CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1357-v

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Environment, Food and Rural Affairs Committee

Natural Environment White Paper

Wednesday 29 February 2012

Rt Hon Oliver Letwin MP and Chloe Smith MP

Evidence heard in Public Questions 217 - 267

USE OF THE TRANSCRIPT

1.

This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Environment, Food and Rural Affairs Committee

on Wednesday 29 February 2012

Members present:

Miss Anne McIntosh (Chair)

Barry Gardiner

Mrs Mary Glindon

Neil Parish

Ms Margaret Ritchie

Dan Rogerson

________________

Examination of Witnesses

Witnesses: Rt Hon Oliver Letwin MP, Minister for Government Policy, Cabinet Office, and Miss Chloe Smith MP, Economic Secretary to the Treasury, gave evidence.

Q217 Chair: Good afternoon. Welcome. Thank you, both, very much indeed for agreeing to appear before us in our evidence session on the Natural Environment White Paper (NEWP). We are going to explore the respective roles that your Departments play in addition to that played by the main Department, Defra. To begin with, how can we put a value on nature?

Miss Smith: If I were to begin with something that the Treasury is very excited by in all this, it is the opportunity to update the Green Book guidance that we use. It is clearly a level of detail, but I begin with it particularly because we have published supplementary guidance to it today, which no doubt Committee members have had a chance to read in detail before arriving here at one o’clock. That endeavours to pull together different assessments and different ways of putting values upon things, and the environment is absolutely at the heart of that, which I think is very exciting and very fully underpins what we are trying to do with the White Paper and discussion in the inquiry.

Mr Letwin: Can I just add to that? I have to pay tribute, unfortunately, to our Labour predecessors; this all started when they commissioned the National Ecosystem Assessment (NEA), which I think is one of the canonical works. It may even have been under the watch of one member of the Committee that this was developed. What is really important about the NEA is that it identifies the quantifiable economic and social values as well as the unquantifiable, and provides a remarkably robust intellectual framework for translating the restoration of habitats and a wide range of other environments, and the provision of ecosystem services, and sees not just what is going up and what is going down, but actually what effects those have on a wide range of outcomes, so provisioning and tourism uses, as well as much more esoteric things, such as the ability to absorb carbon or prevent flooding.

When the Committee has had a chance to look at this document, it may well want to interrogate it, but what is impressive about the latest product from the Treasury is that it starts with the concept of total economic value, and uses exactly the classifications that the National Ecosystem Assessment derives, and then instructs Whitehall. You have to remember that a Treasury document, as those in the Committee who have been involved in policymaking over some years will be aware, drives a large amount of the way policy is actually made across Whitehall. What the new Treasury guidance does is to instruct Whitehall in how to perform assessments of total economic value, breaking it down into all the elements that the National Ecosystem Assessment dwells on. It actually goes further and instructs Whitehall officials in how to use things like revealed preferences to establish monetary values. This is an enormously important departure, and it is coincident that it happened today, but I think it will have its effects over many years to come.

Q218 Chair: Was there a particular reason, given the fact that we have a Green Book on guidance, the supplementary guidance published today and we talk about creating a "green economy", that no value has been placed on farming and food production? Was that an omission by default or was it a deliberate omission?

Mr Letwin: It is a mistake to suppose that no value has been placed on farming and food production. Farming and food production has an absolutely immediate and measurable economic value, as well as, of course, a much more complex but equally important social and environmental value.

The National Ecosystem Assessment, as you will be aware, starts with provisioning and assumes that as a background. It assumes that farming is a hugely important economic activity, as well as a hugely important social and environmental activity, and then looks at the way in which more ecologically sophisticated and more ecologically sustainable forms of farming, for example-and one of the members of the Committee here is a world expert on this, so I am teaching grandmas, but nevertheless-feed back into more productive farming, which has its own economic value. It measures that. The Treasury guidance specifically draws the policymakers’ attention to that sort of phenomenon.

Basically what it is saying is: "Let us assume that, as a background, farming like every other major industry in Britain is a major industry of incalculable importance. Now let us ask, by making that or, indeed, any other aspect of our national life more ecologically sound, how can you improve further the economic and social effects?"

Miss Smith: If I may only add to that just to give some examples from the NEA, and to put a number precisely on the value of farming, if you like, UK farmers generate £6.6 billion for the economy every year. The NEA has indeed tried to take on that challenge and succeeded in quantifying the benefits of farming. As Oliver then says, it goes on to talk in many other ways about how we can ensure that continues.

Chair: If we could now turn to the roles of your respective Departments, I will ask Neil Parish to take over.

Q219 Neil Parish: Thank you very much, Ministers. Mr Letwin, given that the White Paper’s application goes well beyond Defra, who is key in the delivery of the White Paper? Is it Defra, is it the Cabinet Office or is it the Treasury?

Mr Letwin: I would say all three.

Neil Parish: I thought you might.

Mr Letwin: But with different roles. Clearly the lead Department in producing and in delivering against the commitments in the White Paper is Defra. I am sure that you will have been speaking to the Environment Secretary about this at length, and she has been the leading force and it remains that way. We all acknowledge that no single Department in Whitehall is capable of mustering the necessary forces to ensure that the rest of Whitehall pays sufficient attention to an agenda that, in this case, is absolutely central to the Government’s overall agenda. In order to make that happen, it is also necessary that two things occur, one of which Chloe can speak about much better than I, which is that the Treasury should follow through. The other is that, in our work in No. 10 and the Cabinet Office in holding departments to account for delivery of the Government’s objectives, through the business planning exercise but through many other things as well, we aid and abet the lead department, where they are carrying forward a central Government policy to ensure that each other department takes it with due seriousness. I literally have lost count of the number of times that I have had conversations with Caroline Spelman about what we needed to do in order to make sure that some other department was doing something in a way that cohered with, for example, the Natural Environment White Paper.

Q220 Neil Parish: Can I just say, generally on the value of ecosystems, the White Paper, in my opinion, is very strong on the valuation of ecoservices and ecosystems, but there is not a lot in it on exactly what we are going to do with it once we have valued it, and how it will concretely improve the environment we live in. That is what I would be slightly critical of. Are you keen to make sure that this goes from just the theoretical? I rather fear it is a theoretical exercise, and I am not quite convinced where it leads to in practical terms.

Mr Letwin: Chloe may want to add to this, but I would say that there are two enormously important respects in which the White Paper’s agenda and commitments are already beginning to happen on the ground and in which they will continue to happen on the ground over succeeding years, I hope even decades. One is in changing the way we do policy across a much wider waterfront. The other is in specific schemes that improve ecological outcomes. If I can just deal with the former first, the item we were just discussing-the guidance on the Green Book, which goes out to every department-is taken extremely seriously by permanent secretaries and by everyone working under them, as Mr Gardiner in particular will be very aware.

It forces departments now, when formulating a policy about, shall we say, a road, the road system or the way in which we build houses, to pay attention to the ecological effects and the costs or benefits of those ecological effects. That tilts departmental policymaking on the ground, as this is real life, towards trying to do things in ways that not only achieve whatever the primary objective is-getting people from A to B or getting them a house to live in-but also, at the same time, achieves an improvement rather than degradation of the environment. It does this in a hardheaded way. It actually says to the Permanent Secretary and officials in that department, "Look at this and assess it in terms of cost, because you will not get your policy through unless you can show that, actually taking account of the environmental costs or advantages, it is worth doing in net present value terms." That is an enormously important bias in the policy framework, which will actually have an incalculable effect over many, many years. I hope that this is a matter entirely of political consensus across the parties, and therefore think that this is here to stay and is, therefore, very powerful.

