Government response
1. We have considered a substantial amount of
evidence about the causes of Defra's £200 million deficit
in 2006-07. This deficit ultimately resulted in action to reduce,
in-year, the 2006-07 budgets of several Defra executive agencies
and Non- Departmental Public Bodies (NDPBs) and disrupt a number
of important environmental programmes and projects. The evidence
suggests that the Department itself has to take much of the blame
for the precarious financial situation it found itself in 2006-07.
We regard this whole episode to be a serious failure in the Department's
financial management. (Paragraph 28)
The Government accepts that the
budget allocations for 2006/07 agreed in January 2006 did not
take full account of all potential financial pressures. Risk was
managed to some extent by instructing key delivery bodies not
to commit more than 90% of their budget until the allocations
were re-confirmed in March 2006. Procedures were also put in place
for intensive financial management throughout the year. The allocations
remained under scrutiny by the Finance team during February and
March 2006. By insisting on corrective action as soon as the new
Ministerial team was in place after the Cabinet reshuffle, the
Government demonstrated decisive financial management, albeit
that it could have been sooner and the disruption reduced. Nevertheless,
whilst it would have been less disruptive to have recalibrated
budgets more quickly, earlier action would not have reduced the
level of budgetary pressure that Defra faced.
Lessons have been learned and changes
put in place. The Government is far more sensitive to potential
risks in setting the 2007/08 budgets and in the approach to the
CSR07 period. Programme allocations for 2007/08 were issued to
policy areas and sponsored bodies in December 2006, as promised.
Since then new pressures have emerged but these will be managed
down within the control totals set by Treasury. The Department
is also strengthening controls already in place and developing
new procedures to ensure that new spending commitments are tightly
aligned to priorities. Defra is maintaining an open dialogue with
sponsored delivery bodies about the overall financial position.
Ministers are being kept fully informed of all significant developments.
The actual out-turn for 2006/07
will be very tight demonstrating that although the action on the
budget was taken later than it should have been, it was well-justified.
2. We acknowledge that some minor factors for
the deficit, such as costs related to the Spring 2006 avian influenza
outbreak, were largely beyond the Department's control. However,
many of the financial problems carried over from 2005-06 occurred
because the Department had made budgeting commitments based on
unsubstantiated assumptions about the generosity of HM Treasury
in a tight fiscal period. We believe the Department was irresponsibly
over-optimistic and complacent in budgeting on the assumption
that, first, it would be allowed its drawdown its full End-Year-Flexibility
(EYF) from the Treasury in 2005-06 and, secondly, that it would
be able to switch £85 million from non-cash to near-cash
that same year. These two factors alone amounted to £110
million of the £200 million deficit. We are not convinced
that the Department explored fully with the Treasury at an early
enough stage the possibility of making these kind of transactions,
particularly bearing in mind the tight financial climate. This
complacency had unplanned-for severe consequences. (Paragraph
29)
The Government does not agree that, when setting
budgets for 2005/06, the assumption that full planned End Year
Flexibility (EYF) drawdown would be available in 2005/06 was irresponsibly
over-optimistic. If planned EYF were not included in the budgets
until the drawdown was absolutely certain, then it would be too
late that year to use that funding for valuable outcomes, as the
normal drawdown point is the Spring Supplementary Estimate towards
year-end. The EYF stock would then simply roll forward as an underspend
from year-to-year, and not be available to help manage spending
pressures or promote priority policies. There would be no incentive
for departments to plan an underspend in one year to fund additional,
better value expenditure in the following year, consistent with
the objectives of resource accounting and the nature of long-term
programmes. This particular EYF entitlement resulted from a planned
underspend in 2004/05 specifically to fund additional better value
programme expenditure in 2005/06.
In following Treasury's guidance when completing
the return for the Provisional Out-turn White Paper during June
2005, there was no indication that the EYF drawdown would be restricted.
Only after we had submitted the resulting EYF entitlement claim
in July 2005 were we informed (in common with all Government Departments)
that the permitted drawdown should be zero unless a compelling
case was made to the Chief Secretary to the Treasury (CST). A
combination of new budgetary pressures and restrictions on EYF
drawdown meant we faced a £140m deficit in the resource budget
and £27m in the capital budget for 2005/06.
The then Finance Director agreed with the then Secretary
of State that we should seek to make a compelling case for Defra
to the CST. After extensive negotiations, the CST agreed on 23rd
November 2005 to an EYF drawdown of £65m resource and £27m
capital, by which time we had addressed the remaining shortfall
with a package of restraining measures and expenditure deferrals
agreed across Defra and its sponsored bodies. This successful
negotiation reduced, but did not eliminate, the upheaval to budgets
we encountered in 2005/06 and, as a consequence, costs were carried
over into 2006/07.
The Department did not expect to be able to switch
the full £85m from non-cash to near-cash resource in 2005/06.
The Spending Review 2004 settlement letter stated that such flexibility
was only available within the context of the fiscal rules and
having worked through the EYF negotiations the Government was
well aware of the tightness of the fiscal position. Defra was
not complacent. The Department assessed the risk and concluded
that the pressure on near-cash resource could be managed in-year.
