesses: Mr Elliot Morley, a Member of the House, Minister of State for Climate Change and the Environment, Miss Sarah Nason, Head of Flood Management Division, and Mrs Sue Ellis, Head of Waste Management Division, Department for Environment, Food and Rural Affairs, gave evidence

Q246 Chairman: Minister, thank you once again for appearing before this committee, for which we are very grateful. I know you are on a tight time schedule this afternoon, so we will try to be as quick as we can. May I formally welcome Elliot Morley, the Minister for Climate Change and the Environment, supported by Miss Sarah Nason, Head of Flood Management Division and Mrs Sue Ellis, Head of Waste Management Division of Defra. Minister, we always like to spring a surprise on you, so we are not going to talk about the Environment Agency straight away. I hope you do not mind putting on your environment hat to clear up a little point of concern. When the Secretary of State came before the committee in November for a very helpful session, we wrote to her about when the results of your appraisal of the UK Climate Change Programme were going to be published. Not unnaturally, given the presidency responsibilities and Council responsibilities she had, she said she thought it would be unlikely that the draft of that would be in our box before Christmas and she gave us the distinct impression it would be afterwards. I know she is not still on holiday from Christmas and the New Year, but we have not seen this document. Could you try to explain to us what has caused the delay and is it going to appear, as some have suggested, at the end of March or, as others have suggested, the end of February?

Mr Morley: The short answer, which is not terribly satisfactory, is that we want it to appear as soon as possible. It was always going to be the case that it was going to be after Christmas because of the work that was in progress. To be quite frank with you, Chairman, there is the issue of the second phase of the National Allocation Plan. We do have to publish figures on the second phase. Those figures have a direct bearing on the climate change review. We would expect to get a very large carbon saving in the second phase of the EU ETS. In terms of people evaluating the range of measures that we are likely to put forward, I think it would be in everyone's interests if we could coincide with those figures so people can see them. In terms of the figures, that work is very close to completion. It is not completed yet. I am not absolutely sure the exact date that it will be completed. It is not that far away, as I understand it.

Q247 Chairman: Just to press you a little further on it, is it likely to be in the first quarter of this year?

Mr Morley: Yes.

Q248 Chairman: The reason that we are interested in it is that obviously we want to use the results of that as a focus point for our own inquiry into it. We publish details of that as you have probably seen. Knowing when it is going to come would be of particular help to us.

Mr Morley: I think you could certainly bank on it being in the first quarter.

Q249 Chairman: I am grateful to you, Minister. Let us move on to the Environment Agency. It is just about 10 years old and we thought it would be a good idea to have a look at it. It is about six years since some people on the select committee side looked at the Environment Agency's work. I was struck by your own department's evidence. Did you sign this off?

Mr Morley: Yes.

Q250 Chairman: You read it word for word?

Mr Morley: Yes, just about.

Q251 Chairman: Did you think it answered the questions that we actually put forward?

Mr Morley: Some of the questions that your committee asks are very wide-ranging and there are broad answers to them.

Q252 Chairman: For example, the first question was very simple: how successful has the Environment Agency been in its role as enforcer of environmental regulation and controls and how well is it managing its range of activities? You dealt with that in three paragraphs. Each one of them simply said what it did. It contained no commentary. I was intrigued as to why you were reluctant to say even something nice about the Agency.

Mr Morley: For the record, I can say that measurement of success can be a very judgmental issue. In terms of my own view of the Agency, which is the second largest Agency of its type in the world, and it is certainly the largest in Europe, I think it has had a range of successes of which we in this country can be proud. We did make it very clear that we support the work that it has done. Regularly we monitor its objectives and achievements. In terms of its delivery, any organisation, as you will know, Chairman, always has to look at the way it performs, the way it delivers and its objectives; there is always scope for improvement in any kind of organisation. I think the Agency has a very good record.

Q253 Chairman: The Agency told us in its evidence that it has lots of meetings regularly with you. You have formal review meetings and I am sure you have many phone calls with the hierarchy. Can you give us a flavour of that? You said in your last sentence that there is always room for improvement. How can it improve? Whilst you have been Environment Minister, what are the things you have asked it do better and what are the things about which you have criticised it?

Mr Morley: I would not say that I have particularly criticised the Agency. I have certainly asked it too look at its regulatory functions to make sure that they are efficient and properly reviewed. I have asked it to look at its budgets to make sure that it finds economies within its own operations. The economies it finds can be fed through to its spending areas. I have asked it to make sure that it does recover costs in relation to its work, but no more than the cost of the enforcement of the particular area in question. I know that they have done that. In the discussions that I have with them, particularly going through their score cards (of course, like them, I am quite interested in where they identify within their own score cards that they could do better) they are doing better. I have no doubts at all on their commitment to that.

Q254 Chairman: The Environment Agency and indeed your own department vie with each other, it seems, to be champions of the environment. When we had the Council for the Preservation of Rural England before us last week, they said that there has to be a limitation on the number of people vying to be champions because there is a danger of overlap and duplication. Do you perceive that as a problem and, if you do, what are you doing to deal with that?

Mr Morley: I do not see it as a problem in a sense. It is inevitable, if we have a body like the Environment Agency with responsibilities for air, land, water and pollution and responsibilities for floating coastal defence, that there are implications there in relation to biodiversity. It has a duty to promote sustainable development. Of course we have other agencies. Currently English Nature and the Countryside Agency are going to form the new Natural England. In some areas it is inevitable that, whatever structure of government you have, there are going to be some overlaps. Where there are overlaps, the Agency has been developing memoranda of understanding with Natural England and the Forestry Commission. There have been what I think are some very good examples of partnership working, particularly in relation to the Water Framework Directive and agricultural management. I think there are some good examples of that in terms of the Agency and other bodies, and I very much welcome that.

Q255 Mrs Moon: One of the things that we are aware you are moving towards is Defra's Marine Bill. We have looked at a number of things in relation to this. One of the things that you have suggested, for example in your Making Space for Water document, is that the Environment Agency should take responsibility for Shoreline Management Plans. The British Ports Association has argued that perhaps there need to be clearer guidelines on the Environment Agency's responsibility in relation to marine issues. Could you clarify for us what role you see the Environment Agency playing in either the development or the implementation of the Marine Bill and the measures that will be in it?

Mr Morley: Of course the Marine Bill covers a wider area than simply shoreline and estuary management. The idea of the Marine Bill, apart from addressing issues such as marine conservation and spatial planning, is also to look at the objectives of trying to bring together the range of regulatory functions that exist in offshore waters, which is currently divided amongst a number of government departments and organisations. It is an attempt to streamline that. Of course it very much depends on the outcome of the consultation. The Government does not have a fixed position on other ideas about a marine management organisation. We are currently evaluating the kind of responses that we are getting. The Agency is principally land-based but it does have some roles, particularly in diffuse pollution that is flowing from the rivers into the sea for example, in relation to shoreline management plans, and also such things as coastal squeeze in biodiversity terms. There would have to be close interaction between the Environment Agency and the future development of a Marine Bill and a marine management organisation, should that be the road that we go down.

Q256 Mrs Moon: Some of those who have given evidence to us have expressed an opinion that the Environment Agency already has too much responsibility in relation to marine conservation and development. Would you agree that they already have too much responsibility?

Mr Morley: I would not necessarily agree with that. I think it is quite right and proper that you keep an open kind about what is the most effective organisational structure. What we should be trying to work towards as a government - and I know, Chairman, that this has been the view of your own committee on a number of occasions - is a holistic management approach where we have an integrated approach to issues such as water management, marine management, coastal management and the implications those have for agricultural land management planning and river and sea defences. In that respect, the role the Agency has on coasts and estuaries is appropriate for what it does.

Q257 Mrs Moon: If you saw it having an enhanced role in relation to the Marine Bill and marine conservation issues, would you see it having additional expenditure or taking that from its current budget?

Mr Morley: That would very much depend on whether it had an enhanced role in relation to the Marine Bill. As I was saying, as it is primarily land-based and as we are looking at marine-based activities in which the Agency is not currently involved, there is not necessarily an expanded role for the Agency and its approach.

Q258 Mr Reed: A Marine Bill is something I personally welcome. However, I do think that the EA, or whichever body is charged with implementing the bill, for want of a better term, must surely have an international element to it, given the international element of maritime legislation. In what way do you see that affecting the EA? On the bill in particular, would it replicate or complement or supersede the international treaties such as OSPA and UNCLOS to which we are already signatories?

Mr Morley: I can make it absolutely clear that a Marine Bill will not supersede those treaties. They are binding treaties, treaties which we have signed up to. The geographic scope of any potential marine management organisation very much depends on the scope of the regimes that underpin the functions that it delivers. There is also, incidentally, a devolved implication here as well because of course there would be devolution of management in Scotland and to quite a large extent in Wales as well. I repeat the point that this is a new approach that does not necessarily put extra burdens or responsibilities on the Environment Agency.

Q259 Chairman: Can I be clear, as part of your preparation for the Marine Bill, are you evaluating two models of an Agency with a responsibility for the marine environment: one that would incorporate it within the existing Environment Agency and one a free-standing body?

Mr Morley: We are certainly looking at a free-standing body. Many of the functions that will be encompassed by a Marine Bill are not currently the responsibility of the Environment Agency but of the Department of Transport, ODPM and the Department of Trade and Industry, such as offshore gas and oil licensing. ODPM has an interest in dredging. Defra has an interest in dredging in relation to environmental impact assessment. That is not an Environment Agency function. A lot of the functions we are looking at are not Environment Agency functions. The issue for us is whether there is justification for a new organisation. The Hampton Review recommended to Government that we do not unnecessarily set up more regulatory bodies and that we think very carefully before we do that.

Q260 Chairman: When you talk about functions, are you talking about the legal functions, the statutory functions?

Mr Morley: Yes.

Q261 Chairman: You appear to suggest that you are not prepared to review the statutory position at the Agency. In some of their publications they talk in environmental terms about, for example, air quality and some things to do with climate change. The policy responsibility lies well outside the remit of your Department upon which they comment but on which they have no direct responsibility.

Mr Morley: That is right but of course the Agency is an environmental adviser and an independent organisation. It is free to make comments on a range of issues that can include marine issues. In relation to its regulatory functions that I have been outlining, those are not with the Agency but within other government departments and other parts of government. There is also the joint Nature Conservation Committee that has responsibility for advising us in relation to marine biodiversity issues. Natural England will also have responsibility in such things as designation of marine nature reserves and marine protected areas.

Q262 James Duddridge: Why would what is essentially a regulatory agency get more and more involved in policy making? One piece of evidence suggested a response. The Waste Recycling Group said that perhaps as a result of a lack of timely policy setting within Defra, occasionally the Environment Agency unwillingly accepted and sometimes enthusiastically accepted a more policy-making role rather than a regulatory role.

