UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1616-i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

PUBLIC ACCOUNTS COMMITTEE

RURAL PAYMENTS AGENCY – FOLLOW-UP TO NATIONAL AUDIT OFFICE AND PUBLIC ACCOUNTS COMMITTEE RECOMMENDATIONS

MONDAY 14 NOVEMBER 2011

DAME HELEN GHOSH, MARK GRIMSHAW and BRONWYN HILL

Evidence heard in Public

Questions 1 - 180

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Public Accounts Committee

on Monday 14 November 2011

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Chris Heaton-Harris

Joseph Johnson

Fiona Mactaggart

Austin Mitchell

Nick Smith

Ian Swales

Amyas Morse, Comptroller and Auditor General, National Audit Office, and Maggie McGhee, Director, National Audit Office, gave evidence. Marius Gallaher, Alternate Treasury Officer of Accounts, HM Treasury, and Gabrielle Cohen, Assistant Auditor General, National Audit Office, were in attendance.

Examination of Witnesses

Witnesses: Dame Helen Ghosh, Permanent Secretary, Home Office, Mark Grimshaw, Chief Executive Officer, Rural Payments Agency, and Bronwyn Hill, Permanent Secretary, Department for Environment, Food and Rural Affairs, gave evidence.

Q1 Chair: I am grateful to you all for coming. I apologise to Bronwyn and Mark because you almost came a couple of weeks back and we postponed it. Thank you for making the time and thank you to Helen Ghosh for agreeing to come. I am sorry that I had to sign an order to encourage your presence. I perhaps ought to explain why. It is just that this Committee is absolutely determined that people who are responsible should also be accountable and whether it is at permanent secretary level or project management level, it’s one of the very strong bees in our bonnet. As you were permanent secretary at the Department for five years and therefore responsible, we thought it right that you should be held to account. I know that that is a slight change from the way these things have been done in the past, but it is a strong view of this Committee that that is how we should operate. So I hope in future that we won’t have to issue orders on it and that permanent secretaries will come when asked to do so.

Dame Helen Ghosh: Just on that point, Chairman, if that is the policy of the Committee I think it would be good to have a formal agreement to that effect with the Cabinet Secretary, so that we do not have to go through this process every time. Since that is obviously not the tradition, I think it would be good to have some discussion on it.

Q2 Chair: I think that that is an issue for us. We will take that decision as and when we think it is appropriate. We do it across the board; we do it frequently with other projects in other Departments. That is just our decision.

I will start with you, if I may. Apart from Richard Bacon and Austin Mitchell, we are all new to this Committee. We are therefore new to this issue and looked rather gobsmacked at the history. What I really want you to have an opportunity to talk about is this: you were permanent secretary here for five years, coming in at just about the time when the system was brought in, and you never managed to sort it out. I really want to try to understand why.

Dame Helen Ghosh: As you would expect, Chairman, I would deny the fact that I never managed to sort it out. Let me just give you a little history; as you say, Mr Bacon and Mr Mitchell are familiar with this.

I arrived more or less at the moment when the Rural Payments Agency collapsed. The reason, much rehearsed in front of this Committee, was that a decision to put into practice a very complex version of the single payment scheme had been made-the so-called dynamic hybrid, which was a mix of history and land-and, as I arrived, the Rural Payments Agency was trying to implement it. Among other things, it had commissioned from Accenture what one can describe only as a rather strange IT system-what one might call a black box system-which, for example, did not allow you to trace customer by customer. It assumed that the initial entitlement on which all subsequent payments would be based-I am sure we will come back to this in the course of this hearing-would be absolutely perfect from day one, and you couldn’t get back into the IT system to change that. So, it had been built rather like a rocket, all the bits of which would be discarded as it flew up towards the moon and if it failed to fly up there was not much you could do about it.

So, as I say, I arrived late in 2005. Early in 2006 it was plain, despite the assertions of the then chief executive, that payments would not be made as promised by Ministers in the March. Payments started to be made I think in February of 2006, but very soon, and I think these are the words I used in front of the Committee, payments "gummed up"-the whole system simply could not cope. What did I then do about it? I suspended the then chief executive; we put in an interim and then fairly rapidly an effectively permanent new chief executive; we started trying to turn the system around, in terms of making it customer facing rather than task facing; and, among other things, in order to ease the cash flow of farmers, we made a number of interim payments. That is a very important point because those interim payments and the data around them have dogged the system ever since.

