Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 18 JULY 2007
MS HELEN
GHOSH AND
MR STEPHEN
PARK
Q20 (18.07.07) Mr Drew: So that is
one, and we felt that Defra could have been much more robust in
the way in which it was implementing it. We have produced our
report, and you have seen that and there is a lot of questions
about what the Department is going to do subsequently. The second
one is a report (as yet unpublished) for BW, but I think it is
fair to say from the evidence we have received that it would be
pretty apparent that there is a number of other departments which
stand to gain by the sort of work that Defra has been doing with
the advice of BW, certainly again the DTI with all the opportunities
of development around the canals, and the Culture, Media and Sport
Department has responsibility for some of the cultural aspects,
the museums and some of the other things which come with that,
yet it was apparent that Defra was effectively left to carry the
can for anything that was going wrong and was giving very little
help in the things that might, with some attempted catalyst of
activity, have led to even better outcomes. How do you respond
to those criticisms?
Ms Ghosh: I think we have discussed
this in earlier sessions with the Committee. There are two things.
I think the influence of a department depends crucially on the
hard evidence it brings and I think one of the things we consistently
get very high praise for is our science-base—we had an excellent
Office of Science and Innovation Report on our science recently.
Historically, perhaps less good, but as the Capability Review
said, better and better on economics. So first of all the ways
we become influential as a department is by having cracking good
arguments to put, and I think a very good example of that was
the success—and I do not want this to sound like a competition—which
as a department we had in setting an ambitious benchmark proposal
for our CAP in the next round of EU ETS. We could not have achieved
that kind of agreement across Whitehall if we had not had very
good arguments about competitiveness, the economy, alongside the
environment, so that is one of the things I focus on. Again, we
have sent the Committee some material on this, but the story will
unroll further on this: the new PSA structure will be extremely
helpful because we will have, as you will have seen, a climate
change objective with a vision and a number of subsidiary objectives,
and it will not just be ours. We will not have to sort of knock
on everybody's door. All relevant departments will also be signed
up to that and there is a piece of work going on at the moment—I
think they have restructured Cabinet Committees and I am not sure
whether that is strictly speaking what will happen, but to make
sure there is the right kind of interdepartmental machinery at
ministerial level, which says, "Okay, you guys, you are all
signed up to the climate change target, so Transport, what are
you doing? DBERR, what are you doing? Defra, what are you doing?"
We may still in some areas, for example on the international strategy,
be sort of ringmasters and deliverers, but it will be much more
joined up across Government and I think that is the kind of issue
-
Q21 (18.07.07) Chairman: Can I just
ask you, in that context of Transport being signed up to climate
change, does "signed up" also mean putting their hands
in their collective pot and paying for programmes to help achieve
their share of the climate reduction programme?
Ms Ghosh: Indeed. It might require
putting money in their pocket. You will have seen, for example,
it was they who paid for the rather good advertisements with all
the engines driving around an imaginary city that was "Act
on the CO2." That was put out by the Department of Transport;
that was not our advert. So that was an example, and obviously
they have got stuff to deliver through things like the EU Directives
on car emissions, and we are working very closely with them on
how we bring to life our aim of getting aviation to the next EU
ETS. So it may be them dipping their hands in their pocket, it
may be us working together on policy, it may be them going off
and fighting the European battle on behalf of all of us.
Q22 (18.07.07) Chairman: If you think
they are being a bit tight on their budget, do you ring up the
Permanent Secretary in Transport and say, "We need a bit
more cash from you to make this thing work"?
Ms Ghosh: I think the beauty of
the new proposal is that it will not rely on my doing that bilaterally,
there will actually be a Whitehall machine for all the set of
PSAs. The news today suggested we were about to announce something
about what they were. All the PSAs will have that kind of machinery,
where the ministers will equally be saying to each other, "If
we are all collectively going to achieve our climate change objectives,
then we all have to work together," and it will not just
be Defra knocking on the door, it will be a collective effort,
and that is with all the new PSAs. So I am delivering to a wide
range of PSAs that are not our PSAs as well as to my own. As I
say, I think there are lots of good recent examples of where we
have been much more successful at influencing.
