CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1028-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Environment, Food and Rural Affairs Committee

Rural Payments Agency

Wednesday 11 May 2011

Mark Grimshaw and Katrina Williams

Evidence heard in Public Questions 1 - 94

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Wednesday 11 May 2011

Members present:

Miss Anne McIntosh (Chair)

Tom Blenkinsop

Richard Drax

George Eustice

Barry Gardiner

Neil Parish

Amber Rudd

________________

Examination of Witnesses

Witnesses: Mark Grimshaw, chief executive, RPA, and Katrina Williams, member of the Defra Management Committee and Supervisory Board and director-general for the Food and Farming Group, Defra, gave evidence.

Chair: I welcome you most warmly. I apologise for the delay in starting the proceedings due to our earlier business. Perhaps I may take the opportunity to refer colleagues to my declaration on the Members’ register. Do any other colleagues wish to make declarations?

Richard Drax: I am in receipt of payments.

Neil Parish: I am a farmer but I am not in direct receipt of single farm payments.

Q1 Chair: Just for the record, I invite both witnesses to state their names and formal positions.

Mark Grimshaw: I am Mark Grimshaw, chief executive officer of the Rural Payments Agency.

Katrina Williams: I am Katrina Williams and I am a member of the Defra management committee and supervisory board, and I am the director-general for Food and Farming in Defra.

Q2 Chair: Katrina, what is the relationship between your position and the RPA? I thought the RPA was an arm’s length body and worked independently of Defra.

Katrina Williams: The RPA is an executive agency of Defra. That means it is part of the Department but it has executive agency status. Within Defra I am what is known as the corporate owner for the RPA, which means that I have a close relationship with Mark and the Agency and am the person who provides its resources and holds it to account for performance.

Q3 Chair: Mr Grimshaw, may I welcome you to your position? You have been there for some time. This is the first time you have had the opportunity formally to brief us. Clearly, the history of computers and government departments is not a very happy one. We hear a lot about the NHS computer, and in the past there have been tremendous problems with the computer in the CSA where you were previously. Can you put our minds at rest that these computer difficulties are being dealt with in the RPA?

Mark Grimshaw: I think I can. In the time I have had to look at the issues about the IT systems in the RPA, one of the outcomes I have established is that they are currently operating at an acceptable pace. Our relationship with the main suppliers now is one of run and maintain, so we are taking opportunities to make small incremental improvements to the systems in order to get us through the annual challenges. As you will be well aware, there is an opportunity for us to consider a replacement system for the current SPS scheme as we move into SPS 2013.

Q4 Chair: Do you believe that many of the delays about which individual farmers complain are systemic? Do they relate to the computer procedures, or are they possibly a staffing matter?

Mark Grimshaw: I do not think it is a staffing matter. The issues we are encountering at the moment relate very much to the targeting regime in place previously and the drive that that created in terms of volume early and value late. I believe that the approach that I am putting forward as part of my three-year plan will stabilise the position in management of claims, and we should see more accurate claims going through more quickly by the end of the 2011-12 claim year.

Q5 Chair: I have brought just a handful of local cases. One claim in 2009 was identical to the claim in 2010, and in March 2011 the claimant was still waiting. Again, in March 2011 someone was waiting for a 2009 claim to be processed. I could go on but I won’t. In March of this year the Minister made a written statement setting out that the single payments scheme would be further delayed, and on the same day announced that both the single farm payments and the stewardship schemes were delayed. How would you comment on the need for the Minister to have to make those statements?

Mark Grimshaw: I am sure the Minister found those challenging statements to make at that particular period in the year. My observation is that it was the right thing to do in order to protect the scheme for next year and to make sure we did not go into the 2011-12 year with a legacy of claims that were not being managed in what was then the current year. I think that in driving out the "accuracy" challenge and ensuring that the environment was right for the current year, it was the right thing to do.

Q6 Chair: Miss Williams, the Lane review concluded that "Defra ought to consider whether the experience within the traditional civil service pool is likely to have many suitable candidates" for the role of the RPA. Are you convinced that has now been resolved?

Katrina Williams: Yes. Obviously, we had the competition, as a result of which we appointed Mark. We looked very widely within the field of candidates both internally in the public service but also externally to find somebody with the experience and skills of operational delivery and big transactional delivery. In practice, quite a lot of the candidates with that experience happened to be within the Civil Service. I think that in Mark we have somebody whose track record at the CSA, later CMEC, shows that he has done exactly the kind of job we want him to do with the RPA.

Q7 Chair: Will the delays in payments that have occurred this year affect our relationship with and potential fines by the European Union?

Katrina Williams: The European Union payment target we have to meet is to have paid 95.238% by value by the end of June. The RPA oversight board under the Minister of State, Jim Paice, has challenged the Agency firmly to make sure that it has in place the plans to be able to do that. We will continue to look very closely at it, but we have had assurances that target will indeed be met.

Q8 Amber Rudd: What progress have you made in developing an overarching plan to address the fundamental and significant issues that were identified in the Lane report?

Mark Grimshaw: I am taking a dual-track approach to this. The Rural Payments Agency adopted 49 recommendations of the Lane review. All of those are in the process of being worked into essentially the day job, and I am sure they will drive a number of benefits for the Agency, the stakeholders and the taxpayer. But I think more needs to be done for the medium and longer term future of the Agency. Currently, we are working up a five-year plan, which involves working with our stakeholders and our ministerial and Defra colleagues to make sure we address all the issues for which the Agency is responsible, because, as you are aware, our remit is much broader than the single payments scheme. To give some degree of confidence to the Committee, we are focusing very much on stabilisation in the here and now, and building on the recommendations of the Lane review and also the recommendations of this Committee and the National Audit Office. We are also building the three to five-year strategic plan.

Q9 Amber Rudd: So, you are in process of building the relevant strategic plan?

Mark Grimshaw: Yes.

Q10 Amber Rudd: Have you begun to address the 93 findings by Deloittes, which were part of that review, on the RPA’s data and finance?

Mark Grimshaw: Yes. Many of those were being addressed when I took over the position. I think one of the key sets of findings was about the financial controls in the Agency. I am pleased to say that Defra has already acted on those and the vast majority are either close to completion or have been completed. It might help the Committee to know that one of the early decisions that I was able to take personally was to increase the level of our coverage in the finance area. Not only do we now have a deputy finance director, who is responsible for looking at our operating costs-our internal £180 million a year budget-but I have also appointed a senior civil servant with responsibility for the European funding and budget. Essentially, we have doubled our coverage in that particularly difficult space.

