Examination of Witnesses (Questions 740-759)
LORD WHITTY
AND LORD
BACH
23 OCTOBER 2006
Q740 Chairman: Who was? Which Minister
would have made the recommendation that he was the man to head
up the RPA? Can you help us on that?
Lord Whitty: I cannot from first-hand
knowledge. The Secretary of State herself would have approved
the appointment, through the normal process of civil service appointments.
Q741 David Taylor: We are going to
be talking about Accenture later on. I understand that, but one
of the performance indicators, if you like, that might have been
relatively obvious at the time—and I am talking about a
year ago—was the fact that the IT contracted spend with
Accenture had more than doubled, it was announced, from £18
million to £37 million by about November of last year. I
wonder if I can ask Lord Bach if at that point you got a frisson
of concern? Was there any feeling that the system and the contract
was spinning out of financial control and beyond the grasp of
management?
Lord Bach: There was certainly
concern. I spoke to Sir Brian Bender. He would come and see me
and I would see him and, of course, he had monthly meetings, as
you have heard, with Accenture. There was certainly concern generally
about whether Accenture were carrying out what they had said they
would carry out. I have read very carefully all the evidence that
has gone before, but particularly carefully what they had to say
to the Committee, and quite clearly, when they first entered into
the contract, which of course was well before my time, if they
are right, they had not taken into consideration, or no-one had
taken into consideration exactly how the CAP reform would be implemented
in England, and clearly, there were some concerns about delays,
et cetera, with Accenture generally, and of course, you
are quite right; it is clear that by that stage it was costing
Defra a good deal more than the original contract. I have to say
though, no-one ever for a moment suggested that somehow, because
of the difficulties that there were or had been with Accenture,
that that meant that we would not be able to fulfil what we had
said we would, ie payments beginning and the bulk of them, 96%
as it was then, and then the bulk of payments being paid by the
end of March.
Q742 David Taylor: One final observation,
Chairman. This Committee were reasonably excoriating about what
was seen as the weak IT strategy of the Department in an earlier
report, and it is often the case in the public sector that the
top managers of client Departments, if I can call it that, have
relatively little knowledge of the world of IT and therefore are
rather vulnerable to hearing what they want to hear from contractors
and would-be software deliverers. We know there is a chapter of
accidents that stretches long before 1997 and will no doubt stretch
well into the next decade and beyond. Did you sense when you took
over after the 2005 general election that the knowledge that was
necessary at the very top of the Department to have a good feel
for some of the computer systems that were being worked on was
adequate or was the Department ultra-vulnerable to receiving seriously
flawed and over-optimistic information?
Lord Bach: I agree with your premise,
what you say about the history of government and IT. You have
made the point to a number of witnesses and I agree with that,
but on this particular occasion I did not get that feeling that
somehow those in the Department were out of their depth when face
to face with their Accenture colleagues or rivals. It seemed to
me that this was an IT system that had been set up. Costs had
obviously increased. Accenture would no doubt say that was because
there were new things added to their contract as a result of the
CAP reform, but I did not get the feeling that somehow the Department
was in fear or somehow did not know how to cope with Accenture.
Q743 Chairman: Did you have any body
or part of government or external source of independent advice
to which you could turn to just touch base if ever there was a
moment of hesitation or concern to find out what was going on?
Obviously, you had the gateway reviews to call upon—we will
come on to those later on—but was there anybody you could
phone and say, "Hey, this computer system that we've got—do
you think it's really capable of doing this given the following
situation?" Was there any source of independent advice, or
did you ever feel the need for it?
Lord Bach: I did not feel the
need, I have to say, so I cannot really answer whether there was
anyone. I certainly did not attempt to do so.
Q744 Chairman: Lord Whitty, the reasons
for choosing the dynamic hybrid model: clearly, there were other
potentially more straightforward ways of introducing the reforms.
Could you explain for the record why that one was chosen?
Lord Whitty: I dislike the term
"dynamic hybrid". What it is is a way to get into an
area payment system. The choice was between a historic payment
and an area payment. The choice of an area payment met a number
of objectives in Government policy much more than a historic payment
could have done. A historic payment would mean you would be paying
the same farmers for doing what they were doing in 2000 in 2012.
Government policy was, one, to make farming more commercial, more
market-oriented; two, to get a better environmental outcome from
farming; three, to ensure the EU was in a better position in relation
to the WTO talks, and that we were not engaged in trade-distorting
subsidies; four, that the bureaucracy would be simplified. A move
to an area payment appeared to meet all those criteria, partly
on the grounds that I was mentioning earlier, that there would
be a level playing field between similar land, whatever you used
it for, therefore farmers could chase the market rather than the
subsidies; secondly, because cross-compliance conditions would
be attached to all land and the environmental output would be
better; in terms of the WTO, the more a degree of recoupling of
what was supposed to be a decoupled payment occurred, the less
likely it was that our trading partners would regard it as a genuine
green box system, and indeed, the historic payment, since it goes
differentially between sectors, is still regarded by the Americans
and some third world countries as being a production-distorting
intervention, subsidy. So, for all those reasons, a land-based
payment which effectively supported farmers on the basis of their
fixed costs, not on the basis of their variable costs, and was
not related to production seemed a much simpler basis on which
to have a sustainable system of support for farming. On the simplification
dimension, on the face of it, moving from in total 21, but 11
effective systems in England to one, paid once a year, must in
the long run—and I had hoped at the time the not very long
run—help to move to a more simplified system of support.