Mr Morley: Under the changes which have been introduced by Government under the Haskins Review, we are separating out the policy functions and the delivery functions. The policy functions are matters for government departments. In relation to policy functions, those are a matter for Defra. Of course, in terms of how we produce policy, like Making Space for Water, in relation to our coastal strategy, the Environment Agency is very closely involved in that. We involved them in that in terms of the Waste Review. They are very closely involved in these policy frameworks. As I say, the Environment Agency is free to comment on policy. Policy determination is a matter for Defra in the case of those areas which fall within our responsibilities. I do not necessarily accept the case that we have been slow in bringing forward guidance on a range of issues including waste matters. We often give advice and warning to a range of our stakeholders, often well in advance, and they then turn round a couple of years later and say that they never knew that was coming. There is that kind of aspect as well. I do not necessarily accept that.

Q263 James Duddridge: Waste was one example. The CBI really said that from a broader perspective that was a consistent trend and went on to say that there is a lack of distinction between policy making and the regulator.

Mr Morley: Again, I am not sure I accept that. It would be wrong of me to say that everything is perfect. I think we should always strive to look for improvements. We are setting up a policy group to improve the implementation of European directives, for example, to make sure that we do involve people as early as possible and that they are open and transparent. What we are trying to do in relation to the policy group is to set up a centre of excellence in terms of the kind of good practice or best practice that we apply and also that our agencies, like the Environment Agency, apply. We are trying to address some of these points which have been raised. I do think they are sometimes exaggerated.

Q264 Chairman: As a point of information, does the Environment Agency work with your officials on EU management committee meetings when the detail of the policy is being designed? Some of the evidence that we have had indicates that there are problems in this translation process into UK law, and obviously the Environment Agency has much practical experience about these matters. Are they directly involved?

Mr Morley: They are very closely involved in all the EU directives.

Q265 Chairman: Do they sit alongside your officials at official meetings?

Mr Morley: I will ask Sue Ellis to comment because of course her division does a lot of the technical work and her people sit on the technical committees. As far as I am aware, the Environment Agency is closely involved.

Mrs Ellis: That is right and particularly if there are technical issues being addressed by either a working party or a technical adaptation committee, then we would of course take the Environment Agency with us as our technical advisers. That is their role and they provide us with very valuable support in that role.

Q266 Chairman: How did we get into the fridge mess then? You do not want to answer that. We have been over that once.

Mr Morley: It was before both our times!

Q267 David Lepper: It was not before the time of some of us on this committee. To pursue that question of the involvement of the Agency in advising perhaps and interpreting on enforcement of EU regulations, I hear what you have just said, Minister. The CBI, for instance, told us in their evidence that they had asked that the Agency should be involved in the Defra stakeholder consultation group on the Environmental Liability Directive and that so far that had not happened. A rather different kind of organisation, the Campaign to Protect Rural England, said that their experience sometimes was that the Agency had not been involved in a way which might have been very useful, for the very reasons that have been given by the Chairman about the experience on the ground that the Agency has. Do you feel those are criticisms that do not really bear too much examination?

Mr Morley: To be honest, Chairman, I am bewildered by that statement because the Environment Agency is a member of the steering group in relation to the Environmental Liability Directive and has been involved from the very beginning. That is an allegation that I can very firmly refute. In addition to that, in terms of the working groups and consultation that we have had on the ELD, groups like the CBI have been members of that and so have the Environment Agency. I really do not know why they have made that claim.

Q268 David Lepper: They made it particularly with reference to concerns about the permit defences. They put to us that it would have been helpful to have the view of the Agency in work on that in particular.

Mr Morley: I am pretty sure that the Agency has been involved in the discussions on the permit defences.

Mrs Ellis: I can comment in relation to waste permits. Certainly, my team has been working very closely with Environment Agency colleagues and I know has been doing very close work with them on the implications of using a permit defence, so, yes, I am surprised as well.

Q269 Mr Vara: Minister, the figures for 2004 would suggest that over 1100 houses were built in flood risk areas against Agency advice. Estimates also suggest that the Agency consulted on less than 60 per cent of applications at risk of flooding. Do you feel that the Agency has sufficient clout with central government, both with ODPM and Defra?

Mr Morley: I think there is a case for strengthening the role of the Agency in applying process. That is why, as part of the current consultations on the revision of PPS25 within that consultation, there is a proposal that the Agency be a statutory consultee in relation to major developments. Also, there should be a considerable stepping up of its powers if it feels that there have been planning decisions taken without any regard to its advice; it can ask for a call‑in of the application, which I think is very welcome. I have the figures here about the improvements there have been in the decline in the number of applications that have gone against Agency advice. The latest figures I have for 2004-05 are that 92 per cent of known decisions made by local planning associations were in line with Agency advice. That is an improvement from 83 per cent in 2001-02. We are seeing some improvements in that. In fact, the applications that were permitted by local planners against Environment Agency objections have dropped from 17 per cent in 2001-02 to 8 per cent in 2004-05. I do not doubt that the measures being proposed within PPS25 will improve the situation further.

Q270 Mr Vara: Minister, would you not accept that the figures can be a bit deceptive because one application for 2000 homes is one application compared to 1000 applications for individual homes, and so we need to look at the individual application itself rather than the number of applications?

Mr Morley: Yes, I do accept that. Again, on applications, if you just take those very big developments, the numbers approved against the EA advice have dropped from 17 per cent in 2001-02 to 12 per cent in 2004-05. I also understand that the Agency has won a landmark judicial review against a planning authority. I think that will have significant implications.

Q271 Mr Vara: You mention the consultation process. When do you think the Agency will have increased powers?

Miss Nason: The consultation should finish some time around March. The intention is to introduce the new arrangement from the summer or thereabouts.

Q272 Mr Vara: Is it going to be the case that they will be given stronger powers? You mention a consultation stage.

Mr Morley: It is a consultation but I think the case is very strong. I would not say that the people I talk to in any way form a balanced or scientific sample but, in terms of the proposals from the wide range of stakeholders I have spoken to, this seems to be widely welcomed.

Q273 Mr Vara: Would you be prepared to say that with regard to the Government's Sustainable Communities Plan for 2003, which proposes that there will be 120,000 homes planned for the Thames Estuary floodplain, we may not see those homes if the Agency advises against?

Mr Morley: We will have to see what the Agency says about it. You have to understand that PPS25 is not a blanket ban on any development in any floodplain. What it quite rightly states is that planning authorities should take into account the potential for increased flood risk in terms of the application. That means that the application could be turned down if it is regarded as just too much of a risk, but it could also mean that the developers, as part of the planning permission, as a condition, would have to contribute to defences, enhanced defences, even strengthening of defences for downstream communities that may be affected by upstream planning. It very much depends on the circumstances. While it is true that the Thames Gateway area is in a floodplain, so is London for that matter. The standard of flood defence for most of Thames Gateway is to a 1:1000 level. That is a pretty high standard of defence.

Q274 Mr Vara: Climate change is bringing changes ---

Mr Morley: Not to 1:1000 or we will all be in dead trouble because that is higher than in central London, Chairman.

Q275 Mr Vara: Minister, you would appreciate, would you not, that there is not room for 120,000 more homes in central London to be built?

Mr Morley: Absolutely, unless you build them very high. Yes, that is right.

Q276 Mr Vara: The comparison is somewhat nebulous, if you will forgive me for saying so. If the Environment Agency advises against housing in Thames Gateway, would that be taken into account? I note the caveats about developers putting in other reinforcements and so on. If the advice is against, would the Government take note of it?

Mr Morley: We will certainly take note of it. It would be irresponsible not to take note of it, but we are talking hypothetically about what the nature of the objection could be and what steps could be taken to address that. I repeat that you can potentially have development, depending on the assessment that you make, depending on the standard of flood defence, and on whether or not you would require the developer to make a suitable contribution if that was needed.

Q277 David Taylor: Almost at the start of your evidence, Minister, in answer to the Chairman who asked about the nature of contacts on a day-to-day basis with the Environment Agency, you said that you frequently ask them, for instance, to review functions and budgets. I think I recall what you said accurately. Is it not in the nature of organisations that functions will always be released reluctantly to other bodies and budgets will always be consumed comprehensively? You seem to be quite happy about the Environment Agency being the largest organisation of its kind, if I heard you correctly - a sort of Red Army or the Indian Railways of government agencies?

Mr Morley: Not as big as that, Chairman.

Q278 David Taylor: That is in terms of being enormously large. You are happy about that and you do not think it has become a sort of dyspraxic leviathan not knowing quite which way it is headed at any one time?

Mr Morley: I am confident that is not the case. I repeat the point that you should never think that anything should ever be set in stone, that you should always evaluate the performance, the outputs, the efficiency of any organisation, whatever it is, and that includes government functions as well. I think the Agency has a good record. For example, in relation to its own budget, the Agency has been very effective in terms of finding efficiency savings. This might be a matter to put the Agency itself.

Q279 Chairman: We will do that.

Mr Morley: I am sure you will. Compared to many other organisations, I think that is a pretty good record on this.

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 per cent 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.

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. 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 per cent in 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 100 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 your 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.

Q300 Lynne Jones: We touched earlier on flood risk management. Some of the people who have provided evidence have referred to our ageing flood and coastal defences and the risks posed by climate change, which will make matters even worse. I understand the OST's Foresight Report makes reference to the point that spending on flood defences will have to increase. The ABI is saying that there needs to be at least an extra 30 million a year on top of the savings. I understand that the Environment Agency is committed to saving 15 million a year, which is then supposed to be recycled. Do you accept that there is an increase in the backlog in the maintenance of our flood defences and risks for the future? Is the Government going to be making available sufficient funds to deal with these problems, over and above what the Agency can save themselves?

Mr Morley: I sat on the Foresight Programme myself. It was originally chaired by Professor King, the Government Chief Scientist. Now I have taken over the programme. We have an annual assessment of where we are in relation to the effects of climate change and flood defence. We are taking that into account in relation to our planning and forward programmes. We have substantially increased the flood defence budget. It is currently round about 570 million. As I mentioned, that is a 40 per cent increase since 2002. We do have to take into account the findings of bodies like the Foresight Programme which is a 50-year programme and so it is quite long term, and that is important. We do need to look at what investments we need to make in relation to flood and coastal defence. That includes maintenance. I am not sure there is a huge backlog of maintenance. As the budget has increased, there has also been a high level target set for such things as surveys of flood defence assets to look at their condition. The Agency is working through those high level targets. We also have to take into account capacity as well. The spend has increased so much that we have sucked in more engineers and more contractor companies. I think that we can manage the capacity but we do have to have a planned expansion in relation to what we are doing. We are spending very large sums of money at the moment in this area.