Q23 (18.07.07) Mr Drew: If we are
going to home in on one aspect of this relationship with other
departments and other bodies, that is the use of land and how
(slightly at a tangent, but not much) we are about to launch another
inquiry into waste. It is interesting that although Defra would
be leading on this, so much of your ability to deliver on those
objectives is entirely dependent upon local authorities. I suspect
what we will see, unless things have dramatically changed from
previous inquiries is that the good authorities will be very good
and the weak authorities will be woeful in this area, and yet
Government will be measured collectively on whether it has got
its recycling target up to the level it should be and whether
in fact it is able to divert away from landfill to the extent
to which we have a European and certainly a strong national prerogative
to do so. Again, how do you try and deal with that frustration?
Ms Ghosh: Positively, I would
say, is how we deal with that frustration. Again, there are all
sorts of elements. If you take the example of waste, there are
lots of things we need to do to make it succeed. We need to have
the infrastructure, some of which relates to the planning issues
and then relates back to where one puts things and land. We need
to have the money in the right place, and some of that money comes
from us, as you say, directly to local government, some comes
through the Revenue's support grant settlement and some comes
through PFIs. We need to make sure that local authorities in particular
have the right kinds of incentives. So if you take that case,
just to take the current example, the current challenges set out
in the waste strategy, we have worked very closely with the people
working on the Eddington and Barker planning reviews because of
the implication which is obviously being consulted on at the moment.
Clearly, there are particular issues about energy infrastructure
and airports, and so on, but there is also an issue about waste
infrastructure and we have been working very closely with DCLG
on the appropriate planning regime for waste infrastructure, in
particular some of the developments which are always controversial,
energy from waste plants. We are dealing within our own CSR and
the Treasury on the debate about funding, but equally we are very
closely engaged and Neil Thornton, our director of waste, has
been involved with colleagues this very morning in a meeting on
how waste and local environment quality issues are covered in
the Revenue Support Grant Settlement, because that is a key part
of our delivery, and we are talking to the Treasury and others
about PFI, so we are actually joining it up together. Waste, in
its sustainable consumption and production context, will be one
of our departmental strategic objectives, again all under the
umbrella of our climate change PSA, so there will be Whitehall
machinery to put that through, but we are actually working very
closely with the others.
Q24 (18.07.07) Mr Drew: Let me just
give you one last scenario with regard to land use and the sorts
of dilemmas that you face and see if you can help me resolve the
way you think you can take these answers forward. If we look at
the current, I think understandable, obsession with the need to
provide affordable housing, you are going to be faced by some
quite difficult decisions inasmuch as you have an environmental
protection responsibility, but you also want to see vibrant rural
economies and the only way you are going to get some vibrancy
back is if you have some affordable housing in those communities.
To what extent do you think you can and should be influencing
the other departments which will clearly have a major part to
play, CLG being the lead but again DBERR would no doubt have some
views on how it would need to look at the economic regeneration,
and so on and so forth? How do you take this forward because,
as I say, you are going to be really the meat in the sandwich
because there are going to be those coming to you saying, "You
mustn't ever build here because this is a prime piece of our landscape
which shouldn't ever be in any way threatened by housing,"
to which there will be an equal number of people saying, "If
you don't build here, you won't have anybody left in this part
of the world"?
Ms Ghosh: I think the issue you
raise at the end is a very big issue, which I think we will come
back to over the months and years, which is about how you use
land. There are all sorts of interesting issues. David Miliband
gave a speech to the CPRE not long before he left about how we
think about land and it may be that we have got lots of protection,
but we may have protection in some places on the wrong land which
is less bio diverse and less on the right land. Particularly in
the case of affordable housing—and clearly we are thinking
about this a lot at the moment given the new Prime Minister's
commitment to housing and expansion—we are working very
closely with DCLG and others on land availability. To go back
to British Waterways, again we do have land, and all the departments
are being asked to think about this. We have land, or some of
our delivery bodies have land, which might be suitable, so we
will be looking at the provision of land. I think recent events
on flooding have really focused the minds on issues around not
building in inappropriate places, so I think that will have reinforced
the issue about, "Please don't build this on flood plains,"
and we have got some good evidence there. When it comes to biodiversity
impacts, we are getting, I think, better and better as a department
at thinking not in the fully World Bank worked up version but
the idea of the sort of ecosystems approach. We can increasingly
prove that damaging bio diverse environments in some places actually
has an economic effect, and the more we can develop that idea,
the eco systems approach, the better we will get in that kind
of planning debate. On rural housing, our new ministerial team
is very keen to follow up the Elinor Goodman study on rural housing
and will be looking, whatever the outcome is, at taking forward
Gordon Brown's initiative for a particular place for rural housing,
but as you know the issues there are rather curious ones where
some parts of rural communities really want local housing and
land owners want to give the land to build it, whereas there are
other people living in that same community who do not. So there
is a real political issue there as well as the sort of practical,
how do you get the land assembly and the houses built, but we
have got a group of ministers and Jonathan Shaw is particularly
keen on taking that up with DCLG.
