UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 812 - i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

ENVIRONMENT, FOOD AND RURAL AFFAIRS COMMITTEE

 

 

THE RURAL PAYMENTS AGENCY

 

 

Wednesday 11 January 2006

LORD BACH, MR JOHNSTON McNEILL, MR IAN HEWETT

and MR JOHN O'GORMAN

Evidence heard in Public Questions 1 - 153

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Wednesday 11 January 2006

Members present

Mr Michael Jack, in the Chair

Mr David Drew

Patrick Hall

Lynne Jones

Daniel Kawczynski

David Lepper

Mr Jamie Reed

Mr Dan Rogerson

Sir Peter Soulsby

David Taylor

Mr Roger Williams

________________

Memorandum submitted by the Rural Payments Agency

Examination of Witnesses

 

Witnesses: Lord Bach, a Member of the House of Lords, Parliamentary Under-Secretary (Sustainable Farming and Food), Department for Environment, Food and Rural Affairs, Mr Johnston McNeill, Chief Executive, Rural Payments Agency, Mr Ian Hewett, Operations Director, Rural Payments Agency, and Mr John O'Gorman, Head of Defra's CAP Implementation Unit, gave evidence.

Q1 Chairman: Welcome, Minister and a very happy new year to you. You are almost bordering on becoming a regular in front of the Committee. I see one or two other faces in the public section who are also regular attenders so a happy new year to you and a happy new to anybody else who feels that they have not had enough of it at the beginning of the year. May I formally welcome Lord Bach, the Minister from Defra, Mr Johnston McNeill, the chief executive of the Rural Payments Agency, supported by Mr Ian Hewett, their operations director, the Rural Payments Agency, and Mr John O'Gorman, who is the head of Defra's CAP Implementation Team. Gentlemen, you are all very welcome. Minister, you started the new year in fine form at the Oxford Farming Conference when you said that you were taking a close personal interest in the RPA and the question of its payments timetable. Can we go back to when you were first appointed to your job? Could you tell us how many meetings you have had with officials to discuss this whole question and could you give us a commentary on what you discussed with your officials and with the RPA in terms of progress to date?

Lord Bach: I will do my best. I cannot tell you the precise number of meetings but they would be running, I suspect, into tens and twenties. It was of course one of the first subjects that I was briefed on when I became the Minister just eight months ago. From that time on I have had regular meetings both with Defra officials and RPA officials covering RPA matters but particularly covering the matter of the single payment scheme.

Q2 Chairman: What were the main points of concern that your officials put to you in advising you as Minister about how the RPA were doing?

Lord Bach: Are you asking in relation to the single payment scheme or in general terms?

Q3 Chairman: You can answer the question on both those items.

Lord Bach: In general terms they told me, as you would expect, that the RPA was doing well. It was going through a change programme. Much the most important thing it had on its agenda was ensuring that the single payment scheme was started to be paid in February 2006. That is after all something that we announced we wanted to do on 19 January 2005. A great deal of the discussion since that time has been to work out as best we can how we can meet that February date. That was part of the early discussion and, as time has moved on, it has become even more part of the many discussions that I have had with my officials.

Q4 Chairman: Let us come to the $64,000 question. Are you going to meet the deadline?

Lord Bach: The position remains exactly as it has been for the last year which is that we are targeting the commencement of full payments in February. That means, as you know, in practice, definitively establishing entitlements by the middle of the month -- the date we have for that is 14 February -- and beginning payments towards the end of the month. We believe that those are realistic targets but I have to tell the Committee that there is still a significant amount of work to do so we are managing the outstanding tasks and undertaking very regular reviews as to whether we remain on track. We had one such review yesterday and the conclusion is that we should continue to focus on the main payments. I am hopeful that we will start the full payments by the end of February 2006.

Q5 Chairman: You mentioned the date of 14 February. What was that date going to tell us?

Lord Bach: That is to say that the definitive entitlements are established. In other words, it is a precursor to the payments. We need to establish the definitive entitlement of each and every farmer who has claimed under the single payment scheme. We need to do that in order to keep within EU rules. Those farmers need to be told what their entitlement is for two reasons. One, because they want to know what money they are going to get. Secondly, it means they can start trading if they so want to with those entitlements.

Q6 Chairman: The reason I ask the question about how many meetings you have had is it is clear from what you have said you have had between 10 and 20 meetings since your appointment after the general election in June last year. For the benefit of the Committee when, to the best of your knowledge, did the Rural Payments Agency start work on preparing for the single farm payment scheme to be introduced? When did they say, "Push the button. We are off"?

Lord Bach: I believe they started work on the single farm payment scheme not long following the European Council's decision of June 2003, which is the great reform decision, to change the whole system. That is when I think they started working on it. That involves IT work and other work. This was a huge change. The government made decisions, as I think you know, in February 2004 as to what model England was going to follow and that was taken on board by the RPA. There were then other amendments that came from Europe, some I believe in April 2004; others in October 2004, that although minor had a considerable effect on work that had been done and meant other work had to be done in its place. Right through that period the RPA has been, as I understand it, extremely conscious of their responsibilities in this matter.

Q7 Chairman: Let us just deal with the facts at this stage. Mr McNeill, would you like to embroider upon what the Minister has said?

Mr McNeill: The immediate concern for us with the CAP reform was the development of an IT system to enable us to make payments under the new scheme. We were already in contract with Accenture, a major IT supplier. That contract was fixed in January 2003. We started discussions with Accenture on the new scheme, as we understood it following the decision taken in June 2003, throughout August and September 2003. We had identified in the original contract that there was to be a mid-term review of CAP. At that time, we had made sure that that was covered in the contract document so that we could vary the contract with that supplier, having gone through a procurement lasting some 18 months. We acknowledged something might well come up but we had not expected something of such significance, I think it is fair to say. We sat down with them in August/September. We started to discuss the best way ahead to meet the requirements of the new scheme from an IT perspective and those discussions continued as more information came forward from the discussions and indeed right through to October 2004 when we were still considering various changes and the impact they would have on the system as developed.

Q8 Daniel Kawczynski: When the Chairman asked you, Minister, about whether the payments would be made on time or not, forgive me if I misunderstood you but you did not give a definitive yes to that question. Could you tell the Committee what concerns you have as to why the timetable will not be met? Is it a question of resources and manpower? What is it exactly?

Lord Bach: You are quite right. I did not give a definitive answer because it would be foolish for me to do so. It is our intention and our great desire to start full payments by the end of February 2006. If we were not to do so and we were to put in an interim payment instead, that will not be -- I emphasise this -- for lack of resources. Mr Chairman, with your permission, I think it would be helpful for officials from the RPA to describe to the Committee what are the dangers of not having the full payments started by the end of February.

Chairman: We will come on that because you will be unsurprised to learn that we have a lot of detailed questions to ask and they will cover that. At this stage, we are trying to establish some key parameters and important background to where we are. We will come to address those points of detail but I want to bring Mr Hall in.

Q9 Patrick Hall: Following the announcement of CAP reform in June 2003, how many separate details have come out of Europe on how that is to be implemented? I believe it is a large number. When was the last one received? An approximate answer will do. I am not trying to be awkward. If it is 59 or 41 it just gives a general impression of when the last one was. I think it is rather important.

Lord Bach: It certainly is.

Mr O'Gorman: The main council tax was agreed in September 2003. There were three key, additional documents. They came in March 2004. Since then there have been a number of amendments to those. I put those somewhere between six and ten amendments. The last one I think was published just before Christmas.

Q10 Patrick Hall: 2005?

Mr O'Gorman: Correct, but those ones did not have a specific impact on system design although they could have done had we not arranged for it to say something a little different.

Q11 Patrick Hall: Enough had happened by February 2005 for RPA to announce that it would not be able to start making payments ----?

Lord Bach: The date was 19 January 2005.

Q12 Patrick Hall: Enough had already happened in terms of the detail that was coming out regarding the new scheme to enable you to make that definitive statement?

Lord Bach: I should probably answer this although I was not there at the time. I do not think it was put as a definitive statement. Farmers wanted to know -- and they had every right to know -- when it was that we thought we would be able to pay the full payments. We were in a position in January 2005 to say that we believed we would pay the payments in February 2006 rather than it being something definitive. It was by way of trying to be helpful.

Q13 Chairman: One thing that everybody is concerned about is that here we are on 11 January, 20 days from the beginning of the month in which you hope, using your best endeavours trying hard, to be able to say that by the middle of February you will have established definitively the entitlements. Bearing in mind you started work on this project as long ago as January 2003, within a period of 24 days of you wanting to announce some definitive information, you are before this Committee unable to give us a clear yes or no. We are still in the realm of best endeavours. When did it become clear to you, when you took over, that you were not going to meet these deadlines?

Lord Bach: I expect as I speak to you this afternoon that we will meet the deadlines that we set in January 2005.

Q14 Chairman: The word "expect" harbours with it an element of uncertainty. I had hoped that you might be able to surprise the Committee by telling us that you were going to meet the deadlines. The word "expect" has an element of ministerial wriggle room. I want to know why it is that you are not able on 11 January 2006 to give us a definitive answer, yes or no, as to whether you will meet the timetable which you enunciated earlier in your replies.

Lord Bach: Because there are technical factors at play here which may -- we do not think they will -- result in the fact that we cannot meet the full payments by the end of February. If you will allow me to, I will ask the technical experts to explain what they are in precise terms.

Chairman: Obviously we want to go into that level of detail. I am going to hand over to my colleague Mr Taylor because, as you know, the Committee unusually asked two of its colleagues to carry out a more detailed analysis with the RPA on a number of the issues which I am sure will touch upon what Mr McNeill will say.

Q15 David Taylor: Prior to the system that is being introduced at the moment, the great majority of British farmers that were in receipt of payments of this kind would have received them in or by November of any one calendar year. That is correct, is it not?

Lord Bach: No, I do not think it is. There would have been about 11, if not more, different possible subsidies they might have received. You are quite right that some would have started in October/November of the year before, as I understand it; some might not even have been paid by this time in the new year.

Q16 David Taylor: The majority of the sums payable would have been paid in or by November?

Lord Bach: I cannot answer that. I am sure someone else can. Some money would have been paid.

Mr Hewett: There is a range of 11 schemes being replaced by the single payment scheme: the sheep annual premium, a range of four bovine schemes, a major scheme and some minor bovine schemes behind it, and an arable scheme. The majority of the arable claims were paid between the middle of November and the end of January each year. The regulatory target for paying the arable claims was the end of January each year. As the arable scheme represented the single, largest tranche of subsidy under the old IACS, Integrated Administration Control System, suite of schemes ----

Q17 David Taylor: I am sorry to interrupt you. You were very helpful to us when we visited Reading but the point I am making, I hope, is that the majority of funds that would be paid to English farmers would have been paid to them by the end of November or thereabouts.

Mr Hewett: January is the correct answer.

Q18 David Taylor: I stand corrected on that. One of the reasons why the English farmer eventually accepted the pattern of payments that was painted for them by the government was that the payment window started in early December. We have heard today from the Minister that we seem to be sliding from a position where we were going to start paying 1.6 billion to eligible claimants from early February 2006. Now we seem to be struggling even to make definitive payments to them by the end of that month, which is three months into the window that was defined. I wonder what the Minister thinks, with the wonderful benefit of hindsight, could have been done to avoid British farmers being in this parlous position?

Lord Bach: I am disappointed too. I would have liked us to have been able to pay the money on 1 December of course. I should point out in fairness though that the window that the EU allows is from 1 December to 31 May. That is a seven month period.

Q19 David Taylor: It is a six month period.

Mr Hewett: Seven months.

Lord Bach: I think it is seven. It is the start of December ----

Mr Hewett: To 30 June.

Lord Bach: Forgive me. It is three out of seven really. The reasons why are quite complicated and complex but let me deal with one or two of the simple ones.

Q20 David Taylor: We shall be examining them in some detail. Give us the headings.

Lord Bach: The headings are, fairly simply, the number of customers -- farmers -- who claimed went up from 80,000 to 120,000, a 50 per cent increase.

