Examination of Witnesses (Questions 200
- 219)
MONDAY 4 DECEMBER 2006
MS HELEN
GOSH AND
MR IAN
GRATTIDGE
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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