To be published as HC 1580-i

House of COMMONS



Environment, Food and Rural Affairs Committee

Defra Annual Report and Accounts 2010-11

Wednesday 26 October 2011

Caroline Spelman MP, Bronwyn Hill CBE AND Tom Taylor

Evidence heard in Public Questions 1 - 101



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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Wednesday 26 October 2011

Members present:

Miss Anne McIntosh (Chair)

Richard Drax

George Eustice

Mrs Mary Glindon

Neil Parish

Dan Rogerson

Amber Rudd


Examination of Witnesses

Witnesses: Rt Hon Caroline Spelman MP, Secretary of State, Bronwyn Hill CBE, Permanent Secretary, and Tom Taylor, Finance Director, Department for Environment, Food and Rural Affairs, gave evidence.

Q1 Chair: Secretary of State, welcome. Good afternoon. Thank you very much for participating in our look at Defra’s annual accounts. Would you like to introduce yourself and your team for the record?

Mrs Spelman: Yes, I would love to do that. Bronwyn Hill, whom Committee Members may remember, has been before the Committee once before. She had been in post about 48 hours, I think, the last time that she came before you, so it is nice to have Bronwyn with me now that she is well into her post as Permanent Secretary, and Tom Taylor, who has taken on the finance role in the Department and helped us all through the Spending Review and its implementation.

Q2 Chair: Excellent. Just a general question at the outset. This is the first annual report and accounts that the Department has presented under the new format. How have you found the process as compared with the previous format?

Mrs Spelman: I couldn’t resist this; since you are asking me the question, I must say what I wrote down myself when I read this in the new format. I wrote down-and I didn’t know you were going to ask me this question-"I thought this was well presented, well explained, I really understood it easily". I hope the same was true for you. I think the format is much easier to understand and makes it more accessible. Our object is to be more transparent and to help people understand the accounts better.

There was just one thing I wanted to say very briefly. Committee Members will be aware that we are meeting at exactly the time when there is an Opposition day debate on the natural environment, which affects us all because we are the lovers of the natural environment, and we would normally be there. I have asked the Parliamentary UnderSecretary if he would explain to the House for the record in Hansard why it is that I, as Secretary of State, am not there to open the debate, and also why honourable Members are in Select Committee today at exactly the same time-the Environmental Audit Committee is also meeting during the Opposition day-so that public and Members, for the sake of transparency, can understand where we were at the time.

Q3 Chair: My understanding was that the debate was mostly on the Green Deal and that your colleague Chris Huhne was participating, but we are very grateful to you for making that explanation so clear.

May I just take you back, Secretary of State, to when you appeared before us seven months ago? You agreed that inflation was a problem in the accounts; not one confined to the Department, but a crossGovernment problem. Now that we know that the rate of inflation has increased to 5.2%, is the Department preparing to amend the departmental spending plans to account for the higher than expected inflation?

Mrs Spelman: I well remember appearing before the Committee seven months ago when the question of inflation was raised. As you would expect a Secretary of State to do, as we were debriefing the questions that you had asked me last time, I delved in a bit more detail into how inflation is factored in across Government into the spending plans of each individual Department. In point of fact, we do not use RPI or CPI; what is used across Government is a GDP deflator. That is calculated to be at 9.8% over the period of the Comprehensive Spending Review across the whole of Government. So what we are seeing now in terms of inflation, whether RPI or CPI, is a different indicator from the one that is used across Government to assess by how much prices may or may not inflate across the period. The reason why Government uses a GDP deflator is because, unlike a retail price index, certain factors that go to make an indicator of inflation are very different when it comes to public services and Government Departments. For example, salaries are frozen across Government and whereas our other inflation indicators would show rising salaries as a significant part of it, in the case of the GDP deflator, across Government Departments there has been a public sector pay freeze. So a different indicator is used across Government in order to build in inflation over the Comprehensive Spending Review period.

Q4 Chair: So will you have to alter your spending plans?

Mrs Spelman: No.

Q5 Mrs Glindon: The Defra accounts have consistently shown an underspend at the end of the year. Why does this continue to be the case? What are you doing to improve the Department’s and its agencies’ financial profiling?

Mrs Spelman: Thank you very much, Mrs Glindon. I have asked the same question about underspends. It is worth spending a little bit of time on this. As it was explained to me, the way in which Government accounts are drawn up has in the past been somewhat anachronistic, so there has been a big effort to try to modernise the Government accounting process. This modernising process is described as "clear line of sight". In a minute I am going to ask Mr Taylor to explain that to you in a bit more detail, but the significance of this is that Government Departments that have large numbers of nondepartmental public bodies and/or a very large interface with Europe and have funds flowing to and fro for matching from Europe, like the Department for Work and Pensions or the Department for Culture, Media and Sport, tend optically to have problems with underspend, whereas in reality there is not. If you look at this year’s finances, our final real underspend was only 1% of our budget. I am just going to ask Mr Taylor to explain that in finance director’s terms, but that is, as I understand it, the problem with the way in which underspends are presented.

Tom Taylor: I believe you are drawing attention to page 9, in particular, of the accounts, where we explain the underspend against the Supply Estimate. It is important to emphasise that it is estimate with a capital E; it means something particular in parliamentary terms. As the Secretary of State rightly said, we draw down an awful lot of cash via the Supply Estimate to pay out to farmers, give to Scotland, Wales and Northern Ireland to pay farmers, pay the departmental running costs and fund our NDPBs. For some time now-and especially since the Resource Accounting Act of 2000-there has been a fundamental difference between the accounting treatment for the Supply Estimate, which is centuries old and largely in gross cash terms; the accounting treatment for departmental accounts, which are in resource accounting terms and therefore reflect accruals rather than cash; and the thing that we have focused on most-the control totals, with which the Committee will be familiar, that the Chair has mentioned that we get from the Treasury. Against those control totals, as the Secretary of State said, we had an underspend this year of only £33 million-1%-but as it appeared against the Supply Estimate, we had an underspend of £530 million on RfR 1 and another £10 million on RfR 2. So you can see that, having met a very tight spending envelope and succeeded in getting within 1% of that, that was our success measure; that is what the Treasury holds us to account on. That is the real world, if you like. The Supply Estimate accounting is, as I say, somewhat historic now. The good news is that this year, under an initiative of Parliament from 2007, the clear line of sight project will, as far as possible-there will be little glitches around the edge-align the accounting treatment for the Supply Estimates with resource accounting and the departmental control totals. So next year if I am sitting here in front of you, I will not be explaining away quite so much of this peculiar looking underspend.

Q6 Mrs Glindon: Thank you. That was a very thorough explanation and it has probably helped us all. Can I just ask something about the contingencies section too? That part of the annual report shows that there are potential liabilities under the Wild Birds and Urban Waste Water directives. What is the Department’s assessment of the likelihood of these liabilities being realised and what would be their likely scale?

Bronwyn Hill: In most cases, we think the likelihood of their materialising is quite remote, but they are here in the interest of transparency so that the Committee and Parliament are aware that they are there. We need to actively manage them. As you can see from page 128, they are all very different. To take one example, the Urban Waste Water Treatment Directive, that is to do with the way in which we have applied a particular EU directive and we are actively on the case. For instance you may have heard about Thames Water’s project to build a new Thames tunnel to deal with waste from sewage that is currently flowing into the Thames. One of the things we are doing is actively working with Thames Water to make sure that that will, subject to planning, consultation, etc., address some of the potential infringements under the Urban Waste Water Treatment Directive. That is one way of dealing with it. We also engage directly with the European Commission to discuss our plans for responding, because it is not just in London that that is a potential problem. We very actively engage them so that they are aware of what we are doing to manage that risk. A lot of the others are quite different risks, but we would have an active plan for managing them and I suspect some of them are more remote than others.

Mrs Spelman: One of the things that we do in terms of risk management is, on a regular basis at the meetings of the newly instituted Supervisory Boards, review the risks that we face. We would spend a significant amount of time on anything that, in the view of the nonexecutive directors or, indeed, the management or the Ministers, we need to take more time on. I can assure you that on a regular basis, anything that might theoretically present a contingent liability systematically comes under the scrutiny of all three parts of the Supervisory Board, including our external nonexecutive directors.

Q7 Mrs Glindon: So in essence, do you feel that the Department has sufficient contingencies to meet any potential liability?

Mrs Spelman: I do.

Q8 Amber Rudd: Coming back to inflation for a second, you described the GDP deflator. Could you tell us what the GDP deflator is running at?

Mrs Spelman: 9.8% over this Comprehensive Spending Review period. So that is four years.

Q9 Amber Rudd: Four years at 9.8% accumulated?

Tom Taylor: Yes. That was the rate that the Treasury asked all Departments to use when we set out the Spending Review envelope. That is factored into the control totals and that is why, if you remember at the time, savings were presented in real terms, because of course in cash terms it was slightly lower but once you take account of the GDP deflator it is higher. I believe the autumn statement based on the Office for Budget Responsibility will provide an update on what the latest assessment of the GDP deflator should be and there will be a Governmentwide decision on whether to factor that in in some way.

Q10 Chair: Secretary of State, whichever indicator is used, surely it means that the money voted to Defra from Parliament will not go as far as first thought so your accounts will need to be adjusted.

Mrs Spelman: The reason why I am reasonably confident that the GDP deflator factored in in the first year of the four-year period gives us sufficient leeway is because we have set about, as a Government, a course of planned economic recovery, which includes measures to reduce factors that give rise to inflation. Over a four-year period, we would expect to have recovered our debt position; we have already recovered our credit rating position. All these things add to the risk of higher interest rates and other things that fuel inflation. The wider Government course is designed to tackle inflation and I think, 16 months into a four-year period, it is far too early to jump to the assumption that that GDP deflator and the planned-for increase in prices will be out of kilter in almost three years’ time.

Chair: I am sure we will revert to that.

Q11 Amber Rudd: The Department has said that it has managed to make all its £162 million worth of savings. Can you tell us whether there were areas where you were able to make more savings and areas where you made less savings to arrive at the final number?

Mrs Spelman: I would say that we have managed to make the savings in the way we planned for them. I must pay tribute to the civil servants for the huge amount of work that they put in. I think it is fair to convey to the Select Committee that a lot of their thinking was done before the change of Government. Careful thought had gone into how to make savings of this order before a General Election even took place. I think it was quite clear to anyone prior to May 2010 that whoever formed a Government was going to have to save about 25% to 30% of the costs of running Government because Government had overspent to that degree. So a huge amount of work had already been done by the Department in the areas where they felt confident we could make these savings without, as far as possible, compromising the front line. In consequence, I think one has particularly seen in the first year of rolling out these savings that they have gone according to plan. If we take some of the headline savings that were planned, we anticipated being able to save on RDPE because of the depreciation of sterling. The 25% depreciation of sterling has brought a better exchange rate; that, in conjunction with the fact that we have got a better rate of matched funding under that programme, has brought significant and predictable savings. We knew for a fact that we were going to abolish the RDAs and so there are savings to the Department from the abolition of RDAs and we have been able to bank those. We have been able to predict and deliver a significant reduction in the cost of arm’s length bodies because we knew we were going to have a Public Bodies Bill that would make changes to more than half of our arm’s length bodies. And so on and so forth. I think my message would be: carefully thought about well in advance of any change of Government; new Government comes into place; Ministers of course have to exercise their judgment about where these savings should be made, according to the priorities that the coalition Government has set. That was done with the minimum of difficulty and disruption within the Department, even though hard choices were having to be made. We had to look at schemes and programmes that had reached maturation; we had to look at ways in which we could make efficiencies; and we had to see wherever possible where we could recover costs. All of that has, by and large, gone according to plan.

Q12 Neil Parish: Secretary of State, talking about arm’s length bodies, which you just mentioned: the National Audit Office report said that the arm’s length bodies examined understood their costs "reasonably well" and are working to improve the data available. However, Defra "does not obtain routine systematic analyses combining expenditure, cost and performance data". So the National Audit Office has criticised the information-sharing between Defra and its arm’s length bodies. What are you doing to improve the situation?

Mrs Spelman: There has been a significant change in our relationship with arm’s length bodies and I think we have built a really strong relationship with the remaining bodies that we have. They have all understood the reality that we all need to cut our cloth accordingly and that the savings we have been asking them to make are pro rata with what the Department at its centre has had to administer, and they have been cooperative and transparent with us. Perhaps Mr Taylor would like to comment on the detail of what the National Audit Office was criticising.

Q13 Neil Parish: You are right in what you say; the National Audit Office says that they themselves understand their costs reasonably well. It is whether that information is being passed on to Defra and how Defra is dealing with it.

Tom Taylor: Yes. Of course we accept the NAO’s findings and conclusion on that. As the Secretary of State says, historically the Department has had a very arm’s length relationship with its arm’s length bodies, in particular the nondepartmental public bodies, because they are independent statutory bodies and they lay their own accounts and account to Parliament for their actions. I think the NAO were right to highlight that, although the bodies themselves did a pretty good job of understanding their costs, we have not historically asked for enough of that information. There is always a balance, I find, between setting up a statutory body in order to do the things that Parliament intended it to do-and most of those statutes have a fair degree of freedom in them; certainly freedom of operation-and not being too controlling from the parent Department. What I can say is we have taken on board the NAO’s conclusion wholeheartedly. We now have a new monthly feed of management information from all our arm’s length bodies that covers performance information and financial information. That feeds into the Supervisory Board and the management committee on a monthly basis. The Chair of our Audit and Risk Committee now regularly meets the chairs of the Audit and Risk Committees of all of the other bodies and we have strengthened the flow of information from the arm’s length bodies so that we now have a much better idea of the cost base and so on. I would just add, if I may, that many of these bodies are much more expert in dealing with their particular functions than the core Department could ever be. We need to know the information, but we also need to make sure that we are not second-guessing the arm’s length bodies, because that is not what Parliament intended.

Mrs Spelman: One of the things in terms of building good relations with the arm’s length bodies that I think is very important is meeting and having regular contact with their chairmen and chief executives and stressing to them that early warning is the key: "If you think you are going to have a problem, let us know sooner rather than later". I have seen plenty of evidence of the way in which early warning can prevent a problem from happening, as we are brought in earlier to at least be there to provide extra assistance if they need it. Quite often it is not needed. I have watched a good working relationship between the senior management within the Department but also with Ministers and the chairmen and chief executives. We go to their board meetings; we have as open a relationship as we can. But as everybody, I am sure, will appreciate, especially for public figures, it is important to know as early as possible if there is a problem so that you can help collectively to avert it.