Q25 (18.07.07) Chairman: Right, Mr
Park, your moment to shine comes because we are going to turn
to the question of Defra's accounts. The last time we talked about
Defra's accounting you got something of a belting from us because
you appeared not to have understood the Treasury rules about annual
flexibility and you end up by having mid-year changes to your
plans which affect the Environment Agency, Rural Payments Agency,
British Waterways and no doubt others, so what have you done to
put matters to right? What is different in terms of this financial
year compared with last, in terms of your financial management
techniques?
Ms Ghosh: I did not introduce
Stephen. Of course, he was not the finance director you talked
to last time.
Q26 (18.07.07) Chairman: No, I know
he was not, that is why I am asking. He is the new kid on the
block and we want to know from the new man what he has done compared
with what he inherited. So what is new in financial management
terms?
Mr Park: Let me start by saying
that 2007-08 is another year where we have to manage our finances
quite carefully, as we have in previous years, and it is important
that we get down to the correct running rate for starting the
CSR period.
Q27 (18.07.07) Chairman: What does
"get down to the correct running rate" mean?
Mr Park: That means that although
the CSR settlement is not yet agreed with Treasury, we are expecting
a taut settlement and therefore we need to be sure that we can
provide assurance to the Permanent Secretary and to ministers
that we can live within that taut settlement.
Ms Ghosh: As I think I have said
to the Committee before, there are some elements which effectively
are already public knowledge where we have got some agreement
to increase spending, for example the flood figure for the third
year of the settlement, the £800 million which Hilary announced,
and the kinds of match funding we will be doing on the voluntary
modulation on ERDP are out there, but the rest of the settlement
will be, we are 99.9 per cent sure, what we expect it to be, which
is flat cash for our programme and five per cent declining. That
is what Stephen means by having a tight settlement.
Q28 (18.07.07) Chairman: Mr Park
is right, we have not actually got the CSR bit, but the implication
of what he said is that you are anticipating the kind of flat
cash situation, so I am almost getting the impression that either
you are expecting a bit more of a squeeze this year or you are
putting something in the piggy bank. Which is it?
Mr Park: I think Defra, like all
good departments, needs good, prudent financial management, so
we are making sure that we are living within our means going into
the CSR settlement.
Q29 (18.07.07) Chairman: I am going
to ask another question, but that leads me to an observation about
the way you deal with some of these financial issues in the report
because, for example—and I just pick this at random—page
177, table 2, you have got the departmental expenditure limited
funds and you could point to any one of these tables and you have
got columns of outturn figures but no comparative budget data.
In other words, as an observer looking to see whether you were
living within your means or not, I have no idea. All I know is
how much you have spent. What I do not know is when you started
the financial year what you were anticipating spending and what
you did actually achieve. Where do I get that kind of information
from?
Ms Ghosh: The factual answer to
the question you ask is—and obviously this long predated
Stephen's arrival—as we have discussed before, effectively
you can take it almost as read that Defra was coming in on or
slightly below budget for every year before 2006-07.
Q30 (18.07.07) Chairman: That was
not actually the question I asked. What I was talking about was
where some of the areas of expenditure, which are detailed in
tables 1, 2, 3, through to wherever, in the back of the report
-
Ms Ghosh: How did we jiggle around
-
Q31 (18.07.07) Chairman: No, not
jiggling around. If I look at this as a piece of financial information,
how is Defra doing, I can see up to the close of the financial
year 2005-06 what you actually spent because you publish the outturn
figures. What I do not know is what was the deviation from the
budgetary starting point. In other words, if I am asking whether
a company has done well or badly I would look at the expenditure
budget and then I would look and see what you actually did to
know whether you went up, down, or remained level, and then I
would ask some questions as to what happened if there was a difference
between the budget, because either it could be that the budget
was ill-set or there have been some operational changes, or whatever,
but it gives us a benchmark. What this is missing is that there
is no benchmark, so why?
Ms Ghosh: Exactly. There is no
reason why we should not put it in if you do not mind a more complicated
table. We could perfectly well put in these tables what in some
of these years (although it would not apply to all of them) the
SR O4 assumption would be. For example, effectively for 2007-08
many of these figures are what we are assuming we will spend this
year, and equally you could put against those figures what was
the SR O4 assumption, but as you know events will change.