Q11 Chair: May the Committee have sight of your strategic plan to which you have just referred in the course of your evidence?

Mark Grimshaw: Once it is completed, by all means. I would expect the early draft of the plan to be ready at the beginning of September and the full plan in a documented form probably by mid-October. As soon as it is, I will let you have a copy.

Chair: That will be helpful.

Q12 Neil Parish: I want to turn to targets and achievements. Your target for the end of December was that 85% of payments should be made, and that was met. Your target was that 95% of all farmers should be paid by March 2011, and you achieved only 88%. If you cannot meet those targets, how confident are you that you will meet the 30 June deadline set by the European Commission so we are not fined yet again?

Mark Grimshaw: As to the confidence level to achieve the European Union target, which is 95.238% by value at the end of June, I expect us to have achieved that by the beginning of June. If it helps the Committee, as of the end of business yesterday 93.61% of fund value had been paid to farmers. I have set an internal target to get as close to 99% of the fund value that is payable-because not all of it is payable to farmers-by the end of June this year.

Q13 Neil Parish: You appear to be making reasonably good progress. What I cannot understand is why six or seven years down the road you cannot get these payments out much earlier. May I be as bold as to say that it only seems to be when you have a gun to your head that you start delivering the target? You get to 85%, good, but in the three months after that you achieve only another 3%. It has only been a month or six weeks since you got to 88%, and suddenly you are at 93.61%. Why cannot farmers be paid earlier? There is a matter of competition in many respects. Those who get it back in December do so six months earlier than those who do not receive it until June. It is not the first year; it is six or seven years down the road. I think people are absolutely fed up.

Mark Grimshaw: Clearly, I am not in a position to comment on the history, but what I am able to tell the Committee is that we are absolutely focused and working very hard to achieve accurate payments quickly. To pay within the payment window set down by the European Union is one of the challenges that I have picked up from the Minister and Defra, and that is what I am organising my efforts to achieve.

Q14 Neil Parish: But it is necessary for you to look at some of the history, because probably some payments in the system have gone so badly wrong over the years that they are almost impossible to put right. What will you do about those? In the end they are just part of your statistic, and there are some as you should know.

Mark Grimshaw: I am aware of the issues about entitlement correction, which is one of the biggest difficulties that the Agency currently faces and it often means having to work off system for a period of time. As I have already said, we are in the process of building the strategic plan, one element of which will be improvement in the skill sets of some of our key people to be able to work on those types of cases.

Q15 Neil Parish: What do you mean by "off system"?

Mark Grimshaw: Occasionally, we have to take them into a manual phase-you will have heard previous reference to manual payments-and essentially work them through using local methods that have been previously approved by our internal audit people to set the case in such a way that we can progress it and put it back on to the system so it satisfies the European Commission regulations.

Neil Parish: That is welcome, but one wonders, six or seven years down the line, whether this should have been done a lot sooner.

Q16 Chair: As to manual payments, what records do you have on the computer system the following year to avoid a delay in that year when an annual payment has been made in the year previously?

Mark Grimshaw: We have a full system record. One of the parts of the process once the manual payment has been released by the Agency is to go back and re-establish all of the records on the computer system.

Q17 Chair: There were anecdotal rumours going around that the RPA in places like Northallerton was employing sixth-formers to clear a backlog. Can we have an assurance that that has not happened and will not happen in the future?

Mark Grimshaw: Certainly in my tenure I am not aware of the RPA recruiting sixth- formers to do that sort of work. Currently, we have only 26 people from agencies, and all of those have a financial qualification.

Q18 Barry Gardiner: One of the interesting remarks made by Mr Grimshaw was about the need to effect changes that put accuracy up front at a premium instead of speed. My recollection is that was an observation made several years ago. Why has that not happened? I do not put that question to Mr Grimshaw because it would be unfair to do so; he has been there only since January, but I put that to Miss Williams as the owner of this area of Defra.

Katrina Williams: As Mr Grimshaw has said, the ideal balance is one of accuracy and speed.

Q19 Barry Gardiner: With respect, that was not what he said. He said there had been a premium on speed over accuracy, and it was much more important to get accuracy early on in the decision making. One of the things that any office process deals with when it is dealing with a lot of input is quality of judgment at the beginning, which saves time later on. Given this was known and said certainly on previous occasions, why was it not implemented on previous occasions such that Mr Grimshaw has to pick up on it now when he comes into the Agency?

Katrina Williams: Certainly, in the early years of the scheme there was a lot of emphasis on speed in making the payments, because everybody recognised the degree of hardship that the problems early in the life of the scheme had generated. We have acknowledged consistently that the criticisms made by the National Audit Office, which said in 2009 that there needed to be greater emphasis on accuracy, are correct. From that point we and ministers have been focused on getting that balance of making the payments quickly-because they are important to people’s cash flow-but also making sure that we are resolving the issues around accuracy. There is quite a considerable legacy of those issues around data, which has required some cases to be worked right back to 2005.

Q20 Barry Gardiner: Mr Grimshaw, do you believe the Agency will escape from having its accounts qualified this year once again because of the inability accurately to assess the figure for under and overpayments?

Mark Grimshaw: To be precise about the years, we have just come out of a year. For the year we have just come out of, which is the 2010-11 operational year, I think the accounts will continue to be qualified very much for the reasons you have just mentioned. For the year we are in currently, which is 2011-12-

Q21 Barry Gardiner: Which is the first one when you will have made a significant impact?

Mark Grimshaw: That is correct. I expect us to have worked very hard at alleviating the issue. It is very much down to the National Audit Office to determine whether or not it believes a qualification is appropriate. But I am certainly taking all the actions that it has recommended in order to have the qualification lifted.

Q22 Barry Gardiner: With respect, if I were the Secretary of State I would not be saying that I hear in your voice confidence about that issue. What you are saying is that you are doing all you can. To phrase it another way, do you believe that you will be able to provide materially accurate figures for under and overpayments for 2011-12?

Mark Grimshaw: That is certainly my expectation. I have a team working on over and underpayments at the moment. I have not had feedback from them, so here and now it is an expectation. I cannot say with absolute confidence that it will happen.