Treasury's budgeting guidance, available in draft form from August
2005 and finalised in December 2005, set out in more detail the
switching rules and therefore in November and December 2005 the
Department had discussions with the Treasury (at the same time
as other Government departments) to see what could be achieved
for Defra. These discussions secured a £20m switch to near-cash
resource for each of 2005/06, 2006/07 and 2007/08. The remaining
£65m in 2005/06 was successfully managed out across the rest
of the year because the out-turn was a £1m underspend.
3. We are particularly unimpressed with the Department's
explanation of how the Treasury "re-classification"
of near-cash and non-cash spending impacted on its budget. Our
evidence shows that no good reason existed for the Department
to assume it could make a transfer of £85 million non-cash
into near-cash, and to make budgetary commitments based on this
assumption. The Department had never made such a large transfer
before. No Treasury guidance existed permitting it to do so. This
financial pressure was therefore caused more by the Department's
self deception, as well as its misguided assumptions about Treasury
rules. To blame the Treasury was on this occasion incorrect. The
result was a sudden, unplanned, poorly explained and highly disruptive
mid-year restriction on budgets. Defra's agencies and NDPBs—as
well as voluntary groups reliant on Defra funding—found
themselves with wholly unanticipated financial problems as a result.
In its response, the Department should tell us when Ministers
were informed by officials about the rule changes and their financial
consequences. (Paragraph 30)
The Department did not assume that an £85m transfer
could be made from non-cash to near-cash for 2006/07. Moreover,
since 2005/06 was the first year that the distinction between
near-cash and non-cash resource was formalised no transfers would
have been needed for earlier years. The detailed Treasury rules
brought in for 2005/06 onwards did provide for the possibility
of large transfers (in excess of £20m) provided they were
affordable fiscally and complied with the guidance. Defra had
already secured a £20m transfer under these rules for 2005/06,
2006/07 and 2007/08 and had by then a thorough understanding of
the Treasury rules and the overall fiscal position. The Department
knew the likelihood of further transfers was very remote so the
remaining £65m was being carried as a pressure to be managed
in-year, as it had been in 2005/06. As the position became clearer,
the Department decided that the full scale of the pressures had
to be dealt with as a specific exercise rather than leave all
or some of it to in-year management.
Ministers were advised of the impact of this tighter
financial regime in May 2006 when the budget review exercise was
launched.
4. We also remain doubtful whether the £23
million figure that Defra says the Rural Payments Agency (RPA)
contributed to its budget deficit tells the full story. In its
response to this report, the Department should state how much
the RPA was within or over budget on a monthly basis throughout
the financial year 2005-06. The Department must also indicate
what parts of its internal budget were affected during this period
by financial transfers to the RPA, and the consequences of these
financial movements. (Paragraph 31)
The Government can confirm that
RPA was also provided with an additional £23m of capital
budget for 2006/07 at the same time as the additional resource
budget. This funding was available within the overall capital
budget so did not require any separate action.
Compared to the budget allocated at the beginning
of 2005/06, RPA was provided with an additional £19.7m of
resource budget (£18.7m in November 2005 and £1m in
March 2006) to cover the increased running costs of the Common
Agricultural Policy Single Farm Payment Scheme (SPS). The additions
were managed as part of controlling the centrally held pressures,
with no other part of the internal budget being affected. During
the year, RPA's actual spend each month was less than the original
cumulative budget up to October 2005 and then remained less than
the revised cumulative budget for the remaining months, with the
exceptions of December 2005 and March 2006. For December 2005,
the cumulative overspend for the year-to-date was £4.6m,
but this position was recovered by the end of the following month.
For March 2006 the cumulative overspend for the year was £6.7m
on a total running cost budget of £229m (3%) reflecting the
problems on SPS which became apparent in that month. This overspend
was contained within the Department's overall £1m underspend
for the year.
| Analysis of RPA Expenditure Against Budget in 2005-06
|
| Actual Expenditure (cumulative)
| Budget (cumulative) | Variance
(- = overspend)
|
| £m | £m
| £m |
| Jun 05 | 52.2 | 57.0
| 4.8 |
| Jul 05 | 77.7 | 79.0
| 1.3 |
| Aug 05 | 94.4 | 95.8
| 1.4 |
| Sep 05 | 109.8 | 114.5
| 4.7 |
| Oct 05 | 127.4 | 131.5
| 4.1 |
| Nov 05 | 149.6 | 151.8
| 2.2 |
| Dec 05 | 173.6 | 169.0
| -4.6 |
| Jan 06 | 187.7 | 191.2
| 3.5 |
| Feb 06 | 210.3 | 211.7
| 1.4 |
| Mar 06 | 235.7 | 229.0
| -6.7 |
5. Our evidence shows that the chaos and disruption caused
by imposing budget reductions in-year could have been prevented
by the Department. Defra was fully aware by the end of the calendar
year 2005 that it was deferring at least £150 million worth
of costs into 2006-07. Yet, when 2006-07 budgets were set in January
2006, the Department decided not to revise substantially budgets
to take account of these deferred costs. The Permanent Secretary
told us several times that it was a "matter of judgement"
as to whether the Department could absorb these additional costs
within its 2006-07 budget. It is clear to us that this judgement—made
by senior Defra officials and ministers—was seriously flawed.
