UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 713-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Environment, Food and Rural Affairs Committee

Defra Annual Report and Accounts

Tuesday 6 November 2012

RT HON Owen Paterson mp, Bronwyn Hill AND TOM TAYLOR

Evidence heard in Public Questions 1-138

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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Tuesday 6 November 2012

Members present:

Miss Anne McIntosh (Chair)

Richard Drax

George Eustice

Barry Gardiner

Mrs Mary Glindon

Neil Parish

Ms Margaret Ritchie

Dan Rogerson

Sheryll Murray

________________

Examination of Witnesses

Witnesses: Rt Hon Owen Paterson MP, Secretary of State for Environment, Food and Rural Affairs, Bronwyn Hill, Permanent Secretary, Defra and Tom Taylor, Finance Director, Defra, gave evidence.

Q1 Chair: Good afternoon and welcome, Secretary of State, to your first appearance before the Select Committee. We are extremely grateful to you and your colleagues for joining us for our look at the Annual Report and Accounts of the Department. Would you like to introduce yourself and your colleagues just for the record?

Mr Paterson: Absolutely. Good afternoon. Thank you very much for inviting us; it is a great pleasure to be here. May I introduce Bronwyn Hill, our Permanent Secretary, who will take you through the detail-because do not forget, this report stopped at 31 March, five months before I appeared-and Tom Taylor, our Finance Director, who will give similar comments on what has happened in that year?

Q2 Chair: Excellent. I think your predecessor described the Department as "the fourth emergency service", and since your appointment, I do not think there has been any exception there. Could we turn to ash dieback disease and look at the disease, and the resources the Department allocates to plant health? Just at the outset, how would you describe our state of knowledge of plant disease, and in particular ash tree dieback, in this country?

Mr Paterson: I thought you might ask that question, so I have brought some maps, which are here. I thought I would give you an update as of this morning.

Q3 Chair: Perhaps I should declare the interest that I am half-Danish, though I do not think I am responsible in any way for this. It seemed to emerge in Central and Eastern Europe in 1992. It reached Denmark in 2003. We understand that Danish scientists did not really know a great deal about it, and so did not look to take any action for the first two years, and now we have seen, after six years, 90% wipe-out of ash trees. Before we come on to the UK scenario, I would be interested to know what science has been shared with scientists from Denmark and from Poland.

Mr Paterson: You are right; it worked its way across. It looks as though it started in Eastern Europe, in Poland. It worked its way across Germany and Denmark, and it is in Holland. There has been the stuff in the press in the last couple of days, but our scientists believed in 2009 that it was endemic, not a new entity, nor a new fungus. It is only more recently that it has been established that it was actually a different sort of fungus. It was not until 7 March this year that it was formally identified in a nursery in Buckinghamshire. If I could very quickly just go through the chronology of what has happened this year, from that moment, a rigorous process-

Q4 Chair: I am sorry to labour the point, because I know other colleagues want to come in as well. My concern is that, clearly, there is a lack of science across the piece, not just in this country. The letter I have seen that the Forestry Commission sent back in October 2009 does demonstrate the lack of knowledge in this country. However, in Denmark the scientists did nothing for two years, and it strikes me that there is a lack of knowledge. Would you agree?

Mr Paterson: Yes, there is. There is a real conundrum in a lot of these diseases. For reasons we do not understand, there are a number of serious plant diseases around the world. The French have a terrible problem with plane trees at the moment. The Americans have lost millions of chestnut trees. We do not quite understand why these diseases are out there. You are right; this was a new phenomenon, and it is extraordinary how little is known about it.

Q5 Chair: In terms of resources, I understand that Defra is the largest contributor to the research that goes into this. DECC has an element. Rather surprisingly, DFID contributes about £7 million a year to tropical tree research; that is something you may care to visit. However, I understand there is also an EU fund under the 7th European Union Framework Programme for Research and Development, which partially funds the work of the Forestry Commission. As you are aware, there is the Food and Environment Research Agency (Fera) in my own constituency. So in terms of resources, are you confident that you have the resources going forward to fund the type of research that we need to see?

Mr Paterson: Well, my predecessor, Caroline Spelman, launched the action plan in autumn last year, and that led to an increase. £8 million went into that; £2 million extra per year into research. However, it is literally, ‘How long is a piece of string?’ If we really want to get a grip on the threat posed to our environment by these new diseases, which we know are on the continent, and possibly come from increasing world trade in plants and forestry products, we may well have to concentrate a lot more effort on this, and make it a higher priority in Defra. Defra has always taken animal diseases extremely seriously. I think we now have to address the priority that we give to plant diseases.

Q6 Chair: The Committee would welcome that. In terms of practices that appear to be happening at the moment, for example, I understand that we are exporting seeds to grow in either other European or third countries, to re-import them as saplings. That raises all sorts of questions as to why we are not growing trees from seeds in this country, and it poses real issues as to whether the spread is because we imported these saplings. We will come on to your figures now. Is the spread because we are importing these diseased saplings? Are you able to say that the disease is spreading more quickly and is more dangerous in saplings than in matured trees?

Mr Paterson: You touch on a most extraordinary phenomenon that has emerged: there was this trade in sending seedlings to Holland, to be grown into saplings, to be reimported here, when people must have known that there was disease out there in Holland. The figure we have had is that it is half a million per year. To bring you up to date, look at the map with the spots on it. I touched on this a few moments ago. On 7 March the disease was first identified in young stock in a nursery in Buckinghamshire. So an immediate process started, tracing backwards where those saplings had come from, and tracing forwards to where they might have been sold. A large number of sites have been and continue to be visited, and about 100,000 young trees have so far been destroyed. They are represented by the blue spots on the map.

Quite separate to that, and extremely alarmingly, on 22 October the disease was found in mature trees in East Anglia. It looks as if those have been infected by spores blowing in. I had a meeting with Hilary Benn today; I was talking about this map, and he said there was an extraordinary correlation with bluetongue, which occurred on his watch, and which we know was airborne. Looking at the map, there are a number of red spots in East Anglia, and we are now up to nine sites in Kent. This is the very latest state of play as we speak today.

What is happening today is that we are coming to the final stages of what I think is a completely unprecedented process, which is the scrutiny of the whole of the United Kingdom divided into 10 km squares. That is represented by the coloured map, and the green patches show areas that have been surveyed, brown partially. Blue in England and pink in Wales is areas that have yet to be seen. We hope to have that process completed this evening, which will give us better knowledge across the piece. Obviously there is a compromise here between speed and the intensity of the research, but we will get a much, much better feel of the spread.

Alongside that, we have also enlisted the aid of organisations such as the CLA to go out to their members and send in reports. So by tomorrow morning we should have a clearer idea of the spread, first of all from what one might call blow-ins-trees that have apparently been infected by air-and also the intensity of spread from the young stock that came in, as we know, in March. To answer your question, there is evidence that younger trees are more quickly affected, and killed, by this. Professor Ian Boyd, our senior scientist, has been working extremely closely with colleagues in Europe, including people in Sweden, Denmark and elsewhere. It looks as if the disease on the fungus does not actually kill the trees, but it weakens the mature tree, and then it gets finished off by something like honey fungus or another ailment, which can take some time.

So the next major step is: tomorrow I will have a summit to which I have invited the most senior people involved in the industry and experts to come forward with their ideas of how we can control this disease. I will have another Cobra; I chaired a Cobra last Friday, and we will have another one this Friday in which we will come up with an interim plan. Before all this came up in October, I had already asked Ian Boyd to put together a taskforce to address the problem of this increasing phenomenon of plant diseases, which could have such a dramatic impact on our environment. He hopes to come forward with an interim report to me by the end of November, and a fuller report probably in February.

However, I think we are going to have to completely change our whole attitude to forestry and the environment. This is going to be a major, radical change. If you look at the Australian Government’s website, the tone of the language is wholly different. The most extraordinary, stringent measures are taken by the Australians to keep disease out of Australia, and we just have not done that. We treated trees and plant products as a commodity that can be freely traded. If we want to protect our environment properly in the face of these threats, we are going to have to completely change our whole attitude and the way we prioritise our effort in Defra.

Q7 Chair: Are the maps available on your website? If not, we would like to put them on ours.

Mr Paterson: Absolutely, yes. This will be updated again tomorrow. This is the very latest state of play as of this morning. I thought you were bound to ask this question, but I am giving the Committee the very latest information.

Q8 Chair: If we do not know what the cause is, and how it is transported, how does the Department go about dealing with that?

Mr Paterson: We know it is a fungus that exists on leaves. That we do know. Having discussed it with experts on the continent, we know of no known cure except to destroy trees and burn them.

Q9 Chair: Are you aware that there are probably fewer than 10 plant pathology experts in academia at the moment?

Mr Paterson: In the UK?

Chair: In the UK.

Mr Paterson: I know it is a small number.

Q10 Chair: Does that concern you?

Mr Paterson: Obviously. If we are going to really address these diseases, we are going to have to completely change our game and change our whole attitude. That goes right back to the number of experts we have, and the way we treat this area of knowledge. That will be fundamental.

Q11 Chair: Are you aware of how much flow of information there has been between UK scientists and European scientists in Denmark, Poland and other countries?

Mr Paterson: Our scientists are talking the whole time. Ian Boyd has been talking. As I said, I set up this taskforce before we knew about the instance of disease in East Anglia, specifically to get ideas from other countries.

Q12 Neil Parish: Good afternoon, Secretary of State. You seem to have inherited lots of diseases as you have come to your post. Are there any trees across the United Kingdom that could be resistant to this disease? You talked about whether they will recover. Is it necessary to cut everything down? Is that necessarily the solution?

Mr Paterson: That is a really interesting question. There is hope, in that the ash reproduces differently to Dutch elm. Dutch elm is a clone; ash reproduces sexually, so there is a chance that we can develop genetic strains that might be resistant. I was actually in Herefordshire yesterday with the Duchy of Cornwall’s head forester, who has already got a collection of, I think, 378 ash trees of a particularly good variety, which they are keen to pursue. People like that, I hope, will be coming to our summit tomorrow with good ideas, but that is definitely the route to go down. The Danes have found that there are a small number of trees that have apparently not succumbed to the disease. There must be a reason for that. Perhaps there is a genetic link, but that is something that would be well worth pursuing.

Q13 Neil Parish: It is interesting that you talk about the Dutch elm, because the trouble with Dutch elm disease is that trees will re-grow, but then they get it again later on, probably when they are five, six or seven years old. The new trees that grow in the hedgerows are not actually resistant. We have got it on our farm. However, the ash, you believe, could be different.

Mr Paterson: Yes, we have a bit of elm at home as well. However, you are quite right; it gets above a certain height and it gets knocked off, because it is an insect that kills that and brings the disease. But ash is different. This is a fungus. To pass on the information, it appears to be transmissible between trees between the months of June to September, or possibly October. So at the moment it is dormant; there does not appear to be a transmission stage. It is a spore from the fungus that transfers to other trees. So at the moment, the leaves are on the ground, or in most of the country they are falling to ground now. We are not sure how long those spores survive on the leaves. They will survive for some time. So our advice has been, ‘Do not move the leaves’ and ‘If you go for a walk in them, clean the leaves off your boots.’ However, we think the chance of transmission is fairly low.

Q14 Neil Parish: My final question is: hindsight is a wonderful thing, but have we found these sites quickly enough? Have we been fast enough on the draw?

Mr Paterson: I do not think we could have moved much faster than we have done since 7 March. Hopefully you notice that I am absolutely not getting into the blame game. I think my predecessor operated according to the science that was made available to her. This is a huge national problem; there are 80 million ash trees. It would be an absolute tragedy if there was real damage to them, so I want everybody to work together and really concentrate on the future, what we do about it, rather than carping about how we got here. From this Government’s point of view, it was found in a nursery on 7 March. There was an immediate process undertaken to trace those trees backwards to where they had come from, and forwards to where they might have been distributed. Over 100,000 trees have been destroyed. I do not really think we could have worked much more quickly. There was no planting of trees, and no importing of trees, going on in the summer, so by the end of the summer there was a clear case to talk about an import ban, and to consult. That occurred just about the moment I took office, and I ensured that that consultation was as brief as we could possibly make it, which was eight weeks, to give the trade and everyone involved in the industry time to respond.

However, I made it absolutely clear at the time that in my opinion we were almost certain to bring in an import ban, given the evidence that we had, but we had to go through the proper process. We could not just do it by diktat. The consultation came through, and there was a clear majority of responses, Friday week, to go for a ban, and, very importantly, effectively for a movement ban within the UK. I did that last Monday; that was the right thing to do. So that was the right thing to do at the right time, because people do not import trees and are not planting trees through the summer, but we had to get that through before November comes along and the planting season.

Q15 Ms Ritchie: Secretary of State, bearing in mind your previous portfolio, I notice that your map refers to England, Scotland and Wales. What discussions have you had with the other devolved Minister representing Northern Ireland and the agriculture and forestry division about ash dieback disease? What steps are being taken in terms of the science, and in your discussions with devolved Ministers?

