Examination of Witnesses (Questions 97
- 99)
MONDAY 4 DECEMBER 2006
MS HELEN
GOSH AND
MR IAN
GRATTIDGE
Q97 Chairman: Good afternoon. Can
I welcome the Permanent Secretary, Helen Ghosh, from Defra and
Mr Ian Grattidge, their Director of Finance, Planning and Resources,
to this one-off additional evidence session as part of the Committee's
report into Defra's Departmental Annual Report. Since we started
out on our commentary on the Annual Report Defra announced some
deductions in its expenditure. The Committee decided that we would
like to go into this in a little more detail. Can I just say to
our witnesses at the outset, you have the advantage of expertise
and knowledge on how your accounting procedures work, you will
also be very used to talking in your own shorthand. We have neither,
and it would be extremely helpful if you could avoid the use of
acronyms and, wherever possible, give us some technical explanation
of the terminology that you will be using so that we might understand
with some clarity what it is that you are helpfully going to be
saying to us. From the analysis that we have carried out to date
on looking at the numbers, there seems to have been a swirling
sort of mist of reasons given over time as to why Defra has found
itself short in the 2006-07 financial year of around £200
million. I wonder, by way of initial explanation, whether the
Permanent Secretary could explain to us why so many different
versions of where this £200 million had come from were given
and then why it took a Parliamentary Question from Mr Huhne of
the Liberal Democrats to seemingly get on the record in clear
terms what actually accounted for this £200 million?
Ms Ghosh: Thank you, Chairman.
I think the fact that story is very complicated actually is telling
in itself. One of the messages that we tried to get through in
the note that we provided the Committee with, which I hope you
found helpful, was that managing a budget of a large department
like Defra is actually a complicated thing and, at any one time,
what we are doing is balancing off potential underspends in one
part of the budget against potential overspends another in order
to come in at the end of the year on target, which, to pay tribute
to Ian and his team, in 2005-06 we did within, I think, one million
on a more than three billion budget, which is pretty good. Managing
a budget through a year is a complicated business, and I think
the explanation that we give in the note to the Committee shows
how many of the impacts the budget pressures we were facing in
2005-06 then had an impact into 2006-07. Again, I am not going
to repeat the explanation given in the note on all the various
impacts that produced our increasing recognition, through the
period from February, March into April this year, that the budgets
that we had set across the department were not ones we would be
able to realise within the resource envelope we were likely to
have. There were a number of pressures that had arisen already
from 2005-06, some of them relating to Treasury changes in accounting
rules, some of them a conscious postponement of expenditure. I
think, through February, March, April, at least two things became
clearer to us. First of all, that the problems around the RPA—and
I am just talking about resource budgets here—would require
increases in resources for 2006-07. Secondly, by the time we got
to April, we had a further set of expenditure around avian flu,
and I think both of those factors made us realise that we would
not, as we thought we might have been when we set our budgets
for the year, be able to get through the year on the basis that
we had originally planned. So that is when we in the department
started to re-profile spending, with the support of Ian and the
finance team, so that by the time a new team of ministers came
in, in May, we presented them with some spending options and the
discussions with delivery bodies began.
Q98 Chairman: What was the earliest
time, to go back on what you are saying, that you actually realised
you were starting to run into trouble as a department?
Ms Ghosh: I think we realised
when we set the budget, in January or so of the year, that it
was tight, that in the new world, where our budgeting and forecasting
was much better, where some of the flexibilities that had previously
existed in terms of being able to switch from one spending allocation
to another had been taken away, we knew that spending would be
tight, and were conscious of that in our discussions with ministers
when we originally set the budgets for 2006-07. I think, as I
say, it was really through March and April, as the resource requirements,
though relatively small as a proportion of the whole of RPA, and
then the likely impacts of avian influenza came through, that
we began to realise that we could not continue to budget on the
basis that we were and we put together the proposals for ministers,
as it turned out a new ministerial team, to look at cutting our
coat according to our cloth.
Q99 Chairman: As a department you
had always enjoyed the fruits of being prudent by underspending
and you had always counted on having end-year-flexibility to carry
you through to deal with the kind of contingencies that you have
just described.
Ms Ghosh: Yes.
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