The Department was over-optimistic to assume it could cope with
the additional deferred costs from 2005-06 and not incur any further
significant unexpected costs in 2006-07. The error of this decision
was exposed within just two months, when the relatively minor
additional costs from the Rural Payments Agency and the Spring
2006 avian influenza outbreak were enough to 'tip the balance'.
Given that neither additional RPA running costs or an avian flu
outbreak in 2006-07 could have been totally unexpected, the decision
not to revise budgets substantially in January 2006 appears even
more inexplicable, and unwisely risky. (Paragraph 44)
The Department was aware by the end of the calendar year 2005
that it was deferring a maximum of £95m worth of costs into
2006/07. Nonetheless, the decision taken in January 2006 to over-allocate
the budget for 2006/07 to such an extent failed to take account
of all potential budgetary risks. This became increasingly apparent
through February and March 2006 as the assessment challenged the
capacity to manage the rising pressure whilst positioning the
Department more realistically for a very tight CSR07. Decisive
action was then taken in conjunction with new Ministers, (the
core Department and the wide-range of delivery bodies), which
meant examining the full extent of Defra's budget.
6. We were taken aback by the Permanent Secretary's acknowledgement
that she might have acted more cautiously in January 2006—when
setting budgets for 2006-07—if she had been aware that much
of Defra's money was spent at the start of the financial year.
This decision had severe repercussions for those bodies affected,
particularly British Waterways which had little choice in-year
but to postpone major works and repairs. The Permanent Secretary
was relatively new to Defra, so the blame for her lack of awareness
must be shouldered by the Finance Director and his team. (Paragraph
45)
The Government accepts that better insights into spending commitments
at a time of budgetary pressure are required and should be built
into the financial management procedures and into the assessments
of budgetary risk. An improved appreciation of the elements of
budget over which there is limited discretionary control is being
developed.
Actual payments to delivery bodies and for other policy programmes
are spread fairly evenly across the year, although within this
profile several programmes are fully committed in the first quarter
of the year. The point made to the Committee was that the department
enters the financial year with a variety of financial commitments.
Some of these commitments necessitate the early release of funds;
others oblige Government to make payments over the course of the
year; whilst others, although not legally or contractually committed
represent clear and agreed undertakings to fund important programmes
of work. The exercise undertaken in May exposed the difficulty
of scaling back expenditure in a number of areas.
7. The Department's communication about the causes of its deficit
has been poor. Ministers should have provided a much more complete
and comprehensive explanation about the budgetary changes instead
of often placing emphasis on avian influenza and Rural Payments
Agency spending and vague references to changes in Treasury accounting
rules. (Paragraph 49)
The Government accepts that the causes of the deficit could have
been communicated sooner and more clearly. As the report acknowledges,
government accounting and budgeting is complex. In addition, this
is compounded by the complexity of Defra's portfolio of programmes.
In seeking to explain the situation in layman's terms, the Department
could have done a better job sooner. Important lessons have been
taken from this. There was no intent to hide behind avian influenza
or issues at the Rural Payments Agency.
8. We acknowledge that many of the issues related to Defra's
budget are complicated and opaque, particularly those related
to various Treasury procedures. However, this complexity does
not excuse Ministers—who took important decisions and approved
much of what occurred in 2005-06 and 2006-07—from blame
for giving confusing explanations. This raises some important
questions about the understanding levels both within Defra, and
outside, about how the Department's budgetary processes operate.
Government accounting is complex, but the Department has a responsibility
to provide good, clear explanations to help lay-people—including
us—to understand these matters. Ministers should also ensure
that they master the complex matters within their brief—especially
those relating to financial issues. The Department should say
what steps it is taking to raise Ministers' understanding in this
area. HM Treasury should also try harder to be more transparent
in the language and rules it uses. (Paragraph 50)
The Government accepts the need to provide good clear explanations
to help lay-people understand the complexities of government finances
in Defra. We have taken a number of steps to raise Ministers'
understanding in this area, for example:
- regular presentations by the Finance Director to Ministerial
Business Meetings;
- direct support to Ministers when they meet with the heads
of sponsored bodies;
- the lead Minister on finance matters is receiving a series
of one-to-one briefings on the budget and estimate processes from
senior financial managers and technical experts. The same briefings
are available to the Committee members, individually or collectively;
- the monthly Management Board Finance Report is copied to the
Ministerial team and the authors made available to provide explanations
and answer any questions;
- all Ministerial submissions with financial implications have
to be approved by the Finance team to ensure that those implications
are clearly explained and put into the context of the Department's
financial position; and
- a summary of 2007/08 budgets was placed on Defra's website
when budgets were decided in December 2006 (this was the first
time that this has happened).
9. We are extremely concerned by the Permanent Secretary's
statement that funding will continue to be extremely tight for
the Department, and its agencies, over the next few years. Although
we recognise that this reflects the financial reality across the
whole of Whitehall in the next few years, it raises the question
that if expenditure on environmental work remains a departmental
priority, what then will happen to other areas of Defra responsibility.
Defra must publish as soon as possible what its spending priorities
will be and how much will have to be met from further efficiency
savings. In the tighter financial environment that is likely,
however, Defra has not helped its case for a good settlement from
HM Treasury for the Comprehensive Spending Review 2007 period
with its poor financial management in the past two years. (Paragraph
53)
The Government's Five Year Strategy for Defra is published on
the Department's website. The Department spent considerable time
during 2006 reviewing and refreshing the Five Year Strategy to
ensure it meets changing needs and is fit for purpose to address
the challenges for the CSR07 period. The refreshed strategy is
supported by eight Departmental Strategic Objectives and these
form the structure for the Government's plans under consideration
for the CSR period. These will be published once CSR07 is settled
later this year.
