Examination of Witnesses (Questions 822
TUESDAY 28 NOVEMBER 2000
822. Good morning. May I welcome you to the
seventh session of our inquiry into sustainable waste management.
Would you like to identify your team, please.
(Lord Cranbrook) I am Lord Cranbrook.
I am Chairman of the Environmental Trust Scheme Regulatory Body,
which is normally known as ENTRUST. On my left is Dr Richard Sills,
who is the Chief Executive and has recently also been appointed
a Director of the Environmental Trust Scheme Regulatory Body.
On my right is Mr Neil Carrigan, who is the Director of Operations.
823. Do I understand you would like to make
a brief introductory statement?
(Lord Cranbrook) Thank you, Chairman. I had noticed
that you had given other people the courtesy of this.
824. It is very helpful. In a way, we do not
encourage people to send in evidence and then read it out, but
I think it would be only reasonable this morning for you to be
able to put this on the record since this session is being televised.
(Lord Cranbrook) Thank you very much. I thought that
because there is still a lot of misunderstanding about ENTRUST
and its operations, that a few initial words of clarification
might be helpful to your Committee. The first point I wanted to
make is that the Environmental Trust Scheme Regulatory Body is
not, as has been rather widely alleged in the press, uniquely
the only not-for-profit private company limited by guarantee,
to be set up as an appointed regulator. In fact, it is one of
several where the Government has seen regulation as being necessary
but does not want to commit public funds. Much the largest must
be the Financial Services Authority, which regulates trillions
of pounds. As far as I know, the latest is the Internet Watch
Foundation, which safeguards us against child pornography on the
net. Each of these regulators has its own statutory basis. They
are not all the same. Secondly, in ENTRUST's case our statutory
basis is the Landfill Tax Regulations but we have lately, prompted
by this inquiry and by other events, compared our own statutes
with some of the other regulators, and we are actively looking
for possible models that might improve public perception of our
accountability. The third point I wanted to make is that, in my
view, at present we are wholly accountable through our relationship
with Her Majesty's Customs and Excise via the Terms of Approval.
The Terms of Approval can be revoked at any moment. We work extremely
closely with Customs at every level. We have invited Customs officers
to take observer status at all levels of meetings of ENTRUSTat
the Board, Management Committee and Operations Executiveand
this they normally do. It is my practice, as Chairman, to invite
comments from time to time to make sure that we are carrying Customs
with us. We also meet regularly at bi-monthly liaison meetings.
The fourth point I wanted to make was that we took an early decision
on the ENTRUST Board to act with as much transparency as we possibly
could, compatible with our regulatory role. One of the first things
we did in about March 1997 was to draw up a Directors' Code of
Conduct, which we have revised periodically. If you have not seen
it and you wish to see it, I have a copy here, which I could certainly
place with you. Also, if you have not seen it, I have a copy of
the Terms of Approval of Customs and Excise. Fifthly, I thought
it would be useful to ask if (and hope that) the figures we have
given in our original submission, the statistics, were useful
to your inquiry. We hoped that these would assist you in reaching
the decisions that you are going to reach. There are some updates.
The scheme has been hugely successful. It has far exceeded its
originators' aspirations. The updated figures, the total funds
contributed are £320 million. The number of enrolled environment
bodies is 2,250, of which 1,100
are funded. There are 14,000 registered projects in existence,
of which 4,000 are registered active or completed.
Chairman: Thank you very much indeed. That is
825. Following your investigations of the allegations
that were made by The Guardian, how confident are you that
there is no abuse of the Landfill Tax Credits Scheme?
