Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence

Examination of Witnesses (Questions 822 - 839)




  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 ENTRUST—at the Board, Management Committee and Operations Executive—and 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[1] 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 very helpful.

Mr Donohoe

  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 problems?
  (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.

Mr Donohoe

  827. In terms of money, how much are we talking about?
  (Dr Sills) Within the revoked bodies?

  828. Yes. How much has been taken out of the system illegally?
  (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 organisation itself?
  (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—

Mrs Dunwoody

  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 being asked.

  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.

Mr Donohoe

  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[2] there were four forced revocations out of those seven. In 1999[3], 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 Minister—because we do not speak to Ministers directly, we speak through Customs—the 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

1a   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

2   Witness correction: 1999. Back

3   Witness correction: 2000. Back

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