Q301 Lynne Jones: You have not answered my question about whether you will be spending enough. Whilst we all know that there have been new defences provided, the issue I really want to ask you about concerns the existing defences. You do not accept that there is an increase in the backlog there?

Mr Morley: I am not sure.

Miss Nason: Certainly I would say that we have recently given increased flexibility to EA to look at its total flood defence grant-in-aid spend and what it should spend that money on so it can best reduce flood risk. It will look at the relationship between its spend on the maintenance of assets with its spend on new defences or on flood warnings, et cetera, and will best spend its money in terms of what it can deliver in terms of reduced flood risk. That is an important increased flexibility we have just given them. They will certainly be addressing that. In terms of maintenance of assets, they do have to differentiate between the assets and concentrate on the ones protecting the most assets at risk. For example, they might wish to put more money into improving the assets in urban areas perhaps where there are large assets at risk, and they can work with farming communities to have different approaches perhaps to managing flood risk in agricultural areas. That is the kind of policy they are busy working on at the moment.

Q302 Lynne Jones: We saw some evidence of that in Essex.

Mr Morley: That is right. Essex is a case in point where the case for maintaining some of the flood embankments is, in some cases, very weak. There may be alternative ways of addressing that. There is a consultation going on at the moment.

Q303 Lynne Jones: So far, the Environment Agency has not provided you with evidence that, in terms of those assets which do need to be maintained, the situation is getting worse rather than being held or getting better?

Miss Nason: No, I do not think I have seen that evidence. We have certainly set asset condition targets within the corporate plan. My impression has been that those targets are being met. The corporate plan of course does reflect, and I am sure the Agency will explain this to you in more detail, the fact that there is a long way to go to get the assets in the condition in which they would like them to be. There will be a programme over the next few years to achieve that. That is a fair point. As I say, we are tasking them with the increased flexibility to look at what will best deliver reduced risk for communities between their capital and their maintenance programmes. I suspect it is moving money around in terms of maintenance that is required as much as more money.

Q304 Lynne Jones: So things are getting better where they need to?

Mr Morley: As a direct answer to your question, in terms of the increased spend, and of course we are seeing more defences and more maintenance, it is inevitable that there will have to be more spend. As apart of the spending review which we are just about to embark on, we will have to make our case to the Treasury in consultation with the Environment Agency about what is the appropriate level of spend. We will also have to justify that in relation to a cost-benefit analysis and we have very good data on that. We will make our bid as part of the spending review.

Q305 Chairman: Can I probe a little bit about exactly where the repository of knowledge and advice lies on flood risk? Would you say that the Environment Agency is, if you like, the centre of best practice and knowledge? In other words, it is the place to go if you want really top quality advice on flooding policy?

Mr Morley: They do provide top quality advice and they have top quality engineers. It is not the only source of information. We have our own engineers in Defra. There are independent consulting companies where you can receive independent advice. There is a number of sources of advice from very good flood and coastal defence engineers.

Q306 Chairman: In terms of strands of policy and thinking, are there lots of bits of what I call creative tension in the world of flood defences? I was intrigued in your own Department's evidence - and it was about the nearest thing we got to the veil of all is sweetness and light being lifted - in paragraph 36 where you said: "It is therefore inevitable that there are sometimes differences between the EA's advice and Government's eventual policy decision." That was a very Delphically written little sentence there. Then you went on teasingly and said: "For example, although ODPM has long had a close and constructive working relationship with the EA on developing policy on flood risk planning, the EA has at times challenged some aspects of government policy for creating sustainable communities, and on development and flood risk." That sounds to me like one of those wallpaper jobs that is trying to cover over a lot of cracks, differences of opinion about these matters. The Thames Gateway is a classic. Seemingly, we are about to embark upon building houses in a floodplain. You, Minister, earlier on gave us some indication that the risks were perhaps lower than had been billed. Then we have the ODPM that wants to have these houses. We have the Environment Agency that says, "Hey, what are you doing? There are lots of risks". We have you standing somewhere in between. I get the impression there are too many players trying to determine the risks for flood policy. Who holds the ring? Who is Mr or Mrs Flood in the Government?

Mr Morley: You do get differences of opinion in relation to some of the planning issues and some of the strategic planning issues. The Agency has every right to make its view on it. ODPM of course sometimes disagrees with their analysis, and they have every right to do that. In those circumstances, we have to have a careful analysis of what the level of risk is and what the concerns of the Environment Agency are. I come back to the point that we do have to take that into account and take decisions on this. Some of those decisions may involve some amendments in relation to the plans to take into account the concerns of the Environment Agency.

Mrs Moon: Can I just ask who bears the risk in terms of the person who buys the house? Ultimately, whoever has come up with the final yea or nay, and we assume since the house is built it is a yea, it can go ahead, who should carry that responsibility should that decision be wrong?

Q307 Chairman: For example, in this homeowner's pack, do they need a little message from you saying, "Mr Morley says this house is okay to buy from a floodplain point of view"? Is that what we should be having?

Mr Morley: It is a very interesting concept, Chairman.

Q308 Mrs Moon: Where do the insurers come in?

Mr Morley: The homeowner's pack could be a very useful vehicle for alerting people as to whether or not ----

Q309 Chairman: They might have to block up the holes with the floodwater coming in.

Mr Morley: You may have to take into account that the property is in a flood risk area and then you may want to ask what is in place to reduce that risk and whether there is an onus on the buyer in relation to the fact you may have to take some risks or measures in terms of flood mitigation. I think that is quite right and proper. These are issues which are matters for planning because it is the planners who take this into account in relation to the actual permission that they give. They need to weigh up the evidence, including the contribution that the Environment Agency gives.

Q310 Mrs Moon: So it is going to be the local authority?

Mr Morley: It is a very difficult one. I suspect that there is some get-out clause for local authorities and their planning authorities. Really, for new planning it is the planning authority that ought to take into account flood risk.

Q311 Lynne Jones: They are being heavily leaned on by Government to produce x numbers of new homes.

Mr Morley: There are many local authorities who are very keen to produce x numbers of new homes for all sorts of reasons I think we would all support. Sometimes planning authorities get frustrated by the fact that the Environment Agency, quite properly, is giving them advice either that they should not build in certain areas or they may have to take what they regard as very expensive measures to mitigate the risk, but that is a function of the Environment Agency.

Q312 Mr Vara: Moving on but staying on the subject of relationships, Minister. In evidence to the previous Committee, Baroness Young, the Chief Executive of the Environment Agency, said that the relationship between the Agency and Natural England was "very rich". She went on to say that it was important to highlight the boundaries and that they should be established, "written down very carefully otherwise we could tread on each other's corns". The last time that we had a statutory revision of the relationship the Agency has with other bodies was in 2002. When, and how, will there be revisions concerning the Agency's relationships with outside bodies, particularly bearing in mind the establishment of Natural England?

Mr Morley: As I mentioned earlier on, I think there is a good relationship between the Environment Agency and the newly appointed Chair of Natural England. I know that the Chairs of all the agencies have been meeting regularly and co-operating regularly. One of the very good examples of partnership I mentioned is between Natural England and the Environment Agency in relation to on-farm management of diffuse pollution, for example. I very much welcome that. The MoUs are designed to establish those boundaries. I think that approach is the right one to take when you are talking about reviews because you can have a kind of statutory boundary, theoretically you can do that, but things change all the time. If you have very restrictive statutory boundaries then you might find very soon they become outdated and very restrictive within the way that the bodies work. I would prefer to see the bodies work in a more fluid way where they establish between themselves where their own boundaries of responsibilities should be, where there are overlaps, and there are bound to be some overlaps, and in some cases some partnership working.

Q313 Mr Vara: Minister, that is fine but there comes a point when you need to establish issues of responsibility. When things get difficult the buck starts getting passed. To go back to the earlier subject, you talked about local authorities, developers and poor old householders. It is all very well everyone having a nice fluid relationship but if you have got Joe Public with a 100,000 mortgage and water three feet deep on his ground floor, then he wants to know where he stands and everybody is passing the buck. Likewise, Natural England is a large organisation, it requires to have some boundaries set, and if you are saying matters remain fluid you are either contradicting the chief executive, who wants clearly defined boundaries ---- You nodded then, are you disagreeing with the chief executive?

Mr Morley: Not at all.

Q314 Mr Vara: In that case, if the chief executive says there need to be clearly defined boundaries, the answer that we really would appreciate is when. I appreciate the argument of fluidity and discretion, which is fine, but for the sake of certainty, and we are talking of major issues and passing the buck, the buck has to stop somewhere under certain circumstances.

Mr Morley: Of course it does. There is no question of passing the buck. I make it very clear when I use the expression fluidity that what I mean is from time to time the boundaries will change, but that is not contradictory in terms of establishing clearly defined boundaries of responsibilities. There is no contradiction there in relation to what the chief executive has said and what I am saying. All I am saying to you is I would not wish to have a system that was so cumbersome and so restrictive that it would make it very difficult for different agencies to co-operate and work in an integrated way. Water is a classic example where you do need an integrated approach that takes into account such things as agri-environment policies, agricultural regulation like nitrate sensitive zones, our biodiversity policies, our SSSI policies and our flood risk policies. You can see right away there are a number of discrete areas of responsibility and it is clear which agency has them but they are going to overlap. What you need to do is develop an overall strategy where you can have this holistic approach. Catchment planning is one way of doing that and the Agency has been developing that very well. In terms of flood defence, it is clear that the Agency has responsibility and we have actually strengthened that, again in response to recommendations from this Committee in earlier reports where the Committee said it was important that there was one body so you did not have any instance of buck passing. There was a situation in flood defence where you had a split between coastal authorities, the climate agency, internal drainage boards, and in some cases there were issues of drains as well, and there needed to be a much more co-ordinated approach and we have given the Agency that approach. The drains are still the responsibility of highways or sewage companies but, nevertheless, there is a need for being clearer in some cases about where the areas of responsibility lie. We have tried to address that as well as not being too restrictive in other areas like catchments with the catchment plannings but you do need a holistic approach.

Q315 Chairman: Minister and colleagues, thank you very much indeed for coming and, as always, giving very helpful and useful information to the Committee. We shall reflect carefully upon what you have said. I had perhaps wished that you might have lifted the odd veil a littler higher on some of these mouth-watering comments in your evidence but we will weigh those observations carefully when we come to produce our final report. Thank you very much.

Mr Morley: Always a pleasure to come before the Committee. This is my first appearance in 2006.

Chairman: May there be many more; I am sure there will be.

Memorandum submitted by Environment Agency

Examination of Witnesses


Witnesses: Baroness Young of Old Scone, a Member of the House of Lords, Chief Executive, and Sir John Harman, Chairman, Environment Agency, gave evidence.

