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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1696-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE THE COMMITTEE OF PUBLIC ACCOUNTS Monday 30 October 2006
The Delays in Administering the 2005 Single Payment System Scheme in England
MRS HELEN GHOSH, MR. ANDY LEBRECHT, MR. IAN GRATTIDGE AND MR. TONY COOPER
Evidence heard in Public Questions 1-199
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Public Accounts Committee on Monday 30 October 2006 Members present: Mr. Edward Leigh, in the Chair Mr. Richard Bacon Greg Clark Mr. David Curry Mr. Ian Davidson Mr. Philip Dunne Helen Goodman Mr. Sadiq Khan Mr. Austin Mitchell Mr. Don Touhig Mr. Alan Williams ________________ Sir John Bourn KCB, Comptroller and Auditor General, gave evidence. Mr. Jim Rickleton, Assistant Auditor General, Mr. Phil Woodward, Finance Director, were in attendance. Ms Paula Diggle, Treasury Officer of Accounts, gave evidence. Ms Clare Palmer, Treasury Representative, was in attendance.
REPORT BY THE COMPTROLLER AND AUDITOR GENERAL The Delays in Administering the 2005 Single Payment Scheme in England (HC 1631) Examination of Witnesses Witnesses: Mrs Helen Ghosh, Permanent Secretary, Department for Environment, Food and Rural Affairs, Mr. Andy Lebrecht, Director-General for Sustainable Farming, Department for Environment, Food and Rural Affairs, Mr. Ian Grattidge, Deputy Finance Director, Department for Environment, Food and Rural Affairs, Mr. Tony Cooper, Interim Chief Executive, Rural Payments Agency.
Chairman: Good afternoon and welcome to the Public Accounts Committee, where today we are dealing with the Comptroller and Auditor General's report on delays in administering the 2005 single payment scheme in England. We welcome Mrs Helen Ghosh, who is permanent secretary at the Department for Environment, Food and Rural Affairs, and Mr. Tony Cooper, who is the interim chief executive of the Rural Payments Agency. We were to have before us this afternoon Mr. Johnston McNeill, the former chief executive, but he has provided a sick note, claiming that he cannot come because of stress. We regret that very much, as it will severely hamper our inquiry today; he was in charge at the time. We are not prepared to let him escape his responsibilities. He will therefore be summoned back on 20 November, as soon as his sick note runs out. Mrs Ghosh, if you could make yourself available on that date to appear with him, we would be very grateful. Mrs Ghosh: Certainly. Q1 Chairman: As I say, Mr. McNeill's absence makes this rather more difficult to handle, but we will do our best. On the subject of stress, I visited the charity Lincolnshire Rural Stress Network on Friday, and there have been three suicides among farmers in Lincolnshire this year. One farmer, whose case I have taken up, has been waiting for a payment of £4,000 since April, but has still not received it. Another tenant farmer took the decision to close his farm business because of pressure from his bank and his landlord to pay outstanding bills, which he could not do because of the delay with the single farm payment. A further farmer, who has cancer, has been waiting for a payment of £22,000. Members representing rural constituencies will have many such cases. Mrs Ghosh, why was the scheme a complete failure? Mrs Ghosh: I think that there were a number of reasons for the scheme's problems, and the report sets them out extremely clearly. There is no single issue or explanation, but I would like to highlight three or four that were particularly problematic. All concerned-Ministers, officials and the RPA-believed that the dynamic hybrid system was deliverable when the decision on it was made in November 2003. Thereafter, I would highlight four key areas. I believe that the agency's adoption of a business process that allocated tasks across the organisation, rather than dealing end to end with individual customers who were able to assemble the data associated with the claim, was a key feature of the problems, particularly those that I observed in the latter period. As the National Audit Office report highlights, problems with the mapping were probably one of the key challenges. There was a vast increase in the number of mapping changes, which had either not been previously reported or were produced-incentivised-by the new scheme. I am sure that we will come back to that. There were problems about testing the IT against a real business process. Again, the report highlights that. Clearly, there was not a proper-what I would call model office approach-to testing. Management information was one of the very early victims of time and resource pressure. That meant, as I think the report says, that there was a conspiracy of optimism in the agency in terms of the achievability, in the end, of full payments starting in February 2006. Q2 Chairman: As the national audit officer who wrote the report said, this was a "can do" organisation that could not do. Those problems were not insurmountable. There were 4,000 staff; there are 116,000 farmers in England. That works out at 30 applications per staff member. This was not an impossible task. The Welsh, Scots and Irish performed much better, although they had simpler schemes. The Germans had the same hybrid scheme as we did, and although they had some problems, they were nothing like what went wrong here. What is wrong with the civil service? We are 10 years on from the passport fiasco. We have been told that staff are better trained, but here we had another organisation hiding bad news, with poor IT and no contingency plans. Why is it so difficult? Mrs Ghosh: There are issues about the organisation's capacity to respond to the very specific and, as it turned out, extremely challenging demands of the single payment scheme-the new scheme-on top of the existing change programme. The examples you cite of other countries that have paid are ones that have gone for either pure historical models or static hybrid models. In the case of Germany, you are right. It made partial payments much sooner than we did. The jury is still out on whether it will have some of the same problems as us in terms of disallowance. I have asked myself the same question about the proportion of staff to claimants. The programme is very different from other large-scale IT-based change programmes across government. The issues that required a high level of IT and organisational change included the fact that we had to produce-back to mapping-a digitised map. That was a requirement. We started working on it in 2002. We were required to finish it by the end of 2005. That could not have been done by people manually; it required an IT system. We had the challenge of bringing 11 schemes into one scheme. Again, that required a large-scale IT system. Q3 Chairman: But was there a mismatch between the policy people and the operational people? Mrs Ghosh: There was not a mismatch, in the sense that when one looks back over the various discussions with Ministers and, indeed, the negotiations in Brussels, one sees that the RPA team were present at every turn. The issue is whether, at that stage, they recognised, and DEFRA officials recognised, the challenge-the scale-of what was in hand, particularly in relation to things such as the digital mapping and the IT and communications issues associated with bringing farmers alongside on that and other aspects of the SPS. Q4 Chairman: Mr. Cooper, when the report was written, 8,500 farmers were still waiting. I understand that 3,000 farmers are still waiting for a payment that should have been made between December 2005 and June 2006. Is that right? Mr. Cooper: The figures are just about right. Q5 Chairman: When will the 3,000 farmers be paid? Some of them are small business men. How can they live in these circumstances? Mr. Cooper: We have a dedicated team in an office and they are now addressing those claims to clear them as quickly as possible. A number of them are particularly complex and difficult to resolve, and we are working our way through those issues. Some require additional information from the customer, and some require- Chairman: When will they be paid? Mr. Cooper: We are aiming to clear the claims as quickly as possible. Chairman: When will they be paid? Mr. Cooper: There are different groups that will be paid. There are some- Chairman: When will they be paid? These are small business men who rely on the payments. When will they be paid? I have now asked you five times. Mr. Cooper: They will be paid within the next two months, but some cases, such as probate cases, will have to be- Chairman: They will be paid within the next two months. That is the answer I was looking for. Mr. Cooper: There are probate cases that may not be paid for a couple of years. Q6 Chairman: You had better give us a note on what exactly is going to go on in the light of the 3,000 farmers who still have not been paid. What is in store for farmers with the 2006 scheme? Mr. Cooper: The position will improve for 2006. We have made a number of changes that will help and we are of course aiming to make payments within the payment window. Q7 Chairman: Mrs Ghosh, why has it taken so long to resolve the former chief executive's position? Is he still suspended on full pay six months on? Mrs Ghosh: He is. We recently made him an offer with which I believe the Committee is familiar. When he was first suspended- Chairman: No, the Committee is not familiar with that. Mrs Ghosh: Sorry. Possibly the National Audit Office is. We have made him-well, actually, I would not describe it as an offer. We have asked, or suggested, that he should leave the organisation on the minimum contractual terms. That is, we have not offered any form of compensation. We have asked him to depart on the basis of his contractually entitled pension and lump sum, not in any way enhanced for future years between now and 60. My human resources director is discussing that with both Mr. McNeill and the departmental trade union side representatives. It took us some time to reach that point, first because of Mr. McNeill's ill health and the duty of care that we had towards him, and secondly because of the need precisely to establish his contractual and, therefore, pension and lump-sum entitlements, but we hope that that will be resolved shortly. Q8 Chairman: Okay. Lastly, Mrs Ghosh, following the fiasco, what confidence can we have in your Department, or in its capability to achieve business change in the future? Mrs Ghosh: I think that you can have a great deal of confidence. Q9 The Chairman: I have some figures to put to you. Your Department spent £250 million on efficiency improvements that were supposed to come out of the scheme, but you will save only £7.5 million by March 2009. That is explained in paragraphs 14 and 15 on page 5. What confidence can we have in the future in an organisation that spends £250 million to save £7.5 million? Mrs Ghosh: We learned a lot of lessons during the process. Both your report and the forthcoming Office of Government Commerce report, which gives a parallel but slightly different analysis of events, particularly in respect of lessons learned, have taught us, and, I believe, will teach other Government Departments, a great deal about the importance of developing an appropriate business process, of ensuring that the IT that is built to deliver the process is adequate, and of ensuring the organisation's capacity in terms of leadership and soft skills. The work that Tony is doing covers all those things. He and the team are looking at how to move the business process from an unsatisfactory one closer to a customer-facing one. He has a team of consultants from Gartner who are looking at the IT, and we absolutely understand the point about leadership and soft skills in taking this forward. Also, communication with stakeholders is important. A lot was done through the SPS process, but even more is being done now to keep customers-particularly farmers-in touch. Q10 Mr. Curry: Mrs Ghosh, the crisis did not burst upon you unexpectedly. Every single warning light was flashing red years before we actually reached the present debacle. Yet it was as if the team-you were not there, so it was not your team, and in fact when we resume, our old friend Mr. Bender might well find it agreeable to join us again-was on a rope bridge across a ravine. They could see that in front of them the rope was giving way and the bits were not holding together, yet the decision at each stage when there was a decision to take was to press ahead. For example, there was a choice about maintaining the contingency programme. The programme was abandoned. There was a choice about installing equipment to provide management information, but the choice was made not to do so. That was extraordinary, and the result now and throughout the crisis was that almost nobody was ever able to tell anybody what was happening, and Mr. Cooper is in exactly the same position this afternoon. That has certainly exacerbated the crisis. Who took the decision to press on regardless each time attention was drawn to a red light? Mrs Ghosh: There are several issues in that. Clearly, the most obvious red lights were flashed through the OGC gateway process. As you well know, that process is intended to highlight risks and suggest that a team take action to mitigate them. The two or three gateways in 2005, shortly before my arrival, are striking. In both January and September that year, there were reasonably positive things being said about the programme, although there were still lots of risks. The June 2005 gateway was very gloomy, and a great deal of thought and action followed on from it. The point about red lights and gateways is not to stop, but to see a risk and do something to mitigate it. One can see the responses that the RPA project team, DEFRA officials and Ministers took at each stage. In some cases, they involved descoping things that probably should not have been descoped. You