Mr Paterson: I do apologise for not including the map of Northern Ireland, because Northern Ireland has been very much involved in this. At the Cobra meeting we had representatives from Scotland, Wales and Northern Ireland participating by telephone, and they have been tremendous. They have been as active as our staff here. I really should put on the record the extraordinary effort our staff have gone to. We have had over 500 people out working right through the weekend. I think it is a completely unprecedented project, to survey the whole of the United Kingdom, including Northern Ireland, within a week. Northern Ireland is progressing on that, and we hope to have their results by tomorrow morning. Scotland and Wales are well advanced, and we are working extremely closely with them. So they are very much an integral part of it, but I do apologise. It was tactless not to bring a map of Northern Ireland.

Q16 Ms Ritchie: Through the Chair, would it be possible to get a copy of that, and to have it forwarded to the Committee?

Mr Paterson: We can get on to our officials in Northern Ireland and furnish you with that detail. If we wait until tomorrow you will have the whole thing, actually. It might be better to wait until tomorrow.

Q17 Sheryll Murray: You say it is dormant now. Are there any signs that it is temperature-sensitive? So, if we have a very, very cold winter, would it kill it off?

Mr Paterson: I think it possibly could be, yes, because spores and fungi are susceptible to temperature. However, we know very little about it. I cannot give you a definitive answer to that.

Q18 Barry Gardiner: Secretary of State, I absolutely agree with you that it would be quite nice to look forward and not back, and I welcome the measures that you have now taken. You will have seen the Independent Panel on Forestry’s report, and on page 33 of that report there is a chart of new tree disease and pest outbreaks in the UK. I trust you will agree that it is a fairly terrifying prospect when you look at all the different possible pests and diseases, and all the different vectors that they may transmit through. The first question I wanted to ask you is a general one. What planning should we be doing now about the future possible landscape of the UK, given what we know about the increasing changes that are taking place in disease and pest, and the transmission that is happening, where we are seeing, increasingly, vectors of disease that devastate the landscape that we have traditionally known? With climate change one expects that to happen all the more.

Mr Paterson: Rather than give you a glib answer to that, we will come forward with proposals on Chalara fraxinea this week, which will be an interim course of action. We then have the taskforce that Ian Boyd is leading, with more long-term proposals; that is another interim report at the end of this month, and a full report in February. I am not going to give you a course of action this afternoon, because we have the summit tomorrow and then further discussions ourselves on Thursday of what we are going to do. All I can do is give you an update as to the current surveillance.

Q19 Barry Gardiner: Indeed. I am making this much more general than Chalara fraxinea. We are looking here at diseases that affect sweet chestnut, native juniper, Lawson cypress, native oaks, larch, native heath, beech, hornbeam, horse chestnut, rhododendron, pines and alder. We have reason to believe that all of these new diseases and pests are beginning to affect the whole landscape of the UK. So this is not simply about one disease. It may be appropriate to look to the Permanent Secretary here, but it is about the way in which the Department is projecting forward about how it needs to combat those vectors as best it may, but also how it may accommodate the changes. So this is not about mitigation; it is about adaptation.

Mr Paterson: Before I bring in the Permanent Secretary, I think I have already said that I see it as a major directional change for Defra if we are going to address these diseases-and you have cited a number of them. Phytophthora ramorum is causing real devastation to rhododendrons, but we also have huge problems with larch. You are quite right. There are a number of diseases that we have touched on already. If we are going to really do something positive for the future, it is going to be a major change for Defra. We have to change our priorities, and change the way we are organised, and, as the Chairman mentioned, change the way the money is spent. That is an issue that I will have to sort out with the Permanent Secretary, who might like to comment on the money side.

Bronwyn Hill: Perhaps I could just add to what the Secretary of State said. It is a very big and broad question that the member has asked. That is in part going to be influenced by the evidence that Ian Boyd’s taskforce, which is looking forward into the longer term, will derive. However, I have to say, there are some analogies with animal disease. With some of them, if you act quickly enough, and you are very effective straight away, you can stamp them out. For example, Asian longhorn beetle was discovered in woods in Kent, over the summer. The Forestry Commission and Fera acted very quickly and stamped it out. So some you may be able to resist, or you can have import controls. Others, as you pointed out, will affect our woods and trees. However, I think it is too soon to leap to, "And the answer is, restock everywhere," or whatever. Part of the reason why, following the Tree Health and Plant Biosecurity Action Plan, the Department has been putting extra money into longer-term research, is that some of that has gone to Living With Environmental Change, which you may be aware of, which is to look at this longer-term bigger picture. However, it is too soon to say what the strategic answer to your question is, because we need to gather the evidence and formulate the strategy in the light of what we know.

Q20 Barry Gardiner: I think what the Committee would appreciate is, once you have that, having a very clear foresight of what a wider strategy is. Specifically, Secretary of State, you talked about the importance of re-prioritising in this area, and you will be aware that the Independent Panel for Forestry said that they believe "the current Forest Services is woefully under-resourced for the vital job ahead". What assurance can you give us that that particular recommendation of the Independent Panel is being acted upon, and that the Forest Services going forward, particularly on both sides of the Forestry Commission, are going to be given the resources that they need? They talked about necessary "financial breathing space" for the Forestry Commission.

Mr Paterson: Well, there was the Panel recommendation.

Q21 Barry Gardiner: No, I have moved from Chalara fraxinea to talking about the Independent Panel of Forestry.

Mr Paterson: It is a wholesale change in the way we are organised. If we are really serious about trying to keep these diseases out, we are going to make some difficult decisions within Defra about what we spend money on. That will take some serious discussions between me and the Permanent Secretary as to where we find the money, and what we either stop doing, or put on the back burner, to give priority to this. At the moment we have got this extraordinary intensity of effort, but obviously we are pulling people from all sorts of other activities to get us through the very difficult time we face at the moment. However, to do it long term, there is going to have to be a serious strategic shift in the way Defra is organised.

Q22 Dan Rogerson: Clearly there are consequences for Defra, as you are saying that there are consequences in terms of the environment, which is the absolute priority that you are tackling. What about the economic impact of this? So you talk about the number of nurseries that will be affected by import bans. Maybe that is something desirable anyway, but in the short term it will have an impact. Are there compensation issues for Defra, or is that not a problem?

Mr Paterson: On compensation we have been quite clear. We think that if there is limited public money to be spent, it is better spent on controlling the disease, and not on compensation. There are some schemes on re-stocking, where there are beneficial grants on re-stocking. There are areas in this that we can look at; obviously, we will work with the trade. However, I think your broader question is an incredibly important one, which is the huge uncosted benefit of forestry to the environment, and the enormous uncosted benefit and quantum addition to the public good of a healthy environment that is led by forestry. So we may come on to CAP reform. There is a justification for spending public money on the environment, because that delivers a whole number of goods, the most obvious one of which would be rural tourism, which is worth about £12 billion. There is a direct link on this.

Q23 Dan Rogerson: Following on from Mr Gardiner’s question about the number of potential other issues there are out there around plant species, which is something the Department would now be focusing much more closely on, is this something that you will factor in: the potential for impact on the rural economy of there being a sudden cessation of business in a particular area? Is this the sort of thing you are looking at as well?

Mr Paterson: We have to decide what we are going to do first before we jump to conclusions. There will be some dislocation from the current arrangements. If we think the current arrangements are unsatisfactory and have been partly to blame for the introduction of these diseases, if you change those arrangements, those people involved in those arrangements are going to be dislocated. However, if you take a positive view for the future, and the idea is to enhance the environment and increase the amount of forestry activity, someone else is going to benefit. Perhaps it might be the same people.

Q24 Chair: When you mention, Secretary of State, the large number of trees that have been destroyed, is that the best course of action to take?

Mr Paterson: Yes. The scientific opinion is that on young saplings, the best thing is to destroy them rapidly.

Q25 Chair: What about mature, grown trees?

Mr Paterson: That is part of our consultation this week. Ian Boyd is talking to a number of specialists across the continent. As I said, the evidence at the moment looks as if the impact of the disease on mature trees is much slower. It takes longer to kill them and it may not actually be this disease that kills them, but they are weakened and something else comes along, like honey fungus, and finishes them off. So before anyone does anything on mature trees, we will wait and get our advice on that.

Q26 Chair: Are you aware that seven European countries have applied to the EU fund for compensation for growers whose trees have been destroyed? This requires co-financing, half by the Government, and half by the EU. Have you been approached by any of the growers to access the fund?

Mr Paterson: No, I am not aware of any growers’ approaches on that, actually.

Q27 Chair: What would your reaction be if they did? Or what would the Treasury’s reaction be?

Mr Paterson: I would read with interest what they are proposing. However, as I said, I really do think the priority for spending public money must be on measures that control the disease. That is where we must put our priority first.

Q28 Ms Ritchie: Secretary of State, according to your own Annual Report and Accounts, control of bovine TB is the largest area of your Department’s spending on animal health and welfare. Given that there has been a decrease in the number of bovine TB-free herds, are you reassessing how you target that spending?

Mr Paterson: Emphatically not. This disease is a huge threat to our dairy and cattle industry. 26,000 cattle, which would otherwise have been perfectly healthy, were taken off to slaughter last year in England alone. It has cost us £500,000 over the last few years. We are heading to a bill of £1 billion if we do not get a grip on it, and the disease continues to spread. That is why, sadly, we had to bring in stringent movement controls very recently. So absolutely not; this is a huge problem, and we are determined to address it.

Q29 Chair: In areas that currently do not have bovine TB, there is a fear of a rogue animal introducing it into the herd. I understand that the testing is being stepped up in northern areas such as my own. Is that indicative of the fear, or is that just a precautionary measure?

Mr Paterson: The clear example from around the world is that you cannot get rid of bovine TB unless you bear down on the disease in cattle, and you bear down on the disease in wildlife. These movement restrictions are very difficult, and I do not underestimate the problem for farmers. I have been in an annual testing area for a long time, but I was in Thrapston last week at the market, and they were deeply unhappy to be put on a much more regular testing regime, because it is hugely disruptive and very difficult for farmers.

Q30 Chair: Of course, it is very costly as well.

Mr Paterson: It is very costly, but it is the right thing to do. When I was the shadow spokesman some years ago I went to Michigan, where they had a huge problem with whitetail deer. It was absolutely clear there. It was very unpopular, because Michigan is like a hand; they had the disease in the tips of the fingers, and they had very, very strict movement controls within Michigan. Of course, around Michigan, the surrounding states had equally brutal controls. So they had clear evidence that by restricting the disease in cattle with the usual skin test, and using gamma interferon as well-they were also very, very firm on the disease in an iconic animal called the whitetail deer, where the hunting industry is actually bigger than the dairy industry-when I was there they had got the cases down to zero. So there are absolutely clear examples around the world: you have to bear down on the disease in cattle with movement restrictions, testing and slaughter; and you have to bear down on the disease in wildlife by, at the moment, slaughter.

Q31 Neil Parish: Secretary of State, I know you have been very keen to bring in a badger cull to deal with the diseased wildlife, because you know in Devon and the West Country we have huge amounts of infected wildlife as well as infected cattle. Has the Department looked at all at the potential cost to the Department and to farmers because of the delay in the cull until next year?

Mr Paterson: It was a matter of great regret that we had to postpone the cull, and there obviously will be a cost. Most of the fixed costs, if the NFU decide to carry on in the two areas, will be an investment that stands good for next year. However, the cost of these pilots pales into tiny significance with the massive cost of letting this disease carry on the rampage. We are heading to a bill of £1 billion, and that is insane, because this is an age-old disease and we have clear examples around the world of how to sort it out.

I saw the New Zealand Environment Minister about a month ago. They had got down the number of cases there from 1,700 to fewer than 100. How? By using the tuberculin skin test, by cattle controls, by slaughtering cattle, and by an incredibly vigorous campaign against an animal called the possum, where they are dropping from the air a pretty strong poison. They have got it down to below 100. The Australians did it in another animal called the buffalo up in the Northern Territories. They had very vigorous controls on cattle, and vigorous controls on wildlife. It also happens with our neighbours; there is a reactive cull in Ireland. The Four Counties Trial in Ireland saw a 96% reduction in Donegal. So there is nothing new in this. There is absolutely nothing new at all. It is an age-old disease. We know how to control it. We got it down to 0.01% of the herds in 1972, and we let it slip. It is an absolute disaster, and I am not going to let it go on.

So we will have the pilots going ahead next year. I am absolutely determined of that, because that is using the tools as we currently have them, which I have just described. However, I am also very much open to looking at new technology. There was, during the debates a couple of weeks ago, a lot of discussion about vaccine. Sadly we do not have a vaccine today. I would love to have a button marked "vaccine" and to go and press it, but we cannot. We do not have a vaccine that has been proven in the field. If we did have one, we would then have to develop the DIVA test-we have got a DIVA test, but that is not 100% effective-to differentiate between the diseased animal and a vaccinated animal. The rules go right back to the OIE. Everyone blames the European Commission, but the European Commission is actually only obeying the OIE. You cannot have an international trade in cattle if you have animals that may be diseased even if they have been vaccinated. That is absolutely right. We cannot have a debilitated herd with this latent disease in it.

I am going to be talking to the Commission in detail on how we do start proper trials on vaccines, and how we do trials on the DIVA test, because that is obviously the next step. There are other technologies that I am keen to pursue. As I said, when I was in Michigan in 2005, the Americans were using gamma interferon as a backup to the skin test; we all know the skin tests are very good for herd tests, but it is not a very good individual animal test. So I think that would be a tool that is well worth looking at.

