A second progress update on the administration of the Single Payment Scheme by the Rural Payments Agency - Public Accounts Committee Contents

1  Progress in administering the scheme

1.  The Single Payment Scheme entitles farmers to claim payment for maintaining their land in good agricultural and environmental condition subject to complying with the relevant European Union regulations. The sums involved each year are considerable, with payments to farmers in England through the 2008 Single Payment Scheme amounting to £1.63 billion. The Rural Payments Agency (the Agency) administers the scheme on behalf of the Department for Environment, Food and Rural Affairs (the Department).[2]

2.  The implementation of the scheme in England in 2005 was beset with problems. We reported previously how the Department's decision to introduce the most complex model available for the scheme alongside a wider business change programme in the Agency caused considerable problems and resulted in many payments not being made before the European Commission's deadline of 30th June 2006. We reported again in July 2008 on the continuing errors made by the Agency in processing claims and the need for more urgency in recovering overpayments from farmers. The follow up examination from the National Audit Office in October 2009 is one of the most damning reports that this Committee has received and shows this scheme to be a case example of misadministration.[3]

3.  Since the initial problems with implementation, the focus of the Department and the Agency has been on improving the service to farmers. In April 2007 the Department allocated £40.1 million to the Agency for a three year Recovery Campaign which involved a fundamental redesign of the IT systems so that customers could expect to receive earlier and more accurate payments. The changes have had limited success in bringing forward the timing of payments to farmers. As Figure 1 shows, the Agency managed to reach the European Commission target of 96.14% of payments under the 2008 scheme by 13th May 2009, nearly seven weeks ahead of the end of June deadline. The Agency has not managed however, to reach the target set out in its Recovery Campaign to make 96.14% of payments by value by 31st March 2009. The timing of payments remains a long way behind the standards set in Wales, Northern Ireland and Scotland. By the end of December 2008 the Agency had paid out 59% of funds compared with between 76% and 87% in the other home countries.[4]

4.  At a previous hearing on the Single Payment Scheme in January 2008 we received assurances from the Accounting Officers for the Department and the Agency that the problems with this scheme were being resolved and that good progress was being made in recovering overpayments.[5] We received no satisfactory explanation of why so little progress has been made in the last two years,[6] although the findings from the C&AG's report[7], and the acknowledgement from witnesses at our hearing on 26th October 2009 established that the Department and Agency had significantly underestimated the scale of the work needed to resolve the problems.[8]Figure 1: Payment of Scheme Funds by the Agency

Source: C&AG's Report, Figure 5

5.  The original IT system was fundamentally flawed. At the January 2008 hearing however, the witnesses indicated that the IT faults had largely been rectified and that the four upgrades in the Recovery Campaign would resolve outstanding issues quickly.[9] It is true that the systems are more stable than previously, but a review by Gartner in 2009 established that system design has improved very little.[10]

6.  The National Audit Office estimated that IT expenditure on the scheme had reached some £350 million[11] although the Department and the Agency indicated that a large part of this sum was on day-to-day operations rather than expenditure under the recovery campaign. Whatever the purpose of the expenditure, the costs of this IT system are unacceptably high and continue to add up. The Agency remains heavily reliant on its main contractor, Accenture, to keep the IT systems operating and had paid £84 million to Accenture in total over the least two financial years. The Department and Agency were not able to provide the Committee with a satisfactory explanation of these costs, nor were they able to convince us that they could achieve a competitive price for any subsequent contract renewal.[12]

7.  As a result of the considerable IT expenditure the Agency has ended up with a cumbersome system that is difficult to maintain. The two main systems supporting the scheme, RITA and Oregon, have been heavily customised such that ongoing maintenance, repair and upgrades are likely to be expensive and challenging. At least 29 out of 54 software and hardware elements of the scheme will no longer be supported by the end of 2009. The Agency has estimated that it will cost around £12 million to support RITA and Oregon until 2012, but it is still exploring options to procure extended support. In the meantime, it is difficult to assess the seriousness of the risk as the complexity of the systems makes it difficult to determine the extent of interaction between them.[13]

8.  The data held on the IT systems continue to contain inaccuracies which undermine the credibility of the Agency and thus the Department. Whilst the inaccuracies might appear relatively small in relation to the total scheme payments of £1.63 billion, some of the overpayments to farmers were considerable and are likely to be repeated each year until corrected. The Chief Executive had previously assured us in January 2008 that he was much more confident that subsequent payments by the Agency would be more accurate.[14] Yet the Agency estimated that its overpayments since February 2008 had amounted to £25 million.[15]

