Supplementary memorandum submitted by
the Department for Environment, Food and Rural Affairs
Question 6 (Mr Edward Leigh):
Remaining 2005 Single Payment Scheme claims
The Rural Payments Agency (RPA) confirmed to
the Committee that the Agency aims to make all payments where
the claimant has a valid entitlement by the end of 2006, except
in complex cases where there are issues such as liquidation of
the business or probate to be resolved. Final figures for the
end of 2006 are currently being calculated so this note sets out
the position on outstanding claims from the latest figures as
at close of play on 6 December 2006.
911 claimants have yet to receive any payment,
which include 39 complex cases. 2,184 claimants are awaiting a
"top-up" payment after receiving a partial payment earlier
in 2006.
In addition to the complex cases, the issues
which have thus far prevented payment of the outstanding under
€1,000 claims and over €1,000 claims where a top up
is required are:
— Dual claims where two claimants have
claimed against the same land—which are being progressed
by a dedicated team.
— Commons claims which require a hectarage
to be allocated where a dedicated team are aiming to complete
allocations.
— Where a claim which has been validated
(all tasks and queries resolved) but where entitlements have not
been definitively established. A report has to be produced to
allow critical analysis of each claim and reason for the entitlement
issue.
— System issues where the claim has
failed to batch for authorisation. We are working closely with
our IT partners to resolve these claims. Claims that need to be
re-worked because they have failed authorisation checks. These
claims are being reviewed in order that the entitlement values
are recalculated.
— Claims with registration issues where
the Single Business Identifier (unique claimant registration number)
is not set up correctly, eg the SBI has not been registered for
the Single Payment Scheme (SPS), invalid bank account, or address
details have been provided. RPA's Customer Registration department
is working to resolve these issues
Question 60 (Mr Don Touhig): Rural Payments
Agency personnel issues
No staff who have been granted exit packages
from RPA have been permanently re-engaged or re-employed following
their departure from the Agency. RPA has a specific policy relating
to this, which prohibits the re-engagement or re-employment of
former staff who have left the organisation on early severance
or early retirement terms.
However, as part of the Agency's effort to deliver
SPS 2005, RPA's former Operations Director and two other former
senior Operational managers were brought back for a short period
of fee-paid consultancy work in support of the SPS Task Force,
to draw on their immediate and in-depth knowledge of Regulatory
procedures.
These arrangements began between 10 January
2006 and 21 January 2006 and had ended in all cases by 19 March
2006.
Note: the former RPA employees concerned were:
Hugh MacKinnon: from 10 January 2006 to 19 March
2006;
Bill Duncan: from 19 January 2006 to 17 March
2006;
Berwyn Williams: from 23 January 2006 to 14 February
2006.
Question 102 (Mr Philip Dunne): The decision
to use LIBOR +1%
The decision to use the London Interbank Offered
Rate (LIBOR) +1% as the rate to calculate interest levels for
eligible 2005 SPS claimants who had not received their final claim
value by the regulatory deadline was based on interest levels
paid to similar cases under the former Integrated Administration
and Control System (IACS) regulations.
This precedent was set following a case involving
the late delivery of Arable Area Payment Scheme payments in 1995.
These payments were made under IACS regulations which required
all systems to be in place by 1 January 1996. Because of delays
in making payments, 17% of claims had not been paid by the deadline.
A review of a particular claim (Mr Minter) by the Parliamentary
Commissioner for Administration found that MAFF should pay Mr
Minter interest for the period his payment was delayed. The rate
was set at LIBOR +1%.
LIBOR +1% is now the standard rate used in cases
where it has been decided to pay interest to claimants who have
not received their payment within the regulatory timeframe. It
is also the rate used in England when EU Regulations require Paying
Agencies to recover any overpayments and interest on those overpayments
made to claimants.
Questions 107 (Mr Philip Dunne) and 154 (Mr Richard
Bacon): Tax implications of Single Payment Scheme
Individual farmers are taxed in the same way
as other traders. The recognition of the SPS is determined by
the Statement of Standard Accounting Practice 4. The standard
makes it clear that there should not be any recognition until
the conditions attaching to it have been satisfied. In practice
this means that SPS payments due during 2005 may become subject
to income tax as part of the profits of a farmer's trade included
in his accounts for a period of account ending in the 2005-06
or the 2006-07 tax year.
