Examination of Witnesses (Questions 100
- 119)
WEDNESDAY 21 NOVEMBER 2007
MRS HELEN
GHOSH
Q100 Chairman: I would like to welcome
Helen Ghosh, the Permanent Secretary for the Department of Environment,
Food and Rural Affairs and say at the outset how grateful I am
for your kindness in coming before us at relatively short notice.
You will have read—as we have read—some articles in
the newspapers which have raised some quite serious issues about
Defra's budget both now and in the future. Whilst I accept that
as a department you may still have decisions that are to be made
about your future expenditure—bearing in mind the CSR covers
three financial years—we thought it important to invite
you to clarify in some detail we hope the situation in the light
of the reports that have occurred in the press. However, before
we get onto the Comprehensive Spending Review settlement I would
just like to start, if we may, with the present financial year,
2007/08. In the last financial year you had to make some uncomfortable
choices and make some in-year savings and I think that before
we get into the future it would be helpful to know whether, as
far as the current financial year is concerned, you are contemplating
making any further reductions in your expenditure over and above
the levels that you are currently committed to.
Mrs Ghosh: Thank you very much,
Chairman, and I must say I am more than happy to come along and
clarify what I think has been rather a confused picture in some
of the media. Indeed, I was going to start telling the story with
this year because I think, again, some of the information that
is out there was rather confused. To look at this year, as you
know we have been monitoring our expenditure—I was talking
to the Committee about this in the summer extremely closely—and
at this stage in the year, so half way through the year, we are
still showing potentially—but we are only half way through
the year and I will say a little in a moment about the mitigation
activity that is going on—some overspend. The largest chunk
of that overspend is in fact in relation to the unexpected emergencies
that we have faced this summer and again to give the Committee
some precise feel for the expenditure challenges that have presented
and to clarify the matter I am very happy to say what those are.
So far, for example—this is obviously still an on-going
situation, particularly in terms of surveillance—the outbreak
of foot and mouth we think is costing us around £32 million
in the year. About £1 million so far is on bluetongue, again
surveillance issues. This current outbreak of avian influenza—of
course it is still relatively early days—we think might
cost us about £3 million.
Q101 David Taylor: Can I just ask,
are you giving expenditures that were not anticipated and are
beyond the budget which you are working to?
Mrs Ghosh: This is unanticipated
expenditure. Let me give you the example which does then link
through into the CSR issue and to what extent we provide for an
unallocated margin, a reserve to use a non-technical phrase—
Q102 Chairman: You have one of those
in the current financial year.
Mrs Ghosh: No, we do not have
one. As I said to the Committee before, as we slow down areas
of our spend towards CSR what we have not had space this year
for is a departmental unallocated provision. The kinds of costs
that we are talking about here are the additional costs, for example
staff costs—it is mainly staff costs actually, it is not
compensation costs—for all the surveillance that the animal
health teams have had to do, getting in additional local veterinary
officers and so on. The floods—the Defra element of that—probably
around £30 million. We have about £65 million in the
current year which was unbudgeted for, which we are continuing
to monitor, which we are obviously talking to the Treasury about
in terms of the on-going mitigations we can make elsewhere in
the programme and that will be an on-going dialogue we will have
with them. We also have, as you know from the discussion we had
in the summer, some overspend on the administration budget but
we are taking very tight action there. We have had effectively
a recruitment freeze, apart from some absolutely specialist posts
that we need. We have had very tight controls on any discretionary
spend of a variety of kinds, including obviously management services,
advice and consultancy and we are continuing to monitor the situation.
At this stage in the year, particularly with some of the actions
we put in place, we think that overspend will come down and, as
I say, we are talking to the Treasury about this unexpected spend
that has come in as a result of those particular emergencies.
Q103 Chairman: Just to enable us
to be absolutely clear, you have £32 million which at the
moment you judge to be the cost of foot and mouth; £1 million
for bluetongue; £3 million for avian influenza.
Mrs Ghosh: The current outbreak.
Q104 Chairman: Yes, the current situation
because you made it very clear that this was the half way point
in the year. You have an overspend on administration but you are
trying to control that.
Mrs Ghosh: We are trying to control
that in a variety of ways.
Q105 Chairman: What is the figure
for that?
Mrs Ghosh: Again there are various
actions we are taking to bring that down and we will be looking
at a variety of ways, both of reducing it in total and also classification
of some of the spend.
Q106 Chairman: How much is it?
Mrs Ghosh: About £50 million
I should think on a budget of £286-odd on admin, but there
are a variety of things we can do to mitigate that risk towards
the end of the year.
Q107 Chairman: So that I understand
that, is that £286 at the half way point?
Mrs Ghosh: No, sorry, I am talking
about the total year spend.
Q108 Chairman: So you have a total
administrative expenditure of £286 million and at the moment
you are £50 million over the budget.
Mrs Ghosh: No, if you predict
it to the end of the year from where we are now.
Q109 Chairman: Right, so you could
be £50 million over; that represents 20 per cent overspend
if you do not get it back under control.
