UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 59-i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

ENVIRONMENTAL AUDIT COMMITTEE

WELL-BEING

THURSDAY 9 MAY 2013

PROFESSOR DIETER HELM

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Environmental Audit

on Thursday 9 May 2013

Members present:

Joan Walley (Chair)

Peter Aldous

Katy Clark

Zac Goldsmith

Mark Lazarowicz

Dr Matthew Offord

Simon Wright

Examination of Witnesses

Witness: Professor Dieter Helm, Chair of the Natural Capital Committee, gave evidence.

Q1 Chair: A very warm welcome to our Environmental Audit Select Committee session this afternoon. We have a fair amount of ground to cover in the very interesting and wide-ranging report that you have produced at this stage. Before we get into some of the detail, we want to try to establish what your relationship is with Ministers, civil servants, Government, the Cabinet Office and the Treasury. How does that work in practice and how seriously are they taking the work that you and your committee are doing?

Professor Helm: Thank you very much for inviting me along and giving me the opportunity to answer your questions. The Natural Capital Committee is an independent committee. It gives independent advice and has a reporting line that goes through the Economic Affairs Committee of the Cabinet, which is chaired by the Chancellor of the Exchequer. We have very clear terms of reference as to what we are required to do. All and everything that I do in my role as chairman is to stick to those terms of reference and to try to achieve an outcome that is consistent with those terms of reference and gives advice. It is not our job to decide-there is a clear distinction between advice and decision. We set out a programme of work that we think is consistent with those terms of reference. We have along the way been asked, in particular by the Secretary of State at DEFRA, to look at particular issues-offsetting is one, the common agricultural policy is another, and of course we have been actively and substantially involved in forestry.

It is of course important to meet with the people who we are supposed to advise and it is appropriate to meet with them when we have advice to give. I have had pretty regular meetings with the Secretary of State at DEFRA; I have met Oliver Letwin, and I have met Treasury officials. That has all been extremely helpful and consistent. You will see from our report that we are laying down a framework that we are taking forward, and the real meat of the advice that we have to give will come in the second "The State of Natural Capital" report, rather than the first. Although it is always nice to have meetings, one has to have meetings about something.

What we have done is put this report together. We have had very good support for and feedback on what we have put forward, so we are now going to go on and implement that and we will advise Ministers, officials and, indeed, anybody else, in our independent capacity, as to how we can deliver the outcome of the White Paper. Just to remind you, we are in some sense the creatures of the White Paper. The White Paper sets out an extraordinarily bold and radical objective. It proposes not just to stop the decline of our natural capital; it proposes to reverse it. It says explicitly that we are going to be the first generation that starts to put things right-"net gain", not "no more net loss". That underscores everything we do, and we will of course be advising on whether in fact that objective is being achieved.

Q2 Chair: There is a lot contained in your first reply. You say that you have met DEFRA Ministers, the Economic Secretary and Oliver Letwin at the Cabinet Office. Can I ask you about the Chancellor? What you are talking about is a committee that is setting out parameters, that has a very clear remit. That is all well and good. The question then is whether, when you do have something to say, you are going to be talking to an open door, as it were, at the Treasury and particularly with the Chancellor, so could you tell us a little more about those Ministers whom you have met and what they have said to you about the priority that they give to your work? Could you then narrow it down in terms of the Treasury and how much they will apply the outcome of your work to the principles that they apply, which relate to governing public expenditure?

Professor Helm: Despite fear of repeating a point, I will. I can’t make them decide to do things. I can only take to them forcefully the advice that our committee puts together.

Q3 Chair: But do you feel that it is an open door, from the talks that you have had?

Professor Helm: Yes. Nothing that has happened so far suggests to me anything other than a commitment to what is in the White Paper. That is Government policy. It is not my White Paper; it is not our committee’s White Paper, but it is very clear that that is the objective. I discussed with the Economic Secretary and with the Minister of State at the Cabinet Office, Oliver Letwin, how we were going about our task. I was extremely keen to get-I wouldn’t say "buy-in", because we are independent-a clear understanding of what we thought we were doing and how we were going about it and to make absolutely certain that any comments, suggestions or disagreements about that would be understood at the outset. At no stage, on any aspects of the way in which we have gone about things or of how we have set it out in our first annual "The State of Natural Capital" report, has anybody in the Treasury or elsewhere suggested anything other than support for what we are doing.

Q4 Chair: Does that mean that the Government has agreed timetables and targets in terms of implementation of your recommendations in this first report?

Professor Helm: If you look at the back of our report and go through the things that we say we are going to do, you see that nothing in there requires the Government at this stage to agree to any particular timetable or whatever; it is for what we are going to do.

Q5 Chair: Take, for example, the national infrastructure plan, which is a strategy that is in the process of being implemented, one would hope. Do you have confidence, from the talks that you have had with the Treasury-the Economic Secretary-the Cabinet Office or DEFRA, that what is in the national infrastructure plan will be informed by the recommendations that your report has made?

Professor Helm: Let’s go back to the recommendations we have made and what our terms of reference are. It is very clear that our job is to advise the Government when any natural assets are being used unsustainably. It would be lovely after a few months, maybe 12 months, to come forward with a very clear list of all the assets in Britain that are being used unsustainably and say, "By the way, these are the things you should do about each item on the list." It is not like that. This is a substantial programme to get somewhere from a starting base, which we have the NEA for, but not much else.

We are really very clear in the report that we do not have the metrics in place. We do not have risk registers; we regard that as a serious omission and we are setting about putting it in place, so that when we come to our second annual report, we will be in a position to address the first terms of reference and say to Government, if we think it is the case, "These assets appear to us to be quite close to the thresholds and may be being used unsustainably" and-in the form of advice-"You should do something about it, because it is not consistent with what is in the White Paper or what you have asked us to do."

That is very clear, but if you are asking, "Is there a recommendation in this report that requires the Secretary of State of X or the Chancellor of the Exchequer to implement that recommendation?", the answer is that there aren’t any recommendations in that format. They are a statement of how we intend to go about this task and what we want to do. We have buy-in to that process. At this stage-we have three years until our first review-that seems to me to be a sensible, pragmatic way of doing this, rather than coming out with some headline after 11 months, which we cannot substantiate with evidence, to try to get some sort of coverage.