Q23 Richard Drax: Perhaps I may take this a bit further. The Minister has recently committed to making sure that "genuine farmers" get paid first. How do we manage this commitment? How will you ensure that it sits comfortably with competing priorities of accuracy and speed?

Mark Grimshaw: It is an interesting position to take, in that what we are attempting to plan for later this year is an approach to segmentation of our customer base that allows us to deal with the complicated, complex cases earlier. Our expectation is that they are related to working farmers and landowners rather than the much smaller claims that tend to go through in the volume target without causing us much difficulty. What we are endeavouring to do is make sure we apply our resource to the complicated cases early and, in doing so, we will see more "genuine farmers" benefiting, to quote the Minister.

Q24 Richard Drax: In percentage terms, how many complicated cases are there overall? Are you talking of 10%, 15%? What is "complicated"?

Mark Grimshaw: Generally, "complicated" is about 15% of the caseload by volume.

Q25 George Eustice: I want to pick up the point about the importance of accuracy. The Minister said that you had missed the 30 March deadline, partly because you are focusing on improving the accuracy of payments. If that is the case, how far have you gone in improving the accuracy of what is there now?

Mark Grimshaw: We have gone a considerable way. One of the reasons we did not simply release cases for payment was that we were not confident they were accurate. That would have been the old approach relating to speed. By holding on to the cases still within the payment window, but working them all the way through and then checking them, we know we are making accurate payments, which will give us and stakeholders a benefit next year because the baseline will be far more accurate in itself.

Q26 George Eustice: Are the EU targets constructive and helpful in this process, or are they a hindrance because you have to divert resources, and focus on hitting targets rather than sorting out the data for the long term?

Mark Grimshaw: I do not think they are either or. 95.238% by value of the fund is a challenging target but it is certainly one that we will achieve. It becomes more complicated when you introduce additional targets, such as the volume target that we carried for the first nine months of last year, because they are essentially opposite and opposing. So, to achieve a volume target you go after straightforward, simple cases, but that does not give you the value you need in the final third of the year when you have to tackle all of the complicated cases, which is typically why the same claimants have their payments delayed until the end of the window, because we are working on them late in the year.

Q27 George Eustice: Having been in the job for several months and tried to sort out IT problems in other Departments, in your view what was it that went wrong with the RPA, going back to the very beginning? Was it just that the single farm payment system was a nightmare and a complicated system, or were these problems there anyway before?

Mark Grimshaw: It is very difficult for me to say other than to observe, having read all of the documentation, that one of the issues would appear to be the decision to go for the complex hybrid model. The IT as designed would have delivered the far more straightforward model from the information I have read and the deductions I have made, but I was not there.

Q28 George Eustice: There are lots of other government departments that have these sorts of challenges. Who has got it right? What is the model to follow in terms of sorting out this situation from where we are now?

Mark Grimshaw: I am not aware of a particular model that will always be correct. The approach that the Agency and Defra are taking for the 2013 CAP proposals is probably the most sensible one, which is learning from what happened in 2005, re-learning from the review that took place in 2008 and engaging with the experts in the Agency early. We have a team working with colleagues in Defra right now to try to influence the policy outcomes in order to generate some "simplicity" in the computer solution that will be needed to run the 2013 scheme.

Q29 George Eustice: Having sorted out and cleaned up the data, have you made any assessment of how much time that will save in future years?

Mark Grimshaw: I have not for two reasons. One is that the future scheme may not use the existing data; the other is that clearly I have focused on trying to get payments out to farmers this year.

Q30 Tom Blenkinsop: How many manual payments did you make last year, and what was their value?

Mark Grimshaw: I am afraid I do not have that instantly to hand, but we do have the information. I will happily drop a note after the meeting.

Q31 Tom Blenkinsop: You do not have the information to hand, but as a ballpark do you expect the amount and value of payments to increase?

Mark Grimshaw: I expect us to make fewer manual payments this year. I can tell you how many manual payments have been made in this operational year. As of the close of business yesterday, we had made 958 manual payments. I do not have the value of those immediately to hand, but I will drop you a note to that effect.

Q32 Tom Blenkinsop: How does the European Commission view the use of manual rather than computerised payments, given that manual payments bring an increased risk of errors and inconsistencies?

Mark Grimshaw: They are viewed somewhat sceptically and would be open to a risk of disallowance. One of the things that the Agency and the Department have done is make sure that the manual payment process is 100% audited so that, once we have completed the manual payment and, as I said earlier on, put all of the information about the accounts back on to the system, they are as good as, if not better than, those cases that would have gone through the system. So, we have a degree of assurance against them with which the Commission is satisfied.

Q33 Barry Gardiner: In an earlier response to me, you said you were implementing all of the NAO’s recommendations, but in paragraph 17 of the Treasury Minutes on the First to the Fifth Reports from the Committee of Public Accounts, the Department rejected conclusion (6): "The Department does not accept the Committee’s recommendation that an external organisation should tidy up and clean each claim, on a variety of grounds." It then goes on to detail them. Could you clarify whether it is the case that you are implementing that recommendation of the NAO as well, or are you simply implementing the recommendations that the Government accepted?

Mark Grimshaw: It is the latter; we are implementing those that were accepted by the Department and passed to the Agency for implementation.

Q34 Barry Gardiner: It is a dangerous thing to do, because if it goes wrong we are going to come back to you and say, "Well, you see, you should have accepted all of its recommendations, shouldn’t you?"

Katrina Williams: For the sake of completeness about the process that the Department went through in looking at that recommendation, I should add that on that occasion and previously we did consider whether effectively recreating the data set would be the right thing to do in terms of value for money and service to customers. The conclusion was that we should not accept that recommendation in full. The David Lane review did some very useful work in helping us to identify which aspects of the data set and which cases we might focus on in order to improve the data to a level where accuracy was significantly better.

Q35 Barry Gardiner: You disagreed with them?

Katrina Williams: We did an assessment. We took very seriously the recommendation; we looked very seriously at both the costs and implications for farmers of getting a body to rework the data in full. We came to the conclusion that we would ask the Lane review to look at how we might improve the data set without a full reworking of the set. We accepted those recommendations, and that is what the Agency is now implementing.