Q316 Chairman: Can I welcome once again for our final evidence session in our look at the Environment Agency, Sir John Harman, the Chairman of the Agency, and Baroness Young, its Chief Executive. May I thank you and, indeed, your staff sincerely on behalf of the Committee for the very helpful presentation which you laid on for Members of the Committee which gave us all a very interesting insight into the many and varied activities for which you have responsibility. May I also thank you for your written evidence. I was intrigued that amongst the many publications which the Environment Agency produce there was one that arrived on my desk last year entitled A Better Place: State of the Environment 2005. I thumbed my way through this and you expressed views on an enormously wide range of environmental subjects but some of them you do not have direct policy responsibility for, particularly in the field of transport where there are a lot of emissions which affect climate change but for which you do not have a remit. Now here we are ten years on since you started. In the light of this comprehensive document, A Better Place, are there things which you think your Agency ought to be doing which currently, going back to what the Minister said when he talked about your statutory remit, you are not able to do presently? In other words, should we have a more comprehensive Environment Agency than we have got at the moment?

Sir John Harman: Thank you for the opportunity to present oral evidence to your Committee, Chairman. I think that is a very good question. If you do not mind, I am going to answer it by going back to where we started in 1996. Of all the things that were expected of us, I suppose the two that should stand out most for myself and my board were that the Agency should firstly be an effective integrator of regulation on the various emissions to land, air and water through the various environmental media. That has been a key task for us, to understand how the impact on all those media works and to bring the regulation together. The other thing, and it is specifically mentioned in the Act - it is odd that the top document in both our piles, by the way, is the same one, Chairman, congratulations - is the duty to contribute to sustainable development and we have ministerial guidance to explain to us how that should be done. I go back to those founding principles because the board and the Agency have had to figure out what those duties mean. They must mean judging success by what happens in the environment, by environmental outcomes. None of the pages in this book is unrelated to a statutory function. On the example which you gave - traffic emissions - clearly we have no regulatory locus on traffic emissions but we have a huge responsibility on air quality shared with local authorities. It would not be possible for the Agency to take an intelligent view of its duties to contribute to sustainable development and, incidentally, to monitor and report on the environment if we were simply to report on air quality along the lines of what goes up an industrial regulated chimney, it has to be placed in context. Whatever statutory boundaries are defined, I think our general purpose obliges us, not just gives us the opportunity but obliges us, to form an opinion and report on a basis that is sufficiently wide for the reader to understand the context. I do not think you can talk about air quality unless you also mention traffic. After all, it is the basis of almost all air quality zones that local authorities have declared, and we advise them in those declarations. It is a good example of where our wider role invites us to take a stand on issues which are beyond the strict statutory limit, but that also brings with it an obligation which is that because we are therefore providing information which impinges on other people's roles we should work in partnership with a wide range of other organisations and, indeed, not just to see regulation as the end but the means to an environmental end and that we ought to use a range of approaches to solve any particular environmental problem and that means a great deal of working with others. You invited the Minister to think about what relationships the Agency should have with other bodies, it would be a huge map that would be drawn if you were really to try to describe the relationships we need in order to undertake our central role, which is that which is laid out in the Act and the guidance we have had since.

Q317 Chairman: Baroness Scone, do you want to comment?

Baroness Young of Old Scone: Two things. One is we do always have a statutory duty to report on the state of the environment which takes us into the wider range of issues that are in the State of the Environment report. You did ask whether there were things that we might like to do that would make our portfolio, as it were, more comprehensive, more rounded. I am slightly nervous of the comment that was made early on that organisations always want to take stuff on rather than give stuff up. This is not empire building but simply some tidying that I think needs to be done. There has been mention of the Marine Bill and I do think we need to have our proper place as an organisation in whatever emerges from the Marine Bill so that we can carry out our functions in terms of water, the Water Framework Directive, and flood risk management, coastal protection. I think we do need some spring cleaning of the responsibilities for air quality. The recent Buncefield explosion has demonstrated that managing air quality on a local authority by local authority basis is not sufficient when we have a big incident that spans a number of local authorities. I think there is a bit of tidying of responsibilities needed there. There are issues to do with chemicals regulation where there is a current discussion on who will become the Chemicals Agency for the UK and there we would want to put the very strong view that this fits well with our regulatory role in the chemicals industry processes at the moment and with our environmental responsibilities. Of course, we do want to make sure that in future we have got a proper place working with farmers alongside Natural England because the role of land management is going to be very crucial in the implementation of the Water Framework Directive. Last but not least on my little shopping list, I think it would be useful to explore the exact split between ourselves and government departments on policy, not just our role in helping government departments think through policy and negotiate policy in Europe but the reverse end of that, which is when does policy stop being political policy and start being the way we implement things, in which case it might be more appropriate for a delivery body like the Agency to agree the policy and the nuts and bolts of how overarching government policy will be delivered rather than that being determined in the first stage by the government department.

Chairman: That is certainly a point that came up in other evidence.

Q318 Mr Reed: Bearing all of that in mind, and it is all very, very useful, would the Agency have a fixed view at this stage on what is probably the biggest issue facing the country, which is energy policy?

Sir John Harman: That is an area where our statutory role is the regulation of power generation, large power generation, so we have a role but it is not a major policy role. In that, we put evidence to and supported most of the outcome of the discussion around the Energy White Paper two years ago and were pleased to see the emphasis that gave both to energy efficiency - we have a huge theme in our work on the wise use of natural resources, so of course we are very much in favour of enhanced energy efficiency - and on renewables because of carbon policy. Both of those things follow from our core role. Our view on this particular episode we are going through now is we would not want to see those basic principles abandoned. We think it is important both for the economy and the environment of the United Kingdom that we should get better at the use of resource, including energy, and obviously we have to get hold of carbon. If your question was about do we have a view on the nuclear argument, we do as well but I will stop there in case I am answering one question too many.

Q319 Mr Reed: No, not at all. It is interesting that you mention it. What would that be?

Sir John Harman: I should not invite questions! Our view is based upon our statutory role. As you know, we regulate the storage of nuclear materials and emissions from nuclear processors, the safety aspects of the Nuclear Installations Inspectorate. As a result of that responsibility, of course, when material comes out of the nuclear process as waste we have a regulatory stance and an interest and, although it is a theological point as to when solid nuclear material is discarded and becomes waste, let us put that to one side, we would be very clear in saying that we want to see a clarity about UK policy on radioactive waste management before we embarked on creating any more of the stuff when there is plenty of it already. There is a connected issue to the remarks I made just now and that is it may be the case in practice that if there was a coherent and national drive for new nuclear there may not be room in the investment markets both to afford that and to keep up the pressure on investment for renewables. Whatever else happens in the energy economy, I do not think that we can envisage a future energy economy which does not have a substantially greater renewable component than we have now. Anything that will take investor initiative, investor incentive, away from that sector would be a pity in our view. It is not an absolute rock solid certainty that nuclear would do that but there is a danger which must be navigated.

Q320 Mr Reed: Related to that in many ways would be the resources at the Agency's disposal. Do you believe that you are sufficiently resourced to do what is asked of you by Government, by Defra? How do you feel you measure up with your desire to "do more, better, faster, with less"?

Sir John Harman: It is a question to which I am tempted to give the same answer as the Minister. He was absolutely right of course, every body with a responsibility like ours would always like some more funding, but let us put that rather obvious comment to one side. To answer your question, I would give two somewhat different answers. One as regards expenditure on flood risk management and one as regards, if you like, the rest, but which is mainly environmental protection funding. As Mr Taylor was pointing out, our budget for the year we are presently in is just over a billion, 1,027 million, of which 551 is for flood risk management. That has seen a substantial increase in recent years, particularly the year we are now in, that is the year which has seen the biggest step up. I would only echo on flood risk management perhaps two things that came out in Mrs Jones' discussion with the Minister. First of all, we believe that this level of spending on flood risk is a step on a longer journey which was described quite closely by the Foresight recommendations that in the long-term the UK ought to be aiming for approximately a billion pounds a year and at the moment it is 551 in this present year through the Agency. There are other operators too. We see this as an upward trend, it will need to be. The second observation I would make is we are now at a level where I think it is reasonable to say, as Miss Nason was indicating, that we are at a level of expenditure where we can probably say the condition of assets can be held, it is no longer deteriorating, and we are putting more emphasis in that area. On flood risk management, we would like more, we think the kind of change pressures indicate an increasing path of need and we think the present level of expenditure, level of investment, is correct for the present time. As the Minister was indicating, this is a challenge to us to make sure we have got the resources to deliver that programme with competition for engineers and so forth. On the other side of the Agency's expenditure, the Minister said, and Members have quoted, nearly 650 million comes in Grant-in-Aid but a lot of that is flood defence Grant-in-Aid, 448 from Mr Morley's Department and 21 from Wales. This is a rough approximation. The remainder has stayed more or less static in real terms over the period of the Agency's existence. I have been with the board since 1996 so I can speak from experience. This is the area where new duties come along and are absorbed by the Agency and eventually create new charging schemes, but there is always that pressure. Just to give you an indication of the size of that, we currently administer for UK Government 120 regulations. 54 of those have come in since 1996 and have had to be absorbed as we have gone along in what in real terms is a relatively static quantity of money. The danger is of being given new unfunded duties. For instance, a lot of our activities on farms because of political decisions come out of the GIA rather than by a funding mechanism which means that GIA is being continually challenged and we are continually having to - I am sure if Mr Taylor was here he would quiz me on the efficiency - plough back efficiency savings in order to maintain our level of service against this rising demand, if you like, which is expressed through new regulations and doing that within rather the same resources that we have always had. I think we do feel the shoe is pinching there. We do argue annually, as Mr Morley indicated, over resources but the board is an experienced board, the executive is experienced, and we manage with what we have got. I would clearly like a bit more because it means, for instance, on enforcement of waste regulations, fly-tipping and so forth, almost all of that money comes from Grant-in-Aid but the more we have, the more we can do, it is as simple as that.

Q321 Mr Reed: There is a real danger then that the expertise of the Agency is being spread too thinly.

Sir John Harman: There would be a danger but I do not think we are at that stage at the moment. One of the things we are charged with - there is a quote in the ministerial guidance - is we are expected to maintain ourselves as a centre of expertise and excellence in a range of functions, and we do that. Part of the advantage of being rather big is we have resources to maintain expertise but - I will defer to the Chief Executive on this - I think it is at the operational end rather than the policy expertise where just covering the number of things we have to do makes the job feel most stretched, but we are doing it well within the resources we have.