Secondly, however, the White Paper contains a series of entirely concrete-a bad word to use-or tangible commitments, which we are now rolling out. Last Monday, as the Committee will be much more aware than I am, we announced the 12 Nature Improvement Areas (NIAs). One happens to touch on my own constituency, so is obviously a very live interest to me, but these are landscapescale areas, where we are actually making a difference in a way that is imaginative and goes beyond what has happened before. There is also the capacity building for Local Nature Partnerships (LNPs), the building of an Ecosystem Markets Task Force to look at ecosystem services and a whole series of things that fall more on Chloe’s side of the House-actually getting a Natural Capital Committee (NCC) together, so that we keep check of what we are doing to natural capital. There is a whole series of practical things that come out of the White Paper. It is not just a theory.

Q221 Neil Parish: A lot of my second question you have answered already: how you are holding government departments to account on the mainstream sustainability of their business plan? The other part of it is: have you set specific targets or required any specific departments to readdress their sustainability measures?

Mr Letwin: What we are doing is something that we think is more powerful than those things. Apart from driving the analysis in the way that I have described, we are also now going through the whole of the business plans for every department, which Danny Alexander and I are responsible for monitoring, enforcing and refreshing. As we do so, we are looking in every case at whether sustainability has been built in in an appropriate fashion. That is what Caroline said in a previous set of evidence to the Environmental Audit Committee we would do, and we are now doing it. That is a very powerful means of holding departments to account, because secretaries of state and permanent secretaries have to come in and explain to us how they are living up to their business plans on a regular quarterly basis, and clearly that becomes quite a matter of importance to them, between one meeting and the next.

Miss Smith: May I come in and give answers as well, where I can? I wanted particularly to come to the practicality point that Neil raised, because I think it is fascinating. On a first read, no doubt many people may think that of such a thing as a White Paper that tries to talk about the natural environment, but I do think that the approach we have set out, not only through that document but also through the rest of the literature that Oliver has referred to and that the White Paper sits within, is actually immensely practical. If I take the example of green spaces, you can pull a number of very-and again, bad word-concrete benefits or practical benefits from the maintenance, upkeep and provision of new green spaces in the areas we all live in. You can quantify health benefits from it. Indeed, the NEA quantifies universal access to quality green spaces as potentially saving the NHS around £2.1 billion every year. Again, that is something we can value and something we can put to very tangible effect for every generation that might pass through a green space.

Turning then from there to business benefits also from green spaces, whether they are in rural or perhaps in builtup areas, you can start to see benefits such as a cooling effect in the summer, quite simply. You can almost tangibly have a better environment for everybody who passes through it, such that the economy can also benefit, on a shopping high street for example, if it is a pleasant place to be, live and work. You can absolutely quantify, in many ways, the practicality of something so simple as green spaces. I think, as Oliver has said, I am starting to teach him to suck eggs; he knows that as well as anybody else does.

Chair: Could we try to condense the answers? There is a lot we have to get through and I know you are only with us until 2.30, so we want to make the best use of our time.

Miss Smith: I would be very happy to condense my next answer, which was only about the role of the Treasury. We were asked about three Departments and more that have to deliver this approach we are setting out. I just wanted to note that the Treasury necessarily takes a broad approach across the whole of the economy. Naturally, we see growth as one of our highest priorities but, within that, it is extremely important to build up a picture not only of what is measurable and what is harder to measure but also to secure the value from those things so that decision making can be sustainable, as Oliver has already said. It is also the Treasury’s role to work with many of the bodies that have been indicated by the White Paper, such as the Natural Capital Committee. No doubt we will come on to that, so we can go into it in more detail, but the Treasury takes a serious interest in underpinning the breadth of the work that we are talking about in the White Paper.

Neil Parish: I thought it would.

Q222 Mrs Glindon: Can you give some examples of how the Cabinet Office is ensuring that the value of the natural environment and its services are more firmly embedded in the assessment of Government policy?

Mr Letwin: This is a joint endeavour between the Cabinet Office and the Treasury. One of the main tools is the one we have been discussing so far, the new method of assessing policy. Another is one I have just been talking about, which is the business plans and making sure that ecological and sustainability considerations are present in every department’s approach to their overall policy. It goes beyond that because, if I may put it this way, a set of papers, measures and commitments in business plans is a very important discipline, but is not the same as-

Q223 Chair: Minister, that is all terribly interesting, but could we just have examples? Could you give us some concrete examples?

Mr Letwin: I was about to come to that, because I was going to say they are not the same as investing emotionally in specific things. Part of what I spend my time doing is trying to make sure that, as we discuss very specific policies with the Department for Transport, Department for Communities and Local Government (DCLG) or even the Ministry of Defence (MOD), we try to make sure that they are building ecological considerations into the discussion we are having. If I can give you a very important example, we have entered into a whole series of commitments about carbon reduction, waste reduction, paper reduction and water use reduction across Government, which we control much more closely than things that are going on outside Government. You put your own house in order first. We have, for example, made the commitment to reduce the carbon emissions of Government by 25% by 2015, having reduced them by nearly 14% in our first year. I am delighted to tell you that we are broadly on track to achieve that across almost every department, actually earlier than 2015, I think. The one case that may take us all the way to 2015 is the MOD, which is a peculiarly difficult case.

It is not, as I say, just a matter of carbon. We are seeing really largescale reductions of waste, water and paper use. I am not going to reveal them to the Committee by name, because this would be betraying confidences, so to speak, but I have here-you may be able to see, even at that distance-some red, green and yellow lines. Those represent specific departments that are doing well or badly so far. My and Caroline’s job is to make sure-Caroline Spelman and I chair this Committee-that every department is in the green on these charts by the time we have committed that everybody should be in the green. That is a very specific concrete example, nothing to do with theory, of actually driving the machine to be more ecologically sophisticated and sensitive.

Q224 Chair: Can I give you a concrete example, Minister, to be helpful? How is High Speed 2 (HS2) good for the natural environment?

Mr Letwin: We think that it is going to have enormous advantages for the natural environment, because if we build not just this HS2 but an entire highspeed network in the UK, which is the only major European country that does not have one-we are currently heading, if we do not build HS2, to having 0.07% of the Western European highspeed rail network-a large amount of the traffic that would otherwise have been generated on our roads and, indeed, eventually in our skies will be able to go by rail. It will have an incentive to go by rail. That is a vastly more ecologically desirable outcome than road or air travel, so we think that there is an enormous advantage in this.

Of course, it is also the case, and I am sure the Committee wants to talk to our colleagues in the Department for Transport about this, that very careful steps have been taken to try to minimise the immediate impact of HS2. Indeed, a great part of the cost of the whole enterprise arises from tunnelling and environmental adaptations. Both in the way we are carrying this out and the overall aim of which it is part-to create a highspeed rail network-the policy is ecologically driven.

Q225 Chair: May I just ask the Treasury, Chloe Smith, whether the supplementary guidance that you have just published would have had an impact on the detailed plans for the drawingup of High Speed 2 and the impact on the natural environment of the route? Would your supplementary guidance have had an impact on the actual route that is being proposed?