The Government has accepted that certain elements of the management
of Defra's finances over the last two years could have been better
handled. However, other elements have been successful:
- the Department has dealt with
the unexpected and rapid reclassification of all EU income and
expenditure on the Common Agriculture Policy into the budget;
- the actual out-turns for 2004/05 and 2005/06
contained no surprises compared to budgets and forecasts;
- the systemic underspend for which the Department
had been criticised in the past has been eliminated;
- unqualified audit opinions have been received
on successive resource accounts despite all the complexities;
- the Department has successfully migrated to the
new Treasury financial information system (COINS) which requires
much greater detail on a monthly basis;
- the monthly Management Board Finance report has
been distributed to time and quality for two years;
- the Government successfully
managed the financial consequences of abolishing compensation
paid for cattle under the Over Thirty Months Scheme in January
2006 and its replacement by compensation under a time-limited
Older Cattle Disposal Scheme and new stricter testing regime;
- Defra also successfully managed
to stay within its 2005/06 budget despite not receiving £40m
from the Department of Health as its agreed contribution towards
the continuation of the Over Thirty Months Scheme; and
- the rapid creation of delivery
bodies, including the Marine and Fisheries Agency, Animal Health
(formerly the State Veterinary Service), the Government Decontamination
Service and Natural England: all at no extra cost but with improved
customer focus and greater transparency on spending through business
plans and annual accounts.
10. We are extremely concerned about the changes
in accounting rules whereby the Department will now bear the costs
of EU disallowance directly from 2006-07 onwards. This could have
a serious impact on Defra Departmental Expenditure Limit (DEL)
budgets in the future, in a period when the Department will already
be under increased financial pressure. We recommend that the Department
keep us informed at an early stage, by means of a ministerial
letter, about any future EU disallowance which could potentially
affect Defra's DEL budget. (Paragraph 57)
The Government accepts this. The latest assessment
of the non-cash resource DEL requirement to provide for disallowance
payments was laid before Parliament on 28 February for the Spring
Supplementary Estimate. This was explained further in the Estimates
Memorandum submitted to the Committee on the same date. The potential
near-cash resource DEL impact on 2008/09 budgets onwards is being
considered as part of the Government's CSR07 plans.
11. We are extremely disappointed that the Department
will not meet its efficiency headcount reduction target by the
end of 2007-08, and will most likely miss this target by some
margin. This is yet another example of how the Rural Payments
Agency debacle has had wider negative repercussions across the
whole Department. The Department is more optimistic about meeting
its financial efficiencies target by 2007-08. However, gaining
the remaining financial efficiencies necessary to meet the target
may be more difficult than anticipated because the Department
will be operating in a much tighter spending environment over
the next couple of years. At the same time, the tighter spending
environment only increases the importance of making these efficiency
savings, so that money can be freed up for other purposes within
the Department. We consider it imperative that the Department
does not lose focus in attempting to meet its financial efficiencies
target of £610 million by 2007-08. Failure to achieve both
the financial and headcount efficiency targets would amount to
another major embarrassment for the Department. Defra should now
provide a clear statement as to how these efficiencies will be
made and the timescale to achieve them. (Paragraph 63)
Current forecasts indicate that
the Department will over-deliver on its £610 million financial
efficiency target. The risk-based forecast is that savings of
£673m will be delivered, of which £360m is attributable
to departmental activity (£49m over-delivery) and £313m
to local authority efficiencies on waste management and street
cleansing activity (£14m over-delivery).
The Government shares the disappointment
expressed by the Committee over the difficulties in achieving
planned headcount reductions. The position on headcount has recently
changed as a result of a bilateral between the Secretary of State
and the Chief Secretary to the Treasury. At the efficiency moderation
meeting with the Treasury and Office of Government Commerce in
November 2006, Defra reported that, due to difficulties with the
RPA Change Programme, it would only be able to deliver 1,100 headcount
reductions against the target of 2,400. Since then, the forecast
has risen to 1,200 reductions. The Government is also looking
at further options for workforce reductions before the end of
March 2008. On top of this and in line with its recovery plan,
the Rural Payments Agency will reduce by 600 posts by the end
of the CSR07 period.
The Committee asks for a clear
statement on how these efficiencies will be made and for information
on the timescales. Defra's Efficiency Technical Note (ETN) sets
out the key initiatives that are delivering efficiencies. With
the exception of the RPA Change Programme, information in the
ETN remains valid. In terms of timescales, efficiencies must be
delivered by the end of March 2008. There is no interim deadline.
But the Government is tracking actual and forecast efficiencies.
It's on this basis that Defra expects to over-deliver by approximately
£63m.
12. Defra is responsible for a large number of
delivery bodies. It is of paramount importance that the Department
has the appropriate resources and robust management information
structures in place to monitor effectively all its delivery bodies.