cited management information. I have thought carefully about the contingency issue and the problems around what one might call the parallel contingency that was being developed. Towards the end of that period, in about summer and autumn 2005, it was clear in many ways that there were more problems about pressing ahead with that contingency than there were, as it turned out, in deciding that the main contingency would be partial payments. The original contingency-others more technically skilled than I can describe the IT structure-essentially tried to replicate the main RPA IT application system. It was some way behind the main RITA system in its development. By summer 2005, we had already started to load data into the RITA system and, with all sorts of risks involved, we would have to have loaded that on to the contingency system. A lot of the problems were not with RITA and data, but with mapping. It is not at all clear to me that the contingency system being developed was in any true sense of the word a genuine contingency. Once we had the Commission's permission to go ahead with a partial payment system, we started to sink our money. Q11 Mr. Curry: Let us consider that a little. The three things that seem to come together to make such a problem-leaving aside the question of getting rid of staff just at the moment when they might be needed-were the change programme, the requirement for digital mapping and the number of new, unexpected claimants. Foot and mouth disease showed us that the Department did not know where quite a lot of this land was, so digital mapping was very urgent. The Department also maintains-I have read the evidence that Lord Bach and Lord Whitty gave to the Select Committee on Environment, Food and Rural Affairs last week-that farmers should have given details in their integrated administration and control system forms about parcels of land that were not claimable and therefore, perhaps, were not included in the forms. The consequence was that you found yourself having to deal with somewhere between 30,000 and 40,000 claims that you had not bargained on. I know that in my constituency farmers have received five letters relating to five fields, which all relate to an alteration in those fields of less than 0.1 of a hectare. Was no modelling done to assess the volume of claims likely to come forward? Mrs Ghosh: May I just draw a distinction between the number of claims and the number of mapping changes? The number of claims-as it turned out, about 116,000 to 120,000-was at the upper end of what the RPA was expecting, so it was not so much the number of claims that was the problem but the number of mapping changes. You are absolutely right-I am sure that you know more about it than I do, and Andy is, of course, our expert on the subject-IACS should have flushed that out. We started the digitised mapping process as far back as 2002, and we were trying to flush out accurate maps from farmers from that year and sending out reminders. Of course, that was on the IACS forms and people should have been sending them in. Possibly, we did not do enough to encourage them to do so. I believe that we did test/model the mapping and mapping responses in 2002 from a couple of our local offices. We discussed that with the Environment, Food and Rural Affairs Committee recently and we did not do as we perhaps should have done and piloted a pilot of the SPS mapping. As you know, the SPS as it emerged-the dynamic hybrid-incentivised people to find land. Q12 Mr. Curry: Because people were being asked to deliver the most complicated scheme on offer in the shortest time scale on offer against departmental reorganisation, a new computer model, new claimants and new powers of digital mapping. It is not entirely surprising, given the other programmes with which we are all familiar, that it did not work impeccably, is it? Mrs Ghosh: No, and I think that that point is well brought out in the report and the OGC report. Q13 Mr. Curry: It is a pity that Mr. McNeill is not here, but who reported to him in the RPA? Who were his line managers? How many did he have? Mr. Cooper: I believe that he had five or six. Q14 Mr. Curry: What bothers me is that it seems incredible that either people did not realise that this could not be delivered or they did and the information did not get to where it mattered. Were the line managers not giving him an accurate impression of what was going on? Mr. Cooper: I struggle to give that answer. Q15 Mr. Curry: I shall ask him again-I am almost giving him notice of the question. I shall reserve that question for him because one suspects that there must have been something wrong embedded in the organisation that meant that it was not providing that flow of information. Who ran the RPA? Mrs Ghosh: Johnston McNeill ran the RPA. Q16 Mr. Curry: I ask the question because we have a director-general, and if have read the report right, the chairmanship of the common agricultural policy regional impact group alternated between Mr. Lebrecht and Mr. McNeill, and we have the executive review group. What sort of things came up for discussion? Were decisions taken, and if so by whom? On what basis were decisions taken? Mrs Ghosh: The kinds of structure that were developed to oversee the change programme initially, and then the SPS within it, were not unlike the project supervision structures that you get for any big project of that kind. I entirely appreciate that towards the end of the process, which was when I arrived at DEFRA, there was probably beginning to be a blurring of responsibilities between what one might call the programme board-again, a usual feature of any well-run project, which included policy interests as well as the agency itself-and that thing called the executive review group. However, by late 2005 and early 2006, we were clearly at crisis point in trying to understand the likelihood of full payments going out. It was then the case that the programme board, jointly chaired by Andy and Johnston McNeill, was analysing the data and assembling the choices that would come forward to Ministers, and I was chairing the executive review group, which was there to challenge it. It was difficult to challenge on the basis of some of the data that were coming forward, although we did our best, and we had an excellent non-executive- Mr. Curry: I understand that some of the documents for this came forward at the last minute. Mrs Ghosh: Again, that is an excellent example of how organisations behave when in crisis and under pressure. As you remarked earlier, the management information was not as good as it should have been in predicting how long tasks would take to complete and therefore how long payments would take to come out. I think that there was some element at that stage-I do not know whether Andy would agree-of all hands to the pump. However, had we said to Johnston McNeill, "You decide," I am not clear that the outcome would have been better. Q17 Mr. Curry: May I ask one further question in this round, Chairman? I shall turn to where we are now in a little while. Did anyone evaluate the cost to your programmes of the change programme itself? Let me tell you what I mean. In Yorkshire, the farmer could take his IACS form to the Northallerton office and someone there would scan through it, or have a quick look, and say, "Fred, that seems to be a little out of kilter with last year. Are you sure about it?" There was some customer service. There is no customer service now. It is a date-stamping organisation, and nothing more. Not a single person in that office or anywhere else can tell farmers where they are at any particular moment. I doubt whether anyone understands the scheme in its entirety. It was all shunted up to Newcastle, a place that had difficulties in the past. In retrospect, do you think that you have moved away from the idea of delivering a service to the customer? Has this not become entirely process driven, particularly with the now amended programme, which deals with tasks rather than forms? Then, someone could identify what was happening. Mrs Ghosh: Had we gone for a more customer-focused business focus for SPS-Tony is doing some work to try to make it appear more like that, even though it is difficult to get the IT to work in that way-then, for example, the farmers in your constituency would have been able to ring the RPS or go into the office and ask how their claim was getting on, and someone would have been able to answer them. Although that may be something that we cannot achieve in the short term, it is our ambition. In that sense, we are extremely strongly committed to improving customer service. Again, we have discussed within the Department whether we could deliver something that looks like the new improved SPS-like the previous office network, with the previous level of face-to-face communications-but it would almost certainly not be at a cost that the Department could afford. We went for the change programme to achieve the rationalisation of offices on the back of advice from this Committee. There were problems with confusion, overlaps and terrific diseconomies of scale, but we will be trying to work towards combining the best of that. I am slightly committing Tony to this, but it may involve a greater element up front-not necessarily of physical face-to-face contact to help the customer, but to eradicate some problems before they begin. I think other parts of Government are finding that can be a good way to operate. Chairman: My colleagues are time-limited, Mrs Ghosh. Could you try to make your answers a little shorter? Mrs Ghosh: Certainly. Q18 Mr. Mitchell: It is no coincidence that we had a unique mess: we had a unique system-one that was used only in Germany, where its effect was cushioned by making interim payments in December 2005, which we did not. I was a member of the DEFRA Committee when all that was being considered, and I seem to remember that the Department was warned that the system would be difficult and complicated. My first question is, therefore, who decided that it would be done in that way? Mrs Ghosh: Clearly, Ministers decided that it would be done in that way, but they recognised at the time that it would be very complicated. However, for reasons that I shall ask Andy to go into, they believed that it was the best way to deliver what they saw as the policy gain to be got out of the CAP review. As I said earlier, all the parties were in the room at the time, and they all believed that the scheme was deliverable. I do not know whether Andy wants to say more about the dynamic hybrid system. Mr. Lebrecht: Just to say that it was an option within the CAP reforms that were agreed. Mr. Mitchell: But it was an option taken by no one else. It has worked in Scotland and Wales; it has worked everywhere else, apparently, but not here. Mr. Lebrecht: Ministers thought that it was right for England because we had a sustainable farming and food strategy. They were very focused on the fact that the historic way of paying the subsidy linked back to the period 2000-02, and they wanted to use the opportunity of reform to change the nature of the payment and make it a payment for land management-in other words, to get more back for society from the payment than would be delivered under the historic payment. Q19 Mr. Mitchell: In that case, they must have attached more credibility to the Rural Payments Agency than you say was justified. You give the impression that the system had recognised deficiencies, yet it attaches enormous weight to efficiency. Mr. Lebrecht: If I may explain, I think that Ministers understood at the time that that route was more risky than going down the historic route, but they accepted that because of the benefits it would deliver in terms of the wider policy environment. What did happen, though, was very close discussion with the RPA and its IT suppliers as to whether the system would be deliverable. Q20 Mr. Mitchell: As usual, they all exuded confidence? Mr. Lebrecht: The advice was that it was deliverable-admittedly with more risk. Ministers went into it with open eyes, but certainly the advice was that it was deliverable. Q21 Mr. Mitchell: Yes, but if it is clear that the system is difficult and has unique problems, and if the agency is not in the best of condition to function well, why take those risks and at the same time introduce a business change programme? It was called business change, but it meant redundancies-it would lead to a mass change of staff. It seems daft to do all that at once. Mrs Ghosh: Of course, the business change had already begun, and the issue was whether to suspend the business change- Mr. Mitchell: So why not suspend it? Mrs Ghosh: As I said earlier, various elements in the business change were in a sense supported-were necessary to deliver something that looked like the SPS. The criticism in relation to there being a lot of experienced staff overall is valid. Various supporting mechanisms were put in place to try to transfer the knowledge of departing staff, and when it became clear that there was a haemorrhaging of experienced staff, a number of them were asked to stay on. So it was recognised relatively early on that we should not haemorrhage experienced staff- Q22 Mr. Mitchell: Too late. Is it not the height of folly to have been firing experienced staff-making them redundant, getting rid of them-at the same time as you were introducing a programme that is acknowledged to be complicated and unique in an agency that is acknowledged to be overstaffed and somewhat inefficient? Mrs Ghosh: That is why the agency cancelled the second wave of voluntary redundancies that it had been aiming for. I should say- Mr. Mitchell: It is also why it brought in temporary staff to fill the gap at enormous cost. Mrs Ghosh: Indeed it did. That is a lesson that we have learned. Q23 Mr. Mitchell: Did the people who got fired in the first round come back? Mrs Ghosh: No, I think that we simply extended their period of employment with the