Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Examination of Witnesses (Questions 200 - 219)



  Q200  David Taylor: If you were the chief executive and finance director of a PLC facing the issues we have here and the outcomes, there would have been pressure for you to move on. Has that thought ever crossed your mind in this debacle that we have seen?

  Ms Ghosh: I entirely reject the idea that this is a debacle. As I say, the position would have been no different in terms of where Defra money would have been spent if we had recognised this in January as opposed to in March or April. It is true to say that although there has been a lot of perfectly reasonable criticism from our delivery bodies about the timing of where we have had to ask them for budget reductions, overall the comments that we have had on the impact on the ground, with real customers, is that the impacts have been—with the exception of the comments that your colleague raised about the impact on the voluntary sector—relatively invisible. That is thanks to a lot of hard work by our delivery bodies and a lot of work on the part of the Department in making sure that we work together on the outcomes. The key thing for us going forward is to make sure that we can deliver the priorities that Ministers have set, a sensible set of measurable outcomes within the budgets that we are being given across government.

  Q201  David Taylor: The resource budget you have been given for 06-07 in total is £2.65 billion. The core department is responsible for about £1.4 billion of that, and the cuts imposed are £117 million. The agencies therefore are responsible for £1.25 million, and the cuts imposed on them are £52 million. Those figures, 117 and 52, represent respectively about 8% of the core departments, and about 4% of the agencies, although that includes the RPA on which you have not been able to impose a cut. How have you come up with those figures; the fact that you can ask the core to contribute about twice as much proportionately as the agencies in the 170 million that you were seeking, or thereabouts?

  Mr Grattidge: I think it was just in the nature of the do-ability. It is worth recalling that this exercise was conducted in-year, and of necessity an in-year cuts exercise like this requires a degree of greater opportunism. If cuts can be delivered by particular organisations and can be done with minimal impact on their delivery objectives then those tend to be the ones that would be taken up. In the core department on this occasion there were greater opportunities for savings than there were in a number of the agencies. It is worth recalling that for many executive agencies their principal cost is their people. As Helen made clear earlier, moving people can be, in the year it is done, more expensive than retaining them.

  Q202  David Taylor: I fully accept that in relation to my earlier comment, but let us take the example of the Environment Agency and British Waterways. The Environment Agency is the biggest part of your budget by far—30%—and British Waterways is about 10% of that size. Both of those had been asked at the end of 05-06 for cuts at that point anyway. British Waterways in March 2006 was told that it was going to lose 3.2 million from the 06-07 budget, and then, less than three months later, a further £3.9 million cut. Can you understand the angst and frustration that must affect an organisation like British Waterways, and its capacity to find late savings of that kind, especially when, like you, they have possibly got substantial staffing commitments? They are going to have to find those from capital budgets; and projects that have been pending for a very long time will be axed, projects that had very substantial environmental, social and economic positives for the communities in which those projects were taking place. Can you understand that?

  Ms Ghosh: Yes. This is something we are discussing with British Waterways' colleagues in the context of next year's budget. Of course, the Government grant represents a small proportion of the turnover of British Waterways in terms of their asset base and their commercial activities. We need to get a better handle on the significance of our grant compared with other elements of their financing, and what would be the impact on community activity and heritage activity and economic activity, given the kinds of pressures we have on our budget over the next four years or so.

  Q203  David Taylor: That is not as true as it is of the Environment Agency, which had a £4.4 million cut notified in April, and then within less than three months a further £23.7 million—a £28 million cut, which is about 5% of their overall budget? Your comment about the Government grant does not apply to them.

  Ms Ghosh: No, it does not. Obviously they self-finance some of their activity, but that is mainly around regulation. It is not true of them. We have very close relationships between Ian and the financial directors of the Environment Agency. They have always shown flexibility and support. They have moved spending from one year into another in a way that has been very helpful to us, and their response to this budget adjustment has been very positive, in the sense that they have taken it relatively uncomplainingly. Obviously, we are talking to them about the impact for their own—

  Q204  David Taylor: How did you arrive at this further 5% cut—your phrase, "budget adjustment" on the Environment Agency and British Waterways in July 2006? What led you magically to that figure?

