Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 600 - 619)

WEDNESDAY 16 JANUARY 2002

RT HON STEPHEN BYERS, MP AND SIR RICHARD MOTTRAM KCB

Chairman

  600. How often?
  (Mr Byers) I can give you the details, but I meet Margaret Beckett every week at Cabinet and every so often when we feel there is a need to discuss a matter.
  (Sir Richard Mottram) On the official side, the concordat was an exchange between me and the Permanent Secretary of DEFRA, Department for Environment, Food and Rural Affairs, and it was agreed in an exchange of letters. That laid down that for all the key policy areas where the two Departments have an interest, which are things like obviously fundamentally the relationship between the environment and transport or the relationship between our planning responsibilities and their rural affairs interests, our policies towards towns and cities and how they relate to their interests, et cetera, there would be joint working, so there are a number of official committees which after the changes that were introduced, we have gone on involving them in the way we do the work and they involve us in the way they do their work and I think these arrangements are working reasonably well. I see Brian Bender himself two or three times a week, so if there are issues of difficulty about these things, then we could discuss it.

Mrs Ellman

  601. Do you have concordats with other Departments?
  (Sir Richard Mottram) We do not, no, but the reason why we had this concordat obviously was because after the machinery of government changes, we were very determined that we would not lose the benefits that we had from environment being part of a department with transport, so that is what we wanted to do and that is what they wanted to do. The environmental protection staff are actually still in the same building. They intermingle all the time with people from my Department and all those personal relationships are obviously still there.

Mrs Dunwoody

  602. So why do you need an exchange of letters? What exactly is the definition in Civil Service terms of a "concordat"? I am afraid I am very ignorant about these things.
  (Sir Richard Mottram) Well, I think a concordat is just a formal way of saying, "Yes, we will go on being friends".

  603. That is nice. Did it have a wax seal as well?
  (Sir Richard Mottram) No, it did not have a wax seal. It was just an exchange of letters. It was not a treaty and it was not deposited. The treaty will come next!
  (Mr Byers) If it will help the Committee, my notes say that the quarterly meetings are formally held between Michael Meacher and John Spellar and with Lord Falconer as well.

Mr Donohoe

  604. Why did the Department have so much underspend last year?
  (Sir Richard Mottram) Well, for a mixture of reasons, I think. Some of the Department's programmes are ring-fenced, in the jargon, which means that we agree sums of money and we cannot vary the sums of money allocated to those particular purposes.

  605. Why not?
  (Sir Richard Mottram) Because that is the nature of the regime we have agreed with the Treasury, so, for example, we would have ring-fenced provision for certain European programmes which we cannot vary. We have ring-fenced provision for some high-priority programmes where the money was given to us as part of a three-year deal in the last Spending Review and we agreed with the Treasury when they gave us the money that we could not vary that provision without their permission, so that is one set of reasons. Another set of reasons is very deliberately we have agreed with some of the people whom we fund, like, for example, the regional development agencies, it was agreed at Permanent Secretary level and then at Ministerial level that they would have a three-year budget and they could absolutely be confident that they could use their budget over three years with full end-year flexibility and they have chosen to manage their budgets in that way and then, thirdly, there are obviously issues about our forecasting and whether we have—

Mrs Dunwoody

  606. Like you have got it wrong.
  (Sir Richard Mottram) Like we have got it wrong, yes, absolutely.

Mr Donohoe

  607. So is that bad management?
  (Sir Richard Mottram) I would not say it was bad management. Well, let me say, forecasting is a part of good management. We underspent our capital budget by around, I think, 5.5 per cent taken as a whole last year. That is a number that is larger than I would like. In the system we have you will never eliminate underspending because we are actually required not to overspend and, therefore, there is always going to be a propensity built in, I think, to underspend, but do I think 5.5 per cent is a good number? No, I do not. I think it should have been lower.
  (Mr Byers) The important thing is that the Department has a very big capital programme.

  608. And this is 4½ per cent of it.
  (Mr Byers) It is, which is about £350 million underspend, so it is a large sum of money which could be used. I am in a rather interesting position here because it was when I was Chief Secretary at the Treasury that we formally introduced a system of end-year flexibility because we had a situation where people would rush to spend their budgets before the end of the financial year, would not achieve value for money and no one really benefited from it. So I introduced the concept of end-of-year flexibility which allows you to roll over budgets into the following financial year. Now, there is a danger in that because it can allow people to relax and so you get bigger underspends because people will say, "Well, okay, we can use end-of-year flexibility and we will use it in subsequent years". Now, there is a danger there because it then has a knock-on effect and you find you are not spending the money within your three-year spending round, so what we have done in the last few months is really to have a priority of looking at better forecasting, but also making sure that we have flexibility, so with those budgets which are not ring-fenced, we can make sure that we can re-allocate funds so that there is a spend in this financial year which does achieve the value for money that we want to obtain, so it is something we are taking seriously. At the moment I think we are projecting a capital underspend of about £180 million where obviously we are going to take steps to try and reduce that down even further.
  (Sir Richard Mottram) Could I just add one very brief point to that, which is that certainly when I came into the Department having come from the Ministry of Defence, I was very struck by the way in which although these reforms were being introduced then and obviously are very important for using money much more cost-effectively, the Department still had a mentality which was essentially a mentality of annual expenditure. This, for reasons we could go into if the Committee wanted, was something that we had to get away from, so to that extent I was encouraging people to think about three-year plans, to think about the thing over three years, "We will exploit the end-of-year flexibility", and if you encourage them to do that, you risk then that they will have to go flat on their forecasting, so now they have to change down their—