Q6 Chair: I am just trying to understand the difference between what your committee’s report says, which I am sure we would totally agree with as a Committee, and how it is being taken forward and applied by Government, and square that with what you just said about recommendations. I am right in thinking that on page 26 you have recommended, for example, that, "The work led by the Office for National Statistics…to include natural capital fully in the UK’s Environmental Accounts should be given the greatest possible support by Government." What I am trying to get at is whether you have had any indication from Government that they will do that.

Professor Helm: Yes. The ONS is a really interesting example. Britain is committed to producing green national accounts by 2020. The ONS is charged with doing that. It is absolutely essential to our remit that it carries that out, and carries it out with urgency and on the basis of the appropriate methodology. It issued a consultation on what its road map to do that would be. We gave, I think, fairly forceful advice as to what we thought ought to be done. We meet regularly with the ONS team on these things. We suggested that it ought to take into account some of the top-down approaches that the World Bank has pursued and that it ought, as a priority, to take forward a case study on forestry. We also suggested quite a lot about what kinds of methodologies should be used. We will continue to push on that side. That is between us and the ONS, and we have a very good relationship with them.

Are we getting any political or other obstacles put in our way? Certainly not. On the contrary, at the Cabinet Office, the Treasury and DEFRA, everyone is behind achieving the objective. The difficulty is actually doing it, and that is where we are impatient. We are pushing and we are trying to ensure that what is an extraordinarily difficult intellectual task-it is difficult-is done well.

Q7 Chair: I will bring in Zac Goldsmith in a moment, but I am trying to get at this particular recommendation. What is the process for your recommendations to be adopted? I do not quite understand what the difference is between you saying something and it actually being adopted.

Professor Helm: It is being adopted. We are doing this.

Q8 Chair: Are the Government doing it?

Professor Helm: The ONS is not us. Let’s be very clear, we are a committee set up on the basis that the members were committed to one day a month and I am committed to two. We cannot do green national income accounts ourselves. We can forcefully push the process along, encourage and help the ONS, and, in doing that, make it clear to Government that this is a very important priority. All the evidence suggests to me, so far, that there is no obstacle-indeed, there is considerable support for doing this from the Government side.

Q9 Chair: Have the Government actually said that to you?

Professor Helm: Our report has been through their committee and they support it, so I assume the answer is yes.

Q10 Chair: How do you then check that they are doing it?

Professor Helm: If the ONS does not pursue the path that will get them to the objective in 2020, and if they do not have the resources or whatever to get there, we will very forcefully say that. That will be our advice. If someone decides, "Well, thank you for the advice, but we are not keen on this", we cannot make them do it, but we can make it absolutely clear that the commitment and the process are, for example, not on course.

Q11 Zac Goldsmith: This is the same point really. Thank you for coming to see the Committee. It is radical stuff. We have had a number of sessions with Oliver Letwin, and his commitment to this is plain for all to see, as, I think, is the commitment of the previous and current Secretaries of State at DEFRA. There is a sense of enthusiasm there, but do you really think that the Treasury, as a body, understand that logically, if this programme continues and succeeds, it will have a very direct impact on routine decisions made as a consequence-or at least, originating in their Department? Do they really understand how meaningful the programme is?

As a secondary question, is it possible that the fact that the Treasury are relaxed about this at the moment-they do seem to be quite relaxed about it-is because either they have not fully understood how radical it is, or because they think will be able to get away with ignoring it, and that this could become a footnote, and a small one at that, in the years to come? My concern is that I have not seen any real enthusiasm at all for this programme, publicly or even privately, emanating from the Treasury. There is a big gulf between what they are saying and how they are behaving, and, as I have just mentioned, the Secretaries of State for DEFRA, Oliver Letwin, and so on.

Professor Helm: Let me try to break that down into its component parts. It is not for me to make political decisions; my role is to advise.

The first point, to pick up on your comment-I made this point earlier, too-is that if our remit is carried through, the implications are really very radical. It is a very radical thing to say boldly, in a White Paper, that you are going to reverse the declines, not just stop them, and that you will be the first generation that bequeaths a better natural environment and a better stock of natural capital than its predecessor. That, in itself, is why I am doing this job. If the Government was not committed to that in a White Paper, it would be an interesting academic task, but this is substantive, and our committee is created out of that White Paper. I cannot make them do it, but through the committee I can help to set out the implications that follow from the commitments that have been made.

Let us be clear what those commitments are. The first one is to shine a torch on assets that are being used unsustainably. I cannot deliver, in 12 months, from my committee, easy answers to these questions, and we make it very clear that the metrics are not in place, and that there are not proper risk registers of those things, so you cannot shine the torch on them yet. We are going about that task. The whole purpose of the metrics we are designing and the risk register is that I can answer, as chairman, to the terms of reference, which means "You, Government, cannot have assets that are being used unsustainably and pretend that you do not know about it." We will tell you. That will be clear. It is not going to be perfect, but we are not trying to have an all-singing, perfect measure of everything. We are trying to make progress.

The second thing is that we have a set of national income accounts that are cash-based, like everybody else. There is no balance sheet, no assets register and crucially, no capital maintenance charge to the general revenue of the economy. Sorry to be slightly technical, but if you think of natural assets as, effectively, assets in perpetuity that you want to sustain through time-which is essentially what we mean by sustainability-you have to maintain the value of those assets intact. If you account for them properly as assets, you have to set aside, each year, a sufficient sum of money to make sure that you have done the capital maintenance-what we call current cost accounting. Imagine how radical it would be for the Chancellor to stand up and say in his Budget speech, "My cash position is net of having set aside sufficient to maintain those assets intact." It is not just about natural assets, but about human capital, physical capital, infrastructure and so on. If the roads have got lots of holes in them, it is because capital maintenance is not being set.

Zac Goldsmith: Can I-

Professor Helm: I just want to finish this, so that you get the picture. We want to make sure that companies do this, and we want to make sure that the landowners do it. That is why we have a direct engagement with the corporate sector and accounting bodies and with the landowner troupe we have set up, who control a lot of our natural assets in this country. The accounting plus the risk register on the basis of the metrics shines a very powerful torch on what is going on. I cannot make people do stuff as a result, but they will not be doing it in ignorance.