Q21 Chairman: You did not know that was coming?

Lord Bach: We knew that there was going to be an increase. I think it is more doubtful that we estimated it would be 50 per cent. I do not suppose we saw this coming completely either but we also had a 1,000 per cent increase in the annual numbers as far as land registration and land registration changes were concerned. Those are headline figures: 80,000 to 120,000 customers and a 1,000 per cent increase. One of the reasons for that was that the land change notifications came not just of course from new customers, the extra 40,000 I have mentioned, but from many existing customers.

Q22 David Taylor: I want to restate the question because it is not being answered.

Lord Bach: It is existing customers who had already put in claims for previous subsidies on certain plans and maps which were considered to be correct but added land, as they were entitled to do, because the single payment scheme is based on hectares of land.

Q23 David Taylor: The question was: with hindsight what could you have done, very briefly indeed, to ensure that payments could have been made earlier in that window, not to be slip sliding almost imperceptibly out of February into March and so on?

Lord Bach: I do not accept I am afraid, with respect, that it is slip sliding. It certainly moved from December, which would have been the ideal, to February but that was in January last year. Since that time, I believe the RPA have done everything within their power and have been given, I think they will agree, considerable resources to try and get over the many technical difficulties that there are in establishing a scheme like that. What we have to be aware of all the time is that if we get it wrong and we do not do it in the proper way there will be disallowance from the European Union. That disallowance will cost farmers as well as costing the taxpayer.

Q24 David Taylor: There is nothing you could have done -- that is what you are saying in short -- with hindsight, to have avoided the present position?

Lord Bach: I cannot think of anything I could have done although others may well think of things I could have done.

David Taylor: We have not heard about interim payments yet and what the process for that might be but we will later.

Q25 Chairman: Can I pursue this question of the size and volume of work that you had to do which came as something of a surprise to you. Mr McNeill, when you were talking to Accenture, they being experts in the field of complex system operation would no doubt have pressed you very hard on size and scale of task. When you outlined to them what was involved, did you have any inkling that you were going to see the kind of volume of work which has subsequently emerged?

Mr McNeill: Yes. There had been some work to identify the size of the new customer base but that was perhaps of less interest to Accenture than their requirement for us to clearly define what we wanted them to build. In systems development terms ----

Q26 Chairman: The Minister has just cited this additional volume of activity as a contributory factor to the slowing down of the timetable that you would ideally have liked to have followed. Therefore, I take it, because it was in the Minister's high level answer to our questioning, that he identified this additional volume as an important feature. If you are going to design a system, there have been many government IT systems that have not correctly anticipated the volume of work which they were then subsequently going to have to cope with and failed as a result. I can remember this Committee probing on some of these issues when we conducted our original inquiry into the RPA and the IT changes. Why were you not able more accurately to specify the volume which clearly has had an impact on your ability to deliver?

Mr McNeill: As the Minister mentioned, the volumes related to areas such as the Rural Land Register. We have constructed a new digital Rural Land Register in line with EU requirements to have that in place by 2005 as part of the original change programme and contract with Accenture. We would normally have expected about 10,000 IACS 22s, notifications of additional land or changes to land and, as we have mentioned, we are at 100,000 plus. That was as a result of 40,000 new customers telling us about land that they wished to claim on under the new scheme and it was also about existing customers telling us about land which we were not aware of previously. That was a very considerable demand. Under the IACS regime we certainly were of the view -- and I suspect the Commission would be of the view -- that we should have been aware of all that land in that the declaration signed on the application forms states that we are being told about all of the land on the farm. That was a major shock to us, to be perfectly frank. Had we known that there was going to be that volume, we could have looked at the volumes that the system could handle; whereas we could only look at the normal requirements. When we specified this system in 2003, when we were talking to Accenture, we had had a lengthy contract procurement and specification. We were specifying without any understanding of SPS requirements. We were specifying on our normal business requirements.

Q27 Chairman: With respect, ministers in the United Kingdom Government agreed to the model for the introduction of the single farm payments into the United Kingdom. You are quite right. There were new people who could claim who were not previously able to -- for example, those in the field of horticulture. Given that you as a government would have had to have thought through carefully what you were agreeing to, I am surprised that it has come as a surprise to you that there is this volume of new people. I appreciate the point you make about existing customers but you have not explained how you scoped the size of what you were trying to do in terms of the system and the workload. Did you carry out any kind of analysis to see what the impact of the policy that ministers had agreed was going to be?

Mr McNeill: When we first scoped the work as part of the procurement, we obviously looked at normal day to day business requirements and scaled them up to specify what we required. We were not aware that the mid-term review would have such a significant change or that we would have so many new customers. Once we sat down with Accenture in the summer of 2004 and we started to look at requirements, it became clear they were of the view that we should be able to scale up the system which they had developed. Indeed, we had built a new land registry with 1.6 million parcels of land already on it, a significant piece of work. They were of the view at that time that we should be able to scale up but the IACS 22s did not arrive in one block. As we started to run the scheme, so customers increasingly made us aware that they had particular requirements. As it became clear that we were not going to be able to deal with that, we had to consider other mechanisms and have done so. The rural average through the mapping of land is not an issue in terms of SPS payments because some time ago we took the decision to outsource that work to a major contractor -- in fact, the contractor who built the first land registry -- and it is no longer in the critical path for payments.

Q28 Lynne Jones: In view of the change in the way that the payments were going to be distributed from activity to a land based distribution, should you not have anticipated that land holders would have been scouring, making sure that every last bit of land that they held was going to be registered? Should you not have anticipated that there might have been a big increase in land registrations?

Mr McNeill: Our advice was that it was a requirement of the IACS regime, that has run for some considerable length of time, that we were supposed to be notified of holdings, even if perhaps particular claims were not being made on those.

Q29 Lynne Jones: There was no incentive for people to do that, was there?

Mr McNeill: Apart from the declaration they signed on the form that says they have told us that. I accept that there is no financial incentive for them but as I understand it our advice at the time was that we were supposed to be aware of their holdings.

Q30 Mr Williams: I hope the Minister would agree with me that the purpose of having the seven month window that the EU Commission set up is not that national governments can delay payments to farmers; it is that the difficult cases that always arise here can be accommodated within the seven month window. Surely it must be the intention of the EU Commission and national governments to make the payment at the beginning of the window rather than half-way through it. As a result, English farmers have a collective £1.6 billion hole in their bank accounts. Barclays Bank tell us that that is probably going to cost them about £25 million in interest rates and arrangement fees and all that goes with added debt. Does that figure ring true to you?

Lord Bach: I do not know what figure is there but quite clearly if farmers are not paid on 1 December but are paid in late February or March there will be a cost to them. That is why we would have like to have paid on 1 December. I may not have been in this job long but I do not understand always what the Commission intends when it, for example, gives a seven month gap for payment. I have spoken to the banks. I have had a meeting with the banks and, as I understand it from what they have told me -- Barclays of course was included among those I saw -- the banking representatives suggest that no viable business will fall because of the sums involved. The total interest bill, as I understand it, for UK agriculture is over £500 million, £0.5 billion per year. That £25 million, although regrettable -- any extra interest is regrettable -- is about two per cent set against an annual average change in income that there has been over the course of a number of years in farmers' incomes, which you will know very well, Mr Williams, from your constituents.

Q31 Mr Williams: We were all a little disturbed to hear you say that although it is your intention to make full and final payments you are also considering possible interim payments. Have you a system set up so that those interim payments can be paid if full and final payments are not made, because obviously the cash situation of English farmers is going to deteriorate very significantly.

Lord Bach: Yes. We have such a system set up and we hope that is a responsible thing to have done. We have been developing on a contingency basis a system to make those partial payments. I can tell the Committee if you want me to the rather long and tortuous route that we have had to take in discussions with Brussels in order to get ourselves into a position where we can make partial payments. We are ready to make partial payments if we have to but we think there are disadvantages in partial payments against full payments, obvious disadvantages. Farmers deserve the full amount. The other ones involve this whole business of not being able to trade entitlements. We are keen -- I am pushing as hard as I am able to -- that we should make full payments at the end of February.

Q32 Mr Williams: Perhaps you could tell us a definitive date on which you could make interim payments if full payments were not possible?

Lord Bach: That would be by the end of February. I can give you a percentage, if I may. It is something which I do not think we have announced before. At the moment our intention would be -- of course we do not want to do this -- 60 per cent, but that is not set in stone.

Q33 Chairman: 60 per cent of what?

Lord Bach: Of the total amount that we estimate each farmer would be entitled to.

Q34 Chairman: If you are telling us that you hope by 14 February to know the definitive sum, it will be 60 per cent of a number you will have worked out by 14 February.

Lord Bach: No. We will have worked it out in a number of cases but we will be making some sort of estimate as far as that is concerned. There are some cases that are very simple and others that are more complex.

Q35 Chairman: What is the 60 per cent going to be of?

Mr Hewett: The regulation that was adopted by the EU on 12 October last year and published at the end of November facilitating partial payments said that a partial payment could be made on claims which were fully validated and where the payment made no risk to the European fund. There are two elements there. If we were to invoke partial payments, it is likely to be because we have not completed the validation on all claims which means that some claims will be partly validated. There will be a proportion of claims which are fully validated and on which we could pay 60 per cent of the full entitlement to that individual beneficiary. For those claims which were not fully validated, we would either be able to pay an element of the 60 per cent, so 60 per cent on whatever proportion of the claim was validated, or we would take a view that the partial payment would come under a de minimis threshold if, for example, there was a payment of less than 100 euros involved as a partial payment. There is a considerable number of claims which would come under that de minimis threshold based on some data that we ran on the partial payments development system back in November.

Q36 Chairman: If you had to go down the interim payment route, when would all final payments be made?

Mr Hewett: That is one of the difficulties of invoking partial payments. It would have an impact on the determination of definitive entitlement for the whole population and on the payment of either the balance or full payments, full payments in the case of those customers who do not receive full payment.

Q37 David Lepper: Could I clarify something that the Minister said about the UK being subject to a disallowance from Europe if particular deadlines were not met? What would be the scale of that disallowance and at what point would we and therefore English farmers be subject to it?

Lord Bach: I was not talking about the context of when the money is paid. If we went over the seven month period we might be subject to disallowance. That is 30 June. When we would be subject to the disallowance would be if we claimed that we knew exactly what each farmer was owed under the single payment scheme and then an inspection afterwards turned out to show that we had those figures wrong. The EU would, as they do I think across the board, at least have the right to disallow some of the expenditure. I believe the matrix runs between about five and 25 per cent, but I have an expert on disallowance.

Mr Hewett: Mr O'Gorman is the policy expert. I am at the implementation end. There is a regulatory framework for key and ancillary controls which we have to adhere to such as undertaking a monitoring inspection of a proportion of our claim population and, for the first time with the single payment scheme, a cross compliance inspection on a proportion of our claim population as well as validating claims against this framework of key and ancillary controls. If, when we are subject to audits either through the National Audit Office that acts on behalf of the European Commission or the European Commission itself or indeed the European Court of Auditors, those audits decree that we have not abided by those key and ancillary controls all of the money which has been reimbursed from Europe can be subject to a flat rate disallowance ranging from two to 25 per cent. There is also a sliding scale of disallowance should we fail to meet the payment window of 1 December to 30 June.

Q38 David Lepper: You are confident that we will not become subject to that disallowance?

Mr Hewett: That is part of the discussions we have regularly with the Minister, to update him on where we are against both timeliness and also our ability to achieve the key and ancillary controls.

Q39 David Lepper: 60 per cent was the figure in terms of interim payments.

Mr Hewett: That is the figure that the Minister mentioned but he did say it is not yet cast in tablets of stone.

Q40 David Lepper: Should it become necessary to make interim payments, I have in mind what has happened to some of my constituents in relation to child tax credit. We are not likely to have a situation, are we -- I am assuming not -- where a farmer might be told at some future date, "Sorry, we have paid you too much and we want some back, please"?

Mr Hewett: That is one of the reasons why we are suggesting a cautious approach to the rate of payment so that if there is any over-calculation in the whole population we would be able to recover that in the balance payments.