What do I regret? As I have said to this Committee, I regret that we did not sooner draw a better balance between the speed of payment to farmers and getting those data right. There were a lot of dirty data put in in that crucial four, five or six-month period early in 2006, and Ministers took the view, which Members who had farmer constituents then will understand, that the most important thing was the regularity and speed of payments to farmers. That was consistently the view taken by Ministers over a two or possibly three-year period. Therefore, the scope we had to correct some of the fundamental data was limited. That is my regret-that we did not say in 2006, "Let’s stop for six months. Let’s stop paying farmers and sort out the data." I have discussed that with the Committee before.

Did I fail? If you look at the situation now, yes we have considerable disallowance above the standard 2% level that we would normally expect with the SPS. I think we will pay a total of something like £327 million disallowance, which is at about 5% compared with what might be about £192 million if we paid just at the standard 2%. We certainly had to spend a lot of money on supporting and changing the IT system, but we did do an estimate at the time that the investment in a completely new IT system was not good value for money; however, the speed of payments to farmers has increased every year. We have now got to a position, particularly following the Lane review and the work we did on the back of that, where the level of over and underpayment is down to well under £50 million-£29 million overpayment and £11.5 million underpayment. Remember that that is as a proportion of a £1.6 billion payment pot.

I gather, again as a result of the David Lane work, that the NAO opinion on accuracy this year is much better. It is not perfect and slower than I would have wanted. Are we in a much better place now than we were in 2006? Yes. My regret is that we did not make the right balance at that time between taxpayer interest and farmer interest, but, again, those of you who listen to "Farming Today" will observe that the RPA was always on "Farming Today" in 2006, and, as a regular listener, I think it has practically disappeared from the airwaves now. There is still a lot to do and I know that Bronwyn and Mark are absolutely on the case.

Q3 Chair: I hear what you say, and I will come back on certain things. There are a whole range of issues where it sounds that you feel greater progress was made than I think the NAO and their report suggest occurred in practice. Let me take a few of those issues, and no doubt other Members will want to come in.

You appointed a new chief executive, and within three or four years the whole of that top management team, I think, was sacked or went or-you are looking at me. My understanding is that the chief executive-I do not even know who it was-you brought in left the Rural Payments Agency. Is that right?

Dame Helen Ghosh: Shall I just assist the Committee? With the immediate suspension of Johnston McNeill, we appointed a former colleague in DEFRA, Mark Addison, literally to hold the fort. Then in spring-summer of 2006, we appointed Tony Cooper, who effectively was permanent initially, but for various technical HR reasons he was the "interim", and he remained in post until the summer of 2010, so he was there for four years.

Q4 Chair: So he left voluntarily or was he in fact replaced? I thought he-maybe Bronwyn will help. Did he leave voluntarily?

Dame Helen Ghosh: He left under a voluntary early-retirement scheme.

Q5 Chair: Voluntary early retirement, but did you want him out?

Dame Helen Ghosh: The David Lane review had said that this was a moment when we needed-I will go back to a number of improvements under his leadership, particularly the speed of payment to farmers and an increasing, but not perfect, grip on the question of over and underpayment. I think we were at about £80 million overpayment. But we did decide, as a result of the David Lane review and the advice of the NAO, that we needed a fresh pair of eyes, particularly because we had coming up the issues about renegotiating the IT contracts, about how we adapted the agency to a new CAP process, which Bronwyn and Mark can comment on, and the fact that we had a number of initiatives. So it was a perfectly natural moment for him to go.

Q6 Chair: That surprises me, because reading the papers-I am just looking at 2010. The accounting officer-was that NAO or internal to DEFRA?-said that "it is clear we need early interventions in strengthening senior leadership within the Agency and in the Department’s governance."

Dame Helen Ghosh: That was concurred. That was part of the David Lane-

Q7 Chair: Was that us or you?