There is another area that gets us round this fraught problem with the wildlife. As you know, I have always lived in the countryside, and I had two pet badgers as a child; I want to see healthy wildlife. I saw one of the world’s great experts called Professor Canini, and he was clear that there was potential in PCR diagnosis. That would just change the whole debate. If we could go to badger setts that were definitely confirmed to have the disease, that would really change it. If we could just focus on diseased animals, that would make an enormous difference.

So there are two strands here. I am quite determined we go ahead with the two pilots, as constituted. The NFU have put enormous trouble into it; they have set up the companies. We have put a lot of money in, and they have put money in. People on the ground have put an enormous amount of effort into this, and there was huge disappointment across the farming community, and particularly the cattle industry, that there was the postponement. So those go ahead; I am quite clear about it. They go ahead next summer. However, parallel to that, I am very open to all the suggestions that we had in the debates. It would be brilliant if we could find a vaccine that worked, and if we could find a DIVA test that was cleared by the OIE and the Commission, which we could bring in across the country. That would be great. The other things I mentioned, gamma interferon and PCR, would also be helpful. So I am very, very much open to any new technological developments. Yet I am also quite clear that if we are to get this ghastly disease under control, and get it back down to where it was in the 1970s, we have to use the tools at our disposal. Sadly, one of those is culling wildlife, as is shown in every other country. There is not a single other country with a dairy industry, a cattle industry and a problem of bovine TB that does not bear down on the disease in cattle and in wildlife. I did my 600 parliamentary questions on this, and since 2005 my slogan has been, "I want to see healthy wildlife living alongside healthy cattle."

Q32 Sheryll Murray: I have some alpaca farmers in my constituency and they are really, really concerned because they are affected as well. They told me that there seems to be an increasing sign of this disease moving into domestic animals like cats. Do you have any information on that?

Mr Paterson: When I was down in your part of the world years ago doing the questions, I did come across a case, which I did not manage to get absolutely confirmed, of a cat that had picked it up from a badger. They had been sharing a bowl of cat food or a bowl of milk that had been put outside the back of someone’s door. There are a few anecdotal examples of cats having picked this up. I was talking to someone in France this morning, down in Burgundy, and there is a real worry there that TB has got into other wildlife. They mentioned foxes, and in particular wild boar, and obviously badgers. So this is transmissible, and that is another very good reason for getting on top of it, because what is always forgotten is that the wildlife that gets this horrible disease eventually dies a horrible death. That is not kind, and it is not good for the wildlife.

Q33 Neil Parish: There is not really a system of testing the alpacas and llamas and tracing where they are moving. This is one of the problems that the alpaca farmers have. Are you looking at that?

Mr Paterson: That is an issue that I think we will be looking at in the coming months.

Q34 Richard Drax: You say "sadly" cull. You are a country man. Is it not a matter that animals have to be culled anyway? Deer are culled because, if they are not, their health is affected. At some point I suspect this debate about badgers would have come upon us even without the disease. Is that a fair comment?

Mr Paterson: It is a perfectly fair comment. I have been completely clear that you have to manage wildlife. Bluntly, the superior predators have gone. A very long time ago, you had bears roaming around this country. The last wolf to be killed in England was actually killed in my constituency, at a place called Wolf’s Head, appropriately, I think at the end of the 17th century. So if you take out the senior predators, someone else has to step into their shoes to manage wildlife. If you do not manage wildlife you get into trouble, and one species becomes predominant. So you are quite right. Tonight people will be lamping foxes, they will probably be ferreting or gassing rabbits, and they will be out ratting. You have to bear down on wildlife. Everyone knows that if you do not keep birdlife under control, the whole sky fills up with magpies and carrion crows. So I am absolutely relaxed. You have to manage wildlife, and this is part of it.

Q35 Mrs Glindon: Secretary of State, could I ask why there is such a high disallowance from the administration of the fruit and vegetable trader scheme?

Mr Paterson: I think at this moment I turn to my right and ask the Permanent Secretary to come on. This was before my watch.

Bronwyn Hill: Indeed. This relates, as you know, to the fruit and vegetable producer organisations, which are recognised under EU rules for assistance under CAP. What has happened there is that there is a difference of opinion and interpretation, if you like, of the guidance and the criteria as to what constitutes a producer organisation. The EU has come along and said they disagree with the definition in England. As a result of that, over a year ago Ministers asked us to do a full review of all 39 producer organisations in England. Some of them withdrew from the scheme as a result of that. The rest, I am pleased to say, we have been able to identify improvements that they could make so that they now, we believe, are in a position to meet the criteria that the EU set. Because of that, EU disallowance, effectively a financial penalty, has been imposed on England, and we have no other choice but to meet it. However, we, and a number of other member states, are still very concerned that the Commission and their auditors take this very strict approach to producer organisation criteria, which seems to disadvantage northern member states. They tend to follow the collective, cooperative approach that you see in southern member states, and so as part of the future CAP reforms, we will continue to press the Commission to broaden what it will accept as a producer organisation.

Q36 Sheryll Murray: In a past life I was the chairman of a fish producer organisation that was recognised under EU rules. There was a very strict process in setting up the producer organisation, and it had to get recognition. They do not actually get the withdrawal prices and the intervention money any more. But surely there is a regulation where the Department should have ensured that these producer organisations were able to be recognised under the EU rules before they started to allow them to have any money. Did this not happen?

Bronwyn Hill: Yes, it did. So we looked at the regulations that apply. This is for fruit and vegetables, not for fishing per se.

Q37 Sheryll Murray: Yes, I know. But it is similar.

Bronwyn Hill: It was a very broad framework, and I guess you could say it was open to interpretation. We in England interpreted it one way, as did some other member states. The EU auditors often come many years later, after the decisions have been taken and money has been allocated. When the EU auditors came to audit it some years later, they took a much narrower view of whether or not these organisations met the criteria. We are not happy with that view, and we continue to press the case, but we have had to accept that decision, and hence we reviewed the organisations and have now brought the remaining organisations up to meet what we believe the standards are. However, I think you are right. The fault was, there was a very broad framework, but it was not until some years later that the EU auditors came to investigate it.

Q38 Sheryll Murray: We are in a similar situation to that in which we have been in the past under state aid rules, then, where we perhaps did not check to make sure that we were able to comply with the rules before we started allowing that to happen.

Bronwyn Hill: It is a good question, because I asked that question as well, when I joined the Department. Apparently we did seek guidance from the Commission, but they were quite reluctant to be definitive, because it is the EU auditors who are definitive about the interpretation. This is really disappointing and regrettable, and it is one of the reasons why we are looking for alliances with other member states who share our view that some of this was too strict. I am not saying that all the arrangements were perfect. They were not; irregularities were found. However, our view is that the auditors took too strict a view, and we will continue to press for a broader view of what constitutes a producer organisation. We did as a Department take the view that it was not worth it. We would have had to challenge it in the courts, and we thought it was better to regularise the arrangements, and give the producer organisations a chance to comply, which they have now done, so that they can qualify for financial assistance.

Q39 Sheryll Murray: Has that been approved by the European Commission?

Bronwyn Hill: They have not come to look at it yet. So this is us taking a view. The RPA got external monitors to look at it.

Q40 Chair: We are coming on to that.

Bronwyn Hill: So we do not know what view they will take on that.

Q41 Barry Gardiner: Secretary of State, when we applied for an extension under the Ambient Air Quality Directive beyond the 2010 deadline, to 2015, we applied for 24 of the zones out of the 43 in the UK. We got the extension for 12, but for 12 we did not. We then applied for a further 16 zones, which we thought we could not even meet by the 2015 deadline. The EU has yet to rule on that, but given that they did not accept half the ones that we thought we could meet by the 2015 extension, it is highly unlikely that they will approve the further. What assessment has the Department made of the potential monetary penalties that will be levied on the UK for the exceedances of levels of air pollutants as a result of this?

Mr Paterson: I will defer to our Finance Director on this particular issue.

Tom Taylor: One of the difficulties with dealing with provisions, as they are called-basically what may be possible finds in the future-is twofold. Firstly, there is a degree of quantification that is involved, and then there is a degree of likelihood. Only if we can be sure about the quantification and reasonably certain about the likelihood can we make a provision in the accounts for any such future finds. So you will find in the notes to the accounts, in note 19 and its sub-clauses, all of the provisions that we have made. There are also contingent liabilities which are less certain, and sometimes less quantifiable. Those are also described in the accounts in note 25. We even go as far as something called "remote contingent liabilities", which are things that go beyond the requirement of the International Accounting Standard 37 for contingent liabilities, and give some kind of sense of what the broad risk environment might be.

Q42 Barry Gardiner: Mr Taylor, if I may say so, you have given me procedure, but you have not given me a figure. What I was asking for was the figure. If you have not got it to hand, then by all means do write to the Committee with it. What I wanted to know was, what provision have you actually put in there? What money is set aside in the accounts against these exceedances?

Tom Taylor: I will check whilst you are asking other questions, but I do not think there is one for the air quality directives generally, because it would be unquantifiable at this stage. I will check.

Q43 Barry Gardiner: This is despite the fact that our extension in half of the cases has been rejected. Remember, the extension was from 2010. We asked for an extension to 2015 under, I think, clause 22 of the directive. Despite the fact that they have rejected half of those extensions, what you are saying is that we have no provision in there against any financial penalty. Similarly, in the other 16 cases where we did not even think that we could meet the pollutant levels by 2015, we have no provision at all?

Tom Taylor: I think Bronwyn will come in in a second, but there is a very strict definition around provision. I am not sure whether you are trying to tie us down to that strict definition, or whether you are talking in more general terms about whether there is some kind of recognition in the accounts. Could you clarify?

Bronwyn Hill: Shall I give you a broader answer? One of the challenges, and a problem that other member states face, is that a lot of the problems on air quality are driven by transport. Indeed some of the measures that the Commission has taken on NOx, for example, through vehicle standards, are actually proving not to be as effective as everybody had hoped they would be. So I think we all recognise that it is a much broader problem than just what the UK can do alone. For that reason the Commission is reviewing the EU air quality policy, in particular looking at air pollution in 2013. What we are doing is engaging in that review, because I think there is an issue. We are taking a lot of action, as you probably know, but there is a limit to how much practical action can work effectively, given that some of the wider EU measures on vehicle standards have turned out to be not as good as we thought they were. Although Tom is still checking, with the review coming up, the difficulty in those circumstances is that knowing how much provision to make in your account is very uncertain. It is very difficult.

Q44 Barry Gardiner: Ms Hill, forgive me-I do not want to put words in your mouth, so correct me if I am wrong-but it sounds as if what you have said is, "Actually, we do not think that it is going to be as easy to meet those targets as we originally thought, and so what we have been doing is lobbying to get rid of the targets to improve air quality, or to lessen those targets, so that we would be able to meet them. In such a circumstance we think it is less likely that the Commission will impose the fine."

Bronwyn Hill: That is sort of half the answer. The other half of the answer is looking at everything that the Government and local authorities and others can do to try to meet the targets if we can. That is through public transport improvements and taxation incentives for people to buy vehicles that are less polluting. There is a whole package of measures that we are taking to try to meet those standards. Indeed, on PM10s, my understanding is that we have made very good progress, including in London where the problem is most difficult, to the extent that we think we are doing much better and have practically satisfied, although we need to keep on at it. The real outstanding challenge is on NOx, where the Commission acknowledge that their Europe-wide action on vehicle standards has not delivered the improvements that we all expect to see. Despite our best efforts-and this is local authorities, the Department for Transport and others-we are struggling to see what practical measures we can take to meet the standards that were set quite some time ago. So I think it is a mixture of both discussing with the Commission and other member states what we can do, and inputting into the Commission’s review of the policy.

Tom Taylor: The direct answer to Mr Gardiner is that there is no strict definition around provision. We do not have a provision, because that would mean we were absolutely certain of the value and the imposition of any fine. We are not in that position. The next category down is contingent liabilities, and we do recognise a series of largely unquantifiable contingent liabilities in respect of a number of European directives, where there are questions about compliance, but the particular one that you are asking about is not amongst them.

Q45 Barry Gardiner: Does that account for why there has been an underspend in the Department-because you have had these contingent liabilities being carried forward?

Tom Taylor: No, contingent liabilities are not actually transacted. Only provisions involve transactions. Contingent liabilities are simply notes to the accounts under International Accounting Standard 37.

Q46 Barry Gardiner: Would the same question apply for provisions?

Tom Taylor: No, for a provision you actually have to transact on to the balance sheet a non-current liability, and under Clear Line of Sight that is created in AME (annually managed expenditure). If we later get on to talk about disallowance more generally I can go through that. For provisions you do have to transact. In other words, there is an impact on your budget, but for contingent liabilities there is not.

Q47 George Eustice: Ms Hill, given that the Commission acknowledge that their own proposals to reduce these pollutants have not really worked, or delivered as much as they had hoped, what grounds did they give for refusing the extensions that we asked for, in these particular cities?

Bronwyn Hill: My understanding is that at a very high level they are saying that these targets are set on grounds of public health, so "What should we be aiming for if we could achieve it?" They do start from a public health perspective. I imagine that they would also say that there are other things member states can do, which do not go to vehicle fleet, if you like, but looking at local action such as taking traffic out of certain particular areas, if it is possible. But that is quite a draconian measure to take. Quite frankly, some of you will know from your own experience that removing all traffic from certain areas is very difficult. So it is a genuine debate as to what can possibly be done, that is both costeffective and publicly acceptable, to meet the public health standards.