agency. Mr. Mitchell: They must have been gibberingly grateful. Mrs Ghosh: I assume they were. Q24 Mr. Mitchell: I wonder whether there was not a legacy of mistrust for farmers, who certainly ripped you off in the foot and mouth and BSE compensation schemes. Therefore, the rules were defined more strictly and the payments were more grudging than they would otherwise have been-farmers were not going to rip you off again. Mrs Ghosh: I can assure you that there was no element of grudge or seeking not to be ripped off again in terms of our relationship with farmers. Again, that is a balance that we have to strike, as I know as accounting officer. The one issue that the agency has to be well aware of is disallowance risk. That is the kind of risk-based consideration that the agency has made and will have to continue to make on payments. Q25 Mr. Mitchell: But if you do not want to alienate farmers, why not make interim payments? Mrs Ghosh: As I said, we had the interim payment IT and the Commission rules ready. Of course, the rules would have limited us to paying 60% of the validated elements of claims. In January 2006, I, in my capacity as chair of the executive review group, looked with Ministers in a lot of detail at the business case for making partial payments, in terms of the effect on farmers that the Chairman referred to at the beginning, the risks of disallowance and the effect on the 2006 scheme. We concluded at that stage that, on balance, and on the basis of the management information that we had, we should not make an interim payment because it then looked likely that we would be able to make full payments from February, and a number of stakeholders said that they would rather that we made full payments in February. It was a balance of judgment. As I have said elsewhere, perhaps one thing I regret is that we did not make interim payments. Q26 Mr. Mitchell: Why did no one know until very late that things were going wrong? Was the former chief executive, whom we will be seeing-I am grateful for that-being unduly optimistic? Were his reports misleading the Department and Ministers? Mrs Ghosh: I would not say that there was any intent wilfully to mislead the Department; I think that they were over-optimistic. There is a more important underlying point, which we have discussed with the DEFRA Committee. I suspect that there was no one in the agency who really understood the end-to-end impact of the business process. Lord Bach- Q27 Mr. Mitchell: But if he did not understand it, who did? Mrs Ghosh: I think it comes back to how you design the business process in the first place, combined with the issue of fear of disallowance and the amount of checking that you do. What happened right at the end was that we pressed the button in February and payments started to go out. As you know, they went out very slowly. When that became clear, Johnston McNeill departed and Mark Addison went in. He looked at what was happening, and it was clear that in the business process was built a very, very high level of checking and validation that meant it was extremely difficult, essentially, to get payments out-what Lord Bach referred to as "gumming up". That bit of the process was not understood and had not been tested. Q28 Mr. Mitchell: When did the bells begin to ring? When did everybody decide, "We'd better rush some payments out to these poor buggers-the farmers"? Paragraph 22 on page 6 states: "Despite limited confidence that the system would be ready on time, development work on the computer system continued". You have in paragraph 27 a chief executive who is issuing over-optimistic reports, you have a computer system that is not up to the job, a Department that is undergoing-shall we say-a redundancy package, and a scheme that is uniquely difficult with a lot of mapping problems. Farmers were producing that bit of land just over the fence that they had forgotten about in the initial application. With all the people producing extra bits of land, I am surprised that allotment holders have not produced claims. In the light of all that, when did the alarm bells begin to ring at ministerial level? Mrs Ghosh: As I said earlier, clearly a lot of warning bells were rung by the gateway reviews in 2005-in particular, the June 2005 review, which is quoted at the back of the report. Mr. Mitchell: I thought you said earlier that that was not a significant warning. Mrs Ghosh: No, I said it was a significant warning, and the agency and the Department took action to respond to the criticisms made. Again, as the report makes clear, it seemed, right up to March, as the payments were going out-by then, I of course was on the scene-that we would still succeed in getting payments out by the end of March, as Ministers had committed to, although that was on the basis, one now realises, of over-optimistic interpretations of perhaps inadequate management information. The button having been pressed in February, and the wheels having begun to grind more and more slowly, it became clear only in the middle of March that we were very unlikely to hit the end-of-March target, let alone the end-of-June target. Johnston McNeill came and explained that to Margaret Beckett, and she made a statement on 16 March. It was only at that stage that it became absolutely clear that we would not be able to make the payments by the end of March. Q29 Mr. Mitchell: Was there panic? Mrs Ghosh: There was action rather than panic. Q30 Greg Clark: Mrs Ghosh, you have described to Mr. Mitchell a situation in which the process that you had designed was so complicated that only one person really understood it, and he forgot it. Mrs Ghosh: It was not supposed to be, I hasten to add. Q31 Greg Clark: On the subject of Mr. McNeill, you described the offer or proposal that has been made to him. I have read the statement that the Secretary of State made to the House on 16 March, but in neither your evidence today nor in the Secretary of State's statement is there any explanation of the reason behind his removal. What was the official reason given to Mr. McNeill for removing him from his post? Mrs Ghosh: The explanation given by me to Mr. McNeill at the time was that there had been a loss of confidence between Ministers and him in terms of delivery of the scheme, and therefore a significant loss of confidence in terms of his relationship with stakeholders, and that, on those grounds, it would be better if he moved aside and a fresh pair of eyes looked at the situation. Q32 Greg Clark: So Ministers had lost confidence. Had you lost confidence in Mr. McNeill? Mrs Ghosh: I had myself lost confidence. Q33 Greg Clark: You had lost confidence in him as well, yet the problems had been ongoing for some time, as we know, and in the previous financial year, ending 2005, Mr. McNeill was paid a bonus. Mrs Ghosh: Yes, because in the previous financial year, as with most chief executives of Executive agencies, his bonus was linked to achievement of agency targets and the agency had achieved 100% of its targets. Therefore, he received a bonus in that year. Q34 Greg Clark: Can you remind us how significant that bonus was? Mrs Ghosh: For 2004-05, it was £21,062.25, which represented 18.5% of Mr. McNeill's salary. Q35 Greg Clark: So one year Mr. McNeill does so well he is given a bonus; the next, he is out on his ear because he has lost the confidence of Ministers, presumably on the basis that he was over-optimistic in his assessment. Is that the source of the- Mrs Ghosh: On the basis that it had become clear by then that delivery of a major change programme had been put at risk and, indeed, was in deep problems. Q36 Greg Clark: Do Ministers bear any responsibility for this? Mrs Ghosh: As Andy said, it was their decision to go for the dynamic hybrid scheme, but that was on the advice of both the agency and officials that, although there were risks in it- Q37 Greg Clark: No, I am talking about the administration of it, because it cannot be fair to sack Mr. McNeill for the choice of the scheme. It must be the administration of it. Mrs Ghosh: No, Ministers played what one might describe as an exemplary role- Q38 Mr. Mitchell: Is that why Willie Bach is not in the post? Mrs Ghosh: No, no, in the sense that Ministers regarded their role as a strategic supervisory role. They did not try to get down into the detail or to second-guess day-to-day operational issues. They had regular reports from the agency and from the various bits of the Government's process. Q39 Greg Clark: You were just on that, Mrs Ghosh. The OGC looked into the matter, and it said in January 2005 that the review team project was under strong leadership and had visible ministerial support. Mrs Ghosh: Absolutely. Q40 Greg Clark: Presumably, if Ministers were commended for their support, it was uncritical support. They just looked on approvingly and did not question. Mrs Ghosh: It was not uncritical support. Q41 Greg Clark: Then why did they not uncover some of the problems earlier on? Since they did not, why do they not bear the same responsibility that Mr. McNeill bears? Mrs Ghosh: Ministers could not reasonably be expected to get into the details of the issues that I have described as presenting problems, particularly in the latter six or nine months of the project. Ministers assured themselves through face-to-face meetings with agency officials and through visits to Reading-I went to Reading with Lord Bach on a couple of occasions, and I think that Lord Whitty before him also went there-and other sites to talk to staff and see at first hand the problems and issues. That was their involvement, and strategic decisions went back to them. Q42 Greg Clark: You say that they could not have known about the problems until towards the end, but the OGC gateway review in June 2005 stated clearly-I assume that Ministers saw it-"Our assessment is that the current plan to implement payments in February...would require a very fair wind to succeed." Mrs Ghosh: Yes. Chairman: I think that you have probably got as much as you can on Ministers, Mr. Clark. You will not get any more. Q43 Greg Clark: Okay, but on the officials, I am interested in the statement in January 2006, which I assume the Minister gave absolutely in good faith. When he stated that payments would be made in February, was he advised to say that by officials? Mrs Ghosh: He made that statement following the discussions that I described about whether, on the basis of the management information that we had, we should press the button for an interim payment or whether we had sufficient confidence that we could go for full payments starting in February. The advice that was given to Lord Bach, which he challenged and we debated, was that, on balance, the business case went in favour of holding on, pressing the button in February and going for full payments. Q44 Greg Clark: Can I ask you about the Gershon efficiency savings for the agency and the Department? According to the report, the RPA has a target to reduce its headcount by 1,000 posts by 2005-06, yet at March 2006 you had 1,351 temporary staff and 838 casual staff. Have you simply replaced permanent staff with even more temporary staff? Mrs Ghosh: To some extent, that is indeed what happened, although we would have to do an analysis of post-for-post transfers. Under the Gershon efficiency targets, my Department must achieve 2,400 staff savings by the end of March 2008. The original planning assumption was that 1,800 of those would come from the RPA as a result of the process of change and streamlining through the SPS. As you said, the agency has not produced the net numbers, although there have been 1,000 departures from it. I assume that Tony would agree that the RPA is unlikely to be able to make any staff savings through 2007-08, so the Department is replanning its efficiency proposals. The rest of the Department will achieve its efficiency plans-indeed, it will overachieve-so we will do the best we can to make up the shortfall elsewhere in the Department. Q45 Greg Clark: I trust that the £14.5 million spent on agency staff to process the 2005 SPS claims will be netted off the overall efficiency savings that the Department is claiming under the Gershon review. Mrs Ghosh: Ian Grattidge will correct this if it is wrong. We have two Gershon efficiency challenges: £610 million in cash, and the headcount. We will undoubtedly achieve the £610 million reduction. Mr Grattidge: It has been forecast that we will achieve that. The headcount side is the problem. Mrs Ghosh: It is causing problems. Q46 Greg Clark: You will be netting off both the cash expenditure and the increase in the- Mrs Ghosh: Indeed. That comes through in the resource funding that we have to give to the agency. Q47 Greg Clark: In terms of the contingent liabilities, the report makes it clear that £131 million is the best estimate that you have. Is that still correct? Mrs Ghosh: That is the amount that we have made either contingent or provision for in the 2005-06 accounts. For the reasons described in the report, that is a reasonable estimate of the disallowance that we might have to pay as and when the various audit and European processes have been gone through. What we are required to do for the purposes of our 2005-06 accounts is to make reasonable provision and that is what we have done. Q48 Greg Clark: On page 20, in paragraph 4.3, your latest estimate of the implementation costs of the SPS is £122 million. The provision that you are making for the prospective penalties is more than the entire cost of the administration of introducing the scheme. This must be the worst value for money project on record in Whitehall. Mrs Ghosh: As I said, we made what might be described as a prudent estimate of the disallowance. We very much hope-I am happy to have expert European negotiators in my Department-that it will be considerably less than that in the end. Q49 Greg Clark: But the prudent assumption that you have made is greater than the entire cost of introducing the scheme. Mrs Ghosh: That