Examination of Witnesses (Questions 220
- 239)
MONDAY 4 DECEMBER 2006
MS HELEN
GOSH AND
MR IAN
GRATTIDGE
Q220 David Taylor: I am not sure
about that at all. It is not absolutely concrete, but reasonably—
Ms Ghosh: Expectation.
Q221 David Taylor: Yes.
Ms Ghosh: We had this discussion
with the Environment Agency and other delivery bodies, and they
said they would far prefer, and they could do appropriate financial
planning, if we gave them the figure in December than to be only
able to give them a guideline amount in October. Inevitably, in
a guideline amount, if we had given it to them in October, we
would have had to have been very prudent in what we gave them.
If they had seriously had to work upon that, it would force them
to put into action very radical measures to meet a putative budget
for 07-08; they would rather get a certain figure in December,
and that is the basis on which we have worked.
Q222 David Taylor: The DCLG was a
much larger budget being delivered by local authorities, to use
your analogy—they are committing to a three-year budget,
and these ran out just last week, so it is not impossible for
you, with all the resources and all the consultants that you can
call upon to hold your hand and guide you through this process.
Ms Ghosh: As you know, DCLG operates
on the basis which I once worked on, of a very detailed grant
distribution system based on formula, which it discusses with
the LGA and other representative bodies on a regular basis. The
analogy here is quite a different one. We are looking at what
is essentially discretionary spending across a range of very different
delivery bodies, and reaching judgment with them in partnership
on appropriate levels of funding. The analogy with local government
is not direct. What we are aiming to do in the CSRO7 period is
indeed commit to that sort of three-year level of funding, and
that is the parallel debate that we are having with the Environment
Agency and others.
Q223 David Taylor: So you are going
to be able to deliver on this commitment you have just made to
provide 07-08 information to your delivery bodies and to your
core department indeed—
Ms Ghosh: By Christmas.
Q224 David Taylor: Which is 55% of
your budget, by Christmas.
Ms Ghosh: I am.
Q225 David Taylor: And this is the
Christmas to which we are all working—it is not an RPA Christmas—
Ms Ghosh: It is not an RPA Christmas.
Q226 David Taylor: Or as the cricket
season starts or something like that?
Ms Ghosh: It is the Christmas
which is three weeks today.
Q227 David Taylor: So we are certain
of that!
Ms Ghosh: I am certain of that.
Q228 David Taylor: And we can find
you if that does not happen, can we?
Ms Ghosh: Yes, you can. I am not
leaving the country!
Q229 Mr Drew: In terms of the single
farm payment and the possible disallowance, can I be absolutely
clear that the number of 131 million that has been mentioned is
not anything to do with the 200 million cuts?
Ms Ghosh: Absolutely. We will
give some clarification. Absolutely not. In our 05-06 we had to
make provision under two headings. It is not 131 in the figure
that you quote. We made around 150 million provision for disallowance
relating to failure in controls, and weaknesses in the validation.
That had happened before 31 March. There will be a significant
element of that not specifically relating to the SPS this year
but also related to tidying up in previous years. Then we also
made contingent provision for about 63 million of potential disallowance
that had arisen after 31 March. That is why there is a distinction
between the two figures, and that related to fines for late payment
that emerged after June, and for the partial payments that were
made in May. Both of those are simply provision—and Ian
can explain the technicalities—that we make on the basis
of future decisions made by the Commission in negotiation with
ourselves for what that amount might ultimately be; but it has
no impact on our resource budget in year. It is contingent provision,
not something for which we have to find cash provision in the
year in hand.
Q230 Mr Drew: It is not in the 200
million, but you could have to, if the disallowance was imposed,
find that money. Where would you find that money from?
Ms Ghosh: At this point I will
hand over to Ian, who can explain how that will roll out over
the years. As I think we have discussed in this Committee before,
it is likely to take some years to decide what the final level
of disallowances is, so that was prudent provision that we needed
to make for accounting purposes.
Mr Grattidge: You are absolutely
right; if disallowance is confirmed, as opposed to being marked
up, as we did in 05-06 in the accounts, yes, we have to find it
from our departmental expenditure. In the past the Department
has had provision to cover disallowance, but at rather lower rates
than we are currently facing. As part of the transitional arrangements
that were agreed with the Treasury, which took disallowance from
annually managed expenditure in 05-06 into Defra's departmental
expenditure limit, some additional disallowance cover was provided
in 06-07 and 07-08.