Q48 George Eustice: To be credible, a target needs to be achievable, doesn’t it? Is it your view that the Commission were wrong on this?

Bronwyn Hill: It is a very difficult subject to get precisely right, not least because, as we were discussing about airborne spores earlier, some of the pollution is as a result of weather conditions. Whether you are in a deep valley or on top of a hill makes an impact. So what they are trying to do is to set a framework at EU level, but in practice, there are very different circumstances locally. The most challenging place in England to deal with air pollution is London, partly because of the mix of traffic, partly because of the built-up area, but also because of the weather conditions. So it is actually a very challenging area of policy to get right over a long-term process.

Q49 Chair: Turning briefly to water quality, the Court of Justice ruled in October that the United Kingdom is in breach of the Urban Waste Water Treatment Directive. Will you consider legislative action? Will it be part of the Water Bill? In the event that fines might be imposed by the EU, has an allowance been made for this in the Department budget?

Mr Paterson: We have the Water Bill coming through next year, and we have the potential project of the Thames tunnel, which will have an enormous impact: 20 million tonnes of untreated sewage is going into the Thames. On the issue of the financial impact, again I will turn to the Permanent Secretary.

Bronwyn Hill: We have not yet got to the stage where the EU is threatening fines. What they have done is to say that in their judgment we need to do more to meet the requirements of this directive. As the Secretary of State said, it is very disappointing that the court found us in breach, because in London we are putting an awful lot of investment in through the Lee Tunnel improvements and sewerage treatment works, and indeed the Thames Tideway Tunnel, which we think should meet the Commission’s concerns.

There is another case, Whitburn in the North East, where we believe that the court is ignoring the fact that it is very difficult cost-effectively to provide improvements that would address the problems that they have raised. What we need to do next is study the court’s judgment and decide how we will respond to that. So we are a long way off yet from fines being imposed.

Tom Taylor: On the specific point there, whether it is provided for, as the Permanent Secretary made clear, it is not provided for in the accounts. It is held as a contingent liability, as was explained to Mr Gardiner earlier, so it is a possibility as yet. It is unquantifiable and uncertain. The interesting thing about this potential liability is that the costs are probably likely to fall more on the industry than they would on the Department itself.

Q50 Dan Rogerson: Close scrutiny of the RPA is a subject that we regularly turn to. The NAO qualified the accounts on the basis that the RPA could not accurately or entirely account for payments to farmers where there were underpayments and overpayments made. How is the Department tackling this problem of both under and overpayments?

Bronwyn Hill: It is a very difficult problem, as you probably know, which is partly as a result of the legacy of the poor implementation of the last CAP reform in 2005. These things are challenging because as soon as you discover there is a problem, because it is a yearonyear payment, you have to work your way right back through the system. What we have done, although it is largely the RPA who are doing this, is focus on getting the payments right in the first place, so they set much more challenging targets for both accuracy and the speed of payments, which I am pleased to say they met last year. We hope this year, with the payment window opened in December, they are on course to meet those targets.

The second thing is to have a project, as part of their five-year strategic improvement plan, which is basically going through all the data, dealing with these difficult and complex cases, and working them out through the system. The question is: when will they be free of the qualification? It is important to recognise that they have done a lot of work already, but there is still much to do. It will be for the NAO to judge, at the end of this current financial year, whether or not they have done enough to satisfy and to have the qualification lifted. My own personal view-but it is probably too early in the year to say-is that it may well take them through to the end of what we call the payment window, which finishes in June next year. It may be that their ability to tackle this problem extends into another accounting year, but they are doing everything that they can to work through these problems.

Q51 Dan Rogerson: Clearly, as you referred to, the setting up of the whole system in 2005 was a problem, and it has been a constant saga of trying to recover from that and improve the position. You said you are not sure whether it will run into next year, but are you confident that progress is being made on this?

Bronwyn Hill: I am confident that progress is being made on the under and overpayments problem. It is probably worth being really clear with the Committee that in terms of disallowance penalties, because they also apply to other schemes for other reasons, we have taken a view-because we have to, to make provision in the accounts-that on average across all our European schemes, which includes CAP, RDP, etc., it is probably only possible to manage the overall level of disallowance, with our best efforts, down to 2%. That is just because of the complexity of the schemes and the very narrow view that you see auditors take when they come to investigate many years later. Believe you me, that is putting a lot of time and energy into managing down to those levels, as all other 27 member states have found out.

Q52 Dan Rogerson: With regard to overpayments in particular-which is more a problem for Government than underpayment, but that is a problem for those who should be receiving the money-are you able to put a figure on that, and how much of that money would you expect to recover, if any?

Bronwyn Hill: The problem is it changes all the time. The work that the RPA are doing is to try and recover as much of it as possible. If I could just explain the mechanic for recovery, because obviously it impacts on farmers and their income, what they try to do is: if it is a very small amount, there is a de minimis below which we write it off because it is not worth the cost of trying to recover it. Then in brackets over that they look at what this would do to the farm income through SPS payments, and they try to withdraw it by paying less SPS across the year. Does that make sense? It is to manage the impact on the person who is receiving the money. I do not think I have an estimate at the moment of where we are in that.

Tom Taylor: We do not have an estimate of where we are as of today.

Q53 Dan Rogerson: It is a census point, presumably.

Tom Taylor: Yes, on the accounts census point, as you say, under the RPA’s scheme called Scheme Trade Receivables, which is basically people that have been overpaid that in essence owe us money, it was £14.9 million.

Q54 Dan Rogerson: How does that differ with the previous year?

Tom Taylor: The previous year was £24.5 million, so they are making progress. Our understanding from operational data is that as they approach the really big payment window points, which are typically around 1 December and February, they have a really effective scheme in place to wash out under and overpayments. I am hopeful that the balances will be much less, as the Permanent Secretary said, at the census point of this current financial year’s accounts. Whether it is enough to satisfy the National Audit Office that the problem has gone away is for their judgment.

Q55 Dan Rogerson: So it is getting it right in the first place, but secondly where there has been an overpayment, some is written off and others have a repayment process or discounting from future years. Is there an aim to recover, other than the de minimis, all that can be recovered, or are there other circumstances in which things are written off?

Bronwyn Hill: Yes.

Q56 Dan Rogerson: So the only circumstances in which it is written off are where it is just not worth pursuing.

Tom Taylor: You pursue all money owed to you, unless it is uneconomic to do so. You may get to a point where you have pursued a debt so far and maybe the company has gone into administration or the person has died or something, and in that case you have to write that off. But those are on a case-by-case basis. The only blanket allowance for writing off, as the Permanent Secretary said, is where the de minimis level suggests it would cost the taxpayer more to pursue that debt than it would get back in return.

Q57 Chair: Can I just ask the Secretary of State, if an agency like the RPA is deemed to be underperforming, what is your policy on bonus payments? Is it right that the chief executive of the RPA should be paid a bonus out of the RPA budget for his work in his previous life with the Child Support Agency? Is that a practice that sits comfortably with the terms of austerity?

Mr Paterson: Happily I do not run the civil service, and those arrangements are within the hierarchy of the civil service. From my own constituency experience, the RPA is working much better. It was absolutely horrendous when it was set up, so there is some credit for those who have been working in the RPA. I really take my hat off to Jim Paice, who is very involved in this. It really is much, much better; I do not know about the Committee, but I am getting far fewer letters of complaint about the manner in which it conducts itself.

Bronwyn Hill: Shall I comment on the bonus payments? The challenge is the RPA was performing badly, and we needed to recruit a new chief executive officer to basically turn that organisation around. It is very difficult to recruit someone to get them to sort out a mess, if you are not able to offer them the same bonus that is available to any other member of the senior civil service. It is the policy of the civil service to pay bonuses where they have been earned in a previous organisation. I am not clear whether we transfer the money from DWP to Defra to pay it. I think you may be right.

Q58 Chair: Could we possibly look into that?

Bronwyn Hill: Tom knows.

Tom Taylor: I remember us having that discussion last year. That was an issue in relation to last year because there is a year’s lag in terms of when the bonus is paid. The bonuses that are shown in this year’s accounts actually relate to the performance year of the year before the accounts, if that makes sense. It is a slightly quirky arrangement. I can confirm, as I have actually got the RPA’s accounts here, that the chief executive of the RPA did not get a bonus payment in 2011-12.

Q59 Chair: And did you recover those payments for 2010-11?

Tom Taylor: There is an arrangement with other Government Departments where if it is economical to do so then we will journal between Departments.

Q60 Chair: How do you define whether it is economical to do so?

Tom Taylor: Whether it would cost more in administration to go through the mechanics of recovering that money, given that it is all taxpayers’ money and it does not matter whether it is on Defra’s vote or DWP’s vote. Parliament has in essence paid that money.

Q61 Barry Gardiner: I want to switch from overpayments or bonus payments to straight fraud. I understand that this year the identified fraud on the RPA went up from just under half a million-I think it is £460,000-to some £3.59 million. This is fraud by landowners or farmers. I want to find out how much of that £3.59 million has been recovered; what prosecutions have followed; what convictions have followed from those prosecutions; and what the agency is doing to reduce those figures in the future. Do you publish on the Defra website or anywhere else a list, as it were a shame list, of all the farmers who have been identified to be defrauding the RPA?

Tom Taylor: There are lots of questions there. I will ask the Permanent Secretary to help, but I will start. You are right that the figure has gone up by just over £3 million between the two years that we are talking about. It is due to two things. Firstly, it is an increase in the way in which we look at fraud, so there is more assiduous attention to the fraud statistic itself. Moreover, there is sizeable grant fraud detected in the RPA, which is what you are referring to. In terms of the details of all the specific instances and whether the money has been recovered, certainly our policy is to recover all illegally claimed money. That process will definitely be in place. I do not have the information as to whether that has been recovered, or whether any prosecutions and convictions have ensued, at my fingertips today, but we could send you a note on that.

As to the name and shame issue, to my knowledge that is not something we do.

Q62 Barry Gardiner: Why not? This may be more a question for the Secretary of State. Do you not agree, Secretary of Sate, that it would be a jolly good idea to have a board of shame for those farmers or landowners who have tried to defraud the system-never where it is a straight overpayment, but where there is real fraud detected and proven?

Tom Taylor: Well it is the "proven" issue, isn’t it? You would have to wait to the point of conviction before you could be in a position to do that.

Barry Gardiner: Yes, of course.

Tom Taylor: Anything before that point would be prejudicial.

Q63 Barry Gardiner: Secretary of State, is it a good idea?

Mr Paterson: My experience of cases is the problem often is the fiendish complication of the system that was set up. My ambition in my discussions with my fellow Ministers as we go into the next CAP reform is to try to make sure it is simple and easy to understand.

Q64 Barry Gardiner: I am sure we are all agreed about that. We are talking about where there is proven fraud, not where somebody has made genuine mistakes or it is a difficult system to get their pretty little heads around. We are talking about where there is a case that has gone to court and fraud has been proven. These people continue to draw money from the RPA, in future, one expects within the limits of the scheme, but should there not be a mark of shame that hangs over them for having defrauded the system in the first place?

Mr Paterson: That is an issue I would take advice on: the legality of exposing people on the internet until we had established exactly what the legal terms were.

Barry Gardiner: I look forward to receiving your note once you have taken the advice.

Q65 George Eustice: I just wanted to ask how far back the frauds that have been detected go. You could argue that it is because they have become more effective at detecting them, but are they frauds within the current financial year, or are these frauds that may go back 10 years?

Tom Taylor: That is a very good question; I do not have that information to hand. The detection is in the financial year, but I do not have the information about the degree to which it would go back over a number of years.

Q66 George Eustice: How long would you expect the RPA to maintain records of what has been paid out and under what basis to farmers? Do you have any protocol?

Tom Taylor: Ad infinitum in terms of going back. We still go back and reprocess issues from 2005 and so on. The records will be there. Proving criminal intent as opposed to simply being confused about what is a horrendously complex system is the tricky issue. Deciphering that in previous years is probably even harder.

Q67 George Eustice: If the RPA ended up in litigation with a farmer over a dispute over a payment, would you expect them to keep all the documents related to that litigation, or is there a period after which they get destroyed?

Tom Taylor: I would imagine they would keep them, but I am not an expert.

Q68 George Eustice: It is just interesting, because I had a business once that said that, after litigation, a lot of documents were destroyed and they were unable then to look at it again.

Tom Taylor: That can be practice in the private sector, but because of the expectations of probity in the public sector we would tend to keep the documentation going a long way back, not least because we need it for any recalculations of previous claim values. I would also like to stress, although any amount of fraud is of course regrettable, this is £3.5 million out of well over £3.5 billion of scheme expenditure. That is a pretty small percentage.

Q69 Neil Parish: I want to turn now to the cost of processing a single payment scheme. The National Audit Office raised the high cost of processing back in 2009, and said it was £1,743 per claim. The RPA stated that they thought it would be £1,100. Whichever figure it was, it is still about two or three times the cost of processing a single farm payment in Scotland and Wales. Perhaps I am being a little cynical, but you have now moved the goalposts. The method of calculating the cost of processing SPS forms has been changed. According to the Department it will not be possible to compare this year’s figures with previous years. As I said, if I was being cynical, I would say you have just moved the goalposts so it cannot be compared. What are the reasons and what is the figure now?