Q12 Zac Goldsmith: Can I just ask: is it the Government’s intention that a prerequisite to making this all work would be that the Chancellor will report, in the same way as he reports in conventional terms, on the state of our natural capital account annually? Is that part of the commitment?

Professor Helm: He will be receiving such information through the Economic Affairs Committee of the Cabinet.

Q13 Zac Goldsmith: But will he personally be reporting? Is that part of the plan at the moment?

Professor Helm: To be blunt, you have to ask him that question.

Zac Goldsmith: So it is not already decided, then?

Q14 Chair: You haven’t had that conversation with him already as to how he will receive what you put forward?

Professor Helm: No.

Q15 Chair: Do you think you should have done?

Professor Helm: No, not yet.

Q16 Zac Goldsmith: But I am assuming from what you have said that you would regard that to be an important part of this process-that unless you have that very public, very significant reporting by the Chancellor to the House, this thing will not have the significance that it should.

Professor Helm: Of course, I want the results of what we do to have the widest canvas, but just remember what we are talking about here. We are talking about restating national income accounts. A Chancellor cannot go and present his Budget on the basis of any accounts; these will be ONS’s green accounts, which will form the basis of starting to have a balance sheet for this country where we can understand what our liabilities are, what our assets are and what needs to be done to maintain those assets through time. That is radical. How a Chancellor in the future chooses to use that information, I have no idea, and it is quite a long way off, unfortunately, because it is a very long-term task.

We are in exactly the wrong position. We are on cash-based accounts. We do not have these. We have got to develop examples like trying it for forestry, which is what we are really focused on at the moment, to see how that would work. What would be a capital maintenance charge for forestry? You are trying to ask me to make decisions and to say what politicians should do. That is not my task, and I am really very keen to maintain that we are an independent, expert committee; we are not a political body. We are going to shine this torch and provide this information, and it is for others to decide what to do about it, but they cannot do it in ignorance, because we will have provided that information.

Q17 Chair: In a way, at the heart of our questioning is the fact that we are very supportive of the existence of your committee, and we are very conscious that there are decisions being made at the moment that are locking us into long-term decision making on capital investment, and those decisions are being made without being informed by the work that you are about to do on natural capital. We are also conscious that, parallel with the work going forward that your committee is doing, it would be a bit pointless if the ground had not been sown for when you were ready to say something to the Government and to the Chancellor, so that the Chancellor was not ready to then say yes and give the green light to your recommendations. That, surely, is a matter for you as the chair of this committee.

Professor Helm: My response to that is that you should ask him.

Q18 Chair: I am sure we will, but I just want your view on this.

Professor Helm: This is extremely important, but I do want to make this clear distinction. The moment my committee is somehow seen to be political, I think we have lost a great deal. We are independent, we give advice and we have clearly interpreted our terms of reference into a work programme. This is not a short-term fix. There are no short-term headlines. If we carry through this programme, we will have changed the information base, we will have shone the torch and nobody will be able to make decisions in ignorance of that, and it will be absolutely clear whether the objectives in the White Paper are actually being carried forward. If they are, great; if they are not, it is for politicians, not me, to decide what is done about it. We can provide advice, but we cannot make political decisions.

Q19 Chair: Okay, we will move on. I have two more quick questions. We have concentrated on Government, but how has business responded to your report?

Professor Helm: It may, in some sense, be unsurprising that we have had broad support, because, of course, we are setting out how we are going about something-we are not announcing results-but part of what we have been trying to do is to say that we must engage not just with national income accounts and the treatment of natural capital in the aggregate accounting framework but with business and landowners. In the landowner class, of course, there are farmers, but there is also the National Trust, the Crown Estate and a whole set of semi-public or actual public or charitable bodies. There is a lot of land.

We have set up two clear groups to do that. On the business side, we have had the advantage of the Ecosystem Markets Task Force, who have been actively engaged on that front. We have worked very closely with them, and we have picked up a number of their recommendations. We have had meetings with financial institutions. We have had a meeting with interested corporate parties, and we are very focused on the accounting bodies. Although there are companies out there who would like to do "the right thing" and are very interested in being leaders in this area, there is always that feeling of "Why am I going out on a limb if other people aren’t?" We have accounting bodies to lay down standards, and we are extremely keen to encourage them to think quite hard about what accounting requirements-perhaps first voluntarily and, hopefully, eventually mandatory-should be put in place. That has gone pretty well, and a lot of effort and time has gone into it, led very much by Kerry ten Kate and Colin Meyer, who both have that kind of experience. It is good.

Q20 Chair: In terms of taking forward your recommendations, do you think this is something that is going be more led by business and the private sector, by the Government or by a combination of both?

Professor Helm: There is a false dichotomy. We as a society have to decide what we are going to bequeath to the next generation. That cannot be a purely private decision. Many of these assets are public goods and externalities that do not naturally go through markets, so it would be impossible to conclude that business can do it all. On the other hand, many of the assets are actually controlled by businesses and companies, which have direct interests in the maintenance of their supply chains and their access to these things going forward. Indeed, economic growth depends on there being a healthy stock of natural assets to draw upon. So it is both, which is why we want to get the accounting at the top level and the company level joined up with the risk register, because the risk register is about identifying liabilities. The liabilities need to go through into accounts to be set against assets in order to be incorporated in the decision making of firms. So, yes, it is both.

Q21 Chair: Finally, your remit is for England and there is at least a 10-year or 20-year problem for all of the devolved Administrations as to how we address the environment. How do you deal with Scotland, Wales and Northern Ireland, although they are not part of your remit? Is that an issue?

Professor Helm: You could also ask how we deal with the world, because natural assets are not confined geographically.

Q22 Chair: And indeed the overseas territories, on which we have a current inquiry.

Professor Helm: The swallows go somewhere else for half the year. My answer is that quite a lot of what we are doing-such as how to think about national accounts, how to do risk registers, how to do metrics and how to do company accounts-is generic. In some sense, it does not matter what the domain is; it is whether the conceptual framework is correct. The practicality is what you are doing the risk register and metrics for. Our remit is narrow in that sense. You might say that it would be much better if it was broader and included all the other things, but you have to be very practical and pragmatic.