Baroness Young of Old Scone: Could I come in on a couple of points. I think the Chairman is right in saying in terms of flood risk management we have had a major increase and the big stretch for us is to spend it well. We are rising well to that challenge but we will soon have got that under our belt and be ready for another growth spurt. The thing we have got to always remember is the more flood defences we create, the more maintenance money we need to retain them. I think the maintenance issue is an issue for the future without a doubt. On the business of the remainder of the funding, the non-flood risk management stuff generally speaking, under the cost recovery provisions where we have got a charge for a particular activity once we have set that activity up, and there may well be an unfunded process at the beginning of it, we are able to recover the costs and that should maintain a balance, we should be getting back what we spend, that is part of the rules. The areas that most tax us are those areas which are not charge funded, for example some of our navigation functions or some of the regulatory regimes that are regarded as not being appropriate for charging, for example in some of the agricultural regimes where we have got a large range of people who we regulate and no visible forms of support to do it with, so we have to cut and paste, as it were, our Grant-in-Aid to make sure that we focus on the highest priorities. I think those are the areas that I would be most concerned about in terms of funding pressures for the future.

Q322 Lynne Jones: There was some discussion with the Minister about the ring-fencing of budgets and he did say there was flexibility but we have had other evidence suggesting that there are a high number of funding streams that are ring-fenced which leads to the Agency having to develop highly complex accountancy and budgetary regimes to reflect this inflexibility. Who is right, this witness or the Minister who says you do have flexibility? Are you wasting money on accountancy because of the inflexibility which would be better spent elsewhere?

Sir John Harman: I am sure our finance director would say we do not always agree with the accountants. I think they are both right. I am sorry to answer in that way. When the last committee did its inquiry, I think our evidence at the time was there were 80 something different ring-fences. I remember my grandmother's mantelpiece which had a jam jar for the gas and a jam jar for the electric and so forth; we had 86 jam jars on the mantelpiece and you could not transfer half a crown from one to the other. That has got better. One way it has got better is that flood defence now comes under national Grant-in-Aid, it is not regionally split as it was. For every major charging scheme, for instance for pollution prevention control, which is a major regime for us, there is a ring-fence because clearly the people putting into that scheme want to ensure they are paying costs that are relevant to their own regulation and not to something else. There is still a large number of ring-fences. Grant-in-Aid is largely unhypothecated. There are bits of the rest of it - flood defence clearly is there for flood defence - which are hypothecated, but not very many. Largely the Agency can move funds around, the other 140 million or so, which is non-flood defence Grant-in-Aid. For instance, in this last year we shifted a substantial sum of money in light of the state of our navigation assets into improving the navigation assets. There is a degree of flexibility but if you have the wide range of functions we do have, short of stopping something, although we have discretion, it is rather limited. The truth is there is discretion but it is not wide.

Q323 Lynne Jones: Are you calling for any change in this or are you saying you are at an optimum point of flexibility coupled with transparency in terms of your re-charging?

Sir John Harman: I will pass this to the Chief Executive. The only thing I would say by way of introduction is personally I do not see that we should be asking to take on the charging schemes for different regulations but what we would like to see is a simplification of the regulatory process so that more of these regimes come into common vehicles, say waste licensing and IPPC, and the more that happens the more flexibility you get with the funding. I would like to see fewer ring-fences but I do not advocate the abandoning of the polluter pays and the cost for that particular regime being transparent for the payer.

Q324 Chairman: Can I just be clear, when you talked about transparency for the person who is being charged, if anybody who has a charge says to you "how is this calculated", do you provide them with a detailed explanation?

Sir John Harman: Every charge payer gets an explanation of the system and the charges with the bill.

Baroness Young of Old Scone: In terms of the flexibility of the ring-fencing there is a real tension because obviously if people want maximum transparency that must mean there has to be a clear ring-fencing of money coming in, money going out and visibility of what happens in the intervening process. We are pretty transparent in the way that we determine our charges and consult on them. There is a Charges Review Group, which you heard about, which involves the Government, the trade associations and some of the bigger charging partners and representatives of SMEs. We have got our own regional committee structure that also has industry reps. We consult every year on charges but we have also got an overarching policy statement which describes how our charges are set up. When we charge anybody we send them a leaflet that shows how the charge is made up. About 18 months ago now there was a joint Defra/Agency review of charging principles that the Treasury, the DTI, the Cabinet Office and Welsh Assembly Government also took part in and agreed the principles by which we charge. Our charges are agreed each year in detail by the Secretary of State. We have managed to keep them below inflation levels for the last three years as a result of our efficiency programmes. If industries do not like our charges, in many cases they can take a risk-based approach and by improving their performance get a lower charge on our OPRA risk-based charging programme. That can make quite a bit of difference to them, 7,000 difference in the fee for example. I think we are doing quite a lot. We can let the Committee have the huge amounts of documentation we have. This is our consultation on next year's charging scheme which I think is pretty transparent even if it is rather huge. There cannot be many stones left unturned by this document.

Q325 Chairman: I am sure that is probably true. I was reflecting on the fact that there was quite a lot of criticism in the evidence we have had, particularly from those in the waste field, that charges still seem to be on the high side versus what you are talking about, which is supposedly if they can see that they are fair and reasonable because it is transparent those comments would not have arisen.

Baroness Young of Old Scone: Can I just pick that up. In terms of some of the processes that are currently underway with the waste industry, they do reflect a number of things. They are quite time consuming, particularly for PPC regimes because they are new, the waste industry are coming into them for the first time, and we are continuously improving the process on both sides, both improving their ability to give us sensible information and our ability to streamline and reduce the complexity and do faster the permitting process. I think there is lots that can be done jointly with industry to reduce costs by getting (a) more sensible permitting regimes and (b) better performance from the industry in coming forward with their applications.

Q326 Mr Reed: A very final question on resourcing and the sufficiency of it. In a previous life before entering Parliament I used to work alongside the EA in the nuclear industry and always found the Agency to be nothing but effective and helpful, and that is undoubtedly the case. Not everybody sees the role of the EA like that, however. For instance, the Port of London Authority has said that the Agency tends to: "exceed the purposes for which it was established and to be dismissive of others' roles, even where duties and powers are complementary" and it believes that this is a "tiresome and counterproductive" trait. How would you respond to criticisms like that and other criticisms which tend to drift along the line that the Agency exceeds the purposes for which it was established?

Sir John Harman: I noticed that in the PLA's evidence and, indeed, various comments from the waste industry. We take them all quite seriously. In both examples you have just mentioned, I have contact with people in those organisations and generally I do expect to be told if they think we are getting it badly wrong and I have not received such messages. Indeed, some of the messages from the waste industry are contradictory depending on who you talk to. I am a bit disappointed to read them first in written evidence. On a serious point, our relationship with industry is as a regulator, we are not there to do their bidding but, on the other hand, we want it to be a positive and workmanlike relationship and we do want to hear and react to these criticisms, and sometimes we believe the criticism is ill-founded. To answer your question how would I respond to the PLA, I would quite like to go and have a discussion with the PLA on why they think that because I had not been aware of that. Sometimes it turns out that the evidence was written by somebody not wholly connected to the leadership of the organisation, but we will find out whether that is true or not.

Q327 Lynne Jones: Can I ask, were you sent the PLA evidence by the PLA?

Sir John Harman: Most of your written witnesses, if that is a thing you can be, have had the courtesy - not all of them - to share their evidence with us. Obviously we respect the confidence it is offered in but that demonstrates the relationships we have. I have seen the PLA evidence, yes, I hope the Committee does not mind that. I think it was the decision of the PLA just to let us know what they were saying, which is fair enough.

Q328 Mrs Moon: I think you would agree that part of your remit is also driving up standards and it is part of regulation to start raising standards. Two areas that have come out of the evidence we have had are people have welcomed the risk-based approach and largely the people who responded to us have also taken on board the issue of the polluter pays, but there is still a feeling from many of those who have come to us that there is a level of grievance, if you like, that they do not feel they have had the regulatory dividend they hoped for from the risk-based approach, that the Agency's primary target is still not those who are poor performers, that those who are not playing the game are not having a disproportionate degree of regulation, there is still far too much regulation on those who are complying and who are, in fact, meeting regulations.

Sir John Harman: Personally, I am quite pleased you are getting that response because in a sense it demonstrates an appetite for a deepening of, I was going to say in UK policy terms but anywhere in the world policy terms, this regime of having some calculable basis for establishing regulatory risk and then applying it to variations in the charges, which is very new. We are at the forefront of this and we anticipated when it came in that there might be more opposition than there has been from industry. It is good to hear people say, "Let's see a bigger gradient". Let us take the waste industry, where I suspect some of those comments may have come from. Whatever you do to a waste site in terms of the public protection role you cannot decline the regulatory effort to zero, there has got to be a regulatory effort. I would agree with them that there is not as much gradient perhaps between the lowest and highest performing operators as there might be, and we are trying to extend this the whole time. There was a suggestion some years ago around the time of the last Committee inquiry into the Agency of a policy called incentive charging where the charging would be used as an incentive on the company to promote good environmental performance. But if you do it within cost recovery you can never really escalate the charges to a level which is going to incentivise a boardroom because it is always going to be within the envelope of costs. The more dramatic versions of incentivised charging not really being available to us, we are doing it within the cost envelope. We would like to see more differential, and I am glad that people have said that to you. I think this is an area of policy that is moving. Barbara was referring - it was a sort of Sir Humphrey remark - to the policy of implementation. That is the sort of thing we mean by the policy of implementation, what can we do about how regulations are applied. The more discretion we have over that the smarter the job we can do.

Q329 Mrs Moon: Are you happy that the Agency is moving towards targeting those who are seen as poor environmental performers?

Sir John Harman: Yes.

Baroness Young of Old Scone: For example, we have reduced our routine inspections which used to be applied uniformly across all waste sites from 120,000 to 80,000 and we are going down even further in the following year, and targeting much more those sites which would benefit from in-depth audits where we can take a team in for a number of days and do a full-scale analysis of a site where there are particular difficulties. That is on a risk-based approach where the reduction in inspections comes to those companies who are either low-risk intrinsically or have a good environmental performance record through our OPRA system which very carefully rates those sites and companies. Also, the issue of the way in which we focus on the big, bad and ugly, the illegal end, the companies or individuals who quite frankly flout environmental regulation has increased considerably. We have been focusing on larger scale criminal activity, particularly in the waste field. We have now got special enforcement teams in every region. We have concentrated the experience of our investigation officers, and there was a recent television programme that some of you may have seen that highlighted that. We have been lucky to get additional money from the Landfill Tax fund, BREW, to help increase our work on waste dumping jointly with local authorities and, of course, we have set up the flycatcher database which helps all local authorities and ourselves to get good intelligence to help with enforcement of waste offences. We have done a major exercise in the last year on waste exports through the ports. There is a much greater focus now on the illegal and nasty end, a much more risk-based and proportionate approach to legitimate business, if I can say it like that. We must not lose sight of the fact that legitimate business still has to get prosecuted fairly regularly, that we are still prosecuting company directors of quite major companies. Not all big legitimate businesses have got a completely unsullied record. We do have to keep our focus on the total spectrum.