  Ms Ghosh: It was an iterative process. We presented the various delivery bodies with ideas; they came back to us with suggestions; we went to Ministers with information from the delivery bodies on the impact of various levels of cut; and then Ministers reached a view across the piece as to an appropriate amount of budget cut against the originally planned budget for that year that was appropriate for each body. It is true that universally we have had no complaints from the delivery bodies about the consultation and debate that went on in the period running up to the decisions about budgets in July—although, naturally, many of them are not happy with the outcomes.

  Q205  David Taylor: You accept then that the later the notification of budget cuts to delivery bodies, the greater the impact on their non-staffing costs, and in particular capital projects that will have the benefits I described a moment or two ago, which are unchallenged.

  Ms Ghosh: Absolutely, and that is the lesson we are learning for 07/08; but beyond that, thinking ahead to CSR07, we are talking to them in more detail about how we look forward to that period where our budgets overall will continue to be squeezed, and work with them.

  Q206  David Taylor: So you did not focus on the delivery bodies where you felt the public outcry would be the least then?

  Ms Ghosh: Not at all. We were interested in outcomes on the ground.

  Q207  David Taylor: Did some expensive management consultants tell you that, then?

  Ms Ghosh: No, we did not find a single expensive management consultant to help us with that. We talked to the bodies themselves through the network of finance directors. David Miliband met chief executives and chairmen on a number of occasions.

  Mr Grattidge: It is worth stressing that the cuts we have applied here are on current spending; the capital projects should have been largely unaffected by it.

  Q208  Mrs Moon: On page 1 of your memorandum you say that no key projects have been abandoned, but that certain programmes and projects have been delayed. You say this: "We have not heard of any cutback in services."[5] I wrote to the Department in August 2006 about cutbacks in budgets that were at that point circulating, and in particular cuts to Natural England's budget—a letter to which I am still awaiting a reply, despite having sent it to the Department again! I have submitted questions in relation to the budget for English Nature, the contracts entered into by English Nature, by environmental organisations, in 2003-04, 2004-05, 2005-06, broken down by length and value. I was told there would be printed information in the library provided on that. I asked what contracts and service level agreements with environmental organisations Natural England had inherited from English Nature, and the length and value of each contract. I was told that that would be placed in the library. I asked what contracts Natural England had entered into with the environmental organisations since its inception, broken down by length and value of contracts, and I was told there were currently no contracts in place. Finally, I asked what assessment has been made of the effective recent changes to Natural England's budget on its ability to meet its biodiversity conservation obligations. I had a reply basically saying that all parts of the family of Defra were facing pressures. I finally got a document from the library, which stated: "The table at annex A sets out the contracts and other instruments inherited by Natural England from English Nature, or organisations considered to be environmental organisations, including public bodies. In compiling this list it was necessary to make a subjective judgment on which organisations were considered to be environmental in nature for the purpose of this question." I then had a list of start dates on 06 and 07. None of them go back, as requested, to 03-04, and none of them have got extension dates apart from brief ones occasionally. If I give you back this list, can you give me the figures that I have asked for repeatedly in my various questions? Can you tell me why you can say that you have not heard of any cutbacks in services caused by the budget cuts, as stated in the evidence? How can there be no cutbacks when we have got evidence from Butterfly Conservation and Bat Conservation, which talk about cessation of care and maintenance visits to higher level stewardship schemes; negative effect on attitudes to the farming community; uncertainty about grant aid and continuation of projects beyond March 2007; the high risk to continuity and monitoring capacity; the breakdown of collaboration between agency; the breakdown of the joined-up approach to monitoring; the loss of expertise; the loss of skilled staff; NGOs possibly closing; and the loss of volunteer input into the work of Defra? How can you possibly say there are no cutbacks in services, and that you have not heard of this?