(Lord Cranbrook) As I said just now, a moment ago,
we have throughout our activities been determined to be as open
as we possibly can. We have welcomed comment by the press. We
have always been free with information where it is not restricted
because of our regulatory function, because we are dealing with
tax issues. I think fair criticism by the press is a useful external
evaluator of what we are doing and I welcome it. It is an extra
stimulus to our own internal scrutiny of efficiency and effectiveness,
so in general I welcome press comment. In the case of The Guardian,
I wish there had been more contact beforehand, because we could
have sorted out and explained a great deal of the problems of
The Guardian, which I will ask Dr Sills in a moment or
two to deal with. The Guardian probing, as I said just
now, has encouraged us to look carefully again at the ways in
which we are working. It has encouraged us to extend our regulatory
role, pressing right up against the boundaries of what the regulations
say we might do. For instance, we have appointed an additional
compliance officer to make sure that we have the skills at hand
to look into some of the areas in which The Guardian allegations
were made. If I were to try to sum it up in one sentence, I would
say that The Guardian allegations tested our systems and
showed they work. However, I will ask Dr Sills to elaborate a
little bit more on the technical side.
826. But you have not answered Mr Donohoe's
question which was: are you now satisfied that there are not any
(Lord Cranbrook) I will ask Dr Sills to clarify. We
have submitted to you as supplementary evidence, which I hope
you will publish so that it is seen in the press alongside The
Guardian articles, that details our responses to the 26 specific
cases that we could identify in The Guardian papers.
(Dr Sills) Broadly, yes, we are confident that there
is no widespread abuse of the system. We have obviously found
a number of bodies that have abused the system and infringed the
regulations. They have been revoked, which is our only power.
(Lord Cranbrook) May I interrupt you there. They have
not been revoked as a result of The Guardian allegations.
(Dr Sills) That is true. They were revoked before
The Guardian allegations.
827. In terms of money, how much are we talking
(Dr Sills) Within the revoked bodies?
828. Yes. How much has been taken out of the
(Dr Sills) It is questionable whether it is illegal
or not. All we have done, and all we can do, is to revoke because
they have infringed the regulations.
829. How much are we talking about?
(Dr Sills) Well over five million.
830. Why was it that it took The Guardian
to set up such an inquiry? Why was it not the case within the
(Dr Sills) The Guardian did not set up the
inquiry. We constantly review environmental bodies' activities.
We review the environmental bodies' activities at three stages.
Firstly, at enrolment, when we look at the structure according
to the criteria set out in the regulations. We also look at their
proposals for projects, at that stage, to see whether their proposals
are compliant or not. Following that we review their work in progress.
Once they have funds and start spending them, then we require
them to send a return in annually. We also do spot-checks on their
projects so that we have an in-progress review. That review is
guided by a risk model, which has multi-faceted criteria, but
basically the rules are that the larger the contributions received
by the body, the more projects, the larger the projects, then
the higher risk of diversion of cash. Following that, when projects
are completed, or at the end of the financial year, we review
the audited accounts of those bodies. So up-front we review 100
per cent of the environmental bodies' activities. During, we review
a large proportion of the active spend and afterwards we review
100 per cent of all the audited accounts, and we do a spot-check
on what has happened on the project.
831. So what you are saying, Dr Sills, is that
if The Guardian had not exposed this, you would have been
able to? If The Guardian had not exposed this, would your
systems, which were in being at the time, have exposed the seven
of these agencies, the bodies that got away with it?
(Dr Sills) None of the exposures by The Guardian
revealed anything that was unknown to us.
Mr Donohoe: So let us broaden it out
832. Wait a minute, that is not an answer is
it? They told you something that you already knew, that is what
you have just said, but you were not asked that.
(Dr Sills) That was my understanding of the point
833. At what point?
(Lord Cranbrook) We have made seven enforced revocations.
None of those were made as a consequence of The Guardian
allegations. All of those were made as a consequence of internal
systems, which Dr Sills has explained in some detail, which is
why I say that the allegations of impropriety that The Guardian
made relating to other cases tested our systems and showed they
worked. If you have had the opportunity to read the supplementary
evidence we have given, there is no compliance issue involved.
834. Is this the thin edge of the wedge? Is
there a possibility within the system that there are more environmental
bodies that have got similar problems and you are keeping that
secret from us at this stage? It seems from what you have just
said that you knew about these seven environmental bodies.
(Dr Sills) They were revoked.