Q330 Mrs Moon: In terms of your policing role and prosecutory role, one of the issues that was raised, and it was raised with the Minister, was the issue of the fact that nowhere in your income does it demonstrate the costs of prosecutions and your targeting of those illegal operators who do make large sums of money from their illegal operations is being used to offset the costs to those who are operating legally. Would you agree that those who are regulated, those who are paying for regulation, who are registering and are appropriately licensed, are in fact within that licence fee having to pay for your policing role of those who are not? You said you are demonstrating what your costs are covering when people apply for a licence but within that are you able to demonstrate that they are not paying for your policing of the illegal operators?

Baroness Young of Old Scone: It depends very much on the regime. In the regimes there is a specific mention regime by regime of what enforcement role will be included within the charges. Some regimes do not include any enforcement even for legal operators and others include an element of enforcement for legal operators but not illegal operators. It is a mixed picture. The majority of our enforcement work on illegal operators comes from Grant-in-Aid, not from charges.

Q331 Mrs Moon: Do you know how much you generate each year from prosecutions?

Baroness Young of Old Scone: We are not permitted to keep our fines at all.

Sir John Harman: The figure is zero but about three million for the last year that I have is the total of all prosecutions.

Baroness Young of Old Scone: We have explored with Treasury whether we could keep our fines but, to be honest, they were monumentally not keen and 3 million quite frankly, until fines get a lot bigger, is not worth making too much heat and steam about, it is not going to solve all of our enforcement issues.

Q332 Mrs Moon: Would you comment on whether the Environment Agency is constrained by its lack of funding from Government? What areas would you see the Agency neglecting because of lack of funding? From my own perspective, can I ask you to comment on the fact that in terms of conservation you have six million to fund your work in that area as opposed to, say, fisheries of 30 million. Are you finding you are neglecting some areas because of funding constraints? Should you use those flexibilities that the Minister talked about?

Sir John Harman: To come straight to the point of your question, I do not believe that we are neglecting any area of our brief. In answer to an earlier question I said that at the moment we believe we are able to do a reasonable job but, of course, it is resource constrained and of course we could always do a bit more. It is natural that people with interests in particularly, say, water recreation or navigation will always say we should spend a bit more on that function. The issue you raised, the conservation issue, is very important and it has been a matter for the board to discuss on numerous occasions. The six million that is quoted there is the cost, for instance, of our specialist conservation officers and I think for some of the work we do on SSSIs. The work that the Agency does on conservation goes right across a lot of other centres. For instance, the biggest one is flood risk management. When a flood risk capital scheme is done it is a design requirement that any opportunity that that spend represents for enhancing conservation is taken. Therefore, if one were to add up all the expenditure that the Agency makes that could be said to be relevant to the aim of conservation it would come to a great deal more than 6 million. The issue for us as a board is to ensure that because our duty on conservation says that we should have regard to or promoting - I cannot remember the verb from the Act, I could look it up if I had time - across all our functions. There are a number of obligations like that. Our job is to ensure that there is sufficient input, if you like, from the other things the Agency does.

Baroness Young of Old Scone: If you look at some of the big investments in biodiversity and conservation they come from areas where we have played a key role, but not our money. The successive price rounds that the water companies go through under the asset management programme process, a five yearly process of setting water prices, have generated almost 1 billion for conservation and biodiversity in a ten year programme of which we are in the middle. The work we are doing on the Habitats Directive with English Nature looking at which consents need to be withdrawn or amended in order to protect Habitats Directive sites is going to generate a programme of something up to 800 million over a period of years. All the work we do on improving the quality of waters, both in terms of quality and quantity in the rivers and on the coastal areas, has an impact on biodiversity. Our work on water as a whole has a huge impact on wetland conservation and on the species that depend on the wetlands. I have six million a year which is our direct costs which is a tiny, tiny part of our total biodiversity impact.

Q333 Mrs Moon: If I can move forward on to the issue of your income. I have got the details of your income here. A lot of people who gave evidence felt that a disproportionate amount of your income came from industry and that increases in regulatory charges were coming disproportionately their way. I think one of them quoted a rise of over 2,000 per cent which gave them great cause for concern and they felt there was a lack of generation of income from other sources. Would you agree that was true? What other sources of income could you see coming your way and would you like to see coming your way? Who are the other people who should be paying for your roles and functions?

Sir John Harman: First of all, on the industry side I think quite a lot has been said in both the previous answers and your session with the Minister about the charging regimes. They are what they are, they are based on full cost recovery. There is an oft-quoted issue, which is not principally for us because this is an established part of Treasury policy that we are applying here, that we are probably unique in Europe at going for complete full cost recovery. If you are an industry which has a plant in England and a plant in Germany, for the same kind of service on IPPC you are probably facing different charging bases because more of it is borne by the taxpayer in different economies. In Scotland, for instance, more is borne by the taxpayer, although I understand the Scottish Executive is seeking to migrate closer towards full cost recovery. We have always been open to odious comparisons. It is entirely to do with the fact - I support this principle - that we recover 100 per cent of costs. There is an aside: because I noticed you were getting this sort of comment I did look up the regulatory costs for one of the commentees, which is BIFFA Waste Services. They have probably got as many different licences, premises and sites as any company in the United Kingdom. Their overall regulatory cost was just under three-quarters of a million last year, which I think is quite high actually, but that is less than one-tenth of one per cent of their turnover. I think you have got to see this in some kind of perspective. What are our other sources of income? Very few. We have the ability, as any other large public corporation, to sell assets if they become redundant, we have got income from interests and so forth, the Treasury take it all into account. We do have a little income but it tends to be project-based which we derive with partners on things we are doing together. A typical example would be European funding for habitat improvement or, in the case of Wales, the fisheries programme in Wales has been European funded, but these are rather minor, they are not significant to our core effort. They enable us to do additional things that we otherwise would not be able to.

Baroness Young of Old Scone: We have been pretty successful in increasing our external income from basically selling expertise and information. We are hitting our target of about 60 million income from that sort of source but I think we are getting quite close to the point where we will run out of road at some stage. I do not think there is a huge element of additional growth available to us there. It is things like taking our data and benefiting from the intellectual property rights and selling some of our services that we use for our own internal purposes to other external bodies, and also increasing the amount of money we get from European sources for project work.

Q334 Mrs Moon: I am always intrigued that in terms of planning applications you are often asked to give quite comprehensive responses but you get no payment.

Sir John Harman: We get no income from it, no. Thank you for noticing that.

Q335 Mrs Moon: I have noticed that sometimes your reports in response to planning applications are required to be. The question I asked the Minister was who is ultimately going to be responsible for this if it goes wrong in terms of building on floodplains and that is an area where you are required, and will be increasingly required, to give comprehensive responses but the applicant, especially if they are large developers, is not going to be making any contribution to you, it is purely going to be to the local authority. I was just wondering if you had raised that, and you have not.

Sir John Harman: We have raised it, and thank you for helping us to raise it again, I think it is important. As chance would have it, we came here from a meeting where we were looking at flood defence expenditure for next year and we reckoned that in order to service, so to speak, the PPS25 work we will be doing, we will probably need an additional 40 planning officers across the country. That will come out of flood defence expenditure because it is related to a flood defence function, but we receive no income from the planning regime for that, you are quite correct.

Baroness Young of Old Scone: There are some areas, not necessarily external income but planning related income, where we do think that we need to raise the issue. For example, in the recent Pre-Budget Statement we were given a responsibility for helping assess the sustainability of the growth zones for ODPM. If ODPM were laying an additional duty on a local authority the new burdens of regulation would mean money would have to follow it. We feel we could perhaps raise that as an issue.

Q336 Chairman: I might have missed it but did you quote a figure for what the costs are of providing all of these bits of advice in terms of planning?

Sir John Harman: I did not.

Q337 Chairman: Would you like to hazard a guess?

Sir John Harman: No. I would like to let you know when I know the answer, Chairman. May I do that?

Chairman: Yes, that would be very helpful to put it in perspective in relation to the number of applications that Madeleine Moon mentioned and the potential increase in task which you are facing because certainly in the planning field the cost recovery from the local authority point of view is an equally important issue.

Q338 Sir Peter Soulsby: As we commenced on this inquiry you very helpfully described to us, and in some cases reminded us, at the informal meeting we had with you the size of the Environment Agency and the very considerable scope of its responsibilities. You have reminded us again today of the very wide range of responsibilities that you have to enforce the particular regulations. As you have described, you are also charged with being a Champion of the Environment and within that with the provision of education, advice and, indeed, you also have some responsibilities as a provider of services, particularly recreational services of one sort or another. These roles are potentially in conflict, incompatible. How do you cope with the balance between them?

Sir John Harman: The conflict is not marked. If you put any two roles together you would probably find conflict. I am not aware this has been a particular issue for us. Going back to the beginning of your question, the issue for us is more how to interpret and live up to the role that either we describe or sometimes other people describe for us. This role, "Champion of the Environment", was coined by your predecessor committee, it was a product of the last inquiry. We have had to figure what that means. It has to be in the context of two things. First of all, in the context of the UK's approach to sustainable development as a whole. Within that effort we must have regard to social and economic factors and that is one of our duties actually, it is laid out in the legislation, but we come from the environmental corner so in that sense we are the spokesperson, if you like, for things that are related to our functions - climate change is related to our functions - within sustainable development. We talked earlier about the Agency's role in monitoring, reporting. It is really important that we communicate as well as we can. What I do not think we can ever do, and we have never said we could do, is be a kind of public advocacy/campaigning body principally. We have channels, obviously, we have 12,000 staff for a start and they are locally and regionally present, so there are plenty of channels of communication, but we are more a vehicle for messages than a campaigning organisation. The difficulty I have had with this phrase has been not in accepting it describes part of our role but not getting led too far down the assumptions it might make. I think it is quite a difficult one for the Agency. We have clearly to use our knowledge of the UK environment and our knowledge of environmental processes to act as the champion of the environment within sustainable development, but for some people that means acting, if I may say so, like an NGO, but we are not an NGO. We are not principally a campaigning body, we are an informing and, as you say, educating body. Barbara may want to add her own aspect to that. From the point of view of the Board, there has been quite a discussion about exactly where on this spectrum the Agency should stand and it should never get further than a logical connection back to its statutory function would take you, in my view.