Dame Helen Ghosh: We certainly had it in our David Lane review. That is why I said that it was a cross between the David Lane review and NAO recommendations.

Q8 Chair: You are putting it kindly. Normally, if you run an organisation, you need more than three or four years to sort it out, as you no doubt will find when you try and tackle UKBA, for which I wish you luck. I think that three or four years is not a long time to sort out a dysfunctional organisation, which is what, under any reading, you would say that the Rural Payments Agency was. The fact that he leaves within three or four years suggests to me that he was not doing the world’s most brilliant job. Then, you have finance directors jumping all over the place-two of them-and you have two different operations directors in 2010-11. This is not a stable leadership team.

Dame Helen Ghosh: No, absolutely it is not, which is why we asked David Lane to come in.

Q9 Chair: This is post-David Lane; he came in in 2009. You got rid of all these people in 2010.

Dame Helen Ghosh: No. David Lane started his review in September 2009, at about the time we had the important NAO Report-and, I think, the last hearing that I did-which was in October 2009. That review was published in the summer of 2010, just after the election, so that Jim Paice, the Minister of State, had the chance to consider its recommendations and how he would take it forward. Again, as I have discussed with the Committee-and with Mr Bacon in particular-on the role of interims versus permanent staff, we would have been delighted to be able to get in permanent staff more quickly. There are two things, given the reputation of the RPA-

Q10 Chair: I think you are answering a different question. Sorry to interrupt.

Dame Helen Ghosh: I thought you were asking why we had lots of interim staff.

Q11 Chair: No. What struck me is that you said you came in in 2005-06. The thing was a disaster, and you got rid of the management team. You put in a new team. What I am putting to you is that that management team survived three to four years, which is not a long time-not enough time to turn around a dysfunctional organisation. They then go. I suppose my question is really whether you successfully found people in whom you had confidence to sort out a dysfunctional organisation. On the facts, as I see them, that looks questionable.

Dame Helen Ghosh: When David Lane-I think this was his term-looked at the organisation, he said that what you needed to start off with was "heart surgery". You needed someone who, in an emergency, could come in and deal with the immediate symptoms of the disease. What we recognised by the summer of 2010 was that we needed, for the future, a different set of skills.

Q12 Chair: You must accept that you must have made a mistake in your senior management team.

Dame Helen Ghosh: No.

Q13 Chair: You could only let them stay for three years. Unless this is the terrible way in which the civil service operates, three or four years to turn round a major organisation that is dysfunctional, is not long enough. You made a judgment somewhere along the line, after appointing them, that your senior management team were not up to the job. You may now try and say that that is because the job changed, but I don’t think that is the case, because if you look at the record of the agency, it was still not performing.

Dame Helen Ghosh: So that would have been the argument for leaving him in post.

Q14 Mr Bacon: It questions your judgment in appointing him in the first place-that is the point. Tony Cooper started in May 2006-that is what he said to me in October 2009, in answer to question 79-and he was there for three and a half years, which ought to have been long enough to get a grip, as I said to him at the time. I take it you were responsible for appointing Tony Cooper.

Dame Helen Ghosh: Yes, through the normal process of civil service appointments. He came because we knew we needed someone in a hurry to perform that kind of heart surgery on the organisation. I consulted widely, in terms of people with an excellent delivery record across the civil service, and indeed, he had one from his time in the DWP, particularly on the pensions side.

Q15 Chair: You are quite confident that your judgment in the people that you appointed in 2006 was good.

Dame Helen Ghosh: For the job that had to be done at the time, I think my judgment was good. I think then there was an issue-the one I started to talk about and I am sure we can explore it-about the difficulty of getting the good team below that level. We did have a number of interims. We had issues about the reputation of the organisation and about salary levels, and therefore, in one of the NAO Reports, there are a number of comments that people below that came and went very quickly. We absolutely acknowledge that that was not ideal.

Q16 Chair: And do you think it was right that all these people-the finance director and everybody else-left with compensation moneys and early retirement benefits that amounted to getting on for £500,000?

Dame Helen Ghosh: The only issue I am conscious of is Tony Cooper himself.

