Science & Technology CommitteeSupplementary written evidence submitted by the Met Office (MO 00a)

Met Office Funding

Met Office Funding Structure

1. The Met Office is a Trading Fund within the department for Business Innovation and Skills. This means the Met Office:

(a)Has no vote funding;

(b)Must cover costs from revenue earned from customers, both government and commercial;

(c)Has a multi-year Return on Capital Employed (ROCE) target from HM Treasury;

(d)Returns profits to owner as dividends.

2. Under the Trading Fund Model the Met Office returns approximately £10 million per annum in dividend. The Met Office commercial business turns over ~£32 million and is profitable and absorbs a share of fixed infrastructure costs which could not be significantly reduced in the absence of commercial business.

Met Office Revenue

3. As the Met Office has no vote funding all of its revenues are secured and managed contractually. These contracts vary in type and length but fall into three broad categories:

(a)Government Customer Service Agreements (CSAs).These are multi-year agreements in place to cover primary Met Office services:

Public Weather Service (PWS), funded by BIS, the Civil Aviation Authority (CAA) and the Maritime and Coastguard Agency (MCA);

Defence Service, funded by MOD;

Hadley Centre Climate Programme (HCCP) funded by DECC and Defra.

(b)Other Government contracts—numerous contracts to provide specific weather related services and products to government departments, can be competed with other private weather service providers.

(c)Commercial contracts—a diverse range of value added products and services delivered across a number of market sectors with open competition. Services are priced on a value basis.

Figure 1 provides a breakdown of the revenues across the categories.

Figure 1

MET OFFICE REVENUES 2010–11

Met Office Costs

4. The Met Office has a largely static fixed cost base focussed on a few key categories:

(a)Staff Costs—many of the skills required by the Met Office are unique, particularly weather and climate science, weather forecasting and observing. This results in a large number of staff being trained and developed within the Met Office who then remain with the organisation for the whole of their careers. These unique skills and knowledge are not readily available in the UK job market and are difficult to replace.

(b)International obligations—the Met Office is the UK representative on a number of international treaties (primarily, EUMETSAT, WMO and ECMWF) and has commitments to satellite programmes of 20+ years. This secures UK access to global observational data and knowledge necessary for it to provide the Government CSA services.

(c)Infrastructure—primarily property, observing infrastructure and IT infrastructure and particularly supercomputing. There are large long-term contracts in place to provide this infrastructure.

These costs are summarised in Figure 2.

Figure 2

MET OFFICE COST BASE 2010–11

Issues

5. The Met Office and the customer departments have secured the Government CSA revenues as far as possible by putting in place multi-year Customer Supplier Agreements which describe the outputs which will be delivered and allow for efficiencies to the benefit of both the customer and the Met Office. The key benefit this provides the Met Office is greater security on its revenues to match the long-term commitment of its resources, infrastructure and cost base. The CSAs are priced in accordance with HMT Fees & Charges guidance (cost plus a 3.5% ROCE mark-up).

6. The CSAs are Intra government agreements and are not legally enforceable. Departments can withdraw the requirement for services and the associated revenue. A recent example of this was on the Defence Research programme which withdrew £4.5 million of funding for the HCCP with only three months notice.

7. Following the withdrawal of MOD funding for the HCCP, Sir John Beddington led a review of UK Climate science needs in 2010, which looked at requirements, funding and governance. The report states “A key conclusion, and indeed the prompt for the review, is that the existing arrangements have not provided the stability required, and seem unlikely to do so in the future. There are strong arguments for placing resourcing and governance for what is a key national capability on a more sustainable footing, including to facilitate strategic planning and investments. The risk of a continued situation in which the Centre lurches from one funding crisis to the next as individual departments, with distributed responsibility, seek to make savings that may not recognise wider Government interests”. Following the Beddington review, DECC and Defra agreed joint management of the HCCP, on behalf of Government.

8. Despite the intention that CSAs should be multi-year agreements, currently only the PWS CSA is agreed beyond FY 11/12 and the security of long term funding for all services other than the PWS remains an ongoing issue.

October 2011

Prepared 17th February 2012