is undoubtedly true. Q50 Mr. Touhig: Mrs Ghosh, of the four nations of the Union, why did England alone mess up on the scheme? Mrs Ghosh: As we said earlier, and as Andy described, for clear policy reasons English Ministers decided that they wanted to go for the dynamic hybrid scheme rather than the pure historic scheme or the static hybrid scheme-that is what happened in Northern Ireland, I think. They had different policy considerations; we had the policy considerations that Andy described. Q51 Mr. Touhig: You knew best, you thought? Mrs Ghosh: No. It supported the clear objectives that Andy described for CAP reform in England. Q52 Mr. Touhig: In Wales, we had interim payments. Farmers in my constituency tell me that that helped to ease the problem and also helped their cash flow. You decided not to do that until you were forced to. Arrogance again, is it not? You knew better. Mrs Ghosh: Not at all. To go back to late 2005, we were getting clear signals from stakeholders that they would prefer us to go for full payments rather than interim payments. There were a number of other good reasons for that about the impact of interim payments on processing the 2006 scheme. We considered issues such as the impact on cash flow when we were considering whether to go for an interim payment in January 2006, but again the business case and the feedback that we were getting from customers was that if we could make a full payment in February, that was what we should do. That is what we started to do and then the business process did what we now know that it did. Q53 Mr. Touhig: I do not hold any particular brief for farmers, but I do hold one for anybody who I think is being done down by the system, and you have done down quite a large number of farmers with your mismanagement, have you not? Mrs Ghosh: The report speaks eloquently about the impact of- Mr. Touhig: What the report does, if you look at paragraph 4.2 on page 20, is tell you that the "review of the savings forecast from the introduction of the single payment scheme and the wider change programme indicate that a significant proportion is unlikely to be realised". Mrs Ghosh: Indeed. Q54 Mr. Touhig: I had a member of staff who used to take risks at red lights and jump them. When I took him to task about it and said that that was dangerous, he said that I was a conformist. If you look at page 43, there are more red lights than you will see travelling between here and the M4, yet you ignored them. All these warnings and you just ignored them. Mrs Ghosh: We did not ignore them. This was a project where, effectively, from making the announcement in July 2004 that we were going to go for a 2005 dynamic hybrid scheme, we had a clear timetable to which we had to stick. We also had a political commitment to making payments as early as possible in the in the December to June payments window. In the face of those two things, it was not the case that we ignored red lights; it was the case that the project team in consultation with officials and Ministers had to think of ways around the red lights. I do not mean around red traffic lights, as that is an unfortunate analogy, but ways of mitigating and managing the risks, and that is what they did. Q55 Mr. Touhig: If it related to motoring you would be a serial offender. What do you think the word "waste" means? Mrs Ghosh: It means spending money on something that is worthless. Mr. Touhig: My dictionary says, "to consume or expend thoughtlessly, carelessly or to no avail." That is precisely what you have done, is it not? Mrs Ghosh: As previous members of the Committee have pointed out, in the sense that the benefits have not been realised and that there will be some more costs before there are savings, yes. But there have been some positives to come out of this. We have a digitised map, a rural land register and good customer data. There are things that we can build on for the future and we will be supporting Tony and the team in doing that. Q56 Mr. Touhig: In your early remarks when you responded to the Chairman, you referred to a conspiracy of optimism. I have spent 27 years in newspapers and publishing, 20 years as a councillor and 12 years in this place, during which time I have heard some gobbledegook excuses, but that is a classic-I will dine out on it. What do you mean by a conspiracy of optimism? Mrs Ghosh: I was quoting either from your report or some OGC material. What it means is that because the agency had the can-do attitude that your report describes and management information was not as full as it should have been, it was possible for all members of the project and indeed officials to look on the bright side of the information they were getting. That is what I mean by a conspiracy of optimism. Q57 Mr. Touhig: I am certainly glad that Mrs. Touhig rather than anybody from DEFRA manages the Touhig family finances, otherwise I would be bankrupt by now. Has anybody in DEFRA been sacked or suspended because of this? Mrs Ghosh: Other than the chief executive, no. Q58 Mr. Touhig: Why do you think senior civil servants are protected in that way? Mrs Ghosh: I do not believe that senior civil servants are protected. The principle of the establishment of executive agencies under the Next Steps programme was so that there would be a clear distinction between delivery and policy development. In that case it was clear that the "Senior Responsible Owner" for the project was Johnston McNeill. For the reasons that we have discussed, there was a clear failure of project delivery and of confidence at that point in the process and so he was indeed suspended. Q59 Mr. Touhig: You spent £38.9 million on severance pay to reduce your headcount by 1,000 and £14 million on agency staff. As I say, I was a councillor for 20 years and if that had happened in local government, officials such as you would be telling Ministers to surcharge councils and prosecute them. Yet you people get away with it. Magic, is it not? Mrs Ghosh: That is the nature of the financial and parliamentary system in which we operate. Q60 Mr. Touhig: Can I just clarify a point made earlier? Are you absolutely certain that nobody has left with a redundancy payment who has been re-engaged? Mrs Ghosh: I think Mr. Mitchell raised that. Mr. Touhig: He did. Mrs Ghosh: I cannot answer that without checking through HR records. Given the nature of some of the HR records, I am not absolutely sure that I will be able to answer, but I am happy to try and find out. Mr. Touhig: Perhaps you might do a bit of a trawl and let us know? Mrs Ghosh: We will see if we can do a trawl. It might be anecdotal rather than data based. Q61 Mr. Touhig: I notice that you have been in post since November 2005 and in 1995 you were in the Cabinet Office efficiency unit. Did you ruin anything? Mrs Ghosh: I learned a great deal about the capacity of organisations to deliver and that one of the most difficult challenges is to check on that from the outside. Q62 Mr. Touhig: Will you bring that background knowledge and experience to bear on resolving this issue? Mrs Ghosh: The experience that I had there and later in the Department for Work and Pensions, as well as most recently in Her Majesty's Revenue and Customs, has indeed enabled me to take some of the action I have this year and to support Tony and the team in going forward. Q63 Mr. Touhig: Do I take it that you will personally be very hands on in supporting the agency in trying to resolve this matter? Mrs Ghosh: Both I and Andy Lebrecht will be very hands on in a positive and constructive way. The agency is at a stage in its development where it needs that kind of support and hands-on approach. As its capacity and capability develops and improves over the coming years, we will be able to step back, but just at the moment I think that this is the time- Mr. Touhig: But you are DEFRA's accounting officer. Mrs Ghosh: I am indeed, so I have a responsibility. Q64 Mr. Touhig: DEFRA is a word in Welsh, did you know? Mrs Ghosh: What does it mean? Mr. Touhig: It is spelt slightly differently because we Welsh like more Fs in our words, but it means wake up. Is not that what you have to do? Mrs Ghosh: We have to wake up? We have woken up. Mr. Touhig: Well, we will see. Q65 Mr. Khan: In relative terms the single payment scheme is not a large grant scheme is it? Mrs Ghosh: No, it is not. Q66 Mr. Khan: When you read the findings of this report and all the failings, are you, as the permanent secretary, embarrassed by what it tells you? Mrs Ghosh: I am concerned about what it tells me because it tells me that there is quite a steep hill to be climbed in terms of getting the capability of the organisation to where it should be, and I am very concerned for the reasons that the Chairman so eloquently described at the beginning about the impact of our failure on customers. Margaret Beckett, David Miliband and Jeff Rooker have made clear their regret about that. Q67 Mr. Khan: Are you embarrassed by your predecessors-not just the permanent secretary, but other people in positions of power-who have allowed this to happen? Mrs Ghosh: What I am always keen to do is to learn the lessons of events. That is what we are learning. Q68 Mr. Khan: Was the Rural Payments Agency unfit for purpose between May 2004 and March 2006? Mrs Ghosh: Subsequent events suggest that it was. Mr. Khan: Unfit for purpose? Mrs Ghosh: Unfit for purpose. Q69 Mr. Khan: The report highlights a number of failings. Are any of the failings in the report new to you, bearing in mind your relative newness to the Department? Mrs Ghosh: No. Q70 Mr. Khan: Presumably when you took over you realised that there were problems and you will have read the gateway reviews. Mrs Ghosh: Yes. Mr. Khan: Are there any things in this that you are not aware of ? Mrs Ghosh: The NAO report? Did they come to me as a surprise? No, they did not. Q71 Mr. Khan: So nothing in this report is fresh to you? Mrs Ghosh: In the sense that naturally a large proportion of my time since my arrival at the Department has been spent either handling this issue or considering it and, for example, working on and giving evidence to our departmental Select Committee on the subject. Mr. Khan: So nothing is new to you in this report? Mrs Ghosh: The main recommendations in this report did not surprise me. Q72 Mr. Khan: If you go to appendix 6, figure 11 on page 44, there are four red lights: May '04, January '05, June '05 and May '06. Leaving aside May '06 and the fact that there were some positives in the comments by the Office of Government Commerce, and bearing in mind what we know-the Chairman has talked about some of the personal tragedies as a consequence of the failings-do you think that our gateway review system is effective? Mrs Ghosh: I know that the Committee has obviously made recommendations about the gateway reviews, which I believe the OGC will be happy to accept. I think that my interest-and that of my predecessor, Brian Bender-is to ensure that we can use the gateway process more broadly to identify the issue of broader change capability. Q73 Mr. Khan: Until it is made more broad, is it ineffective? Mrs Ghosh: It is highly effective in the terms within which it is currently asked to perform. Q74 Mr. Khan: Would you accept that there are failings in the current review system? Mrs Ghosh: You make recommendations to that effect and I think I would say, as I have said to OGC colleagues, that for me as an accounting officer it would be very helpful if the gateway process could also assist us with judging the underlying capability of an organisation. Q75 Mr. Khan: In answer to a colleague who asked whether anyone had been sacked or suspended as a consequence of the present shambolic state of affairs, you said nobody, save for the former chief executive being suspended. Has he been suspended? Was the act to remove him from his post? Mrs Ghosh: He was removed from his post. Q76 Mr. Khan: It was an administrative act, not a disciplinary act. Is that correct? Mrs Ghosh: That was an administrative act, not a disciplinary act. Q77 Mr. Khan: So the answer to my colleague's question is that nobody has been sacked or suspended, not even the former chief executive? Mrs Ghosh: I was taking the question in the spirit, rather than in the letter. Again, I have to operate as an accounting officer and as a senior civil servant within a legal structure. The previous chief executive of the agency is a serving civil servant, so the employment law that applies to civil servants applies to him. Mr. Khan: He has not been suspended. That is what I am trying to get to. Mrs Ghosh: He has been removed from his office, and as has been widely reported, since then, as I said, there were initially some health issues. We have now made an offer to him, and until those issues are resolved, he is a serving civil servant still. Q78 Mr. Khan: We have about six minutes to clear all questions, so shorter answers will help me and the Committee, I am sure. The next question is: it has been seven and a half months now since he has been on leave-we shall call it leave: the usual word. It will be some time more before you agree his terms of leaving. Mrs Ghosh: Not very long, I hope. Q79 Mr. Khan: Why the delay? Mrs Ghosh: As I described initially, there were some health issues where I had a duty of care. We then had to establish, because his employment history was quite complex, the contractual basis on which he was employed. We then had to calculate the nature of the offer that we would make, and we have now made it. Q80 Mr. Khan: Can you get any clearer case of a chief executive in a Department not being able to do his or her job than this example? It has taken eight months to get to where you are and you still have not reached the end. Mrs Ghosh: As I said, I have to operate within the employment law in relation to permanent civil servants. To sack a permanent civil servant on the basis of performance requires certain pre-actions in terms of management of poor performance, which for reasons