2Delivering Defra’s vision
2.Defra’s 2014–15 Annual Report and Accounts set out the priorities for the Department and its performance against them during the last reporting year of the Coalition Government. The Department states that its priorities are “leading the world in food and farming; protecting our country from floods and animal and plant diseases; improving the environment; and championing the countryside and improving rural services”.3 The Secretary of State, Rt. Hon Elizabeth Truss MP, speaking to the Conservative Party Conference in October set out her own priorities, highlighting in particular the role of farming in the rural economy and environmental protection.4
3.The Secretary of State told us later in October that Ministers operating under a Conservative as opposed to a Coalition Government could be “bolder and more ambitious” in their vision, linking together policy areas such as the natural environment and rural productivity. She noted progress made during the last Parliament in reducing red-tape for farmers and introducing food enterprise zones,5 but she told us that challenges remained, included reducing the 18% productivity gap between rural and urban areas and providing effective flood and animal disease protection.6
Defra funding and spending
4.Defra had access to nearly £6.3 billion of funding in 2014–15, 7 of which only £2.6 (41%) billion came from the Exchequer.8 Nearly half of all spend under Defra’s portfolio (49%) came from EU sources, principally for agricultural and environmental work. Last year, the UK received £3.1 billion in Common Agricultural Policy (CAP) and Rural Development Programme funding, of which £1.1 billion went to the devolved administrations.9 Another important source of funding is income from fees, levies and licences. A total of £421 million of Defra’s funding (7%) came from fees, levies and licences last year.10
Figure 1: Defra source of funds (% 2014–15)
Source: Defra Annual Report and Accounts 2014–15
Main areas of spend
5.Last year, some 41% of Defra’s Exchequer funds were spent under its farming priority. Environment and biodiversity activities took just over a quarter of spend with environmental emergencies taking up 18%. Smaller proportions went on animal and plant disease work (7%) and on the green economy (2%) with the remaining 6% supporting the Departments’ operations.11
Figure 2: Defra gross expenditure funded by Exchequer by category (% 2014–15)
Source: Defra 2014-15 Annual Report and Accounts
6.Funds from the UK Exchequer have been on a downward trend over the last and the current Parliaments, reducing from over £3 billion in 2010-11 to just over £2.25 billion in 2015–16.12 About three quarters of that reduction came in non-capital (resource) budgets and one quarter in capital spend. The Department’s reduced resource spend over the last Parliament includes cuts of £254 million in administration spend, a 34% reduction,13 with the rest of the cuts coming from service delivery budgets. Defra’s main resource budget will reduce in 2015-16 by £135 million, or by 7% compared to 2014–15, to leave it at around £1.8 billion.14 This autumn’s Spending Review announcement will mean a further 15% reduction in Defra’s resource budget over the next four years.
Figure 3: Defra actual/planned capital and non-capital funding allocation
Source: Defra Annual Report and Accounts core tables
Balancing the books
7.The Permanent Secretary told us in October that Defra had submitted to HM Treasury illustrative scenarios for 25% and 40% cuts in its budget ahead of the Spending Review. The final figure announced in November is much lower. Defra’s press notice states that £123 million of savings will come from a 26% reduction in its administration budget by 2019-20 but provides little other information.15 The question remains as to where the required savings will be made.
8.The Secretary of State told us of the “big opportunity” to put back-offices together, not only across the Defra family but across government. She saw “no reason why all of government cannot use the same IT system or share the same HR department”.16 She summarised her solution for working more cost-effectively as “making our core smaller and more strategic, devolving more things down to the local level and making our organisation have a single plan rather than 34 different plans”.17
9.The Permanent Secretary, too, focused on bringing together as a group the various delivery bodies within the Defra orbit: the Department has a fairly small policy-making core and relies for the execution of most of those policies on a network of five Executive Agencies (such as the Rural Payments Agency), a variety of non-departmental bodies (including the Environment Agency and Natural England) and an assortment of other arms-length organisations (such as the Waste and Resources Action Programme and the National Parks Authorities).18
10.Defra has also sought to persuade us that there is potential to fill some gaps left by funding reductions by identifying funding from outside government. Defra officials cited, for example, partnership working on flood defences—mixing public and private funding, and both local and central government funding—as a means for Defra to make its money “go a lot further”.19 The Secretary of State told us that opening up flood defence projects to other organisations such as local authorities potentially increased access to funds since flood-protection spend unlocked land that could be of massive benefit to the local economy.20 Installing flood defences in areas at risk of flooding can allow developments to proceed which would previously have been inadvisable and assist in regenerating communities. Clear evidence that such partnership funding is available and is being tapped would be welcome.