Q14 Neil Parish: I accept that, if a body is arm’s length, there has got to be a balance between being arm’s length and exactly sharing the right information, so I can understand that. The Department is looking at reducing the costs of its and its agencies’ network of regional offices. In March you told us that customers had complained about duplication. What feedback have you received about those plans?

Mrs Spelman: Do you mean duplication in terms of the role?

Neil Parish: Yes.

Mrs Spelman: In a way, this is one of the areas that we have been able to make a lot of savings in. The Committee asked specifically for details on estates management and we have given the Committee a very detailed reply as to how we are progressing with this. It stands to reason that if the spending on the Department is coming down by 30%, we have the ability through spare capacity to make significant savings in the estate. One of the features that characterises the progress we have been able to make is very good for the arm’s length bodies that we have just been discussing, because we had a proliferation of quite small offices, perhaps each individually occupied either by the core organisation or by an arm’s length body, and one of the things we have been able to do as a result of this estates management programme is colocate agencies. There have been further benefits from achieving that. For example, one thing that has come out of colocating Natural England with Environment Agency offices, both of which might be planning a visit to one location, is reduced duplication of their activities. So benefits in colocation and reduced overheads from the estate, but also in working practice and cost savings arising from less duplication in the work that they were undertaking.

Q15 Neil Parish: Thank you. In relation to the planned closure of AHVLA sites, how are you ensuring that there is no possible reduction in our capacity to respond to any future animal disease outbreak? How are you making sure that local communities will not be affected?

Mrs Spelman: Ministers have consistently given assurances on this point. I think it is quite important to go back. The origins of merging the animal health and veterinary laboratories are not exclusively about cost saving. One of the big lessons that was learned from the experience of the previous Government with the terrible outbreaks of foot-and-mouth was that the coexistence of two sets of laboratories undertaking testing at the time of that critical disease increased the risk of decisions taking longer. Bringing the two agencies together was partially a recommendation that arose out of managing that disease. It does also bring savings, but those must not be at the expense of the resilience that we need to deal with any future disease outbreak. The changes to AHVLA have been made very much with that in mind, and that capacity to undertake postmortems of animals that may have died of disease is not compromised; that remains a locally available provision. Modern methods of gathering the information more rapidly using information technology is another way in which our ability to combat disease is not compromised in any way by measures which also save us money. Would you like to come in on this, Bronwyn?

Bronwyn Hill: The Secretary of State has covered most of the issues. It is worth knowing that in order to ensure that our lab services are doing the best job they can, they need a certain throughput of cases to examine. What the AHVLA have discovered is that there were some offices that had very low throughput and the professionals thought there was a risk of losing expertise. Therefore, part of this is not about office closures; it is about focusing the work in the places where it can best be carried out.

Q16 Chair: Secretary of State, I am passed the copy of the reply that you were good enough to give us pursuant to our query on this, dated 25 October. Presumably the best place to carry out these lab tests as well as continuing to carry out the post-mortem examination of carcasses is in rural areas? I draw your attention to paragraph 5 of your reply, which says that "since October 2010 in the Newcastle area, where the majority of laboratory services have been carried out at the AHVLA Thirsk laboratory". I am Thirsk; Mary Glindon is Newcastle and there are about 60 miles between us. I would put to you, Secretary of State, particularly on the back of the foot-and-mouth disease and the BSE disease before that, that you need to have these lab tests done in rural areas to get the potentially diseased animals investigated at the earliest opportunity. As I represent those currently working in the Thirsk lab, they have asked me to clarify this matter with you. Their understanding and my understanding is that these services-both the post-mortems and the lab tests-are currently carried out at Thirsk and I would argue that, as a precautionary measure to try to identify and limit any potential animal health outbreak in the future, these should continue to be undertaken in rural areas. The people undertaking these lab tests already live in rural areas and they are not going to be persuaded to move to Newcastle.

Mrs Spelman: First, we are not taking about closure of laboratories; we are talking about cessation of some laboratory services. So laboratories remain in rural areas and the post-mortem capacity, as I said-I perfectly understand-is not compromised. But just before in that paragraph, it does make it clear that this model has been tested successfully at the university veterinary school surveillance areas, both at Liverpool and London. We say that "the model of separating these two areas has been well tested and successful at the university veterinary school surveillance centres at both Liverpool and London for some years and since October 2010 in the Newcastle area". So it has been rigorously tested that there is no compromise to the ability of the service to confront disease.

Q17 Chair: With the greatest respect, Secretary of State, they are not carried out in the Newcastle area; they are being carried out in Thirsk at the present time. I would put it to you that you are endangering animal health by moving it from the rural area where this disease is likely to break out to an urban area and that you are going to lose the wellqualified staff who choose to live in areas like Thirsk.

Mrs Spelman: I think we are speculating about whether we would lose the staff or not, but I come back to my point that this does not involve the closure of any sites, to be perfectly clear about that. The laboratory remains; this is a question of where some of the laboratory work is carried out. The post-mortem capacity, as has been said by Ministers before, remains intact, for all the reasons that you have just outlined. However, I perfectly understand that, if there is a prospect of a diminution of a particular service in your constituency, you have every right, as a constituency Member of Parliament, to raise that with me and I am quite happy to take forward specifically the case of Thirsk and the laboratory in Thirsk in order to address your concerns.

Chair: Could you just answer my question?

Mrs Spelman: I did.

Q18 Chair: No. Do you accept that the best way of tackling any potential animal health outbreak is at the point of source, which is in a rural area?

Mrs Spelman: I did. I replied by saying, "None of these laboratories are closing".

Chair: But you are moving the lab testing to Newcastle.

Mrs Spelman: Some of the services, not all services.

Q19 Chair: Well, can we be clear? It would be immensely helpful. You say in point 14 of your reply that "the rationalisation resulting in the release of 81 members of staff"-so you are losing 81 members of staff-"resulting in a reduction of staff costs of approximately £2.4 million, which would be a yearonyear saving". I would just like to be clear. You are proposing to keep the post-mortem of carcass examination in centres like Thirsk, but you are proposing to move the diagnostic testing of a potential animal health problem from Thirsk to Newcastle.

Mrs Spelman: Because that follows the model that was tested by the veterinary schools in Liverpool and London and for some years they have used the model of decoupling the post-mortem laboratory capacity from the diagnostic testing. We have followed the rigour of the academic process to extrapolate that to our decision that, without closing any laboratories in rural areas, we would move some of the services to other areas because we believe that provides some efficiency savings and does not compromise our capacity to combat disease, as the academic model proves. The Animal Health and Veterinary Laboratories Agency has to help make a contribution to the fact that we as a Department have to make savings, as every part of the Department has to make its contribution, and this was the contribution that we felt could be made without in any way compromising our ability to combat disease. I naturally express my regret that, in the instance of your constituency, 15 jobs are affected by this, and that some jobs are affected in other honourable Members’ constituencies, but we believe that the retention of the laboratory with the post-mortem capacity, coupled with the diagnostic ability that is provided at other laboratories, means that our ability to face up to the risk of disease outbreak and how to handle that is not compromised. I think the Permanent Secretary could perhaps add to this.

Bronwyn Hill: Just to make it absolutely clear that most of the tests that are done in the laboratories, as you may know, Chair, are carried out on the base of a sample, so it is not the carcass, unlike the post-mortem.

Q20 Chair: But the samples would have to transfer 60 miles and you are also seeking to close Aberystwyth, Carmarthen, Luddington, Preston and Winchester.

Bronwyn Hill: Yes. Clearly that was looked at, but as the paper states in paragraph 17, most of the samples travel by post anyway and they looked specifically at whether this would further delay getting test results and concluded that it would not. Clearly we need to monitor and evaluate that as we go ahead, but I think the safeguards were put into the system to say this is the best way of dealing with it. My understanding-but we can provide additional information-is that this reflects a reduction in the demand for these services and the importance, as we have just been discussing, of delivering the services in both the most efficient way and with a view to providing a good service to the customer-the farmer in this case-and that is what the programme as a whole is designed to do. But if you would find it helpful, I am sure we could offer you more detail on the thinking that went into that change.

Chair: I would like to see the academic model.

Q21 Dan Rogerson: As we are into representing our areas on this particular issue, although the facilities in Truro are not in my constituency, as a Cornish MP I am concerned about them. I suspect that my colleague and next door neighbour here might have similar concerns. I have certainly been contacted by those who are involved with issues around beached sea mammals and with wanting to check very quickly whether there is any risk to human health with some of the diseases involved there. The organisations, some of which involve volunteers, want to know that they will have access to quick results on that matter. They have concerns about the future of that service.

Mrs Spelman: Can I reassure the honourable Member again that we are not talking about the closure of the laboratory in Truro, as we are not talking about the closure of the laboratory in Thirsk? Five jobs will be ended at Truro. I perfectly understand the need very quickly to take a dead sea mammal and test for disease. That ability is not compromised by the changes that the service has had to make. Historically, the samples have been sent away for testing and there is no change in that respect.

However, there is also a reduction in demand that arises from things like the reduced incidence of transmissible spongiform encephalopathy and the reality is there is some spare capacity in our laboratories arising from the reduced incidence of that disease. What I am sure is important-and honourable Members will appreciate this-is that if we should face a sudden outbreak of a serious disease, one needs to be confident that the chosen capacities that we have in postmortem and testing could cope with a surge in demand. But again, that has all been taken into consideration in our decision. I would be very happy to ask the veterinary schools in Liverpool and London if we could share with the Select Committee their findings from their multiyear survey of how to adapt laboratory services to ensure that the capacity to respond to disease is not compromised by the decoupling of postmortem from diagnostic testing.

Q22 George Eustice: Sorry, it is in a similar vein; we stick together in Cornwall. I was quite interested in what Bronwyn Hill said earlier about your concerns that some of the laboratories have got such a low workload that they perhaps lose their specialism or the skills base. My concern around Truro-and it applies again with the marine mammals situation-is that they have got a particular specialism down there and there was a danger of losing it. I can understand we have got to make savings, but we have got lots of nice seals in Cornwall-it’s one of the few places that does-and they have developed a specialism there; it was just to check that that was not going to be lost.

Bronwyn Hill: Yes. I think we ought to offer you a note on that, because needless to say, that is not the thing that most of these laboratory services do around the country, although it is interesting to see that that is one of the demands in the southwest. So perhaps we could offer you a note on that specific question.

Mrs Spelman: There is a point of logic here: what is important with the advance of science is to make sure that the testing for any disease is done where it can be most accurate and most swiftly turned round, accuracy being just as important. It is not sheer numbers of employees in one location or another that is the main determinant of the quality and accuracy of the testing; it is in fact probably the equipment and the facilities in combination with the human element that will determine how quickly and accurately we get the answer to whether a carcass contains evidence of a serious disease or infection.

Q23 Chair: I am still a little bit confused. Why did you choose Newcastle or an urban centre when we know that those who have the gift of diagnosis live in the rural areas?

Mrs Spelman: I do not know the specific answer to that question, because it is for management level in AHVLA to make a professional judgment about where the best capacity in the country is to test for disease.

Q24 Chair: So you didn’t ask them the question when you took this decision?

Mrs Spelman: The Permanent Secretary may be able to shed some light on Newcastle, but I would imagine that the choice of location is closely aligned to the capacity that exists both within higher education and academic institutions as well as within the public sector to keep pushing the boundaries of where is the best place to undertake the diagnosis. I think that is a logical choice to make.

Bronwyn Hill: I am not an expert in veterinary medicine, but my point would be it is not necessarily that urban or rural is better; it depends where you have the skilled and trained staff to look at these diseases, some of which may be quite rare and exotic, and whether the staff get enough experience and expertise through dealing with the right volumes of throughput. I know, because I asked, that if there are very difficult cases, they would normally be sent to the headquarters in Weybridge anyway. This is why we have executive agencies, which have the skill and judgment to say what is the best deployment of our service across a whole network. But I would reassure you it is not an urban versus rural thing; it is looking at what those offices and services can deliver. Retention of skilled staff is important, but they will have taken that into account in the supply and demand for those services.

Chair: Well, let’s hope that the samples don’t get stuck in the post.

Mrs Spelman: They go by courier, actually.

Q25 Chair: Can I ask you, Secretary of State, what assessment you have made of the impact of local government reductions in spending on animal health offices in relation to a potential animal health outbreak?

Mrs Spelman: Local government budgets have been reduced; DCLG is not one of the protected spending Departments. We work closely with our colleagues at DCLG to ensure that decisions made in our Department and in their Department, where they interact, do not compromise the quality of the front line service that we provide. Any of these major policy decisions that are made in Government are, in any event, sent round all Government Ministers so that all Cabinet Ministers are clear about the decisions that are made in different Departments. The local authorities’ budgets were factored into consideration of the question of how we make sure that we are resilient in the face of animal health and welfare provision, but part of our arm’s length body review threw up the point that we raised earlier that different agencies were quite often duplicating visits. So part of our work has been to get simplification and rationalisation of the number of visits that are carried out, either by environmental health officers who are in the employ of local government, or by Environment Agency officers, Natural England staff or other staff because, as I have said on a previous occasion before the Committee, livestock keepers have frequently complained about the duplication of visits that they face. So within the duplication was the potential for greater savings. Part of the rationalisation, we believe, will help improve the service and help our resilience in the face of any future outbreak. I am sure the Permanent Secretary has a view about the way she would work with her equivalent at DCLG on this area.

Bronwyn Hill: Yes. We have a lot of interactions with CLG, but if it would help the Chair, local government had a role particularly in tracing movements of livestock-sheep, pigs, etc.-and one of the things on which we have been working with them a national level is asking, "Is there a case where we can get more of these databases on an electronic basis, with some modest capital investment maybe from us or the industry, so that we can get much more efficient and effective at doing the tracing, which is one of the key risks and one of the key things you need to have in terms of information in the event of an outbreak?" That is one example of looking at using our capital investment to see whether we can’t get things into a shape that helps everyone.

Q26 Amber Rudd: There are several areas of Defra responsibility, such as genetic modification and the cull of badgers to reduce TB, where the public struggle to be on the same side as the proposals. I wonder whether you have any views or any strategy to try to communicate more positively with the public so that they do not feel so strongly against it.

