Examination of Witnesses (Questions 40
- 59)
WEDNESDAY 19 JULY 2006
MS HELEN
GHOSH AND
MR IAN
GRATTIDGE
Q40 Chairman: I have to say bluntly
to you, you have made very heavy weather of providing this Committee
with the documentation which you promised us, and I gather that
there is a hope that by the end of this week, in the ever-receding
target that it is going to arrive, it will arrive. Why has it
taken you so long to pull together the information which you clearly
assured us we were going to have when we took evidence from you
in our RPA inquiry?
Ms Ghosh: To be completely frank,
because the kinds of promises I made at that meeting are ones
which I have had subsequently to negotiate with other parts of
government, particularly, for example, around the OGC Gateway
Reviews, I think these negotiations have now reached a conclusion
and we will be able to give you the material that we promised,
though I know we are in discussion with the Clerk about the sort
of terms under which we do so. So, humble apologies. My instinct
is openness. Sometimes I should know better.
Q41 Chairman: In the spirit of Glasnost,
which still pervades, are you going to be able to give us some
assurance that the one final piece of the evidential jigsaw puzzle
will be made available to us, because the Committee are extremely
grateful for Lords Whitty and Bach, who have very kindly agreed
to come and give the benefit of their perspective, and we thought
that the evidence that we had from Mark Addison was of a very
high quality and very clear, but you will be unsurprised if I
mention the name Johnston McNeill, because he is still the person
who does know the most about what happened and is still proving
to be the least accessible. Can you tell us what status Mr McNeill
presently has, as far as Defra is concerned, and are the Committee
going to be allowed to have him as a witness?
Ms Ghosh: Johnston McNeill continues
to be on gardening leave and is in negotiation with my HR team
about the terms of his departure or next role. We have had, as
you know, Chairman, some discussion with the Clerk to the Committee
about the invitation to him and we will take things forward on
that basis.
Q42 Chairman: Are you able to give
us some indication as to timetable: because whilst we have extended
the timetable of our inquiry to take advantage of the two former
minister's evidence, we cannot have an open-ended inquiry and
we are trying to be balanced, fair and accurate in what we report
on?
Ms Ghosh: Yes.
Q43 Chairman: If one takes Mr Addison's
evidence, then clearly there are many ingredients from his perspective
that have influenced the events of the past and therefore, if
we are going to be fair to everybody, Mr McNeill's contribution
would be of considerable value.
Ms Ghosh: Yes. I think part of
my answer to that question is one that I would not want to give
in open committee, given that it raises personal issues about
the individual involved. I would say that, in principle, neither
David Miliband nor I are in any way opposed to the idea of Johnston
McNeill appearing before this Committee.
Q44 Chairman: That is helpful. I
think you understand the imperative in the timetable that we have
to deal with.
Ms Ghosh: I do.
Q45 Chairman: Perhaps we might move
on to questions of efficiency savings. You decided that £610
million was going to be your department's efficiency target. How
did you decide that 610 was the right number and what proportion
does it represent of your department's expenditure?
Ms Ghosh: I was not around at
the time and I will hand over to Ian. I am sure, as always, this
was the nature of the debate between ourselves and Her Majesty's
Treasury and the Office of the Government Commerce as to what
was an appropriate figure. Again, the issue of what proportion
it is of our spending is more complex than at first appears because
there are parts of our spending that are susceptible to this kind
of efficiency activity and parts that are not. So, you cannot
simply see it, for example, as a proportion of 3.9 billion, which
appears to be our spend, but I will hand over to Ian about how
we reached that figure and what figure would we compare it with
in terms of our spend on which we could focus.
Mr Grattidge: Very simply, the
process of arriving at an efficiency target, as Helen suggested,
took place over the 2004 Spending Review, and I think it is probably
fair to say it was a mixture of top down, bottom up in the way
it was arrived at. In terms of top down, the Treasury set some
fairly clear signals about the level of efficiency they were expecting
departments to make, and, very broadly, the Chancellor announced,
I think, levels of about 2½% per annum of which half would
be cash releasing, either to be reinvested in new activity within
department on front-line services, and half of which could be
recycled in the way of productivity gains. It would not release
cash but it would help improve productivity. Defra's approach
to the efficiency programme was to review the portfolio of change
activity or business improvement which could deliver efficiency,
and that was the bottom up bit of the process. We were able by
the end of the SRO formal negotiation to identify about 9% of
our spending, which by the end of the third year would be delivered
in the form of improved efficiency. That is the main core departmental
spending. Within the 600 million, which we are scheduled to deliver
by the end of 2007-08, we also have responsibility for overseeing
improvements in the cost of waste collection by councils, waste
management, and there the position is slightly different because
we do not actually have direct control of the budgets that local
councils have, but we do have a policy responsibility for improving
and meeting current targets on waste around landfill and around
recycling.