People demand that we know the valuation of everything. That is impossible. But we start from a position where we value very little. That is why we treat our natural environment so poorly. If we make some increment on that path by identifying some of the assets that may be used unsustainably and start to think about appropriate rules for setting aside moneys for capital maintenance and so on, we will have made some progress. It would be nice to do the forestry of the whole of the British isles and, indeed, Europe, but if we just got the forestry bit right within England, that would be a marked improvement on where we are at the moment. You might think that I am being hopelessly pragmatic, but-

Q23 Chair: I don’t wish to be disrespectful, but isn’t it a bit flippant to dismiss the devolved areas? If you are looking at, say, river quality, which you have highlighted in your report, you cannot stop the rivers coming from Scotland into England. Surely you have to look at it in an integrated way.

Professor Helm: The Tweed is on the boundary in terms of which side it is, but in the Scottish rivers case, it is probably not a good example. I take your point entirely; I don’t think we are flippant about it.

Q24 Chair: So do you have a mechanism for liaising with the devolved Administrations?

Professor Helm: Not yet.

Q25 Chair: Would you like to?

Professor Helm: Yes, it would be very helpful. I take my remit as what I have been given. I have a very limited amount of resource and an enormous task, which would have, if carried out properly, radical implications-

Chair: Dr Offord is going to come to the resource issues.

Professor Helm: I am happy to talk to-within the bounds of reason-as many bodies, including European ones, as possible.

Q26 Dr Offord: I understand that it is your publicly stated ambition that your role will help the Government better to understand the state of the natural environment and how it affects the performance of the economy and to provide advice on how to manage our natural wealth. Do you have enough resources to achieve that?

Professor Helm: It is always the case that you could come back and say, "Could we have some more resources?", because we could always do more. I have taken the line that I took this chairmanship on knowing what resources I had and I am trying to do the best I can with those resources in the context we are in. Anyone looking objectively at what we have achieved so far, in 11 or 12 months, on the basis of a committee whose commitment is one day a month-mine is two-and our secretariat, would be, I hope, very impressed by what we have done. We have given advice on substantive items. It has forced us to focus very narrowly. Yes, of course one would like more resources, but we have defined something we can do with the resources we’ve got that we think will make a great deal of difference, and I think that is as far as I can go. I am very reluctant to turn round and say, "Give us some more money," before I have proven what we can do with the resources we’ve got.

Q27 Dr Offord: You mentioned the amount of time that you and the other committee members put into the committee, but if you wanted to speed up an area-work faster and achieve more-would you need more members’ time or would you need more civil servants’ time?

Professor Helm: It is a balance, but one of the things that you get out of having limited resources is that you make a very strong distinction between providing frameworks and advice about how to do stuff, and the doing of the stuff. One of the things that has bothered me from the outset is that people think that we are doing all these valuations. That is not what we are doing; we are saying how they should be done. Refer back to my discussion about the ONS. It is not the Natural Capital Committee that is producing green national accounts; it is the ONS that is producing those accounts. We are there to provide advice on how to do it. But on the risk register side, one of our terms of reference is to advise the research councils on how they should spend their money. That provides quite a big resource base, and we have been extremely active in doing that, taking it forward and building on the NEAs in place.

If, in due course, one wanted the committee to move on to be more like the Climate Change Committee, that would involve resources of a different order of magnitude. You need a research team for that-not a secretariat, but a research team. You need chief economists; you need a whole bunch of things to make that happen. There is a case for thinking about what we are doing in parallel to the Climate Change Committee, but remember: the Climate Change Committee has a specific piece of legislation behind it; it has to produce carbon budgets and it has to do the numbers to put into that. That is not yet our remit. It is open to some future politician to decide that they want us to do that. Then you really do need a much more substantial set of resources than the ones we’ve got.

Q28 Chair: Do you think it could be your recommendation?

Professor Helm: It depends how important you think the natural capital of this country is-the commitment to sustainability and, essentially, what lies behind that White Paper. If you really take that seriously and you regard it as a core national priority at the heart of Government policy-I do not want to be flippant, as you have made this observation already-is this less important than climate change? My personal view: no, it is not less important than climate change. If you are in that position, lots of things follow, but before we get there, with respect, let us shine the torch and enable people to see the size of the task that has to be carried through.

Q29 Dr Offord: I seek some clarity on the issue that you alluded to. Would you say that your committee is totally reliant on officials from the ONS and DEFRA to turn new ideas into reality?

Professor Helm: No. We are an independent committee. If you look at the members who I have the privilege to chair, you will see that each of them in their own right has an enormous capability and expertise behind them. We have got really first-class scientists. We have got among the best people on environmental accounting in this country recognised in the world. We have got people who really understand about planning, land management and agriculture. So if you think about what a meeting of our committee is, it is bringing all that expertise to bear on precise questions. This document, our first "The State of Natural Capital" report, is the output of that. We are not buying 12 hours of someone’s thought on this subject. None of my members comes as a generalist; it is melding that together. What is really exciting is that we have got really first-class economists and we have got first-class natural scientists, but they have to bring their ideas together. To give you an example from our meeting yesterday, the accounting stuff is going on and the risk register is going on, and those are done by different disciplines. The relationship? The risk register identifies liabilities we should think about as an accounting framework, and when you are thinking about an accounting framework, you should think about it in the economic terms of current costs and capital appreciation. That marriage of those things into a coherent vision of what needs to be done here comes from the expertise those people have. In that sense, but only in that sense, we are resource-rich.

Q30 Dr Offord: My final question concerns administrative arrangements. Your committee is based in DEFRA, but you answer to the Chancellor and through the Treasury. Do you think that is the best way?

Professor Helm: The secretariat is in DEFRA, and it is true-you would not expect it to be otherwise-that we have a lot of inter-relationship with people in DEFRA, but we are not a DEFRA committee. I think that is quite important. We are an independent committee and we have a clear reporting line. I think you asked these questions when you spoke to the Secretary of State and Oliver Letwin. I read the transcript, and I think it was explained.

