Examination of Witnesses (Questions 60-79)
MR RICHARD BROADBENT, THE EARL OF CRANBROOK, MR MICHAEL WHITING AND MR NEIL CARRIGAN
MONDAY 5 NOVEMBER 2001
60. I did notice the makeup of your board and I am surprised you only have one accountant. I should have thought a regulatory board such as yours would need people with at least an accountancy background if not an additional accountant on that board.
(Lord Cranbrook) We have always aimed to have someone with a background of environmental accountancy or accountancy on our board. In this we have been successful. Recently through using the Nolan process, we have recruited a new board member with this background. She was awarded the title of Scottish Finance Director for the Public Sector in 1998.
61. I notice in paragraph 4.17 that you had a bit of a problem with a shortfall of staff in 1999 and you only had one member of staff in the audit and inspection section. I wondered why. It later transpires that you had a staff shortage because you had used resources on other priorities and you had run down the audit section to one member of staff. Do you think in hindsight that was reasonable?
(Lord Cranbrook) No, that is actually untrue. We decided very early on, when the scheme was uncertain, as at the beginning we could not predict the scheme would be as successful as it was, to be as flexible as we possibly could. In our audit and verification process, we combined external consultants whom we engaged to conduct the audit for us and to report to our audit management and gradually, as we became more confident in the scheme and we thought the money was genuinely going to flow, we balanced up the costs of using external consultants and employing staff internally. So we have actually progressively transferred resources from using external consultants to assist us in the audit and verification process and report to us, to building up our own staff. You must remember that it is quite a young scheme. It only started in 1996 and the buildup has been progressive.
62. It is a very complicated scheme and you have observed a number of environmental projects coming together in different locations. Do you think this is the right model in place now for the future? I should like to ask you to consider that since we have environmental trusts in place in Avon County, should we not be funding this through a local, regionalised centre such as a county and having it audited locally to ensure that it is audited very regularly, a close hands-on approach and maybe contract the audit out to the county council or another district council, otherwise we are going to be in the position of having thousands and thousands of schemes which are not going to get properly audited?
(Lord Cranbrook) I would refute that they are not properly audited, if I may? We have a regional setup. We have distributed the auditing function to our own regional setup and we have organised those regions on the basis in England of the regional structure and Scotland, Northern Ireland and Wales count as units within our organisational system. As far as our operations directorate is concerned, we are regionalised in response to the fact that this is a United Kingdom-wide scheme and we are dealing with environmental bodies who are both United Kingdom-wide in their distribution and also in their activities. I hope that helps.
63. Figure 4. I had to read this a few times before I felt I was interpreting it correctly. I was going to ask whether I was interpreting it correctly, but the answers to Mr Jenkins have told me that I was interpreting it correctly. I came to the conclusion that the scheme was costing the site operator nothing and he was determining the schemes. That sounds a great scheme to me as far as the taxpayer is concerned. I worked out that it is even better than that. My view was that the landfill operator, if you take that example, was actually £18 better off than he would be if he did not join the scheme. Let us suppose that he owes £100 tax, he pays out £20 to the scheme, he gets £18 back in credit, third parties can then put in £2 to make it up. In effect he only pays £82. He does not contribute to the scheme, he does not pay £100 in tax, so in fact he is £18 better off for contributing nothing. This is a great scheme.
(Mr Broadbent) Your first understanding was correct: he can get to a position where at nil cost he is funding environmental schemes.
64. And he is £18 better off for doing it.
(Mr Broadbent) No, I do not believe he is £18 better off.
65. He would be because he should be paying tax, but he does not pay the tax. He pays £20, but he gets that back.
(Mr Broadbent) No, he does not get the money back.
66. He does not pay the tax though, does he?
(Mr Broadbent) He does not pay the tax but he does not have the money either. He would not say he is better off, he would just say he has given money here rather than there.
67. I should be a lot better off if I did not pay any tax.
(Mr Broadbent) The fact the scheme has been a success suggests they do prefer to pay it over here rather than to the Government.
68. I am sure they do. I should be very happy to put in the money if I did not have to pay tax. (Mr Broadbent) But he does not have the money, he is not better off in financial terms.
69. Of course he is. He has to be.
(Mr Broadbent) No. Oddly enough at the beginning of the scheme they were quite worried about this.
70. I bet you were.
(Mr Broadbent) No, they were quite worried about this. There was an administrative cost to them, they had to vet these environmental bodies and there was a risk. If they do not get it right, we can call the tax back, so it is not a completely free ride.