Miss Smith: I have not been privy myself to such planning meetings, to be clear. But I would anticipate, drawing on the principles that the Green Book represents, that every official discussion that deals with the cost/benefit analysis of such decisions does draw on that guidance. Yes, I would entirely expect that to be the case, as you asked.

Mr Letwin: Although this guidance is an enormously important step forward, it was already the case that environmental considerations are deeply built into the impact assessments which the previous Government introduced and which we are enforcing. We are in fact enforcing them more aggressively than previously. Therefore, in the evolution of HS2, both under the previous Government and under the current Government, the impact assessments do of course look at the environmental effects. We are talking about a more sophisticated look, rather than no consideration previously and now some consideration.

Q226 Barry Gardiner: I want to start off by paying tribute to the Minister of the Cabinet Office, because I know he was one of the first people in Government to actually get natural capital and to enable it to be driven through Government in the way that it is. I am deeply grateful to him for that. Just picking up the theme of HS2, what depressed me in the response from both Ministers was that the focus came back to carbon, and doesn’t it always? When we are reaching for an example, we always come back to, "Oh well, we can say something about climate change, carbon and CO2." To be able to look at HS2 as the first major infrastructure project in this country that allows for connectivity of landscape, that allows for migratory corridors for habitat change, for climate change, for species to move into habitat as they are driven northwards or indeed southwards, depending on where they are coming from in the first place, is a huge opportunity for biodiversity. What does depress me is that the only thing that Ministers who come before us seem able to draw on as examples always comes back to carbon and CO2.

Mr Letwin: Sorry; I was being, in that case, inarticulate. My point about the overall highspeed network is indeed a point about carbon. My point about the way in which we have done HS2 was meant to be a point about ecology. I completely agree with what you are saying. My own view is that, as a wildlife corridor, this is enormously important. A great deal of thought has gone into that. Leave aside landscapescale improvement; if we do not have wildlife corridors, we are nowhere. I completely agree with that. Also, the whole design of the thing has tried to be ecologically as sensitive as possible, right from the word go under the previous Government and now.

Barry Gardiner: It was more of an aside.

Miss Smith: Extremely briefly, only to perhaps try to reassure the Committee-maybe you will ask me such a question-if I were to be talking about greening the economy, I would not only be drawing on examples of low carbon; I would be talking about trying to make every sector of the economy greener, rather than the economy skewed, as it were, towards one technology or another.

Q227 Barry Gardiner: Good, okay. So far we are on the same page. Let me put it to you, Minister, that there is a real tension, if not conflict, not only at the heart of Government’s approach here but also of your own Department, in the way in which the Government sees the benefit for a cost/benefit analysis of valuation of natural capital or payment for ecosystem services but at the same time, through the Red Tape Task Force and the desire to rid Government of regulation or to rid business of regulation, is tending to move in two different directions at once. Your famous 12 February meeting, where I believe you spoke of distilling environmental regulations down to a 50page booklet, has sent shockwaves through the natural environment community in this country. I know, as a former Minister with responsibility for regulation, when you have the website and you ask people to put in any regulations that are burdensome-we have had all this before-very often you do not find it is; they cannot come up with the examples of how it is holding business back. The Government seems to be conflicted here. You are shaking your head-I am delighted you are-but please explain to me two things: one, why you do not see it as a tension; and two, that you are not going to distil environmental legislation down to a 50page handbook.

Mr Letwin: I am very happy to explain both of those things. Let me say, I think it is a very profound question, so I hope you will forgive me if I answer it in full, because I think it is terribly important. The first point I would make is this: environmental regulation, like a large part of regulation as a whole, is actually very valuable. You need to have all sorts of things stipulated in law in order to preserve the environment, because there are all sorts of things that would otherwise be done that we do not want to happen. This is a common ground and, indeed, it is not unique. Criminal law is another example of a case for which you need a lot of regulation. We all accept this. Nobody is trying to sweep away environmental regulation.

The second point is that, in order for environmental regulation to be effective, it needs to be clear; it needs to be accessible. That is partly for the sake of regulators, it is partly for the sake of the people who are being regulated and it is partly for the relationship between the two. I do not see any tension at all between believing in the need for environmental regulation and believing in the need for the clarity and accessibility of that regulation. In fact, I think they go hand in hand.

The third point is, at the moment, while you are quite right that, in contrast to some other areas of regulation, it is not the case that you get people coming up with very specific examples of a particular regulation or particular clause of a particular regulation that is causing trouble, there is a lot of evidence that people who are trying to do things that are very beneficial, not incidentally just socially and economically but in some cases also environmentally very beneficial, find themselves much less able to do so than they would like to be, because they cannot get hold of a sensible understanding of what it is the regulation is about at an early stage. If I could just draw your attention to one particular area there, which I am sure the Committee has already attended to, the question of the implementation of the Habitats Directive, which-

Barry Gardiner: The Chancellor so famously spoke of.

Mr Letwin: The Chancellor has spoken about it and the Environment Secretary has been reviewing it. What we have discovered is that there are many cases in which there are perfectly good, workable solutions that meet the needs of a particular development, for example of an offshore wind project, which is-I apologise for talking about carbon-very important in carbon terms, but which have ecological effects. There are cases in which it is perfectly possible to find a workable solution so that the offshore wind project can move forward quite smoothly and the ecological requirements of the Habitats Directive are met. What was happening was that the promoters and regulators were locked, if I can put it that way, in two machismo positions, unable to get to a sensible conclusion and shooting at one another.

Q228 Barry Gardiner: Forgive me, but there are always going to be struggles over interpretation, but that is not what the Red Tape Task Force is simply about, is it? It is also about doing away with regulation, with one in, one out.

Mr Letwin: Let me deal with one in, one out.

Q229 Barry Gardiner: You have set to reduce the amount of regulation, and we both accept that regulation can be a good thing. Indeed, if you look at the European telecoms regulation, it has created 600,000 jobs. Regulation is necessary to enable the economy to advance. It does so by regulation, because it creates markets. Without regulation, you do not have markets. What troubles me about this is that you are saying there are specific areas where they are locked in conflict. Yes, of course, but equally that is not about the regulation itself and doing away with it.

Mr Letwin: Precisely.

Barry Gardiner: Why are you trying to do away with regulation?

Mr Letwin: We are not and I will come on to that in a second. You cut me off just before I was about to say that what we have discovered, in relation to the implementation of the Habitats Directive, is first of all we cannot change the Habitats Directive, even if we wanted to. It is there; it is European legislation. The Chairman is very well aware it is not something we can suddenly do away with or, indeed, do away with on our own, at all, ever. What we have discovered is that, by setting up a unit in Defra to have sensible discussions with the promoters of these projects and with the regulators, without changing a single aspect of any regulation at all, we have been able to come by workable solutions that have enabled project after project to go forward. It is not a question of doing away with the regulation; it is a question of trying to create the right kinds of relationships between regulators and the regulated.

Q230 Barry Gardiner: Sorry, just for absolute clarity’s sake then, are you telling this Committee that the Red Tape Task Force has not got, as its mandate, the objective of cutting regulation, but only mediating between the regulators and the regulated?

