Memorandum submitted by the Environment
Agency (DAR 06)
EFFECT OF
BUDGET CUTS
ON THE
ENVIRONMENT AGENCY'S
WORK
Defra has announced cuts in the Environment
Agency's 2006-07 budget of £23.7 million. This represents
a 5% cut in the Agency's expected resource budget for that year.
Defra has stated that £14.9 million of
the total reduction affects the Agency's flood risk management
budget.
1. Could the Agency provide a detailed breakdown
of which programmes and projects are affected by the £23.7
million reduction in its resources budget? Within these programmes
and projects, what specific services have been, or will be, affected,
delayed or stopped altogether? The Committee would like as much
information about this as possible, particularly in relation to
the £14.9 million reduction in the Agency's flood risk management
budget.
The £23.7 million reduction in the Agency's
budget notified by the Secretary of State on 27 July breaks down
as follows:
|
| £ million
|
|
Flood Risk Management (FRM) | 14.9
|
Environmental Protection, recreation, conservation, navigation (EPRCN)
| 8.5 |
Business Resource Efficiency and Waste (BREW) programme
| 0.3 |
Fisheries | 0
|
Total | 23.7
|
|
The Agency's GIA from Defra is allocated within the above
ringfenced funding blocks and therefore the reductions had to
be taken against the relevant blocks. They also had to be delivered
by reducing revenue rather than capital activity, as they all
related to "DEL Resource" budgets.
The July reductions followed upon reductions in our indicative
budget allocations, which were notified by Defra on 13 April,
amounting to £4.4 million (£4.0 million for EPRCN and
£0.4 million for Fisheries). The Agency has therefore had
to make aggregate in year reductions in its operating budgets
of £28.1 million as follows:
|
| £ million
|
|
FRM | 14.9
|
EPRCN | 12.5
|
BREW Programme | 0.3
|
Fisheries | 0.4
|
Total | 28.1
|
|
While this represents 3% of the Agency's total budget, it
falls more heavily on those of our activities which are funded
exclusively by grant-in-aid and which are of a revenue (as opposed
to capital) nature.
The lack of notice has required the Agency to make budget
adjustments which are to an extent tactical and opportunistic.
Successive planning rounds will enable us to develop more sustainable
solutions.
The Agency has advised the Secretary of State of the likely
impacts of the reductions in a letter from the Chairman dated
3 October. A list of likely impacts is reproduced as Annex 1 to
this response.
The reductions need to be seen in the context of the Agency
having each year to meet the costs of pay and price inflation
from its efficiency savings. So the budget reductions are in addition
to a real terms reduction in spending power from our GIA funding
of over £20 million.
2. To what extent will the budget cuts affect the delivery
of the Agency's various programmes and projects? Which programmes
and projects are more at risk than others?
This question is largely answered by Annex 1.
In addition, the Agency Board has made a number of strategic
points about the reductions.
Firstly, the reductions in flood risk management GIA run
counter to the strategic direction of spending review 2004, reinforced
by the messages of the Foresight Report, the adaptation requirements
to climate change, and a recent report by the ABI.
Adaptation measures are required to deal with the implications
of climate change over the coming decades that are already inherent
within the system. The ring fencing of capital and revenue expenditure
is inflexible, as it does not allow us to enhance maintenance
budgets to improve the unsatisfactory condition of a proportion
of defences.
There is a big difference, of course, between expediency
for a single year and a permanent reduction in baseline funding
which would have serious consequences for the standards to which
flood defences can be maintained and would pose an increasing
risk of defence failure. As yet we are not clear about funding
for flood risk management in 2007-08 and beyond.
The cut also falls on environmental protection activities
funded by GIA, which is the only flexible funding the Agency has
to take forward some of the Government's and the Board's strategic
priorities. Annex 2 shows what environmental protection activities
are funded from charges and what from GIA. The impacts of the
reduction in GIA include a substantial reduction in measures to
fight serious flytipping and the illegal disposal of waste in
this country, as well as illegal shipments of waste overseas,
getting the non-regulated into regulation, environmental health
for deprived communities, building joint working with local authorities
and effective public involvement on a regional and local basis.
3. How has the Agency attempted, or how does it intend,
to mitigate the effects of the budget cuts on the various programmes
and projects affected?
The Agency has established a programme of actions under the
banner "More for the Environment, Better, Faster and For
Less". This aims to manage the funding restrictions for 2007-08
and the three following years in as positive a way as possible
in order to make progress with the delivery of the Agency's five
year Corporate Strategy. The programme focuses on improving efficiency
and effectiveness and reducing lower priority actions.
Many of the actions taken to accommodate the in-year budget
reductions for 2006-07 were tactical and opportunistic as in effect
we had only half a year in which to deliver them by more sustainable
solutions in the 2007-08 corporate and business planning round.
