Examination of Witnesses (Questions 240
- 259)
WEDNESDAY 30 APRIL 2008
MS HELEN
GHOSH, MR
BILL STOW
AND MR
STEPHEN PARK
Q240 Chairman: You said to us that
you had to make an additional cash call of 155 million between
these two periods. That would be compliant with your important
point about the fact that we are talking about Estimates in the
parliamentary sense, which is a call on cash as opposed to the
total figures of expenditure which the department is making. Does
that provide a rationale?
Ms Ghosh: I still think it would
be easier if we wrote to the Committee explaining the various
stages. Can I take it to a strategic level? Because the question
of coming in on your Departmental Expenditure Limit budget is
something that actually you can only be certain of—. There
are all sorts of issues that the NAO has to confirm and flows,
for example, from local government that we have to check up on.
I said we are optimistic that we are coming in on balance. Any
statement we made in February does not relate to the end of year
position. May I make one other comment? The only additional funding
we have been given, as it were, real funding into our budget that
we have been given in the course of the year, is £22 million
from the Treasury which they agreed to give us to finance our
voluntary early retirement scheme. We have made no additional
cash call on the Treasury. At some stages in our Supplementary
Estimates we have transferred money, say, from programme into
admin, but we have not demanded any more money and we have come
in, as it looks at the moment, within our public expenditure limit.
Q241 Chairman: The important point
is that we are still living in a situation that when this Committee
asks for financial information it is not that you were not providing
it—
Ms Ghosh: No.
Q242 Chairman: ---but the format
is very much couched in terms of, if you like, the parliamentary
mechanisms for the approval of moneys; and you have made the important
point that those moneys are about the total cash flow (in other
words, sanctioning expenditure from your department), whereas
by and large what MPs are interested in—you started out
the year going to spend X, Y or Z on various programme—is
how are you doing, where will you end up and, if you are above
or below, why? What is the answer?
Ms Ghosh: Exactly.
Q243 Chairman: What I would say to
you is, when you do write to us, bearing in mind we are very straightforward
people, if you have to write to us formally by all means, but
could you please send the guide that puts it in layman's terms
to us: because part of the exercise of transparency is being able
to put a language forward that normal people will understand?
Ms Ghosh: Yes, certainly. We have
not yet had feedback from the Committee on this, but we very much
tried to do that in the note we sent you recently on our Estimate
for the coming year. So we have tried to translate it into the
difference between Estimates and Departmental Expenditure Limits,
and we even included what we call the "rugby balls picture",
which shows you what is in Estimates and what is in the budget.
Q244 Chairman: I appreciate that,
but even the word "estimate" has a connotation of, "This
is what we think we will do", not, "This is a call for
cash".
Ms Ghosh: A capital "E"
Estimate as opposed to a lower case "e".
Q245 Chairman: If you start off with
the word "budget" or "forecast", then I think
we can follow through the logic.
Ms Ghosh: Certainly.
Chairman: So we are going to have something
on the first question that you are going to write to us in those
terms about, for which I will say thank you in advance and move
on to Peter Soulsby.
Q246 Sir Peter Soulsby: Can I take
you to one aspect of the budget that I think we do have an understanding
of, because it is something we have explored with you before,
and it is the question of End Year Flexibility?
Ms Ghosh: Yes.
Q247 Sir Peter Soulsby: I know it
is something that in the past the department and the Treasury
have had rather different views on and there has been perhaps
a little bit of discussion in previous years to reach a common
understanding. I wonder whether you can reassure us that that
common understanding has now been found?
Ms Ghosh: Absolutely.
Q248 Sir Peter Soulsby: And that
the situation you have, I think, of some 29 million that you are
wanting to have that flexibility for is something that has been
agreed between yourselves and the Treasury and we can be reassured
that we are not going to have the situation we have had in previous
years?
Ms Ghosh: The issue of End Year
Flexibility does not, as far as we know, arise in relation to
2007-08 for the main department. This issue of End Year Flexibility
that we have mentioned in our Estimate return is a special deal
for the Forestry Commission. This is the first year where the
Forestry Commission has come onto our books as part of our budget.
That is, as I say, a special deal, there is no question that the
Treasury will change their minds on that, and so we can budget
on that and the Forestry Commission can—
Q249 Chairman: Where were they before
they came onto your books?
Ms Ghosh: They were with the Scottish
Executive. It was a separate vote, I am told. I do not know what
committee they reported to.
Q250 Chairman: We thought they were
under your policy umbrella.
Ms Ghosh: No, forestry as a policy
is under our umbrella, forestry in England, but they did not come
onto our budget. They have now moved onto our budget and that
29 million relates solely to the Forestry Commission.