The serious failings in the performance of the Rural Payments
Agency (RPA) in the past year have raised concerns—which
we share—that such systems and structures are not fully
in place. The recent creation of an important new executive non-departmental
public body—Natural England—which will have a crucial
role in the delivery of many of Defra's primary responsibilities,
only adds to our concerns. We will report soon specifically on
the problems experienced by the RPA. (Paragraph 67)
The Government is making a single response to this
and the following (closely related) conclusion. The Government
fully advocates the importance of effective governance and management
of its relationship with its delivery bodies. The Department's
review of its governance of delivery in 2006 confirmed that governance
needs to be fit for purpose, and specifically related to the capacity
of the delivery organisation to manage its delivery challenges
and risks. This means that Defra must balance governance structures
and their operation against risk associated with delivery and
the organisational capacity and capability of the delivery organisation.
Implementing the actions from the governance review is one of
the agreed actions to follow up the Department's Capability Review.
The Department is taking forward these and other actions resulting
from the Capability Review that are designed to enhance the effectiveness
of the department's partnership with its delivery bodies through
the Renew Defra programme. Specific actions include:
- implementing a consistent approach to managing
the performance of delivery bodies that takes account of their
constitutional status, with clear accountability for relevant
Defra senior managers for ownership/management of delivery and
inclusion in personal performance agreements;
- the introduction of a consistent model, again
taking account of constitutional status, for providing specific
flexibilities and freedoms to delivery bodies according to performance,
risk, capability and capacity. As part of this we will develop
with delivery bodies a more robust model for reporting delivery
performance to the Defra Management Board. This will help establish
when a more or less interventionist approach is needed in specific
cases;
- enhanced holding of delivery bodies to account
for performance by Defra Ministers and Management Board, with
the board corporately owning responsibility for delivery effectiveness
and regularly discussing delivery performance; and
- experience of delivery to be necessary for promotion
to the Senior Civil Service within Defra in future, subject to
any necessary transition arrangements, and enhanced interchange
of staff with delivery partners and other external stakeholders.
The Government aims to complete the necessary actions
by March 2008.
We have in place a comprehensive Action Plan for
following up the governance of delivery review (as part of the
detail of the implementation of the Renew Defra programme).
In parallel with this review of governance, the Department
also undertook a review of its advisory non-Departmental Public
Bodies. This concluded that the non-executive body landscape was
broadly fit for purpose, with little appetite for fundamental
reform. There is scope for some reduction in the number of bodies,
and opportunity to strengthen the processes for establishing,
reviewing and monitoring the performance of these bodies. The
Department also identified a number of good practice recommendations,
which will help to improve how the existing non-executive body
landscape operates. (The Government will send the full report,
if the Committee would find that useful). A follow-up action plan
is under development.
13. We are pleased that the Permanent Secretary
acknowledges the need for the Department further to develop its
relationships with its delivery bodies, and we support her view
that the Department should be ready to adopt a more interventionist
approach to its bodies as circumstances require. (Paragraph 68)
The Government welcomes the Committee's acknowledgement
of the possible need for intervention. The previous response outlines
the work in this area.
14. On several occasions in the past we have stressed
the necessity of effective 'joined-up Government' in achieving
Defra's aims, and expressed concerns that Defra lacks sufficient
'clout' to be taken seriously by other Government departments
in framing their key policy decisions. We agree with the Permanent
Secretary that Defra has had some success in influencing some
major decisions at the highest level in recent times, and in working
effectively with other Government departments. However, we are
still concerned that Defra's ability to influence other departments
on a number of issues it considers important—such as bioenergy—remains
limited. We recommend that the Department works to take full ownership
of the decision-making process for those areas for which it has
overall policy responsibility. This is especially relevant for
climate change issues where Government as a whole has still to
put a Cabinet-level minister in overall charge of policy in this
area. (Paragraph 72)
The Government accept this in part. On policy issues
where Defra leads, the normal principles of collective responsibility
apply, and policies are determined following consultation and
discussion with those Ministers who have an interest (and, in
respect of policy areas which have implications for the devolved
administrations, with devolved Ministers). In many cases, policy
on climate change needs to be carefully coordinated with other
policies, including security of energy supply, planning policy,
and so on—and vice versa. The Energy and Environment Committee
has overall responsibility for policy in this area.
Nonetheless, the Government recognises the importance
of a joined-up and consistent approach to international climate
change issues. Defra leads a cross-departmental International
Climate Change Work Programme precisely to address this issue.
The Department also works closely with other Government Departments,
particularly the Foreign Office, DFiD, Treasury and DTI to co-ordinate
activity on climate change. On top of the work Defra leads directly,
this enables the Department to achieve environmental objectives
working with and through the rest of Government. The Prime Minister
set up the Energy and Environment Committee to develop the Government's
energy and environmental policies, to monitor the impact on sustainable
development of the Government's policies, and to consider issues
of climate change, security of supply and affordability of energy.
15. We were also disappointed at the lack of concrete
examples provided in the Report about policy co-ordination across
Government, and the Department's role in this coordination. In
particular, we believe that the Report should include more information
about the important work carried out by the various Cabinet Committees
that deal with areas of Defra's remit. We recommend that future
Departmental Reports provide information about what has been achieved
through these mechanisms. (Paragraph 73)
The Government does not accept this. Defra's Departmental
Report includes numerous examples of policy co-ordination across
Government (and beyond)—notably on climate change, energy,
fuel poverty and air quality—where Defra has taken a clear
lead. The Government also questions the appropriateness of using
the Departmental Report to disclose the workings of cabinet committees.