Baroness Young of Old Scone: I think the dichotomy between regulation and advice is one that we do not really sign up to, to be honest. We interpret regulation in a much broader sense. Regulation is not just giving permits and checking whether they have been adhered to, it is about how we achieve better environment, working with businesses which we are in a regulatory relationship with. Some of that will be strict tick-and-check regulation, some of it will be advice, some of it will be trying to get better policy frameworks, better economic instruments, and as a last resort influencing public opinion. It is using all the tools which can be put together, working with businesses to improve their regulatory performance. So the kind of average approach of an Agency inspector with a company will be to work with them on the site, try, through a process of negotiation and discussion, to get them to improve their performance, give them a bit of help and advice, and only if that does not work to then come in and say, "If you do not get better, we will have to give you a written warning, and if that does not improve, we will start putting different conditions on your permits, and if that doesn't improve we are into prosecution." I think we would only go straight to the, "You're nabbed" approach if it was something which was so gross by a company which really ought to have known better, or where there had been big damage to the environment where we have an automatic prosecution policy. But, generally speaking, we prefer the partnership advisory approach as a first step. If we were separated off and only doing the tick-and-check regulation, "You're nabbed", and some other body was doing the advice, we would not get the benefit of that interaction and, to be honest, you would have to duplicate the expertise in a lot of cases to be able to do so. One of the worries we have with the comments that industry makes about the dichotomy between our regulation and advisory role is, there are quite a lot of businesses, particularly medium and smaller enterprises, who really want us to be their tame consultant, they want us to tell them how to do it, but we cannot be the consultancy service to the whole of British business. Businesses have a responsibility to understand what their environmental responsibilities are and we give them as much information and advice as we can in a generic sense to help them with that. With SMEs our Net Regs Programme has doubled in size over the last year and is now accessed by a quarter of a million small and medium sized enterprises, but we cannot give bespoke tailored advice to every single business about every single issue, because they have got to (a) get some understanding internally within the business and (b) use some of the external commercial consultancy services for some of the more complex issues. Business will always want more from us.

Q339 Sir Peter Soulsby: But the fact is you do give advice and it is put to us there is a lack of clarity about when you are acting as an adviser and when you are acting as an enforcer. I quote the words of the CBI when talking about the experience of particularly small companies and their wish to be able to receive advice from you, "A visit from an inspector to give advice may lead to enforcement actions." That therefore discourages them from seeking advice.

Baroness Young of Old Scone: There is a bit of a bogeyman feel about some of this. They are anxious, and that is obviously a communication issue we need to pick up, to reassure people that a visit from us does not automatically mean we are going to nab them for something. In some cases, when they are grossly out of line and where the environmental damage has been quite major, we really do have to take immediate action. But I hope we are not taking a disproportionate approach to that. We do recognise the need to work more with some of the umbrella bodies for small and medium sized businesses to try and assure them that we are not out to catch them out, we are out to get their performance better rather than to catch them.

Sir John Harman: I think it is a fair point but I would distinguish between large and small businesses. It is really rather unlikely a small business will get an inspector visit from the Agency unless they have a permit for something, and if a business is sufficiently impacted to require a licence or permit it is probably sufficiently big to understand the duties which go with that. In those cases, where the relationship is bound by a permit, let us say, the relationship is as Barbara has described it; mostly there is an understanding that we are there to regulate but we also want to give advice. When it comes to SMEs, there is a reticence and reluctance to call on the regulator for advice, which is why our main channel to small businesses, which is Net Regs, is done entirely anonymously; there is no knowledge by the Agency that you have consulted it. What we have tried to do is work with representatives of small businesses in 100-odd sectors to provide on the web the basic starting-kit for what you can do if you are a small printer or a small wood treatment facility or something. We recognise that there is an underlying problem for any regulatory body there. Most of our industrial stakeholders, if you like, seem to want us to give more advice, and it is our duty to do the ones we can in that area, bearing in mind it is unfunded. Net Regs is funded by a Treasury grant.

Q340 Sir Peter Soulsby: You have mentioned Net Regs, can I ask you about your plans for the development of that? Particularly, you referred to future funding mechanisms which you were hoping to develop to enable you to do that.

Baroness Young of Old Scone: The Net Regs is jointly-funded between the Environment Agency here, SEPA, Northern Ireland and we do have funding from BREW, from the Landfill Tax fund for development for the next year. I am desperately trying to remember the three developments we have for next year. One is a kind of risk assessment product which small companies will be able to use to assess their environmental risks. We are increasing the number of sectors which are currently covered; there are about 110 sectors, small and medium sized industry sectors, covered. There is one other development and I have completely forgotten what it is but we can certainly let you know. We can do a lot more on the development of Net Regs if we had more funding but we have to cut our coat according to our cloth. We are very pleased with the amount of take-up we have had so far, but we have only got a quarter of a million SMEs out of the 4 million SMEs in the country, so there is still a lot to do.

Sir John Harman: We had 2.1 million pages circulated last year, which is quite substantial.

Baroness Young of Old Scone: The three projects for next year are improving the clarity of the site with personalisations for individual user's needs, so you will be able to get a personalised package on it. Second, the self-assessment tool which I talked about to allow businesses to measure their risk and how compliant they are. The third one is, what do I do with my business waste feature, which will particularly focus SMEs on re-use, recycling and disposal options based on individual postcodes, so it can tell them what they can do in their immediate area to handle their waste.

Q341 Mr Reed: Building on Sir Peter's point, much of the evidence we have received highlighted inconsistencies in the Agency regulation around the country, within various sectors, between geographical regions and often between the policy centre and inspectors on the ground. This has been referred to by some as a "pick 'n' mix" approach towards regulation. Would you accept that?

Sir John Harman: We would not accept that. You will get a two-part answer, one from me and one from Barbara. I make the slightly obvious point that one man's inconsistency is another man's flexibility, and we have voices off arguing for both more flexibility at local level and more consistency. I think this issue of consistency is a key one for the Agency. Of the operational issues which were flagged up by the last Committee inquiry, this was one I thought had real force at that time - several of them had real force but this was one we needed to address. A lot of work has been done within the Agency since then to be much more analytical about those processes which really should be reflecting and reactive to local differences and plant differences, in other words tailor-making processes, and those which ought to be nationally consistent. It must be the case that similar processes in different parts of the country are regulated according to the same framework agreement, obviously taking into account the local circumstances of the plant or who lives closer and all this sort of stuff. This is where I will pass the ball to Barbara, the Board has required the Agency Executive over a period of years since then to continually sharpen up the consistency issue without becoming uniform, without having a kind of national permit you just take off the shelf and shove at somebody. My view of our success on that is that I think we have come a tremendously long way. We will never be free of accusations of inconsistency. If we were there might be a problem, we might be not very flexible about what we are doing and not very intelligent about how we react to local circumstances, but I am absolutely confident that the Agency has over the last five or six years made a huge impact on consistency of process and it has taken a lot of organisational change to do it, which is where Barbara comes in.

Baroness Young of Old Scone: We took very much to heart the concerns that existed when I first arrived at the Agency about lack of consistency and we have put a lot of measures in place to improve our performance there. We now have a process management system which means there is a single consistent process for each regime established on a national basis. There is a help desk associated with that too so if anybody in our regions or areas is in any doubt about how a particular regime should operate they can get definitive advice on a particular issue which is the same advice right across the country. For the major permits, particularly for the PPC, Polluter Prevention and Control, we have introduced a national system of special permitting groups who are the kind of permit factories and can produce a consistent permit faster and cheaper, and that has reduced our determination time for permits by about 40 per cent since we set them up. We are also looking at more integrated, streamlined and standard permitting, which would mean for simply processes there is a common consistent standard. We are reinforcing all that with training for staff in new regimes and also our front line staff, our environment officers, have an externally-accredited training and development programme that focuses on consistency in enforcement and inspection. We have standardised site inspection forms, guidance, and we have now a compliance assessment process which is standard so there is a common benchmark to assess whether individual sites are complying or not, which is a nationally consistent one. Of course our risk assessment system is a nation system also, so companies are being assessed and risks are being assessed in a standardised fashion. All of that you might think might lead to a lack of local flexibility but we do build into all these processes the ability to take account of individual circumstances, of companies and their locations and the particular circumstances of their activities. Increasingly in the work we do on regulation, we are taking an outcome based approach and leaving it very much for local negotiation between inspector and company as to how they achieve those outcomes, so that can help with local flexibility. It is always going to be a struggle between national consistency and local flexibility.

Q342 Lynne Jones: If you heard the earlier evidence, you will know there has been some suggestion you have had difficulty in retaining and recruiting specialist staff. Could you comment on that?

Baroness Young of Old Scone: We have a low turnover rate in the Agency, at about 7.5 per cent, which is considerably below the public sector average of 111/2 per cent and the private sector average of 20 per cent, but we have some areas where we have quite a degree of difficulty in recruiting and retaining staff. One is flood risk engineers where we have introduced a foundation degree which will bring them into the first stages of engineering and develop our own as it were, and we are working with the Institute of Civil Engineers on a general national shortage of civil engineers across the country for a variety of purposes. We have run a series of recruitment campaigns. On hydrologists and geo-morphologists we also have a black hole, which has been common across the country, not just us, where a whole variety of university courses have been closing down and we have been working with the universities to try and re-invigorate those and put an improved career structure in place and provide in-house development. With town and country planners we are in competition with local authorities and where, to be honest, our salaries have got less competitive and we are having to look at how we can improve the competitiveness of that, but also to grow our own, to take staff with perhaps little experience and develop their experience in a structured way, again seeking accreditation from the Town and Planning Institute for our in-house development activities. So there are a number of areas where we are struggling, in common with many employers, and we are putting measures in place to try and improve them.

Q343 Lynne Jones: Do you think young people when they are looking for a career are aware of the opportunities in this area? The work you do is probably not well known. We have already made reference to some of the booklets you put out and how you communicate your work, but I do have to wonder what the purpose sometimes is of these. This booklet says it is, "To explore how people's environment can affect their health", but one wonders whether that is really your function. I am not sure who these kinds of booklets are directed at. MPs get them and we do not have much time to read them. How are you publicising your work? You also have stakeholder interests which you are supposed to relate to. Have you got a strategy for this? Perhaps part of the spin-off of such a strategy would be that young people might be motivated to go into some of these areas where there are shortages.

Sir John Harman: To start with what you finished with, although Barbara was drawing attention in response to the earlier question to the areas where there are difficulties for recruitment, in general recruitment for environment officers we are an employer of choice for a lot of young graduates in the relevant disciplines. I forget what the proportion is but there is a huge over-subscription in general recruitment for environment officer jobs in the Agency. I personally do not fear we are badly known among the young graduate population workforce.

Q344 Lynne Jones: But among people who are deciding what subjects to take?

Sir John Harman: If we are looking at engineering, which was one of Barbara's examples, and in fact all Barbara's examples were scientific of some sort, we share with all other employers in those areas the generic difficulty that we do need to do more to engage young people at the time they are choosing specialisms, which go right back to A level choices or even before, in seeing these careers as things they want to do. There is a lot of peer pressure which moves people away from science. Being a mathematics teacher by initial profession, you are going to get me on a hobbyhorse if you are not careful. So we do need to continually think about ways of addressing that. On communications generally, we have quite a large and comprehensive, take my word for it, communication strategy. If you wish, we will send it to you. We do have to be careful who we think we are talking to, and I think your example of the Health Document is a good example, we need to make sure it goes to the right people. The purpose of that is that we do have statutory duties to protect public health and this is exploring what that means. The audience there is a rather large number of people who are at the interface professionally between health and environmental standards where a lot of work needs doing, but perhaps it has not made that terribly clear.