Mrs Spelman: This is an interesting question and one that I suppose one day probably will be written up as a business case. It is the kind of area I think might be an interesting subject for a PhD student: to look at the way in which a difficult Government decision on the question of how to eradicate bovine TB was taken through a very detailed process, engaging all the stakeholders as much as possible, to minimise the potential for a public adverse reaction. Such a business case cannot be written up until the conclusion is reached on bovine TB, and no final decision has been made. However, I can tell the Select Committee that the public reaction to that decision was significantly less than to other decisions that we have made, particularly on the forests, and we have been able to analyse those responses. I think that has a lot to do with the way in which the stakeholders were engaged, on several occasions, where we had the opportunity as part of that intensive stakeholder engagement to ask them questions as well as them asking us questions. Although people may have different views about controversial issues like bovine TB and genetic modification, the more that the views of the different parties can be engaged and there is listening on both sides-on Government and stakeholder sides-the more the stakeholders are likely to go out and engage with the public themselves and help explain why it is such a difficult decision. I do not think there is any doubt about both of those being extremely difficult. What I think has helped is the quality of engagement in the course of the process. It is not complete, so I am very reluctant to draw the conclusion yet that that has yielded an optimum result in terms of public reaction; it is still too early to tell. But I think there are some measurable ways in which we have seen the benefit accrue from intensively engaging with the public.

Q27 Neil Parish: I know, Secretary of State, you have worked extremely hard on the TB situation and making sure that you have talked to everybody in a fair way, so I thank you for that. My question in particular is on GM and biotechnology. There is a blight resistant potato coming through, at the moment just being used for starch, but if it becomes suitable for human consumption it would cut down sprays and pesticides hugely. There also may be crops coming soon with nitrogen enhancing powers, not that we have always been promised these and they are further down the road. But I think we have got to start to try to engage the public more and say that GM is not some Frankenstein food; it could save, not destroy, the environment. I am just wondering how brave Defra is being on this issue.

Mrs Spelman: It is not necessarily a question of bravery or courage. What we have done, which I think is the prudent thing to do, is make sure that we grant authorisations for trials so that the capacity of the science to keep up with the global pace in these new technologies is not compromised. To my knowledge, Defra Ministers have authorised three trials of GM crops during the period of the coalition Government so far: two trials of blight resistant potatoes and, most recently, an aphid resistant wheat. This helps to keep up the knowledge base and the technical capacity. The blockage in terms of making any decision about commercial planting is at a European level, in that we are part of a single market and we operate under a Common Agricultural Policy; at the moment there is no consensus between the 27 member states about the way forward on this question. In fact, the number of member states divides almost evenly between those that would allow unilateral planting of GM crops commercially-or the universal banning-and those that feel strongly that that compromises the concept of a single market, may well put us in breach of WTO rules and that therefore that sort of approach should not be allowed to go ahead. The UK falls into the camp of those member states that feel that if we are part of a single market, we need to reach a single decision. We have the virtue of being an island, which gives us the capacity for better biosecurity than member states that have contiguous boundaries, but nonetheless, I think it is quite clear, depending on which way the wind is blowing, that it is not really all that logical for one member state to decide to do one thing and another member state to do something else. So at the moment there is an impasse in relation to commercial planting.

Q28 Neil Parish: I think also there is a point in competitive agriculture across Europe with the rest of the world, because in the end a lot of these crops will be consumed by people in this country because they will be perfectly safe to eat but we will not be allowed to grow them here. I think on the European basis, it is a bit like nuclear power: in France it’s everywhere, and in Austria over their dead bodies will they have nuclear power. I suspect the only way that Europe will ever proceed with this one is with a certain amount of autonomy for member states to make their own decision on it. I think if you try to get the whole of Europe to agree, it will never happen.

Mrs Spelman: Mr Parish is extremely experienced, having been a Member of the European Parliament, and will know how difficult it is to get a decision at a European level. But if you look at the position of Austria, which very much wants to be GM free, it is next door to states that would like to embrace genetic modification as a technology that its farmers could use. In the event of a conclusion being reached at a European level to enable the cultivation of genetically modified crops for commercial purposes, I would expect us as a Department to look very closely at the question of how we protect the interests of those organic farmers, for example, whose whole commercial operation depended on their ability to segregate successfully their crops from commercial crops that had a genetically modified element. We are not at that point, I am afraid.

Q29 Amber Rudd: Secretary of State, you mentioned earlier the campaign on the forests. As we know, a lot of that was through social media sites. Do you have any strategy as a Department for having your own social media response if that happens again in another case?

Mrs Spelman: We learnt a great deal from the forests experience and I think a lot of us as politicians have learnt a great deal over the last 15 months about the way in which these new media can be used. They have had significant bearing on national security, if one takes it to the extreme of the social unrest we saw this summer. So I think for every modern politician, there is the question about how we engage with social media. We monitored extremely closely the reactions on social media from the point at which I made my statement in the House of Commons in July right through, and it is ongoing. We keep a constant monitoring process on the numbers of people who communicate through social media on that subject. It is quite interesting that, apart from a short peak at the time of the statement, social media interest in the question has for the moment diminished. That is not to say it will not resurface, but we certainly monitor much more closely, in a way that we did not before, what the traffic of discussion is in social media on topics that we are concerned with.

Bronwyn Hill: It is a very interesting topic and the thought of intervening on social media makes a cautious civil servant like me slightly nervous, but we have occasionally done so when we have felt that the facts had been so out of kilter with what we had understood to be the case. For instance, on bovine TB, our Chief Veterinary Officer intervened to put some facts into the social media-I think it was Twitter. We will do that only rarely and on a factual basis because it is really intended to help the public and to aid the conversations. Being civil servants, we are approaching it with caution.

Q30 Amber Rudd: I think we are also expecting an independent panel report following the forestry plans. Could you tell us when we might expect that?

Mrs Spelman: As I was very relieved to be able to tell the House, the Chairman of the panel, the Bishop of Liverpool, James Jones, has fully recovered from his surgery and is back in post and this has not affected in any way the output of the panel, which remains on track to provide an interim report to Ministers in November with a view to a final report in spring or late spring next year. His ill health, he would very much wish me to stress, has not in any way affected the work of the panel and he has lost none of his enthusiasm for chairing the panel. I think he feels very positive, from what he has said, about the way in which the work is being undertaken. It is both interesting and going forward to timetable, so we look forward to receiving the report.

Q31 Dan Rogerson: How far have the Department and indeed the arm’s length bodies got in reaching the target for staff reductions, would you say?

Mrs Spelman: As I indicated earlier, the arm’s length bodies have been cooperative in terms of taking their share of the savings that we have to make on the understanding that we were not asking them to do what we were not prepared to do ourselves at the centre. They are of course arm’s length bodies, so the staff reductions that they need to make and the timescale over which those staff reductions are to be made is, of course, a principle for the management of those agencies, but the Select Committee may recall that, as part of the Comprehensive Spending Review settlement that I struck with the Chief Secretary of the Treasury, we had some assistance with our redundancy costs and we have encouraged the arm’s length agencies to take their decisions as early as possible in the spending cycle so that the savings can start to accrue at an earlier date. That is in essence, in most cases, what has happened, with some exceptions where there were good grounds for proceeding more slowly, where an agency was having to deal with the challenges, let’s say, of the Rural Payments Agency trying to make sure that as many payments as possible are accurately made and on time. We were sympathetic to their view that they would proceed at a pace that made sure we stayed absolutely on the case of getting those payments out on time. But for the most part-for example the very largest number of reductions are inevitably in the agency that employs most people, the Environment Agency-they have taken the opportunity of the early exit strategy that we have adopted at the centre. Would you like to add to that, Bronwyn?

Bronwyn Hill: I will add a little bit more information. My understanding is that the Environment Agency reduced their headcount by approximately 1,000 out of a total of 11,000. That is why I think in the table that we sent you their expenditure was quite high; I think it is something like £28 million. So they have gone early. Natural England were aiming to reduce their headcount by about 400 full time equivalents out of a total of 2,400 and they may need to do some more. It is important to stress that each NDPB has to look at their own business need and what the best opportunities are. Defra’s role has been to help them where we can, so we have offered some of them, particularly our own agencies, help with the voluntary exit scheme funding. In other cases, I think it is true to say the Environment Agency has selffinanced those exits, and then the Department is having to run its own schemes as well.

Q32 Dan Rogerson: One of the factors that was feeding into a little uncertainty about the necessary speed of that was the analysis of the rationalisation of the public estate that was going on and whether that might mean that less money was realised, therefore there would have to be a slightly greater reduction. Are you able to give us a bit more clarity now as to what that rationalisation means for redundancies and how those things interact?

Bronwyn Hill: It is probably worth saying that when we first completed the Spending Review, we had estimated between 5,000 and 8,000 staff across the whole network of 30,000 if you include all our NDPBs and executive agencies. It is our view that we will be nearer the lower end of that-potentially between 4,000 and 5,000. That was a deliberate strategy, because we would much rather save money on buildings, IT and consultants and keep staff, for obvious reasons. I guess you say the two have to go hand in hand. In part, reducing staff creates more space in existing buildings, so they can continue to reoccupy or merge. As the Secretary of State pointed out earlier, the strategy has looked across the whole network, because that is where the biggest opportunities are, and in particular looked at opportunities when these breaks come up as well as where staff are located very near each other in the same town or city and whether there are opportunities to do more sharing across. I think we are making good progress, but it tends to come in lumps, because you tend to release a whole block at a time, so it requires very careful management as you go through the Spending Review period. It will be a continuous process over the whole four years.

Sitting suspended for a Division in the House.

On resuming-

Q33 Chair: I am grateful to the witnesses for their patience. Bronwyn, had you finished, or would you like to recap?

Bronwyn Hill: Shall I just recap?

Dan Rogerson: That would be very helpful, thank you.

Bronwyn Hill: I was explaining that we are looking at opportunities when lease breaks come up and some of those are noted on page 92 of the report for last year. As staff numbers are reducing, we are looking for opportunities to share offices and take sensible decisions. The good news is the more we can save money on our estate side, the more we are able to retain staff.

Q34 Dan Rogerson: On that very point of looking to rationalise the estate, I have had experience in the past where DWP and HMRC had leased property in the same town, both were downsizing and, to try to keep the HMRC jobs, I suggested that perhaps they could cut costs by sharing accommodation. That was under the previous Government, I have to say, and I was told that both Departments had separate national leasing contracts and therefore there had to be two separate buildings. I don’t know if this is something that Government is looking at now across the piece where there are different Departments having a footprint in a town. I wouldn’t expect an answer on that, but I will just put that to you now.

Bronwyn Hill: There is a Government property unit that is looking at a strategy across the whole of Government.

Dan Rogerson: Excellent. I am very pleased.

Bronwyn Hill: It is trying to set a broad framework so that we do not miss opportunities like that. Defra is doing as much as it can with its agencies and NDPBs to look for opportunities within our estate, but the GPU takes an overview of the whole of Government strategy.

Dan Rogerson: That is good to know.

Mrs Spelman: While I was walking to and fro from the vote, I felt that I wanted to come back into this subject just a little bit. It is right to pay tribute to the Civil Service in this respect; they did something very important prior to the change in Government. They had a recruitment freeze, so one of the consequences of needing to make savings in headcount is that that number is smaller because of the number of vacancies. So one of the reasons why we will be towards the lower end of our anticipated scale will be the back office savings, the estate savings, but also the willingness on the part of the Civil Service to anticipate a situation where the numbers would be reduced. That leads on to another point that I think must be in the minds of the Select Committee, as I realised when I was walking to and fro. Your next question might well be, "Are you sure that this amount of headcount does not in any way compromise your capacity to deliver that service?"

Dan Rogerson: It wasn’t, but do carry on.

Mrs Spelman: It is a good question and because we are on the subject, I think it is good to share this with you. With this level of reduction, there is an opportunity to undertake some reorganisation in the Department so that we streamline some of our activities. You cannot ask the remaining number of people to do everything that they were doing before in exactly the same way.

Dan Rogerson: No. Just because of the accident that a couple of people left and it’s strategic.

Mrs Spelman: Absolutely. That’s not humane. One of the good things about this that I have found is the way in which the Department has come to me and said, "For many years, we were thinking that it would be good to bring this part of the Department and that part of the Department working more closely together". It has been an entirely collaborative and cooperative process, but one that needs to take place as a consequence of this level of savings. So I certainly pay tribute to the Permanent Secretary coming into the Department with fresh eyes and uniting with longstanding members of the Department who have long nurtured a desire to reconfigure our service in such a way as to provide a better service.

Q35 Dan Rogerson: Point taken. I got into this line of questioning with the other unknowns that were having an impact on the staff savings programme. Another change that has happened since your initial thoughts is this issue of the forests and what that might mean in terms of money coming in or less money going out. What impact has that had? You have already answered that you are at the bottom end of your estimate, which is a good thing, but would it have been even lower if that programme had not gone the way it has?

Mrs Spelman: A couple of things on that. The Select Committee will recall from our meeting seven months ago, when I took quite sustained questioning on forests, that one of the things about which I reassured you was that we had not spent the money; we had not banked the money that we were hoping to accrue from forest sales. As a reassurance to the Select Committee, our capacity to deliver is not compromised by that. We have got to await the outcome of the independent panel and that report will come to us in spring next year. But as an encouragement to this year’s cost pressures management, we were conscious there might be some short-term impact on the Forestry Commission and when I was describing to the Select Committee earlier the way in which we urge the chairmen and chief executives of our arm’s length bodies to signal early if they think they are going to need help so that we can work with them, we stood ready to help the Forestry Commission, but in fact they have not needed to call on us for that additional financial help. I am sure Mr Taylor could give you a better, more accurate description of what that meant.

Tom Taylor: Not really; I think that was perfect. We deliberately did not bank the money-it would have been imprudent of us to do so-and therefore we did not have to reverse any of that. The Secretary of State’s announcement caused the Forestry Commission to stop their existing programme of sales, which had been going on for many, many years under different Administrations. That had an impact on their outlook, but a modest one, and we have worked with them and also provided them with help on exit costs for any staff restructuring they need to make. That is all perfectly well managed within this year’s allocation.

Q36 Dan Rogerson: Finally on this issue, you have talked about the numbers in terms of posts being perhaps more towards the 5,000 than the 8,000 end of that continuum. But in terms of money, what do you think it looks like over the Spending Review period in terms of the costs and the savings associated with redundancies? What proportion of what you are having to do over the Spending Review will now be met in this way?