Nonetheless, the Government accepts the general principle that
the Departmental Report should include good examples of cross-departmental
co-ordination and will work towards that.
16. The Government, and the Department, often
reiterate their commitment to 'sustainable development'. Sustainable
development, however, is a complex concept and is embedded within
a vast range of policies across Government. Although bodies have
been created specifically to monitor and promote sustainable development
across Government, Defra is ultimately responsible for overseeing
this work. From the information available—in the Departmental
Report and elsewhere—it is unclear how successful the Department
has been in carrying out this responsibility. The Department has
also failed to communicate clearly how it takes the lead in ensuring
sustainability is embedded in other Government departments' work.
We recommend that future Departmental Reports include a more coherent
and freestanding 'mini cross-Government sustainability report',
including objective performance measures for both Defra and other
Government departments. The mini-report should comment on the
Sustainable Development Commission's conclusions about Government
departments' Sustainable Development Action Plans. (Paragraph
77)
The Government welcomes the Committee's recognition
that the concept of sustainable development is complex. Sustainable
development needs to be delivered by Government as a whole. Defra's
role is to champion sustainable development at all levels of Government.
This role includes putting in place governance arrangements for
the co-ordination of policy and delivery, for monitoring, scrutiny
and evaluation. It also includes working in partnership with organisations
at national, regional and local level, as well as engaging people.
Although sustainable development is a concept with
many dimensions, and relies as much on the quality of partnership
working and co-ordination, as on the contribution of each individual
player, the Government now has a number of processes by which
overall performance as well as that of individual departments
are made transparent. First, the Government's indicators for sustainable
development are updated and published annually. Secondly, Government
departments publish Sustainable Development Action Plans. And
the Sustainable Development Commission, in its strengthened independent
"watchdog" role, reports on these plans. Finally, the
Sustainable Development Commission reports on Departments' performance
against the sustainable operations targets for the Government
estate.
17. We welcome the Permanent Secretary's candour
that the Department needs to improve the rigour of its approach
to biodiversity and related issues. A broader understanding of
biodiversity and its value, as well as eco systems, can only improve
the formulation and enactment of Government policy in this important
area. We look forward to seeing evidence of such a new approach
soon. (Paragraph 82)
The Government notes the Committee's conclusion.
The aim of the Government's Ecosystems Approach project is to
help deliver the natural environment outcomes more effectively
and more efficiently. The Government is defining an ecosystems
approach in two main ways: (1) managing the natural environment
in a more holistic, 'whole ecosystems' way, and designing policies
and delivery on that basis; (2) communicating more clearly and
reflecting in decision-making the value of the ecosystem services
which a healthy natural environment provides for people. This
work is underpinned by a dedicated programme of research which
includes development of a robust framework for economic valuation
of ecosystem services.
The shift towards a whole ecosystems focus is reflected
in biodiversity policy. The highly fragmented natural ecosystems
typical of much of the United Kingdom will be a major constraint
for the long term viability of many species and habitats. As a
result, broader landscape-scale actions to overcome the fragmentation
of priority habitats and to reduce pressures on biodiversity in
the wider environment through which species move, are reflected
in some of the new targets as published in the revised November
2006 UK Biodiversity Action Plan (UK BAP). This represents a shift
of focus from protection of individual species towards adaptive
management of whole ecosystems. A recent high-level meeting of
key stakeholders to discuss revisions to the UK BAP endorsed this
shift in focus.
18. We believe that several of the Department's
current Public Service Agreement (PSA) targets are inappropriate,
and we have made similar criticisms in the past few years. Many
of the targets are too vague. We recommend that careful consideration
be given to the formulation of new PSA targets for the next Comprehensive
Spending Review period. The new targets should have much clearer
outcomes and performance indicators, and be able to be measured
appropriately. We look forward to receiving draft copies of the
targets for comment. (Paragraph 88)
The Government agrees that it is important to develop
effective new PSAs for the forthcoming Comprehensive Spending
Review (CSR) period and that these have clear outcomes and performance
measures. The department is working up proposals for new PSAs,
which will be agreed with the Treasury as part of the final CSR
settlement. The Government's approach to developing PSAs in this
Spending Round is different from the previous Spending Round in
several ways, notably:
- There will be a much smaller number of PSAs -
around 30 rather than 120;
- PSAs will be cross-cutting, focused on key Government
priorities; and are likely to involve several departments in delivery;
- PSAs will be outcome-focused rather than output-focused;
- Each PSA should be underpinned by one or more
key national performance indicators (up to a maximum of five);
- With regard to measurement, these indicators
should be outcome-focused; specific, use robust data subject to
quality control, and be sufficiently accurate and reliable as
to enable decision-making.
- PSAs will be accompanied by delivery agreements
showing what different departments, delivery bodies and stakeholders
will contribute to delivering the PSA; and
- PSAs will be supported by departmental strategic
objectives. These will cover the full range of a department's
work.
The Government's new approach to setting PSAs was
explained in more detail by the Chief Secretary to the Treasury,
Rt Hon Stephen Timms MP, to the Treasury Committee on 30th
January 2007.
