Examination of Witnesses (Questions 180
- 199)
MONDAY 4 DECEMBER 2006
MS HELEN
GOSH AND
MR IAN
GRATTIDGE
Q180 David Lepper: I was coming on
to that, Chairman, yes.
Ms Ghosh: The answer is we do
not have a contingency fund.
Q181 Mr Drew: The Government does.
Ms Ghosh: There would be an issue,
depending on the scale of the outbreak, about drawing on the contingency
fund, but that would be a matter for—
Q182 Mr Drew: It did for foot and
mouth.
Ms Ghosh: Indeed, but then the
scale of foot and mouth and the demands there—it would depend
on the scale and size of the outbreak, whether the Treasury would
expect us to find it from within our existing programmes or not.
Q183 David Lepper: That is another
of the imponderables in a way.
Ms Ghosh: It is.
Q184 David Lepper: There is a point
at which the Treasury would, we hope, assume responsibility.
Ms Ghosh: But that would be a
matter for debate and discussion between our ministers and Treasury
ministers.
Q185 Mrs Moon: Can I ask what the
difference is between an underspend and a contingency fund? It
seems to me that all the way along we have had this contingency
fund running through the history of the management of your budget.
In 2003-04 you had an underspend; in 2004 you knew that there
were going to be changes in rules in year cash; in 2005 we knew
there were end-of-year flexibility changes; and then we are told
that you were waiting for money back from delivery bodies; but
there seems to be money floating around the system all the time,
and yet the 10 million is used as an extra expenditure that you
were not expecting.
Ms Ghosh: Can I go back to the
comments I made at the beginning? We are constantly balancing
the resources that we have against the demands at any one time.
The money that in previous years we had flexibility to carry forward
from year to year enabled us to have a budget which enabled us
to spend a bit more than our baseline. The 10 million described
here is one of the mounting set of pressures that became clear
for 06-07, which tipped us over from that judgment—and I
go back to the point that it was a judgment that we would be able
to live within our resources, our baseline, and the end-year flexibility
that we would in the event be able to draw down. The cost of avian
flu was just one of those marginal costs, alongside the RPA, that
made us realise that actually we will not be able to live within
our 06-07 budget with the level of EYF we are expecting to get;
and therefore we need urgently to consider re-adjusting people's
budgets so that we can cut our coat according to the cloth we
now realise we are going to have.
Q186 Mr Drew: I am sorry to come
in half-way through this game, but this all looks a little bit
academic and as though we are microspecting. I have dealt with
a number of voluntary organisations which literally have contracts
with English Nature in particular, which has no money for a number
of months. You may have touched on this already. We ended up with
the voluntary sector actually undertaking statutory provision
to keep important wildlife sites going because if they had not
done that there would have been foreclosure on those sites effectively;
the contract would have been broken. There is an issue whether
the voluntary sector would want to sue the statutory sector for
breach of contract but they did not do that; they stayed with
it. In terms of these budgetary arrangements do you understand
how difficult that period of time has been? In a sense, because
we have now set a lower boundary in terms of where the money is
likely to wash to, there are some really disillusioned voluntary
sector organisations out there. Although we are dealing at one
level, there is another level at which these cuts have really
bitten hard. What is your response to that?
Ms Ghosh: I entirely understand
the point you make. That is why we need to work very closely with
the delivery bodies to make sure that they have plenty of—
Q187 Mr Drew: They were ringing me
to talk to the voluntary sector to say, "For heaven's sake
try to tell the voluntary sector that there will be some money;
it is just that it may be three months, it may be six months or
it may be a year."
Ms Ghosh: Absolutely. I think
it is the uncertainty element; and certainty is what the delivery
bodies and their agents want, whether the voluntary sector or
otherwise; and that is a lesson that we have learnt very clearly.
As I say, we did give guideline budgets to all the delivery bodies
when it became clear that we were likely to have to reduce their
final budget, so that they had some idea of the envelope in which
they could work; but inevitably, to be on the safe side, we set
those ceilings quite low so that they did not over-commit against
the budget they finally got in July. I quite understand that that
might have impacted on the voluntary sector. What we are aiming
to do this year is to give all our delivery bodies their budgets
before Christmas so that they and the people with whom they work
have a clear basis on which to work.