Q41 Daniel Kawczynski: I would like to raise again with the Minister this point about the £25 million interest charges which my colleague, the Member from Brecon, raised with him. You have said that no businesses will fold as a result of these charges. If either you or I submitted our tax payments to the government late, we would be charged interest and the government would make sure they got that money out of us. Who is going to fund this £25 million interest? Why should it be only the farmers who have to fund it? Will the government not give any assistance for them to fund it, because it is the fault of government ultimately for the lateness of the payments.

Lord Bach: I said that no viable business would fall on the basis that that is what the banks were telling me in the discussions that I have had with them. I do not know from my own knowledge whether businesses will fall or not but that was the banks' view a couple of months ago when I went through the discussion that we are having today. As far as the payment is concerned, I am afraid it will fall onto the farmers.

Q42 Mr Williams: Delay in payments does not just have an effect on the cash situation in the bank for English farmers; it can have other complications as well. Will that delayed payment have any effect on the administration of the 2006 scheme?

Lord Bach: One of the reasons why we are so keen to start making full payments is because an interim payment, of whatever proportion, is bound to have some effect on the 2006 scheme. It is one of the main reasons, apart from the justice of the case anyway, for wanting to make the full payments. If there is a partial payment and we have to make the partial payment up by the end of June, that is bound to take resources away from dealing with what we have to deal with now, which is the 2006 payment. That is a long way of saying yes.

Q43 Mr Williams: The Minister has also mentioned a complication with the trading of entitlements. I am very concerned about farmers who, for whatever reason, may not be able to exercise those entitlements in 2006 and yet are unable to trade them. Is there any compensation scheme contemplated for helping those people out?

Mr McNeill: Yes. Our current planning is that if we define entitlements in the middle of February we will also be writing to customers to enable them to register with us that they wish to trade entitlements. Having defined entitlements, we will also be putting in place a system for them to do that. They have until 16 May to notify us of those trades.

Q44 Mr Williams: I understood that entitlements were not entirely definitive in terms of the Commission until the money had been paid.

Mr Hewett: No. This is one of the major differences between the previous set of schemes and the current set of schemes. When Mr Taylor was talking about the previous schemes and the money getting out earlier, we could make and clear claims iteratively. With this scheme you have to put everybody in the pot, determine the entitlement for the whole population and pay those valid claims individually. Once we have determined entitlement, we would issue notifications to all of the eligible customers, "This is your entitlement in Europe." That is not a payment notification because we will then be paying our customers in batches once we have determined that they are eligible and confirmed everything is in order. We have talked very closely with our stakeholders and industry representatives about how we expedite the process of allowing them to trade entitlements and notify us of those trades in entitlements. What we are doing is setting up a preregistration system for those customers who wish to trade entitlements so that we can send them a partly populated notification form in advance or at the same time as they are receiving their entitlement statements so that they can notify us at the earliest opportunity.

Q45 Mr Reed: I am interested in the concept of viability and I accept that it is a definition which has been brought about by the banks. Clearly for any business viability and cash flow over time are related concepts. Has any thought been given at all to the earliest payments possible being made to those businesses which are perhaps on the borderline of being viable and non-viable?

Lord Bach: One of the reasons I saw the banks was to find out what they thought was the likelihood of good businesses collapsing as a result of delay. If they would say that there really was a chance that this was likely to happen to any scale at all, obvious government would have to think if it had a role to play in that. From what they told me -- many leading banks that do lend to farmers were involved -- they did not believe that it would lead to large or even small scale closures of business. If there were to be large closures of business as a consequence, we would obviously as a government have to look to see if there was anything we could or should do but I cannot say more than that. I do not anticipate that there will be any.

Q46 David Taylor: We have just about done interim partial payments to death but one of the things that surprised Mr Williams and me when we went to Reading was to hear that no real planning or resources were allocated to the possibility of developing an interim partial payment system until the regulation had been agreed on 12 October 2005. That is broadly the case, is it not?

Mr McNeill: We made it clear to our supplier that we would require a partial payment contingency system in place. They were of the view in discussions that it would be much wiser for us to be clear as to what the requirements were before we went through a similar process of starting and having to rebuild the system. As a consequence, we needed that clarity from the discussions with the Commission as to what would be acceptable to them.

Q47 David Taylor: That formal approval was just seven weeks from the start of the payment window when any rational system, one is tempted to say, that was going to allow for the possibility of interim payments would have had those interim payments right at the start of the payment window.

Mr Hewett: We did have a contingency in place all the time, running in parallel with our primary solution. Once we got into the validation part of our primary solution, we felt that was not an appropriate contingency and it was at that point that we approached ministers and policy colleagues about having a different type of contingency around partial payments. As the Minister said, he could offer you a long and tortuous history of partial payments. When we first approached the European Commission, the type of partial payment system that they were mooting would not have been something that we could have lived with and would not have been of any significant benefit to the farming population because it would have required a security to be put up equal to the level of partial payment given. It was only very late in the day that we had sight of a form of payment which we thought we could develop. Bearing in mind what we found with the main solution, late changes in policy impacting on system delivery, we did not want to learn that lesson again.

David Taylor: RPA senior staff made great play of the fact that they need to have all of the information from all farmers before they can pay accurately a single payment to any one farmer. That is seriously misleading. The vast bulk of the year one payment is based on historic entitlements which will not have changed and will not be influenced by the aggregate of all farmers. I am not particularly attracted by the merits of that argument.

Q48 Mr Williams: Can I ask the Minister when Defra decided to adopt the dynamic hybrid solution to the single farm payment? Did it take into account the complexity and the fact that it is the most complex system in the UK?

Lord Bach: When ministers made that decision in February 2004, we made that decision deliberately because we were very much in the forefront. I think we had general agreement across party for this. A new decoupling scheme was essential. We wanted to bring it in as soon as we could so that industry could benefit from decoupling as soon as possible and settle on a model which would in principle apply to 2012 the best bits of the objectives that the Curry Commission, in the sustainable farming and food strategy, had set out. Yes, ministers did know that it was more challenging to choose a system like this rather than one just based, for example, on historic criteria. We thought there should be a flat rate element and of course that historic element tapers off to 2012. From where I am, I have to say that even though there were extra risks involved -- and that is part of what we are discussing and indeed something which was pointed out, if I may say so with respect, by your Committee's last report on this in April 2004 -- we took the decision for what I believe were perfectly sound reasons. I do not think there is any need to make apologies for it. If we look back on this or people look back on this in a few years' time, most people will say, I hope, that an extra three or four months in receipt of payments in the first year of this major scheme was an acceptable price to pay for the model of the payment we have introduced. History may prove us wrong on that but that is my firm belief.

Q49 Mr Williams: Nevertheless, it was available to Defra to postpone the introduction of the single farm payment for one year and to carry on the old schemes. In light of the very complex nature of this scheme and the difficulty of introducing it, in retrospect, would you not have thought that that would have been a better solution?

Lord Bach: No. I have thought about this and I do not. We were in the forefront for wanting change to the CAP in Europe in 2003. We were one of those leading the way. Although a number of countries who were more reluctant to see change in the CAP opted to start the new scheme a year later, it would have looked very peculiar if the United Kingdom had done that.

Q50 Chairman: The language you used a moment ago almost implied that it was farmers who chose the model. It was ministers who chose the model. In the 2004 report which you referred to, I remember the phrase "The UK's initial negotiating position was drawn up in close consultation with our delivery bodies, principally the RPA, who were involved at every subsequent stage." With such close consultation it does now draw into question just how good the advice was at the beginning of the process, given the problems we are now facing at the end of it.

Lord Bach: I am not suggesting for a moment it was the farmers' model. It was ministers who decided on that model but it has been a model that has been accepted and supported, I believe it is fair to say, by farming organisations.

Chairman: The point underlying my remarks was that you chose a very complex route. I am concerned that some of the things that have emerged as you have travelled that route were not anticipated for reasons which perhaps we might be able to establish.

Q51 Patrick Hall: When ministers were advised to go for the particular model that England has and made that decision in February 2004, it must have been on the basis of advice. Was it then the case that officials thought that Brussels was not going to issue further documents and amendments vis a vis the detail of the scheme? Was it thought then by officials that the bulk of the detail was then known; therefore, officials were in a strong position to give advice to ministers and for ministers to make a decision? Was the further detail a surprise?

Mr O'Gorman: Lord Bach was not there at the time. I can confirm a considerable volume of advice was given to ministers over a period of time because this was a very significant decision that they took. We certainly knew that there was a risk that, whatever the model that was initially devised, it would evolve and it would be practically impossible to believe that you would have a regulation which would be perfect first time and would never need change. We knew that there would be risks. What we did not know was where were the imperfections at that point and what would need to be changed. We did not know if that would be in an area which was relatively insignificant in delivery terms, as many of the changes have been, or were there bits which would prove to be significant. As it has turned out, there were some in 2004.

Q52 David Taylor: One of the stated attractions of the single farm payment was that it was simpler and less costly both for farmers and government in relation to the cost of administering the new schemes that it replaced. That is correct, is it not?

Lord Bach: Yes.

Q53 David Taylor: What do you estimate the revenue cost of the single farm payment to be in the first year of implementation -- i.e., in the year 2006? How does it contrast or compare with the CAP last year of 2004?

Lord Bach: You are quite right. We do think this scheme is a much better scheme in terms of costs over a period of time. The old subsidy schemes were extremely costly and extremely inefficient. There was a huge amount of over-regulation involved with them and they had been there for years and years.

Q54 David Taylor: What was the cost of these hugely cumbersome schemes in the 2004 administration? What will be the cost of this scheme in 2006? I am sure you have those figures.

Lord Bach: I think I have. Are you talking about the administrative costs in the single payment scheme?

Q55 David Taylor: Yes, of course.

Lord Bach: On the basis of the best estimate, the cost of processing the £1.6 billion of the single payment scheme for English claims will be 5.4 pence per pound.

Q56 David Taylor: What was the administrative cost of the old CAP scheme that you have been very critical of?

Lord Bach: I am afraid I do not have that figure. Of course I will write to you with that figure. Even if it is a lesser figure this year compared to the 2005 figure, I honestly think you have to judge the new scheme on the years ahead as much as on this year. To bring in a new scheme is bound to be costly.

Q57 David Taylor: I was careful to say that we were talking about the revenue costs, not set-up costs. Systems do bed in and they may become less costly. I will accept that. I am disappointed that the 2004 figures were not available.

Lord Bach: I am sorry and I will make sure the Committee is written to.

Q58 David Taylor: When we visited the RPA - I place on record our thanks for the welcome and the investment in time that we had from the people who were there, people were very frank and we are grateful for that - it was made clear that some of the investment in labour saving devices - optical reading technology, would be an example - had been postponed so that you could get on with implementing the main system. As a result there had been various manual work-arounds introduced to allow completion in advance of the new technology coming in at a later time. Do you have any estimate, I am sure you do, of the total cost of these manual work-arounds that you had to introduce because I guess they would be part of the reduced revenue costs to which the Minister just referred in future years?

Mr McNeill: I think it would be best if we were to write with that information, it is not as easily abstracted as you might think. We are very happy to supply it in some detail. We do not have it to hand at this time.

Q59 Chairman: Why did you end up with manual work-arounds if you planned this thing so carefully?

Mr McNeill: Chairman, the difficulty arose that in order to meet the timetable in working with our supplier they made it clear that it would not be possible to complete the development work required to deliver this other functionality, the character recognition, optical character recognition, et cetera. The view was taken that to push on and to make the payments it would be wiser, indeed prudent, for us from a project programme management point of view to defer that. In fact, a lot of that functionality will now be part of the delivery from Accenture in the next year. We would hope to use large parts of that for the 2006 year. Also, of course, the more we introduce new technology the more risk we run of having teething troubles, et cetera. We felt that we had quite a challenge, to be frank, in getting the scheme in with the Rural Land Register and Customer Service Centre and the use of a lot of the functionality we had already developed and it was probably wiser not to go a bridge too far and too costly to do so.