Much will depend, however, on the level of GIA received in
2007-08 and the settlement for the three following years arising
from the CSR07 process.
4. How much discretion was the Agency given to determine
which programmes and projects would be affected by the cuts?
Within the ringfenced funding blocks of FRM, EPRCN, Fisheries
and the BREW programme (see response to question 1), and subject
to the focus on DEL Resource ("revenue") activity, the
Agency had discretion to take its own decisions.
In practice, options were limited to the "tactical and
opportunistic" as a result of the in year nature of the cuts
and lack of planning notice.
5. How many job losses are expected within the Agency as
a result of its budget cuts?
We do not expect to make compulsory redundancies as a result
of the 2006-07 budget cuts, but we have put in place tight controls
over staff replacement and recruitment, and we will manage vacancies
as they arise. Through this process we expect manpower numbers
(in terms of full time equivalents) to fall by up to 200 by the
end of the financial year.
However, 2006-07 cannot be viewed in isolation, as similar
or tougher financial restrictions may be expected for 2007-08
and the three following years covered by the comprehensive spending
review. In addition the Agency will have to meet pay and price
inflation. The Agency is therefore looking hard at the likely
financial, manpower and delivery scenarios through its "More
for the Environment, Better, Faster and for Less" programme
referred to in the response to question 3.
EFFECT OF
BUDGET CUTS
ON NGOS
AND SPONSOR
ORGANISATIONS AFFILIATED
WITH THE
AGENCY
6. Which NGOs, and other smaller bodies and companies affiliated
with the Agency, will experience cuts in their respective budgets
owing to the Agency's resource budget cuts, and to what extent?
The Agency is not a grant-giving body, other than under the
Land Drainage Act where it administers capital grant to Internal
Drainage Boards and Local Authorities on behalf of Defra. As "DEL
Capital" is not subject to Defra's in-year funding cuts,
there is no impact in this regard.
The Agency does, however, engage in collaborative work with
other partners particularly at local level. Such engagement is
dependent upon GIA funding from Defra and will therefore be impacted
by the in year budget cuts. While we will endeavour to honour
existing commitments, of necessity there will be a reduction in
new partnership working, relating to biodiversity, recreation,
health promotion, and working with the SME sector. We will also
be unable to commit to co-funding new pump priming projects with
partners.
7. To what extent has the Agency, or Defra, provided advice
to those bodies affected about their situation? What measures
have been taken to assist such bodies in coping with cuts in their
budgets?
As advised in response to question 6, its not a case of cuts
in budgets as such, but of a reduction in the Agency's capacity
for engaging in partnership ventures. Communication around this
is being handled locally and case-specifically by Agency staff
in Areas and Regions.
BUDGET CERTAINTY
FOR 2006-07
In evidence to the Committee on 25 May 2006, Defra's Permanent
Secretary said that the Department had "failed in our aim
to give our delivery agencies enough warning" about the cuts
in the 2006-07 budgets.
8. Was the Agency given enough certainty at an early stage
about the extent of its 2006-07 resource budget cuts? If not,
what impact did this lack of certainty have on the Agency's work
and plans?
See our response to question 9 as regards timeline.
The Agency's budget and business planning process begins
in the summer before the start of the relevant financial year
the following April. It would normally conclude with the Board's
approval of the Operating Budget. Approval of the Agency's 2006-07
Operating Budget was given by the Board at its meeting in February
2006. The overall Agency budget was cascaded down to budget manager
level and incorporated within our financial systems ready for
detailed budget monitoring from April.
The first round of cuts in Defra GIA (£4.4 million)
was notified by the Director General: Environment on 13 April.
The second round of cuts (£23.1 million) was notified by
the Secretary of State on 27 July. This was well after the financial
year had begun and too late to have been incorporated in a considered
way in the Agency's Operating Budget.
The impacts have been covered by earlier questions. The lack
of notice of the cuts restricted the options for handling them
to what was feasible. In some cases this has led to tactical and
opportunistic decisions which will need to be corrected or replaced
by more sustainable solutions in the 2007-08 planning round, depending
on the level of funding allocation from Defra. This will include
restoring service levels for flood defence maintenance, flood
warning, transfrontier waste shipment inspections and working
with partners especially at regional level.
9. Could the Agency provide an approximate timeline to
set out what Defra told the Agency about the extent of its budget
cuts between the first warning that cuts would be made and its
latest position on the budget? What was the impact of these messages
on the Agency, in terms of planning and delivering its 2006-07
work programme?
The key dates for formal notification were:
13 April DG Environment's letter announcing £4.4
million GIA cuts;
27 July Secretary of State's letter announcing £23.7
million GIA cuts.