Tom Taylor: The difference between the NAO’s and the RPA’s calculations of cost per claim have been long explored in this Committee. In very simple terms, the NAO’s calculation takes the entire operational spending cost of the agency at a point in time, divides it by the number of claimants of SPS, and that gives an average figure. That is what you might call a token average cost per claim. The RPA has always tried to produce a figure which is more of a variable cost figure, so it just focuses on the variable elements of costs that are attributable to SPS. This was a methodology that was worked out by PricewaterhouseCoopers some years ago.

Those two series of figures are both valid; one is showing an average cost of total and the other is showing an average cost of marginal. There is no right or wrong there; they are just showing different things. What the RPA has done with its new definition is to take that methodology a bit further, and take out elements such as depreciation, which are not strictly attributable to the administration of an SPS claim-they just happen to be costs in the agency-to try and give a more precise figure of the average cost per claim. The figure that is released for 2011-12 in the annualised QDS, which is in the Annual Report and Accounts, is £760. We are confident that that represents a downward trend despite the change in methodology, because the running costs of the agency are falling over time. The number of staff that the agency employs is falling over time. Therefore, given that the number of claimants of SPS is broadly stable year-to-year, that leads you to conclude that the costs are falling.

That excludes one-off investment costs such as the Strategic Improvement Plan or the Future Options Programme, but that is crucially the difference between the NAO and the RPA methodologies. One gives you a total average and one gives you a marginal average. It is, as you say, rather more expensive than the average cost in other devolved Administrations.

Q70 Neil Parish: I think you will find it is still about twice the cost, so what is the justification for that?

Tom Taylor: Again, this has been explored at this Committee. The administration mechanism that the Scots in particular chose was altogether more straightforward and cheaper to administer than what was chosen back in 2005 for the implementation in England. We chose a dynamic hybrid implementation, which involves a degree of grandfather rights, but also an area aid element. It is really an issue along those lines. It does not necessarily mean that one scheme implementation is better than another. You get different results depending upon what you choose to implement as to whether actual farmers are receiving SPS payments. There was an interesting "Panorama" programme on the impacts of that in Scotland.

Q71 Neil Parish: What it proves is what the Secretary of State just said. What we do not want is another CAP reform that then creates a whole load more bureaucracy, which then puts the price up even more. I cannot say that is necessarily in your hands, but it is necessary. We could say then that the cost of an SPS claim is due to the complexity of the system that the last Government brought in, but you probably will not be led into that particular situation.

Tom Taylor: I can certainly confirm it is because of the complexity. The choice as to what to implement was a decision for the administration of the day.

Q72 Sheryll Murray: When Richard Macdonald gave evidence on his report he told this Committee that he did not think that a new EU strategy professionalism team had made a difference. Given that 52% of your regulations derive from Europe, will you consider strengthening that team?

Mr Paterson: He came up with a number of recommendations, which we are working our way through. We agreed 137, and are methodically bringing those in. They will make life easier for considerable numbers of people who conduct their businesses correctly. There will be a presumption of good behaviour and it brings you less regulation.

I have not been involved directly in this process. This happened under my predecessor, and I take my hat off to Jim Paice and Caroline Spelman, who together did bring this in. I have never visited a farm in the last 15 years and not had someone complain about the paperwork, so this is absolutely a major priority for me. My expression is I want to get Defra out of people’s hair. I want to make life as easy as possible for people to pursue their legitimate business, whatever it is, with minimal interference from us. We do obviously have to regulate because that is the way to run a business, but we must make it as easy and quick as possible; that is important, so it does not take up a huge amount of time.

Perhaps the Permanent Secretary has more on this.

Bronwyn Hill: Not specifically on the point about strengthening the EU team. What I have to say is that, for Defra, negotiations in the EU, particularly on critical polices like CAP reform and the Common Fisheries Policy, are absolutely top priority for us in supporting Ministers batting for the UK and getting the right outcome from those schemes. We are only one of 27 member states; the European Parliament has a view as well. I would say we are doing as much as we can to influence Europe, but as the Secretary of State has said, it is much easier to have a farming industry that is self-regulating, putting in for quality assurance schemes and doing the right thing. We would much rather not have to inspect and regulate. We have to do a minimum amount to satisfy EU cross-compliance, so again we go back to the risks of disallowance. It is a balance of where we put our resources both in the core Department and in our agencies like the Rural Payment Agency.

Q73 Sheryll Murray: Your analysis of the costs and benefits of Defra’s regulations found that there was a net cost to business, but an overall benefit when the benefits to the wider society were included. Does this suggest that you should focus on reducing the compliance cost rather than removing the regulations themselves?

Mr Paterson: I think we would entirely agree. That is what I would like to see happen. There is inevitably going to be regulation in matters to do with animal health and welfare, food security and all that. The trick is to make it as comprehensible and easy to apply as possible so it does not absorb people’s time. The Government can ruin a business by taking someone’s money, but, equally importantly, by regulation taking someone’s time. The vast majority of these businesses are small family concerns and they do not have the time to devote to this. Time devoted to this activity is time not devoted to animal welfare or other important matters to running the business. So I entirely agree, our whole aim is to make it as easy as possible to live within the regulations, which I think we all agree to a certain point is necessary.

Q74 Sheryll Murray: Finally, Secretary of State, I apologise for raising this, but it is a matter very close to my heart. I absolutely 100% still agree with the contents of your Green Paper, which you published in January 2005, where in chapter 10 you clearly outline the benefits that we would have if we had more control over our domestic policies in the area of agriculture and fisheries, and how we could save the Treasury money. Do you still agree with that?

Mr Paterson: Yes, I entirely agree with that. I do not resile at all. Are you referring to the fisheries paper?

Q75 Sheryll Murray: I am referring to your fisheries paper on national control, dated January 2005.

Mr Paterson: I am completely clear that that is the direction we would like to go. I would like to put on record my congratulations to Richard Benyon for his negotiations, where he has achieved considerable progress. It is not coalition Government policy to go as far as my paper suggested, which was to establish national and local control, but there are elements. I had 10 points in that, and an absolute key one of those was the elimination of discards and the compulsory landing of everything that is caught. One of the complete idiocies of the Common Fisheries Policy is that it drives blind. Because of the hideous level of discards, the data is absolutely guaranteed to be totally inaccurate and six months out of date.

If you go to the Faroes or Iceland where you have compulsory landings, they have absolutely up-to-date information to help direct the fishing activity. Richard has done a great job within the CFP: there will be this major landmark of ending discards and getting everything that is caught landed so we know what is going on, and also a very significant move to more local control. As you know from your personal experience, living in a fishing community, these are micro marine biological units, and lumping them in as one vast entity is a very silly way of running a fishing policy. Richard has done very well with his negotiations; it will be a major advance-not quite as far as some of us would like to go down the road, but a huge advance none the less.

Q76 Barry Gardiner: Just so that no one misconstrues your response to Ms Murray, my understanding of the Secretary of State is that the Department’s position, which has indeed been negotiated by Richard Benyon, is that it should be an ecosystems-based policy, and that regional fisheries management is the way forward. Is that not still the case?

Mr Paterson: Absolutely, and he has done extremely well on that. There will be much, much more local decision making on this. It is a huge advance on where we are.

Q77 Barry Gardiner: It was just the assumption of renationalisation, if I can put it that way.

Mr Paterson: No, it is local. My paper was about national, and above all, local control. If you go to the fishing communities on the East coast of the United States it is all about local control. If you go to the Faroes, Iceland or Norway, it is the local control where people are reacting to the marine biology of their own patch.

Q78 Barry Gardiner: Regional management on a scientific ecosystems basis.

Mr Paterson: Yes, exactly.

Q79 Chair: Just before we leave this subject, the core of the thrust of Richard Macdonald’s taskforce conclusions was that the earliest possible intervention is required. Can you convince the Committee that you are now in a position to achieve that in the Department, in terms of EU proposals at White Paper stage, Green Paper stage and so on?

Bronwyn Hill: I think the answer has to be yes, we try to get in as early as possible to influence, but as I said, it is quite a challenge when there are 27 member states in the European Parliament. We lobby Parliament, we use briefings, and getting in early is the right thing. It does not always guarantee success, but we do put all our resources into doing that.

Q80 Chair: Are you familiar with the French expression "piston", of actually putting people in a permanent position or on temporary expert contracts? Are we actually placing people in those positions, as well as the Irish, French and other nationalities?

Bronwyn Hill: We try to. Indeed one of my directors general in the Department, Katrina Williams, has been working with us across Whitehall to try and raise our game on that. We recognise there is more we could do to get good people with good language skills and the right sort of attributes into those key roles in Europe.

Q81 Chair: I think you would accept that you are the Department that interfaces more with Europe than any other Department of State.

Bronwyn Hill: Yes, it is a huge part of our business.

Chair: So it is extremely important to achieve that.

Q82 Neil Parish: On the regulation, does the Secretary of State look forward to abolishing much more red tape? The farmers want to see more happen on the Macdonald report than has happened so far.

Chair: Can you name any regulations, as identified by Macdonald, that you have lifted or renegotiated with the EU since the report was published?

Mr Paterson: Macdonald was about simplifying the implementation and ensuring that good practice brought less regulation.

Q83 Chair: Could you also identify one or two as well that you would go back to?

Mr Paterson: That is coming along, but on the timetable-

Neil Parish: We want it faster, you see.

Mr Paterson: I agree. We get pressure on this the whole time.

Bronwyn Hill: Let us take two examples of what we have done so far on earned recognition. We recognise that good quality assurance schemes reduce the amount of inspections we do, so if you meet quality assurance schemes you are less of a risk. There was a similar approach on nitrates and having low-intensity farms subject to fewer inspections or none at all. That is the implementation side. As we have already said, the reform of the Common Agricultural Policy is our golden opportunity to try and make this easier to implement this time round. That is what we are putting most of our energies into this time. That is where a lot of our focus has to be.

Q84 Chair: If, Secretary of State, it looks likely that the budget may be delayed, which will determine what share of CAP spend there will be in the next multiannual financial framework, the implications for UK farmers could be very serious indeed. I am told by the forestry industry that one of the reasons it is very short-term in the agrienvironmental schemes, particularly the RDPE schemes, is that you are looking at the possibility that they will not even have six months’ notice, in 2014, before the new rules come into effect. Is this something that your Department has given much thought to at this stage?

Mr Paterson: Obviously I have discussed it at European level. As the Permanent Secretary said, this is one of the absolute top priorities for Defra. I made it clear that I will lead these negotiations, so I have been to my first Agriculture Council, met Commissioner Ciolos and other senior Ministers such as the French, German, Turkish and Spanish Ministers.

Q85 Chair: But on the specific question.

Mr Paterson: On the timetable it is completely up in the air. We do not know how the major financial negotiations are going to go. It is honestly impossible to give you a clear answer of where this is going. There is real concern amongst the other Ministers about the speed at which this might be introduced, so I cannot give you a clear programme on what the sums of money might be or the actual timetable. Of course, it is even more complicated, because even if you get agreement in the Council this time, we have then got to go to the Parliament. I was in conversation with Commissioner Ciolos, and he is fully aware of the complications of that. This has not happened before.

All I can give you is my clear strategic direction of where I would like to go, which is not entirely endorsed by my fellow Ministers. The line I have taken, and I made it clear to them, is that I would like to see the logical conclusion following through from the MacSharry and Fischler Reforms: that the production of food is left to the market, so decisions on what crops people grow, what animals they raise should be decided by what the market signals are suggesting. Where I am quite clear there is a role for state involvement and taxpayers’ money, which I think we touched on with Mr Gardiner’s question, is compensating farmers and landowners for the publicgoodproviding work on the environment, where there is no clear market mechanism but there is a very clear public good and a clear economic benefit. I touched on rural tourism being worth £12 million.

At the moment that is all in Pillar 2, and we as a country have some very good Pillar 2 schemes: BLS, HLS-you will all be familiar with the schemes. They are well run and they deliver. I made it clear to my fellow Ministers that I am concerned about this slightly opaque idea of greening Pillar 1, because if we are going to do any green stuff I would much prefer to see that clearly marked down in Pillar 2, and Pillar 2 strengthened. That is where it should go. I am worried that the greening might end up in some sort of greenwash to justify Pillar 1 going on. That is not a view of the future entirely endorsed by other Ministers. I was astounded at my first Council to hear Minister after Minister under any other business come up with cases of appalling weather disasters, floods here and droughts there, demanding significant public intervention on prices, which is going right back to creating mountains and lakes, which I am wholly opposed to and said so very clearly on the record.

I am genuinely worried about this at the moment. I certainly want to build alliances and work closely not just with Ministers; I also had meetings with Mr Parish’s excolleagues, MEPs.

Chair: And my ex-colleagues.

Mr Paterson: And yours. It is very important we build alliances in the Parliament, because they have equal power this time. It is impossible, I am afraid, to give the Committee a clear idea of where this reform is going to go. First we need to know where the money is, which is coming up shortly; then there will be a real sit-down on the detail of the reform. I know where I would like it to end up; I am very clear about that. After your recent questions to our senior officials, it is quite clear the previous system was too complicated. I would like to make it much simpler. I have a horrible feeling what is coming down the track is not going to be quite as simple as we would like.