Q36 Barry Gardiner: But the whole intent of recommendation (6) was to free up the Agency to process the 2009 claims. That was said specifically. Those 2009 claims then did not go well, did they?

Katrina Williams: One of the issues we looked at in reworking the data set was the extent to which that would or would not effectively free up the Agency to concentrate on making the payments. The Department reached a judgment on that, which was that we could achieve good improvements in accuracy by targeting the activity on specific cases.

Q37 Barry Gardiner: But you were still qualified in that year because you could not provide accurate information. Let me press on to the Lane review. One of Lane’s recommendations was that "policy discussions with EU over CAP 2013 … should always include both Defra policy and RPA delivery members to ensure that the English representations have both the ministerial objectives and the deliverability viewpoints of the initiatives and policies under consideration." Mr Grimshaw, since you have been in post how many times have you met the Minister to discuss this and get that stereoscopic vision?

Mark Grimshaw: I have discussed that with the Minister on two occasions, but that was part of a general discussion. I have not had a specific meeting with the Minister with that as the only agenda item. I have met the Minister over 12 times since I joined on 17 January.

Q38 Barry Gardiner: Miss Williams, in terms of Mr Grimshaw’s predecessors, are you aware of specific meetings that have taken place for that purpose?

Katrina Williams: I could not tell you how many of those there have been, but I know that during the health check on the Common Agricultural Policy in 2008 and in the run-up to that negotiation there were discussions on the ease with which the RPA could implement any changes.

Q39 Barry Gardiner: What specific lessons learnt from the implementation of the dynamic hybrid system have you, or Mr Grimshaw’s predecessors, passed on to the Minister to shape Defra’s position on the CAP after 2013?

Katrina Williams: I think there are a number of lessons. The first is always to think about how easy or difficult a particular option would be.

Q40 Barry Gardiner: I just want to make sure that you are answering my question. I do not want to know what the lessons learnt are but which specific lessons learnt have been passed on by Mr Grimshaw or his predecessors to the Minister in those meetings?

Katrina Williams: Mr Grimshaw will speak for himself about the discussions he has had. As to Ministers who are currently in post, clearly it would have been difficult for them to have had very much dialogue with Mr Grimshaw’s predecessors about CAP reform. But we as policy officials have been very careful to describe to them the historic understanding, because many of us were not in post at the time, of the issues and problems about implementation of the system in 2005. If you want me to, I can describe what those lessons were.

Q41 Barry Gardiner: A note on that might be useful. I will ask Mr Grimshaw to speak for his own interlocutions.

Katrina Williams: I can either provide you with a note on what we believe to be the lessons learnt or outline to you now what those lessons were.

Q42 Barry Gardiner: Perhaps you would provide a note and then highlight the ones that have specifically been relayed to Ministers. That would be great.

Mark Grimshaw: In the conversations that I have had with the Minister on my early views on CAP 2013 and what may and may not be advantageous, we have certainly talked about the creation of an age profile for claimant farmers and encouraging younger farmers with perhaps a different payment. I think that would be challenging for the system itself. I have already said that if we are to be using a land-based scheme, which looks quite possible, the improvements we have made to the rural land registry recently will put us in a reasonably good position. There are also issues to do with farmer registration. If it is roughly the same cohort of 100,000 or 105,000 claimants, then we are in a reasonably good position with the data we hold on current claimants. Those are the only two areas in which I have had a conversation with the Minister.

It might be helpful to the Committee to know that the Agency has a team now led by a new director, who is responsible for our external relations and is directly accountable to me, for talking through all existing policy issues-so, how we can use the policy framework to get some easements to improve service for our customers-and future policy issues. That individual has a team of experienced RPA professionals who in the main were involved in some or all of the introduction of the 2005 scheme to make sure we are imparting all of the operational lessons that we learnt, and some of the absolute no-go areas.

Q43 Amber Rudd: Mr Grimshaw, past reviews of the RPA have criticised it for failing to be an intelligent customer of IT. What is your plan for addressing this in time to implement the reformed CAP after 2013?

Mark Grimshaw: My plan to tackle the malaise of the organisation and the challenges that it faces is based on something that historically I have used in organisations, which is the management arc. The arc does not stand for anything; it is just part of a circle where every member of the executive team is responsible for supporting every other member through the allocation of their particular roles. The reason I mention it is that it is core to the creation of the new RPA, and recruitment is under way and going rather well. Within that team I will have a design and change director, who will have all the responsibility for the way things work around here, will be the design authority for all of our processes and lead all of the change programmes. Working alongside him as a member of the executive team will be an information and technology director, so it is not just IT in the old sense of the term with boxes; it is someone who will understand how the IT actually works. Within the finance assurance and commercial director’s role there will be a commercial capability that allows us to negotiate with suppliers, contractors, partners-whatever the model ends up being-in a way that puts us on the front foot, taking information from across the arc rather than trying to do it piecemeal, which may well be one of the historical issues.

Q44 Amber Rudd: So, you are recruiting for these key roles at the moment?

Mark Grimshaw: I am, yes.

Q45 Amber Rudd: What financial resources have you set aside to establish the necessary IT system and implement the reform of the CAP after 2013?

Mark Grimshaw: I have not set aside anything; that budget will come from colleagues in Defra. What I have been allocated so far is £3 million to set up the project and to do the research to put us into the right buying conditions. Once we have worked through what it is the projects and programme team believe they need in terms of the solution-it is difficult to solutioneer before you know what the scheme will look like-we will be making early recommendations to Defra about the amounts of money needed to build the solution. I have had a number of conversations with Katrina and know that there is money essentially ring-fenced within the Defra budget.

Q46 Amber Rudd: Do you believe that you will have to wait for the final legislative proposals regarding the CAP for 2013 before going ahead with the procurement of the new system?

Mark Grimshaw: I think we are in a position to start to work towards the type of solution that we are looking for, where we do not need to know exactly what it is we expect the system to do. So, will it be the procurement of a system from a ground-up build, or will we go for off-the-shelf components, where we use a systems integrator, or are we going to outsource the whole challenge to one or a number of third parties? Those are options and issues that we can work through before we know the outcome of the scheme, and that is what we are in the process of doing now.

Q47 Amber Rudd: As with constructing a building, when you build a software programme and you want to make changes while it is in train, you are hit with enormous costs. How will you manage that risk?