Q46 Chairman: Let me stop you at
that point for a point of clarification. How are you accounting
for the local authority input to your target?
Mr Grattidge: We rely entirely,
having been through the process with DCLG and OGC, on material
that local councils themselves produce, which report half-yearly
how they think they are going against meeting their waste targets.
We have worked with the OGC and with a number of colleagues in
these intermediary bodies, these centres of excellence, to produce
a reporting tool kit which actually factors in all the various
costs.
Q47 Chairman: Help me to understand
the mechanics. You are giving a very clear explanation but, if
local authorities are going to carry out their waste functions
more efficiently, that means in a financial year, either 2006-07
or 2007-08, they are going to have less money than in the period
when you established your efficiency programme. Either that or
they are going to hand back to the centre money which they do
not need, or they are going to deploy some money which they have
been given as part of their block grant for other purposes. I
am anxious to know how the centre can recoup the £135 billion
target, which is the 2005-06 local authority target, how you get
your money back. Either it has not been given out or you are going
to get a divvy and it is coming back. How is it done?
Mr Grattidge: It is done through
the plans that are prepared by local authority chief executives,
some of which will be definitely targeted towards waste and some
of which will not, and it is very much down to how the local authority
chief executive decides he wants to tackle improved efficiency:
because each authority, as I understand it, has a target, but
they are given some discretion as to how they deliver it.
Q48 Chairman: Tell me about the money
bit of it.
Mr Grattidge: The money for environmental
services comes through the block grant, and there are assumptions
in the block grant settlement about the level of spending that
local authorities will have. It will take account of improved
efficiency, but it also takes account of issues like increased
waste arisings and the underlying pressures that councils will
face both in terms of increases in volume and also of the need
to divert waste away from landfill into other areas.
Q49 Chairman: Just to be very specific,
if I were to get somebody (your equivalent) out of the Communities
and Local Government Department and say, "Have you now got
sight of £135 million which you thought you were going to
spend but you have kept it back and local authorities have not
got it? We have actually captured this saving for the centre and,
therefore, we can credit that to Defra", would they be able
to show me how they had accounted for that?
Mr Grattidge: Yes, because each
local authority reports twice a year to DCLG and we get to see
that information as well.
Q50 Chairman: I am sorry to labour
the point, but I want to know if this is a real saving. If you
were going to have 135 million as a saving, it was either, "Mr
Local Authority, you were going to get £100 for this thing
but your share is a fiver, so you are only going to get 95. So,
we are taking the saving before you have made it. How you make
it is up to you." Or you say to them, "As you can demonstrate
the saving, we will claw it back", or, "We will let
you spend the saved money on something else we want you to spend
it on and we will credit the centre with the saving." I am
not clear how the saving—
Ms Ghosh: Can I suggest there
may be a third option, which Ian hinted at, which is you deal
with a larger volume of waste arisings more efficiently than you
would otherwise have done, and so you may never see money at all.
Q51 Chairman: So it is a productivity
gain?
Mr Grattidge: Some of it will
be productivity, but I think it is actually a mixture of the first
and the third to the extent that the Treasury will have assessed
the extent to which they would have expected local authorities
to improve waste efficiency, and that would have been reflected
in the Spending Review block grant that went out to them. To the
extent that I think local authorities can improve on the assumed
target that the Treasury will have given, then they would be at
liberty to retain that money, recycle it either in improved waste
management or in other services.
Q52 Chairman: So, in absolute cash
terms, it is not actually a saving, it is an increase in productivity
which the Government says is worthwhile having. In other words,
we all work for the same money but we are still spending, in terms
of the block amount, a larger sum than we might have been?
Mr Grattidge: I think in the second
instance where they improve on it, yes, it may well be manifest
in the form of, "Yes, it is an improvement in productivity",
but I think that if you say to somebody, "Normally I would
give you £100 to conduct this service, but because I think
you can be more efficient at it, I am only going to give you 97",
that, in effect, has released the cash to the Treasury and it
allows the Treasury to reinvest that in other services.
Chairman: We will not labour it any more,
but perhaps you might, jointly with the appropriate department,
produce a little note so we can see how this piece of magic is
actually being done and accounted for, because we like to think
that our savings are real.
Q53 Lynne Jones: I hate to go back
to the RPA, but when we saw Johnston McNeill in January he said
that the RPA would meet their saving targets of 39.9 million from
April 2007 as a result of the Change Programme. Is that likely
to happen?
Mr Grattidge: I think at the moment
we think it is likely to happen, but it will be delayed up to
a further 12 months.
Q54 Lynne Jones: So that will affect
your overall departmental efficiency saving?
