Examination of witnesses (Questions 40
WEDNESDAY 22 NOVEMBER
and DR BOB
40. Why was the PSA target to develop methods
to benchmark the return from the commercial forestry on the FC
estate against equivalent private sector forests and set an increased
rate of return? You are telling me you know the answer.
(Dr McIntosh) We know in terms of the timber production
side. What the Treasury were looking for was some sort of expression
of how the whole forest business was performing, not just the
timber production side, but all the subsequent restocking of that,
the amount we spend on recreation, conservation and heritage,
could they find some way of benchmarking that with the private
sector? I think it is quite obvious that the private sector does
not have quite the same objective as us, so it must be very difficult
to come up with a clear comparison.
41. I understand these are discussions that
have taken place since the spring. When are you going to come
to the conclusion of them and get on with it?
(Dr McIntosh) I think the conclusion probably of everyone,
including Treasury, is that it is too difficult to do that. We
probably have not asked the right questions in the first place.
42. It is another of these Treasury objectives
that, perhaps, did not get thought through too closely before
it was set.
(Mr Bills) I think you are right. It was a discussion
where we were saying that the community expectations of forestry
were driving our costs upthe grade of paths, the toilet
blocks, the information, the interpretation that we doso
we put up our hands and said, "We need a bit more money",
and they wanted to see some benchmarking exercises done.
43. Going back to the very first question, it
does sound as though it might have been easier if you had separated
out some of your roles and did have something at the commercial
end which was a bit more stand-alone and a bit equivalent to the
other commercial producers.
(Mr Bills) That is one of the things we will be looking
at in this quinquennial review. At the end of the day you can
separate out the roles, but the same thing is going to happen
on the same forest. These things are going to happen on the one
forest. So, do you want a situation which, dare I say, might be
a bit like the rail situation where you have many people managing
what is on the one forest, or should we have an integrated approach?
I think most people in forestry, or anyoneI guess I would
say this, would I notwould say that if you can integrate
it and have proper approaches to sustainable management for the
benefit of forestry, under the one management authority, then
that will be the best way of doing it. Of course, the danger is
then to sayand this is the situation we are in now within
the United Kingdomthat the timber income has to pay for
these otherwise valuable programmes. There is not a lot of logic
in saying that because timber prices are down, we cannot pay for
habitat action plans, or the maintenance of SSSIs, or all-ability
trails. Why do we connect those to timber prices? The funding
that we have does connect them at the moment.
44. You say you are discussing that with the
(Mr Bills) Yes.
45. You said to me that there would be some
logic in a bit more transparency so that comparisons were at least
(Mr Bills) That is correct.
46. If we turn back to the money issue, in the
previous financial year, the last one, you pitched in for a supplementary
estimate of £13.1 million?
(Mr Bills) Correct.
47. Even to keep it in that, you had to increase
timber production, which one has to say, in a falling market is
a perverse response and one which I am not too surprised that
your private sector competitors were a little concerned about.
It would not have done them any good in those circumstances either.
You have pitched in this year for an £18 million supplementary
estimate. Is that going to be enough? It is going to have to be,
is the answer, I suppose.
(Mr Bills) There are still some discussions going
on. It is more to do with the devolution responsibility. We are
still in the transitional stage of defining a settlement for Scotland
and Wales. One of the reasons why the settlement this year was
so big was that there was a £10 million cutting rights sale,
which in the end was found to be ultra vires and not good
value for money, even if it had been legal.
48. Whose idea was that one?
(Mr Bills) That was Treasury's idea.
49. That turned out to be ultra vires
and poor value?
(Mr Bills) Poor value for money, yes.
50. I do not think that featured in great prominence
in your paper.
(Mr Bills) I think it is fair to say that it is probably
off the map now.
51. I do not know that it needs be off the map
for this Committee. Can you perhaps add that to the note you are
going to send us?
(Mr Bills) Yes. We had a major study to establish
Mr Todd: That is of some assistance I think.
What is emerging from this is that the relationship between yourselves
and the Treasury is a complex one which we need to understand
if we are going say anything of much use in our report on this.
52. When you come to supplementary money, it
is the Treasury that dishes that out, irrespective of where you
are going to spend it, is it?
(Mr Bills) During the transition from predevolution
to post-devolution, there was a period of a couple of years which
basically was the Comprehensive Spending Review programme, where,
because we had agreed on a certain funding framework, it was agreed
that if that was impractical, if that framework did not work and
England got access to the reserves, Scotland and Wales would get
access to the reserves too, if necessary. There is some discussion
between the legislatures now about whether or not access to the
reserve to fix the problem in Scotland and Wales is necessary.
Having said that, the Treasury at this stage have made a contribution
which goes a long way to solving the problem.
53. This is the £18 million?
(Mr Bills) Yes, it covers that cutting rights and
land sales shortfall.
54. I think it would do us some good to set
out in a little more detail this process because it is skidded
over slightly in the paper. How far has this discussion about
the new funding mechanism advanced? I think the question George
asked indicated that one of the dimensions would be the separating
out of environmental activities from commercial activities in
some sense or other, but presumably there has to be some approach
to dealing with the fact that your commercial income fluctuates
quite violently due to factors largely beyond your own control
and how to respond to that in the Treasury environment. What is
the thinking that is emerging there?
(Mr Bills) It has been discussed in the context of
this review of the FE Agency. It is an FE problem which obviously
affects the Forestry Commission's spending. We have yet to complete
the first stage of this agency review process which is really
when we come up with options for ministers to decide. They choose
the option and we go away and work up in more detail. We have
been considering such avenues as a non-departmental public body,
for example, unallocated provisions, DUPs, so that we can carry
forward gains and losses. We tend to forget that there were many
years when we handed money back.
55. One could imagine this as a sort of insurance
model. In the good years you paid in and in the bad years you
(Mr Bills) Yes.
56. That would mean some placing of a straitjacket
around the funding that is generated so it is not snatched by
the Treasury in the good years and you have to beg for it back
in the bad.
(Mr Bills) That is correct. The one that I personally
favourit has yet to go before ministersis one where
the recreation, conservation, heritage programmes are funded notwithstanding
timber prices; and that the enterprise on its timber harvesting
and trading account has to make ends meet. If it does make a lot
of money, it hands it back. If it does not, it maybe has to sell
assets to make ends meet. The other things which the Forestry
Commission does which have little to do with timber production
we can guarantee delivery of.
57. The options which are coherent with other
government objectivesthe Rural Development Programme, for
example, is dotted with initiatives of the kind that you would
be familiar with within your own funding mechanism.
(Mr Bills) Precisely.
58. It is hard to argue why those should be
based purely on the success or otherwise of Dr McIntosh selling
(Mr Bills) We do these other things in two areas.
They come through the grant and licensing system and also through
our own public estates which Bob is involved with.
59. When are we expecting these discussions
(Mr Bills) We are hoping to conclude our part one
by the end of this calendar year. Depending on what ministers
decide, we have to work up in more detail as well as review the
objectives of the FE and that kind of thing.