Examination of Witnesses (Questions 20-39)
MR RICHARD BROADBENT, THE EARL OF CRANBROOK, MR MICHAEL WHITING AND MR NEIL CARRIGAN
MONDAY 5 NOVEMBER 2001
20. May I ask Customs & Excise why at the beginning of the review and given the comments of our colleagues on another Select Committee they have renewed the terms of the contract with ENTRUST for a further four years with a 12-month break clause?
(Mr Broadbent) We have a terms of approval with ENTRUST which is the vehicle within which we set out what we expect ENTRUST to do to make the scheme run efficiently and effectively, to discharge our responsibilities effectively. That set of terms of approval is revised quite regularly, partly because this is a new and developing scheme and we are keen to keep our terms we impose on ENTRUST up to date. There has been a whole series of revisions and you are quite correct that the most recent revision was made quite recently; last month. That revision contained a series of measures. One of them was for the first time clarifying the period over which the terms of approval would run if no further changes were made. That was a negative term. It did not say they have a contract of any sort. It does not affect in any way our ability to terminate the contract.
21. I said 12-month termination notice. Is that correct?
(Mr Broadbent) The substantive termination period which was introduced was 12-month termination and we did introduce that and that is new. The reason we introduced that was that ENTRUST is entering a period of uncertainty. As the Treasury representative has said, the Government has announced the future of the scheme. They do have obligations as company directors and we had to consider how best to assist them in this. I had said to Lord Cranbrook that I would do what I could to assist him, so long as nothing I did constrained or fettered the Government's freedom of manoeuvre.
22. It seems to me that 12 months is constraining and fettering any outcome of any inquiry or any review. If the review were to say it wanted to terminate the arrangement forthwith, that would now be impossible, would it not?
(Mr Broadbent) We could terminate forthwith if there were any breach of the conditions of the terms of approval. If we wanted just to terminate the scheme straightaway, it would take us more than 12 months to terminate it because we are running thousands of current projects. We cannot just stop it overnight.
23. I did not talk about terminating the scheme. I was talking about empowering ENTRUST to continue its current role in the scheme. The fact is that it seems to me you have now deliberately decided that a 12-month period should be introduced which did not exist previously.
(Mr Broadbent) If ENTRUST breach any of their conditions, we could terminate the terms of approval immediately.
24. That is not what I am saying. I am talking about a policy change. It does seem to me that you have pre-empted the capacity of the Government to make a policy change. I leave that on the record. May I ask ENTRUST some questions? How many project managers or agencies or institutions are controlling more than one scheme?
(Lord Cranbrook) Do you mean environmental bodies?
25. Yes. How many are managing more than one scheme?
(Mr Carrigan) Very many of them are managing more than one scheme.
26. Can I then conclude that many of them are being managed by project managers who are non compliant on one or more schemes?
(Mr Carrigan) This really goes back to the question the Chairman asked about one third of environmental bodies being found not to be 100 per cent compliant on the first visit to them.
27. Do we have a policy of saying that until they are compliant they will not be allowed any further schemes, or is that not something we take into account?
(Mr Carrigan) No, we measure compliance by degree and we make judgements about what is a serious non-compliance which would threaten the funding in the scheme.
28. So far you have told us that you have revoked ten particular agencies. In how many cases have you taken that step of saying they are not compliant, you are not going to revoke but you will not allow them to manage any further schemes.
(Mr Carrigan) We do not have a sanction to do that.
29. Is it a sanction you have ever considered? You could, could you not?
(Lord Cranbrook) What we have considered is a series of graded steps which we could take, depending on the seriousness of the non-compliance. We have frequently discussed a series of graded steps and we have in fact implemented a process of gradually strengthening our communications, our requirement from the environmental body which Mr Carrigan can elaborate on.
(Mr Carrigan) The process we follow where non-compliance is detected is to work with the environmental body, to make sure they do become compliant. We carry out follow-up visits, we tighten up their procedures, we educate them about the guidance or the legislation as required.
30. Do you not think that the fact that you are dilatory in terms of enforcement action is one of the reasons why concern is being expressed about your organisation, your company?