  Ms Ghosh: First, I am very happy to take that away and talk to Natural England colleagues about the answers to your questions, as you obviously have not had them. A number of the things you cite about impacts are as much about people's fears of impacts than impacts on the ground. In our note to the Committee we focused on the impacts on the delivery of our PSAs where we feel this level of reduction, a 7% reduction on a very large budget, is very unlikely to have an impact on achieving our targets in relation to, for example, SSSIs or farmland birds, where Natural England has protected that kind of activity. The kinds of things that they have reduced may indeed, as you say, have an impact on some groups, particularly in terms of raising concerns. There is some core research work that they are postponing to 07-08. They are reducing the farm demonstration programme. They are reducing some work in areas of outstanding natural beauty. In relation to some of the work they have been doing, for example the right of access, some of the grant levels have been frozen for this year. Some of the work they were going to do on marine protected areas will be delayed until next year, although we have recently given them some additional funding to cover that. They have chosen to focus their reductions on areas that they felt were least damaging to the key PSA and other outcome deliverables, and I think they have successfully done that. That is not to say there might not be individual organisations that have had both reductions in funding and are concerned about the future. As I said, there is nothing we can do to avoid some of those impacts in a world where our budgets are going to be declining over future years. That is the world we are into, and it is a question of how we adjust and prioritise within that.

  Q209  Chairman: Listening to Madeleine Moon's perfectly respectable parliamentary questions and then seeing the quality of the financial information that was provided in respect of one of them, it does not exactly bear out what you said earlier about the improvements you have made in terms of financial monitoring. Monitoring can only exist if the management systems underpinning the monitoring data are absolutely on top of the job. Here, we have a Member of Parliament asking a perfectly legitimate question, and what she gets is a complete load of unintelligible financial information. How can you have such confidence when the machine fails to deliver with clarity the answers to searching and probing questions? Just to underscore what Madeleine said, on November 25 we had a barge blockade in Birmingham, and Mr Robin Evans, the Chief Executive of British Waterways was quoted on that occasion as saying, "The cuts are a threat to our objectives and will make life very difficult for us." You are getting a lot of feedback about how bad the job is, and you cannot answer a simple question.

  Ms Ghosh: Can I just say that I was talking of course about Defra's own financial systems! Much of that information will come out of Natural England's own systems. Ian has been doing a lot of work with the network of financial and performance report staff within NDPBs, because this is information that comes from an NDPB to improve the level of management reporting. Ian might like to say a little more about that in a moment. Going back to Robin Evans, of course he would say—

  Q210  Chairman: Can we come back to these questions, because the quality of the answers in many cases left an awful lot to be desired, and it is no good passing the buck down the line to somebody else. You are responsible, as a department, for the quality of answers and what goes in them. What has been put before this Member of Parliament is of poor quality. Where is the quality control in what is being given to important written answers?

  Ms Ghosh: I am very happy to investigate that and to come back with, as far as they are available, good written answers to Mrs Moon's questions.

  Q211  Chairman: But it is disappointing, is it not, that we have to raise that in the context of a select committee inquiry, because otherwise all that would have happened on the questions is that they would have had to have been tabled and re-tabled, and letters written, wasting yet more resources in your Department, for what are perfectly legitimate requests for information?

  Ms Ghosh: As I said, I will pursue with Helen Phillips, my opposite number in Natural England, good answers to those questions.

  Q212  Chairman: Yes, but it was your ministers who signed them off!

  Ms Ghosh: I think in reference to material that was put in the library; and they may not have seen that, but I do not want to comment in advance of discovering the facts.

  Q213  Mrs Moon: The only material that was put in the library was in relation to another question, and despite all of the statements that were made that information was going to be put in the library, it was not put in the library, because I have had the library chase this alleged information for some considerable time. You said that a lot of the issues that have been raised by Butterfly Conservation and Bat Conservation were perceived anxieties.

  Ms Ghosh: Yes.

  Q214  Mrs Moon: British Waterways has not listed perceived anxieties; it has provided a list of engineering works that have been postponed and cancelled. They have also made 180 redundancies. These are not "perceived" anxieties; these are actual factual changes as a result of the budget changes.