Bronwyn Hill: As I said earlier, some of us went ahead in 201011 and used some existing money to fund exits. I think those are in the table that we provided to the Committee in advance. So far we can give you only an estimate of what the subsequent years look like as the plans firm up, but there are some quite big numbers in that table, as you can see. What I would say is if we don’t need to use all that money, we won’t, but it is reassuring that it is there. If anything, the major challenge to us is not the absence of money to help with voluntary exits; it is getting the forecasting and estimating when we need it in the right years. Most of the savings on everything are front loaded into 201112 and 201213. We should have a much clearer perspective once we are through this year and into next, because the sooner you start making savings, the better.

Mrs Spelman: Most of the staff exits are expected to have happened by year two, so that affects the 201213 Spending Review year. So we will be much clearer in 12 months’ time.

Q37 Chair: You referred, Secretary of State, to a recruitment freeze.

Mrs Spelman: Yes. I don’t know if this was true of all Government Departments because I know only about the one of which I’m Secretary of State, but the previous Permanent Secretary explained to me that prudently, almost for 18 months prior to the change of Government, there had been a practice of freezing posts. That means that you do not have to let as many people go. So it saved money because the posts remained vacant, but it also reduces the cost of the exit package. I think the Department had been very prudent in that regard.

Q38 Chair: Can I just refer to the programmes submitted for approval in 201011, one of which was public appointment advertising, which was approved? It is a rather large figure of £200,000. I just wondered if you could break down for us what purposes that had been used for.

Mrs Spelman: Well, across Government-this is a Cabinet Office steer, really-there has been a big effort to reduce the cost of advertising, marketing and public recruitment. Every Department is required to try to keep the cost of advertising vacancies to a minimum. My experience of this has been quite interesting. Online advertising is of less cost; the Civil Service website has been used a great deal to advertise public appointments. My only concern about this-and it is something I have expressed to you directly-is that it is not obvious to me that people who are outwith the Civil Service will necessarily go looking on the Civil Service website for these jobs. So I think there is a balance to be struck between trying to save the public purse-the cost of advertising such vacancies-and the question of whether one accesses the pool of talented people that we might attract to apply for a job. So I think there is a balance.

Q39 Chair: Can I just pursue this, if I may? Did you use this sum of money to advertise for the appointment for the Chair of Ofwat?

Mrs Spelman: The Permanent Secretary will answer that question.

Bronwyn Hill: I think this money was for approval in 201011 for this year and we can offer you a breakdown. I think you were contrasting a recruitment freeze with advertising public appointments. The recruitment freeze applies to the Civil Service; most of these public appointments will be, for example, for the Chair and the nonexecutive directors of Ofwat and for other NDPBs, if and when they become vacant. But if it would be helpful, we could offer you a breakdown of what the plan was for that money.

Chair: I would just like you to answer the question. How was the chair of Ofwat advertised?

Mrs Spelman: Using the Cabinet Office appointed head hunter. It is not a decision that directly emanates from the Department.

Q40 Chair: How much did that cost?

Mrs Spelman: It was Cabinet Office.

Bronwyn Hill: I know the answer. The cost of employing the head hunters was roughly £27,000, which was for the Chair and three nonexecutive appointments to Ofwat.

Q41 Chair: Just out of interest, what would the cost of advertising in national newspapers have been?

Mrs Spelman: Significantly more.

Bronwyn Hill: I don’t know that cost. It was advertised through the online advertising of a certain number of publications-I think the Economist and the Sunday Times-but we can give you a list if you are interested.

Q42 Chair: It would be interesting to have the list. Do you think the Department might revisit advertising in future?

Mrs Spelman: It is not just us. There is a decision across the Civil Service to revisit the whole question of the process of recruiting to public appointments. Our experience is only part of the Governmentwide experience of recruiting people into public appointments and it is Sir Gus O’Donnell who has made the decision to review that process.

Bronwyn Hill: We are considering what to do about the Ofwat position and I certainly think that we will want to consider more advertising than we did the first time round. If we did, we would have to seek approval for that, given the constraints that the Cabinet Office have imposed. As you probably know, OCPA have been consulting on how public appointments are done more generally and the Government has responded to that and put it into the consideration.

Q43 Chair: But you would not envisage that procedure taking nine months?

Mrs Spelman: No.

Bronwyn Hill: No. We are hoping to start as soon as we are ready, but given that we failed to appoint the first time round, we really need to think hard about how we can improve the process the second time, which I think is the point you are making.

Mrs Spelman: In respect of this very important position at Ofwat, I am delighted to be able to say that Philip Fletcher has agreed to extend his period of service, which is during a very important time for us. An experienced pair of hands will be at the helm of Ofwat during the publication of the Water White Paper and subsequent legislation that would accrue. So there is not any question that Ofwat’s capacity is compromised by this, but I am sure Select Committee Members would agree that we want the best person for the job and it is important to have a choice of people and the rules require us to have a choice of people. If the initial approach did not trawl up an adequate choice, that is what we have to try to obtain.

Q44 Amber Rudd: There was also on that list £500,000 for the farmer advice project that was turned down by the Cabinet Office. Was that a disappointment to you? Does not being able to have that interfere with the way Defra communicates with farmers?

Mrs Spelman: We provide lots of advice to farmers, including through this source, so the rejection of our bid for one form of advice to farmers has to be balanced against the other forms of advice that we provide to farmers. We understood, in a tight financial situation, why they declined that one.

Q45 Chair: Secretary of State, I think I read in the national papers in the debate over the number of full time officials in each Department employed on union activities that your Department seems to have one of the highest numbers of permanent employed officials on union business. I seem to recall the figure of £1.5 million. Could you just explain to the Committee why you have such a large number in one Department?

Mrs Spelman: I asked the same question. The important thing is, first, to point out that the number of trades union officials employed in the Department has already been reduced. I think that is an important point to make.

Chair: So it would have been higher?

Mrs Spelman: It was higher. Earlier this month, the Minister for the Cabinet Office made an announcement that consultation would take place at national level with the Civil Service trades unions to produce a proper framework for what is known as "facility time". So it is not just our Department that has looked at this question, but the Cabinet Office now wants to look at this across Government. We have suspended for the moment our close examination of this question, pending the outcome of the Governmentwide review. Across the Defra network, there are 18 full time trades union officials; additionally, there are a number of officials who are employed, but at less than 100% facility time. I am sure that the Permanent Secretary would like to come in on this question because there is an important working relationship at the moment with trades union officials at a time of staff change and reshaping. The trades union officials are playing a key role in that exercise.

Bronwyn Hill: I have got a breakdown across the whole network of 30,000, and it struck me when I looked at it that there are a lot more in some areas than in others.

Chair: Did you say 30,000?

Bronwyn Hill: 30,000 people across the whole of the Defra network, which includes the Environment Agency.

Chair: Work full time on union business, paid for by the Department?

Mrs Spelman: No, our workforce.

Bronwyn Hill: No, sorry, that’s our workforce against which you are saying there are 18 full time.

Chair: How many part time?

Bronwyn Hill: Let’s have a look. Across the whole network, 263. I think that means that they have something called "facility time", which means they get time off to attend meetings. I am not saying that is a good place to be and clearly Defra were beginning to reduce the cost of that and indeed we expect the cost to come down further. The point I was trying to make is that it is a very historic figure. There are some parts of Defra, for example Cefas, where we have no full time trade union officials, which seems rather strange, and no part time officials, either. It is a rather odd pattern that we have inherited and I think it is overripe for review, by the looks of it. I would echo what the Permanent Secretary has said.

Mrs Spelman: Secretary of State.

Bronwyn Hill: Sorry, Secretary of State. I beg your pardon.

Chair: I would be very worried, Secretary of State, if I were you.

Bronwyn Hill: I have no ambitions in that direction. At a time of very significant change, it is useful to have some trade union representatives to talk to about those changes and to consult as we go through them, and I am very grateful for that when they do so. I think it is very proper for the Government to decide to have a review and look at the costs and say, "Shouldn’t they be lower?"

Mrs Spelman: Last year, in the core of the Department, we reduced the number of full time trades union officials from 12 to six. So we were embarked on this exercise at the point at which the Cabinet Office said, "Hold on. We are going to look at this across Government". So we have to wait to see what the outcome of that is.

Chair: I am very grateful. Thank you very much indeed.

Q46 Neil Parish: Secretary of State, the Rural Payments Agency is a wonderful issue. I want to ask about bonuses, but before I start, let me say that I do not want to blame the whole debacle at the Rural Payments Agency on the staff. If you remember, when the then Secretary of State brought the system in for England, she was advised that it was very complicated and would be almost impossible to deliver. Since then, we have paid £500 million in fines to Europe for not delivering it and farmers have been waiting endlessly for these payments, and so I do not blame it all on the RPA by any means. However, the Chief Executive of the RPA in May told us that he considered it "unlikely that the Department will be allocating much in the way of bonusrelated funds if the agency is not performing". Can you confirm whether RPA staff have received bonuses?

Mrs Spelman: Before I come on to that, I would like to pick up the opening remark. If we want to inspire and encourage a workforce to meet our objective of paying farmers accurately and on time, I think what we say about the efforts that they are making to try to improve the service they provide becomes all-important. Politically, I would like to say that in Opposition, there was a lot of criticism of the functioning of the RPA, which had very serious problems. Going into Government, my colleague, the Minister of State, has made a great effort to try to improve the service that the RPA provides, including by chairing its oversight board. I am sure he would be the first to say that it is probably more difficult than any of us thought to get a system where fundamentally the IT system is not delivering what everybody anticipated it would to help us get the outcomes we wanted. Having said all that, 99% of farmers were paid on time by the June deadline last year. So it has been improving, but there is still a way to go. The 1% that do not get paid on time are significantly caught up with probate; that is an inevitable problem of people dying who are entitled to receive these payments. I just make those opening remarks because I think it is fair to record that it is more difficult than perhaps any of us had anticipated. In terms of the remuneration package, I think that the new Chief Executive has done a great deal to improve the professionalism and the quality of the service that is provided. The question is how should one try to reward and incentivise people who are delivering an improvement to the service, if not yet the perfect answer that we seek? With that preamble, I will ask the Permanent Secretary to describe precisely what the bonus rules are around the payment of those civil servants.

Q47 Chair: The specific question that was put to the Chief Executive was whether he would be paying bonuses and receiving bonuses himself and he indicated, as Neil said, that he did not think that the Department would be offering much in the way of bonuses. So have you offered money, has he received it personally and have members of the RPA received it?

Bronwyn Hill: In terms of the RPA staff, it goes into two categories: what we call grade sixes and below and then the Senior Civil Service. There are two different sets of rules in operation, laid down by the Cabinet Office.

Chair: Have they received bonuses this year or not?

Bronwyn Hill: They have. In 2011-so paid this year for performance last year, in 201011-the Chief Executive has reduced it. I think you picked up that the previous year, almost 100% of staff got a small bonus. What he has done this year is targeted that, so only 11.8% of the staff at grade six and below in the RPA got a bonus, which was very much attached to people who had exceeded their performance objectives. I am sure if he was here himself, he would say that is a much better way of using a modest incentive-I think the median amount under that scheme was £893-to people who are in the middle of a pay freeze, unless they earn less than £21,000, in which case their pay rise was £250. So that is for his staff. For himself, because he was working in DWP last year, his bonus relates to what he was doing there last year, not what he has done this year. His bonus will not be assessed until the end of this performance year.

Q48 Chair: Can I just interject here? Secretary of State, you have a letter from me-I guess, because I do not believe I have received a reply. It took the Chief Executive six months to reply to one of my constituency queries. I find that unacceptable.

Mrs Spelman: I find it unacceptable, too.

Chair: I find it way below the level of service that any public servant should aspire to and I am absolutely staggered that you are even considering giving this agency bonuses.

Mrs Spelman: To be clear, the bonus relating to the Chief Executive is due to his time at DWP. He has not received a bonus for his role working at this agency.

Chair: So that did not come out of your budget?

Mrs Spelman: No, it didn’t. It was not in relation to his work for my Department.

Bronwyn Hill: If I may just correct that-I would not expect the Secretary of State to know-because he is now paid by us, we pay for his bonus that relates to DWP.

Chair: But you will be reimbursed by DWP?

Bronwyn Hill: No, the Senior Civil Service is seen as a crossdepartmental cadre, so for example, if a member of the Senior Civil Service left this Department to go to another Department and their bonus had to be paid, it is paid by the Department where they are when they receive it.

Chair: Well, I do not think the Secretary of State was aware of that.

Mrs Spelman: No, I was not aware of that.

Chair: I do not think we as a Committee are aware of that and I would just put it to you, to the farmers out there who have had the most appalling service, I think this is a complete kick in the teeth.

Mrs Spelman: I think we need to be clear, in terms of the farmers out there, as you put it, that the man is not being rewarded in this instance for the work he has done for the RPA. We have to be careful not to mislead farmers that that is the case. Coming back to this underlying question, I have employed people, and I am sure Select Committee Members have employed people. There is a very interesting challenge in this difficult environment and I have been asked by a number of our arm’s length bodies-who are just that; they are at arm’s length from us; they have teams of staff whom they are responsible for managing-that one needs to think carefully about how you reward and incentivise people in a very tough climate to deliver the kind of savings and the quality of service that we are asking of them with severely reduced budgets.

Chair: But you pay them according to their performance.

Mrs Spelman: Of course. But the logic of that is that the 11.8% of people that the Permanent Secretary has just described exceeded what was required of them as part of the overall achievement of the RPA and improving its service. The question that is before the Select Committee is: do we take a blanket view that no one whatsoever should receive any financial incentive for trying particularly hard to do better than they were asked to do, or do we think in principle that, even though we are in tough times, we should have some capacity to reward those people that go the extra mile and deliver more than we were expecting? That is the question hanging in the air.

Chair: But six months to reply to a letter is hardly going the extra mile. I thought the Prime Minister asked all of us to exercise pay restraint.

Mrs Spelman: Going back to that specific, I shook my head and I am sure that the Hansard writers would acknowledge that I said a six-month delay in responding to a letter is unacceptable. Members of Parliament, as a rule of thumb, try to turn their letters round far faster than that-within three days, if I have half a chance, for my own constituents. I do not know the circumstances that led the Chief Executive to take so long to reply, but in principle I do not think a reply should take anything like six months.

Bronwyn Hill: Could I just give a piece of information, which I meant to add, that I think might be helpful for the Committee? I have the details of all the RPA; I did not quite get on to the other members of the Senior Civil Service in the Rural Payments Agency last year, for which the bonuses will be paid this year. According to my information, which is anonymised, five other members of the SCS on standard contracts received no bonuses. I am just trying to paint the complete picture.