11.A further source of funding for Defra could lie in increased charges for its services and those of its delivery bodies. The Secretary of State appeared to suggest that Defra’s revenues could be increased through greater cost-recovery from service users, such as farmers. She told us that she might look on a case-by-case basis at “changing” charges so as to “incentivise people to do the right thing”.21 However, evidence to our Farmgate prices inquiry has raised concerns that many farmers are currently experiencing financial difficulties due to volatility in the prices they receive for their products.22 Additional financial burdens would exacerbate these difficulties. The Secretary of State also noted that there were some services such as watercourse management where Defra wanted to give local areas permission to “do it yourself”. For example, a pilot in nine areas allowing local farmers to manage watercourses themselves, rather than having to apply for permission to the Environment Agency, was to be extended.23
12.Because the outcome of the Spending Review was unknown when we met Defra ministers and officials, we could not fully discuss with them how departmental costs will be reduced or what programmes and policies will be affected. Nor, yet, is there sufficient information available on how the gap between current and future budgets is to be bridged whether by efficiency savings or cuts in programmes or a combination of these. Neither is there much detail on which areas of departmental activity future spending cuts will impact over the course of this Parliament. We plan to return early in 2016 to the implications of the Spending Review once further details are available.
13.We appreciate the Department needed to be cautious while negotiations over future settlements remained underway. Nevertheless, for the third year in a row, we have sought to explore with successive Secretaries of State and Permanent Secretaries which of Defra’s priorities will be changed or negatively affected by continual reductions in the amount of money available to the Department. Last year our predecessor Committee said “the Secretary of State must be clearer about where budget cuts will fall and what impact this will have on Defra’s policy delivery”.24 They had said much the same the year before that, when Rt Hon Owen Paterson MP was Secretary of State.
14.We and our predecessor Committees have struggled to clarify with successive Secretaries of State and senior Defra officials their strategy for determining which policies and priorities will be altered by repeated spending reductions. We seek such a statement in response to this report now that the 2015 Spending Review has been announced and now that it is clear that Defra resource funding from HM Treasury will reduce by 15% by 2020.
15.We recommend that Defra publishes urgently its strategic approach for achieving the necessary reductions in its budgets for the next Spending Review period. Detailed plans for implementing this, including how administrative savings are to be made, must then be provided at the earliest possible date.
16.Given the scale of savings required under the Spending Review, it is highly likely that difficult strategic choices will need to be made, particularly as the more achievable cost-efficiencies have been made in response to budget reductions during the last Parliament. Successful delivery of vital environmental, agricultural and rural services will not be possible without strong leadership and a sharp focus on priority areas.
5 Q90
6 Q131, Q91
7 Department for Environment, Food and Rural Affairs, Annual Report and Accounts 2014–15, HC 30, p84
8 Department for Environment, Food and Rural Affairs, Annual Report and Accounts 2014–15, HC 30, p59
9 Department for Environment, Food and Rural Affairs, Annual Report and Accounts 2014-15, HC 30, p89
10 Department for Environment, Food and Rural Affairs, Annual Report and Accounts 2014–15, HC 30, p90
11 Department for Environment, Food and Rural Affairs, Annual Report and Accounts 2014–15, HC 30, pp63-65
13 Department for Environment, Food and Rural Affairs, Annual Report and Accounts 2014–15, HC 30, p138
14 As above, p137. [Departmental Expenditure Limit (DEL) figure]
15 Defra’s Settlement at the Spending Review, Press Release, 25 November 2015
16 Q95
17 Q95
18 Q16
19 Q12
20 Q140
21 Q97
23 Q97
© Parliamentary copyright 2015
Prepared 14 December 2015