Defra is developing its proposals for new PSAs and
Departmental Strategic Objectives within this new framework. Two
new Defra-led PSAs are under development, one covering climate
change, and the other the natural environment; both with strong
participation of other departments in their delivery. The current
proposed text of these PSAs and the key indicators is attached
at Annex 1. This is still work in progress, and details may well
change; the indicators particularly need further development.
They will need to be agreed as part of the final suite of government-wide
PSAs as part of the final Comprehensive Spending Review settlement,
but they are included here to give the Select Committee an indication
of the way these are developing.
To complement the two PSAs to be led by Defra, there
will also be a suite of Departmental Strategic Objective (DSOs)
which describe the full range of strategic outcomes the department
is looking to deliver. These are similarly still under development
and will be agreed as part of the CSR, but the latest draft is
attached at Annex 2.
19. We commend the Department's report-writers
for incorporating many of our previous recommendations relating
to the presentation of the Report. (Paragraph 89)
The Government welcomes the Committee's findings
and also the specific recommendations in their report on improving
the lay-out of the Departmental Report.
20. We believe the usefulness of the Departmental
Report would be improved if it were set out in a style more like
that used by quoted commercial companies. The Report should focus
much more on the Department's performance in the year in question
instead of continuing simply to re-state Defra policies and core
philosophies. We recommend that future Departmental Reports include
at the beginning of the Report clear information about how the
Department has performed against its stated objectives and key
performance indicators in the past twelve months. More detailed
information relating to Defra's policies and core philosophies
should be relegated to the appendices of the Report. (Paragraph
93)
The Government accepts this in part. Defra's Departmental
Report includes an appendix which summarises progress against
each of the Public Service Agreement targets. The body of the
report brings out the performance against indicators. Many of
Defra's targets have very long lists of indicators, as well as
having many medium to long-term target dates. Expanding on each
of these would only add to the length of the report. The Government
is aware of the complexity of indicators and aims to develop a
far smaller number of indicators for Public Service Agreements
and Departmental Strategic Objectives for the forthcoming Comprehensive
Spending Review period.
21. We recommend that key financial information
be included at the beginning of the Report. More detailed financial
information can be provided in the appendices. (Paragraph 94)
The Government will make every effort to bring out
key financial information in the report. That said, the Departmental
Report is written well before the publication of the resource
accounts. Therefore, it is not possible to publish audited figures
for the financial year in the Departmental Report.
22. The recent changes to the Defra budget highlight
the lack of transparency about how the Department's financial
control mechanisms operate. They also demonstrate that the financial
information provided in the Departmental Report is not helpful
in understanding the reality of the Department's financial situation
at a given time. We recommend that the Department employ quoted
company transparency standards to the way it reports its financial
situation, and that future Departmental Reports provide more commentary
on the Department's overall financial position. (Paragraph 95)
The Government does not entirely accept this recommendation,
as it conflates the purpose of the Departmental Report with that
of the resource accounts. At present, there is a significant gap
in time between the publication of the Departmental Report and
the resource accounts. It is the resource accounts (audited by
the National Audit Office) which set out the overall financial
position. The resource accounts, of course, comply with relevant
accounting and audit standards.
However, the Government accepts that there is a requirement
to publish some information on finances in the Departmental Report.
The Treasury specifies which information is to be published. And
the information that is used is taken from a Treasury system on
a specified date (within the Financial Year covered by the Departmental
Report). Faster closing of accounts and, in due course, the merger
of accounts with the Departmental Report will overcome this and
meet the Committee's wish to see a way of reporting that more
closely meets the standards adopted by listed companies.
23. We recommend that an executive summary be
included at the beginning of the Report, alongside the key performance
and financial data. Its purpose should be to highlight frankly
and clearly areas of success, failure and uncertainty, and major
changes in the Department's objectives in the past twelve months.
(Paragraph 96)
The Government accepts this and plans that Defra
will include an executive summary from the Permanent Secretary
along with an extract from the Department's Balanced Scorecard,
summarising overall performance.
24. The sub-chapter on the Rural Payments Agency
(RPA) in the Departmental Report is of extremely poor quality,
owing to the lack of frankness and detail about the RPA's performance
in the past year. The Departmental Report would have greater weight,
and credibility, if it provided a candid account of the Department's
failings as well as its successes. We welcome the Permanent Secretary's
commitment that a clear explanation of the RPA's problems will
be included in next year's Departmental Report. (Paragraph 100)
The Government accepts this though the extent of
the difficulties in the RPA was not wholly apparent at the time
the Departmental Report was being drafted. The Departmental Report
does, nonetheless, include some indications of the emerging difficulties
over the Single Payment Scheme.
25. This year's Departmental Report is still too
long, despite a welcome reduction in the number of pages since
last year's report. The sheer volume of writing often serves to
hide rather than reveal the Department's key messages and data.
We recommend that future Departmental Reports make greater use
of simple devices in order to prioritise key issues and to signal
these to the reader. For example, a 'key issues' box could be
included at the start of each chapter or section. (Paragraph 102)
The Government accepts this. Defra's Departmental
Report for 2006 was almost a hundred pages shorter than in the
previous year but the Department recognises that the report could
be shorter still. The Government will also make sure that highlights,
key issues and facts on funding are set out in boxes at the start
of each chapter.