Q49 Neil Parish: I accept what you are saying that there are people in the RPA who have been working extremely hard and above and beyond the call of duty. A very complex system was set up, so I have some sympathy. I also have a lot of sympathy with the farmers who have had to wait so long, because it is seven years now since it started, so it is really time it was done. We have got a list of salaries, staff bonuses and various things here and the highest salaries, of £425,000 to £430,000, are in the Rural Payments Agency-more than twice any of the other Departments. I think it is for a shared job for an accountant in the Rural Payments Agency, but we have had all this mess with the RPA and if I say to my farmers that the highest paid person in Defra is an accountant in the Rural Payments Agency-albeit two of them sharing the same job-I think they might be slightly concerned, to say the least.

Mrs Spelman: I am very sorry, but I do not have the piece of paper that the honourable Gentleman has and I do not know where it has come from.

Neil Parish: Pass it to the Secretary of State; it is a very simple chart.

Mrs Spelman: But since the change of Government, any salary that exceeds the Prime Minister’s is subject to scrutiny. It is a tornout piece of paper; I do not know the source.

Q50 Chair: It is your departmental accounts, Secretary of State. You may want to address the broader issue.

Mrs Spelman: The Permanent Secretary will bear me out and she can give a possible explanation of this very high salary. Before we came before the Select Committee, I had a conversation with the Permanent Secretary about any salaries that exceed that new rule about whether the salary can exceed that of the Prime Minister, and I learnt a number of things about the rules that pertain to that. I said to the Permanent Secretary at the time that I thought that honourable Members might well ask questions about salaries that exceeded that limit, some of which have perfectly understandable explanations, such as preceding the decision; which Departments some civil servants had come from, and their level of remuneration in those Departments. However, in relation to the specific case, I do not have the explanation.

Bronwyn Hill: I do not recognise that, but I think I can guess what it is. I suspect it is the difference between Senior Civil Service salaries, of which there are none in that category at the RPA currently, and the cost of employing what we call interims. As you know, the RPA had quite a history of having interim appointments-people from the private sector who we have had to bring in-on its senior team. So they had a lot of interim appointments. Because of the high costs of doing that, one of the things that Defra has been focusing on-I cannot take the credit; it started before I arrived-is trying to replace many of those interims with full time permanent staff. Although I do not recognise the figures here, I suspect this is probably the historic legacy of having to pay people from the private sector to fill jobs that were quite difficult to fill, for all the obvious reasons.

Neil Parish: It is just not going down well, is it? I think that is the diplomatic way of putting it.

Tom Taylor: I am afraid I do not recognise those figures, which I believe have been prepared by the Clerk.

Chair: The Secretary of State has found it.

Tom Taylor: If you send them to me, I would be very happy to provide a full breakdown. They certainly will not be permanent staff.

Chair: They are figures provided by the Department.

Mrs Spelman: Could I just ask the Clerk if we could know on which page in the accounts this table appears? It is very difficult to have this conversation if you have got one piece of paper.

Neil Parish: I understand, but you can see why we picked it out.

Bronwyn Hill: I understand from a note that I have just been given that it is in the RPA remuneration report and it was the interim finance director, so as I assumed, it was an interim. The good news is that in July, the exfinance director of Defra, someone with a track record of strong financial management who knows quite a lot about the Rural Payments Agency, moved across to the agency on a much lower salary than that. I think we are all very pleased that we were able to make that permanent appointment.

Q51 Neil Parish: How long were we paying these interim guys? Perhaps you can give the Committee a written answer. How long were we spending £430,000 on this?

Chair: The interesting thing, Secretary of State, is that you are clearly not familiar with the figures.

Mrs Spelman: These are from the RPA accounts, not Defra’s accounts.

Chair: But you are the Secretary of State and are ultimately responsible for the arm’s length bodies.

Mrs Spelman: I perfectly understand that point, but this has been a confusing conversation because a torn off piece of paper was handed to your witnesses without the source being clearly identified. It is not in the document-Defra’s annual accounts-which is the subject of this session, so had you wished to quiz me on the RPA’s accounts then of course I would have read the RPA’s accounts and I might have known what you were talking about. I do not think there is any reason to be at cross purposes; the most important thing is we have the answer because the Permanent Secretary guessed right, which is what you would expect a good Permanent Secretary to be able to do.

Neil Parish: I am quite happy to have the answer in writing.

Bronwyn Hill: Can I give you a note about how long we have been paying? Yes.

Q52 Richard Drax: Secretary of State, I quite understand it is a very wide brief. Just one question for you on performance objectives. Do you have any control over these performance objectives that warrant a bonus? The second question is what do they get them for? Is it for turning up at nine o’clock and going home at five? Is it for giving 10 farmers their payments rather than eight? What drives it?

Mrs Spelman: Can I explain something that is really fundamental and overarching? There is no reason why any Select Committee Member would know this because I did not know it until I went into the Department. The role of the Secretary of State is interesting in this regard: that we do not have line management for the Civil Service. The line management for the Civil Service is through the Civil Service to the Permanent Secretary. I cannot set the terms and conditions of the employment of the civil servants. The Ministers provide the strategic direction and the prioritisation and they take responsibility for the decisions that the Department makes, but it is quite an interesting thing, certainly as a businesswoman, to come into a Department and realise that the responsibility is divided in that way. I don’t know if that is helpful, but I would not get into the daytoday management of the RPA’s staff.

Q53 Richard Drax: I understand that, but politically, if I may, in that case would you say that these payments, based on whatever the performance objectives are, are unacceptable, particularly under the austerity climate we are now faced with? Therefore politically would you get involved by saying to the Prime Minister and others, "I think this is something we have to look at"?

Mrs Spelman: I would get involved in my regular meeting with the chairmen and chief executives of all these agencies when we have a regular review of their performance. If I was unhappy with the performance objectives they had set for their staff, I would question that then. They would raise with me issues like, "We would like to be able to reward our staff who have gone the extra mile and performed better than we were expecting". That is the level at which the discussion takes place.

Bronwyn Hill: The Secretary of State is right. Indeed, the way that Government works is it tends to set public sector pay policy. The Government has acted to set a pay freeze across the SCS-we will be into the third year next year-and a pay freeze, subject to the exception for lower paid staff, for two years for others. So the Government as a whole tends to set the overall parameters and then delegates within that the ability to manage and set performance objectives for individual members of staff. The only person whose performance objectives the Secretary of State helps to set are mine, for obvious reasons.

Q54 George Eustice: You gave a very good explanation about why the Rural Payments Agency figure is so high, but what would you expect the highest salary to be? The Chief Executive-what kind of band? Even with the remaining ones there, there is quite a spread between the Environment Agency, where the highest salary is close to £200,000, and Forest Enterprise, which presumably is a much smaller organisation, which is about £70,000. Have you got any idea roughly where the new Chief Executive is in the RPA?

Bronwyn Hill: Yes. I know exactly where he is. It will be disclosed in due course, but I am happy to tell the Committee today that from memory, I think it is £156,000. It may be slightly more than that. Actually, I may have got that wrong-£159,000. I will double check to make sure. The reason for that is, again, the challenge of trying to attract someone to an agency that has had a very chequered history and has a huge legacy. You sometimes have to pay more than the Prime Minister’s salary to attract the right sort of candidate: someone with a track record of turning round failing organisations.

Chair: Thank you very much for that. If you wish to make any further comments in writing, as you offered, Secretary of State, that would be helpful.

Mrs Spelman: I am sure we can, yes.

Neil Parish: Not wishing to be unkind, but do you accept it is failing?

Chair: We are moving on. Richard Drax.

Q55 Richard Drax: Secretary of State, your Department’s performance is measured, as you know, in the Business Plan. Defra also publishes Structural Reform Plan Monthly Implementation Updates and the Business Plan Quarterly Data Summary, QDS, apparently. The information in the QDS is not audited and the Government has acknowledged that the "quality and accuracy of the data needs to dramatically improve". Would you accept that the way the Department’s performance is published, related to and talked about needs untangling? Would you consider amending this form of reporting, with quarterly data reports and monthly updates, to make it simpler?

Mrs Spelman: I am sure Mr Taylor would like to come in on this, but a general point I would like to make in response to that is that I think we are a good deal more transparent as a Government than has ever been the case before. Business plans were not published with pledges with dates attached to them by which we would try to complete that exercise. Those are all in the public domain and that is a different approach from what went before, which was more a system of targets. We have clear commitments to meet pledges by certain periods of time and if we do not meet them in the timescale provided, we are required to give an explanation. If we did not tell the public we were going to be doing those things by a timescale, the question could not be asked. So the transparency is good; it is an important discipline and it helps drive the Department’s work with an urgency because Ministers are keen to see those deadlines met. In terms of the auditing, I think we should ask Mr Taylor to reply specifically to your question.

Q56 Richard Drax: The question is, in effect, is it working?

Tom Taylor: I am very happy to answer to that. The thing to bear in mind is that the Structural Reform Plans or Business Plans introduced under the new Government have been in place for some time now. That sets out an annual plan of milestones that the Government plans to meet in each Department. That is updated on a monthly basis in the interest of transparency. I do not think there is any confusion between the Business Plan and the monthly updates on it; it is just good practice in tracking where you are up to. Under the transparency agenda, the Government have also introduced the Quarterly Data Summary that Mr Drax mentioned. It was published for the very first time in July 2011, so we have only just published the first quarter, and I completely agree that it was not perfect. The Cabinet Office accepted that, on first introduction, it would not be perfect, but the whole focus of this was to drive some consistency in the measurement of finances, inputs and outputs and key indicators across Government and that we would improve over time. I am very happy to say that in the Quarterly Data Summary 2 for quarter two of this year, which will be published tomorrow-the Cabinet Office are planning to publish the crossGovernment suite tomorrow-you will find that the Defra entry is much improved on quarter one. Some of the missing data fields that we had in quarter one have now been completed. There are still some problems with the guidance that we have from the Cabinet Office that we have gone back to them on. In answer to your point about audit-I believe this comes from a letter that Lord Browne sent to chairs of Audit and Risk Committees-much of the information in the QDS is audited. All the financial information is audited by the National Audit Office because it comes from the accounts; many of the input and impact indicators are-

Q57 Richard Drax: Mr Taylor, can I interrupt? Sorry, I do not want to be rude; I apologise. We all accept, I am sure, you are doing the best you can. The question really was: do you think that the system you have now works? Could it be improved? Are you happy with what is going on? Are you happy that the reports that are coming out are clear and everyone understands what you are doing, where you are going and how you are being measured? Or could this system that you now have be improved upon? Is it too complicated? I think you were hinting that yes, improvements could be made. Is that really your answer?

Tom Taylor: I would say improvements can be made in terms of the coverage and the quality of the information. I do not think it is for me as an official to comment on whether this is the best system to put in place or not. That would not be appropriate for me to comment on; it is very much a Government initiative to have introduced this and it is based on the transparency agenda, as I am sure you understand. What I would say is we are addressing it diligently and we are improving quarter on quarter. It is very early days for the QDS-we have only had one quarter-so in terms of tracking whether this is having an impact on performance, it is early days.

Q58 Richard Drax: On the quarterly report, I think the Department may have to look at a midyear report. Do you know anything about this? All Departments may have to look at a midyear report. That is what we understand.

Tom Taylor: That would be quarter two.

Mrs Spelman: Quarter two; that is the second one.

Tom Taylor: Yes. It is published tomorrow. That is my understanding.

Richard Drax: So that will be the midyear report, essentially?

Tom Taylor: Exactly, yes.

Q59 Richard Drax: You have touched on missing deadlines and things; you have on a few occasions, mainly relating to cross-departmental issues. Does this indicate that interdepartmental communication is not too hot or are you having a problem with weight in Whitehall? What is the problem here?

Mrs Spelman: No. It indicates that when you are interdependent with another Government Department, your capacity to deliver to the timescale is not entirely in your own hands. The two missed targets that we have are the publication of the Green Book supplementary guidance on social impacts. A draft has been produced and it is doing the rounds of the other Government Departments. It is something done in conjunction with the Treasury, so we are not the author and deliverer of that on our own; we contribute our part.

Richard Drax: So it is not your fault?

Mrs Spelman: Not entirely, no. It is a shared responsibility.

Richard Drax: So you are meeting your time schedules; other people are not?

Mrs Spelman: Yes; that does happen. The second one is the decision on corporate greenhouse gas reporting. We have had 2,000 consultation responses. It is something of great interest to DECC, so we are working with DECC on those consultation responses and that happens. Inevitably, if a pledge is entirely within your gift to deliver, you have greater control over the process. But if you look at Defra’s performance overall, as the accounts set out, I think we have had a strong record on delivering. A month or two here or there in terms of delivering it is perfectly understandable to every politician in view of the political weather. Purdah, for example-which is a new experience for those of us that went from Opposition to Government-affected some of our capacity to deliver because announcements could not be made during that six-week period. The first cycle of a purdah period is your first experience of realising that some of those things cannot be delivered during that timescale; that resulted in a one to two month movement on those. I think people would understand that the difficulty and complexity of other decisions, like the decision about bovine TB, led us to take more time. I think that is part of the reason why, with the improved stakeholder engagement, to this point in time we have managed that process better as a result of taking more time. But I would just like to say Defra has implemented more actions in quarter one than most other Departments, so in terms of our overall performance and our capacity to deliver to time, we have demonstrated not just our willingness to do that but our capacity.

Q60 Amber Rudd: Coming back to the indicators in the annual report, there are eight impact indicators. Two are heading in the wrong way and one is static. What is your impression of how the Department is performing against these indicators?

Mrs Spelman: The point about the choice of the indicators is we have not chosen a set of indicators that are easy to meet, but we have chosen a set of indicators that are really important. For example, the farmland bird index is a tough indicator. The trend has been going down for a very long time and we know that it will take really significant intervention by all those who have an interest in reversing the decline of the farmland bird species to get that index to turn round. This is a really important, absolute index of the health and wellbeing of farmland bird species and we put it in to drive forward the serious work that must go hand in hand with agriculture to make sure that we arrest the loss of farmland species. This fits very well into the Nagoya target of loss of biodiversity. We have not picked indicators to make it easy for ourselves; we have picked indicators because they are absolutely the right ones to drive forward the things that we need to do.

Q61 Amber Rudd: On the farmland bird indicators, I understand that the figures that are described as current are the ones from 2008. Is there any way, do you think, of having figures that really are current that perhaps might be more useful?