Chair: We must move on because of time.

Q31 Zac Goldsmith: I am sure you have already said this, and if you have, I apologise. How much of the work do you think will really have been done by 2020? You are starting with forestry now, and there are obviously many other areas. How complete will the analysis be by then?

Professor Helm: The first thing to remind you is that we are subject to a formal review, so there is no certainty that the committee will continue; that is to be reviewed.

Q32 Zac Goldsmith: When is that?

Professor Helm: I think it is after three years.

Zac Goldsmith: When would that be?

Professor Helm: I can’t remember-I should have the date to mind.

Q33 Chair: It is not ingrained.

Professor Helm: It is not ingrained in my mind. In one sense, I have always said to the committee, "In three years you have to be able to count that you really have made a difference", and I quite like that deadline. One thing is whether we continue, but that is an aside.

Q34 Zac Goldsmith: Assuming you do.

Professor Helm: Assuming we do, yes, I am pretty optimistic. If you ask the question, "Can a proper risk register be put in place?", yes, of course it can. Can the metrics be developed? Yes. We are not starting from scratch in either of those territories. Can the accounts be greened? In one sense, yes, of course they can, but behind that lies something extremely important. People use the generic term "green accounts", which can mean all sorts of things. We have already had that engagement with ONS. There is a bottom-up, really detailed disaggregated structure that then gets put into a total, or you are taking a top-down view of the state of those assets. Will there be some green accounts? I would be amazed if there weren’t. Will they be good green accounts? Well, if we still exist through that period, we will have failed if they are not.

Q35 Zac Goldsmith: So it is realistic to imagine that, by 2020, there will be an accepted valuation on pollinators, water systems and flood plains, and so on?

Professor Helm: No. Let me refer back to the answer I just gave. It depends on how disaggregated you want it to be. You always have to have that in mind. Take pollinators-

Q36 Chair: We will come on to pollinators in a minute.

Professor Helm: Take any example. If you say the answer is £672,542.52, you have misunderstood the question. What you are trying to do is work out how much resources should be used to maintain or enhance that asset. That is not the same thing as putting a precise price, as equal to a value, on something.

Q37 Zac Goldsmith: But it can sometimes, I assume. If by losing flood plains you are going to increase the cost of flood defences down the line, there is a mathematical formula that can be used there.

Professor Helm: If you are asking what the costs of doing something are, the answer is yes, but that is not the same thing as asking what the value is. I will give you another example that I think is very illustrative. When the M3 was being extended, people asked, "What is Twyford Down worth?" I was trying to get engagement with the Treasury on that question in the 1980s. No cost-benefit analysis was done, and a very good possible explanation for why no cost-benefit analysis was done is because they would have found that it would cost about £90 million, in the money of the day, to build a tunnel underneath it and nobody could think of the value of Twyford Down as being less than £90 million. A proper cost-benefit analysis would have seen Twyford Down with a tunnel underneath it now. Of course, you can see that people may not have wanted to spend money in the 1980s to do that, but the point illustrates that the question is not "What is Twyford Down worth?" but "Is it worth more than £90 million?"

Q38 Zac Goldsmith: Can I rephrase my question? By 2020, is it likely that you will be able at least to frame the right questions to come up with the right answers across the spectrum? So not just forestry, but water, pollinators and so on.

Professor Helm: Yes, a much broader spectrum.

Q39 Zac Goldsmith: So there will be a relatively complete understanding of how it all fits?

Professor Helm: It may not be perfectly disaggregated or perfectly accurate, but it should be fairly comprehensive.

Q40 Zac Goldsmith: Can I quickly go back to a point you made earlier? You have said that your job is to provide advice on how to do it-in other words, how to answer the questions we are addressing now. Is it also part of your brief, or will it be part of your brief, to help the Government understand how to use this new information to influence policy?

Professor Helm: I hope so.

Q41 Zac Goldsmith: So there will be a policy angle at that point?

Professor Helm: I hope so, but, with respect, let me and the committee get there first. If we knew all this stuff, we would have the luxury of spending time thinking, "If you use this particular mechanism, rather than that, you would get this particular answer." We are standing back from that because we are not there yet.

Q42 Zac Goldsmith: Are there any examples in your mind of how this new information, this new way of seeing things, could influence policy decisions in the future? Do you have in your mind examples of how that might manifest?

Professor Helm: I am thinking off the top of my head at the moment, but the first implication will be the following: are we, in aggregate, spending the sorts of sums necessary to maintain our natural capital assets intact through time? It will be very interesting to look at what we are actually spending on nature conservation and other areas to see whether it is consistent. That is quite stark, and we never asked that question.

In the narrower sense, would you want to have a different agricultural policy or a different way of doing environmental support within agricultural policy? If you had better information about the things you want to target because you know which assets are about to go through a threshold to become non-renewable, surely you would. Indeed, that is quite generalisable. It is saying, instead of doing things qualitatively, you have some quantitative information and, therefore, you can target what resources you have in a much better way. Agricultural policy, nature conservation policy, how we account for environmental impacts of infrastructure spend, housing-all sorts of stuff fall out of doing the analysis properly.

Q43 Zac Goldsmith: So you would have to continually re-evaluate the natural stock on the basis of the direction that the economy is taking-biomass being an example of something that provides a different level of value to woodlands.

Professor Helm: Yes. You can’t do national income accounts and say, "Well, they produced a nice number last year. We are not going to do them for another five years." Accounting is a constant re-evaluation of the state of your assets and their use.

Q44 Zac Goldsmith: Can I ask how would you address the less directly economic-or even, the non-economic-value of ecosystems? I suppose, at a base level, it is about people’s enjoyment of the countryside, or their enjoyment of a particular area. It has a value, but it is very much harder to pin down. Is it something that you think would be able to be fed into this process?

Professor Helm: I don’t quite accept your premise that there are several assets that are not economic, and there are several assets that are, and we should think about them differently. That also goes to the heart of the White Paper. These all have benefits to people, and those benefits are what we are interested in. Some of them have direct market prices and some of them do not, but from a resource allocation point of view, it is precisely about wanting to make sure that those that do not have prices in markets at the moment are not given, effectively, a value of zero.