For those that account in 2005-06, the first
income tax payment to reflect any SPS payments will be the final
instalment of income tax payable in respect of the 2005-06 tax
year, which is not due until 31 January 2007.
It is unlikely that any farmers will find themselves
in the position of owing tax on a payment they have not received,
but if it does occur, officials in Her Majesty's Revenue and Customs
will take a pragmatic view of individual customer circumstances,
including being flexible and prepared to help.
Questions 177 and 186 (Mr Richard Bacon):
Employment status of Johnston McNeill, former RPA Chief Executive
From 16 March until the termination of Johnston
McNeill's employment on 1 December 2006, Mr McNeill was on gardening
leave whilst the problems in the RPA were fully examined and reported
on by the National Audit Office and Office of Government Commerce.
During that period, he was paid a basic salary amounting to £80,644.
His employment was terminated in accordance
with his contractual entitlement which is six months pay in lieu
of notice (£56,925) and he is able, if he wishes, to draw
the pension he has accrued but actuarially reduced to take into
account the longer period over which it is paid.
The actuarially reduced pension amounts to approximately
£12,413 per annum plus a lump sum of approximately £42,815.
An update on these figures is awaited from the Pensions Agency
now that the last day of employment has been confirmed. These
pension payments have not been enhanced in any way. There has
not been any negotiation with Mr McNeill over the termination
of his employment and no severance payment has been made.
The total value of bonus payments made to Mr
McNeill over the four years from 2001-02 to 2004-05 is £62,398.
He has not been paid any bonus in respect of 2005-06. Johnston
McNeill's employer NI contributions between 16 March and 1 December
2006, was £9420.92.
We did not include a spreadsheet breaking down
payments made to Johnston McNeill after his suspension (as Mr
Bacon requested after the hearing) as we felt presenting the pay
and pension received by Mr McNeill in this format was inaccurate,
as Civil Servants are not paid a daily rate, and the spreadsheet
did not capture the separate pension payments Mr McNeill was entitled
to as a contributor to the Civil Service Pension Scheme.
We felt that the clearest way to present the
information to the Committee was the prose section.
TIMELINE
14 March
Rural Payment
Agency advice to the Secretary of State was that there was no
possible scenario by which the bulk of payments to farmers would
be made by end March 2006. Prior to 14 March, RPA's firm advice
had been that the bulk of the payments would be made by the end
of March.
14 March
Permanent Secretary,
Helen Ghosh, recommended and SofS agreed that Johnston McNeill
be removed from his post.
15 March
Johnston McNeill
called in—interview with Helen Ghosh, Francesca Okosi (HR
Director). Advised Johnston McNeill was being asked to step down
and go on gardening leave with immediate effect.
Weekly contact between HR Director and JM by
phone from this point on.
16 March
The Secretary
of State spoke to Peter Ainsworth, James Paice and Chris Huhne
to say she agreed with Helen Ghosh's recommendation that Johnston
McNeill should be removed from his post as Chief Executive of
the RPA.
20 April
Estimate received
from Pensions Agency on Flexible Early Retirement only and passed
to HR Director.
11 May
Defra HR asks for
estimates for other pensions options.
1 June
Further estimates
received by Defra HR for all retirement options.
Johnston McNeill currently unwell, and is admitted
to hospital. Periods of illness continue through summer, and into
October.
18 July
Corven Corporate
Finance Ltd produced summary report for Defra on RPA.
17 October
HMT confirms
no need for approval from HMT for Actuarially Reduced pension.
18 October
NAO Report on
RPA published.
19 October
Francesca Okosi
writes to Johnston McNeill setting out terms of Actuarially reduced
pension. Discussions continued between Francesca Okosi and Johnston
McNeill's FDA representative.
27 October
Johnston McNeill
signed off sick, requests meeting with Francesca Okosi and FDA
representative.
November
Discussion between
Defra HR and Johnston McNeill and his representatives.
1 December
Helen Ghosh
sent letter of termination of employment to Johnston McNeill to
take immediate effect with contractual 6 months pay in lieu of
notice and an actuarially reduced pension.
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