71. What is the total cost of operating the scheme?
(Mr Broadbent) The administrative cost?
72. Yes; the total cost of operating the scheme including perhaps even your own costs, because in effect you are operating the scheme as well.
(Mr Broadbent) Yes. I shall just have to do a quick mental calculation. I believe that our costs are of the order of less than £1 million, ENTRUST's figures were given in the NAO report as £1.3 million for the year in question.
73. So we are talking about £2.5 million.
(Mr Broadbent) Rather more than that now; ENTRUST's budget has gone up since then.
74. To administer the scheme.
(Mr Broadbent) Yes.
75. Then you said it was a very good scheme but you gave the impression that you did not think anybody else could do it better. I would argue with that. That is your point of view but I have landfill sites in my constituency which are very, very controversial and I would say that if you put these schemes in the hands of the local parish councils they would be far better qualified to decide what should be done than the site operators themselves.
(Mr Broadbent) If you ask me what considerations Ministers had in mind when they took the decision about the future of the scheme, they would say on the one hand we have a scheme which does seem to generate a lot of local interest, a lot of parish councils, local nature reserves; fan mail comes into the Treasury saying what a wonderful scheme. On the other hand, we would all recognise that there is a lack of transparency, these are small projects which cannot all be audited and you have to ask whether it achieves strategic goals as opposed to local goals. All I am saying is that has to be evenly balanced.
(Lord Cranbrook) May I please say first of all that the money actually is in the hands of many parochial church councils. For instance there are many local groups who have received funding under this scheme, they have enrolled as environmental bodies and they have carried out local environmental projects. If you like I will write to you after this meeting and tell you what is going on in your own constituency then you might see those.
76. My argument is that these are huge administration costs. If the Government were just to allocate grants to local parish councils to do these schemes it would be cost effective and possibly more in line with what local people want in the first place. I now want to look at Figure 3. I looked at this and tried to work it out and I have never seen such a bureaucratic nightmare in all my life. It is incredible. Those who are checking on those who are checking on somebody else and the contributions are being given to somebody else and somebody else. It is just an absolute bureaucratic nightmare and I would have thought it was open to abuse. There are obvious risks in the scheme and it is quite clear that ENTRUST have to be extremely effective and scrupulous. Paragraph 4.11 tells us that there could be a risk of bias. Paragraphs 4.12 to 4.19 indicate that ENTRUST is not doing the job properly and failing to ensure that environmental bodies are adhering to the requirements laid down for regulating the scheme. Then the findings of the National Audit Office. In paragraph 4.27 it says, "As a result of their monitoring, Customs consider that ENTRUST have been effective in ensuring that environmental bodies are complying with the requirements of the scheme. I consider however that there are some fundamental weaknesses in the design of the Scheme and in the arrangements for its oversight by ENTRUST on which Customs should act as indicated below". Two points come from this paragraph. The National Audit Office believe that there are fundamental weaknesses in the scheme. What would you say to that?
(Mr Broadbent) The National Audit Office are pointing out that if you want to have a scheme which is a public scheme, audited as a public scheme, with grants audited and value for money audits for end use, then this scheme has fundamental weaknesses and they are right, which is one of the reasons why the Government are reviewing it, but it is only one side of the story. If you want that sort of scheme you will lose on other things. What you will lose is local inputs, small schemes being funded, the ten per cent matching contribution and the committed fundings.
77. That is your opinion.
(Mr Broadbent) You are absolutely right and I withdraw it. I do not mean to impose my own personal opinions. I think those are the issues which Ministers will say we have to weigh.
78. Is it what Ministers would say? You appear to be slightly disagreeing with the National Audit Office and with great respect to you, from our meeting last week, I would not be all that confident that Customs can always see the wood for the trees, to be quite honest. We will move on from that. You appear to be very arrogantand I say that in a respectful sort of way. Here we are, the National Audit Office saying there are fundamental mistakes, fundamental things going wrong. Ministers are saying let us look at the scheme because we do not think it is working properly. What do you do? You give them another contract for four years. That seems to me to be quite arrogant, a bit of audacity to be quite honest.
(Mr Broadbent) It would be, but we have not given them a contract for four years, so fortunately that is not right.
79. You keep saying that but it says so in the report, does it not?
(Mr Broadbent) No, it does not. There is nothing in this report.