Mr Grattidge: It will, but in
the way of things, we were aware that there was potentially some
volatility in the RPA Change Programme in particular and we took
early steps to identify contingency that we could use in its place,
and that has been done.
Chairman: I am just going to stop you
there because Peter wants to come in, but we have three minutes
before a vote and I need to know from my colleagues if they are
all going to be able to return to continue our questions. It is
okay; we will continue our examination. As the vote is going to
be timed, and to save time, I am going to suggest that we adjourn
now and go over to the lobby so that we can be there for the vote
and come back as quick as we can, and then Peter will come in.
The Committee suspended from 4.54 pm to
5.18 pm for a division in the House
Q55 Chairman: We were just concluding,
I think, on seeking in writing a little information on the saving
of the waste target, and I think we had drawn that matter to a
satisfactory conclusion. I would like to probe a bit more about
overall savings, because obviously the biggest item of expenditure
on your budget are the staff in your department, and annual reports
sometimes present a picture which, unless you have somebody to
give you a guide as to what it is you are seeing, you can get
the wrong impression.
Ms Ghosh: Yes.
Q56 Chairman: So, let me start off
with what might be a wrong impression. I note that in terms of
total Defra the number of staff that the department employed in
2000-01 was stated in the Annual Report on page 265 as 10,568.
If I look at the estimated figure for the current financial year,
it is 12,806. This does not strike me as a sort of move towards
greater efficiency, when the number of staff seen over a period
of time when there have been changes in the Common Agricultural
Policy enabling staff to be reduced, that your staff numbers seem
to be going in the opposite direction. Why?
Ms Ghosh: There are a number of
complex, as you imply, Chairman, net and gross movements going
on in our staff numbers. The target figure that we have been set
under the efficiency programme, as you know, is 2,400 staff across
the core department and all its agencies, and a large part of
that saving in staff was due to come, I think 1,400 (Ian may correct
me) from the RPA Change Programme. Although they have produced
savings thus far in permanent staff numbers, equally we have had
to put in a large number of casual staff (there are about 500
odd there at the moment), which has to some extent offset those
savings. Equally, we have been recruiting small numbers of staff
elsewhere in the department in the efficiency period to respond
to priorities, notably in the climate change sort of area. This
brings me, I suppose, to the summing-up, and I think it is back
to your very first comments this afternoon, Chairman, about how
does one get a clear picture about whether things are going well
or badly. I did have to, as you probably know, send a message
to staff in Defra a month or so ago to try and clarify where we
were, and my message was a fairly stark one, which was that, as
we were at the moment, we were not doing as well as I would have
hoped in our progress towards our 2,400 saving, for the reason
I have described, and so what we are doing across the department
is introducing a much more, I supposed one would describe it as
Stalinist set of controls about recruitment, about the use of
natural wastage, about use of the "priority movers pool"
as a first pool when there are vacancies in the department. We
are going to have centralised approval of external recruitment.
We will need some external recruitment, because we need to refresh
our pool and get skills in. We are going to have, subject to budget
pressures this year, a voluntary early retirement scheme to restructure.
It is undoubtedly the case that there will be a challenge to us
in meeting 2,400, in particular because of the savings that were
due to come out of the RPA, and we have already had some discussions
with the Office for Government Commerce to say that it may well
be that some of the savings which the RPA are still promising,
but on a slightly different time profile, may well come after
April 2008 rather than before, so we need to start working, as
we are, on contingency. I do not know whether you want to say
anything else about that.
Mr Grattidge: No, except it is
very tight. The 2,400, we will either just squeak in or we will
slip a month or two, but it is around that period that we are
expecting to bring in the staff reduction?
Q57 Chairman: What happens if you
do not meet your efficiency target? Does the Treasury just come
along and say, "Tough, I am going to take the remaining money
out and that is it as far as your budget is concerned"?
Ms Ghosh: Of course, by the time
we get to April 2008 we will be in CSR07 territory, and we will
have been set by then a new set of running costs and spending
profiles. So, in fact, the kind of debate that will be going on
through the coming months as part of the CSR07 process will be
an interesting blend, and Ian and my HR director will be at the
front-line of this and making some estimate of the efficiencies
we are hoping to achieve and no doubt a new set of challenges
for the CSR07 period. So, I think it will be one of those cases
of, if we failed to achieve 2,400, we would simply find them built
into a set of efficiency challenges for the new CSR07 period.
They certainly will not go away.
Mr Grattidge: In terms of financial
savings, you will be pleased to hear the Treasury will credit
departments that over deliver. Therefore, they will be allowed
to store those as part of a target going into the CSR07 period.
Currently we are forecasting on the financial side that we will
be slightly over the target we were set.