Chair: Okay, that is very helpful. I am sure we will have many opportunities to discuss this going forward.

Q86 Richard Drax: You had two very large underspends: one in 201112 of £487 million followed a £540 million underspend in the previous year. While this is very admirable in some ways, I suspect, how do you see these underspends having any effect on your budget allocation in the future?

Tom Taylor: The £487 million underspend is an underspend against the voted estimate. It is important to split that into two parts, because there is one part called departmental expenditure limits, which is the money that we use for delivering Ministers’ priorities on the ground and all of our running costs; then there is something called annually managed expenditure (AME) which is annually managed in the sense that it is managed by the Treasury rather than being entirely within the gift of the Department to manage. That was by far and away the largest component of the total underspend, and I would like to take you through the reasons for that. Of the £487 million, £394 million was on AME. I was explaining to Mr Gardiner earlier about the differences in how you account for potential liabilities in our accounts. Under the Clear Line of Sight changes, which was an initiative of Parliament introduced by the Treasury over the last few years, the creation of a provision-so this is an expected outflow of economic activity in money, basically, at some point in the future-is created in AME.

In the course of this year we faced an interesting situation in respect of the Environment Agency’s open pension scheme and closed pension scheme, where they have liabilities on their balance sheet for pensions. We were looking at the gilt markets and the bond markets and taking advice from actuaries, and at the time that we were expected to make a judgment, before the supplementary estimate that is laid in January of the financial year, it looked as if the liability value of that pension fund would rise. So we went to the Treasury and told them we needed extra AME cover for that, and they granted us the extra AME cover for it.

When it came to the end of the financial year and the actuaries came in, it turned out that they had been rather too pessimistic, and we did not need the money after all, so that was simply reversed. That was £280 million. That money was purely an accounting transaction essentially on the balance sheet. It was not money that we could have used for any other purpose. You cannot transfer AME into DEL. You could not have used it for anything other than that specific purpose. It is a creation of accruals accounting essentially; it is the difference between accruals and cash accounting.

There was then another good news story in relation to the Sea Fish Industry Authority, where, as members are probably aware, the Sea Fish Industry Authority had come under challenge from some of its industry members-they pay for the running costs-about whether the levy payments were legal. The industry actually won a case at the Court of Appeal. We created a provision at that point. We then went to the Supreme Court and received a unanimous judgment in favour of the Department, so those payments were legal, therefore the liability that we might have had of £70 million or so we no longer needed to have. That provision was reversed. There was then some other good news in relation to foreign exchange rate gains in the RPA, Natural England accelerating its voluntary exit scheme in order to drive down its running costs, and some other small items. Adding all that up meant that against the estimate, as adjusted in the supplementary estimate on Estimates day, we underspent on AME.

As I say in chapter 5 of the report, we are unlike some other Government Departments where AME is real money. In DWP where I used to work, or in HMRC who now deal with tax credits, AME is used for benefit and tax credit payments. It is literally money that goes out of the door. In this Department, it is entirely the preserve of accruals accounting. It is not actually real money in the way that you would recognise it, but it has to be recognised in resource terms. So that £394 million was all AME, all actually good news in terms of why we no longer needed that money, and explains the large variance.

There is then an £84 million underspend on departmental expenditure limits, which is the genuine money that we use for delivering Ministers’ priorities on the ground. If we break that down into its constituent parts, in terms of capital we spent virtually all of our capital allocation-99% of it. That is as close as you can possibly get without breaching a control total, which would land us in hot water in terms of Parliament’s judgment of these matters. We made significant savings against our administration budget of £132 million. This is the money that is used to pay for back office costs, IT, estates, civil servants and the serving Minister in London and so on. We made significant savings, £132 million against that budget, and Ministers decided to transfer around 40% of that into more front-line activity. It was a good example of in-year prioritisation, taking money out of back office and putting it into frontline, so £53 million was transferred into programme expenditure, as we call it.

There was then £79 million which was returned to the Exchequer, which helps to pay down the deficit. Actually, from the £84 million, if you take away all of the ring-fenced items such as depreciation-we have a number of ring fences around disallowance and other things-the amount of money that we could have spent or had a choice to spend was £53 million, which was around 2% of budget.

Q87 Chair: Just before we move on, the question Mr Drax was hoping that you would answer-we obviously have the figures in the accounts-is what impact the history will have on future budgets.

Richard Drax: That is what I was just about to ask.

Tom Taylor: It will not have any impact at all on future budgets because our budgets are set annually by Parliament, so to the extent that we return that money to the Exchequer, that helps pay down the deficit. Our budget for next year is what it was always going to be as voted by Parliament through the main estimate. It is not something that rolls forward in terms of a considered underspend.

Bronwyn Hill: I think I have understood the real question, which is, "Does the Treasury penalise Departments who underspend?"

Q88 Richard Drax: I think that is more like it, yes.

Bronwyn Hill: That is why we focus on getting the DEL, departmental expenditure limit, down to as near as possible. Remember, we also get penalised if we overspend as well. In my experience they do not like it; neither do I. That is why we are trying to improve our ability to make forecasts, to flush out underspend early enough in the year to redirect it to other programmes, but certainly in Defra we have not been penalised because I think there is a recognition that we made as good a case as we could in the spending review for what we were going to spend the money on over four years.

These days, in the current climate of the Treasury looking for more money, they have tended to do what they did in the Autumn Statement of 2011, where they announced that they would take a percentage from all Departments that were not protected. They tend to announce general amounts; I think it was £22 million off our budgets, which we were able to find. I do not think they would penalise us for underspend in a financial sense, but there is a huge discipline within the Department on managing that down so it is as small as possible so that we are getting the money out on real delivery in the real world.

Q89 Richard Drax: On that point of discipline, the Department are getting the forecasting and budgeting as right as they can. The National Audit Office commented that it thought more training in that area was needed. Has that been implemented?

Bronwyn Hill: We are in the process of doing that. We have strengthened our finance team under Tom, who are very good. The challenge is to get every single business manager in the Department having the same approach to forecasting and performance management. One of the things we are doing now is, when reports go to the Board, which includes Ministers and non-execs looking at them, they include, from directors, how they are progressing against their forecasts so that we can spot underspend early and bring management pressure to bear on people who are consistently underspending.

Q90 Richard Drax: I will now move on to the progress on your savings. You are predicting £504 million over four years to March 2015, which is a huge sum. Has the savings programme matched projections?

Tom Taylor: Yes, at the aggregate level, absolutely, because previous Ministers took decisions on where the savings would be found from. Those were locked into budgets across all four years on departmental expenditure limits. That is the whole point of DEL: it is something that you plan over four years rather than one. So those were locked into budgets, and as we just discussed at length, we have managed to exceed those savings targets because we managed to send £79 million back to the Treasury. So at the aggregate level the savings plan is absolutely on track.

Q91 Richard Drax: Finally, are you on target to deliver the Capability Action Plan, particularly in the area of improving financial skills?

Bronwyn Hill: We are. Obviously, mobilising training for large numbers of people does take time, but the good news is we now have Civil Service Learning, which is a training offer for all civil servants. 90% of our staff are registered on it, and as managers discuss with their staff what their training needs are for the year, we have asked them to prioritise financial skills. Obviously that does take time to work its way through the system, but we are on track.

Q92 Richard Drax: How long will it take you to do that, do you think?

Bronwyn Hill: I think a year to turn it round. It is not something that you can do once and forget. My view is financial management is an area for continuous improvement, particularly when money is very tight. It is absolutely up to us to make sure that that discipline continues.

Tom Taylor: It takes many forms, of course, as the Permanent Secretary said. Mr Gardiner will be pleased, I am sure, that one of the things we will be rolling out compulsorily to all staff is mandatory fraud training in the same way we do mandatory data security and IT security management training. Those clearly are the things that are of most importance in terms of spending funds.

Q93 Richard Drax: A very quick question in terms of the fraud that was touched on by Mr Gardiner: I take it that is a crime, is it?

Tom Taylor: If it can be proven as a crime, then yes, it is a crime.

Q94 Richard Drax: So far as publishing a name, that person would be in a criminal court and would be named, correct?

Bronwyn Hill: Yes.

Tom Taylor: They would be, yes.

Q95 Neil Parish: There have been 220 confirmed cases of the Schmallenberg virus in sheep and 53 cases in cattle. In the Department’s report, you say that Government intervention with regard to Schmallenberg was not warranted. Does that remain the case?

Bronwyn Hill: Yes. As you know, it has had a big impact on farmers, given its impact on birth of young sheep and cattle. From the advice we have had on the best approach, I understand that both sheep and cattle develop resistance to the disease once they have had it once. So rather than intervene and make it a notifiable disease, which would trigger compensation, etc., it is much better to manage it by enabling disease resistance. Any sheep or cattle who have had it once become resistant to it, apparently. In that case, although it has an impact on the farmers in the year it happens, it is classified as a low impact disease because we think it can be managed, unlike notifiable diseases such as foot and mouth where you have almost no alternative but to destroy the animal.

Q96 Neil Parish: On enzootic abortion, I had a lot of sheep at one time and that is a dreadful disease as well. There are vaccines available for that. What is the situation regarding a vaccine for Schmallenberg, and is the Government going to keep quantities of it? I know perhaps you are damned if you do and damned if you don’t. If you buy lots of doses of it and it is not used you will be criticised. The trouble is, we just do not know how much this disease is going to spread.

Bronwyn Hill: It is like all diseases; we have to keep monitoring and surveying so that we understand what is happening. We learn as we go through that process. My understanding from the scientists is there are various people developing vaccines, but it is not clear yet-I am not saying it will not be-whether it is a cost-effective response, given the fact that immunity develops naturally in those animals that have contracted the disease. We are keeping it under review to see whether vaccines would be helpful or not.

Q97 Neil Parish: The National Sheep Association says it has been held that the vaccine has been very slow going through the Veterinary Medicines Directorate. Is that a fair comment?

Bronwyn Hill: I was not aware of that criticism, but the challenge for the Veterinary Medicines Directorate is they have to go through a process with all vaccines to make sure they are safe to use. So again, if we put things through too quickly and we did not spot a problem with it, we would also be criticised.

Q98 Neil Parish: There is a vaccine available on the continent, isn’t there?

Bronwyn Hill: My understanding, but we are pushing at the boundaries here, is that normally if something is approved in another member state it is very difficult for us not to agree that it can be used. Perhaps I could check that and get back to you with a note as to why it is taking so long to clear it in this country.

Q99 Neil Parish: I think I am right in saying it is used in other member states-Germany and the Netherlands.

Bronwyn Hill: Could we look into that then?

Q100 Chair: Could our meat be exported to other EU countries if we vaccinated?

Bronwyn Hill: This is the point of having the Veterinary Medicines Directorate, which is an agency of Defra. They are responsible for checking the safety and efficacy of any new vaccines or medicines that are used on animals. That is why we have that process. I was not aware that there was a complaint that it is available on the continent but we cannot use it here, so perhaps we could look into that and get back to you.

Q101 Neil Parish: Yes, could you check that out? If we need this vaccine it needs to be available, and if it is licensed there should be some availability.

Bronwyn Hill: I will get back to you on that.

Q102 Chair: Could we turn to another risk: flood risk? What was the actual spend in 2011/12 on flood defences? How does that spend compare to the spend in 2010?

Mr Paterson: We are spending £2.17 billion over the next four years. One of the first things I did, my first meeting, was with the ABI. Within my first week I went to Nottingham to see a flood scheme, which was a really good example of how this can save significant sums of money on preventing damage to existing properties. It was a £45 million scheme protecting 16,000 houses. It was also a complete revelation to see that 500 acres in the middle of Nottingham are currently blighted. No one is prepared to invest and develop it. We have an 8:1 benefit on the 16,000 houses, but this huge potential opening up the 500 acres. I am a very strong supporter of these flood schemes, and we intend to keep up the programme.

Q103 Chair: So is that a real-terms reduction?

Mr Paterson: Over the whole spending round, it was a 6% reduction on the previous spending round. Because there is now partnership with local government, there has been some top-up. Perhaps Tom has the exact figures on that.

Tom Taylor: If you remember, I was speaking earlier to Mr Drax about the way we were able to save money in administration and recycle some of that money into front-line expenditure. Flooding was one of the areas in which did that, so we deliberately overspent the budget that was set aside for flood maintenance and defences in 2011-12. The results of that are shown in the segmented accounts. I will not bore you with the details, but they are in note 2.

Q104 Chair: Secretary of State, do you accept the Committee on Climate Change Adaptation SubCommittee’s conclusion that £20 million above inflation needs to be spent on flood defence funding to maintain current levels of resilience?

Mr Paterson: We are committed to continue a significant programme on flood defences. When I went to Nottingham with Lord Smith, we went along the bank, and there is a big Victorian bridge. It was fascinating to see that every 20 or 30 years there is a significant flood. The worst one was in 1875. So you have to live with the fact that floods are regular events. This is an extremely good way of spending public money because you sort a problem effectively once and for all, unless there are quite extraordinarily catastrophic weather conditions.

The trick is to target these schemes at the most vulnerable spots and keep up a significant programme. There is a clear and almost instant payback, because we will continue to have floods.