26. Long blocks of text are off-putting to readers
and can obscure key information. We believe tighter editorial
control should be employed to sift essential information from
that which can be relegated to appendices or presented in less
detail. More information could also be presented in graphical
and tabular form. We recommend that the Department aim, in the
style and readability of its report, at something which mirrors
a magazine such as 'The Economist'. (Paragraph 103)
The Government accepts this. The Departmental Report
for 2006 included many charts, graphs and tables but the Department
will try to ensure that complex sets of figures are always presented
graphically.
27. The long chapters of the Departmental Report,
such as Chapter 3, contribute to the difficulties experienced
by the reader when attempting to navigate the Report. The Departmental
Report would be more user-friendly if it were split into a greater
number of shorter chapters, each beginning with a clear contents
list. (Paragraph 104)
The Government accepts this. The Defra Departmental
Report for 2007 will avoid long chapters. And the contents page
will direct readers to specific topics within each chapter.
28. Whilst it is sometimes necessary to mention
some key issues more than once, repetition in the Departmental
Report should be kept to a minimum. We recommend that tighter
editing be used to ensure repetition occurs only when absolutely
necessary. (Paragraph 105)
The Government accepts this and, by shortening the
report, aims to reduce the incidence of repetition.
29. Embedding numbers into long blocks of text
makes them difficult to assimilate easily. Numbers are generally
better presented in charts, graphs, tables or bullet-pointed lists.
We recommend that the Departmental Report make more use of these
kinds of devices in order to help the reader identify and understand
key statistics. We also recommend that comparative statistical
data be incorporated in the Report to enable the reader to establish
a clear view about the trends encapsulated by the published numbers.
(Paragraph 107)
The Government accepts this in part. Defra's Departmental
Reports include many charts and graphs. Nonetheless, the Government
recognises that there is scope for improving the presentation
of statistics along the lines of these recommendations.
30. We recommend that cross-referencing in the
Departmental Report be improved by making references more specific,
directing readers to a specific page number. Cross-referencing
would be improved if sections or paragraphs were numbered. The
report would also benefit from an index which differentiates between
passing references and significant data or discussion. (Paragraph
109)
The Government accepts this in part. However, by
shortening the report and improving its structure, the aim is
to reduce as far as possible the need for cross-referencing. The
production of the index is largely automated and there would be
an overhead (in a short production life-cycle) in devoting much
time to the index. Improving the contents page (along the lines
suggested in Recommendation 27 above) and shortening chapters
will also help guide readers to significant blocks of text on
specific topics.
Department for the Environment, Food and Rural Affairs
April 2007
Annex 1
Developing proposals for Defra-led PSAs
Climate change
Leading the global effort to avoid dangerous climate
change by establishing the political conditions necessary to bring
about a step change in global investment in low carbon technologies,
building on initial actions in the UK and EU.
In particular:
- Securing effective and robust global commitments
for the period post-2012, through engagement with our international
partners, consistent with a trajectory to stabilise atmospheric
greenhouse gas concentrations, which will shift economies to a
low carbon basis, including through an efficient and effective
carbon market.
- Adopting and promoting policies which reduce
greenhouse gas emissions, moving to the levels required to achieve
the carbon budgets set for 2008-12, 2013-17 and 2018-22 and to
ensure that the net UK carbon dioxide account, as defined in the
Climate Change Bill, for the year 2050 is at least 60% lower than
the 1990 baseline, demonstrating to other parties the practical,
economic, environmental and social benefits that tackling climate
change in a cost effective way can deliver.
As a complement to our mitigation efforts, develop
a robust approach to domestic adaptation to climate change, shared
across Government, and by encouraging adaptation to climate change
internationally.
Potential indicators -
these will need to reflect targets and measures subsequently agreed
by Parliament under the Climate Change Bill, but measures currently
under development include:
1. Atmospheric greenhouse gas concentrations
and projected global emissions to 2050.
2. Greenhouse gas intensity of global economy.
3. Volumes and value traded on global carbon
market.
4. Total UK greenhouse gas and carbon dioxide
emissions.
5. Greenhouse gas and carbon dioxide intensities
of UK economy.
Natural environment
Secure a healthy natural environment for everyone's
well-being, health and prosperity now and in the future; and reflect
in decision-making the value of the services that it provides.
Potential indicators—currently
under development.
Air Quality—
improving air quality as measured against targets for air pollutants
under the Air Quality Strategy (reflects Defra's current PSA 8).
Biodiversity—data
on bird populations in England as a proxy for health of wider
biodiversity (reflects Defra's current PSA 3).
Water quality—improving
water quality using proxies for 'good status' under the Water
Framework Directive.
Marine— based on
a proxy for the health of the wider marine environment.
Annex 2
Developing proposals for Defra's Departmental
Strategic Objectives
Climate change tackled, internationally; and through
domestic action to reduce greenhouse gas emissions.
A healthy, resilient, productive and diverse natural
environment.
Sustainable patterns of consumption and production.
Economy and society resilient to environmental risk
and adapted to the impacts of climate change.
A thriving farming and food sector, with an improving
environmental impact.
Sustainable Development promoted across government,
across the UK, and internationally.
Strong rural communities.
A respected department delivering efficient and high
quality services and outcomes.
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