Mrs Spelman: In practice, I cannot answer the question about whether we would compromise the quality of the indicator by trying to accelerate the process. Those who collect these data make sure they are robust and must do this against a long data set. I know that when the Committee wrote to us about data sets, one of its concerns was whether there should be any break in data sets or the loss of data sets that might be important in the public domain. I think we have to be very careful about changing the basis on which a very long term indicator has been used to establish the health and wellbeing of those species. But of course I am quite happy to look at whether a more recent analysis can be achieved.

Q62 Amber Rudd: I understand the full data set for the indicator on the productivity of the UK agricultural industry is not available yet. Do you know when it will be available?

Tom Taylor: This was not available in QDS 1; it will be available tomorrow. It is published tomorrow.

Amber Rudd: Tomorrow. What a marvellous answer that is.

Mrs Spelman: QDS 2.

Tom Taylor: QDS 2, yes. That just needed to assemble the right bits of information in order to construct it. May I come back, if I may Ms Rudd, on the farmland birds? We have given rather more information in the QDS 2 to help commentators on the report. It is a longstanding indicator; it is a National Statistics indicator from 1970. As the Secretary of State said, it has been in decline for many years. It is my understanding that it is based on a very large sample every five years and it involves lots of third sector organisations-the RSPB and so on-in monitoring the number of birds. It is not the kind of indicator that would be economical or indeed sensible to try to monitor on a quarterly or indeed an annual basis and that is why it appears in five-year chunks. Of course it could be looked at in the greater scheme of things, but naturally there would be a cost to that.

Q63 Chair: Just before we leave indicators, I have a figure that the unit cost of Higher Level Stewardship scheme delivery is £3,694. That seems extraordinarily high given the number of participants.

Tom Taylor: Extraordinarily high against what benchmark?

Chair: The unit cost against the benchmark that the cost of the Single Payment Scheme otherwise is £817; total Government funding to the Environment Agency for environmental quality of surface water bodies is £78.7 million; I could go on. It just seems very high. It stands out on a table that-I am not quite sure what the source is; it is page 6-gives a very general output. In all the other indicators, the other large sum is total Government capital investment in flood and coastal erosion risk management, which is £385.2 million. I would just say that the per unit cost of the Higher Level Stewardship scheme seems very high.

Tom Taylor: So this is £3,694 per HLS scheme. I don’t know if you have ever seen the claim form for Higher Level Stewardship.

Chair: I frequently am presented with one in my surgeries.

Tom Taylor: It is comprehensive and it involves an awful lot of checking to make sure that the relevant evidence is provided to make sure that the hedgerows and so on are indeed in the state that it is said they are. My understanding is that the unit cost is high because it is quite labour intensive to administer a HLS claim-much more so than, for example, a standard SPS claim, which is largely automated, except for the very complex ones, which are manual and can take between three and five days to do.

Q64 Chair: Is this something you might review, Secretary of State?

Mrs Spelman: Yes. Remember we have chosen to adopt these indicators and the reason this indicator has been chosen for adoption is to help drive the unit cost down. The reason why the farmland bird index is chosen is because we need to get the rate of loss of species down. These things are not easy. We have not chosen these indicators to make our life easy. Take the cattle herds free from TB restrictions indicator. We know at the moment the disease is on the march. So it requires the political will to adopt these indicators, which are really important indicators and are hard to meet, for a purpose, which is to make progress in these areas. If the Select Committee could keep its eye on the choices, they are tough choices for a reason. Over time we want to see these improve.

Chair: We shall certainly keep our eye very closely on this little box.

Q65 Neil Parish: Secretary of State, on 14 October, the Wildlife and Countryside Link, comprising 29 leading UK environmental groups, published Nature Check. They have got amber, red and green. The two green ones the Government got were, "We will oppose the resumption of commercial whaling" and, "We will press for a ban on ivory sales". The rest of it we got amber and red. So the Government has been criticised in this Nature Check for failure to deliver on environmental policy. Do you accept any of that criticism and if so, what are you doing to improve the delivery?

Mrs Spelman: I was interviewed on the "Today" programme about this very subject and Select Committee Members may have heard Jim Naughtie indeed saying to our critics, "Well, they have only been in office for 15 months". I think two things had happened. I acknowledge the NGOs’ job is to push the Government to do more for the natural environment and I commend them for doing that, but I think they have confused two things here, which is to take the pledges from our Business Plan and then to ignore the time by which we said we would achieve them. In the Business Plan, we are anticipating, hopefully, a five-year Parliament in which over time we sequentially deliver our pledges. Not everything is for delivery in year one. So to red-flag pledges that have not been achieved in the first 15 months was a bit harsh, I would say. Some of the red flags were given to my Department though we are not the lead Department on the subject. The National Policy Planning Framework is in fact a DCLG lead. To receive a red flag for something that is not your Department’s responsibility is also, dare I say it, a bit harsh. So I think some of those things need to be read in their context, but the spirit in which we were being challenged to do more and go further and faster of course I accept. But I hope that the Select Committee, which knows how to read the Business Plan-the pledges together with their timescales-would look at those two things in context and then perhaps see that some of those red flags probably should not have been on the list because we are not pledged to deliver all those things in the first 1516 months.

Neil Parish: Hopefully when you come back in a year or two’s time they will all be green.

Mrs Spelman: I sincerely hope so. However, some are beyond my control; they are the lead of other Government Departments, as with the NPPF, for example, and therefore logically they should not appear as any colour flag in my Department’s responsibility.

Q66 Dan Rogerson: You have said, Secretary of State, that you and your team will be taking a leading role in preparing agriculture for adapting to climate change. However, so far, I can see only one small project about raising awareness among farmers that climate change is on the way and is happening. How well do you think that squares with that intention to take a leading role and do a great deal to bridge that gap between agricultural practice and policy on climate change?

Mrs Spelman: The most important opportunity we are going to have in the next decade to enable agriculture to address the challenge of climate change comes with the reform of the CAP. One of the reasons I have expressed my extreme disappointment with the proposals for reform is that, although the twin challenges of food security and climate change, which are inextricably linked, were identified correctly by Commissioner Cioloş as things the reform should address, in my view what is proposed doesn’t. That is very disappointing. My job as the lead negotiator on those CAP reform proposals will be to improve those proposals as much as I possibly can so that agriculture is better adapted to the challenge that climate change is already bringing. Select Committee Members, including the honourable Member, will have seem the extremes of weather as recently as the drought in my region and the floods in his. It is a great shame that the CAP reform is not really getting to grips with the challenges that agriculture faces. We are not alone in this view. We have worked incredibly hard between the Commission’s original communiqué in November last year and the formal launch of the proposals on 12 October to try to get some amelioration, including working with other Commissioners who have a big stake in the CAP reform addressing climate change. The two Commissioners for the environment, Commissioner Hedegaard and Commissioner Potočnik, very much share our ambition to see CAP reform embrace the need to adapt agriculture for climate change.

Q67 Dan Rogerson: That is the big Europewide discussions. What about what we are doing in this country?

Mrs Spelman: There are a number of things that we can do to assist agriculture with the adaptation. The first and most important opportunity that arises for us is in the forthcoming Water White Paper. Without giving away its contents, which I cannot do as it is still in elaboration, we want to put resilience at its heart. As farming is a major consumer of water and a major dependant on a secure water supply, the Water White Paper presents us with an opportunity to address the usage of water by agriculture and the ability to conserve more water and use it more efficiently. But I think in the wider analysis that the Foresight report shows, that one of the underlying causes of food insecurity is inextricably linked with the challenge of climate change, we need to deliver on the identified priority in our Business Plan to produce more food sustainably-in other words, more food at less cost to the environment. Part of our climate change adaptation will be the sustainable intensification of agriculture domestically, adapted to the challenges that we face as a nation and the way in which climate change is producing the increasing frequency of more extreme weather events. As the CAP reform goes on at one level, taking probably several years to reach its denouement, while I hope it will face up to the challenge of climate change, that does not mean that we do not get on with the work that we can do at a domestic level to help our own agriculture be better adapted to the challenges we already face.

Dan Rogerson: So awareness and water management and then looking at sustainable intensification; we could probably have a whole session on that, but thank you very much.

Mrs Spelman: You probably could.

Q68 Chair: Secretary of State, I know you are a big fan of the partnership approach to flood defences. You very kindly gave a commitment to an urgent review of reservoir safety guidance. Would you like to share with the Committee how that is going?

Mrs Spelman: I would be happy to do that. Specifically in relation to the honourable Lady’s own constituency, we are trying everything we can to find a good solution to the threat of flooding that is very considerable in her constituency and she will know that the background to the reservoir plans for her own constituency have not come to fruition. The basis of the partnership approach is to try to enable the constrained resources that we have to go further and I think there is early evidence of communities coming forward with proposals for the way in which, with a contribution from the community, they can get their own plans for flood defences brought forward. So we are working in conjunction with communities around the country to use the new partnership approach to try to get more flood defences built. That is certainly the objective of the partnership approach. At the same time we are working with the insurers to show the way in which, with constrained resources in the first year, not only have we succeeded in protecting more homes than was anticipated and reaching targets to protect the number of homes that were originally set out with fewer resources, but I am confident that we will exceed our overall target of 150,000 homes protected within the Spending Review.

Q69 Chair: And the reservoir safety guidance? To be perfectly blunt, as we are in North Yorkshire, as I found out on the radio phonein this morning, £1.1 million is on the table in the partnership approach from the District Council, but that money is time barred. You very kindly came to visit the project to see it because it is a pioneering scheme. Surely it must be a little bit embarrassing that this first scheme of its kind will probably fail because the reservoir safety rules are not going to be reviewed in time for that money still to be left on the table by spring of next year.

Mrs Spelman: That is not the underlying problem in relation to the flooding proposals for Pickering. There is £1.35 million available for funding. The problem is that the revised cost of the scheme was estimated at £3 million, so at the moment there is a significant shortfall in funding. That is the fundamental problem. I came to see the project and I think there is no substitute for coming to see the problems that honourable Members face in their own constituencies. Walking through Pickering and up on to the top of the Dales, it is not until you get to the high land above the settlement that you have any sense of the gradient and the speed at which water would move from the top of the Dales down through quite narrow gullies to reach the settlement in question. But I saw with my own eyes measures that are being taken other than a reservoir to try to slow the flow: the introduction of heather bales along these quite narrow gullies to break the fall of the water as it comes down and, although it will take longer, the planting of trees that help to stall the flow of the water at speed towards the community. When I saw the site of where a reservoir might be-I am no engineer, but again, given the gradient from that existing site that is very steep down toward Pickering, the safety of the community has to be paramount in that consideration as well. Fundamentally, the project at the moment is stalled on financial grounds.

Q70 Chair: That is part of it, but if you could give us a date when the reservoir rules will be reviewed, that would be really helpful.

Mrs Spelman: I would be delighted to be able to write to the Committee afterwards with a date.

Chair: How many other schemes are coming forward?

Mrs Spelman: There are several.

Chair: Where?

Mrs Spelman: For example, Leeds, not a million miles from the honourable Lady’s part of the world. We are looking, in partnership with the council, at whether, through the partnership funding scheme, we can look at a way to protect significant numbers of homes and properties in that city from the risk of flooding. But all these partnership schemes must be scrutinised technically for their viability. It is at one level about the cost and the funding, but it is just as much about whether these flood defences will actually work. Nobody wants to waste money on flood defences that then would not do the job that we are asking them to do. There I depend very heavily on the expertise of the Environment Agency to provide advice about the efficacy of the proposals that communities are bringing forward. The good news is they are bringing proposals forward and that is why we firmly believe that the partnership approach to flooding will enable public monies to go further and more flood defences to be built.

Q71 Chair: Perhaps we can have a review in a year or so. Bearing in mind that this money that the Department is giving to local authorities is not ringfenced, how are you going to monitor whether the areabased grant that the Department is making available under the 2010 Act is being used for flood defences?

Mrs Spelman: All local authorities, as public bodies, have to account for how the money is spent and that has to be transparent and clear. My colleague at DCLG has made it very clear that the threshold for the use of public money for putting in the public domain how these things are contracted and spent is down to £500. So we will be able to know how the money is spent, but we regard local government as a very important partner for Defra. They are a delivery agent, particularly in relation to flood defences, and we had a very warm welcome for the partnership funding approach on flooding from local government because for a lot of local authorities, schemes that were continuously being pushed to the back of the queue because they did not pass the test of protecting enough homes might now be considered and get built because in partnership with the community and our resources and the local authorities putting money in, we may get things built that otherwise would perhaps never have been built. So I think that local government views the new scheme as an opportunity to do more for their constituents in the way that we overall look at it as a way to improve the resilience that the nation needs on flooding.

Q72 Richard Drax: Just on floods quickly: I am not sure of my statistics but I know the facts I am about to utter are roughly correct. The last Government wanted to build about 3 million homes. A large percentage of those homes were going to have to be built in recognised floodplains. As far as I know, the percentage was quite high. Bearing in mind the demand for homes now, can you or do you coordinate with other Departments and can you tell us whether these new homes, which we need, will not be built in floodplains because clearly we cannot afford to defend what we have already?

Mrs Spelman: This is inextricably linked with the reform of planning. One of the reasons why the Department is supportive of presumption in favour of sustainable development is the sustainable development principle, which is that the concept needs to be economically, environmentally and socially sustainable. In the case of a floodplain, you would ask some hard questions about the sustainability of that development given the environmental risks of flooding. So I think the presumption in favour of sustainable development will be a very useful criterion against which to assess applications to build in a floodplain. It is at a consultation stage and it is not my Department’s lead, but it is a change in the law that we have supported. I would simply use the example that the honourable Member has just given of previously large numbers of houses earmarked for building in flood risk areas that would probably not have passed the criteria of being a sustainable development had that been at the heart of the present planning system. What we have seen under present planning law is quite a lot of unsustainable development. So my comment to those who resist the reform that the Department for Communities and Local Government proposes is you cannot seriously want us not to address the unsustainable development that arises from the law at present. We must be able to do better than that. Putting sustainable development at its heart ought to help avoid the risks to people’s homes and livelihoods of being built somewhere where the environment cannot sustain them.

Q73 Chair: Perhaps we should use the test of appropriate rather than sustainable development. Secretary of State, on that point, we are completely dependent on the Environment Agency doing the costings. You will know that overnight the Environment Agency bumped up the costing for Pickering from £1.3 million to £3 million. I find it staggering that we are trying to have confidence in an arm’s length body that can get the figures so wrong and make the scheme unaffordable overnight.