So on all those criteria, an area payment was better. There will
of course be substantial redistribution arising from an area payment,
both between sectors and within sectors and different geographical
areas. We modified some of that by having the three-tier definition
of land, so that all the money did not go uphill, as the expression
was at the time. There were other distributional things between
sectors which we had to sort out and between land owner and tenant,
which caused quite difficult problems of definition and which
we partly but not entirely resolved, but because of this substantial
distribution need, we had to have a transition period. I would
say myself that the transition period was not the optimum one,
or the transition arrangements were not the optimum. If you want
me to go into that, I will.
Q745 Lynne Jones: What would have
been optimum?
Lord Whitty: I wanted to move
to an area payment as rapidly as possible. Clearly, I was persuaded
by both pressure from the industry and the advice of the Department
that it was not sensible, whatever date we had started it, to
move in one year to an area payment. My original proposition,
as I said, we took a five-year period, the first year would be
100% historic payment, the last year of which would be 100% area
payment; in other words, a three-year transition period between
the two. That was not the final outcome. I actually think that
would have been better. Whether it is optimum is another matter
but I still think that would have been a better transition period.
There were two reasons we did not adopt it. One was that legal
advice came that, by definition, if you pay 100% historic payment
in the first year, then you are only paying these people who had
previously been in the scheme, and the legal advice was that you
could not then bring other people in at a later stage, except
through the national reserve mechanism, which was a relatively
limited number. That seemed to destroy the purpose of some of
it. I was not totally convinced by that legal advice. I am not
a lawyer so I do not necessarily believe what lawyers tell me.
I was challenging that or trying to find a way round that but,
because the pressure from the industry in a sense was for a longer
period, and because eventually one had to present this as a way
we were both moving fast and taking a long time over it, we eventually
adopted a seven-year period when we would start a partial land
payment in the first year. At the time I thought that was a mistake.
I was more concerned, frankly, about the seven years than about
the 10%, although I was worried about the 10%. I am now absolutely
convinced that was not the most sensible transition period, and
that had we been able to have 100% historic payment in the first
year, some of the difficulties which subsequently ended up on
my desk and Willy's would not have occurred.
Q746 Lynne Jones: Since you knew
you could not have 100%, or you were advised that you could not
have 100%—certainly I have raised that in Committee meetings
and we have been told that—would it not have been better
to have deferred it for a year?
Lord Whitty: With hindsight, I
think it might have been, but all the advice, all the pressure,
was to get into the system as rapidly as possible. We had committed
ourselves, as leaders of the reform, to taking the lead to take
it in. There had been Government statements to that effect. The
Commission were expecting us to do that. The industry actually
were urging us to get on with it. There were no voices to say
postpone that. I would say it was on the assumption that detailed
decisions would be taken more rapidly in Brussels and in Westminster
than they eventually turned out to be taken, particularly in Brussels.
Nevertheless, there was no pressure at all for postponing the
introduction.
Q747 Lynne Jones: Since you say that
there were pressures through the WTO to have a scheme which you
could be sure would fit in the green box, yet other countries,
and indeed other countries in the EU, opted for the historic approach,
so that really was an artificial pressure you put on yourselves,
because you knew that other countries were going down that route.
Lord Whitty: I think in order
to reach a final deal in the WTO—and of course, that has
all been stymied, in part because of lack of faith in what the
Europeans are doing on agriculture—that eventually they
will have to move away from historic payments. We were at that
stage, of course, expecting the WTO talks to have reached a greater
degree of success than has now proved to be the case.
Q748 Lynne Jones: Because of this
self-imposed leadership role though, were you not rather gung-ho
in going ahead with this complex model when you already realised,
obviously, by advocating the 100% historic in the first year you
were aware of the complexities that this might lead to and the
problems in delivery?
Lord Whitty: We were convinced
that it was sensible to move as rapidly as we could, and the issue
of it being complex, of course, is a result of the details and
of the system. Basically, we were going to move to a payment which
consisted in part of consolidating all the historic payments which
were already in the system into one payment, which should not
have been that difficult, that complex, and in put of identifying
all the land, which was in any case being brought into the system
through the already started or in-train programme to establish
the Rural Land Register and which, given that I was advised that
roughly 9% extra land might come in, was already being set up
to cater for 90% of the land which would go in the system. So
yes, there are complexities about it, but the central part of
the system is not that complex. It is certainly not as complex
as the pre-existing nine systems under which British agriculture
had laboured for many years.
Q749 Chairman: Can I just interject
for a second? With all of this intense analysis which you have
just enunciated, why at the end of the day do you think the estimating
of the number of claims and claimants was so wrong? You had obviously
looked at it, you had thought about the land holdings, you knew
9% more land was coming in, and yet if this was the informant
of the size of the job that the system had to cope with, then
clearly, it was not set up against a proper estimate of the job
it had to do. There was a gross under-estimate. Why do you think
the estimates were so wrong?