Mark Grimshaw: I think therein lies one of the challenges about which we are talking to the Minister at the moment. There comes a point in the development of any system where you simply have to stop taking changes and go with the system as it currently stands.

Q48 Amber Rudd: The permanent secretary told this Committee in November 2010 that you were considering a new approach using a combination of a simpler computer system for straightforward applications and a spreadsheet-based approach for complex ones. Has the European Commission confirmed that this approach constitutes an acceptable level of financial control?

Mark Grimshaw: That is not something on which I am sighted. I do not know whether Katrina has a view on that.

Katrina Williams: Certainly, the permanent secretary did talk about using simple systems, spreadsheets and so on. One of the things we will want to do as we go through that rather complex process, both the CAP reform negotiations and working out what the options are, is ensure we have done the appropriate checks with everyone to make sure that the system will meet the audit requirements, whether they are domestic or European.

Q49 Chair: Mr Grimshaw, I think you just said that Defra had ring-fenced the money that had been allocated. Can you put a figure on how much has been allocated?

Mark Grimshaw: Perhaps you ought to ask Katrina that one.

Katrina Williams: At the moment we are carrying it as a known pressure on the Defra budget for the spending review. For all the reasons we have just discussed as to the uncertainties about what the future system may hold, we have not nailed down a specific figure. We know that it will be a significant call on Defra resources.

Q50 Chair: Is this IT procurement for CAP 2013? So, you will need to know over the next two years, or the spending year after this, what it will be?

Katrina Williams: We will indeed. We need to go through a parallel process. The first is the one that Mark is kicking off to work out what we would want the system to do. The other process is the negotiations in Brussels on the CAP reform package. We need to make sure that we keep bringing those two together so that intelligence from one process is feeding into the other in a way that allows us then to nail down that sum.

Q51 Neil Parish: Knowing the vagaries of CAP reform, it may be perhaps better to wait some time to get the final version than double-guess it. As to culture and governance, Mr Grimshaw, I know that you have been in place only since 17 January, but some of the reviews that have taken place are relevant for you when you are managing. The reviews that have taken place have criticised the Department for the frequent turnover of senior staff, lack of experienced staff, lack of engagement by Defra with the RPA or personal ownership of its problems, unwillingness to accept its own failings and the National Audit Office findings. The RPA senior team has been criticised for being blind to failings in its organisations. How are you tackling this? I know you have not been in post very long, but surely that is part of your role. I ask that question also of Katrina Williams.

Mark Grimshaw: I think that it is right at the epicentre of my current role. Without a senior team in which I, Defra and stakeholders can have confidence, clearly the Agency will struggle. I referred earlier to the recruitment of the executive team under the arc. I am seeking to appoint eight senior civil servants to the executive positions within the organisation.

Q52 Chair: To be clear, are these new posts? Are these additional resources and posts to what is already on the organogram?

Mark Grimshaw: It is a slightly different organogram, but there is not an increase in overall senior civil service numbers within the Agency. I have organised them in a different way. To answer that comment in a different way, they are new people. It is likely that by the end of June the only person who will have been in the Rural Payments Agency and on the executive team since the beginning of this year is me. I am not sure whether I have answered your question.1

Q53 Neil Parish: In a way, you are digging your own hole on that particular one, if I may say so, because one of the criticisms is that there is lack of experience and continuity. Do not forget that what appears from the layman’s point of view over the years is that, as soon as it gets really hot for Government and payments are not being made to farmers, huge pressures are put on the RPA and it blows a fuse, changes a few people and the whole thing seems to get worse. What will you do about it? I am sorry to repeat my previous point, but we are six or seven years down the line now, and I would have thought patience has long gone.

Mark Grimshaw: I do understand the frustrations of stakeholders. Speaking to a number of them, they are quite happy to make very clear to me that this needs to be sorted out. However, I am where I am. I have inherited very little in terms of an executive team and I have to recruit to fill the roles, so I do not seek to replace people who are already there and who have corporate history and experience. I have vacancies that I seek to fill with people who I am confident can deliver the outcomes I need in order for the Agency to hit its targets. I expect to have the executive team in place by the end of the summer, and I am actively engaged in the recruitment process right now.

Q54 Neil Parish: I have a slightly facetious question but one that is nonetheless serious. How sought after are these jobs at this level in the RPA knowing the history of them? There must be quite a few people who have found it difficult in the past, and it probably has not helped their career prospects.

Mark Grimshaw: As to whether they are sought after, all I can say is that we have had a substantial number of applicants for each of the roles that has been advertised. On the back of that I assume they are reasonably sought after.

Q55 Neil Parish: Katrina Williams, one of the criticisms is a lack of engagement by Defra with the RPA or personal ownership of its problems. How would you answer that accusation?

Katrina Williams: I would answer by saying that that is indeed a quote but a historical one. Over the last two years we have done a lot to increase the Defra resource that is going into working in partnership with the Agency both day to day, for example in the run-up to the CAP 2008 health check, but also in terms of governance. The David Lane review was a tool intended to give all of us a picture of what was needed in the Agency. We as a Department have responded to those recommendations, putting in place new governance arrangements including the oversight board, which the Minister of State now chairs. We have also strengthened the links between the agency management board and that board. We have appointed a non-executive chair to the agency management board and, I hope, helped Mark with the appointment of new non-executives to his board.

Q56 Neil Parish: I welcome that, but again I put the question to you: is it not a little late? We are a long way down this road.

Katrina Williams: I cannot comment on the entire life of the scheme. What I would say is that, since we commissioned David Lane’s review, which was before the last NAO report on the Agency, we have made considerable effort to try to ensure that we are improving what was described in that report as the grip and engagement of the Department with the Agency in a way that is helpful but not micro-management.

Q57 Neil Parish: That brings me quite neatly to my next question. The Lane review recommended an urgent overhaul of internal audit functions to avoid a potential conflict of interest. What changes have you made to achieve this?

Katrina Williams: Mark may want to comment on the Agency’s internal audit arrangements. Defra is moving to a position where we want to have a much more integrated internal audit system for the core Department and its agencies. That is what we are aiming for.

Q58 Neil Parish: One of the points made was that there was a potential conflict of interest arising in that the current CEO is also chairman and accounting officer. Is that still the case?