Q231 Mr Drew: Can I be clear? If
you were to decide that you were not going to pay any disallowance,
does that mean that you would be able to draw that money back?
Mr Grattidge: It is not our decision
not to pay disallowance, and financial corrections are applied
as a result of the EU—the Commission will apply as a result
of—
Q232 Mr Drew: Could you just do what
other countries do and ignore it?
Ms Ghosh: No, sadly you cannot
ignore it because the way it is claimed back is that they simply
do not give you as much—
Q233 Mr Drew: Do not pay them as
much!
Ms Ghosh: No, we do not get our
money back. We pay Single Payment and other payments under the
Commission schemes on behalf of the Commission, and they give
us the money back. If they are fining us under disallowance schemes
they simply do not give us as much money back; so that is how
they would take the money from us in the end.
Q234 Chairman: The fact is that if
you are moving it from the annual managed expenditure into the
departmental expenditure limit, as you go forward, that will have
an impact on the actual amount of cash or near cash that you can
spend at some point in the future.
Mr Grattidge: It potentially can
do, and it is part of the Department's financial management scheme—how
to take a view on what we believe disallowance paid will be in
any particular financial years.
Q235 Chairman: Has that moved across?
The AME bit was the unpredictable bit that could go up and down;
here, we are moving to a bit that is a bit more predictable in
terms of the Defra budget; so in the future, whatever happens
the actual amount of real pounds you can spend on UK-based programmes
will be affected at points in the future by whatever the number
turns out as disallowance, will it not? You are going to have
to cover the contingency one way or another, because if Brussels
does not give you the money back it is a loss to the Defra budget.
Mr Grattidge: You are absolutely
right; it impacts on the whole of the Defra budget. Our key task
here is to try to quantify what we believe the disallowance payable
will be in any financial year and to make necessary provision
in the budget to cover it. As Helen said, we have assessed what
we think the potential disallowance will be from previous years,
from the Single Payment scheme in 2005, and we have looked across
the whole of the UK in assessing what the figure will be. It is
a very uncertain world. We can make a provision based on what
we think might be payable, which tends to be worst case, and it
is normally negotiated—
Q236 Chairman: From the point of
view of real farmers and other beneficiaries of the Defra budget,
they want clarity on the point at which disallowance starts to
bite on real pounds that can be spent by Defra. The message I
am getting is that disallowances that might occur in relation
to 2005-06 you have already made provision to cover, so there
will not be a real pounds effect there. The year anyway has finished
but there is not anything to be found for that purpose. It sounds
as though you have covered 2006-07, but for 2007-08 there could
be a real pounds effect by an unspecified sum.
Mr Grattidge: We have cover in
the budget to pay up to a certain sum that has been agreed by
the Treasury. I can come back to the Committee with a final figure
on that, but it works out at about 2% of the England SPS.
Q237 Chairman: So if we went above
2%, then that is a real pounds effect.
Mr Grattidge: There is a little
bit of flexibility because if we underspend in one year, then
we can use that underspend in the first year into the second year;
but you are absolutely right, there is a—
Ms Ghosh: This is a very complicated
issue, which Ian has described to me on a number of occasions,
and it is probably worth a note to the Committee. The simple question
you are asking is: will an amount for disallowance, say, in 06-07
be added to the resource pressures that we are currently debating?
The answer is, in 06-07, no. There is a very complicated way in
which ultimately, when we know the disallowance amount, we then
look back to adjust our accounts for 05-06 or 06-07, which does
not simply come out of our resource spending for that year.
David Taylor: It is pretty small beer,
is it not? £131 million is exactly half of 1% of the total
annual budget.
Q238 Chairman: At the end of the
day, it might not come out of your account but it comes out of
the UK Government's account.
Ms Ghosh: In some way. Let us
volunteer a note to you to explain how that happens.
Q239 Chairman: Because if I am sitting
in the Treasury and you guys are making it difficult to get back
all I thought I was going to get back if I were the Chancellor,
I might take a rather dim view of what you have been up to; and
I might take a rather harder view about your future budget because
I knew that I had to find out of my pot the money which effectively
does not come back to us. That is the way it works, is it not?
Ms Ghosh: I think we need to explain
what pot it would come out of and therefore what impact it would
have, whether on the Chancellor or us. As it is quite difficult
to explain, we will come back to it.
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