Q60 David Taylor: Moving on to the relationship between the RPA and Defra particularly in terms of the resourcing of the development of the systems. When we went to Reading we were told fairly clearly, by Mr McNeill I think, that Defra had always accepted that the first year and the period leading up to the new system would be more costly in terms of financial resources and when additional funding had been requested largely it had been granted reasonably promptly. Is that a fair summary of what you told me?

Mr McNeill: Yes, Chairman, it is.

Q61 David Taylor: That is fine. However, a fair number of the written submissions that we have received suggest that the RPA totally misjudged the resources that you were going to need, that you realised rather late in the day that there were problems on the horizon and they, the people submitting these observations, would have liked the opportunity to lobby for a greater number of resources rather earlier than you managed to do. They say this, at least in part, resulted from RPA and Defra being very secretive about aspects of the Single Payment Scheme and because you did not disclose this information the industry were not able to apply pressure to get resources in. In other words, it was very much a last minute crisis driven scenario that they observed from the outside. Is that a fair description of what was happening, Mr McNeill?

Mr McNeill: I am not sure it is, to be fair. The challenge that faces one is how to get over these problems in the most effective way. We have problems with our Rural Land Register, the volume of applicants putting in IACS 22s telling us about new land change, et cetera, are much higher than we expected, and we have discussed that. One difficulty was we had a piece of technology which meant that we were able to make those adjustments and our staff were engaged in that work. For a number of reasons, difficulty with new systems, time available for the new systems when they had to be taken down and work done to them, maintenance work et cetera, and all the normal bedding in difficulties one experiences with systems, we could not get the productivity. We were reluctant to outsource that work because we were then left with a significant technical problem where somebody else does it in their system and puts on a lot of additional information and then we come to try to patch the systems together again, and that was considered quite a high risk strategy where you have got different platforms, different technology, trying to bring that information across and basically patching it back into our own Land Register. As I mentioned, we are talking now of a Land Register that has over two million parcels of land and very, very significant investment. The balance was not just, "Let us get some additional funding from Defra and go to the market and find ourselves a supplier", the assessment was, "Which is the less risky option" and once we had decided that because of productivity and because of difficulties we had we were not going to get there - this was then a pretty critical path - we went to the Department, they supplied additional funding and we did outsource the work. Thankfully the technical problems were well understood and could well have happened. We were advised by our consultants and Accenture, "This is a dangerous, risky strategy" but at the end of the day it was the best of the two choices and it enabled us to continue the work. The decisions sometimes had to be weighed and that took time to see what our performance was in getting the systems improved. It was not so much that we were indecisive, it was that we were trying to make sure that we took the right decisions.

Q62 David Taylor: Earlier on I asked the Minister with hindsight whether or not there was anything that he or his predecessors would have done otherwise to avoid the situation where we are now. You seem to be saying the same thing that Norman Lamont and Edith Piaf both said, you regret rien even in the light of the position that we face at the moment. Is that a fair summary that with this 20/20 hindsight there is nothing significantly you would have done differently?

Mr McNeill: I regret much in terms of what has gone on. When I took this job on it mentioned IT enabled changes. It has been a salutary experience in bringing about a massive change of this nature and relying on technology. In fact, I was with some colleagues in Holland recently from the paying agency there who are going down the same road next year, perhaps with a slightly less complicated system, who are already very, very concerned that despite the fact they have had an additional year they are going to run into very much the same problems. It is not just government experience, our advice from our consultants and others is it is much the case everywhere and we have seen some recent high profile incidents about food not being on shelves in supermarkets, et cetera, because of technology difficulties. The fact of the matter is when you introduce a new system it is a risk and you need to consider very carefully how you best manage it. I think we have best managed it. We have a number of OGC reports where we have independent reviews by teams of core experts separate from Accenture and ourselves who have come and reviewed us on a number of occasions. Whilst they accept this programme as high risk, they have repeatedly identified it is under excellent programme and project management and have identified that it is a good piece of work. It is a high risk strategy but they do still believe it is deliverable.

Q63 Lynne Jones: You acknowledge that there came a point when you needed additional resources to implement the scheme. Could you say exactly when that was or at what point in the implementation programme that was? We have had some written evidence which suggests that the RPA was warning ministers about the complexity of the scheme. What do you say, that you were pressurised into implementing this model a year earlier than you needed to in the name of political expedience, the kind of pressures that Lord Bach referred to earlier about the fact that we had been negotiating hard on this change in the way the subsidies were administered and, therefore, we had to plunge into the deep end before anybody else?

Mr McNeill: There have been a number of occasions when we have become aware of increased costs. We sat down with Accenture, having negotiated a contract through an 18 month procurement exercise, and started to talk of very significant changes. Obviously they pointed to the fact that it was going to take more time, it was going to require additional funding, so we identified that and discussed it with the Department. With our Customer Service Centre experiences, which I am sure we will touch on in the course of today's discussions, we identified that we had not sufficient capacity there and identified the need to increase that by contracting upward.

Q64 Lynne Jones: I want to know when.

Mr McNeill: There were a number of phases. I can go through the different particular times, if you wish, or I am happy to write and document the various stages.

Q65 Lynne Jones: It would be useful to have a list of all the times at which you identified additional resources and presumably immediately put in requests.

Mr McNeill: If I could say, the Permanent Secretary of Defra has chaired a board which has looked at this work - I can supply the dates of all the meetings - at least on a monthly basis and I myself had bilaterals certainly with the previous Permanent Secretary, Sir Brian Bender, on a monthly basis. He has also been very close to meetings with Accenture. At those formal meetings of those boards we have produced reports explaining the pressures on us in terms of increased costs because of the time frame, because of the change in requirements, and those have been regular features. Those meetings were also attended by Defra's Director of Finance, Andrew Burchell, who is the director responsible for policy in this area, and indeed Mark Addison, another Director General of Defra. We had very, very high level consideration of the pressures upon the organisation to deliver this and the cost implications.

Q66 Chairman: With this impressive list of people who have been scrutinising this on a monthly basis ever since the project was incepted, with all of this looking, I come back to the question I asked at the beginning: we are 20 days away from the end of January and the beginning of the month in which something definitive is supposed to be happening and in spite of this intensity of effort you cannot tell us an answer to a simple question, when will the payments be made. Why?

Mr McNeill: We are continuing the work which has been under tight project and programme management control since January 2004 where we projected February payments. At this moment in time we have a significant number of outstanding issues to address in regard to a number of claims.

Q67 Chairman: Mr McNeill and Minister, can we stop beating about the bush with all this, "We hope to do it but we have still got significant this, that and the other things". Can you just put us all out of our misery and tell us what is going to happen. If it has all been so well managed and peer reviewed as a great project and you have got the risks under control, and I am sitting here thinking within 20 days we are going to get into the month of action and you are telling me that there are still significant this, that and the other things, surely you must by now have got an idea in such a well managed project whether you are going to make these time deadlines or not. Are you?

Mr McNeill: At this moment in time we are still projecting ----

Q68 Chairman: No, Mr McNeill, I do not want to know about what you are still projecting. Let us have some straight talking. Are you or are you not going to be in a position by February to make full payments, yes or no?

Lord Bach: Chairman, I know your question is addressed to Mr McNeill ----

Q69 Chairman: You can answer it simply yes or no, Minister.

Lord Bach: I am not sure I can. It is very tempting and if I were to answer it now, today, I would say yes, yes, yes, but it would be a mistake to say that because there are technical reasons still, and I did mention them earlier and you kindly said you would come back to them and ask my experts on them, why it may not happen as we think it will that full payments will still be paid by the end of February. If there are technical reasons that mean that it might not be paid then we have to tell the Committee that is the position.

Q70 Chairman: Minister, when I was a minister I was responsible for the introduction of self-assessment to the UK tax system and I knew it was going to happen because I had an enormous amount of definitive information from those who were managing the project. I can remember the detailed timelines, breakdowns, deadlines. It was all there, because that is the way complex IT projects are managed. I would think Mr McNeill now knows the answer to the yes or no question because if it is such a well managed project he would be able to give you the assessment. Mr McNeill, are you technically in a position to give the Minister that assessment if he asks you the question?

Mr McNeill: We report on progress on this piece of work to ministers and I have mentioned the various other committees that we report to. The position is that we are on a daily basis monitoring how quickly our staff - it is not at this time a systems issue - are dealing with the significant number of queries relating to claims. The clearance of those is a matter for some fixes which we have requested from Accenture going in place and working, it is to do with the productivity of our staff who are working 15 hours a day and Sundays.

Q71 Chairman: You have been telling us that they are working their socks off, they have been at it very hard, you have talked about the additional work-arounds, the additional resources, but are you telling me as a manager with an enviable reputation in a well managed IT project that has been peer reviewed that 20 days from the end of this month you cannot at this juncture tell me yes or no if these payments are going to be made in full in February. I cannot believe that the project is as well managed as you suggest if you are not able to answer this simple question.

Mr McNeill: The 20 days productivity will result in us assessing at the end of the month how we performed - obviously we are doing it daily at this time - and taking stock not just in terms of how many claims have we now cleared and what is outstanding but also in terms of potential disallowance.

Q72 Chairman: How many have you got outstanding? Come on, Mr McNeill, this is dancing on the head of a pin. I cannot believe that you or the Minister cannot tell this Committee now what is going to happen in the future. For the sake of the farming industry, can you not put them out of their misery and tell them definitively what is going to happen. I really cannot believe if you have got such fingertip control, productivity measurement and all of these insights into what is happening, that in such a well managed project you cannot tell us if within a month's time, because the 14th is the deadline of definitive identity, you are going to make it or not. If not, why not?

Mr McNeill: As I have explained, we are monitoring this on a daily basis. We want to be assured that we are in a position where we can defend the payments both from a disallowance perspective and ----

Q73 Chairman: So when will you know on this daily monitoring? At what point will you wake up in the morning and say, "I have monitored it sufficiently I can answer Mr Jack's Committee's question"?

Mr McNeill: The next checkpoint meeting will be at the end of the month.

Q74 Chairman: So you are going to wait until the end of the month before you can make your mind up?

Mr McNeill: Of course, in the interim if we have a major problem, a major systems failure, then we will be able to approach ministers, explain our difficulties and reflect on what is the best way ahead.

Lord Bach: Chairman, I ought to say that I made it clear right from the start that I wanted to give it every chance to make the full payments at the start at the end of February. I did not want to pull out from doing that because of some difficulty that might make that a difficult thing to do. I was prepared, and still am, to give the Rural Payments Agency as long as they require in order to be able to say they can make the full payments. If at any time they say they cannot make the full payments I will announce publicly that we cannot do it and we will make partial payments in February. Because we are trying to do these full entitlements, and it is crucial to get these full entitlements done, once we can establish these full entitlements we can say that we will meet the date by the end of February. If we cannot get the full entitlements done then we are not committed to say that we will meet the full payments by the end of February. I think it is appropriate and right to give us every chance of making the full payments at the end of February. I only wish I could answer your question because I would very much like to and, indeed, I have been quite strong in asking my officials whether there is an answer I can give you yes or no today because this was an obvious question the Committee would press on. Being as fair and proper as I can be, I cannot give you that answer today. I tell you again, I expect us to start making full payments by the end of February 2006.

Q75 Daniel Kawczynski: Just a very quick question to Mr McNeill. Are any of your staff or you paid any bonuses for making these payments on time, or do you just have a flat salary?

Mr McNeill: No, I am paid a bonus providing we make start payments in February and complete 96 per cent by the end of March.

Q76 Daniel Kawczynski: So you receive a bonus if 96 per cent of these payments are paid on time?

Mr McNeill: Yes. It is a performance target for the Agency and for myself as Chief Executive.

Q77 Patrick Hall: It may have come up already and certainly my colleagues, Mr Williams and Mr Taylor, may have already discovered this. The 120,000 claimants, much larger than expected, had to be in by last May, was it?

Mr Hewett: 16 May was the deadline for full payment. 10 June was the final deadline established. From 16 May to 10 June there was a sliding scale on payment.