Mr Letwin: In this domain, yes. Our view is that environmental regulation is there for a purpose. There are many other parts of the regulatory scene, for example health and safety legislation, where I think we have gone beyond the sensible and where we need to make adjustments. In the case of environmental regulation, having now been through the whole of it at a first cut-I mean, sorry, at a first approach, just to avoid any ambiguity-our view is that all of it is necessary as regulation. I do not believe that the way it is put, the way it is communicated and the way it is enforced is in any way adequate. The guidance and the regulations themselves could be made a great deal clearer and a great deal simpler, while preserving every single one of the constraints that they rightly impose.

Barry Gardiner: That is fine. Thank you very much.

Q231 Chair: Could I ask specifically why the Habitats and Wild Birds Directive was singled out for a special review by the Chancellor? We understand they are being kicked into the long grass and are before the Law Commission, which could take years to report.

Mr Letwin: No, it was singled out because the implementation of the Directive, which as I say we entirely recognise we have to keep, was causing very specific problems. Perhaps it would help the Committee if I describe the process by which we came to that conclusion. For the first time, this Government set up a national infrastructure plan and a process to arrive at a national infrastructure plan. One of the things we did in establishing that was we identified the 40 major projects on which the economy most depends, and a very large series of less major projects, which are also important for economic growth. Then we started looking at reasons why any one of these projects was stuck, and there were, as you might imagine, a range of reasons and cases. One of the things that became very clear was that, in a series of cases-I have mentioned offshore wind and it was particularly true in that domain-there appeared to be a sticking of the project because of the Habitats Directive. That led to the launch of the review. What the Secretary for the Environment has discovered, as a result of that review, is as I say that it is not the wording of the Directive that is causing the problem; it is the way in which it is being implemented.

Q232 Chair: My point, briefly, is that by sending it to the Law Commission-

Mr Letwin: She has not sent it to the Law Commission.

Chair: Richard Benyon told this Committee that-

Mr Letwin: She has not sent the whole issue to the Law Commission. She has established the unit. We are enlarging the unit.

Q233 Chair: The way that the Habitats Directive is being implemented has been submitted to the Law Commission. That is going to take years to report.

Mr Letwin: Yes, but that is a separate exercise from the exercise of busting the problem through the unit that she has established, which is at work now.

Q234 Chair: I think it is one and the same. Unless I am being very thick here, the issue the Law Commission has been asked to report on is whether we in this country are overimplementing the Habitats and Wild Birds Directive.

Mr Letwin: Yes, but there are two senses here of "implementing". It is the ambiguity of the word that is leading to this discussion at cross-purposes. There is the technical sense of implementing a European Directive, i.e. transposing it into English law.

Q235 Chair: Goldplating.

Mr Letwin: Goldplating. That is the issue that the Law Commission has been asked to consider.

Q236 Chair: Which will take years.

Mr Letwin: Indeed. Separately, there is the question of how the Habitats Directive and its associated English law regulation are being implemented in England. In that sense, which is the important sense for today, what we have discovered are the very things I was describing in relation to Mr Gardiner. That is to be solved not by sending anything to the Law Commission, not by changing any laws, but by getting down on the ground and having people in Defra doing something rather unusual in Whitehall, which is going and talking to the warring parties and saying, "Oi, if we did this, could we not get round this problem, and actually meet the objectives and constraints of the Habitats Directive and also meet the objectives of the people who are promoting offshore wind?" for example. The answer is that has proved very successful and we are now moving forward with that.

Chair: Perhaps Defra would come possibly to look at the bats in Ellerburn church and the other churches as well.

Q237 Dan Rogerson: My apologies for missing the beginning of the session. The White Paper argues for the embedding of environmental services in economic assessments of policy across all government departments, so there are a number of things flowing from that. First of all, should there be any exceptions to that principle?

Miss Smith: One of the things I have been discussing with the Committee, and I think you heard much of it, was about the supplementary guidance to the Green Book, which has been published today. Indeed, I have a copy of both here with me. I was saying that the principles within the Green Book and the practices laid out within it, for the purposes of making good decisions, are embedded across the whole of Government, so I would anticipate it to be universal.

Mr Letwin: May I just say that is right insofar as policymaking is concerned? But I would not want to mislead the Committee. You will find this very obvious when I say it, but clearly if the Army is fighting a war, we are not requiring them to consult the Green Book. There are exceptions of practice but, when formulating policy, what Chloe said is absolutely true.

Q238 Dan Rogerson: In policy terms, that is it. Secondly, and this is a fundamental question, how should the economic and environmental considerations be balanced with other priorities? What is the mechanism for doing that?

Miss Smith: I will give a brief answer, and no doubt we both have things to say. The answer is you have to take a fairly blended approach, and no doubt it will depend on the particular policy at hand. Let me, if I may, stick in the policy sphere, rather than the extremely good practical example my colleague just gave. I think one of the key challenges that the White Paper sets out is about how to quantify the natural environment and how to attach appropriate value to it, and then there are questions of what you can do with that value, once you have attached it.

The Green Book guidance seeks to set out a method whereby you can balance different types of value. Probably the ultimate answer to your question is there will never be a highly calibrated method of making sure that type of values X are just the same as type of values Y, because some things are easier and some things are harder to quantify. There will always be error in that sense or at least there will always be space for further development.

The other point I want to make about it is it is a very collaborative process, and every department is absolutely free to add their experience to it, which is what we would anticipate. In answer to your question, yes, that is absolutely the challenge; it is to put an accurate and adequate economic value, if you like, on something that is not, at first pass, an economic item. The Green Book attempts to do that, but it does acknowledge that such a balance has to try to put together things that are easier and harder to do.

Mr Letwin: I do absolutely agree with that, but the point I wanted to add is that I think it is incredibly important the effect of the National Ecosystem Assessment and of the Green Book in Whitehall, as we see it, should be cultural. When I say cultural, I mean it should shift from a wrong view-and here I think Mr Gardiner was one of the groundbreakers some while back-that suggests that you face environmental constraints and economic and social objectives. This is of course true to some degree, but actually it is not the whole story. There are an awful lot of economic and social advantage that can be got from ecological activity-the right kind of ecological activity.

What the whole of the National Ecosystem Assessment is really about is precisely the muchneglected fact that building natural capital is not an antieconomic or antisocial activity; it is something that makes not woolly brigade, sandals brigade stuff but quantifiable, rigorously assessable effects, as well as qualitative effects, on economic and social prosperity. What we are trying to do is to get people not just to perform an analysis that tots up on cash registers but to think that way, so they are asking themselves the question: "When I am doing X"-and Mr Gardiner’s example of HS2 is a classic case-"can I do it in a way that will have a huge ecological advantage, which in turn will have a series of further economic advantages that increase the value of what I am doing?"

Miss Smith: For reference of the Committee, if it is of interest, chapter 3 of the supplementary guidance published today is explicitly about valuing nonmarket impacts on the environment. I suspect you will find the detailed answer there, whereby in general terms, basically you are potentially trying to compare apples and pears, but what you try to do is get to a commonly understood pound money value for those things, and you are aware of the limitations, perhaps, of some of them.

Q239 Dan Rogerson: In terms of doing something that ecologically has a benefit, it can unlock social and economic goods as well, and presumably the other way round; some development can also achieve an improvement of the ecology. The final part of this question is: to what degree do you think it is appropriate for the private sector to start to pick up more of the environmental costs of their activity and their operations?