835. They had been, in some cases, filtering
money out, yet you did not make that public.
(Dr Sills) Yes, we did.
836. Are you confident, then, that this is the
end of this? That we are not going to have others where there
is a similar problem?
(Lord Cranbrook) There are two questions there. First
of all, how do we make public revocations? The revocation, strictly
speaking, is in the hands of Customs. We advise Customs that such-and-such
environmental body is no longer compliant. It is then Customs
that makes the final decision to revoke, because that impinges
on landfill operators who are then liable for clawback of the
tax.[1a] Every month we publish and we put on the website our Board
decisions relating to enrolments and revocations. We are immensely
open. It is all there if anybody wants to ask and wants to look
for it. It has always been made public. The second question Mr
Donohoe has asked, which is a very proper one and one that we
need to face up to, is whether or not this is the thin end of
the wedge. Whether or not revocations are increasing. There have
been 43 revocations, of which 36 were at the request of the organisations
concerned. We call them voluntary revocations. Of those 36, half
of them decided to withdraw from the scheme because they had received
no funding and they saw no future in getting funding. They were
small bodies. Half of them, roughly speaking, withdrew from the
scheme because they had completed their project. They had no further
wish to solicit funds from the Scheme. Both of those are perfectly
reasonable. Of the 43, there have been seven which have been forcibly
revoked. They have been revoked because they have not been compliant
in providing us with the information we require in order to assess
whether their funds are being properly applied to the objectives
of the regulations. When that occurs we inform Customs. None of
those cases was brought to our attention by The Guardian.
All of them came through the working of our own system, thanks
to a powerful internal audit and verification team that we have
in place. One of our major priorities, you will understand, is
that as a regulator we had to have this in place right at the
beginning and also have to make it open.
837. You have not really answered the point
about this being the thin edge of the wedge, have you?
(Lord Cranbrook) I am sorry, you are right, I have
not. The only thing we can look at is trends. In 1998
there were four forced revocations out of those seven. In 1999,
there are three. That is a poor statistical base but if anything
the trend is improving and we are finding things earlier. One
of the problems that I hope you will ask us about is the fact
that we have only one power, which is the power of revocation.
We do not have a graduated power. We try to operate to avoid revocation
when we see that compliance can be restored.
838. So you would welcome further powers?
(Lord Cranbrook) There are certainly powers which
I hope you will ask us about.
839. What would they be?
(Lord Cranbrook) Inevitably, we, as regulators, have
the regulations and at present we are regulating the Scheme to
those existing regulations. The 1996 regulations were amended
right at the end of 1999 and came into effect on 1 January, 2000.
Those amendments were as a result of regular consultations between
us and Customs in areas where there could be improvement. What
those amendments did was something which was brought up last time
before you, Mr Chairman, (you remember, this whole issue of third
party contributions), which, at that time, when we were before
you, was very obscure. Now, thanks to the successful negotiations
through Customs to the Ministerbecause we do not speak
to Ministers directly, we speak through Customsthe regulations
were amended so that, now, contributing third parties have to
report to us when they make a payment to a landfill operator to
release a contribution. That was an important improvement. There
are other improvements which we would like to see. One of those
is the issue that Mr Donohoe has just raised (and I sort of signalled)
which is interim sanctions. At the minute it is all or nothing.
Either a body is compliant or not. If we are beginning to get
worried we have a series of graded applications, roughly speaking.
We say, "Please send in your accounts," or, "Let
us verify your accounts by such-and-such a date." We send
in a reminder. Then we get increasingly fierce. But we do not
have any interim sanctions.
1 Witness correction: 1,156. Back
Witness correction: The revocation, strictly speaking is in the hands of ENTRUST. Following a decision to revoke a body, we advise Customs that such-and-such an environmental body is no longer compliant. We then notify the body and issue a public notice, and Customs informs contributing landfill operators as they may be liable for clawback of the tax in the event of mis-expenditure. Back
Witness correction: 1999. Back
Witness correction: 2000. Back