  Ms Ghosh: You are absolutely right, and what all our bodies have to do is decide what are the least damaging ways in which they can make cuts. British Waterways Board has picked in this year delaying major engineering works. I do not know, because we have deliberately said to the delivery bodies "it is for you to judge the least damaging things to do" the ongoing impact for British Waterways Board's objectives of delaying those particular major engineering works. I know they are supported by many passionate users of the British Waterways Board; but I do not know in the real world what is the outcome of those delays. The British Waterways Board has said the proposal for redundancies does not emerge directly from the late in-year adjustments to their budget; it is something they are doing, projecting forwards to the kinds of staff issues they may have in future years. They are looking forward. It is not the direct outcome of adjustments to budget we made in July last year; this is part of their corporate delivery plan for the future.

  Q215  Sir Peter Soulsby: Precisely because they can, and you have described the plan as being relatively invisible—but take the example of British Waterways. They are projecting, not unreasonably, that the trend of the cuts that are to follow from this year will lead to them losing the equivalent of £50 million over the next five years. That is not unreasonable.

  Ms Ghosh: Unless they use their asset base in a different way.

  Q216  Sir Peter Soulsby: That is not unreasonable. With the prospect of losing £50 million over five years, they seem to be taking prudent action in advance, in sharp contrast to the way in which the Department responded to the looming crisis this time last year.

  Ms Ghosh: We are taking prudent action in advance by setting our budgets for 07-08 against the prospect of the kinds of settlement we are going to get in CSR07. We are also beginning to take prudent action in terms of voluntary early retirement and voluntary early severance schemes, which we have had in this year, and we will be planning for another in the next. Going back to my earlier comments, the issue was one of judgment over a period of two or three months at the beginning this year on the extent to which we wanted to ask delivery bodies to cut programmes that were very strongly supported by some members of the public and indeed by those organisations themselves. The outcome would have been no different; we would simply have said to British Waterways Board, to English Nature earlier in the year, "your budget for next year will be lower". It is a question of timing and planning not a question of what the outcome would have been for those bodies, had we made the decision in January rather than in May or June.

  Q217  David Taylor: We are back to the Environment Agency, I am afraid. David Drew raised the medium-term impact of the reductions that have been made to baseline funding. They have said quite unambiguously that there would be serious consequences for the standards to which flood defences can be maintained, and that they would impose an increasing risk of defence failure. What is your reaction to them—that you must protect those parts of your budget that do not pose risks of that kind and get on with it?

  Ms Ghosh: No, our response to them has been a lot of detailed discussion between Bill Stowe, my DG on that side, and officials in the Environment Agency. We are having equally detailed discussions with them and a wider range of stakeholders, for example the Association of British Insurers, about the prospects for the CSR07 years. The judgment that the Environment Agency has made is that reductions in that area of spend for one year may be able to be coped with; but I can assure you that they are making very strong representations about the level of funding for the future, and that is the debate we are having. To put it in context, their budget in 1997/98 was £163 million, compared with what it is today, so I do not think we can be accused of not putting our money where our mouth is when it comes to spending and supporting the Environment Agency.

  Q218  David Taylor: Well, it is not your money; it is the taxpayers' money; and 07 is an age away and they have had all sorts of new commitments and obligations to meet, so I do not think that is a particularly helpful pair of figures.

  Ms Ghosh: But the spending over the last two or three years has consistently risen.

  Q219  David Taylor: I do have to say that it is classic, pulling figures out of thin air to justify a case, and when you examine them they just wither like snow in the sun. Staying with the Environment Agency, you will understand, especially in the present uncertain climate, that people want to make appropriate decisions for the next financial year and beyond; and the hope for the Environment Agency was that the confirmation of funding for 07-08 would be available by the end of October—and we are now five weeks beyond that. The most recent observation or commitment that Defra made—or aspiration, whatever it is—is that you would be able to deliver this before Christmas. Are you still on target for this?

  Ms Ghosh: Absolutely. We are having final discussions with Ministers about this in the coming week. We had detailed discussions with the Environment Agency about whether or not—and it would be extraordinary—it would be a significant advance on any other year, not only in our Department but I guess most other departments, to give your delivery bodies final settlement in October for April the next year—

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