Q78 Patrick Hall: You have known since then what the situation is. In fact, several months before that you had already said that you were unlikely to make the ideal window of payments, which was December. You said in February of last year that it would be not before February 2006 but these claims were coming in because the deadline was after your announcement that you would not be able to make it. When all the claims are in is there further communication to check them out? Is that why it is taking so long? Not only the volume but the detail on each.

Mr McNeill: The reason, despite the volumes, and as you say after January 2005 people were submitting their claims, working on our understanding of what the likely numbers were going to be, working with our suppliers, looking at the project and the programme planning, it was clear to us, and Accenture made it clear, that they could deliver the releases, the IT we needed for different phases of the processing of claims. It was that to a large extent that put us on the timescale that we were on. We realised that despite our best efforts that was the soonest they felt they could build, test and deliver the systems that we needed to process the claims. That was the critical path through that. With the volumes we could well have put more staff on had there been an issue and taken different approaches, but it was largely to do with the systems development.

Patrick Hall: Maybe Mr Taylor is going to pick up on that.

Q79 David Taylor: In May 1967 I entered the world of public sector IT where I worked happily for 30 years prior to becoming an MP in May 1997 three decades later. Some of the story that I am hearing today, and I was working on design, development, implementation and operation of public sector systems, seems horribly familiar. I put to you in Reading the phrase, and I know you rebutted it vigorously but I am going to put it to you again, that you are over a barrel to Accenture, are you not? Both you, the Minister, and you, the RPA. They are rubbing their hands, are they not, with the profitability from all the extra work and changes and indecision and the delays that we are seeing? The Government, the taxpayers and the farmers are over a barrel, are they not?

Mr McNeill: I will accept that it weakens one's position having to go into the market, having specified a certain requirement, then to change that. That does leave you in a difficult position, a more challenging position, in terms of the commercials of the deal. I think that is the same no matter what one does: if you want an extension on your house and decide to change it halfway through it is going to cost you some more, it is going to take longer, there is nugatory work, et cetera. All I can say to you is we have an excellent commercial team. We are fully supported by Bird & Bird, which is one of the top legal firms in the City, and recommended highly by OGC. We have an excellent contract drafted by Bird & Bird. We have had some very frank discussions and, I have to say, those discussions with Accenture have involved the secretary of state, ministers, the permanent secretary and others where we have had frank discussions about performance and, indeed, discussions about future performance and costs.

Q80 David Taylor: You have not got any real leverage, have you? You are stuck with Accenture. They were engaged 36 months ago and we are now one month away from a very crucial stage of the project. 97 per cent of that period has elapsed and here we are still unable to say with conviction, commitment and certainty that accurate payments will be made in the month of February, or will start to be made, to English farmers.

Mr McNeill: To be perfectly fair to Accenture, we were talking of the commercial aspects and the cost of that. Accenture have delivered the functionality that we needed, those various releases they have delivered. We have had our fair share of problems with them, we have had testing issues, performance issues, stability issues, the system being able to stay up for 15 hours a day for us to work. We have had those and one has those with system developments to a greater or lesser extent no matter what you do. The fact of the matter is they have delivered that and I can assure you from any discussion I have had with Accenture, or indeed ministers have had, they have repeatedly reaffirmed their commitment to make this work. They want to have a longer term future of working in government. Sir Brian Bender in particular has made it clear to Accenture on a number of occasions that government is watching Accenture on this piece of work. It is a very high profile, high risk piece of work. This is mission critical to Defra and he has made it clear on a number of occasions that he expected it to be delivered and Accenture have fully signed up to that and delivered what we asked. Whether we got it at the best price or not I would accept is a debatable point.

Q81 David Taylor: In the upper reaches of government and, indeed, in the upper reaches of the Civil Service there are large numbers of individuals who are particularly susceptible to the blandishments of the snake oil salesmen who can be found in the computer package industry and that is absolute fact. The evidence is all around us in government, local government, the NHS and elsewhere. Why do you think that the RPA have been able to break that sorry sequence of failure that we have seen in public sector large systems? It is not a fixed price that Accenture is working to, is it?

Mr McNeill: Initially it was a fixed price arrangement but, of course, once one moves off that original arrangement then one is open to negotiation for what does it mean to them and the extended time, et cetera.

Q82 David Taylor: They are making money hand over fist on those changes, are they not?

Mr McNeill: On the contrary, I would say Accenture have found this contract very challenging. Certainly we have open book accounting with Accenture. We are not of the view that Accenture are taking advantage of us in terms of super normal profits or whatever. They have to make a profit, they make that quite clear. We do have open book accounting and forensic accountants available, whatever we require, to assess what level of profit they are making on the contract.

Q83 Mr Drew: Have there been any claw backs at all in terms of monies back from Accenture or payments not made?

Mr McNeill: Yes, there have been. As I say, we have a particularly robust contract management team who manage the commercials of this and we have had a situation where either because of failure to deliver what we expected or, indeed, particular delays on their part that has been the subject of negotiation as to recompense and what that means in terms of settling any other claims they might have to continue with the work. We have also recently negotiated with them where we have taken the view that we do not wish to extend the programme in regard to a number of small trader schemes that we have which were part of the original vision. We have taken the view that when we looked at the cost of that we would rather not continue with that work and have negotiated a discount and settlement for that with Accenture.

Q84 Mr Drew: So is the contract as was still in existence with the modifications? When does that contract come to an end?

Mr McNeill: We would hope to finish the Change Programme and the programme office shut down probably by May this year. The contract with Accenture continues for some years with the maintenance aspect. Having built the system, they are also contractually tied into us to maintain the system for, I believe it is, seven years.

Mr Hewett: Delivery is until the current year and support is until 2009.

Mr McNeill: So when we placed the contract it was initially seven years.

Q85 Chairman: Minister, for the record, at the outset of this project what was its cost and what is the current estimate?

Lord Bach: I have these figures, Chairman. The contract for developing the Change Programme system, which was the one awarded to Accenture, the original contract cost of acquisition was estimated at £34.1 million broken up as follows: 18.1 million revenue and 16 million capital. The forecast cost against that original is now expected to be 54.3 million broken down between revenue of 37.4 million and capital of 16.9 million.

Q86 Chairman: The revenue costs have doubled?

Lord Bach: Virtually. 18.1 million to 37.4 million.

Q87 Chairman: Is that a reflection of the combination of growing complexity and growing volume?

Lord Bach: I suspect it is. I suspect that explains it to some extent, and also, harking back to Mr McNeill's recent replies, it is to do with Accenture being asked to do other things than they were originally asked to do in the original contract which meant that the fixed price element of the contract altered. Mr McNeill can answer that better than me.

Mr McNeill: It is largely to do with the fact that Accenture were engaged in developing systems for the legacy CAP schemes which were done away with, the CAP reform, so a substantial amount of nugatory work had already been done in designing the schemes and specifying them, preparing for build. That was nugatory. Obviously then there was the whole issue of designing, building and testing the new scheme. There was also the issue of the extended time frame. They would have hoped to have delivered the solutions for the legacy schemes much earlier had we not had to produce the new Single Payment Scheme.

Mr Hewett: Can I just embellish that slightly? The original contract was to deliver four prime releases over a period up to and including 2004. Because of the implementation of the CAP and the introduction of the Single Payment Scheme we had to substantially modify the scope of the various releases and, indeed, change some of them. One of them became a prototype rather than a live delivery. Those deliveries will run on until 2006. As Mr McNeill has already explained, we have had to change quite considerably the approach and quite a lot of the initial work will not be developed into final solutions because those schemes are no longer around.

Q88 Lynne Jones: In your submission you mention a significant "de-scope" of the required functionality. I am not sure what that means. Does it mean that you are doing fewer things, that you have had to go to the absolute essential and you are doing fewer of the fringe or icing on the cake type areas? What is the long-term impact of that? In view of the additional costs that you have just identified of the IT scheme, are you still on target to make your 39.9 million per annum savings as a result of the Change Programme?

Mr McNeill: I mentioned earlier, Chairman, that in order to reduce the risk to delivery of SPS for this year we had to decide not to proceed with the delivery of certain things, and a particular question was asked earlier about character recognition which is where forms come in and the information is literally scanned into the computers as opposed to what we have had to do this year where we have had hundreds of people double-keying high volume data capture, punching the information on keyboards into the system. That would produce a substantial saving in terms of the number of staff required and the input. As a consequence, to improve our chances of successful delivery of the 2005 scheme year we had to decide to defer some of that work to the next year. The consequence for the 2005 year, going back to the Department's support when that was discussed, meant we have had to have more staff than we originally planned and as a consequence there was more cost. Likewise, next year we would hope to have that piece of functionality, that piece of kit delivered by Accenture, so that we can use that next year and deliver the benefits that we had planned to do at an earlier stage.

Q89 Lynne Jones: So the answer to the question about savings is yes?

Mr McNeill: The answer is that savings are deferred because we did not deliver the system that would enable us to produce the savings.

Q90 Lynne Jones: Deferred to when?

Mr McNeill: Starting in 2006/07.

Q91 Lynne Jones: It says from April 2007 anyway.

Mr McNeill: What we will be doing is installing that equipment and we will have the full year value in the 2007-08 financial year.

Q92 David Taylor: I think we will move on to staffing, we could spend hours on the IT side and there is not the time to do that, Chairman. Is it the case, Lord Bach, that the original workforce within the RPA totalled some 3,500 of whom around 1,600 will lose their jobs during the Change Programme? Those are the figures that we are working to, is that correct?

Lord Bach: I am sorry; I am not in a position to answer that. Mr McNeill, who runs the organisation itself, will be able to answer that.

Q93 David Taylor: Mr McNeill, do those figures seem recognisable, that almost 50 per cent of the original workforce of the RPA is due to lose their jobs by the end of this year? That was the original plan between 2001 and 2006, was it not?

Mr McNeill: Yes, that was part of the business case, the initial projection. I have the exact figures if I can confirm them. Yes, approximately in that area. The intention was that the investment would produce that level of savings, yes.

Q94 David Taylor: It is not likely to be a factor, is it, that is going to boost staff morale or their attitude to their employers, although I did not detect any serious problems in some of the people I talked to? That is a backdrop which is not a very encouraging one for the Department overall, is it?

Mr McNeill: Chairman, I made a point of personally spending quite a lot of time around the various sites within the RPA, in particular those offices that are closing, the latest being Nottingham and Crewe. I have been sorely impressed with the commitment that staff have shown up until, to be frank, the last day of work before they have departed the organisation. Of course, these staff, if they have long service with the Civil Service, have received redundancy packages. Many have gone on to second careers and, indeed, have looked upon this as an opportunity to do something different as a result of receiving that funding. In actual fact, as I say, I was very impressed with the commitment that continued to be demonstrated by those staff.

Q95 David Taylor: You have already referred to the amount of pressure of working around the clock seven days a week for a considerable amount of time, and I understand that, but the trade union, PCS, told us both in written submission and in conversation that in their view a bullying culture exists within the organisation which pressurises staff to work extraordinarily long hours. How do you respond to that?

Mr McNeill: I can only say that we would not accept bullying within the RPA, as indeed it is unacceptable within the wider Civil Service. There is no doubt that all of the staff within the RPA have shown tremendous commitment. They are working very long hours, and have done for many months now. We had staff in the organisation working on Christmas Day who volunteered to do that work. The fact of the matter is that there are times, I have no doubt, when staff are under pressure and feel that because of the combination of long hours and the pressure to deliver, but I can assure you we will not accept bullying within the organisation.

Mr Hewett: A lot of those staff actually work for me. We are very clear that whilst we are looking to make the best use and most optimal use of the IT system, recognising that there need to be modifications overnight, we will try and utilise that system from 6am to 9pm. We have early shifts, late shifts, double-day shifts, but we recognise that staff require some time out to recuperate, to recover, before they move on. It was a level of their commitment that people, particularly at the Reading office, actually came to me and said, "We want to work Christmas Day, Boxing Day" and so on, "to see if we can make better use of it over that period".

Q96 David Taylor: Why would PCS describe the atmosphere and ethos in that way, with that phrase, "bullying culture"?