9.  The Agency underestimated the extent of the data inaccuracies and despite our previous concerns over the level of overpayments, neither the Department nor the Agency had subsequently given sufficient attention to the issue. The Department has since commissioned Deloitte to establish the likely extent of debt arising from overpayments and will report the outcome of their work to our Committee by the end of January 2010.[16]

10.  Progress in recovering overpayments has been slow, disorganised and haphazard. The Agency is likely to have made overpayments of between £55 million and £90 million but had only recovered some £25 million.[17] The exercise to recover overpayments did not effectively begin until January 2008 and the Agency did not commence recovery of even straightforward duplicate payments made in August 2006 until April 2008, some 20 months later.[18]

11.  Even with such a slow start to recovering overpayments, the approach adopted by the Agency has been unacceptable. Letters arriving out of the blue with baffling calculations have caused concern and anxiety for farmers and necessitated further work to try and check the amounts due. Farmers had little option other than to agree on a 'without prejudice' basis to avoid holding up payment of the remainder of their 2008 claim. We would be surprised if the average ex gratia payment to farmers of £250 reflected the stress and anxiety experienced and additional costs they might have incurred as a result of the uncertainties.[19]

12.  In 2008-09 each claim cost, on average, £1,743 to process, compared with just £285 per claim in Scotland. This difference is partly explained by the decision to introduce a more complex scheme in England but, even taking that into account, the administration costs are unacceptably high. Staff numbers working on the scheme have decreased by approximately 470 full time equivalent posts since 2006-07 but we cannot see how these reductions have led to the improvements in efficiency claimed by the Department. Drawing on the figures reported by the Agency in its financial accounts each year, total staff costs for all its schemes have reduced by some £0.9 million between 2005-06 and 2008-09. This has been more than offset by an increase in other running costs of £29 million over the same period (see Figure 2). In addition, on the basis that 72% of the Agency's IT costs are on the single payment scheme, the National Audit Office established that amortised and running cost expenditure on IT has remained broadly constant at around £63 million a year between 2005-06 and 2008-09.[20]Figure 2: Staff and other running costs incurred by the Rural Payments Agency

Source: Rural Payments Agency Annual Accounts for 2005-06, 2006-07, 2007-08 and 2008-09

2   C&AG's Report, para 1.1 Back

3   Qq 74, 104 and 161; Committee of Public Accounts, Fifty-fifth Report of Session 2006-07, The Delays in Administering the 2005 Single Payment Scheme in England, HC 893; Committee of Public Accounts, Twenty-ninth Report of Session 2007-08, A progress update in resolving the difficulties in administering the Single Payment Scheme in England, HC 285; C&AG's Report, para 2.15 Back

4   Qq 12, 55, 70, 73, and 75-76; C&AG's Report, paras 2.2, 2.9, 2.16 and 2.18 Back

5   Qq 19, 37, 65-68, 71 and 146; Committee of Public Accounts, A progress update in resolving the difficulties in administering the Single Payment Scheme in England Back

6   Qq 8-9, 69 and 70 Back

7   C&AG's Report, para 17 Back

8   Q 7 Back

9   Q 71; Committee of Public Accounts, A progress update in resolving the difficulties in administering the Single Payment Scheme in England Back

10   Q 7; C&AG's Report, paras 2.3-2.4 Back

11   C&AG's Report, para 2.8 Back

12   Qq 1, 6-7, 37, 39, 50, 129 and 158-159; C&AG's Report, para 2.4 and 2.10 Back

13   C&AG's Report, paras 2.6-2.7 Back

14   Q 37; Committee of Public Accounts, A progress update in resolving the difficulties in administering the Single Payment Scheme in England Back

15   Q 9; C&AG's Report, paras 3.3, 3.7, 3.9 and 3.17 Back

16   Qq 8-9, 68 and 160-161 Back

17   C&AG's Report, para 3.3 Back

18   Q 49; C&AG's Report, paras 3.3, 3.7 and 3.10 Back

19   Qq 49 and 134-135; C&AG's Report, paras 11, 3.7, 3.10 and 3.18 Back

20   Qq 1-5, 16, 55, 68-70, 73-74, 76 and 116; C&AG's Report, paras 2.12-2.13 Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 16 December 2009