Q32 (18.07.07) Chairman: The reason
I ask that is because Mr Park made a very interesting statement
at the beginning. He said, "I am going to have to run this
Department very carefully, very tightly, because I know that in
12 months' time I am going to have to run this ship at an even
lower level than I am at the moment, in other words if we are
going for a flat cash settlement." So if I wanted to know
whether you were on track, I need to know where you are starting
from. I need to know what the benchmark is so that when we come,
in 12 months' time, to have this inquisition again I can see whether
Mr Park actually achieved his financial objectives or not.
Ms Ghosh: Yes, and if I can pick
up that theme, for this year in particular the stress on the Department
is, as you will see from the administrative line, "As planned
in the SR O4 predictions, this year in administrative terms sees
a significant downturn in what we were planning to spend on the
administration of the Department." So it falls from 334—in
fact we did not spend 334—to 285 this year, so the process
we are going through in this year is making sure that we have
got budgets allocated for this year which enable us to end up
the year hitting, if not necessarily 285 precisely, a figure which
is affordable within the Department. So when we have done that
exercise we will be very happy to share with you what we are expecting
to come out against those figures.
Q33 (18.07.07) Chairman: Good. I
am just saying that if we are now going to improve yet further
on the transparency that this report affords us we need a bit
of benchmarking to enable us to see what the direction of travel
is and how good your performance is against where we started out
from.
Ms Ghosh: Yes, but before asking
Stephen to talk about how we are trying to get a better handle
I would just like to remind the Committee that events will hit
us. So the fact that we may have ended up shifting the spend between,
say, animal health and climate change, or if we had a bad outbreak
of avian flu, climate change into animal health, it is not a failure,
it is just -
Q34 (18.07.07) Chairman: But that
is no different from a company which has had to provide a lump
sum on the accounts to explain to the shareholders what occurred.
Nobody expects you necessarily to absolutely do what you say you
are going to do, but unless you know where you are starting out
from you cannot tell your story in numbers as to what is happening
and therefore provide an explanation as to why, so internally,
Mr Park, are you devolving budget management down in the system,
and if you are what difference is that making to financial controls
in Defra now you are in charge?
Mr Park: Part of the Renew programme
is to devolve responsibility and accountability down within the
organisation and to make sure that we have clear performance management
within that so that the directors have information on which they
can manage their part of the budget.
Q35 (18.07.07) Chairman: Do the directors
set their budgets, or do you drop it down on top of them?
Mr Park: The directors propose
their business plans and that goes through a review process, as
it would in any other organisation, to in a sense check that and
make sure that a balance is correct across the Department and
to make sure that it reflects the priorities of the Department.
Q36 (18.07.07) Chairman: What is
the sanction if they do not keep to budget?
Mr Park: That is where the Renew
programme is introducing performance management, so that there
will be regular reviews throughout the year.
Q37 (18.07.07) Chairman: The question
I asked is, what is the sanction if you do not hit your budget
and there is not a good explanation, in other words if you do
not control it properly?
Mr Park: Part of the improvement
under Renew would be that there would be reviews during the year
so that there would be correction opportunities in terms of people
changing their spending commitments and their spending plans throughout
the year, so we would expect that through the course of the year
it would be back on track.
Ms Ghosh: I think there is a cultural
point, which is what we are trying to build on, both through the
cultural element of Renew but also the work Stephen is doing on
financial systems. Historically again, in a sense there was not
a penalty if people overspent, particularly with their programme
budget, because actually there was always enough money and I think
in the sense we have discussed before of both programme and admin
spend in particular having to slow down, that is the cultural
change that we are really working together to build into the Department.
Q38 (18.07.07) Chairman: So in terms
of systems, do I get the impression that you are building into
Defra a far more up to date way of monitoring your actual real
world expenditure versus budget?
Mr Park: Yes. It will start small
and get bigger over time. To introduce an "all singing, all
dancing" system will take some time, so my intention is to
introduce something that is simple but effective and then improve
the effectiveness of that as we learn as an organisation, as we
use it to manage the performance.
Q39 (18.07.07) Chairman: So if I
said to you, "When can I come and look at Defra's cashflow
position?" when can I do that?
Ms Ghosh: October, or at a time
when we are checking the performance against budget. October would
be a good time, because that is when we do our six monthly review.
Mr Park: Yes, I think that would
be.
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