Q45 Zac Goldsmith: Non-economic is the wrong term-I accept that-but in terms of the less direct, less obvious economic values, it would be harder to imagine those scenarios having an impact on policy in the same way that, for example, erosion, removal or development of the floodplains has, where there is a very clear cause, effect and future cost as a result of bad decisions. Where it concerns people’s enjoyment of an open space in the countryside, those considerations, because they are less catchable mathematically, would be less likely to have an impact on policy. Is that right? And if not, why not?

Professor Helm: Let me give you an example, not from things we have done directly at the Natural Capital Committee that we are interested in, but from what Ian Bateman, who is a member of our committee, has been doing in identifying the best place to put forests. He identified many benefits that people derive from having access to forests that are of the kind that you put in your category of almost non-economic. Once you take those into account, it creates a rather different view about how land use should work. In other words, forests that have ready access for lots of people produce a lot more benefit than forests in the middle of Wales. There might be other reasons why you might want to have your forests in the middle of Wales, but that is a practical example of where it makes a great deal of difference. There are health benefits and all sorts of other indirect uses of the natural environment, and they should influence the way we make decisions, but you cannot do it without shining the torch and finding out what you have got, what the risks are and what the metrics are.

Q46 Zac Goldsmith: We have covered in lots of different ways the next question I was going to ask. On the last point you made about a forest’s value in Wales, as opposed to somewhere else, I know that someone on the Committee will be talking about offsetting later and I hope we can come back to-

Chair: Why don’t you do it now, Zac?

Zac Goldsmith: I don’t know who is asking the question about offsetting, but you made the point about how a forest in one place and an identical forest in another, can have very different values, and I am assuming that that would be taken into account in this concept of offsetting.

Professor Helm: Yes, it must be.

Q47 Mark Lazarowicz: I was going to ask about offsetting, so it would be useful to come in now. How far can you guarantee, in this model that you are developing-you can never guarantee it completely-against the way in which, bluntly, the values of offsetting measures can, in effect, be skewed to get the desired outcome, to allow the environmentally damaging activity? For example, I am sure you are aware of the debate about rainforests and how far rainforest degradation now can be offset by other planting activities, raising all sorts of questions about how long a time scale you can allow a repayment for offsetting. There are many arguments and examples, of which I am sure you are aware. How far can you guarantee against that type of choice of offsetting value to reflect the desired policy objective?

Professor Helm: Okay. Let me first set out the NCC’s role in all this and then answer your question.

Q48 Mark Lazarowicz: The tropical rainforest is not, I know, an example that involves you directly, but it is an example of how you have to make choices.

Professor Helm: This is an example of a particular policy proposal on which the Secretary of State has asked us to give advice. It is not part of our mainstream activities. It is like being asked to give advice on the common agricultural policy, the Forestry Commission etc. These are quite demanding requests. It is not our job to design an offsetting policy-that is a quite complicated thing to do-but we have given advice, and will continue to give advice, on how to go about that process, so that is what we have been doing.

Let me make some distinctions. There is a general principle to discuss: should people always and everywhere compensate for environmental damage that their developments do? That would be very radical, but personally I’ve got a lot of sympathy with that idea. There is a separate question about whether developments should be allowed to go ahead if the developer, knowing that environmental damage is being done, can demonstrate that they have replaced like for better physically. Offsetting is normally thought about in that physical context, rather than in terms of the special case of the broader issue of compensation.

For example, we have been very clear that we think there are some areas where offsetting is not appropriate. You can’t replace a bit of ancient woodland with like or better, because there isn’t any ancient woodland you can invent without waiting 1,000 years for it to get to the state you want it to. You still might have a development and you still might want compensation. If the environment is going to be damaged, you want some money to compensate for that damage, but it is not an offset. This is the confusion that I think quite a lot of people experience in this discussion. Yes, you should pay for damage you caused, but offsetting is special. Can you find an environmental asset that is at least as good as what you have had before?

We say that there are some areas that are no-go. We generally support the principle that compensation should be paid, and then within the areas where people can demonstrate like for better, with net gain-we are very clear that the White Paper says "net gain". We are going to improve things. We are not holding the line; things have got to get better. In those circumstances, we think that there ought to be clear principles and we have suggested and are suggesting what the principles might be that should be applied. We think it is extremely important to think about who makes the assessments and how they are made; and you have to give due consideration to what happens if the offset is not actually delivered, where it may make take time to do that and what compensation is there.

My personal view is that if you are worried about people not delivering, you should think about bonds that are forfeited if that is not achieved. We have not discussed that in the Natural Capital Committee, but that is my personal view. Some of that might not be an offsetting condition. It might just be that you have not had an offset, you have asked for compensation and the developer has said that they will, at the end of the life of the project, return the site to the state it was in at the beginning. Take a fish farm in a loch somewhere. This would probably be outside the English domain, but the question is: will they return that site to the state it was in ex ante? You might well want to think about having a performance bond that is held until such time as that is achieved.

We think that within the domain of offsetting, it has only some context where it is relevant and it matters extraordinarily how you do it and how that detail is developed. We are advising the DEFRA team on this. We have met the Secretary of State to discuss these things. We have provided some advice. But it is not our job to design this policy. It is way beyond our remit, and any resources we might have, to do that.

Q49 Mark Lazarowicz: That is helpful. Do you see, then, much of a role for a situation where the offset for environmental damage now is from a stream of future environmental benefits, on which I think there are all sorts of issues about valuation, future enforceability and all the rest of it? Or do you primarily see the offsetting as measures taking place now, all of which can be controlled through a performance bond type of regime, as compensating for damage now? What do you envisage?

Professor Helm: If you think it is physical offsetting-if you destroy this piece of woodland, you create two bits of woodland twice as good, or whatever, somewhere else-the chances of getting a perfect like-for-like are quite small. That is why you want to err on the cautious side and make sure that you are getting quite a lot for your offset. That is where the net gain is, and I think it is great that the White Paper says we are going to reverse this decline. If that is what we are going to do, it has a clear implication for offsetting. We know that we have the ambition within that framework. We have the Lawton report, which says what you would do if you wanted to do these things.