that we have been discussing did not apply in this case. Q81 Mr. Khan: That leads me on to my next question, which is: does the chief executive have sufficient power to make decisions by himself or herself without a senior management team helping him or her? What I find surprising is how he is the only person on leave, and nobody else who he would talk to on a daily basis or in the weekly meetings has been disciplined in any way at all. Have others been moved sideways or moved out of the Department? Mrs Ghosh: They have been moved-I think this comes back to an issue about capability for the particular task ahead of them-with, I think, one exception. Tony now has a completely new top team, and the other people involved have been moved to posts that are more suited to their skills. Q82 Mr. Khan: Have any of those been in any way disciplined? Are there any blemishes on their record? Mrs Ghosh: I think your report is quite a good blemish on their record. Mr. Khan: No, it is not, because nobody is named. Mrs Ghosh: Just to come back to this, I would be happy to share with you the rules within which we have to operate. A disciplinary offence requires certain levels of proof at the time. Q83 Mr. Khan: Capability is one of the reasons you can dismiss, but linked to that is competence. Mrs Ghosh: Poor performance. Indeed, you can do that, but you have to go through quite a long process of warning. This is just under normal employment law, but it also applies to civil servants. Q84 Mr. Khan: Have any warnings been given? Mrs Ghosh: Yes, because they have been moved out. Q85 Mr. Khan: Right, so on the disciplinary files of the people who have been moved out, there will be evidence of them being warned about their conduct, capability and poor performance. Mrs Ghosh: No, because the evidence is post hoc. Q86 Mr. Khan: So what? Mrs Ghosh: What we have tried to do in the RPA is to get a fit-for-purpose senior leadership team in, and that is what we have done. In the case of the- Mr. Khan: My question is specifically about- Mrs Ghosh: In the case of some of the senior leadership team below Johnston McNeill, it was clear that there was no wilful issue about poor capability. Mr. Khan: It is called incompetence. Mrs Ghosh: No, it was simply that they were in some ways not capable of understanding the challenge that was there. That is why moving them to jobs more suited to their skills is a perfectly appropriate thing to do. Mr. Khan: With the greatest respect, that is waffle. Nobody who is incompetent does it wilfully. They are incompetent. They may need better training, or may need to be disciplined or moved out, but they are incompetent. Mrs Ghosh: They have been moved out. Mr. Khan: Right. But there are no blemishes on their record, according to you. Mrs Ghosh: Well, the blemish on their record is that they have been moved out, following a report like this, and similar reports from the DEFRA Select Committee. Q87 Mr. Khan: I do not think we are making much progress here. In answer to one of the previous questions, you referred to Ministers being responsible for deciding the dynamic state of the hybrid system. Mrs Ghosh: Yes. Mr. Khan: Mr. Lebrecht subsequently confirmed that that was hardly surprising, bearing in mind the advice that that was what we should go for. Would the people who advised Ministers to use the dynamic system, in hindsight, give the same advice again? Have you spoken to them? Mrs Ghosh: Yes, they would give the same advice. Mr. Lebrecht: Just to be absolutely clear-Ministers asked us to give advice on a number of options. We analysed those options and the Ministers took a decision on the basis of that analysis. It was entirely objective in that sense. I would not want you to have the impression that officials were pushing Ministers. Mr. Khan: No; until you gave your supplementary answer, the impression that had been given by Mrs Ghosh-I do not know whether it was intentional-was that the dynamic system was the Ministers' fault. Mrs Ghosh: No. I never said it was their fault; I said that they took the decision. As both the report and I said, the decision in itself was not the cause of the problems that subsequently arose. Q88 Mr. Khan: The report tells us that the application form for the single payment scheme was difficult to understand and complete and that the staff who were contacted by the farmers lacked the competence and knowledge to deal with queries. Have those two things now been changed? Mrs Ghosh: Yes, I think that the 2006 application form is much shorter and that the customer support systems that we have put in place are much better. Q89 Mr. Khan: What consultation did you have, Mr. Cooper, with farmers and those stakeholders when you improved the systems? Mr. Cooper: When it came to the application form, we spoke to our regular stakeholder meeting. We have simplified it where we can, although there is a limited amount that could be done with the form in the current year. Q90 Mr. Khan: I am afraid that my time is up. My final question is for Mrs Ghosh. Are you satisfied that you have sufficient tools at your disposal to deal with staff who are incompetent and who perform poorly? Mrs Ghosh: Yes, but we are always looking for ways of streamlining and speeding them up. Mr. Khan: I do not understand what you mean. That must surely mean that you are not happy with the tools at your disposal. Mrs Ghosh: No, I think the tools are fine- Q91 Mr. Khan: The way civil servants operate is fine? Mrs Ghosh: I think that the basic principles of the way we operate in relation to poor performance are exactly the same as they are in the private sector. In departments, what we have to be clear about is that we use the most streamlined process for getting from A to B that we can. Q92 Mr. Dunne: Mrs Ghosh, is it the case that the chair of the ownership board of the RPA has changed from the permanent secretary, which is you, to some other official? Mrs Ghosh: It is indeed. What we are trying to do in response both to our own analysis and to some of the criticisms made here and in the work of the Office of Government Commerce is to streamline and simplify the governance arrangements. Andy now chairs the ownership board-he might want to say something about this-and is proposing a significant shake-up of its membership. Into that ownership board reports what one might regard as a straightforward agency board that Tony chairs. Q93 Mr. Dunne: Without casting any aspersions on Mr. Lebrecht, is that not a downgrading of that board? Mrs Ghosh: Not at all: it is to make clear the accountability and the link through into the policy side of the department for which Andy is responsible and to create a much shorter end-to-end process when it comes to decision making. I assure you that I am still fully engaged in both reports on the management of the RPA and in decisions about taking forward the SPS. Q94 Mr. Dunne: There is currently a review of the whole of the operations of the RPA going on within the Department, is there not? Is it correct that that is being undertaken by an official called Mr. David Hunter? Mrs Ghosh: It is, although with a great deal of support. We appointed Corven, which is quoted in the report and which has worked in a number of contexts in the past where large-scale recovery was needed within organisations. David Hunter's review is working very closely with that external group, and some of the conclusions that Corven has made will be picked up by David. There is also a significant amount of external stakeholder involvement in what David is doing. Q95 Mr. Dunne: Before we get on to the external, could you just clarify whether Mr. Hunter was a consultant who helped to design the single payment system in the first place? Mrs Ghosh: He was one of the officials involved in the debates- Q96 Mr. Dunne: So, do you think it appropriate that he should be masterminding this review? Mrs Ghosh: Do you want to take that? Mr. Lebrecht: David Hunter was my director for European affairs, so he was involved in the negotiations in Brussels on the 2003 reform, and then in helping Ministers to take decisions about implementing that. Q97 Mr. Dunne: Given the seriousness of the crisis in the RPA, should you not have introduced a completely independent review of what happened? Mrs Ghosh: Effectively we have, through the participation of Corven, but let us be clear. What David Hunter is reviewing is not what has gone on, as there are many wise heads looking at this, including the NAO and OGC, but- Q98 Mr. Dunne: How to put it right; but you relied in part on his advice in setting up the original system. Mrs Ghosh: No, what he is looking at is whether the RPA's current functions, structure and future plans are appropriate. So, is the range of responsibilities that the RPA currently carries out too broad or should it be a more focused agency? The systems we have for- Mr. Dunne: Mrs Ghosh, if you will excuse me, I have a short amount of time, so perhaps we could move on. Mrs Ghosh: He is not looking at the SPS. He is looking at the scope of the RPA. We decided that someone who knew something about the background was the right person to lead, but I can assure you that the review will not, in any sense of the term, be an inside job. Q99 Mr. Dunne: Mr. Cooper, I should like to ask you a question. I believe that you have an IT background. Having been in post for a number of months, is it your assessment that there is a case for rebuilding the RPA system from scratch, rather than patching and fixing? Mr. Cooper: That would be a very radical thing to do, given the investment that has already been made. I am asking Gartner Group to take a considered look at the IT-not only the IT in the SPS, but all the IT in the RPA-and come back with a recommendation on what we should do. Q100 Mr. Dunne: I put it to you that there are numerous examples of Government IT systems that have to be replaced, replaced and replaced. Only last week we had members of the Child Support Agency in here, which is now being scrapped, primarily as a result of IT disasters. Are there lessons to be learned from other agencies? Mr. Cooper: Inevitably there are. The system that we have in place for the SPS is not the same as for the Child Support Agency. Each one has to be looked at on its own merits and weighed against the type of claim and the processing that has to be done. Q101 Mr. Dunne: Mrs Ghosh, could I ask about the decision to pay interest to farmers at such a low rate and at such a late stage? Who made that decision? Mrs Ghosh: David Miliband made that decision. Q102 Mr. Dunne: Thank you. Why was it decided to pay at only 1%, rather than at the statutory right-to-interest rate, which I understand is 8% above the base rate? Mrs Ghosh: I think that you were involved in the advice on that, Andy. The Treasury may be able to help. That was probably the maximum- Chairman: The Treasury officials are shaking their heads. Mrs Ghosh: We can let you know the answer to that, but I take it that that is the standard rate of interest in such circumstances. Q103 Mr. Dunne: Mr. Touhig might be able to enlighten us on this, but I understand that the interest on payments that have not been made in full to Welsh and Scottish farmers has been backdated to the beginning of the year, rather than to the beginning of July. Mrs Ghosh: In our case, we were absolutely clear that a payment had to be made within the payment window-that is, that it was not outside the statutory limit. Any payment made for late payment before then would effectively be ex gratia. We would have had to apply to the Treasury for novel and contentious cover, and I very much doubt that we would have got it, since we were still within the statutory payment window when we made the payments. That is why we went for 1 July onwards. Q104 Mr. Dunne: Mr. Chairman, I probably should have reminded the Committee of my declaration of interest, in that I am a farmer who has not yet received my full payment. Did the Department decide to give priority to paying those with small entitlements over those with medium or large entitlements? Mrs Ghosh: We have taken a variety of approaches at different stages and in response to need. Mr. Lebrecht: The priority was primarily to pay the medium and large claims, in preference to the small claims. Mr. Dunne: Table 8, on page 27 of the report, suggests that farmers who were entitled to less than £30,000 were given broadly similar priority, whereas those who were entitled to the more significant amounts-admittedly that group was small in number, but the impact on their businesses was significant-have received much less priority. Mr. Cooper: One of the factors that comes into play is that the smaller claims tend to be simpler claims and go through the system more easily, with less work for the processor to do. Q105 Mr. Dunne: Do you think with the benefit of hindsight that it was right to make that decision, given that there were approximately 41,000 new claims, a significant proportion of which were for less than €1,000 and therefore likely to be for people whose businesses would not be significantly affected? Mr. Cooper: The priority was given to the higher value claims and the middle- Mr. Dunne: If that is the case, you did not make a very good job of it. Mr. Cooper: No, it is a quirk of the numbers. Q106 Mr. Dunne: I have a final question. The impact on DEFRA's budget has been very significant, as we have heard from other Members. There are several instances of problems emerging. For example, in respect of the veterinary services, we understand that the TB cullers are being culled; last week, Natural England announced that it is having to make cuts to maintenance programmes in the countryside; VisitBritain has had £2 million cut from its budget; and a number of hill farm allowance payments have not yet been made in full. Is that a pattern that we should expect to see as we go forward to next year? What is the impact on other budgets within DEFRA? Mrs Ghosh: Can I just clarify a point that