(Mr Carrigan) It would be wrong to revoke bodies for minor
31. I was not asking about revocation, was I? I was asking you about steps short of revocation, for example saying they will not manage any further schemes until they put themselves in order with existing schemes.
(Lord Cranbrook) Unfortunately the regulations do not give us that power.
32. Have you sought to have the power when you have renegotiated with these chaps who seem to be your friends, adjacent to you, Customs & Excise?
(Lord Cranbrook) We have discussed ways and means in which we could get increased sanctions on bodies which are apparently recalcitrant. Many of these bodies are small organisations, they are quasi-voluntary organisations, they are organisations which may be quite inadvertently in default in a minor way of some of, or one or other of the 21 compliance features which have to be met.
33. Many of them are less than 60 per cent compliant according to the Figure 7 and revocation of ten is hardly a great achievement, one to be proud of, given the amount of non-compliance and lack of spending which you seem to be incurring. When you say you have had discussions, with whom have you had discussions? When you have sought additional powers, with whom have you discussed that?
(Lord Cranbrook) We have repeated discussions, we have regular contacts with . . .
34. I did not catch that.
(Lord Cranbrook) May I just quickly say that I do think that actually what I am proud of is the fact that we have supervised a compliance scheme? None of these non-compliances have been fatal to the scheme, none of them has been deleterious to the scheme and we have felt satisfied that when there are small bodies who through inadvertency or for some other reason are temporarily non-compliant and can rapidly be brought back into compliance I feel that it is the right thing and I feel satisfied that this is what we have done. I do not accept, if I may with courtesy, that your criticism is valid. If you would like to know about the relations with Customs, we have very regular routine meetings at management level with Customs at which these issues are discussed. How many times a year do you meet?
35. I do not wish to be rude but I only have 15 minutes and you are in danger of filibustering. I have asked you twice, with respect, with whom you had those discussions when you sought additional powers.
(Lord Cranbrook) We have discussions at official level with Customs on a very frequent basis.
36. They may well have been part of this four-year renewal with the 12-month trigger, may they? Am I right in drawing that conclusion, that you discussed it with your friends adjacent to you there?
(Lord Cranbrook) During the process of renegotiating the terms of approval, which is a form of service agreement, naturally we have been in discussion with all elements of it.
37. May I ask Mr Broadbent why he has allowed the situation to occur where he has given them a four-year fixed term with a 12-month notice without enabling them to take sanction against organisations who are non-compliant?
(Mr Broadbent) I would say three things. The first is that we have not given them a four-year tenure, as I explained earlier and I can go over that ground again if you wish.
38. Not at all, no; the record will speak for itself.
(Mr Broadbent) The second point is that I do think there is a case for ENTRUST to have some additional powers which should give it scope in relation to environmental bodies to move between complete revocation and simply requesting information. We are looking at a number of possibilities and we may seek to come to decisions and introduce those changes reasonably soon. The third point it is important for me to make is that having looked at this very carefully, we do not feel there is material non-compliance here. The table in the NAO's report, which is technically correct, actually suggests that large numbers of environmental bodies are compliant to a very high degree. If you go into the information which underlies the bare figures, you will see that most of what is called non-compliance is what I would call technical non-compliance. In my view it would be quite wrong to seek to revoke environmental bodies for forgetting to report changes of directors.
39. I have made it quite clear two or three times that I am not talking about revocation. We have put that to one side and I asked whether there were alternatives. It does appear that ENTRUST have continued to award monies which might be viewed as public monies or deferred taxation to organisations who are non-compliant on other projects which they are managing. I was not speaking about revocation, I was talking about saying that they will not manage any further projects until they put themselves into compliance. The Committee have noticed your replies. I want to move on to one final point which is that I see you take two per cent of the contributions received and that is principally how ENTRUST is funded. I just want to understand how you manage the cashflow. Since we have not spent £120 million of the total amount of money allocated, I presume the company are holding reserves of funds against the time when the money is to be spent. Can you just confirm that? I do not need a long answer. Is that the case? Are you holding reserves?
(Mr Whiting) At present we have a reserve of £1.78 million.