Mr Letwin: This is not controversial or new, but our general view is that the polluter pays principle is a good principle. Exactly how you make it happen in all cases is, of course, complicated. There is a good deal of it already built into policy, much of which we inherited, some of which we developed. We can go further.

Q240 Barry Gardiner: Can I just talk about the means here, because you know the Lawton Report said it was £0.6 billion to £1.1 billion? As yet, departments have not been asked to produce an inventory, which was one of the recommendations that came out of the proposals at Nagoya. It seems to me that, in much of our discussion, I would like to think we are on the same page, but what we need to see in terms of action from Government at a departmental level is the plan, the funding stream to back that plan up and the actions that are going to translate this from something that looks little more than a beefedup environmental impact assessment to a fullblown recognition of the value of natural capital and the value of ecosystem services being properly accounted for in the Government accounting framework. Specifically on funding and departmental inventories, can you respond with where your thinking is?

Mr Letwin: Maybe Chloe will say something much more learned than I can about the question of accounting for natural capital in the national accounts, a very important issue. Let me just talk about the funding and the scheme, so to speak. Without entering into partisan debate, we obviously inherited a quite tricky fiscal situation and there are some pretty strict limits on the extent of funding that we can, as a nation, afford at the moment. We would all like to see more. I have to say that I think the Environment Secretary did extraordinarily well in a very tough spending round to preserve so much as she did in Higher Level Stewardship (HLS), for example, which I regard as one of the gold standards, but there are constraints. I am not trying to mislead the Committee into supposing there is an unlimited quantum of money. If I tried to, Chloe would very quickly stop me, and rightly so.

However, within that, actually money is coming out and the Nature Improvement Areas is a case. Now, I accept that £7.5 million-if I am remembering the correct figure-is very small in comparison with £1 billion. However, one should not be misled into supposing that it is just a question of Government money; it is a question of gearing up Government money. One of the whole points of the NIAs, a point of agreement I think, is that they can gear up and produce quite a lot of ecological investment from elsewhere. There is no better example of that than the Local Nature Partnerships, because what we have done is to use a tiny sliver of public funding to build capacity, in the hope that Local Nature Partnerships will then gear up quite considerable local investment, some of which I am seeing in my own constituency. Our view is that the fact that we are constrained on funding, while regrettable, does not mean that we should abandon the effort to get things to happen at scale.

Q241 Barry Gardiner: I do not want to pursue a partypolitical Punch and Judy show; I am not interested in that. What does strike me though, and you rightly point it out-£7.5 million, and I will chuck in the other one that is there to £8.5 million in the White Paper-is if we are genuinely moving to a point where Government sees these as not in tension and opposition to each other but looks at environmental resilience and sustainability as a net genuine, real term-you said yourself that this can be cashed out in exactly the same way-benefit to the economy, surely we should see it as an equally worthy area for investment that produces returns as any other department of government. £8.5 million ain’t that.

Mr Letwin: Again, Chloe may want to intervene here, but understanding the importance of the assessment techniques means understanding the process of Government here. When we were doing the last spending round-and, as you will appreciate, spending rounds only happen once every few years, so this is not an annual thing-the Chancellor made a decision, which we addressed in the Public Expenditure (PEX) Committee, that we would take control centrally of the entire capital budget. Uniquely, for the first time, there was an attempt to rank projects on a return basis, rather than simply saying, "It’s Buggins’ turn. Department X should get something."

At that stage, there was not formalised within Government a method of assessing the ecosystem return; now there is. We have the guidance, which is an enormous step. Of course it is up to the Chancellor; I do not know when he is going to decide to do the next spending round, but shall we say it would normally occur either in 2013 or 2014? I fully anticipate-I think it is inevitable-that when those assessments of capital investment are made, now the ecosystem service benefits will be built into the NPP calculations and that will change the allocation of funding, as between projects that do and projects that do not have ecological significance. Here we are talking about very large sums, because the total capital budget is an enormous quantity of money. I think there is a danger in thinking that these sort of procedural items are just an interesting theory. They have a very direct practical effect when it comes to allocating money, and I think we will see a significant change as a result.

Miss Smith: If I may come in, there are quite a few things I would like to add to that. Firstly, you have put your finger on the £7.5 million, but also it would be wise to recall that the White Paper harnesses a wider range of funding, £5 million in fact for the environment in 2011–12. If you count things like agrienvironment schemes and catchment management, there is a far wider scheme of funding there as well. The second point I would make is that there are also numerous other existing funding streams, which could well be said to be available to this domain. You can count in that things like the Regional Growth Fund. You can count in that things like the Green Investment Bank. You can count in that things like the Technology Strategy Boards, so I would dispute the premise that it is only £7.5 million.

The next thing I would add is a really important point arising from the White Paper, and indeed backed up by John Lawton’s comments, that this is not just about nonGovernment funding, as Oliver has been saying, but it is about harnessing what business can do and indeed the third sector, and what simple ordinary citizens can do as well. It is about unleashing all of those things that can then come from a greener economy. I have already said that I would not see the green economy as being only one area of technology; I would see it as the whole economy being greener, sustainable and resilient-a word you used yourself. We need to make sure we can take advantage and create the opportunity for businesses to use the value that we are all talking about, and increase the value that we are talking about, in the natural environment.

The final point I would then point to under that would be the establishment of the Ecosystem Markets Task Force, which again has come about as part of this White Paper and is a very positive and tangible piece of work that will report back very shortly and contribute, once more, to the ways in which we can push this all forward.

Q242 Barry Gardiner: And inventories, either of you?

Chair: We must move on, so very briefly.

Mr Letwin: Very briefly, it is something that is work in progress. We do need inventories, but it is a complicated exercise.

Q243 Neil Parish: To Minister Chloe Smith, talking of cash registers and natural capital, what progress has been made on the work with the Office of National Statistics (ONS) to produce a road map for fully including natural capital in the UK environmental accounts? My second question is-I will give it to you all together so we can keep going-how much detail will the road map provide on further improvements up to 2020? Also, the valuation of some of these services could improve or decrease in value. How are you going to cover that?

Miss Smith: In brief to start with, on the work the ONS is doing to include it in the environmental accounts, it is absolutely occurring. We expect it to be on track. I would point out the ONS is independent, so there is no set of greasy fingerprints all over it at this stage. We are expecting to receive that from the independent body. On the road map point, I understand, again as I say, it is on track to come to us. It will build on some of the detail already set out, just in the way you say. I also understand it then links up to some work that the UN and the World Bank have done as well. In totality, I fully expect it to be on its way to us.

Q244 Neil Parish: Will it involve the Green Investment Bank as well or not-probably not or does it?

Mr Letwin: The Green Investment Bank has a range of purposes, all of which of course are about investment rather than accounting, so it does not relate directly to accounting. Some of the investments that it makes will be investments in ecological, as opposed to carbon reduction, activity. To the extent that they are, the value that is attributed to them in the national accounts will be recognised.

Neil Parish: It will then be recognised in those accounts. Thank you.

Q245 Ms Ritchie: I suppose this question is to the both of you. All of this is very new, so a culture shift will be needed to ensure that there is full buyin to natural capital accounting within your Departments. The first question is a subset of two: how will you achieve this and, therefore, what level of skills do Her Majesty’s Treasury and the Cabinet Office have in-house on environmental economics?