I think Lord Rooker has been discussing in the House of Lords today? Let us be clear: the contingent provision that we had to make for disallowance-the £131 million-has had no impact on our in-year budget, so that is not an explanation for the budget restrictions that we have had to make, the £200 million that we have had to find this year. Of that £200 million, only about £20 million was needed to give Tony more support in taking forward the '06 scheme. So only £20 million of the £200 million has anything to do with problems at the RPA. The other causes of the £200 million shortfall are various. They range from spending that we had to carry forward from the previous year, particularly around changes to the end-year flexibility schemes. We had to spend £10 million in respect of avian influenza. There were a variety of other things. But only £20 million of the £200 million is ascribable to resource costs at the RPA. I think that we are now in a much better planning position than before. We have given commitments to the various delivery bodies that we will give them much earlier notice of their budgets for 2007-08, and we are working on that as we speak. Thanks to Tony's work, we have a much better understanding of what the likely resource requirements of the RPA will be. I should say that, contrary to statements made about the SPS, the SPS budget will go up next year. Those statements were very misleading. Of course, we regret the in-year cuts that we have had to make to some of our other bodies. In the case of Natural England, we will in many ways be making them up. We regret that we had to do it at the last minute. We will be much better placed for next year. Q107 Mr. Dunne: Are you aware that if some farmers have not received their payments in full for 2005 by the end of this year, they will be paying tax to the Treasury on income that they have not received from DEFRA? Mrs Ghosh: I am not aware of that, but we can certainly look into it. Q108 Chairman: Did I hear you right? Did you say that you took a decision to pay larger and medium-sized farmers before smaller farmers? Why on earth did you do that? Mr. Cooper: By smaller farmers, we are talking of a value of less than €1,000. Mrs Ghosh: On the basis that they would be unlikely absolutely to make or break in terms of business. The people on whom there was likely to be the greatest business impact would be those with medium and larger farms. Chairman: I understand. Q109 Helen Goodman: Mrs Ghosh, in March one of my constituents came to see me at my surgery and said, "The Rural Payments Agency has lost 5,000 hectares from Cotherstone moor. How is that possible?" How is it possible? Mrs Ghosh: Because of the various problems that the agency had with mapping. It was a very complex process to a very precise level of detail, carrying forward the principles that we had under the integrated administration and control system, or IACS. Your constituent's experience was matched by those of a number of other farmers. We are now fighting our way to a position in which the maps are much better. The figures that we have had for map changes in relation to the 2006 scheme are much smaller. Q110 Helen Goodman: In answer to Mr. Curry, you gave the impression that you thought the changes in the maps over the period of this shambles were in part the responsibility of the farmers. Is that your view? Mrs Ghosh: As the report itself says, I think, it was undoubtedly the case that, for whatever reason, some of the changes to maps under the previous IACS system, once the digital mapping process was going forward, were not being reported to us, although we were encouraging farmers to do so. Perhaps that is just human nature. Q111 Helen Goodman: Mrs Ghosh, have you read the case studies? Mrs Ghosh: I have indeed read them. Q112 Helen Goodman: What they indicate is that the farmers corrected, sometimes several times, the maps that they were sent but they were repeatedly sent back by the RPA. Was that their responsibility or the responsibility of officials in the RPA? Mrs Ghosh: I am entirely happy to take responsibility on the part of the agency for that. The point that I was making, and which is attested, is that there were undoubtedly previous mapping changes, before the SPS, which, in the normal course of business, we should have been informed about, but we were not. Farmers were therefore, perfectly understandably, because of the incentives of the system, informing us under the process of the SPS. I was simply saying that that made the process even more complicated for us. Q113 Helen Goodman: So do you think it was a mistake to change the size area against which people could claim under this scheme as opposed to the previous ones? Mrs Ghosh: I think it is exactly the same. Q114 Helen Goodman: It is smaller than in some of the other countries, is it not? Mr. Lebrecht: No, the minimum area in respect of a claim is 0.3 hectares. That is the highest that the minimum can be set at. Q115 Helen Goodman: Earlier, Mrs Ghosh, you said that nobody had been sacked or disciplined for the shambles in the RPA, yet in July the Secretary of State told the House that a number of people in the Newcastle office had been sacked. What were they sacked or disciplined for? Mrs Ghosh: They were sacked for what one might regard as straightforward bad behaviour. I apologise for using a generalised term. Q116 Helen Goodman: So you do not think it was part of the shambles that managers in the RPA did not get a grip on that behaviour earlier and that it went on for weeks and months? Mrs Ghosh: Tony, of course, was chief executive by then, and he issued a press notice explaining this. Clearly, it signals some kind of failure in terms of management of that kind of behaviour. I do not think it was in any way relevant to the problems around the SPS. Would you like to comment on that, Tony? Mr. Cooper: It was an isolated situation in that particular office, and perhaps the experience of managers was a factor. That is one the reasons why I put in place newly appointed managers in all of our offices. Q117 Helen Goodman: Mrs Ghosh, you said that payments had been made in accordance with the business needs of farmers. Could you therefore explain why hill farmers, who are among the poorest farmers in the country and who are often tenant farmers, have had so much worse payment records than other farmers? Mrs Ghosh: Yes, I know that Ministers are concerned about this. Partly to give farmers at least some confidence for the future, David Miliband has announced that the same scheme will operate next year. I understand that we are currently at a stage where about 94% of eligible hill farm allowance claims have been paid. Tony's staff are working very hard to try to- Q118 Helen Goodman: Sorry, you are not answering my question. My question was: if your payments were meant to be prioritised in order of business need, why did the hill farmers do so badly? Mrs Ghosh: I will hand over to Andy because, as I understand it, there is a link to the SPS which requires some kind of prior clearance through the SPS. He understands the HFA better than I do. Mr. Lebrecht: I think the question is about SPS as much as the HFA. Ministers had to decide how to prioritise. Basically, the question was about claim size: do we prioritise very small ones, large ones or those in the middle? The judgment was that the important thing was to get as much money out to farmers across the country as a whole as we could. Therefore, we prioritised the medium-sized and larger farms. Where hill farmers had medium-sized or large farms, they will have benefited from that prioritisation, but if their farms were smaller, that will not have been the case. Q119 Helen Goodman: I am sorry, but that is not the understanding that I have been given by the National Farmers Union, my colleagues or the hill farmers that I have met. I understood that the hill farming scheme was different and that there were particular problems with processing it., but you do not appear to know about that. Mr. Cooper: In the cases that have not been paid yet, we are suffering from some difficulties in clarifying issues about commons. I have a team of people working on that. Q120 Helen Goodman: I want to pick up on what Mr. Dunne said about interest payments. The estimate in the report is that farmers will have received interest payments of some £20 million because of late payment. What interest payments have you made to them under the scheme since July? Mr. Cooper: We have made only one payment thus far. Helen Goodman: You have made only one interest payment to one farmer? Mr. Cooper: No, no. Mrs Ghosh: No. One batch of payments. Q121 Helen Goodman: What did that come to? Mr. Cooper: I do not have that information. Mrs Ghosh: But we can certainly let you have it. Q122 Helen Goodman: Another thing that comes out of the report is the significant level of underpayment to farmers. What have you done about that? Mr. Cooper: We are reviewing the cases where we are aware of underpayment or overpayment. If there is an underpayment, we have to adjust the underlying entitlement. That is a lengthy process because, for whatever reason, it was not anticipated that entitlements would change in the first year. Q123 Helen Goodman: When will that be sorted out? Mr. Cooper: It is ongoing; a large number of cases is being reviewed and we are continuing to work through them. Q124 Helen Goodman: Roughly how many cases do you think there are? Mr. Cooper: The overall number-not underpayments, but the overall number of cases that have to be reviewed-is about 27,000. It has dropped to 20,000 over the last two months. Q125 Helen Goodman: It costs the RPA about £1,000-as much as £2,000 if we include the wider business restructuring costs-to process every single claim. Have you made any estimate of the costs to the farmers in terms of their time? Mrs Ghosh: We have certainly made some estimate of the impact of delays, as we do on an ongoing basis, of the impact on farm incomes of the level of indebtedness, of cash flow and of delays to the SPS. Yes, we are making those sorts of estimates. Q126 Helen Goodman: Why do you believe that 1% over liable is the rate that farmers are having to pay to meet the interest that they have to pay the banks? Mrs Ghosh: One of my colleagues has pointed out, although we are happy to do a fuller letter, that we have followed the precedent set in ombudsman cases. We are treating it as a case of maladministration and paying the same interest rate that is paid there. Q127 Helen Goodman: You spoke earlier about deciding not to make partial payments at the same time as the other countries, on the basis of a business case. Mrs Ghosh: Yes. Helen Goodman: Was that a business case for DEFRA or for the farmers? Mrs Ghosh: It included a business case for the farmers. It reflected discussions we had had with farmers as stakeholders and with some of the banks, so we were looking at both the cost to DEFRA- Q128 Helen Goodman: You did a business case for the farmers, but you do not know what their interest payments were and you do not know how much time it has taken? Mrs Ghosh: No; we used the evidence that we had from banking representatives who were used to working with farmers and representatives from the NFU, the CLA and the Tenant Farmers Association. We used the evidence we had on what would be the likely business impact of either a partial payment earlier or a full payment later. The conclusion reached, on the basis of that broad business case, was that was the way we should go. Q129 Helen Goodman: Mrs Ghosh, I am sure you will agree that this is a most unfortunate episode. Mrs Ghosh: We do. Q130 Helen Goodman: And you want the RPA to behave in a much more client-oriented manner. Have you considered changing its statutory basis to give it a duty to assist the farmers? Mrs Ghosh: The RPA has no legal existence outside the Department. As an executive agency, it is simply part of the Department. Q131 Helen Goodman: In that case, would you consider giving yourself a legal duty to assist the farmers? Mrs Ghosh: I think that we assist farmers in a wide variety of ways, through many activities of DEFRA. Obviously, if Members of the House wish to suggest such an amendment in an appropriate Bill, we would consider it. Q132 Helen Goodman: Do you think that this is a good example of DEFRA's assistance to farmers? Mrs Ghosh: I do not think it is a good example of DEFRA's assistance to farmers, but there is a wide range of other areas in which we sponsor the farming industry. We provide support, for example, through Don Curry's excellent activities, and we provide advice of all sorts and argue the case of farmers both in the EU and elsewhere. Chairman: All right. Q133 Mr. Davidson: Can I ask about the scale of overpayment? What is the latest estimate of that, and will it all be recovered? Mrs Ghosh: Because we have agreed your National Audit Office estimate- Mr. Davidson: Just give me a figure. Do you have a figure? Mrs Ghosh: We are working on the range that the NAO suggested, which is probably in the area of £6.5 million. Q134 Mr. Davidson: Will it all be recovered? Mrs Ghosh: Again, I shall hand over to Tony, but where payment has been made- Mr. Davidson: Time is short. If you are handing over to Tony- Mrs Ghosh: We can recover overpayments through SPS payments next year. Mr. Davidson: That is a yes, then. Mrs Ghosh: That is a yes. Q135 Mr. Davidson: Fine. The second point is that our experience of investigating payments to farmers, particularly on things such as foot and mouth and BSE, has led us to believe that there is a substantial amount of fraud, particularly in situations in which there is confusion. How much fraud do you estimate there has been by farmers in this scheme? Mrs Ghosh: Very little. It is not susceptible to fraud in the same way. Q136 Mr. Davidson: Ah, well, that is interesting. I remember maps on which barns were located in the North sea, according to the Ordnance Survey. Farmers and maps