Q188 Mr Drew: In the case of BW[4],
for example, this is a much lower base level than was previously
the case. In a sense it is a double hit for those organisations
that have been working their own budgets out on the basis of what
BW were at one time expected to have in its budget. Firstly, it
has taken a hit—there is an argument about how much of a
hit and that is a debate that still goes on; but secondly now,
for future spending we are at a much lower level, and that goes
into the—
Ms Ghosh: Absolutely, and that
goes into the comprehensive spending review.
Q189 Mr Drew: In a sense, it is a
triple whammy, all going in the wrong direction.
Ms Ghosh: I think you could describe
what has happened in 06-07, as it were, as a swift adjustment
but on a path which is effectively, as you say, a declining one.
The government has said to almost all departments—and it
will undoubtedly include ours—that the basis on which they
will get money in CSR07 is broadly speaking, for programme spending,
flat cash. Flat cash means absorbing the costs of inflation year
on year. As I mentioned earlier, we will undoubtedly be given
a minus 5, minus 5, minus 5 administration target. The message
for the Department and its delivery bodies is one of the importance
of prioritisation, focusing on things that are really relevant
to outcomes, and making sure that things that you do are the things
that work. That is the message that comes out of this, but, as
you quite rightly say, we have a declining line of spending. We
will not have an increasing line of spending beyond next year.
Q190 Chairman: You are saying that
before Christmas, so in fact within the next two weeks, the people
who spend Defra's money—the Environment Agency, British
Waterways, the State Veterinary Service—
Ms Ghosh: Natural England.
Q191 Chairman: They are all going
to get a letter from your Department telling them what their 2007-08
expectations are.
Ms Ghosh: Yes.
Q192 Chairman: Within the current
spending period, which started in 2004, they would have got, I
presume, some indicative budget at that time, stretching out over
the three years?
Ms Ghosh: Yes.
Q193 Chairman: We are seeing now
that that is already being squeezed.
Ms Ghosh: Indeed.
Q194 Chairman: Do I understand from
the general tenor of your comments that for the 2007-08 year,
irrespective of what the numbers will be they can only expect
a further squeeze?
Ms Ghosh: The Department's budget
overall will continue to be squeezed. If this year's baseline
is 2.466, our baseline for next year is 2.603 for the comparable
resource budget. Ministers are currently finalising their decisions
about priorities across the Department, and will be telling the
delivery bodies before Christmas that that is the envelope within
which they will be distributing.
Q195 Chairman: Whatever the detail
is, the main message is that if it was tight this year it is going
to be tighter next year.
Ms Ghosh: It is no less tight
next year.
Q196 David Taylor: You are quite
proud of the financial acumen in the Department. You have several
times painted a picture of the 05-06 position where you had a
resource and capital budget combined of £3,714 million, and
it turned into an actual of £3,713 million, which you then
say is proof positive of the Permanent Secretary and the Director
of Finance almost on the bridge of the good ship Expenditure as
it nudges it into the budgetary harbour with a wafer to spare!
It is not like that because what you have done—and other
departments are equally culpable—is borrowed from future
years' non-cash expenditure to break even, and you have stored
up problems in years like this year where you are having to make
in-year cuts of £170 million; and part of the reason for
that is the unusual methods that are available to top civil servants
to balance their budgets. It is not that it has been some highly
precise operation with 1 million being the elbow room in a budget
of that size; it is not like that—or is it?
Ms Ghosh: We can only operate
within the rules that Parliament and the Treasury set us, and
that is what we do. That is the thing that Parliament cares about,
so that is indeed—
Q197 David Taylor: Yes, but they
allow you to perform this smoke and mirrors impression, which
suggests somehow that all is right with the financial controls
within the Department, which clearly it was not and is not.
Ms Ghosh: The substantive issue
that you raise is one about setting a set of priorities that deliver
the outcomes that taxpayers want. Actually that is not a game.
Q198 David Taylor: Have they been
asked?
Ms Ghosh: Well, they are asked
through the ballot box on a regular basis.
Q199 David Taylor: Have you asked
British Waterways and people of that kind?
Ms Ghosh: British Waterways Board
has indeed been very vocal in its comments. I think it is sensibly
looking forward. I think the impact on its budget this year—they
have postponed some particular capital works—but I think
they are embarked on a more significant restructuring, which is
what a great deal of the public debate has been about, which is
against a financial future that is tougher; so in that sense they
are being prudent and looking forward to future years rather than
reflecting the impact of the particular level of cuts in this
year.
4 British Waterways Back
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