Examination of Witnesses (Questions 320
- 339)
WEDNESDAY 30 APRIL 2008
MS HELEN
GHOSH, MR
BILL STOW
AND MR
STEPHEN PARK
Q320 Lynne Jones: But there is a
commitment.
Ms Ghosh: The government has in
place what it believes are reasonable policies and a reasonable
level of funding but because of the issues around fluctuating
energy prices clearly making the prediction that you described
would be a very dangerous thing to do.
Q321 Lynne Jones: You do have a statutory
target but you are not able to tell me that you are going to be
back on course over a three year period on achieving that statutory
target? That is not adequate.
Ms Ghosh: We have made a reasonable
set of policies in place to achieving it.
Q322 Lynne Jones: But you cannot
tell me whether it is going to be anywhere near. It might be reasonable
to say we may not be spot on but within a 90% certainty surely
you should be able to give me some indicator.
Ms Ghosh: No, because of the various
factors that are involved at that moment when the statutory requirement
comes into place, the various elements, prices, incomes, and all
the activity that will have gone on between then and now.
Q323 Lynne Jones: I am asking for
the trajectory.
Ms Ghosh: As I said, what we believe
we are doing is committing a reasonable level of resource to achieving
that outcome for all the reasons I have described.
Q324 Lynne Jones: But you are not
able to give me any concrete evidence that you are going to be
anywhere near achieving the target. You are way off at the moment.
You should be able to at least indicate that you will be moving
back in the right direction.
Ms Ghosh: I believe that we will
only be able to test that against the evidence of events.
Q325 Lynne Jones: Why have a target
in the first place?
Ms Ghosh: Because parliament agreed
we would have a target.
Q326 Lynne Jones: But you are going
to ignore it.
Ms Ghosh: No, we are absolutely
not ignoring it. £2.3 billion of resources is going in to
achieving this over the CSR period of which £800 million
is resource towards Warm Front. We are absolutely not ignoring
it. We think we are putting in a reasonable level of resource
to achieve the target.
Q327 Chairman: Let us move on to
animal disease issues. In your now much more precise budgeting
arrangements can you tell me for each of the CSR periods what
is your current projection on expenditure connected with bovine
TB?
Ms Ghosh: We have not yet set
budgets for future years as I described before. As you know, as
part of the CSR settlement we agreed with the Treasury as part
of the zero-based reviews that over the period overall we would
take £120 million out of the animal health budget. In terms
of spend on TB, which to some extent is demand-led, although there
is an ongoing level of surveillance activity, we have assumed
for this year broadly a flat level of spend. We have not taken
any money out of TB for this year but we have not set our budget
for future years.
Q328 Chairman: You told us earlier
that you have a fit between your department's expenditure and
the global totals that you had been given by the Treasury for
each of the CSR periods. Bearing in mind you spent last financial
year £76 million, so it is quite a significant item of your
budget, in order to achieve balance you must have a number on
a piece of paper somewhere to say this is what we think we might
have to spend.
Ms Ghosh: As I say, we made a
conscious decision and this would be something that our directors
of the relevant bit of animal health will be doing in deciding
how to profile their budget for the year that we would assume
broadly the same level of spend for this year. We were not assuming
any significant difference. We are not pulling funding out.
Q329 Chairman: We know the incidence
of the disease is rising against the background where we know
that ministers have yet to make their mind up on what their new
strategy is going to be. Against a background of uncertainty as
to what effect that strategy will be, you are just saying level
expenditure?
Ms Ghosh: If it turned out to
be different, then clearly we would have to transfer funding from
elsewhere in the department. At the moment that was our assumption
and that is the planning assumption on which we are basing.
Q330 Chairman: Does that mean the
money would come from within the animal health budget or when
you say elsewhere in the department it could be from anywhere?
Ms Ghosh: In the first instance
we would probably say is there any other element of the animal
health budget, whether in some element of a compensation regime
or a surveillance regime, where the demand is lower or where we
think that on a risk basis we can spend less, that is what we
would do. By the very nature of a budget which is a fixed amount,
if there is any increased demand in one part you need to start
looking across the department to decide whether there is somewhere
else from which you would be spending it. We would probably start
off by looking within the animal health envelope.
Q331 Chairman: You have been having
discussions with the farming community about them making some
kind of possible contribution in financial terms to the control
of animal disease. What have you pencilled in as the first likely
date when you are going to see some of that money?
Ms Ghosh: I know we have made
no assumption about any of that money in the CSR 07 period. The
only assumption we have made about reductions is the £120
million that I described where I think we are already ahead of
what we were expecting reductions to be, mainly through increasing
the efficiency, in other words reducing the costs. We have not
factored in any cost-sharing element into our CSR07 plans. We
are going through a consultation period, carbon proposals and
it would require a Bill. We are some years away from that.
Q332 Chairman: If it did arrive,
on that basis you have extra money you can do what you like with.