start alarm bells ringing for us. Are there sanctions if fraud is discovered? Mrs Ghosh: I turn to my people who are experts in the scheme. I am sure that there are. Mr. Cooper: There are penalties that would be applied if something untoward were established during a physical inspection or the likes. Q137 Mr. Davidson: You can assure us, therefore, that there will be a system of examining to ensure that fraud has not occurred, that there will be sanctions, and that if fraudulent claims are found to have been made the money will be clawed back in arrears? Mrs Ghosh: The whole process of EU disallowance and inspection provides a cast-iron incentive for all that you describe, so the answer is yes. Q138 Mr. Davidson: I would rather not rely on the EU systems for preventing fraud, because I am aware of the non-existence of Slovakian animals already. They are integrated into the EU right away by being able to defraud it. That is not quite what we had in mind. May I ask about the impact of this on farmers? We heard from the Chairman at the beginning about some individual tragedies, which we all regret. I want to try to clarify the scale of this. In part 3 of the report, we are told: "Five per cent of farmers confirmed that they had considered leaving farming." I presume that that is an accurate assessment from your perspective as well. How many have done so? Mrs Ghosh: I am not aware that any have. Mr. Davidson: None? Mrs Ghosh: We do not keep data; all we know are the data of people who make claims under the SPS, and slightly fewer have made claims this year. Q139 Mr. Davidson: But the survey says that 5% of farmers confirmed that they had considered leaving farming. That of course means that 95% have not considered leaving farming, and we do not actually have evidence that any have. Is that correct? Mrs Ghosh: No, the data that we collect are through such things as the farm business survey. That is where we get that kind of data. Q140 Mr. Davidson: Right, but you do not have any that would lead you to believe that anybody has left farming as a result of this? Mr. Lebrecht: We collect the data on an annual basis, and in general people leave farming year on year, but we have not seen any evidence of anything that would be ascribable to this. Q141 Mr. Davidson: Okay. We also have the note here that says that 20% of farmers surveyed said that delayed payments had been a cause of increased stress. Presumably the corollary to that is that for 80% it had not been. Does that seem reasonable to you? Mrs Ghosh: It seems mathematically reasonable. Q142 Mr. Davidson: Thank you. Okay. Similarly, in paragraph 3.2 we are told: "The majority of farmers responding to our survey said that delay in receiving payment had not caused them to take action to save or raise money." I am listening to some of my colleagues, and I have listened to some reports, and you would have thought it was the apocalypse. Yet the report indicates that a majority of farmers have actually taken no action as a result of the inconvenience. Can you help me balance those two things? Mrs Ghosh: I think that you are absolutely right. There are some positives that come out of the survey published in the report-the positives of the negatives, as it were. What we have done is, as I have said, looked at some of the cash flow and indebtedness impact on farmers in various sectors. Sector by sector, it will be very different, given all sorts of other external factors. That does not suggest to us that the impact on indebtedness or cash flow overall is significantly different or that the percentage variation between 2005-06 and the previous year is much different from normal. To support Andy's point, it does not suggest that the SPS has had a significant effect on the industry as a whole as opposed to individuals. Q143 Mr. Davidson: Okay. Time is short. Table 4 on p. 18 suggests that 99% of farmers have not made any staff redundant, 98% of farm values have not decreased, 97% of farmers have not reduced their farming activities, and 97% have not sold any assets. It is perhaps not the complete and utter crisis in agriculture that we were led to believe earlier. Is that fair? Mrs Ghosh: I feel this is a debate that you should have with your colleagues. I agree that some statistics show that the impact on farming as a whole is not so negative, but going back to the Chairman's point, on some farmers it has been. Q144 Mr. Davidson: Absolutely. I accept that completely, but we have a note indicating to us that 84% of farmers have not postponed some purchases of investments. That indicates that it is perhaps not as disastrous as we were led to believe. On p. 27, chart 8 details the range of claims. Some acreages upon which payment is being made are the equivalent of a large garden, are they not? How did we come to take the lowest possible size of ground and decide that payments would be made upon that, rather than on a much larger area, which would have been possible where we had discretion? That would have cut down a large number of the claims and, presumably, made the system a bit less inefficient. Mrs Ghosh: I understand that we could not have gone for a figure above 0.3 hectares, that is, a third of Trafalgar square. We could have gone for a cost minimum, that is, you would not pay anybody anything below €100. I guess that that would be the group at the top. Mr. Bacon: The 14,000. Mrs Ghosh: But those 14,000 might well have said, "I want my money." Q145 Mr. Davidson: The limit was €100, so we had to pay everybody above that. Is that correct? That would have chopped out a substantial number. Mrs Ghosh: To go back to Tony's point, they would probably have been quite simple cases. Q146 Mr. Davidson: What is the cost of processing a simple case? Am I right in thinking that some cases cost more to process than the people involved receive? Mrs Ghosh: I am sure that was the case. Q147 Mr. Davidson: Why, in that case, did you do it? Mrs Ghosh: Because the farmers have a legal entitlement to the money. Q148 Mr. Davidson: Let me be clear. The farmers have a legal entitlement to money above €100 but not below €100? But we gave 14,000 farmers-12 per cent. of total claimants-money that we were not legally obliged to give them, but chose to do so in circumstances where it cost us more to pay them the money than they were receiving, and at a time when we were sacking staff yet having to recruit temporary staff? I do not see the logic of that position. Can you clarify that for me? Mrs Ghosh: My understanding is that even if we had made the decisions, we would have had to do all the work to establish the entitlements, so it would not have saved us any labour. Andy would like to explain that. Mr. Lebrecht: In 2005, as well as making payments we were establishing every farmer's entitlement, so we would have had to do that for everybody, even if their holdings were very small. What we were entitled to do is not pay less than €100, and we chose that we would make the payment. Q149 Mr. Davidson: May I clarify the question? Somebody who would have received from yourselves less than €100 does not seem to be a farmer who requires that subsidy to keep him going. Given the questions of the size of acreages involved, surely taking a larger acreage would have allowed you to reduce a substantial number of these small claims? There is something in the report saying, if I remember correctly, that we had the opportunity to have the minimum size of 0.3 acres, but that we went for 0.1 acres. Have I picked that up wrongly? Mr. Lebrecht: There are two separate points. We could not have chosen to go above the minimum claim size of 0.3 hectares. Separately, in designing the mapping system, we chose to define parcels down to a level of precision of 0.1 hectares. Mrs Ghosh: Which the Germans did too, according to the table on page 28. Q150 Mr. Davidson: Given the options that you had, you could have done this in a way that would have made it simpler or produced fewer cases. Is that correct? Mr. Lebrecht: Given the decision by Ministers to go for an area payment, I do not think that we could have had fewer applicants. There is probably some learning to be done on the subject of whether we can make the mapping system simpler. Mrs Ghosh: Yes. One of the actions that Mark Addison took when he came in as the interim chief executive before Tony was not to try to correct to the very precise level of mapping that had previously been going on. That was one of the ways in which we began to get more claims through the system. Q151 Mr. Davidson: Fine. All the map references are within the land mass of the United Kingdom, I take it? Mrs Ghosh: We very much hope so. Mr. Bacon: You can never be sure, Mrs Ghosh. Mrs Ghosh: No. We have found cows out in the North sea, I believe. Q152 Mr. Bacon: I was surprised by one of your earlier answers, when you said that you did not hear about the issue of paying tax on payments that have not been received. Are you seriously saying that you and the Department have not received any correspondence on that, and that you have not heard about it? I think that Mr. Dunne asked the question. I had heard about it, and until recently, when I read the NAO report, I had not been taking a global interest other than that which I have on behalf of my constituents. Have you really not heard about it? Mrs Ghosh: No. I personally really have not heard about that. Q153 Mr. Bacon: Do you think that it is wrong in principle? Mrs Ghosh: Can you explain? I do not understand. Mr. Bacon: Let me ask my question, then you can answer it. Do you think that it is wrong in principle that farmers should have to pay tax on income that they have not received because they have not been paid by the Government? Mrs Ghosh: I cannot comment without consulting colleagues from Her Majesty's Revenue and Customs. Obviously, a very particular taxation system applies to farmers and this is no doubt part of that complexity. Mr. Bacon: You do not need to talk to HMRC to answer my question, which is whether you think that it is wrong in principle- Mrs Ghosh: I do not know whether it is wrong. I have worked in HMRC so I know that I would be putting my life on the line if I were to say that a tax in these circumstances would be wrong. It might be entirely logical. Q154 Mr. Bacon: Would the Treasury like to comment, please? Is it the case that farmers are expected to pay tax on money that they have not received? Ms Diggle: I, too, would need to get HMRC's advice. Mr. Bacon: I would like a detailed note on this, because it seems extraordinary. Mrs Ghosh: Certainly. Q155 Mr. Bacon: I will move on because we do not have much time. Mr. Cooper, will you turn to page 27 please? Did I understand that you said earlier that you gave higher priority to the high value cases? Mr. Cooper: To the middle and high value ones, yes. Q156 Mr. Bacon: You will see, if you look, that for the cases above £100,000, where it says that there were 1,269 claims, there is a clear dividing line on the right hand side, and above that line nearly three fifths of the cases were paid by 30 June in full, with 46% below that line. It gets steadily worse going downwards. How can your statement that you gave higher priority to higher value cases be correct if it resulted in lower payment for higher value cases? Mr. Cooper: The higher value claims are smaller in number. Mr. Bacon: Yes. It is 1.7% of the total. There are only 1,971 in total between the £100,000 value and the £2 million to £3 million value. Mr. Cooper: Those cases tend to be the more complex and harder ones to work through, so the processing staff struggle to get through the number of associated tasks. There is therefore often a delay in making those payments. Mrs Ghosh: I think the point is that whatever your policy priorities-we tried to focus on the people who really needed the money-it is the simplicity or non-simplicity of the case that will make the difference to how fast the money gets out. Obviously, we have a strong incentive to get money out. Q157 Mr. Bacon: May I ask about the gateway reviews? It says on page 9 that the NAO recommends that red reviews, in particular multiple red reviews, should be reviewed in terms of how they are dealt with when it comes to future guidance to the senior responsible owner and bringing them to the attention of the permanent secretary. Were you and your predecessors made aware each time there was a red review? Mrs Ghosh: Indeed. Q158 Mr. Bacon: When there was a double red review, did you tell Sir John Bourn or your predecessors? Mrs Ghosh: No. Q159 Mr. Bacon: Why not? Mrs Ghosh: We were not required to do so. Q160 Mr. Bacon: On the contrary, you are required to do so. Is that not the case, Mr. Williams? Did we not have an agreement with Sir John Bourn and the Cabinet Secretary that when there was a double red review the National Audit Office and the Comptroller and Auditor General would be informed every time? Was that not explicit, clear and on the record? Sir John Bourn: Yes. Mrs Ghosh: Yes. I think it was the other way about. Q161 Mr. Bacon: Was the NAO informed every time that there was a double red review? Mrs Ghosh: The NAO writes to us, as I understand it. Sir John Bourn: I have no reason to doubt, since the decision was taken that we would get all the red reviews, that we have not got them. Q162 Mr. Bacon: You have had them then? Sir John Bourn: Yes. Q163 Mr. Bacon: Has the Chairman of the Committee been informed each time there was a double red review? Sir John Bourn: I wrote to the Chairman on the first batch of red reviews a little while ago and I shall write to him again with the subsequent batch. Q164 Mr. Bacon: One of the things that you said about red reviews, Mrs Ghosh, was that one should not misunderstand them. To paraphrase you, they were not saying, "You should stop", but "Here are some clear risks. We have to deal with them." In what circumstances-this is reflected in recommendation 32a-would it be appropriate for a senior responsible owner to notify