Mr Hewett: We have daily conferences, as you can imagine, to monitor progress. This is a completely different culture in terms of trying to deliver the Single Payment Scheme than its predecessors. I used to manage one of our offices in Exeter. I had a geographic locus and I was responsible for the farm subsidy claims in Devon, Cornwall and the Isles of Scilly. Now the Exeter office deals with a proportion of claims from the whole country and there is not that discretion. We have calls involving the managers at each site and we discuss progress against the various competing priorities that we are working on at the moment. We are very keen to make sure that we stick to the productivity levels that we require to ensure that we can determine entitlement.

Q97 David Taylor: So you deny all knowledge of any such culture existing?

Mr Hewett: We are challenging in terms of making sure that we stick to what we are intending to achieve in terms of productivity.

Mr McNeill: If I could just come in there, Chairman. The relationship the organisation has with the trade union is quite excellent. We have worked very hard. Bar the issue of pay and industrial action, which is the one issue on which I am afraid we just cannot agree. Bar that, which I know is important, we have trade union representatives at our executive board sitting with directors, fully involved in discussions on the programme. I can say with my hand on my heart I have no recollection of the issue of bullying being raised at those meetings. As I recollect, there have been one or two instances when concern has been expressed to me personally and I recollect we addressed those, but I am not aware that they expressed formally any particular concern about the level of bullying in the organisation.

Q98 David Taylor: The assertion that there has been something over 1,500 casual, fixed term and agency staff, the bulk of which are agency workers "paid the minimum wage to work unsociable hours", is an incorrect assertion, is it?

Mr McNeill: That is a separate issue, Chairman. There is no doubt that the union is particularly unhappy about the use of agency staff. Indeed, it is part of the PCS's national campaign, having sat in their head office just before Christmas where they explained to me that they were very unhappy with government in general using agency staff and where the agencies, in their view, are paying minimum wage and these staff are sitting beside permanent civil servants who are receiving much better in the way of packages and pension and support. As they made clear, that is part of a national campaign that they are putting in place to bring about changes in that approach. I accept they have concerns about that. Our particular concern in regard to business is our site at Workington where recently we had a significant number of agency staff but, following some discussions with the union, we have moved to employing another 100 directly.

Q99 David Taylor: To an extent you have accepted the summarised description of the numbers of people who are churning through this organisation, the numbers who are feeling vulnerable to the loss of their jobs or, indeed, who have already gone. This is not exactly the best type of environment in which to design, develop and implement a hugely important computer system, is it? Is that the reason why the one thing I noticed above all others at Reading was the paucity of experienced IT and other staff at the very sharp end where Accenture were designing and building a system which they themselves are going to support on your behalf into the medium term? I noticed that RPA staff and the predecessor organisation for which they might have worked were almost invisible at that level and that really did disappoint and surprise me.

Mr McNeill: I was unaware that you had that concern following your visit. We do have a significant number of agency staff. We mentioned earlier the business case, which we are still obliged to work towards achieving, of reducing the numbers and we have been looking to agency staff to help us complete the work between now and when we get our full systems in place so that we can more easily reduce as opposed to engage in another significant round of redundancy. That is why we have gone down the road of agency staff. Having met a large number of agency staff in the organisation, I have to say they are very committed, they are very pleased to have the job, albeit at a lesser wage or lesser package than, indeed, some of the people they are sitting beside, the permanent civil servants. To answer your question about the IT, there is no doubt that a problem that we face, which I suggest is a problem across government, is that it is extremely difficult to get IT people to come and work at Civil Service wages and assist us through this and, indeed, retain our own IT staff at Civil Service pay bands when they can literally make a phone call and move to an IT company, a consultancy, whatever. This is a growing concern and pressure for us and we have to look at how we can do our best to keep the staff on board. I accept your point that we have had to rely on expertise from outside largely because at the pay scales which we can offer it is extremely difficult to recruit or, indeed, retain staff.

Q100 David Taylor: It is not a soft top management option just to outsource IT?

Mr McNeill: No.

Q101 Lynne Jones: I have got two points. Why have you made hundreds of staff redundant and then you have to employ lots of temporary people and at the same time you said a lot of your remaining staff are having to do a lot of overtime? Secondly, is all the extra work and overtime voluntary?

Mr McNeill: We have had a clear plan in terms of reducing staff. What we have done is trawl the organisation, in agreement with the trade unions, and given the staff the opportunity to identify whether they wish to leave with a package. A number have applied.

Q102 Lynne Jones: Should you not have kept them on a bit longer?

Mr McNeill: I was just going to come to that. What we have done is considered those who have applied. We have been very fortunate that the number who have applied have met our needs, so we are not looking at compulsory redundancy. What we have then had to do is look at the particular skills and experience those staff have. Some staff have left on retirement over this period as well and we cannot stop that happening, they have done their service and they are entitled to go. What we do is look at the particular skills and experience of those staff who are saying, "I would quite like to leave" and where they have skills we think we can use, we have said - for a significant number it is the case - "We cannot afford to let you go until we finish certainly the first round of this scheme" and a number have expectations that by this summer we should then be in a position to release them, but in many cases we still have not committed to that. What we have accepted is that when possible we will release them. We have let other staff go, I accept that, but often in areas not directly related to processing SPS: support services, facilities management, we have let some human resource staff go, things of that nature. There is a consideration of each and every case.

Q103 Lynne Jones: How many staff have you "let go" as you put it? Are you saying that none of those could have been kept on longer and contributed to the work that is being done by the temporary staff and staff doing overtime?

Mr Hewett: Can I answer that question? Since the start of the Change Programme 300 staff have left the organisation and a further 100, bringing the total to 400, are planned under part of the Change Programme. A significant number of those have been released from the two sites at Crewe and Nottingham which were not part of our Change Programme and, therefore, were not part of the IT development which we are now using to deliver the Single Payment Scheme. Those staff were predominantly there to deal with the farm-based schemes in those geographic regions. I visited both of those offices shortly before their closure to thank the staff for their efforts in dealing with the close down of what we now call legacy farm-based schemes, the bovines and sheep schemes, et cetera. Some staff outside of those two offices have left for the reasons Mr McNeill has already explained as part of that programme in corporate areas or, in a few cases, from some of the other areas. For example, at Reading now the number of frontline operational staff who will be left at Reading at the end of the Change Programme is very small, so consequently some of those staff have disappeared during the course of the programme and perhaps that was what Mr Taylor was referring to.

Q104 Lynne Jones: I am not sure you have answered my question on overtime being voluntary.

Mr Hewett: Sorry. In terms of overtime being voluntary, absolutely. We do seek volunteers for overtime on a regular basis but since the advent of bringing agency workers into the organisation, primarily for specific jobs such as data capture and more recently validation, we have tried to target those individuals at specific parts of the day to make best use of the system. We want an early shift, we want a late shift and in some cases we have a double-day shift. Where we give overtime over that, particularly weekend working, we do seek volunteers.

Q105 Mr Rogerson: On this business of redundancies and, therefore, temporary staff coming in, some of my constituents contacted me in relation to the implementation of this system and one of the frustrations they claim to have had is that the people they speak to do not seem equipped to answer the questions which they have or, indeed, capable of taking on board the corrections they are making in terms of letters they have had that have raised issues. When they have tried to explain those issues and explain the answers in order to move their assessment forward they have had a letter back which has carried on with exactly the same situation as before. Indeed, the Minister and I have exchanged letters. We seem to have the same problems over and over again. Is there an element where some of the temporary staff and so on may have added to your problems in terms of being able to meet the deadlines you have got because issues which could have been settled simply have rolled on and on through repeated exchanges of correspondence?

Mr Hewett: If I can try and answer that question. First-off, administering the Single Payment Scheme is not like administering previous schemes where we had more like a claims management type approach and I would have one of my processors looking after a particular claim and perhaps liaising with the customer where appropriate. With the Single Payment Scheme and the system that we are implementing it through, the claim goes through a number of stages and a number of different individual members of staff might be involved in processing aspects of that claim. As I have already mentioned to one of your colleagues, we have employed a number of staff on a short-term basis, either agency or casual, to do specific jobs, to capture data, to do certain aspects of validation. We know them in the trade as level one or level two primary or more detailed validation. The primary validation was about errors or omissions, so in certain cases some of our staff would have been on the telephone to customers saying, "There appears to be an issue around certain aspects of your claim, could you explain to us". They would not necessarily know certain other aspects of the process, for example if there was a dual claim or an over-claim, they would not have been trained in that, they would have been trained in looking for errors and omissions in the claim. Perhaps that is part of the issue. The other point is in terms of putting right problems when they are found, certainly we have had issues in relation to land registration. Mr McNeill has already explained the scope and the extent of the land registration changes that we have seen in the last 12-18 months. That came on the back of a two year digitisation exercise and I have to say not all of our customers were very keen to talk to us about that digitisation process at that time. They now are because they want to make sure their Single Payment Scheme and Entry Level Scheme claims are accurate. We are now getting into a situation where we have involved an outsourced supplier and we are fielding calls around some of the work associated with that outsourced supplier. We have also established a Customer Service Centre at Newcastle, and now at Workington, that was introduced just before the Single Payment claims went out, and we might touch on that at some point. We knew there were issues around that in terms of making sure that our staff were fully equipped with knowledge around SPS. That is what we are trying to do. We are trying to make sure that in dealing with the 2006 scheme inquiries we are better placed to handle that by making available technology which allows calls to be filtered out of the call centre into sites where the expertise in processing claims for 2005 took place.

The Committee suspended from 5.03pm to 5.16pm for a division in the House.

Q106 David Lepper: This is a postscript to what Dan Rogerson was asking about just now. Mr Hewett, you have explained what I think is probably called the task-based system for dealing with claims of rather than one person following the claim through to the very end different people work different aspects of it, and you have explained the reasons for that. This relates to the staffing issue as well. The Country Land and Business Association in their evidence to us talk about what they see as a decline in customer service and they feel the way that manifests itself is the personal contacts which did exist, which they felt were valuable, at regional offices are replaced by voices at distant call centres, as they put it, and the service suffers because of that. I guess collectively you would argue the change is necessary not just because perhaps some of those regional offices are no longer there, I am not sure about that fact, ----

Mr Hewett: They are not.

Q107 David Lepper: ---- but because the nature of the system requires a different way of dealing with it. Would that be the argument?

Mr Hewett: I think that would be absolutely the case in terms of we took the decision as part of the Change Programme to move from a regional-based solution to a national-based operation and the Single Payment Scheme effectively embellishes that, if you like, by moving this from the 11 farm-based subsidy schemes to a single farm-based subsidy scheme which in the first year is predominantly based around historic entitlement and reference data and over time moves into a scheme that is based predominantly around land. We have a Land Registration Unit, we have a Customer Registration Unit, and the functionality that supports that was delivered at the end of 2004 and early 2005. We do still, and did during the application window for 2005, operate a system where our customers can make contact with us at our sites where we are processing, and at the moment we have six sites in operation. Predecessor organisations occupied 11 sites, so you can see there is a downsizing process there. Those contact centres are still there if customers wish to deposit anything with us, however our primary intention is to move to a situation where we have a Customer Call Centre that is capable of dealing with telephone and email inquiries and we hope over time, although this is not yet proven, electronic communications.

Q108 David Lepper: So the regional office is a thing of the past?

Mr Hewett: That was part of the Change Programme ethos.

Q109 Chairman: I want to move on to ask some questions about mapping but, just following on from the last points that we heard about customer service, I am going to leave with you a letter which one of my parliamentary colleagues sent to me from a farmer in Gloucestershire. He sent a detailed log of some 55 contacts or activities between 25 March 2004, when he received from the RPA in Exeter a list of field numbers and sizes in his efforts to get himself properly and accurately registered, to the final event on 5 January this year when he finally received maps from the RPA in Reading and they were still wrong. I do not know whether this is an isolated example, I suspect it is not. I suspect it reflects an awful lot of angst as far as landowners are concerned. It would be helpful to have a detailed response to the issues there on what you have done to prevent this kind of thing happening in the future. As far as the mapping is concerned, one of the things that surprised me in terms of the evidence you have given so far is why you did not anticipate the extra volume of work that occurred. Did you do any kind of sampling exercise on farms to assess right at the beginning some of the practical problems that were encountered? In the context of the people who were new to making a claim, when the policy was determined, was no exercise undertaken to estimate the numbers of new people who would be eligible under the policy which you had agreed?