Each was preceded by informal dialogue and exchanges with
officials to assess possible impacts under different scenarios
of budget reduction.
The dialogue preceding the 13 April announcement was initiated
as early as late November 2005 but did not begin to crystallise
until late March 2006, while the 27 July announcement followed
a scenarios exercise initiated on 13 June.
The Secretary of State's letter dated 27 July also contained
a "health warning" that further cuts might be necessary
later in the year and that consequently no more than 95% of the
reduced budget should be committed. This restriction was formally
lifted on 19 October.
The impact of the messages of course injected uncertainty
into the planning and delivery of our work programme, but we endeavoured
to respond responsibly and positively by putting in place a management
review process to identify options for accommodating budget reductions
while the formalities were played out.
We had originally planned to handle the first round cuts
largely by a process of overprogramming which would have been
managed-down by taking opportunities as the year progressed. The
size of the second round cuts was such as to invalidate this "passive"
approach and required a proactive rebudgeting exercise which was
concluded and received Board approval by mid August.
We considered the 95% restriction impractical as it added
further uncertainty and risked unnecessary conservatism with consequential
under-delivery of performance targets. We therefore welcomed its
formal lifting.
10. Were there any discussions about the causes of the
cuts?
Information on the causes of the cuts has been shared at
official level as well as being given more formally by the Secretary
of State and Ministers. We had sufficient information to understand
the need for corporate support and behaviour by members of the
"Defra family" in order to help Defra work their way
out of their budget difficulties.
BUDGET CERTAINTY
FOR FUTURE
YEARS
11. Has the Agency been told by the Department about the
likelihood of further cuts in its budget in 2007-08, and beyond?
What are the current estimates about the size of the Agency's
budget next year, and beyond?
Both Ministers and officials have warned of likely cuts in
the Agency's budgets for 2007-08, as it is necessary to eliminate
a Defra budget deficit of around £200 million.
The Environment DG's letter dated 13 April advised of a cut
in our EPRCN funding for 2007-08 of £8.2 million (compared
with the £4.0 million "first round" cut for 2006-07).
We have responded to a "scenarios enquiry" from
Defra officials which asked us to advise of the impacts of additional
cuts of 10% in DEL Resource budgets for each of our main funding
blocks of EPRCN, FRM and Fisheries. We also presented alternative
scenarios of 5% and 7.5%.
When combined with the cuts notified on 13 April, a 10% reduction
converts into the following budget sums (£ millions):
|
FRM | 25.7
|
|
Fisheries | 1.0
|
EPRCN | 19.6
|
Total | 46.3
|
|
We had originally hoped for confirmation of our funding for
2007-08 by the end of October: Defra's latest commitment is to
deliver this before Christmas.
As regards funding for the years beyond 2007-08, we are being
kept advised of Defra's engagement with Treasury over the Comprehensive
Spending Review 2007 (CSR07). We know that the revised budget
baseline for 2007-08 (once Defra have exacted cuts to balance
their budget) will form the baseline going into CSR07.
We are erring on the side of realism in our own scenario
planning for 2008-09, 2009-10 and 2010-11, as regards both the
level of Defra funding which we might secure and the impact of
pay and price inflation on that funding for the three years, which
cumulatively could reduce purchasing power by over £60 million
for our GIA funded activities. Though the public sector pay bill
is to be held at 2%, we are conscious that we have to compete
in several specialist markets for staff. This was highlighted
by the Committee in the recent report on the Environment Agency,
which stated that it is essential that the Agency employ staff
with the necessary specialist skills to undertake its work.
12. If further cuts are expected in 2007-08 and beyond,
which programmes and projects are likely to be affected? What
would be the impact of further significant cuts to the Agency's
budget next year.
Assuming the cuts are somewhere in the range of the scenarios
set out in our response to question 11, then the programmes and
projects which will be affected are those revenue activities funded
by Defra GIA and will include:
FRM
Recurring and non-recurring maintenance
Flood mapping
Flood forecasting and warning
Strategy development, including catchment flood management
plans and water level management plans
EPRCN
Tackling environmental crime
Pollution incident response
Environmental monitoring
Science programme
Tackling diffuse pollution, including agriculture
Biodiversity action plans
Navigation service standards
Fisheries
Salmon action plans
Salmon monitoring and enforcement
Fish movement audits
We have advised Defra officials of the likely impacts in
our response to their scenarios exercise. These will be increasingly
serious as the percentage of budget reduction increases towards
the 10% level.
We will of course endeavour to mitigate the impacts through
our "More for the Environment, Better, Faster and for Less"
programme, but we will also have to make some hard choices about
priorities. Having earlier knowledge of the cuts will help inform
our 2007-08 planning process.
Environment Agency
November 2006
|