Q251 Sir Peter Soulsby: So that means
that when the outturn for 2007-08 has been finalised you do not
see anything else being subject to flexibility, it is just this
single issue.
Ms Ghosh: It is that single issue,
and we have budgeted in terms of our budget for 2008-09, on which
we wrote to the committee, as it were, using the budget we have
got for 2008-09. There is no assumption about End Year Flexibility,
there is no assumption about overhang from 2007-08 and we are
not currently anticipating any overhang from 2007-08. That is
purely saying this is the first year of our CSR/07. What have
we got for admin, what have we got for programme, what have we
got for capital and we need to have a 50 million departmental
unallocated provision. So that makes no assumption that we are
getting any money from the EYF.
Q252 Dr Strang: Could you describe
for us the process of allocating your 2008-09 CSR total to Defra's
departmental strategic objectives and your associated public bodies?
When you do that, could you indicate how you take into account
the strategic priorities, for example, that the Secretary of State
set out to this Committee? How involved are ministers in this
process? How much detail do they get into?
Ms Ghosh: I will ask Bill, in
his capacity as leader on strategy and evidence, to talk a bit
about the detail of the process. The main strategic priorities
I described to Miss McIntosh. We had within our CSR settlement
some areas which were, as it were, pre-spoken for, ring fenced
or already committed. Obviously, the additional flooding money
we had got was that. We were given additional money for PFIs for
waste infrastructure, we were given additional money for the Environmental
Transformation Fund, which (actually I should have mentioned earlier
on climate change) is a significant contribution both internationally
and nationally to research around technology on climate change.
We also have made the commitment, although we did not get any
additional money in CSR, to match-fund the voluntary modulation
for the Rural Development Programme. So we had to find from within
our, basically, flat cash programme budget the additional money,
our element of the doubling of the RDPE. So we had some things
that were already, effectively, commitments. Then, of course,
we had essentially a flat cash budget to assign between the rest
of our spend and an administration budget for running ourselves
that was going down 5%, 5%, 5%, and that is where we began the
process. I will hand over to Bill to say how we structured it
and how we worked with ministers.
Mr Stow: We used a number of techniques
really. First of all, as well as having the two PSA targets, we
have the eight departmental strategic objectives, and underlying
those we have 30-odd what we call intermediate objectives, which
are more like fairly specific targets. The first task was to try
to work out how much our different programmes contributed to the
different DSOs, which were new—so this was a re-run or a
new exercise because the DSOs were new—and so we ranked,
in a way, different programmes against their contribution to departmental
strategic objectives. At the same time, as Helen says, you not
only have the ring fenced funding but you also have some funding
that is committed, committed legally, because things are constantly
rolling forward, and so that is not really in play at least for
a year or two ahead. We used, as one of our main tools, a diagram
that showed the level of commitment against the level of contribution
to the DSOs. That showed us, which was a good thing, that actually
our programmes score highly on their strategic alignment; it also
showed, which was less good, that a high proportion of our spend,
if you look just six months to a year ahead, is already committed
so that the target area that you are looking at to make savings
to compensate for the increase in budgets is quite small. We then
looked at, obviously, the things that scored less well—a
number of our smaller programmes scored rather less well—and
through the Board, with the Director General, we turned the question
round a bit and said, "With the money we have got, what is
it we are going to do?", rather than just focusing on that
marginal area that we were going to make savings, and that helped
us then think about what the overall strategic direction of our
budget needed to be. Through that process we also had regular
discussions with Hilary Benn and we had two away-days with our
whole ministerial team where we went through the position that
we faced, the options that we put to them, which added up to more
than the total adjustments that we had to make, and we worked
through that with them and reached conclusions in that way. So
it was a process of trying to align with our strategic objectives
as far as the current levels of commitment allow. It takes quite
a long time often to unwind programme expenditure, because often
people's jobs are dependent on them, and if you cut things very
quickly, then you have to make redundancy payments and so you
lose the benefits in the early years, and so on. So it is quite
sticky, which makes it more of an art than a science to align
it completely with your strategic objective, but that is the direction
we are heading in.
Q253 Dr Strang: A brief follow-up
to that. You received your CSR settlement in October?
Ms Ghosh: Yes.
Q254 Dr Strang: But the Defra Board
did not make its allocations to your associated public bodies
until March. I am wondering why that took so long, if that is
a fair question. Secondly, have you had any sort of problems arising
from the fact that the allocations were made just a few weeks
before the start of the financial year?