Lord Bach: The RPA representatives can answer the factual question about whether exercises were conducted. I think the 40,000 increase in claimants, in other words 50 per cent, did take us by surprise to some extent. Whether it should have or not, I do not know, but I suspect it was rather more than thought. I think more to do with the number of claimants was the number of changes to be made or additions to be made to the land registration and the mapping that follows from that. There I want to emphasise, if I may, something I said a little earlier. It was not just those who were new claimants who were putting forward their maps, it was those who had claimed for years who were legitimately, in a sense, putting forward land they could now claim for as part of the Single Payment Scheme. As I think Mr McNeill has said on more than one occasion, frankly those people should have mentioned that land when they were claiming for previous subsidies but they did not, and it is human not to sometimes, I accept that. I think the number of existing claimants who put in claims for new land did surprise us.

Q110 Chairman: Minister, could you answer the question that I asked. The question that I asked was did you, once you had agreed the policy, not go out and visit a few farms and say, "We know roughly the kind of information that will be required, now let us do a little sampling", to get some idea in the real world what kind of problems you would encounter? Did any of that get done?

Lord Bach: That is a factual question I cannot answer.

Mr McNeill: In terms of the existing customer base in the summer of 2004, having built the new Land Register and put on the circa 1.6 million parcels of land, we sent to each of our known customers, the circa 80,000 customers that we dealt with, a copy of the maps and asked them to let us know whether those maps were right. We realised that it was going to be important for legacy schemes and, indeed, for SPS as it happened to have as good a Rural Land Register as possible. We sent them out and a significant number came back and somewhere between 20,000 and 30,000 - I can confirm that in writing - did not respond despite repeated reminders and us chasing them up. What we then found was that at the same time as we had to introduce SPS and once our existing customers became aware that there was going to be an area element to the new Single Payment Scheme we had the new Stewardship Scheme, the Entry Level Scheme, introduced by RDS and in some cases the same customers, in other cases new customers, realised that they would also require land to be mapped to make application for that. That was additional work that resulted from that other scheme being introduced. In terms of the 40,000 customers the answer is no, to my recollection we did not sample.

Q111 Chairman: That is what I thought you were going to say.

Mr McNeill: We had an understanding about the possible magnitude of the number of customers but who they were and how much land they might hold we did not know. With the introduction of people who kept horses and so on ----

Q112 Chairman: Very simply, Mr McNeill, you knew the policy but you were flying blind when it came to trying to work out the volume and the volume only became apparent once the paperwork started to come in. In other words, when you started you had not got a clue.

Mr McNeill: We had a system which at that time we felt was scaleable and we would be able to deal with the volumes if all 40,000 decided to submit IACS 22s.

Q113 Mr Drew: Could I just check, was the satellite monitoring, which is presumably how you built up the knowledge of the field boundaries, included as part of the software management system so that you could compare the bits that were coming in with the acreages or the hectarages that were being claimed for?

Mr Hewett: The original Rural Land Register project, which was to map 1.6, 1.7 million land parcels, on which the old IACS system was based, was derived from Ordnance Survey boundaries. That is comparable and allows us to do remote sensing inspections on a proportion of our customer base. We did that under the old IACS regime for arable claimants and we do so for the Single Payment Scheme. A proportion of the customers who were selected for inspection from the 2005 SPS population were subject to remote sensing checks.

Q114 Mr Drew: So it was never thought either feasible or sensible that there would be a comprehensive pictorial representation of what people were claiming for?

Mr Hewett: We were already producing that for our own purposes, if you like, in terms of monitoring, checking from remote sensing inspections.

Q115 Mr Drew: That is for everyone then, regardless. You say you trial, test some people just to get a feel for how accurate the information is, but ----

Mr Hewett: This is for compliance purposes. We are required under the key controls that I mentioned some time earlier, Chairman, to inspect a proportion of our claimant base each year. Some of those inspections are physical inspections on the ground with our inspectors actually measuring the area; other inspections are undertaken by remote sensing, by satellite imagery, et cetera, to check the claimed area against the area found by satellite imagery. We use it for compliance purposes. My colleagues in the Rural Development Service, who are responsible for the administration of the Environmental Stewardship Scheme, take as the basis the land area and they are also very keen to make use of the Rural Land Register data as part of the application pack which then goes to customers and forms part of the agreement for that Environmental Stewardship claim.

Q116 Mr Rogerson: This is a mapping question but it also relates back to what I was talking about before we had to go to vote on people's experience and the complicated nature perhaps arising from having to speak to a different person each time you contact the Agency. This is a gentleman who was applying under the National Reserve as a new entrant into the industry and he tells me that having completed and returned the information he was required to do, others - the figure he gave me was 18,000, I do not know whether that is true or not in terms of the number of people applying for the National Reserve - a smaller proportion of those had not responded with the details necessary but, because there was no way of telling from your system which were the ones who had responded and who had not, all 18,000 had to be written to again prompting a further response. I imagine that would have generated a lot of confused inquiries from people saying, "I have responded, why have you contacted me, is there something missing?" Has that added to your workload significantly?

Mr Hewett: I can give you a bit of factual information. The 18,000 National Reserve applications is a correct figure. By the time that we completed the assessment of around half of that number, and the assessments have been undertaken off of our main system and then we load the data on afterwards, we determined that around half were in a category known as "insufficient information to make a judgment". On that basis we decided rather than take the time to trawl through the remainder to find out if a comparable proportion were in that "cannot make an assessment" category we would write to everyone to give them a checklist against which to tell us, "Have you given us all the information on this checklist that is relevant to your case? If so, thanks. If not, please provide that and any further information". Subsequently, we discussed that with stakeholders, who we meet on a regular basis, one of whom is sitting behind me, to explain that if any customer believed that they had already provided the information we did not want it a second time, thank you very much, we just needed confirmation that we were going to get everything we wanted. As a consequence of that process and part of our on-going assessment, a considerable number of applicants have actually withdrawn their application, whether they felt they did not have sufficient information to justify eligibility or for whatever reason they decided to withdraw.

Q117 Mr Rogerson: Inevitably some, who may not have been contacted through your various consultation means, may well have felt, "Does this apply to me? Have I been sent what I need?" and that would trigger off another round of communications with the Agency?

Mr Hewett: Absolutely. As stakeholder representatives cover a significant proportion of the industry now it would be very helpful to us in selling key messages to their members or customers if they helped us to work with this. They recognise that, unlike previous schemes where we could say, "That claim is eligible, pay it", you are putting everything in the pot and working to some of the lowest common denominators here.

Q118 Mr Williams: If I understand you correctly, mapping is no longer impeding the processing of the calculation of the entitlement?

Mr McNeill: My earlier comments were about the fact that we have outsourced the processing of the backlog of IACS 22, the applications to have changes made to land, we have brought in the contractor who built the original database, as I mentioned, and as a consequence there are a number remaining, which I can give you, but it is relatively small and planned to be finished in the very near future. So as such the actual mapping process is not going to interfere with the payments. We have had a concern which perhaps I can touch on, and that is about the accuracy of the maps. We have had some system glitches where the land is available on the screen, as our staff look at the screens and the database, but unfortunately when printed the maps have excluded certain parcels of land, and that is a fix which Accenture are sorting for us and will be put in place shortly, but we are aware of the land and who owns it. Unfortunately, when we have sent out the maps, it appears we have missed something, and that has been the problem. Another issue is that we do send out maps and, indeed, we do get it wrong, but also we find that customers often for the first time for sometime actually look at the map in considerable detail and recognise that perhaps they have missed things themselves and identify additional issues they want to raise with us, which is understandable. So we have those cases and so maps can go to and fro. Yes, we have made errors with it. We closely monitor the quality of both our own staff's performance on this and the contractors' and there is a certain 2 per cent, 3 per cent, quality issue which we have been addressing with the supplier and indeed our own staff. So there will be cases when the maps are wrong, and it is unfortunate, and we are aware it has happened, but we would be pleased if customers could send them back and we will sort it out.

Q119 Mr Williams: So if it is not the mapping that is the problem in making your payments on time, what is the problem?

Mr McNeill: As I mentioned earlier, the problem we face is that there are a significant number of outstanding issues which we need to address in regard to a significant number of claims. We have gone through various parts of the process and many parts are well nigh completed - level one validations bar a handful are pretty much complete - so large parts of the process are complete, but we are at the stage where there are a number of issues which we still need to resolve. We are also, as I mentioned earlier, awaiting some additional fixes. These are not released as big pieces of functionality from the supplier, but they are fixes which we think may well address large numbers of these.

Q120 Chairman: Can you put a number on this?

Mr McNeill: A number on?

Q121 Chairman: You keep saying there are a large number - how many?

Mr McNeill: Of outstanding issues?

Q122 Chairman: Yes.

Mr McNeill: Because it is a task-based system, there is the issue of the number of the tasks, and then obviously how many claims that affects.

Q123 Chairman: Well, how many? You keep telling us there are a lot of them.

Mr McNeill: Currently, 400,000 tasks remain to be resolved.

Q124 Mr Williams: How many claims do you think that covers?

Mr McNeill: It is related to 70 per cent of claims. On the level two validations there are 400,000 tasks relating to 70 per cent ---

Q125 Chairman: So only 30 per cent of all the claims currently are "tick in the box", fully okay?

Mr McNeill: Through all the stages of the process.

Q126 Chairman: But 70 per cent of all the claims still have to be worked on in some way or another?

Mr McNeill: Certain issues and tasks have to be resolved. Some will be resolved by system fixes and in some cases that could be a very substantial number as in tens of thousands; others have to be resolved by contact with customers; others have to be resolved by scrutiny by our staff.

Q127 Chairman: Let's explore for a second the numbers which are going to have to be resolved by customer contact. Are you yet in a position to be able to say how many there are which will be needing, if you like, conversations with the landowner?

Mr Hewett: Could I try and explain the process?

Q128 Chairman: You can try and explain it, but it sounds to me like you have a lot of work and a lot of phone calls to make.

Mr Hewett: Not all, in fact a very small minority of that number, would require customer contact. Mr Williams talked about the mapping of land being pretty much behind, and that is correct, but a lot of the tasks - and that is what they are called in the system - which are left to be resolved derive from land where there is a mismatch between the land on the claim and the land we have found on the register. We have outsourced all the registration work and the vast majority of that has now been completed. Some of it still has to be up-loaded into the system, and it has been explained there are risks around that and we have managed those down, but until that land is back into the system there are mismatches. Some of those are very straightforward and indeed the Minister saw examples of that when he visited Reading just before Christmas, where the system is saying, "Claim says X, system says Y", but we now know, thanks to the up-load, "System says X". That is straightforward and we have to just correct that and it is, to use your phrase, Chairman, a "tick in the box". In other cases, it is more of a detailed issue. Where the land has been digitised, there still appears to be an issue between X and Y, the land claimed and the land on the system. That may be because the customer was seeking to digitise a completely different piece of land and we still have an issue, or it may be that the boundaries of the parcel which has been digitised overlaps with other parcels, or a number of other reasons. So there are a number of land tasks in the system. We also find that some tasks are coming through the system because more than one customer has claimed on it - dual claims - or there is an over-claim. "Claimed area says five hectares, found area four hectares." We need to identify that and there may be very good reasons for that. I mentioned earlier that one of the key controls is to inspect a proportion of our claims population. As we up-load that data into the system, we may find an issue on that and there is a whole gamut of reasons why we might find issues on that, some of them very straightforward, some resolved through system fixes or some where we require contact with the customer.

Q129 Mr Williams: I can understand why this is quite complicated, from personal experience, but you are never going to get this perfect, so is there a margin of error that the Commission would be happy with so you could make this system work? It does seem to me that if you are going to hang on forever to get it perfect, then the farmers are not going to get their money at all.