Mark Grimshaw: No, it is not the case. I think the Department was very quick to respond to the review in that particular instance. While I am the accounting officer, I am not the chairman of the agency’s management board. That is now an independent nonexecutive director. I am also not on the Agency’s audit and risk committee. That committee is now chaired by an independent non-executive director, who passes his findings back to me. We also have a range of non-executive directors both on the agency management board helping the executive team and on the audit and risk committee helping to drive out some of the challenges that come up through both audit and risk. We have also introduced an independent internal audit function, and the head of internal audit reports directly to me. I think all the changes that the report put forward as recommendations have been dealt with.

Q59 Neil Parish: Who is now the accounting officer?

Mark Grimshaw: I am the accounting officer.

Q60 Neil Parish: So, it is roughly the same. When did the audit and risk committee last meet?

Mark Grimshaw: It met last week. I am not entirely sure of the date, but it has certainly met twice since we appointed the new non-executive chair. We have a meeting next week to consider an early draft of the report and accounts.

Q61 Neil Parish: So, it would meet quite regularly?

Mark Grimshaw: Once a month.

Q62 Chair: Who did you say was the new chair of the audit and risk committee?

Mark Grimshaw: I did not, but it is a gentleman called Peter Conway.

Q63 Chair: Most of the directors and non-executive directors will have changed over the last two years?

Mark Grimshaw: Correct.

Q64 Chair: It might be helpful to have a full list.

Mark Grimshaw: By all means. I will arrange for an organogram to be sent to you.

Q65 Richard Drax: In 2010 the RPA made 111 payments of less than £60. That is less than 10% of the administration cost per claim. Is it necessary or sensible to make such small payments?

Mark Grimshaw: It is certainly necessary because they are legitimate claims made against the fund and we are obliged to settle them. Whether or not it is sensible, I am sure everybody will have their own view. There is certainly a challenge about value for money.

Katrina Williams: In the past we have put out to consultation the question of small payments and how we might handle them. I agree that it is one of those questions that you have to keep looking at and keep in mind.

Q66 Richard Drax: So, you have asked the stakeholders how they should be handled?

Katrina Williams: Yes.

Q67 Richard Drax: I suspect they will say, "Pay it."

Katrina Williams: There was an interesting debate on whether taking out some of these payments from the system would make the rest of the system run more quickly. In practice, it is not these rather small payments that are the ones that fall into the category of those that delay things.

Q68 George Eustice: One of the concerns expressed is about your over-reliance on external contractors, in particular firms like Accenture. Are you taking any measures to make sure you get knowledge transfer from these external contractors to your permanent staff so that your reliance can be reduced?

Mark Grimshaw: Yes, absolutely. We do not have any external contractors from the IT community any longer. In the last operational year we had over 100 of them due to the way we set up the contracting arrangement with Accenture in the main. We have changed the way we operate the contract and have taken a lot of the knowledge in-house, so to speak, and those contractors are no longer working for the Agency.

Q69 Neil Parish: Accenture is the only company with experience of maintaining the RPA’s bespoke IT system. Will it not be impossible for you to get value for money when re-procuring contracts to support your IT if that is the only company that can reasonably bid?

Mark Grimshaw: I do not think so. One of the challenges is the level of support that we shall be looking for from Accenture in future. We are now contracting on the basis of a run-and-maintain arrangement, so we do not need them to do substantial amounts of fixes on a regular basis. We are asking them to run the system and maintain it at the lowest possible cost. Early indications are that we will reduce the in-year running costs on the back of the extension of the contract.

Q70 Neil Parish: Looking further than just the cost, because of the vagaries of the whole system of the single farm payment, the hybrid system and the things that, hopefully, you have learnt over the last six or seven years, are there not also ways of feeding that into them? These computer systems always seem to be not fit for purpose. How will you make sure that the next one is fit for purpose?

Mark Grimshaw: I think that takes us back to the earlier conversation about the correspondence we have through the RPA specialist team with the Department to make sure that the scheme is set up in the most practical and manageable way, and the creation of the intelligent customer function that we are currently building in the Agency, so we are able to ensure that we are buying something that will be fit for purpose, to use your words.

Q71 Neil Parish: So, you are happy? One of the criticisms is that there is such a turnover of staff that it is almost like going round and round in circles here. Do you have in place the people who will be able to advise on how a computer system would work properly in the future?

Mark Grimshaw: I do not have them in place at the moment. I refer you back to my earlier comments about the executive team. Right now I am in the process of recruiting the information and technology and the design and change directors who will lead the stabilisation of the current systems and the development of the future options programme. We are also in discussions with colleagues in the Cabinet Office and Her Majesty’s Treasury, and we have support from the Major Projects Authority, to ensure that we have as much capability on the intelligent customer aspect as possible.

Katrina Williams: That is an important aspect. That is where the Major Projects Authority can be very helpful to us, because it means we are able to draw on the very best expertise in conjunction with our colleagues in the Cabinet Office and Treasury.

Q72 Neil Parish: I understand all that. All of that sounds very good on the surface, but very complex single farm payments have bogged down the system. A few complicated applications over the years have become stuck in your system. The computer system does not seem to be able to sort it out. It is no good doing what other Departments are doing because they are not dealing with those specific things. What I am trying to get to grips with is that, unless you can get those single farm payments properly processed and into the system, I cannot see it ever getting better with those very difficult ones. That is what I am trying to tease out. Why are you not using the experience that must be there, not necessarily at the top level but further down through the system as well? How do you feed in from the bottom up, if you like, people who are trying to work the system and deal with individual farm payments, some of which are difficult?

Mark Grimshaw: We take a lot of information through from our whole case workers and the people involved in doing things like entitlement corrections. They feed those back through their team leaders to their team managers, and we pick up that information through the design capability. Earlier I mentioned that the design and change director would be the design control point. All design ownership will reside there. Currently it does not, which I think is one of the legacy issues of the organisation. We do not have one centre of excellence for design, for example, and that is something I shall be building over the course of the next six to nine months.

Neil Parish: I do hope that improves.

Q73 George Eustice: I want to turn to the issue of overpayments to farmers. The figures from the Department in June 2010 suggested that about 3,500 had been overpaid by more than £250. Do you have a recent estimate for the current year?

Mark Grimshaw: I do not have one with me, but I have the information, which I shall be happy to send to you.

Q74 George Eustice: Do you have any idea whether it has decreased or increased?