Lord Whitty: The estimates were
wrong to the degree that there was a 9% estimate of the extra
land, and it turned out to be slightly more than double that.
Most of that doubling related to bits of land which were owned
by people who were already on the system and who theoretically
should already have told the RPA in the preparations for the Rural
Land Register that they had that land, even though they were not
claiming on it. I think there are reasons why that was an inaccurate
. . .
Q750 Chairman: Did nobody go out
and just take a sample of a dozen farms and say "Here's the
policy. Now, what does it mean on the ground? Have we actually
got it right in terms of our estimate of what was going to happen"?
What you are suggesting is that the whole estimating process of
the volume of work which ultimately had to be visited upon the
RPA was a desktop exercise.
Lord Whitty: It was based on existing
maps, so it was not untested; it was not a finger-in-the-air exercise,
but it did end up with too low a figure. However, I would contend
that the volume argument is not what failed the system. Because
we had made an estimate which came to over 100,000 on our figures,
our estimate—our inadequate estimate, if you like—we
upped the number of claimants which the system was supposed to
deal with to 150,000. It never actually got anywhere near 150,000,
so the system was designed for up to 150,000. The other point
on why the estimates were wrong: I think the effect of the 0.3
hectares was not entirely taken into account and although from
time immemorial, as I think one of the officials said, had been
EU policy, in English terms, the full effect of the number of
potential new claimants had not operated and we did not—and
I never remember this even being raised—decide, as the Germans
did, who were operating more or less the same system, a 100 euro
exclusion. If we had operated a 100 euro exclusion, we would have
got rid of, I think, 13,000 claimants—I would need to double-check
that—which would have brought our estimate much closer to
the one that I was originally given.
Chairman: So that is a blind spot.
Q751 Lynne Jones: Lord Bach, would
you like to comment on the situation? Also, were you aware of
the discussions and the reservations that Lord Whitty had and
his feeling that you should try and go for a 100% historic in
the first year?
Lord Whitty: It had all been overtaken
by then.
Lord Bach: The answer is no, I
was not aware of it, because when I came in we had 280-odd days
until we had to attempt to implement the first payments, so I
was not, I have to say, knowledgeable or particularly concerned
about the background to the decision that had already, of course,
been taken.
Q752 Lynne Jones: When was the decision
taken?
Lord Whitty: The decision was
taken in February 2004. The announcement of the basic decision
was on 12 February 2004 and the area dimension of it was announced
in April, so the seven-year move was announced in February 2004
and the clarification on area definition came two months later.
Q753 Lynne Jones: So it was a fait
accompli when you actually picked up the reins, so to speak?
Lord Bach: Yes.
Q754 Lynne Jones: When you embarked
on the contract with Accenture—that was in 2003—and
you knew that there was going to be this mid-term review, in a
letter you sent, Lord Bach, to the Chairman in March, after you
appeared before the Committee, you said that the view was taken
that the impact of reform would not be significant on the overall
IT solution. Who took that view? It is your letter dated 4 March.
You also said that, because of this awareness at the time of the
original contract, the details were not known, that you deliberately
made the contract flexible. Who took the view that the impact
of reform would not be significant on the overall IT solution?
Lord Bach: What paragraph of the
letter are you looking at?
Q755 Lynne Jones: It is right at
the end, the penultimate paragraph.
Lord Bach: Thank you. I am afraid
all I can say about this is that this was a view, no doubt, the
Department took quite a long time before I took office. It is
probably not a question best directed at me.
Q756 Lynne Jones: I ask this because
the Secretary of State told the House that the reason for the
doubling or the substantial increase in the cost of the IT system
was because it was a big change in the system and therefore that
justifies it. That does not really quite tune in with this view
that there would not be significant changes.
Lord Whitty: When Accenture took
the contract, I was not involved in the contract negotiations.
I was aware of them, obviously. When Accenture first took the
contract, they took it in the knowledge that there was going to
be fairly substantial reform of the system within a year or two
because the negotiations had already started. When the decision
was taken as to the form in which we were going to implement the
discussion, that is to say, at the beginning of 2004, there were
then discussions with Accenture to change the nature of the contract,
which would mean that the revised contract ran from May 2004.
That already took account of and allowed for a significant increase
in the cost. Admittedly, in response to Mr Taylor's question earlier,
it was clear there were greater cost escalations than were anticipated
there. That revised contract in May 2004 took full account of
the nature of the system that we were intending to implement.
Q757 Lynne Jones: So what was the
increase anticipated in 2004 as compared to what the increase
actually was?
Lord Whitty: I think it went up
to £30 something million.
Q758 Lynne Jones: It was £18
million and it went to £30 million on the capital cost, I
think.
Lord Whitty: Yes, but that was
the capital cost. The running costs went up more than that.
Q759 Lynne Jones: Was that anticipated
in May 2004, that level of increase?
Lord Whitty: Not the full level
of increase but part of the discussion . . .
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