Ms Ghosh: I have to say, it was
21 February, because it was my birthday, when we made them. Two
things: we wanted to make sure we got it right, which was why
we were spending some months doing it discussing with ministers,
but all the time, and particularly through Bill, we were keeping
our key delivery bodies in touch with what was happening. So,
in fact, by the time we arrived at, "We can now give you
final allocations", we had had a number of discussions. These
did not come as a surprise to people. For example, the balance
between capital and current spend that we were allowing them,
and so on, was something we had discussed and they were, I think,
content with that. You had a number of meetings.
Mr Stow: Yes, I had three sessions
in all with our delivery bodies collectively and then through
the particular sponsors for Environment Agency, Natural England,
we were in fairly constant discussion with them, because we need
to understand the impact of particular levels of budget on these
organisations, and so there was a very good dialogue, I think,
with our arm's length bodies.
Q255 Chairman: Just out of curiosity,
what are the reporting mechanisms to ministers in terms of your
continuing financial performance? How do you involve them in that?
Ms Ghosh: We give to ministers
the same report that we get at the management boards. So, in fact,
we were at lunch-time with Hilary and ministers and Stephen had
sent in the April Board report on finance. We do that on a monthly
basis to them and we discuss it at one of our weekly Wednesday
lunch-time meetings. So, they are kept in extremely close touch
with what is happening in our finance, and Hilary personally has
taken that interest since the moment he arrived simply because
we have had to manage our budget this year extremely closely to
cope with £60 million worth of emergency spend and so on,
so he has been very, very closely associated with it.
Q256 Chairman: Do the other ministers
other than the Secretary of State, Mr Park, have detailed discussions
with you on a regular basis as to how their portfolio of responsibilities
is performing in financial terms?
Mr Park: No, my meetings are with
the ministers collectively rather than individually.
Ms Ghosh: But the directors general
for each policy area have exactly those discussions, and so, for
example, as Bill said, we had lots of discussions with Hilary
and ministers collectively to settle our budgets for 2008-09,
but, equally, every director general—so Mike Anderson on
climate change, Andy Lebrecht—and now Katrina Williams—on
food and farming, and Peter Unwin on Natural Environment—had
parallel discussions with the relevant ministers to make sure
that they were happy to talk through detail, and so on. That is
mainly done through the directors general, who will all have their
own financial adviser.
Q257 Chairman: Within the terms of
the overall envelope of expenditure that turned out to be CSR
or the new comprehensive spending round, did your plans of expenditure
balance precisely back to the breakdown that you agreed with the
Treasury for each of the three years in the CSR?
Ms Ghosh: What we have done so
far is we have set a detailed budget for this year that we have
just begun, 2008-09, and it had to balance. We did no over programming,
we made it a completely balanced budget. Those are the budgets
that we have given to our directors and programmes and projects
and, equally, we have delivered a balanced budget on the administration
spend—so head-count people, travel, all of those sorts of
things—and we have put in a £50 million reserve for
emergencies, because last year we had no reserve for emergencies
and this year we do. The process we are currently going through,
and again it will be a much lighter touch because the strategic
direction is set, is agreeing budgets for 2009-10, i.e. the second
year, and discussing those with the delivery bodies, and that
is a process that is going on. We promised that we would give
them those budgets by the end of August, but we obviously will
be aiming to do it much more quickly.
Mr Stow: With their agreement.
Q258 Chairman: Is that, again, going
to be the same balanced budget as for this year?
Ms Ghosh: Absolutely.
Q259 Paddy Tipping: Tell us a bit
more about the discussions with the delivery agents: because a
lot of your money goes to them. How does it work? Just explain
what happens when you are round the table?
Mr Stow: As I said, during the
process I had three rounds with them and in those rounds I tended
to open by describing where we had got to in the process, what
the level of certainty was around the numbers we are talking about,
and so on, and spelling out the consequences of that for them,
and then usually there was a sort of question and answer session,
though when we came to talking about the position for 2009-10
and 2010-11, which was more recently, it was more of a consultation
session—which way would they like us to play this—and
the message that came through was a mixed message really. Yes,
they want early certainty but they want certainty. It was our
judgment that we could not provide immediate certainty because
we did not know at that stage what was going to be held over into
this year and might then move over into the following year. There
were a number of uncertainties and so we said, "Okay, we
will finalise the budgets in August." When it comes to the
individual dialogues with individual bodies, I have not been involved
in those but I used to be because I was the DG for Environment,
and so that would involve direct talks between the relevant DG
and Barbara Young, say, and that is much more a dialogue about,
"We think we can probably manage to give you so much. What
does that mean in terms of how you will manage that budget?",
and so on—so a much more detailed conversation—but
collectively that is not quite the place for those sorts of detailed
conversations.
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