Miss Smith: If I may pay tribute, some of the relevant skills are sitting directly behind me, and very skilful they are indeed. More seriously to answer your question, the documents I have been referring to today-the Green Book, which has been updated today with guidance on accounting for environmental impacts-demonstrate the depth of skill and experience in applying those skills to policy, not only in the Treasury, but also, as I have been saying, because they are collaborative documents across Government, if you like, although indeed owned by the Treasury. It demonstrates that those skills and that experience are there across the whole Civil Service. Most specifically, they reside in the Government’s economic service, the economists who would then be embedded or employed directly by each department, but who retain a link or a dotted line across the whole of the Civil Service together. It is their skills that you would see coming through in applying that decision making to every policy.

Can I also just very briefly return to a theme I was just starting on about the kinds of skills that also sit outside Government, which I think is incredibly important in this? The Natural Capital Committee, again a result of the White Paper, is going to report to the Economic Affairs Committee, chaired by the Chancellor, so you see there a link between business, represented on that Committee, and wider society, linked into Government, the Treasury and what Ministers do, providing it with research directions for the future and providing it with policy evidence as well. I think there is a depth of skill inside Government, but also I want to highlight that depth that we are looking to draw on from outside the Government as well.

Mr Letwin: That was exactly the theme I wanted just to expand on briefly. Just as Chloe says, reporting to us in the Economic Affairs Committee, the Natural Capital Committee will provide a whole range of expertise that we could not expect to have purely within Government. One of the really impressive things, as I went through the National Ecosystem Assessment and talked to the people who had been involved in preparing it, was that it was completely crossDepartmental. It included not just ecologists of many different varieties but also economists of many different varieties, and working together. It was a very impressive bringing together of literally hundreds of people with two kinds of expertise, and getting them to learn to talk to one another in an appropriate set of languages.

As the research councils take forward this work to the next phase, and we have now commissioned another investment in this area, again there will be a vast body of academic and practical expertise brought to bear. It is terribly important to see this as not simply the layer of people within Whitehall who are skilful in this, and they are themselves much increased in number, but also as drawing on a huge area of expertise. I have to say-and again, this is easy to say in the Committee because it is a matter of bipartisan agreement and development-one way and another, perhaps by accident or perhaps on purpose, I think Britain has put itself in the lead in the world on this. I do not think there is any other country on Earth that has so far managed to assemble this kind of concentrated expertise in the area of accounting for natural capital. I suspect that this will also have its own ecosystem service benefit; we will find that we are exporting this expertise around the world. That will reinforce it. The whole effort to use the fantastic science base we have in the UK for this purpose is part of what we are about.

Q246 Mrs Glindon: In relation to cost benefits, does the current Treasury guidance sufficiently address the problem of ensuring that the right discount rates are applied to investments that have longterm benefits?

Miss Smith: Yes, I think it does. Again, it returns to some of the answer I was giving to Mr Rogerson, which is that, by the nature of trying to pull together so many different types of costs and different types of benefits, you end up trying to pull together all these different things in one place. Yes, in short it does, but I think again, drawing on the collaborative nature of the guidance that I have been highlighting today, there will no doubt always be space to improve that if policy scenarios throw that up.

Q247 Chair: When a delegation from the Committee went to Costa Rica to see on the ground how one of the more advanced countries looking for ecosystem payments was elaborating that, academics in Costa Rica, working together with a range of other bodies, seemed to conclude there is little experience of work to extend the payment for ecosystem services in a pure marketbased system, which is what the White Paper is seeking to do. How would you respond to the findings in Costa Rica?

Mr Letwin: The Committee has the advantage over us that it knows about Costa Rica, which I cannot say we do.

Q248 Chair: It is referred to in the Defra White Paper.

Mr Letwin: Yes, but neither of us is an expert on the subject.

Q249 Chair: You are too modest.

Mr Letwin: No, I am just giving you the unvarnished truth; I do not know anything about Costa Rica at all, I think I can say accurately. However, I suspect that, if the Committee were to go to any other country, the Committee would find that the development of ecosystem service payments is also not very advanced, because I think we are groundbreaking. I do not think that this is an area where there is an enormous wealth of experience around the world about these matters. That should not in any way deter us. We need to start developing this and talking to others. Eventually, I suspect, as I said in response to an earlier question, we can begin to export these things once we have developed them.

I feel very confident that we will find means of doing this. I see an analogy with Payment by Results in the social sphere, which is something that this Government has majored on. I think the biodiversity offsetting pilots that we are setting up will teach us a great deal about this. The combination of natural capital accounting and policy analysis, in terms of ecosystem advantage, the task force looking at how you monetise that and the biodiversity offsetting pilots will be a powerful selfreinforcing nexus. I suspect that, two or three years from now, this will be an area where we are seeing this roll out in England. We can then begin, as I say, to be able to have delegations coming from other parts of the world to explain to them what we have done. No doubt they will then improve on what we have done. I am sure this will turn out to be a collaborative effort around the world.

Q250 Chair: If we could turn to the Treasury, the Green Economy Council has been set up with leading businesses to look at how business and industry can work together. Defra has set up the Ecosystem Markets Task Force, which has met twice. How do you believe, Minister, at the Treasury, that the Natural Capital Committee work with other initiatives such as the Green Economy Council and the Ecosystem Markets Task Force will gel? How will they work together?

Miss Smith: I am so sorry; I could only partly hear you. Are you saying how well the three will work together at the end of the day?

Chair: Yes. You have the Natural Capital Committee work. Then you have the Green Economy Council and the Ecosystem Markets Task Force. Are they going to converge or are they going to diverge?

Miss Smith: I think their current remits, technically speaking, keep them separate, so I do not believe there are plans for them to converge. Practically speaking, their work naturally informs each another, but also crucially informs the Government, which is what they are there to do in their various different ways. I think they all have exciting opportunities within them, if you like. The Green Economy Council, in particular, has a very wide remit. We touched on it today, but that is possibly one of the widest of the lot, in the sense that we want, as I have been saying, all of our economy to become greener. The national Ecosystem Markets Task Force has a fairly specific remit in relation to what has been said in the White Paper, and it brings business into the heart of that, specifically around following up from the work that has been done in the Assessment.

Finally the NCC, the Natural Capital Committee, does a third role, which is very important, which is that it brings in-not that the others are not independent and expert as well-an independent expertise derived from, I sincerely hope, a very highquality set of members. It is yet to be fully set up, as the Committee will know. In conclusion, all three of those groups do valuable different things. They will inform each other’s work, but crucially they inform the parts of Government that they report to and, indeed, as always, Government is a collective effort. No doubt Oliver will say something about that, if he wants to add to that. The Green Book follows that as well.

Q251 Chair: If I could just stop you there, we are rushing for time if you really want to go at 2.30. If you could give us a little bit of leeway, that would be very helpful. Can I just ask, specifically on the Natural Capital Committee and its groundbreaking role, what reassurance can you give the Committee today that it will produce practical outputs, not recommending further research? Will the Chancellor be required to respond to the advice given by the NCC?