Mr Hewett: This is exactly the argument we have been exploring with our colleagues and ministers on a regular basis. We need to make sure at the point of determination we can be satisfied and ministers are satisfied that we have got to a level of accuracy which allows us to make that determination and the claims are accurate.

Q130 Chairman: You have been exploring it with ministers? When did this voyage of exploration begin?

Mr Hewett: Apologies for the language. We have been keeping ministers informed as we progress, and this is the position we are proposing now.

Q131 Chairman: But surely there must come a point at which Lord Bach, as the responsible minister, will have to make a decision? If, at the end of the day, you are not yet decided, Minister, what is an acceptable level of accuracy, you could be informing each other until the cows come home?

Lord Bach: We know what the acceptable level is.

Mr McNeill: Chairman, what we have done is analyse the various groupings of these tasks and we have taken a view as to the consequences of proceeding with outstanding tasks in various categories. Some we must clear up because the Commission will take a very dim view if we were to proceed and make payments in that situation. We have also considered what level of outstanding tasks would have what impact when we actually take the view or define the tasks, which of course is the next crucial step in this process, and the clearing up of the issues relating to particular claims will continue. It might mean that some claims will not be paid as quickly as others and there will be outstanding tasks on those particular claims. So the major issue for us is, at what stage are we confident, considering disallowance, the view of the Commission and indeed the information we receive on a daily basis ----

Q132 Chairman: What I am slightly unclear about in this exercise of defining what is accurate is, is the decision a United Kingdom Government one or has it been laid down by the European Union?

Mr McNeill: The European Union lay down a clear raft of requirements to ensure that funds are protected and expect us to make sure that certain controls are in place, then we are paying out those funds on the basis of those controls, and we are then subject, as has been mentioned, to intense audit by the NAO, the European Court of Auditors and ---

Q133 Chairman: So you know by virtue of what the European Union say, the degree of accuracy that you should be achieving?

Mr McNeill: We understand what the Commission and others would require of us and are looking at our position in the light of that to take a view as to whether or not we can proceed to define entitlement and to start payments.

Q134 Chairman: So when are you going to be able to give a definitive judgment on this matter accurately to the Minister?

Mr McNeill: The next check point on that is at the end of the month. We are still within sight of defining the targets by 14 February and commencing payments in February. If we are not in a suitable position because we think we are at risk of disallowance, that will have to be considered as part of the complete risk assessment and the Minister's options would be, is it worth another few days' or weeks' effort to get full payments out - and we know a number of stakeholders have said that may well be the case - or do we go for partial payments with the resulting risk in delay to potentially other payments as well and the fact that could well impact on next year's payments. That is the assessment which has been adduced for ministers and others to consider.

Q135 Chairman: So that is what you are going to be able to give the Minister a definitive assessment of by the end of the month?

Mr McNeill: We will provide the latest up-date on our performance, where we stand and the assessment of the level of risk in terms of disallowance, countered with the need to get these payments made in February, and that will enable the Minister to take a view.

Q136 David Lepper: I wonder if you could set my mind at rest on one point, in view of the use of the word "validation", which I know can mean a number of different things. There is no suspicion that a significant number of people are trying to fiddle the system, is there?

Mr Hewett: No, but we are required under the EU regulations to make sure that everything is in order, and that starts with the amount of land on which customers claim right through to, in a small proportion of cases, physically inspecting the whole thing to make sure everything is order. As you will know, the Single Payment Scheme is predicated around good agricultural and environmental conditions which require a cross-compliance inspection to be undertaken. But it is entirely possible, and I can tell you now, there are some tasks which suggest more than one customer has claimed on a land parcel. We need to investigate if that is the case. I think in certain extreme circumstances that is just about technically possible because of the complexity of the scheme rules, but in the majority of cases we would find that is not right and that only one of those potential beneficiaries is the right claimant.

Q137 David Lepper: But the suspicion is that that arises more from a mistake on the part of supplying information or in the mapping rather than a deliberate attempt to mislead?

Lord Bach: One hopes so.

David Lepper: We hope a lot of things, Lord Bach! Thank you.

Q138 Mr Drew: Following on directly from David Lepper's point, should you not have been more rigorous in defining who is eligible to claim? I have some real worries that amongst those 40,000 people we will be paying money to some of the richest people in the country who, with the best will in the world, are not farmers, are not defined in terms of agricultural land, they just may keep a few horses on a piece of suitable land. I have raised this before, and this is about defining what we mean by farming activity and we are still far too loose in this country on how we define it. I suppose the Minister ought to answer that.

Lord Bach: This subsidy, this Single Payment Scheme, is based, as I understand it, on use of land and what needs to be shown by the claimant is that he or she has some claim over this land and uses it at least to the extent of making sure it satisfies cross-compliance principles and elementary environmental principles. That would be the basis of the fixed amount and then of course there would be a historic element which has to be shown by the claimant that in the years 2000-2002 this land was used for one of the topics that you are able to claim subsidy on, whether it be livestock, wheat or whatever it was. That is the way the calculation works.

Q139 Mr Drew: All I am saying is, if we had been more robust from the outset, those who are existing and genuinely agricultural in what they are doing - and maybe new claimants who come into the scheme - stand to gain. So in a sense, because we have opened the door, a can of worms has been seen in the corner.

Lord Bach: I am not sure that is exactly fair.

Mr McNeill: Chairman, the robustness is what happens as part of this process of assessing where we get two claimants. Whilst we will not engage in arbitration, where it is apparent to us that one of the claimants has had previous claims with the Agency and has farmed that land and had that land at his or her disposal, we will be able to point to that and will be able to take the view that that is the claimant. This is a particular issue of concern to the Tenants Farmers' Association which they have indicated to us. What we have said though is that where there is a more complex discussion and debate to take place, we do not see the RPA engaging in arbitration. What we can do is ask colleagues to resolve the issue but the fund will not be at risk because we will not pay either until we resolve where they stand.

Q140 Chairman: There was an announcement, Minister, by your Department in July that you were going to prioritise the mapping work for the Single Payment Scheme ahead of that for the Environmental Stewardship Scheme. Given you have had a long run into the point at which you made this announcement, it must have become very clear to you that your real problems lay with the volume of basic farmland applications for the single farm payment, so why did it take you until July to change the priority?

Lord Bach: We gave priority for a couple of months to the ELS scheme.

Q141 Chairman: Let's go back a second. You started off with a priority which was agricultural land for the scheme and then you changed it for two months to the stewardship scheme and then you changed it back again.

Lord Bach: As a priority.

Q142 Chairman: Is that what you did?

Lord Bach: It is what we did, yes.

Q143 Chairman: Why? Why did you decide to make the change?

Lord Bach: We did it because we were committed to implementing the recommendations of the Curry Commission, which very much included environmental ELS, and the decision had been made we were going to introduce that and not delay it, because it is such an important part of the future. The agri-environment scheme had already been taken up by a large number of farmers, and the huge additional environmental benefits offered by the environmental scheme were such that it was appropriate to press ahead with that rather than delay it whilst working on the SPS.

Q144 Chairman: You took that judgment on the basis of the advice that was given to you that you could also deliver against your original payment timetable for the single farm payment scheme, yet two months later you are trumpeting you have changed your priorities.

Lord Bach: It was not an easy decision to put that priority there for two months because both had a lot of claim on our attention. One was a direct result of the Curry Report and the other the need to get the Single Payment Scheme paid in time. I am delighted to say the ELS has taken off in that there are a large number of farmers, to all of whom we will effectively pay a special payment scheme, who are now part of the agri-environment scheme as well. We did realise two months later that we ought to change that. We started with the priority ---

Q145 Chairman: But, with respect, you must have received a piece of advice that changing from the single farm payment as the top priority issue to the environmental stewardship scheme was not going to damage your chances of hitting the targets for the single farm payment, yet two months later you change back in terms of priorities. Does that not raise some issues about the quality of advice you had?

Lord Bach: I do not think it does because the first piece of advice we took, because it was important to get the ELS, the entry level scheme, off the ground, was it was absolutely vital to do so. When, a couple of months later, it seemed that the Single Payment Scheme might be put at some risk as a consequence of that, we then changed our view. It seems to me, Mr Chairman, that is the way one can quite properly do things.

Q146 Chairman: Refresh my memory, how much money is involved in the ELS scheme and how much in the single farm payment?

Lord Bach: £1.6 billion on the single farm payment.

Q147 Chairman: And the entry level scheme?

Mr Hewett: I am not responsible for it but the base payment is £30 a hectare. It depends how many applicants come in.

Q148 Chairman: I think it is probably about £200 million as a figure.

Lord Bach: I am sorry not to have that figure in front of me. Of course in terms of money there is no doubt. We thought, when we decided to give the priority for those couple of months to the ELS, it would not have any adverse effect on the Single Payment Scheme. When, after two months, it seemed it might, we then changed the priority. But I think Mr McNeill will argue, as he already has, the fact that giving priority for two months to the ELS has not, as it turns out, made any difference at all as to whether we meet the February date or not.

Q149 Chairman: Then why did you change back?

Lord Bach: Because at the time we changed back we thought it might.

Q150 Chairman: You thought it might?

Lord Bach: Yes. Mr Chairman, it is only fair to me to listen to my response. After that, we realised that we should outsource the Single Payment Scheme element, and that is what we have done, and therefore it has had no ill effect.

Mr McNeill: There was tremendous pressure coming through to the RPA's customer service centre from farmers who were very frustrated that because they did not have their land information they could not make applications under the stewardship scheme. That was quite a growing voice of concern on the part of farmers, that they could not get on to that scheme which, after all, was at the stage of application and could be processed much quicker than the longer term SPS. As a consequence, the Department and ministers were aware that was a growing area of concern. The decision to prioritise was the subject of discussion and it was felt it was important that that scheme was up and running, given it was a Government achievement and priority, they wanted to get it in place, so we did prioritise that and we were able to relieve a lot of that pressure by giving them priority. That was a very hot issue at that time and there was a lot of concern that it should be dealt with, and once that decision was taken we were able to move to the SPS situation. As I mentioned earlier, we had considered that we could scale up our existing Rural Payments Agency and get our own staff to deal with the SPS backlog, which was growing - we were writing out to farmers, it was not just a one-off understanding of it, asking farmers for more maps, asking them to explain why they had more parcels of land, and so more and more information came in - then we were able to say, "This is a very major task and that prioritisation, if we are to succeed, will have to come to an end", and that was the decision taken. As it happened, the volume of claims continued to grow as we worked our way through the claims and had a better understanding of what both existing and new claims were put in place, and we had to take the decision, with the risk involved, that we would outsource the work because it was not going to be done in-house, and that was a series of events.

Q151 Chairman: Let's try and draw matters to a conclusion. We have explored in some detail the rocky road you have traversed and where you are at the moment. You are not able to tell this Committee definitively whether the deadlines you aspire to are going to be met. You hope by the end of the month the Minister will have some advice so he can make a decision. Minister, are you able to give us any hint as to when you will be able to say something on the record and in public as to what the fate of this project is going to be?

Lord Bach: I can say this definitively, there will be a payment by the end of February, whether or not it is a full payment or the first part of a partial payment.

Q152 Chairman: Bearing in mind Parliament will have its week off in the middle of February, are you hoping before then you will be able to say definitively and in public what kind of a payment it is going to be?

Lord Bach: I hope very much to be able to say that by the end of this month.

Q153 Chairman: Fine. Minister and members of the RPA, can I on behalf of my two colleagues who are the rapporteurs again reiterate their thanks for the candour and the quality of the assistance they received. They have asked me to say that because they were truly impressed with what you did to aid them in their inquiry. Can I thank you all for answering our questions today. For those who have found this an interesting experience, you will within the next few days be able to re-read all the words that people have said on this matter on the Committee's website, and the Committee will in due course be considering how best to present this evidence, whether it be on its own or with some additional comments by way of a report. Thank you all very much indeed for your contributions and that brings the session to a conclusion.

Lord Bach: Thank you very much indeed, Chairman.