The question, then, is: where would you look for your like-for-like replacements? Do you want to put it within the framework of ecosystems and a Lawton kind of framework? Is this such a set of resources? Here in the Lawton framework is a particular bit of a wildlife corridor that we want to put together, which is a precious asset to the overarching objective. Or is it simply that we have a bit of woodland that has gone here so we are going to have a piece of woodland there? You need to take that into account.

The second thing is that it is very unlikely that the timing will be precise, so this does raise the issue of future benefits versus current costs. I won’t bore you with the intricacies of how you should do discounting between those periods and how you should treat people in the future versus people in the present, but suffice to say that it is exactly the same problem we have in climate change discussions, and it is not a question without some answers. This is about practicality. You can have a nice theoretical model-here is a bit of woodland here and there are two more bits there, which is the physical offset-but the practicalities are going to be a little bit more fuzzy. Then it becomes absolutely crucial. Who is doing the assessment? Who is paying them? And who is monitoring whether what they have said they are going to do is actually delivered?

Q50 Mark Lazarowicz: That leads me on to the final question. The point you make is fair. Surely offsetting depends very much on the reliance you place on the future enforcement of obligations. How have Ministers responded to your recommendations on offsetting? Are they enthusiastic? Can we say at this stage?

Professor Helm: It is very early days, but, as I have said, we have had very fruitful engagement with the DEFRA team on this. We have had an extremely good meeting with the Secretary of State, and we have an offsetting summit this afternoon. I have no reason to believe that our advice, so far, is being anything other than taken seriously.

You raise one other wider question that, with due respect, you as a Committee might look at. More generally, when developments and so on are going forward, who is doing the environmental assessment? What is the status in this area? In accounting, we have the notion that auditors have responsibilities. In the area of doing biodiversity assessments, assessments of damage to projects, et cetera, it is really rather important to be clear that those assessments are genuinely independent of the interests of the parties. The country is not awash with environmental expertise to do such things. They are costly to do, and, of course, the whole credibility of any offsetting regime will depend not only on whether those assessments are done correctly but on whether they are seen to be done correctly. It could have credibility, and it could make a significant contribution. In general, what happens is that a lot of the environmental damage in this country has been done, as it has for decades, without compensation. That is why we are going backwards.

Chair: I think it might be helpful if at this stage I say to the Committee that we might be in a bit of a quandary, because we are having a very fruitful session. We have two more issues that we want to cover. We were originally scheduled to end at 12. Given that we have a further session after that, I appeal to the Committee to cover the area that we want to cover by 12 o’clock? I turn now to Simon Wright.

Q51 Simon Wright: Thank you. I will be brief. You are probably aware of the report that we published recently following our inquiry into pollinators and pesticides. During that inquiry, one of our witnesses told us that a meaningful valuation of insect pollination as an ecosystem service is a long way off. To what extent do you agree with that statement? Are there any proven economic techniques that could be applied to value insect pollination now?

Professor Helm: The short answer to your first question is yes, I agree. We are a long way off, but be very careful about trying to get a perfect answer rather than some practical helpful answers. Ask the question rather differently. Instead of what are they worth, ask how much it would cost to do something to protect and enhance the population of pollinators. I have no expertise whatever in the current debate about particular chemicals and so on, but, at one level, we might presume that it is not implausible to calculate the consequences to agriculture of not using such chemicals in terms of yield. Could you think that the value of the pollinators is less than that number? That is like my Twyford Down example.

You might think that I am hopelessly pragmatic, but if you were focused on the decision and, in this case-it being whether to ban certain chemicals or whatever-the numbers you require are not that bees are worth £4.20 each. We must also be very careful of the science. I am not a scientist, but from talking to scientists, we do not exactly know the relationship between different kinds of pollinators and whether other pollinators will take up some of the role that bees play and so on. Try and have certainty in such areas.

The issue is like more general valuation. It is really quite dangerous, because you should be making decisions in a clear understanding of your ignorance and the uncertainty about what you are doing. You are generally uncertain about bees, for example. However, you are not completely uncertain and that leads you to focus the torch on the bit of information you would need to change the decision you are making, and then ask yourself how robust that is. That is basically the relevance of the cost of not using particular chemicals and whether the valuation of the bees or whatever is greater or less than that number. That is not the same as valuing bees per se.

Q52 Simon Wright: How do you apply the equivalent to a precautionary principle when the value of an ecosystem service has uncertainty? Do you, for example, have a formula or a means for applying a margin?

Professor Helm: That is precisely why we want to combine metrics with the risk register. In a risk register, we are really interested in when an asset turns from being a renewable asset into a non-renewable asset. We can think about it in terms of, say, cod stocks. If cod stocks reach the point at which scientists start to say that they will go the way of the cod stocks on the Grand Banks, you have fallen below a certain threshold. You then want to be precautionary.

If you are miles one side of that threshold in all your available evidence, you do not have to be so precautionary. So when we talk about a risk register, we have something precise in mind about thresholds, and it is that on which we want to focus. Rather than try to do everything, because our first term of reference is to advise on which assets are being used unsustainably, we are targeting areas where we think those thresholds might be closing in on, and our metrics are designed to that purpose. That is where you want to be precautionary.

Chair: I turn now to Peter Aldous.

Q53 Peter Aldous: The present management of the economy is very much based on increasing the consumption of goods and services. Economic management is all about boosting GDP. Without a fundamental shift away from that model, surely it is inconceivable that an assessment of natural capital will ever really be able to drive policy. Do you agree with that?

Professor Helm: Not quite. Technically, what we are interested in is consumption-ultimately, human utility-going up through time, but only in a context of maintaining the set of natural assets intact, so that the next generation gets a set of assets that is at least as good as ours.

If you think about what I said about accounting, you cannot answer what a sustainable level of growth is without a balance sheet. The whole heart of sustainability is about maintaining assets through time. We have no balance sheet at all; that is why GDP does not tell you much. You don’t know what the national debt is in a serious sense. You don’t know what the deficit is. The reason why you don’t know is because you do not have a set of accounts that says how much money it costs to maintain the value of assets through time-the liabilities, in pension fund terms. Once you start thinking in terms of assets and liabilities, then you can talk about sustainable growth. There is nothing wrong with economic growth, providing that it is the right sort, which is sustainable growth.