Q345 Lynne Jones: There has also been some criticism that a lot of your information is web-based. A little earlier you mentioned small companies and there are some very small companies, perhaps with older people, who do not have access to the web. Is there a problem there?

Baroness Young of Old Scone: One of the things we have been looking at in our communication strategy is hard-to-reach groups, if I can put it that way. There are two or three particular examples we have been working hardest on. One is minority communities, particularly in our flood risk management exercises, and also in terms of local environmental quality, particularly fly-tipping and waste dumping, and we are working with very different groups to communicate with those communities which are not the standards ones. We are getting out and about within the communities, and that is where we have the benefit of being a regional and area based organisation, because we do have 12,000 staff out there on the ground to talk to their local communities. That is actually proving quite useful because we are combining that with a big push to increase the diversity of our employment pool and those two are coming together. We are also looking at how we talk to older people and people with disabilities in terms of flood risk management who are particularly vulnerable, and small and medium sized enterprises who are in exactly the position you outline - the ones who are older, one man bands, not likely to adopt net-based technologies - how we can get at those, through trade bodies, through local trade publications, through the sorts of events they might attend. So there are a whole variety of ways in which we can try and enrich the way we communicate with the key stakeholders.

Q346 Lynne Jones: You have a science programme. What does that mean? Are you doing research?

Sir John Harman: We need to be, because of the range of duties, some of which are very intensely obviously scientific, intelligent consumers and commissioners of scientific knowledge and really quite discriminating in how we do that, making sure we get the relevant stuff. So it is largely commissioning, understanding, influencing research and keeping abreast of science in the areas which most impact on us. There is an Agency Head of Science. How much do we spend on science?

Baroness Young of Old Scone: About 15 million. Most of our science is trying to pull together science from a whole variety of others' original researches; we do very little of our own research though we do commission some. We also work with a group called the Environmental Science Funders Body, which covers all the commissioned environmental science in this country, so we can get some co-ordination and we are not overlapping and duplicating. That involves us, Defra, some of the research institutes and some of the universities, to try and make sure that the research budgets we have all got are used in the most effective way collaboratively.

Q347 Lynne Jones: There was criticism that some of your policies may not be very environmentally friendly. Examples given were not allowing bottom ash from incineration of bird and poultry waste to be used in fertilizers and insisting on landfill. Another criticism was about gravel from rivers, that it had to be removed rather than deposited at another part of the river. What are the reasons for those decisions which do not, on the surface, seem sensible? Would you care to comment?

Sir John Harman: There is a long story behind each of those examples you have given.

Q348 Lynne Jones: We have not got time for that.

Sir John Harman: The issue with bottom ash is that we do have a general view that bottom ash can be re-used as a secondary aggregate, but when it is mixed with fly ash, which is usually dioxin-rich, there has been a problem. There have been problems which have led to the examples you have given. Barbara, you may or may not recall, there was a case a few years ago when you appeared on Newsnight with a brick to demonstrate this was a breezeblock made out of this ash and there was a controversy about whether this contained dioxins or not. The confidence of the public in that product does depend on ensuring that the dioxin-heavy fraction, which is the fly ash, is separate. The issue there was the bottom ash which was mixed with other things. We worked quite hard at that time to find legitimate outlets for bottom ash. Some of the problems actually hinge around the legal definition of what is a waste and I do not want, at this time of the evening, to embark upon that, unless you are feeling very strong in your constitution.

Q349 Chairman: The only thing that is worrying me is that this is the first time I have heard of an interviewee with Mr Paxman taking a brick along with him. Can you tell us something about gravel?

Sir John Harman: This is dredgings, in this particular case I would think, from the Thames.

Q350 Chairman: The argument was about taking gravel from one side of a weir and putting it on the other side which might be a good bed for fish spawning, so why did the gravel have to be treated as waste?

Sir John Harman: I do not know the details of that one, perhaps we had better get back to you on it, but I guess it is to do with the European definition of what constitutes a waste.

Baroness Young of Old Scone: I find it difficult to think that taking from one side of the weir to the other is actually creating a waste. Dredgings have been a problem.

Chairman: It does bring us full circle back to the question we addressed at the beginning, which is your involvement both nationally and at European level in determining policy. As Lynne was indicating, sometimes when you see the results of that, to us as interested lay people we say, "What?" There may be a reason but we will correspond with you on that.

Q351 Mr Rogerson: I am tempted, but not at this late stage of the proceedings, to start talking about compost and when that is a waste and not a waste. We have talked briefly about planning and your role, particularly where it applies to flood risk areas and flood plains. Do you believe the Agency is taken seriously enough by central government when looking at those considerations in terms of major strategic planning?

Sir John Harman: You are going beyond just the PPS 25 point here?

Q352 Mr Rogerson: Yes.

Sir John Harman: I think the answer to that is, yes, though I can think of examples where we have had to be fairly insistent in order to get that degree of agreement and joint-address problems. I thought when you put a similar question to Mr Morley that you could not have separated me much from his answer. That was the point at which I think you accused him of being rather diplomatic with his language. Let us take the sustainable communities and the housebuilding programme. We have had a number of cases where we have had to say to local promoters of development and ODPM, for instance, there are impacts of a development which simply have not been taken properly into account. If I might give a case in point, Corby, which I think I mentioned in the informal session at Millbank, where the proposals, which had gone to quite an advanced stage of strategic and indeed detailed planning in the locality, simply were not supported by adequate drainage and sewerage arrangements, and the study and preparation which ought to have been done to allow that development to come forward had not been done at the right time, and so consequently the intervention did delay what otherwise would have been the time-path of the development. Having got to the point where the intervention was made, I have to say there has been considerable joint-work to problem-solve, and that pattern of addressing something rather late but addressing it effectively has been replicated in a number of places. Where we have got to now, at the beginning of 2006, as a result of these episodes is that we now have a concordat with ODPM about how both sides will ensure the other side is properly informed and engaged, and a very effective working relationship has sprung from that. It does reflect the fact that we have a proper interest not just in the limited issue, which is important enough in itself, of PPG 25 and preventing flood risk impacting on development, but also on the wider issues such as water resources - is there enough water in the region, is the drainage system adequate. We have become involved in the discussion around building standards, for instance. It is only a few weeks since I gave evidence to the next door committee about that. So there is a range of quite proper things we are involved in, and as a result of a few bumps in the last 18 months the relationship with the ODPM on those matters is now much more open and much more effective and we are happier with the way we are now than we were, say, 18 months, two years ago.

Q353 Chairman: The Minister alluded to the fact that some of the events which may be termed flood risk were 1:1,000 year events. Was that right? Did I understand him correctly?

Sir John Harman: The question had been raised in the context of the Thames Gateway and he was pointing out that the standard of defences for the majority of the Thames Gateway, that part which is protected by the Barrier and the downstream defence from the Barrier, was designed to a 1:2,000 years return period. Climate change and rising sea levels has now eroded that to about 1:1,000 years. His comment was - as I understood it anyway, let me not speak for him but this is what I think I heard - that although these areas enjoy, if that is the word, the highest level of flood protection in the United Kingdom, that does not absolve developers from considering what the consequences of inundation might be, and in areas where the greatest risk lies how to mitigate that or indeed avoid it altogether by not building there, which is the essence of PPG 25.

Q354 Chairman: It might be helpful for you to reflect on what seems to be something of a paradox in this area, and perhaps let us have a note on it. I am still not entirely clear about, if you like, the meaning of a clear message from you, saying there is a risk. If one looks at a risk of an event occurring - for the sake of these discussions let us stick on 1:1,000 years - I presume it could occur in year one or year 999, and what we do not know is what are the odds of that event occurring within that thousand year time span. Given the value of the assets which might be involved, it does add an interesting mathematical calculation as to, "Do I take the 1:1,000 year risk or do I take a more conservative view of the land development"?

Sir John Harman: I am glad you use probability, not many people like to do that, but in fact the message is there is a 1:1,000 probability in each year of such an event happening. It is a constant probability and it is just as alive at the beginning of the period as it is at the end of the period; it is a 1:1,000 probability in any one year. That is a better way of putting it and one we prefer but most people do not get their teeth round that one, so congratulations. Although that is a statement about the design of the defences, it is not actually a statement about the risk behind them at all points, because the risk can come from rivers, from drainage and other things, and it is the obligation of the developer and those proposing the development to show they have assessed risk and have reacted appropriately. The main reason that we will object to or turn back applications is because they are not accompanied by a convincing or even any sort of flood risk assessment, which is what they are obliged to give. In the Thames Gateway there are strategic area-wide flood risk assessments being done simply because it is important for developers to know where the major risks are, and that is work which is currently being done and in the case of the London Gateway has been completed.

Q355 Chairman: I think it would be genuinely very helpful to us to have some commentary on this and whether you consider the existing mechanisms of evaluating and responding to those risk messages are as good as they should be. I come back to the point that I probed with the Minister, which is the relationship between the advice you will give and the advice his Department may give, and indeed the advice that ODPM will create for themselves. It seems to me there is quite a lot of advice but some people taking the risk do not necessarily follow that. We had some evidence at the beginning from the insurance industry, who build upon your own flood mapping exercise with a more focused form of risk identification, which again put a further dimension on this, because you might say before you build you want to go to an insurer to see if you are going to get insurance.

Sir John Harman: We would be very glad to do that, Chairman. I would just say that although I would accept the insurance industry has a more focused approach they may not be more accurate.

Q356 Sir Peter Soulsby: A little while ago you described yourselves as a regional and area based organisation. I think I am right in saying that your regions and your areas are very different from those other organisations have. Is that a problem, particularly when you are developing relationships with partners?

Sir John Harman: It is a problem which can be resolved. Because the regions are aggregations of areas, let me talk about areas. The basis for our area boundaries is what were in 1996 the local authority boundaries closest to the watershed. I say 1996 because some of them have changed since then. They follow the administrative boundaries closest to the watershed because our operational basis is the integrated management of water. There are problems but they are relatively easy for us to internalise and resolve. The main one is to make sure we can present information and advice based on government and local authority administrative boundaries, and the answer is, yes we can. We spend quite a bit of time ensuring our systems provide for that. We have units in each region whose business it is to liaise and advise the existing government and regional administrative units but based on standard government regions.

Q357 Chairman: Thank you very much indeed for your evidence. There are one or two further issues we would like to drop you a line about which we have not had a chance of probing you on because of time constraints. As always, thank you for your evidence today and your written evidence and also for the briefing; it is much appreciated.

Sir John Harman: Thank you, Chairman.