Q105 Chair: How effective has partnership funding been? Have the partners made up any shortfall in central Government funding?

Mr Paterson: I think the figure last year was £36 million, and Tom will just confirm that. This is significant from two points of view. It is good to get local government involved, and they have ensured that some of these schemes are possibly more sharply drawn up and save money, and obviously you bring in local government money. The other key thing is targeting it. It is very much in local government’s interest to make sure that the most vulnerable points within their responsibility have the flood risk reduced. So it is thoroughly beneficial to bring local government into these schemes.

Tom Taylor: Partnership funding has helped secure an additional £72 million of external funding for the next three years, so looking forward one hopes that ramps up over time.

Q106 Chair: So you would not point to any particular schemes failing because of the shortfall in central Government funding?

Tom Taylor: When you say "failing"-

Q107 Chair: Not going forward as might otherwise have happened.

Bronwyn Hill: I attended a hearing of the PAC on flood defences, and what the Environment Agency Chief Executive, Paul Leinster, said was that in combination with their efficiency improvements, which they are continuing to make, they are confident of meeting the target for outcomes of a further 145,000 homes protected over the four-year spending review. This is not dissimilar to the number protected under the previous four years, but that is driven by efficiency savings in the way they deliver those schemes.

They see the local authority developer contribution through partnership funding topping that up and often bringing forward schemes that would not have been brought forward in the past. Most of those are very good schemes when you can get them to delivery. I understand there are potential schemes up and down the country. From memory, Morpeth was one. My understanding is the Environment Agency is looking at a scheme in your own constituency at Pickering, which is quite a difficult one, but where the local authority has said it will set aside money because that flood risk is so important to the people of Pickering.

We see it as a complementary fund, and it is just as important that the Environment Agency drive through the sort of efficiencies that they can make when they know they have a four-year programme ahead of them to make sure that we are maximising the number of homes protected with that investment.

Q108 Chair: I am sure we can return to this. On the household flood insurance, rather than impose an additional levy, is there any way you could ask the Treasury to take 1% of current insurance household premium that everyone pays on their home insurance into a pot to use going forward in a year where there might be serious floods?

Mr Paterson: There has been a succession of meetings and negotiations with the ABI, the Treasury and Defra prior to my coming in. I think the first four meetings I went to were with the ABI, because the statement of principles comes to an end in June next year. We are absolutely clear that we would like to come up with a secure scheme that is affordable and covers a large number of people who are currently vulnerable, some of whom are not insured. Unfortunately I cannot negotiate in public. We had another very constructive meeting with the ABI last week. There are various ideas being discussed, but we are quite clear that as a Government we want to work with the ABI and come up with a longterm solution to follow on from the ending of the statement of principles next year.

Q109 Sheryll Murray: Would you envisage a system similar to the Motor Insurers’ Bureau where all the companies pay into a pot to cover people for personal injury if they have an accident with an uninsured driver? Would that not be a good idea?

Mr Paterson: There is cross-subsidy at the moment under the statement of principles, but we want to make sure that this scheme, whatever emerges, is as universal and affordable as possible. I am afraid I cannot negotiate in public; these are quite complex discussions, but I would like to stress that we are really determined to come up with a long-term scheme that will work in parallel with what I would like to see happen on flood protection. I see the two going together.

Q110 Chair: Where are we on sustainable drainage systems-SUDS? My colleagues would be disappointed if I did not raise that.

Mr Paterson: I think we can say discussions are going on with local government.

Chair: Okay, we will leave it there.

Q111 George Eustice: I wanted to get back to an accounting issue. The National Audit Office also qualified the accounts of the Animal Health and Veterinary Laboratories Agency, and this was on the basis that there was recognised income there of some £17 million that they could not attribute or could not demonstrate that the relevant agencies had been charged correctly. Was this a result of the merger that caused some confusion? Are they planning to get their house in order on this?

Bronwyn Hill: It was a very straightforward problem. They had monthly accounts of income received from people who were paying them to do various things, and rather than take a hard copy and file it every month, they were rolling the figures forward. There is no doubt between the National Audit Office, ourselves and AHVLA that they received that income. In fact most of the income came from Defra, so we know we sent it to them. It was simply some sort of administrative error that they were not locking down the monthly totals for a period of time, and when the NAO came to do their spot checks they discovered that they did not have the records for the months in question, but that the totals made sense and we could verify them by cross-checking with our own accounts.

I do not know whether Tom wants to add anything, but clearly we are not satisfied, and we have asked them to put in a programme of improvements.

Tom Taylor: No, we are absolutely not satisfied. The NAO call this a limitation of scope qualification. That means they were able to verify that the income was there and that the expenditure related to that income was there, because that was on the transactions of the ledgers. What they were not able to thoroughly determine was whether the correct amounts had been charged in respect of those two months. There is no evidence to suggest that the wrong amounts were charged. In fact, as most of the money was to and from Defra, it is slightly academic, but none the less it is a limitation of scope because the NAO were unable to satisfy themselves that the evidence to support that charging was present, because it was not.

Q112 George Eustice: But it was not connected to the merger in any way.

Tom Taylor: Any merger creates issues in terms of combining systems and so on. The AHVLA did have difficulties last year because they were running on two financial systems. There is one quite quirky implication of the way in which the agency was classified. The new agency is classified as a net control agency, which is therefore required to break even over the course of the year, or thereabouts. In other words, they have to cover their costs, and in order to justify covering their costs they have to keep very clear invoices and so on. The animal health part of AHVLA had previously been a gross control agency, so it had never had to keep invoices at quite the same level of granularity. So that is one of the features that the NAO picked up on in terms of complications. But they are absolutely carrying forward a very firm action plan to address that situation, and we have taken reports at our audit and risk committee on exactly that.

Q113 Mrs Glindon: Going on from where we were before, do you consider it was right for Defra to make special payments totalling nearly £3.5 million under the fruit and vegetable aid scheme to producer organisations, particularly those interpreted as being noncompliant by the EU?

Bronwyn Hill: We obviously looked at this very seriously when it came up. It is not often that we have a disagreement about interpretation of regulations, but we had to think about what the impact on those producer organisations was and had been. They had applied to be recognised in good faith. They had met the criteria that we as the member state had asked them to meet, on the whole. It was only because of a difference of opinion between us and the Commission’s auditors that that money should not have been paid. After much discussion and analysis, we took the view that it was unfair to penalise those producer organisations because of the mistake about interpretation between the Department and the Commission. In that case I think writing the payment off was the right approach to take.

Q114 Mrs Glindon: The Rural Payment Agency has written off more than £2 million paid to one company under the scheme through a combination of overpayment and ineligible funding. How can such a large amount of money be inappropriately paid, and why is it being written off?

Bronwyn Hill: The reason for the write-off is that we took the view that we had made the interpretation of the regulations; that was not something that the producer organisations could do for themselves. We took the responsibility for the difference of view between us and the Commission, so it was not their fault in that sense. The money that was written off simply relates to the amount of money that they were entitled to claim had they been a properly recognised producer organisation. In other words, their eligibility under the scheme related to the size of the organisation, the activities they were undertaking, and we thought it was only fair that we should not pass that problem on to them because it was our duty as the UK, a member state, to interpret the regulations and apply them properly.

Q115 Barry Gardiner: Defra has selected six input and eight impact indicators by which to measure its performance. Unfortunately the Department has been able to provide comparable annual data for only one impact indicator. That must cause you some real sadness, mustn’t it, Permanent Secretary?

Bronwyn Hill: No, some of these are because we have to rebase them. For example, from memory, we have had to rebase the bovine TB indicator because previously I understand it covered England, Wales and Scotland. Following an agreement to devolve responsibility for bovine TB and its costs, we have had to split it, so we have put the England data in for only the first time. We could go through each of the indicators and say why there is no baseline cost.

Q116 Barry Gardiner: But doesn’t it rather defeat the object of the exercise to have performance indictors by which it is specifically impossible to measure the performance of the Department this year against the performance of the Department in previous years?

Bronwyn Hill: Most of the impact and outcome indicators are deliberately very longterm. One of them is for farmland birds. As you know, the farmland bird index goes right back to the 1970s when people were worried about the impact of agricultural intensification on the number of farmland birds, so these are very long-term figures, some of which do not move every year. They are not meant to measure our performance in that strict sense. They are about how our policies as a whole are having an impact on some very longterm issues.

Q117 Barry Gardiner: One of the ways you could have done it, and certainly which you used to, would be to have information available on the yearly capital spend on flood and coastal erosion risk management. That is no longer there, is it?

Bronwyn Hill: I have a feeling that it is probably available in the Environment Agency’s Annual Report and Accounts. It is not that it is not available anywhere. We are obviously trying to consolidate an awful amount of data and information from across all of our network bodies into one set of accounts. We are slightly constrained. We could make it twice as long, if you like. In some cases it is necessary to check the accounts of the bodies themselves.

Q118 Barry Gardiner: Surely the point is to make it useful. In part, I accept the point that you have made; these things have to be readable over time. But precisely if you change the input and output indicators in such a way that there is a disconnect between one year and the other so you can no longer say that this year’s indicators can be based against the previous year, you are destroying the capacity to do that over time, aren’t you?

Bronwyn Hill: I understand the point you are making. I am simply trying to explain why some of the indicators have been changed.

Tom Taylor: On the specific point, Mr Gardiner, of capital investment in floods, that is actually still one of the indicators where we do have a time series shown on page 19 of the Annual Report.

Q119 Barry Gardiner: That was the risk of damage from flooding. That is the indicator of the number of households where the risk of damage from flooding has been markedly reduced. In 201011 that was 83,675 households, and in 2011-12 that number of households where the risk had been reduced fell to 44,799. So it is not a great one for the Department, is it?

Tom Taylor: Hold on, I can read that also. That is page 20. I was referring you to page 19, where the specific measure that you are looking for is. It shows the total Government capital investment in flood and coastal erosion risk management in millions was £387 million in 2009-2010.

Q120 Barry Gardiner: Sorry, that is the capital spend on flood and coastal erosion risk management.

Tom Taylor: Yes, £387 million in 2009-10, and £396.3 million in 2010-11. As I was explaining to the Chair earlier, that was one of the areas where we have managed to transfer some savings.

Barry Gardiner: Thank you for those figures.

Tom Taylor: That is page 19 of the accounts. If I could just pick up on the risk of damage indicator that you mentioned on page 20, that is a per year additional increase. The 44,799 is in addition to the 83,675. It is not that it has gone backwards. You have to sum those two together. It is a cumulative increase over time, which is why the Environment Agency-

Q121 Barry Gardiner: Sorry, it is the number of households where the risk of damage from flooding has been markedly reduced-that is, markedly reduced from the year before. The risk has been reduced. It does not say that the risk in other properties may have been increased.

Tom Taylor: Yes, I take your point about that.

Q122 Barry Gardiner: I understand what you are saying; this is how many properties this year have actually shown a reduction in risk. But it does not say that some of the ones that last year showed a reduction in risk have not this year shown an increase in risk. That will vary from region to region. You do not have an indicator in that, which means that actually the sense that this is showing you the full picture is not actually true.

Tom Taylor: It does lead to the 145,000 figure that the Permanent Secretary mentioned earlier of the number of households that would be better protected in the current spending review period. My understanding is it is a net figure.

Bronwyn Hill: I understand the point that you are making. You are saying it does not show the impact of climate change, increased flooding, etc., on all of the properties.

Barry Gardiner: Other factors: chopping down the local forest.

Bronwyn Hill: Exactly. This is simply an indicator that says what the Government are getting for the money that they are investing in new schemes, and it is why it tends to go up and down as schemes are completed or not. Some years there will be many more houses protected and in others there will be fewer. But the target-that is our focus-is protecting at least 145,000 additional properties. That is not to say-you have a point-that there might not be other properties that come into flood risk as a result of other factors.

Q123 George Eustice: You touched on farmland birds a moment ago, and the Secretary of State in the opening remarks expressed some very robust views about the importance of controlling the wildlife population so we do not get overrun by magpies and things. Notwithstanding what you said, the reality is that bird populations have continued to fall. While you are right that the majority of the reduction in population took place during the 1970s and 1980s, there has been a further 9.4% fall overall in the most recent five-year period. Do you think that it is time to review the Campaign for the Farmed Environment scheme that exists, which is a voluntary scheme that encourages farmers to help restore bird numbers, and put something on a more compulsory footing to ensure that we can reverse this decline?

Mr Paterson: I will talk about the strategy, and I will let the Permanent Secretary answer the detail. This is just the sort of thing that I am referring to regarding the environmental and public good that can be delivered by landowners, for which there is no current market mechanism. An improvement in wild bird numbers is something that can emerge from the Pillar 2 activities and some of these environmental schemes. It is also an issue that comes under the management of wildlife. When I was a child I remember seeing lots and lots of peewits. I cannot remember when I last saw a peewit because it is a ground-nesting bird. In parallel, there has been a very significant increase in the badger population. I think the two do go together.

Q124 George Eustice: Are you suggesting that the stewardship scheme should be redesigned?

Mr Paterson: It is an element which could emerge from it, absolutely. Some of the schemes are aimed specifically at certain species. At the weekend I met someone from Kent who I think was on the HLS scheme, with a deliberate target of reintroducing the grey partridge. I thought that was a very interesting project, and is exactly the sort of area you are talking about.