When the Government said in their White Paper that they want to put natural capital and the environment at the heart of the economy, they are absolutely right, but my interpretation of that is that you need a balance sheet. Then I can work out what the capital maintenance is to maintain those assets through time. Then you have to pay that before you claim further consumption, just like you have to set aside money to fill up potholes and maintain roads before you can claim that you are better off.

If you start to do that-Partha Dasgupta and others have been doing this with the World Bank-you start to see that the growth figures for different major countries, or for this country, are not what you think they are. Why did we call depleting North Sea oil and gas growth in cash GDP terms? One generation has it, but the next generation does not. That contributed to a trough-to-trough growth rate in the ’80s and early ’90s of about 1.7, which sounds to me a rather high number once you start to put the depletion of the assets in place.

It is quite radical to talk about sustainable growth, if you really want to do it. You cannot talk about sustainable growth until you have a balance sheet to measure capital maintenance and set that charge against national income accounts. Then we will know where we are. I have no idea whether, in a sustainable growth sense, the current deficit is 6%, 8% or something else. To me, that is not an interesting number. I want to know how much it would cost to maintain a reasonable standard of living in pension liabilities, national debt, environmental assets and physical infrastructure through time, and whether we can grow on that basis. Of course we can grow, because technical progress is going on all the time, but that would be genuine growth as opposed to GDP growth. To put it bluntly, you tell me the question to which GDP growth is the answer, and then I will make some progress.

Q54 Peter Aldous: Your report linked population growth to the degradation of natural capital in England. Might someone read from your report that, to make a difference on natural capital, we have to curtail the size of the population?

Professor Helm: No. That would be almost obviously wrong. You need to put it around the other way-if you want, with a set of natural assets, to have a higher population, there are implications for what it costs to maintain those assets and what ought to be done, and think about it in the simplest form. If you want a population increase, which requires an increase in housing stock, and the housing stock is going to go on bits of land that are natural assets, you want to be concerned about where you put those houses, what the environmental damage is, and what else you will do to compensate for that, if you want to keep the aggregate of the natural assets constant.

If you have an increase in population, it makes what we are doing more rather than less urgent. You may well have pressures that push assets towards thresholds. You want to know where those are, and you want to act on those and take a precautionary line on those assets if you want to achieve your objective. In general, a higher population will make it a tougher ask to reverse the decline. That is the point.

Chair: Just before you follow on, Peter, I think Zac wanted to come in on that point.

Q55 Zac Goldsmith: The first draft of the national planning policy framework triggered a real backlash-it was improved considerably in the second draft-partly because there was no emphasis on brownfield-first development, which emerged subsequently. Had we stuck with the first draft and had your work been completed, is it fair to say that, logically, campaigners would have had far less to worry about, because there would have necessarily been brownfield-first development?

Professor Helm: The Natural Capital Committee has not discussed this at all, so any answer I give you is my reflection on that question.

There are many places where you might put houses, and there was an active debate about brownfield versus greenfield versus other alternatives. Nothing suggests that there is an automatic preference for one or the other. What is really being discussed here is that you have to take into account the environmental consequences. Were one to pursue the physical offset route, the scale of the physical offset required if you put houses on a greenfield site would be different from a brownfield site.

Q56 Zac Goldsmith: But is that not the same thing?

Professor Helm: As I said, this is not something that the Natural Capital Committee has discussed, but it may be that there are some greenfield sites that have such high value that it is worth paying a much bigger offset for those than it is for a brownfield site. There is no blanket answer to the question. If you are doing your environmental accounting properly, however, you cannot make that choice in ignorance of the environmental costs of doing so. Since the environmental costs of greenfield are generally higher than those of brownfield, you have to have an overwhelming or more powerful reason for choosing the greenfield option. My answer is complicated, but it is a complicated issue. The simple bit is not to do any of this without doing proper accounting of the environmental impacts.

Chair: I am going to turn, finally, to Peter Aldous again.

Q57 Peter Aldous: I have one final question. Are the concepts mentioned in your report on natural capital also applicable to human and social capital? Could you apply the concepts of thresholds or offsetting to social capital?

Professor Helm: My personal view is that these concepts are of course generalisable. I envisage a balance sheet that incorporates all such forms of capital, and we have no balance sheet that incorporates any of them, so yes. There are two points about that. First, it is a massive debate within the environmental area-not just with environmentalists-as to how far natural capital is substitutable for human and physical capital. You might have no swallows, but you have lots of iPods; can you make a trade-off between those things? Hard environmentalists say that the trade-offs are virtually zilch. Others argue that we have all our capital stock out there, but London has a lot fewer species than it once did. There is an argument about that, but, in general, the answer is yes. Secondly, however, there is a modesty line, which is that, given that first point, let us try to get the natural capital bit right first before anyone asks us to look at some of these other components.

Q58 Peter Aldous: So you would not want your remit to be extended to cover human and social capital.

Professor Helm: I have got potentially such a wall of stuff in front of me that needs to be done to fulfil my terms of reference that the last thing I need to do right now is to have my domain expanded.

Q59 Peter Aldous: Do you think that the Government should set up other committees to deal with other elements of well-being?

Professor Helm: The answer is that the ONS is doing that stuff, and the ONS is where that should be located. We have had this Stiglitzian-type work being done and that is being developed in the ONS. I am very keen to discuss with the ONS whether such things are being done in parallel and whether the same concepts are being used, but let it do that and I will try to concentrate on our bit.

Q60 Chair: Okay, I must bring our proceedings to a close. Thank you, Professor Helm. You have shone a light on the issues relating to natural capital. The whole agenda is ongoing, particularly post-Rio and in view of the sustainable development goals and how much we separate human, social and environmental capital and GDP. I hope that our Committee will be able to do justice to this agenda in our report.

Professor Helm: Thank you very much. When we have our second report, I would be pleased to report on the progress that I hope we have made by then.

Chair: Side by side with the Chancellor.

Professor Helm: It is for you to invite and for me to attend.

Chair: Thank you.