Miss Smith: My understanding, if I can just make sure I am very explicit on this, is the role, I believe, has three parts to it. The first is to provide advice on how natural assets are being used unsustainably. The second is to advise Government on how it should prioritise action. The third is to advise the Government on research priorities. I would not presume to say that any one of those three is more or less important, but I do appreciate your desire for it to be very practical in what it does, and I think that is absolutely right. As I have said before, it reports into the Economic Affairs Committee, chaired by the Chancellor, so you can say there will be a direct working link there. I am sure the Chancellor will consider its findings very carefully and with great interest, under all three of its headings. It is timelimited as you know, until spring 2015, so I would also just draw from that there is a lot of time in which to have and develop that working relationship, not only amongst the NCC but also of course with the EAC.

Q252 Chair: Will the NCC advice to the Treasury be published?

Miss Smith: I believe its working programme and some of its papers will be made available in the same way as other types of Committees, yes.

Q253 Barry Gardiner: Ministers, what do you know about micropaleontology?

Miss Smith: I have a friend who is doing some research into it but, apart from that, not personally a great deal.

Q254 Barry Gardiner: Probably as little as Mary Glindon and I knew about it, before we went as part of the AllParty Parliamentary Group for Biodiversity behind the scenes at the Natural History Museum this morning. Micropaleontology is one of the skills in ecological and environmental science. It is particularly important to this country in that, if you want to drill for oil, you need to understand the strata that you are going through and you can then exploit the oil resource. Uniquely, this country has a resource in that that other countries benefit from.

Chair: Mr Gardiner, I will just remind you we are very pressed for time.

Barry Gardiner: I know we are pressed for time, but it is absolutely apposite to the skills base being built up here.

Chair: Could you put the question?

Barry Gardiner: All five courses in micropaleontology in this country have now closed down. We heard a gamut of problems on taxonomy, on all the basic structure of what you are going to need in terms of environmental and ecological economists. All of these departments are shutting their courses, and this was reflected in the academics that were there, as much as in the scientific institutions.

Chair: Mr Gardiner, can we just have the question, please?

Barry Gardiner: The question is: how are you going to address the skills shortage and what is the estimate of the scale of the jobs and markets that you believe need to be developed by these sectors, through the Ecosystem Markets Task Force?

Mr Letwin: First of all, we ought to study this subject, which is new to us, as it was to you, I gather, quite recently, and write back to you and the Committee as a whole. It sounds like a very serious set of questions you are raising, and they deserve study. I think I would add that the development of the skills base across a wide range of skills is certainly a very important part of all of this, and one of the things that the Ecosystem Markets Task Force is being asked to do is to look at the question of whether there are skills there. I am sure that actually the Natural Capital Committee, as it looks at issues of degradation and restoration, will also look at whether, in cases where it thinks things are threatened or where the NEA suggests that things are threatened, there is a sufficient skills base as one of the resources required. There will be expertise applied to this general question, but the specific question we should write to you about.

Q255 Barry Gardiner: In terms of the practical steps that your Department is going to take in the Treasury to move from a theoretical framework for ecosystem services payments to then seeing funding streams released in practice, what steps are you taking? What areas of the ecosystem have you identified as the first priorities or the most likely in which ecosystem services payments will be made? How are you going to structure that?

Miss Smith: As the question is directed to me, although Oliver also wants to come in as well, I am afraid the brief answer is that funding streams are a matter for the spending review and then, following such events, they are for the spending departments to identify and pursue. I am afraid then your second question about prioritising within the National Ecosystem Assessment would be for Defra.

Mr Letwin: Obviously you cannot ever determine what a task force will do, but as I have had various discussions about this with colleagues in Defra, my hope is that task force will precisely address itself to the question you are raising. That is to say the question is: where can we most easily and naturally, because one has to begin somewhere, identify ecosystem services that are easily quantifiable and have relatively shortterm beneficial consequences, so that the financing is most easy to arrange? It will then go on to ask the question: what are the mechanisms involved in trying to link results back to payment, in a way that makes the whole exercise or providing the service financeable? It will then further ask the question: what kind of financial infrastructure do we need to build to enable the financing of it? It is a very clear essay question that they have been set; it is not at all an easy one to answer, but they have been given the time and the help to go and look through a whole series-there are goodness knows enough case studies and opportunities in here-in the National Ecosystem Assessment to begin work on.

In the absence of this, of course, it would be an entirely footling exercise. Five years ago, we did not know what we would be looking at. Here we have a huge treasure trove of possible areas to look at. They need to go through those and then come up with the results I am describing. I am sure that, once they have done that, there will have to be a lot of work inside Whitehall to turn their ideas into practical realities. This will involve the Treasury, Defra, many of the rest of us and so on. This is a thing to be done in stages, but I also think that, wherever we start, which will be the easy cases, should not in any way be conceived as the resting point. My sense is that we should, over time and over many Governments, elaborate, develop and extend it.

Q256 Barry Gardiner: Surely the financial mechanisms are not dependent upon the particular service. Is there not generic work that your Department and the Treasury are doing now to set up the sorts of structures that are going to be needed?

Mr Letwin: That is not located in the Treasury. Well, it is to the extent that Danny Alexander and I work together, but actually it is in the context of the Open Public Services White Paper that we have been working on the development of payment by results. We have now set up an interministerial group on payment by results. The basic mechanics of payment by results are, therefore, already established. That interministerial group will receive, among other people, the results of the task force work, and we will then try to apply the models that we have already developed in the social sphere to the environmental sphere, through payment by results. The one other thing I should add is that the biodiversity offsetting pilots, which are a kind of ecosystem service in themselves, will undoubtedly also contribute to that, but it is less direct than payment by results.

Q257 Barry Gardiner: Just finally, given that with ecosystem services we are talking, by and large, of what have traditionally been regarded as externalities in classical economics-they are public goods but have been freely available-what public engagement or engagement with business are you proposing to undertake in order to persuade the public that that which they have hitherto had for free they will now have to pay for?

Mr Letwin: That poses an unreal question. There is more of a winwin here than that question implies. Let us suppose that there is a kind of activity in which, for example, a water utility is currently not engaging that, if it engaged in it, would actually produce a beneficial result for some other part of the economy or society-quantifiable, near term, and so it is one of the easy cases. It is not the case that there we have a benefit that is already being conveyed for which nobody is paying, where the question you are posing would arise, but rather that there is not a benefit at the moment, because nobody is doing it. If we arrange things so that there is a payment by result, the people who are benefiting actually reduce their cost more than the payment, and therefore we have a virtuous cycle.

Q258 Barry Gardiner: Clearly, Minister, you start off by saying, "Can we put in a wood here for flood alleviation or for watershed protection or whatever?" but then of course the chap down the road says, "Hang on; I’ve got a wood here. This is providing the same watershed protection, the same flood alleviation. Nobody is paying me for it. It is called opportunity cost, isn’t it, mate? What if I decide to grub up my wood?" There you run into the scenario that we are talking about. It is a very short hop and it needs a bit of public education to get people on the same page, doesn’t it?

Mr Letwin: I agree about that. It is a feature of our national life that we tend to distinguish between stock and flow. It is also a feature of our national life that, if people spot an opportunity, they will seek to exploit it. I accept entirely the force of what you are saying. As we develop in specific spheres, payment by results or ecosystem payments, for novel advance, which as I say will be entirely selffinancing and indeed have a net benefit, undoubtedly we shall have to work at educating people to understand that this is to reward further investment and not existing assets, otherwise we would be generating the need for additional public expenditure.

Q259 Barry Gardiner: It is going to distort land management decisions, is it not?