Q125 George Eustice: But you see it definitely from Pillar 2. You do not see the potential for the greening of Pillar 1.

Mr Paterson: This is where it is all woolly. I touched on this, Chairman, earlier. We as a country have some very good, robust schemes that do deliver. We are seeing significant environmental gains from the schemes we have in Pillar 2. I am not entirely clear yet, and I would love to give you a very clear answer, where the greening ideas are going to end up. It is much better to have the environmental activity clearly marked down under the schemes we have in Pillar 2. For me, that is a nice clear solution.

Bronwyn Hill: I could say a little bit more. Again, it goes back to Mr Gardiner’s point. Some of these indicators are very difficult to set. This is just one subset of birds-we could have chosen coastal birds or whatever-that tend to be particularly affected by the way we farm. We have directed quite a lot of activity throughout agrienvironment schemes. The Campaign for the Farmed Environment has a time limit on it because it was meant to enable farmers to do extra effort voluntarily over and above that, and that is something we are still discussing with the NFU and others to see how much impact it has had. We are very clear that there are all sorts of other reasons that affect the number of farmland birds that we have, including nesting and predators. It is not a precise indicator of success with that particular scheme.

Q126 George Eustice: But it has missed its target, hasn’t it, in terms of the amount of uncropped land? That was the measure.

Bronwyn Hill: Yes. It is very difficult, though, as the Secretary of State was saying. More impact has been had through agri-environment schemes, which are long-term commitments, and which help by providing seed in the winter when birds are particularly vulnerable. There are so many factors that affect farmland bird populations that I am not sure we will get them all through agri-environment schemes.

Mr Paterson: That is absolutely right.

Q127 Sheryll Murray: Defra has a target to reduce the amount of waste it produces by 25% by 2015. Since 2009-2010 the amount sent to landfill has increased by 150%, although the amount of recycled has remained relatively static. Why is there such an increase in the use of landfill?

Tom Taylor: There is a particular issue we face, because these figures cover not only the core Department, but also our executive agencies. The particular issue we face with waste in relation to some of our laboratories, as I am sure you will appreciate, is in terms of contaminated waste. As the Secretary of State was saying earlier, some of the tree diseases that we find need to have special disposal mechanisms attached to them. Contaminated waste is a particular issue that you have to deal with. You cannot send it to a local recycling tip, so that is a particular issue that we face. It is something that we are trying to address, but it does make it difficult for us.

Q128 Sheryll Murray: Would it not go for incineration if it was contaminated waste?

Tom Taylor: There would be incineration options for some of that, but there is a peculiar quirk in the way that the waste arisings and the disposal are counted. These are waste arisings, so the creation of the waste is a by-product, as it were, of actually doing the day job on some of the more scientific labs that we have in our network.

Q129 Sheryll Murray: So the fact that it is going to landfill does not necessarily mean that it is all being buried in landfill.

Bronwyn Hill: We do have programmes to try and target the waste that our labs produce, in particular to try where possible to incinerate it-in some cases I suspect that is what we have to do because of the nature of the waste-and to keep on reducing the amount we send. As you can appreciate, some of it is particularly difficult waste to recycle, reduce or reuse, which is what our normal policy is on waste from our office estates, where I think we are doing quite well. It is a particular problem with our land facilities.

Q130 Sheryll Murray: Do you think you are going to meet your target to reduce waste by 25% by 2015?

Bronwyn Hill: We very much hope so, but again there is a timing problem. These were the figures by quarter 3 of the last financial year. We know that we reduced waste by about 7% compared to a 10% milestone on the way to that 25%, so there is clearly a lot more work we need to do, but we are very committed to trying to do as much as we can to deliver the 25%.

Q131 Chair: Is the number of landfill sites reducing across the country? I know it is not the Department’s responsibility, but the impression that we all get locally is that landfill sites are being reduced.

Bronwyn Hill: I do not know about the number of sites. It is certainly true that recycling rates from households are improving all the time, often as a result of action by local councils and indeed individuals, as we all try and improve our habits around what we do with waste. We could check on the number of sites, if you would like a note.

Chair: It would be helpful if you had figures that point in that direction.

Q132 Ms Ritchie: In January 2012 the Department published "Driving Export Growth in the Farming, Food and Drink Sector", which seemed to be a plan of action following on from the commitment to work with the food and drink industry to take full advantage of the potential for growth through overseas trade. The previous Minister for Agriculture was very critical of the dairy industry for allowing a £1.2 billion trade deficit in dairy to develop, and urged the industry to develop new markets. Has the driving export growth plan of action had any impact on the £1.2 billion trade deficit in dairy?

Mr Paterson: According to the figures, exports rose by 9% in 2011 on top of an 8% rise in 2010. But you are quite right; there is also an incoming deficit. 20% of the food that we eat in this country we could produce here. We do not grow mangoes, but we have some very good cheeses and yoghurts. I quoted in my Conference speech that each year we have bought 115,000 tonnes of ice cream, more than double the 50,000 we send abroad. We import 150,000 tonnes of yoghurt, six times the 25,000 we export. There is a double swing here. There is a massive opportunity for import substitution. I have already talked about a dessert deficit. There are large numbers of desserts bought daily in this country which we could make here. So I would appeal to everyone, when they go to the supermarket, to look at where it is made and buy a British dessert.

There is also an enormous opportunity for exporting. I am off to Shanghai on Monday, taking a delegation of 40 SMEs, to promote British food. I will be visiting Marks and Spencer and Tesco in Shanghai. When I was in the leather trade exporting to Taiwan, I remember very clearly my agent one morning in Taipei looking in absolute disgust as I put butter on my toast. He said, "How can you westerners eat that stuff?" That has just completely changed. There is now a real demand for quality dairy products in China. There is enormous new prosperity that has come in recent years, and a real demand for high-quality, high-value protein foods that are traceable, safe and well made. We have a very strong base to go on in this country. We know the New Zealanders and some other European countries are selling in China. I see a massive opportunity here.

I think you have raised both the key points. The first is import substitution. We have got to stop buying imported yoghurts and cheeses when we actually make better products in this country. We have a great opportunity to get out there and export. This is very much an exploratory expedition. I am going on Monday, coming back next Sunday, and we will just see what the potential is. We know other countries are doing it. We will find out if there are maybe marketing obstacles, new products that need developing or obstacles like language. Perhaps they misunderstand what organic means. There may be health and safety or sanitary regulations that need to be overcome, but I am absolutely convinced there is a massive opportunity. I fully back the Food and Drink Federation 20/20 campaign to increase food turnover by 20% by 2020. That is completely doable if we work together on the import substitution and really get cracking on exports.

Q133 George Eustice: It looks like your staff numbers and spending on staff continue to fall. Are you on track to meet your targets for reducing headcount overall in the various agencies?

Bronwyn Hill: What we have actually got is budget targets. Administration costs need to come down in order to stay within the control totals that the Treasury has set and that we agreed as part of the spending review. We may have said earlier to this Committee that we thought as a result of those reductions in admin we would be looking at staff reductions across the whole network of between 5,000 and 8,000 staff. There are programmes in core Defra, our executive agencies and NDPBs to prioritise savings on estates, accommodation, back office and IT first so that the more people we employ the more successful we can be.

We have managed to keep those staff reductions well below the 5,000 to date. The latest figures across the whole of the network show there has been a reduction of about 3,500 compared to the baseline, which is roughly 12%-slightly more in core Defra. We do expect more staff exits, particularly over the next year or so, which could increase it more. The aim of the programme was always to try and reduce costs and maintain staff numbers to deliver front-line programmes, etc. I would say we are on track. The overall cost of those exits has been about £105 million so far. Although we have had to pay for some, we have also found that a number of staff have voluntarily gone off to do other jobs elsewhere, got promotion or whatever, so 1,500 have left for different reasons.

Q134 George Eustice: Obviously there is a difference; you can be voluntarily or compulsorily redundant and still get a payment. What proportion of those redundancies are compulsory?

Bronwyn Hill: I can only give you snapshot because at any moment people are going through processes. We have done the vast majority of those exits by voluntary exit packages, where someone agrees and the compensation is as dictated by the civil service arrangements. Small numbers in some agencies, and potentially in the core, may be made compulsorily redundant. I do not know whether I have a total, but these are very small numbers in each case. We try to avoid compulsory redundancy as far as possible and look for opportunities in other agencies or civil service departments where they are recruiting-Jobcentre Plus, for example. We then try and work with those staff to help them to find jobs in the jobs market. As far as possible, it is small numbers.

Q135 Richard Drax: The expenditure on consultancy staff increased by £5 million. I am always concerned that when you have redundancy processes, you end up losing the good people that you ought to keep because they find it easier to get another job on the next step up. Have you experienced that kind of problem where you have lost very good people you needed to keep and then have had to pay expensive agencies to get the same staff back?

Bronwyn Hill: On the whole, that is not the problem we face. We try to reduce the cost of consultancies more than staff on payroll. For example, in the core Department we have reduced people who were not on payroll by 80%, which is quite a significant rate, by recruiting people and training them up, for example in procurement. The £5 million in the accounts is largely driven by one of our largest NDPBs, the Environment Agency. I understand that most of those people will be technical experts who are used, for example, to designing and developing flood defence schemes, so they are very much on the front line of delivery. The Environment Agency has taken a view of the need to get people from outside with specialist expert skills. So it is very much the exception, and normally we have to authorise those things by exception.

Generally we prefer to have people in house, but there will always be projects and programmes where you need expertise to be recruited from outside on a temporary basis.

Q136 Chair: How do you rate staff morale at present?

Bronwyn Hill: In the Department?

Chair: In the Department and the agencies.

Bronwyn Hill: If I start with the core Department, we will know more in about a month’s time because we have just completed the annual civil service people survey, which asks people nearly 60 questions. We will get the first results of that. My honest view is it will not be fantastic. We have just been through a major restructuring exercise so we are within our budget. We are only just coming out of the pay freeze for staff below the senior civil service, and we are capped at 1%, so it is quite tough. Having said that, and I only have the results of last year’s survey from October 2011, we still have a fantastic amount of commitment and passion for the job.

Last year, 89% of staff said they found the work interesting, which is fantastic. They liked the work in their teams and their line manager. The challenges were with the things that they could not influence as much, such as the restructuring and reshaping programme, pay and benefits. If anything, I am slightly disappointed that what they did not like last year was opportunities to develop their career within the civil service. That partly reflects the fact that we had had a very long freeze on promotions, but because we have now gone through that reshaping we are in a position where we have opened up promotions at different levels, for example, at deputy director, grade 7. I do not like to make predictions about what the staff survey will tell me. I would like it to be better now, but I perfectly understand why morale is still quite mixed.

Q137 Chair: On the staff engagement table that we have seen, the two lowest are the Animal Health and Veterinary Laboratories Agency, and perhaps not unsurprisingly the Rural Payments Agency. To what do you attribute that particularly low engagement?

Bronwyn Hill: You are right. There is a huge range across agencies. The agencies with the greatest stability are often where they are fee-earning. The Veterinary Medicines Directorate, which earns most of its income through fees, has had to make very few changes and staff reductions. Cefas, the fisheries labs, have managed through earning private income to maintain their staffing levels. They tend to have engagement scores around 67%. Looking at the agencies that have been through the biggest restructuring and turnaround, HLVLA was the merger of two former agencies and has seen a lot of rationalisation of services. The RPA is going through a major turnover, which has inevitably caused concern and uncertainty amongst staff about jobs. But I would like to think we are taking the right decisions for the long term and putting the right issues in for the future. We will look across the whole Department really carefully at the results of the survey. We expect this year to drive action where there are things that staff are concerned about that we can actually influence and change.

Q138 Chair: You have been incredibly generous, Secretary of State.

Mr Paterson: I would just like to put on the record, having only been in the Department a few weeks, the absolutely tremendous commitment and co-operation I got. The Department has been through a pretty traumatic time. Sizing down from three sites to one in London alone and continuing to function was extremely difficult. There has been a consolidation of agencies, a reduction of activity in certain areas, but the relentless number of daily crises facing Defra carries on. Defra is in the news every day. Every day is a Defra day. Every weekend there is a new drama.

The Sunday Times had a piece two weeks ago about robins and wrens. There is no other Department that is under such scrutiny by the public. There is also probably no other Department that affects every single citizen in this country every day, and whose activities are a matter of expertise of every single citizen. Everybody has strong opinions about matters to do with Defra. I have had tremendous cooperation; when I have asked for things to happen, they have happened. I really stress that the staff are motivated despite the very difficult time they have been through in the last couple of years, and we are delivering.

If you look at this quite unprecedented survey over the last few days, we have dragged in people from all over different parts of Defra. We have had bee inspectors who are now involved in the Chalara inspection. That is quite a major project in its own right, pulled together at very short notice, which will deliver.

I would like to put firmly on the record my thanks to those who are working so hard. I would also like to thank the senior officials here for the way they have led the Department.

Chair: Could we echo our thanks for being so generous with your time? I know from the conversations I have had with the Forestry Commission locally and with Fera, and on occasion the Environment Agency, each of us would like to record on behalf of our constituents our thanks to the fourth emergency service. You have been incredibly comprehensive in your answers; there are one or two things we will follow up in writing, and I may be minded to tell you where the peewits are, as long as you do not collect their eggs.

Prepared 15th November 2012