Select Committee on Environment, Food and Rural Affairs Second Report



Our report provides an overview of the performance of the Department of Environment, Food and Rural Affairs (Defra), as described in Defra's Departmental 2006. It is the latest in a series of reports by us on an overview of the Department's work based on Defra's annual Departmental Reports.

2006 was a poor year for Defra as it failed to meet its March 2006 deadline to make the bulk of the single farm payments to farmers. This resulted in the removal of the Chief Executive of the Rural Payments Agency and provision being made for disallowance fines from the European Commission. The Department confirmed in 2006 that it would not meet its efficiency savings target to reduce staff posts by 2,400 by 2007-08. The Department also confirmed that continuing difficulties with single farm payments could be anticipated for the next two years. In addition to this, the Department unexpectedly announced in-year reductions to the 2006-07 budgets of several Defra executive agencies, Non-Departmental Public Bodies and affiliated public corporations, such as the Environment Agency and British Waterways. These cuts—which will cause many problems for those bodies affected and delayed a number of important environmental programmes and projects—were made in response to a deficit in Defra's budget of about £200 million. The Department's performance must improve in 2007: with the upcoming Climate Change Bill, this will be an important year for the Department.

We considered a significant amount of evidence about the causes of Defra's £200 million deficit in 2006-07. The Department itself has to take much of the blame for the precarious financial situation it found itself in 2006-07. Some minor factors for the deficit, such as costs related to the Spring 2006 avian influenza outbreak, were largely beyond the Department's control. However, many of the financial problems occurred because the Department had made budgeting commitments based on careless assumptions about the attitude of HM Treasury—especially in respect of the use of unspent budget covered by its End-Year-Flexibility arrangements—in a tight fiscal period.

We also note that the in-year nature of the budget cuts placed those bodies affected under much greater pressure than if the Department had announced cuts before the start of the financial year. The Department could have prevented the disruption by substantially revising 2006-07 budgets when these budgets were set in January 2006. We believe that the Department was over-optimistic in its assumption that it could cope with the financial pressures without early action. We consider this whole episode as evidence of a very regrettable failure in Defra's financial management, and an extremely bad scene-setter for the coming Comprehensive Spending Review 2007 negotiations and the Cabinet Office's Capability Review.

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Prepared 23 February 2007