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


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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