Mrs Spelman: I am very happy to go back to the costings for that project, but as I say, I am not an engineer and I rely on the experts in the agency that has to undertake the costings to use their engineering ability to make the right call. But I am very happy to take this case back. Believe you me, if we could find a solution to the honourable Lady’s flooding problems, I would be a very happy Secretary of State.

Q74 Neil Parish: Following on from that, you are quite right when you say that the Environment Agency needs to look at the schemes to make sure they are viable, but I think there is also an argument-especially protecting farmland and other things-that , where you could get the farmers to build the schemes themselves, you would save an enormous amount of money. I s that being looked at?

Mrs Spelman: Absolutely. But it is not just a question of us looking at it as a Department. Partnership means that we welcome partners outside the Department coming to us with schemes that they believe have merit that have hitherto been ignored simply because they did not meet the criteria of protecting large numbers of homes. Automatically that disadvantaged large numbers of rural areas where the sparseness of the population meant that those communities were going to find it difficult to draw down public funds for their protection. I think this is a really good opportunity for rural areas that suffer persistently from flooding to bring forward their schemes, which many times originate with the help of the farmers and their land being part of the solution to a perennial flooding problem. We can look together at whether we can then provide a significant contribution to that. What I should make absolutely clear is that for vulnerable communities, particularly deprived communities, Government funding up to 100% for these flood defences remains on the table. It has to; we perfectly understand that. But where it is possible for communities to bring some resources to the table and for us to be able to match fund it, we can of course stretch those resources further and that saves more resources for communities that genuinely cannot. So there is a fantastic opportunity here to do more with less, as we seek to do as part of trying to live according to our means.

Q75 Neil Parish: I think you are absolutely right but I think you will have to have a bit of a change in the culture in the Environment Agency, because sometimes it does not particularly like it when anybody wants to do anything themselves. I think it has really got to have a bit more of an open mind and I am sure you can facilitate that. But I know lots of examples of its immediately putting the downers on a project, yet practically it could be done much cheaper.

Mrs Spelman: I am happy to take on board the honourable Gentleman’s view. My experience is that Lord Smith and Paul Leinster have embraced with enthusiasm the opportunity that the partnership approach has. But we should not lose sight of the fact that the insurance industry needs to have the confidence that an agency with sufficient expertise has objectively assessed the efficacy of the proposed defence, because from the point of view of that industry, it needs to be confident about being able to insure properties because the defences that have been built will work. That is the key to it. But I completely accept the honourable Gentleman’s view and he is entitled to it.

Q76 Neil Parish: Thank you very much. Talking about indicators, the Department has indicators of the number of households where the risk of damage from flooding and coastal erosion has been markedly reduced. As this is a cumulative figure, the argument is that you will always meet the figure, irrespective of how funding for flood defences is reduced. Are you considering adopting a more realistic measure?

Mrs Spelman: Again, I really do not think that is an easy indicator. Number of households where the risk of damage from flooding and coastal erosion has been markedly reduced is against the challenge of climate change, where we are facing constant coastal erosion. I genuinely do not believe any of these indicators have been chosen because they are easy to meet; I really do not. I think up against the pressures of coastal erosion, aggravated by rising sea levels and increasing temperature, that is difficult, but it should be difficult, to force us as a Department to do all that we can to protect those that live in proximity to the coast who are at risk of flooding.

Neil Parish: And you think the indicator at the moment is realistic, do you, the way it is built?

Mrs Spelman: I do not think it is a question of realistic; we would say it is a tough indicator, in the same sense that the farmland bird index is. It means that we have to work hard to reverse a trend and we want to be made to work hard to address these trends.

Tom Taylor: If I could just add to that by again, going back to Mr Drax’s question. The Quarterly Data Summary that comes out tomorrow shows an improvement on that indicator over the period.

Q77 Mrs Glindon: One of the biggest worries for those people at risk is flood insurance. The current agreement between the Government and the Association of British Insurers ends in 2013. Could you say what progress you have made in reaching a further agreement with the industry for the cover of properties that are at risk?

Mrs Spelman: Yes. It is very important and we have had a number of meetings with ABI to talk about this. Defra hosted a flood summit in September 2010 to discuss flood risk management with the industry and the challenges involved in flood insurance. They gave a very warm welcome to our proposal to move to a partnership basis for building flood defences, because they acknowledge that they are more likely to see more homes protected by our helping the resources to go further. So that of itself has received a very warm welcome and we are working in partnership with the insurance industry to find solutions to the challenges they feel that they are going to face, particularly in respect of climate change. We are working very closely with them. The exact nature of the partnership is still being considered with Ministers and senior officials and we will continue to listen to the views of the industry as all the options for flood insurance going forward beyond 2013 are being considered.

Q78 Mrs Glindon: If we put ourselves in the position of someone who currently has insurance and knows that there is a threat, I think they would want something more definite, and to know what is going to happen in two years’ time about their insurance, because it must be the major worry. Perhaps people who have already experienced a flood, have had to call on their insurance and are now paying the premiums following a flood, are particularly worried about an issue like this, which is a constant worry to them. I think as that date gets closer, they perhaps need to know what the definite position is beyond that date in relation to the Government’s future agreement with the insurers and some assurance about what is going to happen.

Mrs Spelman: As I just said to the honourable Lady, we are working very closely with the industry to try to make sure that we have insurance in place that remains widely available to everyone throughout England after 2013. But there are still, as she says, two years to go and I am not in a position today to tell her what form the sequel to the statement of principles will take. But we are working very closely with the industry to make sure that that insurance is widely available, taking account of all the pressures that we see coming towards us. It is not a static situation; it is one in which climate change has a very significant bearing and we have to work with the industry to find a solution that will work for everyone. I cannot give her the detail of that today, I am sorry.

Q79 Chair: Could you give us an inkling that risk pooling is being considered?

Mrs Spelman: It is one of the things being considered, along with a number of options. We are in discussion at the moment.

Q80 Chair: Would that mean that effectively the Government will be partly insuring homes?

Mrs Spelman: I really cannot go into that detail. We are in the middle of discussions arising from the flood summit. All the ideas are being considered. I indicated to the Select Committee that the partnership approach is one that received a warm welcome. In a followup meeting that we had with insurance providers, community groups and other partners, we looked at all the challenges that flood insurance faces and we will continue to work with them to make sure that we get the widest possible coverage. But today was about the report and accounts of the Department and I am not in a position to give a preview of how the statement of principles will look post2013.

Q81 Dan Rogerson: A year ago, the Department took the decision to withdraw PFI credits from some seven local authority schemes. Have you looked at how that has affected those local authorities since then and engaged with them about how they deal with that?

Mrs Spelman: Some have gone ahead with their schemes without the public contribution from us; others have decided not to proceed. It varies. Some of the projects that got the goahead to proceed are at the planning stage; others have not reached the planning stage. They are at all phases of evolution. I think everybody is clear that against the ratchet effect of the landfill tax, as far as possible we do not want to be burying materials in the ground, particularly not resources that we need, and increasingly people see waste as resource. So the direction of travel is very clear for all local authorities, but the response to the PFI decisions has varied from authority to authority.

Q82 Dan Rogerson: Has that had any effect on your own global targets and strategies for waste in terms of those local authorities that have struggled to deal with the situation of PFI being withdrawn? If some of them have reacted in a different way and said, "Right, back to the drawing board", what sort of effect has that had on your overall targets?

Mrs Spelman: It has not affected the overall targets. The recycling targets are on track. In the waste review, we set out our intention to consult on other materials that we would like to ban from landfill-metal, wood and glass. We show good progress on recycling rates and I think we should commend individuals and local authorities that are succeeding in that. It has not had an impact on our ability to meet our targets, no.

Q83 Dan Rogerson: One final bit on waste; something that was raised with me recently. In your discussions with the Treasury and with DECC about waste issues where they relate to energy, tax incentives and so on, it was pointed out to me that the direction, as you rightly say, is away from landfill and making sure that we push things higher up the waste hierarchy. But of course there are quite often energy costs associated with processes such as recycling or reuse, and some of the people in the industry are concerned that they are getting clobbered through energy taxes, which you are quite rightly setting for carbon emissions, but by pushing them away from landfill. They want to invest in the new technologies to deliver the alternatives, but as they do that, they are more energy intensive and therefore there is a cost issue there for them as they invest. Is that something you keep an eye on and have a look at?

Mrs Spelman: I think that is beyond the scope of the accounts, really; it goes into waste policy, but fossil fuel costs are heading in one direction-they are rising inexorably-and DECC, I know, is looking at diversifying through renewables away from dependence on fossil fuel. Where we can recover energy from waste, it makes sense to do so. Part of the reason why we supported the Department for Communities and Local Government in their waste challenge fund is because we would like to see local authorities taking the opportunity to recover energy from food waste. I think we need to look at every possible way in which we can recover energy so we reduce our dependency, particularly on imported fossil fuel. The whole waste industry is very innovative, growing fast-at the rate of 4% per annum-and applying new technologies all the time, including energy-reducing technologies. Early examples of waste-to-energy plants were quite energy intensive; later models of waste-to-energy plants have reduced their demand for energy and I would imagine that trend would continue. Then new technologies come on stream like anaerobic digestion or gasification that enable us to recover the carbon, hydrogen and oxygen from different sources of waste. So going forward, I see the waste industry as having a bright future against the difficult backdrop of fossil fuel prices rising.

Q84 George Eustice: Some of us are looking forward to the Water White Paper, which I know is coming out in December. Could you just confirm what the legislative programme will be after that-when you expect it to get Royal Assent and also, because I know it will be quite a tight timescale, whether there is sufficient time for prelegislative scrutiny?

Mrs Spelman: It will not have escaped the notice of the Select Committee that Defra did not have legislation in the first session of Parliament, but we have booked a slot in the second session as early as possible. The Leader of the House is fully apprised of our need to have legislation and we will have a Water Bill as part of that. We need a Water Bill for the affordability measures that we have already announced we are going to introduce for vulnerable households, but there may be other elements in the Water White Paper that require legislation, and we would use this vehicle.

Q85 George Eustice: Have you got any idea yet when the new Chair of Ofwat will be in place?

Mrs Spelman: We discussed the appointment process briefly earlier, which failed to produce a choice of candidates. Therefore, we have extended the period for Philip Fletcher until such time as we are satisfied that we have got a sufficient choice of candidates and we are able to appoint. However, from the point of view of the good functioning of the market and its regulation, the experienced pair of hands represented by Philip Fletcher is likely to be an advantage to us during a time when we are publishing a White Paper and subsequently legislating for any measures in it. So I would not expect the industry or the consumers to suffer as a consequence of our taking a bit more time to find a good successor for Philip.

Q86 Amber Rudd: On planning under the NPPF in the countryside, how do you think the Government will balance the need for economic development against the protection of agricultural land and sustainable countryside?

Mrs Spelman: There has been a lot of confusion around the National Policy Planning Framework. Ministers have been at pains to point out that the protections for green belt, green space, areas of outstanding natural beauty, national parks and sites of special scientific interest all remain. I think in the early days of the launch of the document, the impression was given that, in some ways those were in danger, which is absolutely not the case. But it is a consultation document and everybody has a perfect right to supply their views on the National Policy Planning Framework. I have expressed mine: that I think at the moment we see unsustainable development arising from existing planning law, which makes the case for sustainable development. We have a particular interest at Defra in making sure that our green spaces are well protected and that we are able to produce more food sustainably at less cost to the environment, so the best and most valuable land is something that we are very keen to see kept available for food production. As I said at the CAP reform round one negotiation when the Commissioner was proposing a 7% setaside, at a time of food insecurity, it is difficult to see how it is sensible to take productive farmland out of production. So those views, I would imagine, are being conveyed by the farming industry to DCLG. It is a DCLG lead, but we support the objective of having sustainable development at the heart of that reform.

Q87 Amber Rudd: It has certainly generated a lot of strong opinions on various different sides, which may or may not be based on fact, but one of the criticisms was levelled by the Environment Agency, which was perhaps a little surprising as they do not usually comment on Government policy. Did you find that a little surprising?

Mrs Spelman: No, not surprising. It is very important that we get the planning reforms right. It is absolutely important that they are right. We should not forget that Natural England and the Environment Agency are statutory consultees in the planning process. As statutory consultees, they are quite likely to have a view on the reform of the process on which they are required by statute to be consulted. So I am quite comfortable with that. In addition to that, important assurances were given by the Prime Minister in a letter to Dame Fiona Reynolds at the National Trust about the importance we attach to protecting our countryside and how, as part of this planning reform, we will make sure that it is protected. I am sure honourable Members have seen a copy of that letter, but if they have not, I would be delighted to supply them with a copy. He said, "We must ensure the appropriate protections for our magnificent countryside. That is why our reforms will maintain protections for the green belt, for national parks and areas of outstanding natural beauty". So the Prime Minister has made it very clear that that is the Government’s commitment at the heart of this planning reform.

Q88 George Eustice: Also just briefly on planning, have the Homes on the Farm proposals-this idea that redundant farmyards could be developed into housing, particularly local needs housing-been advanced? I know it is probably DCLG, but I presume they would consult you.

Mrs Spelman: We are working very closely with DCLG on rural housing. Honourable Members will know it is particularly hard in rural areas for the children who grow up in the villages to be able to find somewhere they can afford to live. There is another problem at the other end of the generational spectrum, which is that the elderly often cannot find stepdown accommodation in the villages where they live and, particularly if a widow is left by herself in the marital home and can no longer manage the stairs, she quite often ends up having to move many, many miles away in pursuit of suitable sheltered accommodation. We are exploring, as part of the Growth Review and the Housing Review, how we can address the needs of rural communities for more rural housing. Certainly there exists within existing planning law provision in respect of redundant farm buildings, but I think we ought to look at opportunities to meet genuinely local need for housing. When in Opposition, I was looking at this question. The models of community land trusts or local housing trusts are quite good ways of looking at small, incremental development in local communities that can help them be more viable but also cater for the needs of the two ends of the age spectrum: the young wanting to get started and the elderly needing more appropriate accommodation for their needs. But that will emerge as part of the Growth Review, and the rural strand of the Growth Review is the part that Defra has been actively engaged in. Only yesterday I met the Housing Minister, Grant Shapps, to discuss with him particularly how we meet rural housing needs. We see it as a very important part of our role, as Defra, as a rural champion.

Q89 Richard Drax: Secretary of State, just a quick point. What is worrying people, certainly in South Dorset, is the rumour that in this planning system based on the demand for homes, which is very high, there will be an organisation above local people that, at some level-whether it is 1,000 homes, a motorway, an airport and so on-will have a final say if the local people say "no" to something for the greater good of the country. Do you know of any such organisation that is going to slip into this Planning Bill that will affect local people’s decisions or will they have the final say?