Mrs Ghosh: Exactly. We are only
half way through the year and there are a variety of things that
we can do to get that spend under control.
Q110 Chairman: How has it got out
of control?
Mrs Ghosh: I think this is repeating
to a large extent the debate that we had in the summer.
Q111 Chairman: We are just working
up to speed on this; you are getting us thinking about it and
I must admit that the idea of being over the top by £50 million
on a £269 million budget is a big overspend by anybody's
stretch of the imagination. You told us when we last met you that
you had better systems in place to monitor your expenditure.
Mrs Ghosh: Yes, we have indeed
much better systems in place and that is the mitigating action
that we are expecting to take in the last six months of the year.
I hasten to add that this is administration spend; it does not
impact on programme spend which I think is a large part of the
subject of this discussion.
Chairman: That is why I am separating
where we are this year from the questions that we will ask you
about next year. David, do you have a question you want to ask?
Q112 David Taylor: Just for clarification,
the figure of £286 million I think you were suggesting that
would be the predicted out-turn for 2007/08 which itself would
be £50 million over. Is that what you are saying?
Mrs Ghosh: No. What I am saying
is that the administration budget for the department—just
for the core department, it does not relate to our executive agencies
because their administration is covered by programme spend and
we may get on to explore that later—the anticipated overspend
on the administration element of our budget at the moment looks
as though it is running at this half way point in the year and
before all the mitigating actions that we take (and as I say this
has been coming down over recent months) to be around £50
million. That is if we carry on as we are now, but we are not
carrying on as we are now.
Q113 David Taylor: It would be about
£50 million overspend and it would be a figure of £286
million. Is that what you are saying?
Mrs Ghosh: No, £286 million
is the budget.
Q114 David Taylor: If you do not
get it back under control it will be £319.
Mrs Ghosh: If we do not get it
back under control that would be the case. The point I was making
is that because it is administration expenditure it is not in
fact relevant to a lot of the discussion we are here for which
is about programme expenditure.
Q115 Chairman: Before we get to that
bit I think you have surprised the members of the Committee because
if you are halfway through a budgeted programme and the trend
of the expenditure indicates that you are £50 million over
the top now, it sounds as if it could be rather painful to get
it back to the £286 million which is where you want to be.
In other words, you have got another six months to take £50
million out of your administrative budget.
Mrs Ghosh: Indeed we do.
Q116 Chairman: How are you going
to achieve that?
Mrs Ghosh: That is why we are
putting pressure on our management consultancy spend; we are having
effectively a recruitment freeze; we are working very closely
with some of our suppliers; we are, for example, moving out of
some of our buildings. As I said to the Committee in the summer
about half of our administration budget is people and around half
are broadly speaking fixed costs. That is why it is difficult
to slow it down quickly but not impossible, and those are all
the steps we are taking.
Q117 Mr Williams: It does seem to
me incredible that you are half way through the year and you have
to make a £50 million saving out of what is only half a year's
budget. You have presumably spent now somewhere round about I
should imagine £134 million plus £25 million and you
have to get that £50 out of round about £139 million.
That is about 40 per cent reduction.
Mrs Ghosh: As I explained to the
Committee in the summer the profile of administrative spend that
was agreed for the SR04 period always had this falling off in
the third year presaged on the basis that the head count numbers
for the department as a whole would be substantially less than
they are now. For all sorts of good reasons in terms of additional
requirements on the department that prediction did not come right.
We had made significant reductions, as you know, of our staff
numbers in this year. I just want to say to the Committee—and
I am being very open and clear about this because I do not want
to hide any of these issues—we have a variety of mitigation
actions in place; we are half way through the year and we will
be working as hard as we can to reduce that administrative overspend
as far as possible. However, this is not relevant to a lot of
the issues we are discussing today.
Chairman: I am afraid you have alerted
the interest of a lot of colleagues so I am going to start with
Gavin, then Peter, David and David.
Q118 Dr Strang: When did you start
putting these mitigation measures into place?
Mrs Ghosh: At the beginning of
the year.
Q119 Dr Strang: If the mitigation
measures have to deal with the £50 million predicted overspend,
that means at the beginning of the year although you had £286
million allocated to administration you did not see that as something
that could be done without making drastic cuts.
Mrs Ghosh: We knew at the beginning
of the year that we had to start tightening the screws significantly
and we did start tightening the screws significantly, particularly
around, for example, discretionary spend which has a very tight
process of approval at board level for discretionary spend above
particular levels. We put in place the project to reduce our staff
numbers. It is a position which slightly changes every year but
around 300 staff have left on voluntary terms over this year to
bring our head count down to hit our SR04 target. We have significantly
reduced our spend on management consultancies and other discretionary
spend. It is more difficult—this would be true of all departments—to
reduce some of the fixed costs, for example estate costs, but
again we are very far advanced with negotiations to leave some
of our properties, for example our Guildford site. We have both
started the mitigation early and will be continuing with it.
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