Chair: Could you give a concrete suggestion, please?

Mr Letwin: I think it would beneficially distort land management decisions on the whole, but I accept that we need to make sure that it does not have side effects of the kind you are describing.

Q260 Chair: If you turn to two specific examples, which you could rebuff by saying they both relate to Defra but this is the forerunner of other Departments, clearly there is a public good in farmland retaining water upstream that otherwise would flood downstream. Is that something that you would recognise as a public good that could be compensated for out of the public purse, either in part by farm Common Agricultural Policy (CAP) funds through the stewardship schemes or in part some other mechanism, perhaps amending the outcomes in the limited amount of funds that Defra has to protect flood defence?

Mr Letwin: That kind of structure is certainly one of the two possibilities. Possibility one is exactly as you are describing, Chairman. We could arrange things so that amounts of money that the public are already spending are better spent by paying for a specific ecosystem service, rather than simply being a grant of some kind. The second possibility is that there is someone who benefits from an ecosystem service and is currently not obtaining that benefit who would be willing to pay for it out of their own private resources. If we arrange things right, we can incentivise that to occur. I suspect these two may come together. There may be hybrid cases where there is both a public and a private benefit. All of that is precisely what needs to be studied by the Task Force.

Q261 Chair: In the big debate, particularly about onshore wind farms-I do not know if offshore wind farms would fall into this category-there is a lot of concern. Denmark was very advanced in building onshore wind farms. They now compensate those living very close to wind turbines for the noise and interference that is definitely there; it has been assessed. Would the Government, the Treasury or the Cabinet Office look on this as being a potential source of public good that would have to be compensated, either by the developer or possibly from the public purse?

Mr Letwin: That is a separate set of issues, which has to do with the polluter pays principle, and it is a continuing argument.

Chair: With which principle, sorry?

Mr Letwin: The polluter pays. You were talking about noise pollution in that case. There are pretty strict limits to the extent one can compensate people for certain kinds of disturbance, otherwise we would never have any industry anywhere. Nevertheless, the issue you are raising is obviously one much debated in the academic literature, which can always be considered. I think it is very separate from payment for ecosystem services, which is not compensation for a negative but payment for a positive effect, a beneficial effect. That is the area where we are much lacking at the moment. The whole thrust of the NEA, as you are very much aware, is precisely that you can generate gains, not just ecologically but economically and, if you can, then you ought to be able to monetise those gains. That ought to be able to finance the investment, so you get a virtuous circle.

Q262 Chair: Moving on now, why has this phrase "sustainable development" been chosen? I am sure there were debates in Cabinet on this. It is looking at what stage the National Planning Policy Framework (NPPF) is at. I am personally intrigued by why we did not take something more neutral like "appropriate development". "Appropriate" could be sustainable, but it is appropriate to the particular location and circumstances where the development is being located. There is something about "sustainable" that may not lend itself to being appropriate, and the Government seems to have put itself hook, ball and chain on to a definition that is open to interpretation.

Mr Letwin: It was a very conscious decision, which was the result of a great deal of discussion between us in Committee and indeed around the Cabinet table. We wanted to choose a set of terms that specifically tied what we were seeking to achieve to the longterm advantage of the environment, society and the economy. It is not just "appropriate" in the sense of what somebody at a given moment happened to think was the right thing to happen there, but something that contributed to something that was sustainable-i.e. it would have intergenerational advantages. That was a very conscious decision. We are trying to build for the long term, and not just build for the short term.

Q263 Chair: My point about "appropriate"?

Mr Letwin: If something is a sustainable development, in our view, it is appropriate. It is appropriate that we should do things that will benefit society, the environment and the economy in the long run.

Q264 Chair: I know we are pressed for time, but I am very conscious of the fact that, if you are going to put a hazardous waste plant near or on a floodplain, that would be neither sustainable nor appropriate. Building houses in the Thames Gateway on floodplains would appear to be neither sustainable nor appropriate. Linking that to the National Planning Policy Framework’s definition, when will it be finalised and are you able to share with us what the definition will be?

Mr Letwin: The principal definition of "sustainability" in the National Planning Policy Framework is the entirety of the National Planning Policy Framework. I hope the new version of that will be clarified in that way, because it is very important that people understand that we mean by "sustainable development" a whole series of things that are encoded in that document; for example, but not exclusively, the preservation of Sites of Special Scientific Interest (SSSIs), the preservation of Areas of Outstanding Natural Beauty (AONBs) in proper form, the preservation of the greenbelt, and also communities that are selfsustaining-the social definition of "sustainability"-and also a society that generates enough jobs and prosperity to look after itself. The whole of the NPPF is our definition of "sustainable development". As to the timing, I cannot give you an exact date, but it will not be many weeks from now that we bring forward the new version of the NPPF.

Q265 Chair: Could I just follow up something that you very briefly said, Oliver, in replying to Barry’s question? I think you said biodiversity offsetting may well count, but it is at a very early stage. I think that was something you said in response to that.

Mr Letwin: May well count?

Chair: Towards ecosystem services.

Mr Letwin: I am sorry, yes.

Q266 Chair: My specific question is: what is your view of the potential for biodiversity offsetting meeting criticisms about the negative impacts of development on the environment?

Mr Letwin: It is too early yet wholly to say, which is why we are running the pilots. If you want my personal, as opposed to the Government’s, view, I am an enormous optimist about this. I think that, if properly conceived and implemented at sufficient scale so it makes a real difference, so we are not talking about dinky appearances but real ecological advantage-which probably requires quite sophisticated methods of banking, banking credits and using them at scale-we may find that development goes hand in hand with the enhancement of ecology through biodiversity offsetting credits. Now, many of my colleagues, not just in the Treasury but elsewhere, are somewhat more sceptical about whether we will be able to find the mechanisms that make this really work properly. That is the point of having the pilots; the proof of the pudding will be in the eating. We all hope that we will, and I believe we probably will, find a means of doing it that really works.

Q267 Chair: Just finally, looking ahead to the end of this Parliament, how far on do you think we will be in being able to put a figure on the value of nature and what the Government has achieved?

Mr Letwin: Chloe may want to add her view. Again, there is no Government view of this. My personal view is that the groundbreaking work of the NEA is just the beginning of a very long process. This is something like an analogy to the invention of the concepts of net present value and internal rate of return in standard economic analysis, and it took a long time for those very pregnant ideas to bear the children that they have now borne in the form of standard methods, pricing and so on. They have transformed rationality of decision making, but it took 50–75 years. I do not think we should imagine that, just because this is such a monumental and monumentally important work or because we have groundbreakingly changed the guidance, we have somehow cracked it and can now sit in the Bahamas-or Costa Rica. It is not that way. There is an enormous amount of work yet to do, and I suspect we will go on having these conversations for decades to come, but they will be increasingly sophisticated, and all the time bearing practical fruit as we move along.

Miss Smith: Just to contribute to that as well, the settingup of things like the Natural Capital Committee, which we have been talking about, on a timetable to be with the Parliament to conclude in spring 2015, I fully hope would put us in a very strong position to be able to answer exactly that question, but it is somewhat too early to say, considering that Committee is very well tasked with identifying current challenges and future research priorities.

Chair: We are very grateful to you for sharing your time with us and contributing to our inquiry. Thank you very much indeed.

Prepared 30th April 2012