Mark Grimshaw: I think it is reasonably stable, but it moves between underpayments and overpayments.

Q75 George Eustice: Given that they are small amounts, will you write off those overpayments and deal with the issue that way, or will you be trying to recover it? Have you had any thoughts on that? I suppose a good starting point is what has happened previously.

Katrina Williams: As to whether you write off overpayments, clearly in some instances there is a case in terms of value of money in considering whether to pursue every last payment. Our approach to this has been that, if we can be certain about the size and scale of some of the payments, particularly the very small ones, we as a Department will consider the issue of write off. Clearly, you have to balance value for the taxpayer against the cost of pursuing every last overpayment, but our position on that has been a willingness to look at the sums.

Q76 George Eustice: When you do decide to write off, out of whose budget does that come? Is that a cost borne by the Treasury directly, or does it come out of the EU budget? How does it work?

Katrina Williams: If it is a legitimate overpayment that we have chosen not to pursue it will come out of the Defra budget; it is not one that can fall on the EU budget. Effectively, it is an opportunity missed to reclaim money and that missed opportunity falls on the Defra budget.

Q77 Chair: Presumably, there is a timeframe within which you can claim the overpayment; otherwise, it will lapse.

Katrina Williams: Indeed. Outside that timeframe, overpayments that have not been reclaimed automatically fall on the departmental budget.

Q78 Chair: But presumably the amount of overpayments, though huge numerically and in value, will be a lot smaller than those underpayments where payment is due and has been paid late.

Katrina Williams: I am sorry.

Q79 Chair: Presumably, the number of farmers who have been overpaid will be a great deal smaller than those who have been paid late.

Katrina Williams: I think that is right.

Mark Grimshaw: The answer is that there are slightly different currencies. An underpayment is perhaps where the original calculation was to pay £900 and on recalculating it we should have paid £1,000, so there is an underpayment of £100. It does not apply to claims where we simply have not paid them yet. That would not be considered an underpayment; it is a late payment.

Q80 Chair: But if it goes back to the fact that you are to be more accurate but slightly slower, then this should happen less in future?

Katrina Williams: That would be the goal.

Q81 Barry Gardiner: Mr Grimshaw, are you aware of the barnacle rule of voluntary redundancy?

Mark Grimshaw: I cannot say I have come across it before.

Barry Gardiner: I am sure you have. It may have been called something different. The barnacle rule of voluntary redundancy goes like this: the people who stick to the organisation like barnacles are the very ones that slow down the ship. Instead of 22.7% of your staff having opted to investigate voluntary redundancy, why are you not looking at a compulsory redundancy programme whereby you get rid of those who cannot simply walk out and get another job, weigh down the organisation and stick there like glue no matter what you offer them to go away, because they know they will not get a job anywhere else?

Richard Drax: I am impressed, Barry.

Chair: Let’s hope it does not apply to MPs.

Barry Gardiner: It should apply to MPs.

Chair: Sorry, Mr Grimshaw.

Mark Grimshaw: I am pleased to have a moment to marshal my thoughts. I accept the underlying comment that there may well be people in the organisation who are not adding value. While the concept of compulsory redundancy may be one of the tools we can use to lever the barnacles from the hull, we will be looking at other ways to make sure that those people do not find it particularly pleasurable to stay in the organisation. For me, there are two challenges on that particular issue: one is identifying those people who are adding value and supporting them; the other is identifying those who are not adding value, trying to establish why they are not adding value and helping them if that is at all possible, but, if we then reach a point where we are not improving the situation, taking the necessary action, supported by our disciplinary processes, to let those people go.

Q82 Barry Gardiner: That is the textbook answer; it is absolutely correct, but you know as well as I do that all organisations find it very difficult to manage people properly.

Mark Grimshaw: Yes.

Barry Gardiner: The proper process is that, if you are underperforming, you assess it, discuss it, offer proper training and then go for either capability or disciplinary procedures. It does not happen. The normal bell distribution would suggest that in an organisation like yours, which has been underperforming historically over a long period of time, there are people who are at either end of that scale. Your redundancy programme needs to be looking at the ones who are at the excellent end of the bell curve. You need to make sure that they are not offered voluntary redundancy under any circumstances whatsoever, and that their positions are ring-fenced and they are not allowed to go. Equally, on the other hand you need to make sure that, if you are to throw people out of this organisation, it is not the people who are under the middle part of that bell curve, who are doing a good job and performing satisfactorily. What efforts have you made to go back into the employment records and look at those who have historically underperformed and those who have received written warnings?

Chair: I think we have got it.

Mark Grimshaw: I think the question was: what action have I taken? I have asked the HR community to prepare information that looks at the absence, sickness and disciplinary records for all of the people in the organisation. Based on that, I am in a position to look at all of those people who are perhaps not adhering both to their formal contract of employment and the psychological contract that they should have with the organisation. I will take the necessary action to remove those people who are not adding value to our organisation. My track record in the public sector demonstrates that I have done that previously, so I know how to do it. One of the challenges in using something like the compulsory redundancy approach is that you make jobs and not people redundant, so in a team of 10 doing exactly the same job you cannot use that as the equivalent of a sniper’s approach. There is a slightly different way to do it.

Q83 Barry Gardiner: How will you ensure that the reduction in staff numbers that you are looking at, which is about 10%, will not end up costing more in the long run by increasing the need for temporary staff or contractors, who I understand were costing £200,000 as against £25,000 as the average salary for the RPA permanent staff?

Mark Grimshaw: It is not my intention in the long term to go down the contractor route. I do not think that typically contractors add the value that they cost the organisation. There will be some issues where it is expedient to bring a particular set of skills on board for a defined period of time. I think the challenge for the Agency right now is to make sure it is sufficiently resourced to deal with the 2011-12 challenges. I am sure you are aware that I have put a brake on the Agency’s voluntary exit scheme for people that have single payment scheme skills. So, as to those you referred to earlier as having expressed an interest in the scheme, we have not let go those people who have SPS processing skills.

Chair: Can we shorten the questions and answers slightly so we can get through everything? We also might have a vote.

Q84 Barry Gardiner: So, in your view the risk of incurring disallowance is not increased by the budget cuts?

Mark Grimshaw: No.