Ms Ghosh: It is most unlikely,
on the timetable that is on the table, that it would have any
impact within the CSR07 period.
Q333 Chairman: Throughout the whole
period?
Ms Ghosh: Throughout the whole
period.
Q334 Chairman: If that be the case,
let us move on to matters connected with disallowance. You have
made provision for £348 million for the financial year 2006-07
for potential disallowance. I am not quite certain how you arrived
at that particular number. Perhaps you could give us a flavour.
348 is a terribly precise number. How did you work it out?
Ms Ghosh: We worked it out in
a variety of ways. I know it also includes some elements of disallowance
hangover from the previous schemes but broadly speaking what we
did, looking at the problems we had with the SPS in the first
year, we made some prudent estimates. I have to say that clearly
our main strategy will be, both at political and official level,
to argue this down with the Commission so I do not want to quote
individual figures within it. The disallowance in relation to
the SPS essentially has two features. It is either a straightforward
fine for paying after the 30 June because we have not hit the
96.4% target or it is disallowance for payments made without due
validation or with some element of inaccuracy. In the first year
where we did fail to achieve our payment of the requisite amount
by the June date that was a straight forward percentage calculation.
In relation to inaccuracy, we made some estimates. As you will
recall, we did interim payments that year and we did interim payments
in order to get money out to farmers without having appropriate
cover from the Commission because we believed that our customer
service giving farmers the money was the more important thing.
We have made some calculation on the basis of that. Last year
as things improved at the RPA we hit our payment deadline of June
30 so there was no late payment. Where we made interim payments
they were mainly but not entirely within EU rules. They were compliant
so we do not expect significant disallowance in relation to those,
although there were some issues around data and entitlements that
are likely to be the subject of disallowance. This year progress
is better still. We have now paid 84% of the fund out. We are
expecting to pay 90% of the fund out by the end of May and we
are therefore hoping, as last year, that we do not attract any
late payments. The issue this year would simply be around inaccuracies.
We have not made interim payments because we started getting payments
out so much earlier. It is an agglomeration of all those factors:
reasonable assumptions about likely percentages, the parallels
with other countries, the experiences that other countries have
had and we have reached that view. That is our prudent view. We
have cover from ring-fenced money from the Treasury for £270
million of that. We are all the time assessing at what point the
disallowance might come through. We believe that we have sufficient
cover in our budgets to meet, if it were more than £270 million,
and in particular having a departmental allocation provision,
that it is something which for the purposes of thinking about
our budgets we can assume essentially is covered.
Q335 Chairman: When does the Commission
estimate that the matters will be concluded? They seem to have
been hanging over you like the sword of Damocles for a long time.
Ms Ghosh: It is very slow. There
are some decisions they are going to make, not necessarily around
us, this summer that might give us a clue but, so far as we are
concerned, getting a final figure is moving to the right rather
than coming closer. We are continuing to make sure we make a reasonable
provision.
Q336 Chairman: You put £90 million
into the CSR 07 for each year in terms of disallowance. How have
you based that number?
Mr Park: The £348 million
that was the balance sheet amount was created as non-cash. What
then needs to happen is that provision unwinds over a number of
years and the £90 million in each year of the CSR period
represents the unwinding of that provision. The £90 million
is expected to be cash whereas the £348 million was an accounting
entry.
Ms Ghosh: Effectively it goes
back to the £348 million. They did not just pick 90, 90 and
90. On the basis of the estimate we made on this basis, they said
let us make a provision which is 90, 90 and 90.
Q337 Chairman: Disallowance comes
about because of error or delay. Is £90 million a year a
price worth paying for error and delay?
Ms Ghosh: No, it is not. For all
the reasons I have discussed at length with the Committee we very
much regret that there was error and delay. There is always I
should say, and historically this has been the case, with a very
complex scheme like the single payment scheme, rather like benefits,
you would always expect there to be some level of disallowance
and historically built into our budgets has been an assumption
that it would be around 2%. We would never expect to get to zero
but over many, many years an assumption has been with the CAP
it would be about 2%.
Q338 Chairman: Do you have a programme
where you are trading off reduced contingency for disallowance
against improved efficiency to try and minimise?
Ms Ghosh: As you know, we have
invested substantially in the RPA in terms of their improvement
programme. It has always thus far been something that looks like
excellent value for money in terms of the payback. We do have
in our heads, in thinking about both the customers and in particular
the customer service but also the trade-off between the one and
the other, the idea of the disallowance cost against the investment
cost.
Q339 Chairman: If we take CSR 07,
do we see a falling trend over the three years in expenditure
on the RPA because you had to make lots of contingent investments
on its IT to get that bit sorted out? At some point in the middle
of CSR 07 the transition will be complete, will it not, to a flat
rate area payment scheme? I presume at that point you will have
got the system working as it should have done right at the beginning.
Ms Ghosh: As Tony Cooper, the
interim chief executive has said—
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