Mrs Spelman: Again, it is not a Defra lead on the planning reform.

Richard Drax: I understand that, but it is very much your area.

Mrs Spelman: I am sure that honourable Members will have noticed that the regional spatial strategy and Regional Development Agencies have been abolished. At the heart of DCLG’s planning reform is the role of local government and the role of the local plan and a recognition by all of us as public figures and constituency MPs that the public feel disempowered when they feel their local views are ridden roughshod over by another tier of Government over which they have no influence. So that has gone. What remain in place are the local and then the national responsibility of the Secretary of State for Communities and Local Government, who will still have the final say on decisions that are called in. Defra is not the lead Department; this is a DCLG lead and that is the structure that currently exists. I think rumours abounding about some mythical body-

Richard Drax: Very quickly, if the local people say "no" to whatever it is that is needed in that area, then the Government could in theory overrule that decision? In theory.

Mrs Spelman: It is not a question for me as Secretary of State at Defra.

Richard Drax: No, I know, but you are very much involved with the environment, protecting our countryside and the green belt-all of the things you have just said are wonderful, so it is very much-

Mrs Spelman: Decisions of national interest are called in: as a result, there is a public inquiry and a decision is taken by the Planning Inspectorate, which comes under Communities and Local Government. The Secretary of State at Communities and Local Government can recover that decision. That is the position today and that is the position, so far as I know, that will remain. But the local plan takes on a significance that it currently does not have in the planning system and I think that is the most important point to reassure his constituents with and to actively encourage each of the communities in his constituency to have a local plan. The same is true for all of us.

Chair: I am being incredibly slow. You said that the Secretary of State can recover-

Mrs Spelman: It is just the terminology.

Chair: But I thought it was only on two criteria: if it was of national or regional significance.

Mrs Spelman: Absolutely.

Chair: So there is no democracy at all, is what I think Mr Drax is trying to establish.

Q90 Richard Drax: I just want to crush this fear that people have that if they say "no" to something then someone else could, in the national interest or whatever the thing might be, overrule it. I know there is no spatial strategy and we have got area plans and local plans where everyone is doing that. I accept that. But that is the fear. I am just wondering whether you can crush that fear once and for all.

Bronwyn Hill: It may help if we offer a note, because I think the question is a very wide one. If it was a nuclear power station, I suspect that would come to Government because of how the framework is set.

Chair: But if it was a hazardous waste incinerator?

Bronwyn Hill: I guess it is a question of degree and therefore to answer a hypothetical question out of context is quite difficult.

Richard Drax: But what are the criteria? That is the point.

Bronwyn Hill: Should we get CLG to help us follow that up so we do not give you the wrong information?

Richard Drax: Very kind.

Mrs Spelman: I think it is also important to mention the decision by the coalition Government to do away with the Infrastructure Planning Commission, which could have been the body that had, without democratic accountability, a power to decide on those things. A decision was made to bring it back to the accountability of a Government Minister, who is elected and accountable to the people for the decisions that they make as part of Government. That was another important amendment. Again, this structure is one that lies within the responsibility of DCLG rather than Defra, but we can certainly ask our colleagues at DCLG to supply the Committee with a note on the proposed reforms as part of the consultation.

Chair: I would be very grateful, Secretary of State. Can we move to rural proofing, Richard?

Q91 Richard Drax: Yes, we can. I see that Mr Benyon said that the Commission for Rural Communities was going to be abolished. Defra Ministers are the rural champions within the Government. How much time have you allocated to your role as rural champions within the Government and can you give any concrete examples of what you and your Ministers have done in this regard?

Mrs Spelman: One of the things that we have done is take the majority of the staff from the Commission for Rural Communities back inhouse as part of our new rural policy team. So it is not just the 24 hours a day that Ministers have, and for which they are expected to be on duty, but the deployment of the expertise that was vested in CRC-bringing it back inhouse as part of a specialist rural policy unit. That unit comes under the wing of Mr Benyon’s responsibilities and they have been working incredibly hard on the rural strand of the Growth Review. So in due course, when the Government publishes its Growth Review and the Select Committee has a chance to see the rural strand in it, they will have the opportunity to appraise some of the work that this new rural policy unit has undertaken.

Richard Drax: Just so I am clear, it has been abolished but it hasn’t, because it is now within another remit?

Mrs Spelman: It is going to be abolished. It is abolished in all but-

Richard Drax: In all but name?

Mrs Spelman: Yes. We have taken the staff back inhouse some time ago.

Richard Drax: All the staff?

Mrs Spelman: Not all of them.

Richard Drax: 50%? 70%?

Mrs Spelman: Off the top of my head, about 17. Does anybody remember the number?

Tom Taylor: It is about onethird of the staff, I think.

Richard Drax: Onethird of the staff?

Mrs Spelman: It is a change that occurred quite early on-about this time last year-and we gave the staff the opportunity to choose where to work that would be most convenient to where they were originally located. But they have been back as part of the rural policy unit in operation now for some time. For example, when we launched the uplands policy package, we had some help from these folks from CRC in developing our £26 million package for the uplands, which is another opportunity, I think, for the Select Committee to look at the beefingup of the rural dimension of the work that Defra does. But it goes without saying that all four Ministers in the Department, including the new Minister, Lord Taylor, have rural credentials and I think that has also helped the Department in the sense that we all go back home to rural constituencies where we encounter rural issues and we regularly have a postbag full of issues raised by people who live in rural areas, all of which adds to our claim that we can hold our heads up and say it is our job to be the rural champion in Government.

Q92 Richard Drax: Any concrete examples you can give us?

Mrs Spelman: Well, I just gave you the two: the Uplands Policy Package-£26 million with all the different dimensions of that-and more recently the work has been focused on the rural strand of the Growth Review. However, I cannot give away the content of that because we would like to launch it next month.

Q93 Richard Drax: Finally, in a recent written parliamentary answer, the Department stated that the Government was "exploring the scope to encourage independent review of its approach to rural proofing". Can you confirm whether that means there is to be a review of rural proofing?

Mrs Spelman: We recognise that we need to do the rural proofing within and across Whitehall, but we would expect to be reviewed from without. We want the challenge. There are plenty of strong NGOs that have rural interests absolutely at heart and we would fully expect them to challenge us as well as part of this rural proofing. You need to have 360 degree appraisal in modern business practice and this is something at Defra that we welcome.

Q94 Neil Parish: Just two or three more questions on the Rural Payments Agency; I won’t make a big rant about it. The National Audit Office has highlighted limited progress in identifying the number of under and overpayments that have been made despite significant investment; absence of an Audit and Risk Committee for part of the year following the resignation of the Chair; and a continued reliance on contractors in finance at a cost of £3 million. We covered part of that just now. If you are going to reduce staff, are you then going to bring in contractors and will that be costeffective?

Mrs Spelman: Did the honourable Member catch what I said, that the Rural Payments Agency was one of the agencies where, contrary to our general principle of trying to encourage early exits, we did not? Just precisely to address his concern on that point. As regards the National Audit Office objections, I might ask Mr Taylor to cover that point.

Neil Parish: And the overpayments and underpayments on which there has been not much progress? What are you doing about that?

Tom Taylor: As you know, the NAO have found that still to be a material concern and hence qualified the RPA’s accounts on that basis. That qualification, because of its materiality, carries over into the Defra accounts, which is regrettable. The incoming Chief Executive is very much seized of the need to address that issue under something called the Debt and Data project and that will form part of the strategic improvement plan that he will bring forward in due course.

Q95 Neil Parish: And we will see a significant improvement on £3 million spent on finance contractors in the next set of accounts, will we?

Tom Taylor: As we answered earlier, the confusion that we had about the piece of paper related to an interim finance director and that is very much, sadly for-

Neil Parish: That is half a million; this is £3 million.

Tom Taylor: Yes. They had a large team of interims, both at finance director level and junior levels. The Chief Executive is considering the resources that he needs going forward and the extent to which some of that needs to come from specialist interim resources. There is a real issue here, of course, as I am sure you will appreciate, that the interims that were there built up such a body of knowledge and expertise in the working of the RPA that to go from plenty to zero overnight would be quite damaging for the agency. So I imagine what the Chief Executive will do is consider a phased exit strategy from the reliance on interims in finance in particular and the first step of that, about which I am very pleased, has been the appointment of the former finance director of Defra to be the finance director of the RPA.

Q96 Neil Parish: We wait with great interest and bated breath. Part of the Department’s underspend is attributed to the RPA making fewer SPS payments and there has also been a reduction in the amount of disallowance, which is good-I imagine that is fines by Brussels for not making the payments on time-and currency movements. But the question is, will that £245 million reduction in Estimate be recognised next year or does it have to go up again? How are you taking that into account?

Tom Taylor: As I explained earlier about clear line of sight, this is one of those peculiarities where, under clear line of sight, this appears as an underspend on the parliamentary Supply Estimate but in practice, as the Secretary of State said, because 99% of farmers were paid by the June deadline, in terms of what was planned, it was planned to nearly 100% level and so that was fine. Because the agency and the Department took a view to prioritise accuracy ahead of the March deadline, payments that may have been made before the end of the financial year were made a bit later than the financial year and because, as I say, under the Supply Estimates it is based on a cash-in-year basis largely, to simplify, they fell outside the Supply Estimate and appeared as an underspend in the Supply Estimate, but in resource accounting terms it was as we planned it to be. This will go away next year.

Q97 Neil Parish: How much of this is the value of the euro to the pound?

Tom Taylor: Very little. We have an excellent hedging strategy; in fact, one of the reports in which the NAO have really lauded the Department is about the quality of our hedging strategy. It has got even better this year.

Q98 Neil Parish: You have made money, have you?

Tom Taylor: We have made money. I cannot go into the details, but we certainly have a very good deal with our hedge contractor.

Neil Parish: I hope he looked after the birds at the same time as cutting the hedge. Sorry, carry on.

Mrs Spelman: Just one very interesting question on this, which we have not touched on but is important and would be a good question to leave with you, is that under the CAP reform proposals, all member states are supposed to move on to areabased payment. We are one of the few member states that bear the scars of trying to do this and I can assure the Select Committee that other member states are looking at our experience, not least the devolved Administrations, and we have said to the devolved Administrations that after what we have been through, we will really help them with the transition that we know they would need to make. But the fact is that going forward, the Commission has said payments will be on an area basis and this is very, very important for the future options of the RPA. I will leave that question hanging in the air and answer the others.

Q99 Chair: Two last ones, if I may. What are you doing to reduce the cost of processing Single Payment Scheme claims?

Mrs Spelman: That is our single unit cost process. Do you want to come in on that, Tom? It is an indicator for us.

Tom Taylor: Again, it is very much something that the new Chief Executive will be considering as part of his strategic improvement plan. One of the lenses through which he is looking at the business is the degree to which the easier-to-process claims can be dealt with in a more highly automated way. The real issue is the incredibly complex claims that have a long back history and lots of problems, perhaps in terms of debtor and creditor balances, and how to deal with those with targeted resource. So it will be very much something that the new Chief Executive is looking at. I was just going to look at the QDS entry to see how we are doing on that.

Q100 Chair: I am sure you can write to us about that. Are you worried and should we be worried that this is the third consecutive year that your Department’s accounts have been qualified by the National Audit Office?

Mrs Spelman: Third consecutive year for the Department; I respectfully point out I have only been in post for 15 months. It is not good to have repeated qualification, but I see evidence of improvement. As I said, the Minister of State promised he would try to help drive improvements in the RPA and I think there is some evidence that the RPA is making progress in that direction. I am sure the Permanent Secretary, who is also new and cannot be blamed for three years of qualification, with me jointly shares the responsibility for getting this right.

Bronwyn Hill: The question you may well ask is: will we still have our accounts qualified next year? That is the question I first asked. The news is not as good as I would like it to be. In fact, if you look in our accounts for this year, we have had to make provision against what we expect to receive in the way of disallowance next year. So it is not a problem that we can wish away. We have made a provision at what I think is the right rate for SPS, which is the 2% flat rate. I do not know whether Members of the Committee know: the EU auditors, when they are looking at something like SPS, tend to have a flat rate. So they will find some samples of things that they think are irregular and they will apply a rate so it multiplies up. The first step in the rate is two, so it is either zero or two. So even with very proactive management by the RPA and with our help, we think the best we can do is keep it at two under the current scheme with the legacy IT. Although it is obviously a judgment for the NAO to make, I would expect, because they treat that as an irregularity-as in we should not be fined at all-my best guess is that we will still have a qualification on that irregularity. The second area is more to do with the RPA’s Debt and Data, to which we referred earlier and the question there is: how much progress can they make within a year that has already started with a very significant backlog? I am less well qualified to comment on what progress we think they could make. All I would say is it is all competing for resources in an agency that we want to make sure makes speedy and accurate payments under the current scheme to farmers. So there is a balance to be struck between tackling the legacy-dealing with the inheritance-and getting payments out of the door this year. That is what the strategic improvement plan will need to judge.

Q101 Chair: But you have already made provision for material disallowance penalties during the present financial year of £175 million, so that aspect should be addressed. But is the other aspect, of insufficient audit evidence to support the value of Single Farm Payment scheme overpayments and underpayments, being addressed?

Bronwyn Hill: That was the second item; we call it Debt and Data for short. It is an RPA term. That is the one on which we would like them to make more progress, but each case that they rework-because it is looking back at old figures-takes up to five working days, so there is a value-for-money question to be addressed, which we will want to look at in the strategic improvement plan to see what the judgment is about how much extra resource you want to put into a historic case. Could I just make it clear, though, that the £175 million of disallowance this year is because the EU auditors did SPS 20072009 so that is the payment for that. The provision for next year is because they had already started the audit for SPS 10. That is what we have made a provision for, because that is our best guesstimate of what their final letter will say. So unfortunately, because they do it every year and I suspect there is an irreducible number of reasons for irregularity, I am afraid we have estimated over the Spending Review period that it will be broadly at 2% with proactive management. That is our best prognosis.

Chair: That is very helpful. We look forward to hearing from you on those issues in writing to which you have very kindly agreed, but Secretary of State, may I thank you most warmly for being so generous with your time and indeed your team? May I also thank my team, because we are in fact meeting three times this week, so we are being particularly assiduous? Thank you very much indeed for being with us.

Prepared 1st November 2011