Q85 Barry Gardiner: To go back to a question we skipped earlier, in the past Defra and the NAO have disagreed over the correct method to calculate the administration cost per claim, with the NAO’s method giving a somewhat higher value than the Department’s preferred measure. The cost per claim is now one of the Department’s input indicators. Can you clarify, please, which method you will be using in future?

Mark Grimshaw: We are using the PwC method, although we are fully sighted on the approach of the National Audit Office, and they are aware of the fact that we are using the PricewaterhouseCoopers method.2

Q86 Barry Gardiner: Will the indicators be comparable across years so we can accurately measure your progress?

Mark Grimshaw: I see no reason why they would not be.

Q87 Barry Gardiner: If you use a different indicator, it may well not be.

Mark Grimshaw: We are using the PricewaterhouseCoopers indicator, which was the one referred to in the Lane review. If we use the NAO one we would have to re-baseline and we would have slightly different numbers, but I am quite comfortable with the PwC approach because it tends to use elements over which I have control within the Agency.

Q88 Barry Gardiner: So, again you are not quite implementing all the things that the NAO asked of you?

Mark Grimshaw: I am afraid I do not know the answer to that one.

Katrina Williams: I think both methodologies for calculating cost per claim are valid in themselves. I do not think there really ever was any dispute between Defra and the NAO.

Q89 Barry Gardiner: One may be more politically convenient.

Katrina Williams: There are two sorts of figures. Certainly, the NAO figure includes, for example, the historical IT cost and the costs of covering foreign exchange changes. The reason we are using the PwC calculation, which is different, to monitor the Defra inputs is that, as Mark says, it focuses on the costs on which the RPA can have a direct impact in the future. Effectively, what we may need to do is to say there are two sets and we look at both of them. The one on which I would want to hold Mark to account is the one that describes the costs that he as chief executive can control.

Q90 Neil Parish: The Department must have been delighted when it also had the fruit and vegetable regime to administer. If I may be so bold, that has also been a pretty damning disaster. You may be aware that the Rural Payments Agency has had a terrible time trying to monitor what happened in the producer organisations. At the moment it has paid as much in fines on disallowance to the EU as it has ever paid in grants. The UK has been fined over £20 million by the European Commission as a result of weaknesses in administering the EU’s fruit and vegetable producer organisations. I think it is relevant because this is another scheme that has come in after the 2004-05 scheme that has not been administered effectively and you have had huge fines, so what are you going to do about it?

Mark Grimshaw: I am aware of the situation with the fruit and veg scheme. It has been brought to my attention in the space of the last month, and I have initiated some reviews. However, Katrina is in a much better position to give you a more detailed answer to that particular question.

Katrina Williams: I thought Christine Tacon of the Co-op gave you a very graphic description of the difficulties that people have experienced. I do not underestimate those difficulties. We are not the only Member State that has had difficulties in interpreting this particular piece of legislation and visits from the auditors about how we do it. We are now doing three things. Here I must pay tribute to the role that the NFU and the industry have played with the Agency in helping to put out clearer guidance for new producer organisations. The Agency is working very hard to look at the situation of the 30 producer organisations that have had their authorisation suspended. To go back to lessons learnt, there are plenty of lessons to learn, which I think other Member States will also be pressing, for the 2013 reform of the CAP.

I acknowledge, as Christine said, that this has been an extremely difficult situation for the industry. We are doing what we can to make it better for current and future people, and to take those lessons into the CAP reform negotiations. In doing that we have to balance the interests of the industry and the taxpayer. As you have identified, it has had the capacity to bring us very significant amounts of disallowance. We and other Member States have been in the same position on that.

Q91 Neil Parish: The Co-op has described it as complete chaos, which you largely recognise, but, to be quite blunt, is the RPA capable of administering this, or should it be administered by somebody else and should you concentrate on the single farm payment? Will you be better by the time it gets to 2013 to administer the new payment? It does not fill us with great confidence.

Katrina Williams: I think the issue with this particular piece of legislation is more about the intrinsic difficulty in interpreting and implementing the legislation, and valuing the quality of the processing and administration in the Agency. To be perfectly honest, I think it is a different problem.

Q92 Amber Rudd: The Lane review also proposed consideration of a rebranding of the RPA in order to draw a line under the negative historical feelings about it. Have you considered doing that? What is your view of it?

Mark Grimshaw: I have not considered doing it at this stage. It is one of the items that is due to be raised at the strategic planning event that we are holding at the end of June. Right now I think the RPA as a brand is probably broken at worst, tarnished at best. Just changing the name on the outside of the can will not change the contents, however. I would much rather take the Agency out of the spotlight by delivering for our customers and then, in the fullness of time, consider whether or not the name needs to be changed.

Q93 Chair: Mr Grimshaw, I realise that you have inherited a situation created a number of years ago, in the sense we have the most complicated single farm payment of any Member State and any devolved assembly, but do you realise that when there are delays in payments it causes real human hardship for individual farmers, many of whom have had to turn to farm crisis networks? I have seen the figures. For those farm charities, over the last year the numbers have increased manifold. I would like to applaud you for what the Agency is doing, but we would like a commitment that farmers will never again have to face the nature of the delays that they have faced in the past.

Mark Grimshaw: My commitment to the Committee and our stakeholders is that both I and my senior team will work incredibly hard to ensure that the payments system and the scheme we are operating is delivered as efficiently as possible. I have discussed the issues with stakeholders personally; I see all of the letters that go to MPs and sign them personally, so I am sighted on the volume of complaints. I speak regularly to our colleagues who actually work on the distressed farmer case team. I do not think it is an acceptable position for the Agency to be in. One of the reasons I chose to take this role is that I believe I can make a difference here. I am sure this Committee will judge me on my ability to do that over the course of the next year or so. I am absolutely committed to making sure we deliver accurate payments on time, so within the scope of the payment window, to our claimants.

Q94 Chair: Can we have an undertaking that there will be no staff performance-related bonuses until such time as there has been a visible, manifest improvement?

Mark Grimshaw: Unfortunately not. As I mentioned earlier, the Agency is responsible for a wide range of activities outside the single farm payment scheme, so I have to take into consideration all of the contributions of my people. That said, I think it is unlikely that the Department will be allocating much in the way of bonus-related funds if the Agency is not performing.

Chair: On that note, we would like to thank both of you for being with us this afternoon and being so generous with your time. We look forward to receiving the additional written statements from you. Thank you very much indeed for participating.