  609. That would allow you actually to overspend in some of your years. You would maybe do that in the second year by virtue of this.
  (Sir Richard Mottram) Well, you do not overspend because what you do is you are allowed to add the end-of-year flexibility with permission until the next year.

  610. So if you are consistently underspending—
  (Sir Richard Mottram) You could build up a very big number, yes, that is right, and with the permission of Parliament, you can add that to your budget and that is taken into account in public expenditure planning.

  611. But if it is a three-year plan, you could overspend in a proportional sense in the first year or in the second year and then in the third year you would have a lean year.
  (Sir Richard Mottram) No, you cannot do that. It is a three-year plan, but you can only add to your subsequent year budgets what you have underspent in the first year and then if you underspend in the second year, you can add it again, but it requires the approval of the Treasury and the approval of Parliament, and obviously we want to minimise that while making sure we do not have end-year surges in expenditure which are wasting money, as the Secretary of State said.

  612. So you are always going to have an underspend?
  (Sir Richard Mottram) I think you will always tend to have an underspend at the margin, yes.

  613. At the margin?
  (Sir Richard Mottram) Yes.

  614. So what would be an acceptable underspend?
  (Sir Richard Mottram) What would I aim for as an underspend?
  (Mr Byers) A penny.
  (Sir Richard Mottram) I would have said 2 per cent, but the Secretary of State tells me the answer is a penny.

  615. Is that what the Secretary of State's leaked letter said?
  (Sir Richard Mottram) His leaked letter did not say that at all.
  (Mr Byers) The thing in the Department is that we have many agencies which deliver on the capital programme and I think the Committee have had details of the profile of where the underspends take place and if they have not, they should see that.
  (Sir Richard Mottram) They have.
  (Mr Byers) It is important because some of those agencies historically are inclined to underspend considerably and it was a gentle reminder, the letter, in fact that there is a responsibility on all of us to make sure that we achieved value for money, but also that we met the forecast that had been made and that was the purpose of the letter that I sent round in the autumn of last year.

  616. What would happen if you did overspend?
  (Sir Richard Mottram) If we did overspend, depending on the scale of it, I would have to appear before Parliament through the Public Accounts Committee to explain why we had overspent.

Helen Jackson

  617. But is it not the case that over 40 per cent of the capital underspending is on the transport side which you started off by saying was because it was ring-fenced?
  (Sir Richard Mottram) Well, I said some of it was an issue about ring-fencing, yes.

  618. At a time when the transport infrastructure desperately needs capital investment, what is your answer that at this point in time to have 40 per cent of the underspend relating to transport when in your own words if permission is sought from the Treasury to vary the rules, it might have been to another programme?
  (Mr Byers) I think the important point is that it is not money which is lost to transport; it is money that we can use through end-of-year flexibility and make sure that we get a real return for the money that we are investing. It is the easiest thing in the world to spend money unwisely and there is a danger that we just get fixed on how much money is spent. The real question we have got to be asking ourselves is: what are the benefits we are getting for that investment? I would much rather look very carefully at what our priorities are and what we are trying to achieve and deliver on those rather than just sort of willy-nilly go into a sort of spending spree. Now, there are issues to do sometimes with major road-building programmes where there is slippage for reasons I think the Committee will understand and that can very often have a significant knock-on effect because of the scale of the spend of some of those projects.

Mr Wiggin

  619. To take on Helen's point, I find it extraordinary that you are talking about unwise spending and a spending spree willy-nilly. Is that not exactly what the Prime Minister is now having to do on transport perhaps partly because of your underspend?
  (Mr Byers) Not at all, no. The purpose of having a plan that was announced on Monday is so that people can see that we are looking at this in a strategic way. Now, it may be the case that ten or 15 years ago that was not the case because of lack of investment and people did not actually have a mechanism in place. What we have been very disciplined about is to say that for the first time we are going to see sustained investment in transport over the next ten years and let's make sure we get a real return for the spend that we are going to make, and £180 million is going to go into transport over that ten-year period, so let's do it in a strategic way and that is exactly what we are doing. It is very disciplined, it is very tight, it is very focussed and the travelling public will benefit as a result.


 
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