Ministers or you, as permanent secretary, that a project should be stopped? Mrs Ghosh: When the risks that he or she was seeking to mitigate were clearly unmitigatable, if there is such a word. I can think of examples. Something like the Child Support Agency reform is just such an example. It became clear that the reform programme and the new scheme were not going to be delivered on time. That debate happened. Ministers at the time made announcements to the House about delays. That is a good example of that happening. Q165 Mr. Bacon: Could I take you back to the position of Mr. Johnston McNeill? You said that you had a duty of care to him as an employer. You said that you had to find out the basis of his contractual entitlement and that there were problems with his health. You made it sound as if you could not deal with the basis of his contractual entitlement until his health issues were sorted out. Mrs Ghosh: No. Q166 Mr. Bacon: Presumably, you have a copy of his contract. Could you not have just looked at it? Mrs Ghosh: Again, I think that this was a misunderstanding-sorry, a misunderstanding on our part, not yours. Johnston McNeill, as a result of a variety of jobs that he had carried out at the Meat Hygiene Service and then as first chief executive of the RPA, did not have a fixed-term contract. He was in fact simply a straightforward civil servant, so he had the same contract that I have and that Tony has. Q167 Mr. Bacon: So to get rid of him as an employee, you would have to go through the normal legal processes that you would for any straightforward civil servant. Mrs Ghosh: Indeed you would. Q168 Mr. Bacon: That would include-I have just got this off the Department's website-putting in writing the reasons why you are considering getting rid of him, having a face-to-face meeting and an appeals procedure if necessary. Mrs Ghosh: Yes. Q169 Mr. Bacon: Has any of that happened? Mrs Ghosh: In terms of the discussion that my human resources director has had with him-she has obviously been having discussions about the grounds for his departure- Q170 Mr. Bacon: When did that start? Mrs Ghosh: If I can go back to my point, we are not making him any offer of compensation; we are simply saying- Q171 Mr. Bacon: You have been paying him £114,000 a year since 16 March. Today is the 220th day since 16 March, so you have paid him £71,523 so far, have you not? Mrs Ghosh: You have done the calculation, and I am sure that that is the case. Q172 Mr. Bacon: Yes I have, and you have paid him for doing essentially nothing. I would have thought that your duty of care to him as an employer was to sort the problem out. You have left him hanging on the end of the branch. Mrs Ghosh: No. Absolutely not. Q173 Mr. Bacon: Admittedly he is being paid money, but you have not sorted the problem out? Mrs Ghosh: No, we have not sorted the problem out, in the sense that he has not yet departed from the Department. We have been in close contact with him in terms of our duty of care as an employer, about other options for his employment and, in particular, about the terms for his departure. Q174 Mr. Bacon: When you say other options for his employment, are you saying that he may continue to be employed at public expense? Mrs Ghosh: No. Again, we have been talking to him to ensure that we have explored all options in terms of supporting him in getting other roles. Q175 Mr. Bacon: You mean giving him a reference? Mrs Ghosh: I have not been asked to give him a reference. Q176 Mr. Bacon: What does supporting him in getting him another job mean, then? Mrs Ghosh: When any employee leaves the Department, we clearly have some discussion with them on the subject of what they are going to do next. As a good HR director, my HR director will have been having negotiations with him about the terms of his departure. Q177 Mr. Bacon: When did these meetings start? It is now 220 days. Take me through the first 50 days from 16 March until 4 May. What happened in those first 50 days? Mrs Ghosh: I would be happy to give you a day-to-day, blow-by-blow account on that. The discussions clearly began in terms of the duty of care that we had towards him as an employee from the moment he and I had the discussion about his departure. My professional HR director then made clear to him what support would or would not be available from the Department. Again, I will be happy to give you a timeline on this. He was on sick leave for a considerable time. We investigated the basis on which he was employed and got the pensions team to give us quotes for the departure terms. Q178 Mr. Bacon: I have not had the chance to interview Mr. McNeill, so it is a bit unfair to condemn him in absentia, although we did see him during the previous mapping case three or four years ago. However, I think the behaviour of your Department to him as an employee has been inadequate. You have left him hanging for 220 days. I would not have thought that was fair to any employee. Has he lodged a grievance against you? Mrs Ghosh: No. Q179 Mr. Bacon: He has not. Who decided to pay him his bonus? Mrs Ghosh: I imagine that, for the previous year, when the RPA hit all its targets, my predecessor, Brian Bender, did. Q180 Mr. Bacon: Who set the targets? Mrs Ghosh: We have just gone through this process with Tony. The targets are set in agreement with Ministers. Q181 Mr. Bacon: I see. So you are saying the Ministers set them? Mrs Ghosh: The Ministers set the targets for the Executive agencies on advice from- Q182 Mr. Bacon: You say that you are not making him an offer, but you will give him his statutory entitlement. What will be the value of his statutory entitlement? Mrs Ghosh: The statutory entitlements, as offered to Mr. McNeill, are a pension of £12,000 a year- Q183 Mr. Bacon: Yes, but do you pay it in a lump sum? Do you roll it all up, as the Foreign Office does? What do you do? Mrs Ghosh: It would consist of a lump sum for which Mr. McNeill has qualified through his own payments into the pension scheme- Q184 Mr. Bacon: But your Department has to pay the Cabinet Office for that, doesn't it? Mrs Ghosh: Indeed it does. Q185 Mr. Bacon: So what is the total value? We have seen with Foreign Office severance payments that it amounts to many hundreds of thousands of pounds. What is the total value of Mr. McNeill's statutory entitlements? Mrs Ghosh: The total value of his statutory entitlements is- Mr. Bacon: What will it cost the Department? Mrs Ghosh: It will cost the Department, on an ongoing basis, a pension of £12,000 a year- Mr. Bacon: No, I am talking about the total value, not- Mrs Ghosh: It depends how long he lives. I am referring to the actuarially calculated figure. Mr. Bacon: Indeed, but we have just received a note from the Foreign Office on this very subject, and it has been able to identify, for each ambassador who was let go, the total cost, including the payment made to him and the payment made- Mrs Ghosh: I could do that calculation for you on the basis of whatever the actuaries advised. It would be a pension of £12,000 a year and a one-off lump sum of £42,000- Q186 Mr. Bacon: Could you send us that in a note as well? Mrs Ghosh: Certainly, but I do not know how to translate it actuarially. Q187 Mr. Bacon: Could you send it in a note to us and add on the total value of payments made to Mr. McNeill from 16 March until he ceases his employ, plus the total value of bonus payments that were made to him during the four years, which I think is about £62,000? Mrs Ghosh: Fine. Chairman: Mrs Ghosh, your last questioner, you will be relieved to hear, is Mr. Alan Williams. Q188 Mr. Williams: We are told that the finalisation of the design of the scheme in England was late. How late was it, approximately? Mrs Ghosh: You mean between the point at which the EU adopted the regulation and the point at which we announced it? Mr. Williams: Between when you had expected to be making the final decision to go ahead and when that actually happened. Mr. Lebrecht: Ministers announced the design of the scheme in April 2004. Q189 Mr. Williams: All I am asking is how long the delay was. Mr. Lebrecht: That was not a delay. However, there was a delay between then and the following October. There were further refinements to the EU rules in relation to the scheme, plus some elaboration of the policy domestically, so in effect the final design of the scheme did not come through until late 2004. Mr. Williams: So how many months was the delay? Mr. Lebrecht: It was between April and November, so it was seven months. Q190 Mr. Williams: That was quite a significant time and was, I suggest, a significant factor in what went wrong subsequently. We understand that because of the late finalisation, the IT development started late and had a shorter time for completion than was expected and less time to test. That is correct, isn't it? That is what the NAO tells us? Mrs Ghosh: Yes. Mr. Lebrecht: That is correct. Q191 Mr. Williams: So the administrative mess-up at the beginning put us in a position in which a key element in what was to be delivered had to be dealt with in a shorter time than needed and without adequate tests. Is that correct? The NAO thinks it is. Mr. Lebrecht: That certainly put additional pressure on the scheme, yes. Q192 Mr. Williams: But on a key part of it, on something that was at the core of it-the IT system. If the IT system was made more fallible by the initial delay, surely that means that the initial delay contributed very significantly to all the ultimate problems? Mr. Lebrecht: I think that that is patently right, but I would not want you to be misled. We originally finalised the scope of the design in summer 2004, on the basis of certain assumptions. We had to change those assumptions at the end of 2004 because of the changes in legislation that I defined. Those changes led Ministers to announce that we would not be delivering in December but in February. The total delay contributed by the policy delay was two months. It certainly was part of the problem, but- Q193 Mr. Williams: The figure that we are given in table 5 on page 21 says that, originally, the IT scheme was intended to cost £27.5 million. It eventually cost just over £50 million, almost doubling the cost. What caused that? Mrs Ghosh: That was because the original contract did not cover developing the SPS scheme. Q194 Mr. Williams: Why not? Mrs Ghosh: Because the SPS scheme did not exist. It did not happen. Note 2 to that table reads: "The increases in the Accenture contract are largely due to changes in the scope of the work required." Actually, that means "Build us the SPS." That is the main difference. The way that the contract with Accenture was drawn-again, I think that the OGC will have some comment on this-was not as a partnership or risk share. Effectively, we transferred all the risk to Accenture. It has not made money out of the contract. Q195 Mr. Williams: That is where I am going next. How much of the increase in cost from £27 million to £50 million is, in your opinion, attributable to the IT firm? Mrs Ghosh: The difference between £27 million and £50 million is attributable to the fact that we asked it to build the SPS system-the router system-and, on a card rate basis, that is what it did. I am sorry that I cannot remember the name of the consultant, but we have looked at the effectiveness of the contract, and we have been told that it effectively had to deliver on a fixed rate. Had we paid on an input basis-person-hours put in and materials-we would have paid about twice that. That was an effective fixed rate. Whether it was an effective partnership is something that OGC will be commenting on. Q196 Mr. Williams: The NAO tells us that the performance of the main IT contractor fell below standard initially. Whose fault was that? Was it the contractor's fault? Was it a consequence of the delays or of the changes that you made in your specifications? What was at fault? Mrs Ghosh: The concern of my predecessor, Brian Bender, and indeed the agency team, was essentially that the leadership on the Accenture side and the people it was putting on it were not good enough. Brian then instituted, and I have carried on, regular meetings with the top brass of Accenture. Q197 Mr. Williams: So if in fact the fault was Accenture's, did it have to meet any penalty requirements? Mrs Ghosh: It would have to absorb the additional costs of redoing the work. As I said, it was a fixed-rate contract, as far as we were concerned. Q198 Mr. Williams: So the extra cost would have been the total-you tell me the sum. Mrs Ghosh: I cannot give the precise sum. I am simply saying that, according to the analysis that we had done, it would have cost us twice as much to build the SPS system as it has in fact cost us. That was because of the way that we structured the contract. Q199 Mr. Williams: I have one final question. Paragraph 4.2 states that "the Department's and Agency's forecast of £164 million of savings between 2005-06 and 2008-9 is optimistic." Since the outside consultants estimate that the £164 million saving is now £7.5 million, "optimistic" is the understatement of the year, is it not? Mrs Ghosh: That is largely explicable because of the people issues: we could not make the headcount cuts that we were expecting to make. Obviously, in the light of the recovery work that Tony and the team are doing-the Corven support-we must continue to invest in people and, possibly, some IT fixes. That is why Corven is giving the estimate that it is. Chairman: Thank you. Other colleagues have supplementary questions, Mrs Ghosh, but as you are returning on 20 November with Mr. Johnston McNeill, we will hold them until that time, when Members can return to the issue. Mr. Cooper, we would like you to return as well on 20 November, please. Your other two colleagues do not need to come back. Mr. Johnston McNeill will be ordered to attend the Committee. If we receive another excuse, we will report him to the House of Commons for wilful refusal to attend the Committee. Thank you. |