Q58 Chairman: Just before we leave
the financial side, because I do not want to keep colleagues unnecessarily
long and we have one or two other important areas to probe, I
notice in the material which you kindly sent in advance of today's
hearing on page two some monies that you are putting to one side,
I presume a contingency, or "provision", it says here,
for various forms of disallowance in the CAP, and you have got
two figures which seem to me to me to suggest that you are sitting
on £187 million as a contingency for disallowance. Would
you like to account for how that money is put together and why?
As it stands, that seems quite a large sum of money, but against
the 1.7 billion I suppose it is a relatively small sum of money.
Mr Grattidge: Absolutely right.
It is actually rather higher at that level than traditionally
we have had to pay in disallowance. There are two components to
this. The first one really arises from the fact that the budgetary
control regime round CAP now forms part of our mainstream departmental
expenditure limit—it was switched from the way we managed
expenditure last year—and we judged that one way of managing
the impact of that on our DEL was to bring together onto a common
reporting basis CAP expenditure, CAP income from the EU and disallowance,
and there is a slight change in the way we have accounted for
this, and what we reflected we would need to do would be to bring
into our 2005-06 figures all the outstanding disallowance from
previous years, because disallowances can actually take two or
three years to be confirmed. So, what we reported for the end
of last year is all outstanding disallowance from previous years
and we have taken a view, because we are on a common reporting
period, what do we think the disallowance will be for SPS2005.
The component roughly splits. It is, I think, about £60 or
£70 million worth of potential disallowance hit from previous
years added to something just over £110 million for SPS2005.
So, that is very roughly how it works.
Ms Ghosh: Can I reinforce the
point that, I think, David Miliband made to you last week, which
is, of course, while we have to make provision for potential disallowance
around the SPS 2005, there are continuing negotiations going on
which we would not want to prejudge by setting any particular
figure with the Commission, and, as Ian said, one does not actually
know the outcome for a number of years to come and we will, of
course, be fighting our corner as hard as we possibly can. We
have to make a prudent provision there, but I would not like the
prophesy to be taken as the reality.
Q59 Sir Peter Soulsby: While we are
on the savings, Chairman, but just more generally, can I go back
to the delivery landscape and ask what approach the department
is taking to the wide range of bodies that are represented there
and their budgets when you are looking at savings and budget cuts?
Ms Ghosh: One thing that is challenging
and striking about the way Defra's financial flows work is that
so much of our money goes out through delivery agencies. Obviously,
the biggest chunk is to the Environment Agency, a significant
chunk to Natural England, within the department also through SVS,
for example. Equally, a very challenging thing about that financial
structure is that in many cases those bodies have had to give
some pretty high level of future commitment. We have got people
who are locked into agri-environment schemes for 10 years, we
have got them going through the ELS[14]
and HLS[15]
process, clearly, in flood management, you have to commit in advance
to get the spend out as you plan. I think, in general terms, we
have very good financial links with the various agencies and we
are absolutely aware of the issues about trying to provide some
kind of certainty, because we recognise that it is extremely difficult
to manage those sorts of budgets without some long-term certainty.
As I think you know and I think you raised with David Miliband
last week, there are some very particular difficulties about this
year's budget where I think we have failed in our aim to give
our delivery agencies enough warning. There were a number of issues
that squeezed our 2005-06 budgets, there was the removal of the
end year flexibility we were expecting of 75 million or so, there
was Treasury reclassification within our overall parliamentary
vote of near-cash and non-cash spending, which suddenly gave us
less flexibility. We coped with that by pushing some spending
forward into 2006-07 on the expectation that things would be easier
this year, and we also gave our spending bodies, those two big
bodies in particular, some advanced warning to plan on the basis
that they were spending only 95% or so. As it has turned out and
it has become clear from the beginning of the year, we were probably
at that point over-optimistic, for which I know we would like
to apologise, and we will be discussing with the delivery bodies
concerned, both at official level and at ministerial level, the
implications of that. We are very keen to give them early certainty.
The issue is not that we would have been able to give them allocations
of more money had we done so earlier in the year, but we could
have given them greater certainty. Looking back on it now, had
we been less optimistic—. Mainly it has to be said that
Defra historically has been an underspending department rather
than an overspending department, but I think the increasingly
good financial management that Andrew Burchell and now Ian and
his team do to track exactly what we are spending and also the
fact that the whole spending context has got tighter has meant,
in fact, that we are not an underspending department any more.
I think we came in practically bang on in 2005-06, but the idea
that we went into 2006-07 slightly over programmed reflects a
sort of optimistic, slightly Mr Micawber'ish sort of approach.
So, we are working it through with the agencies, David Miliband
is very clear we need to give them certainty quickly and that
is what we are aiming to do this side of the summer recess.
14 Entry Level Stewardship. Back
15
Higher Level Stewardship. Back
|