Q17 Chair: I will read the figures out: Robert Taylor got a compensation package of £48,000, while Tony Cooper got £67,000, and between them, they got £244,000 in early retirement benefits.

Dame Helen Ghosh: Just to take Tony Cooper, the £243,000 he got-this was the standard early retirement package at the time-was the total value, if you also take the value of his pension over years and years to come. As you say, what he got at the time was £67,000 for pay in lieu of notice and £25,000 for annual leave not taken. The other gentleman, I am pretty sure, was a private sector contractor, and so what we were doing was paying out the end of his contract, rather than making any compensation.

Q18 Chair: And this is all appropriate at a time when they had cost us half a billion pounds in fines from the EU?

Dame Helen Ghosh: In order to get, at that stage in the organisation’s life, the right people in, I think it was. We always look at the value for money of those kinds of issues, and if the Treasury had had any concerns about value for money in those instances, it would have been able to challenge them on the basis of-

Q19 Chair: But it was your judgment? I would put it to you that I think paying out that sort of money in bonuses and early retirement benefits to individuals who had cost us half a billion pounds in fines from the EU does not look to me like protecting the taxpayer’s interest.

Dame Helen Ghosh: I think I come back-I am sure we can explore this-to the question about what were the set of circumstances across the piece that led to the fine. As I say, for the SPS, which I think is what I am here to talk about, the total level of fine was £327 million, and we would have expected it anyway-if it ran at the normal 2% kind of level, which across Europe and historically it has done-to have been around £192 million. But I absolutely understand that that difference is none the less of concern to the taxpayer.

Q20 Amyas Morse: Just as a matter of fact, the £244,000 is not something I think you would have had any discretion over.

Dame Helen Ghosh: No, because it is just part of the pension. It is not my choice.

Q21 Amyas Morse: If somebody goes under those circumstances, they have a statutory entitlement.

Dame Helen Ghosh: Exactly.

Q22 Chair: Early retirement benefits?

Dame Helen Ghosh: The £244,000 is the total cost of what they were entitled to, contractually, including their pension. The discretionary elements would have been the pay in lieu of notice and, I imagine, the £25,000 for annual leave not taken.

Q23 Ian Swales: Our brief says that those people-the board members-also got £464,000 in bonuses for 2009-10. Is that a figure you recognise, and are those discretionary?

Dame Helen Ghosh: It is certainly the case that, in 2008-09, Tony Cooper got a bonus, because-this, again, is one of the issues that we subsequently tightened up-he was under a next steps agency kind of contract which was linked to performance targets, and the performance targets, to go back to my opening comments, were almost entirely about speed of payment and not about accuracy of payment. Subsequently, we tightened those up substantially.

Q24 Stephen Barclay: Why did it take until then to tighten them up? I note, going back to an earlier PAC Report, that the Committee was disappointed. It said: "We are disappointed that it took the present Accounting Officer"-yourself-"nine months to provide the Committee with a full account…of the total cost to public funds of removing Mr…McNeill", who was the then chief executive. The Report stated the fact that "The former Chief Executive remained on leave of absence on full pay of £114,000 a year until 1 December 2006", so there were clearly issues with the remuneration and departure of the first chief executive of the agency that you are dealing with. Now you are saying, "We tightened up procedures after the removal of the second chief exec." Why were the lessons not learned?

Dame Helen Ghosh: Sorry, may I just go back to the point I made about what I regret? One of the things that I regret is that Ministers were very clear that the most important thing, and the thing on which we should judge the performance of the chief executive, was the speed of payment to farmers. The speed of payment to farmers increased-or improved-successively.

Q25 Stephen Barclay: With respect, Dame Helen, that was not my question. You are the accounting officer. You, not the Minister, are the person responsible, in terms of value for money. What you said is that you tightened up procedure after the removal of the second chief executive under your watch, yet this Committee has highlighted its disappointment with your performance after the removal of the first chief executive.

Dame Helen Ghosh: The issue about the removal of the first chief executive was effectively around how long we allowed him to remain on so-called gardening leave, rather than moving to dismissal. There were a number of HR issues, including duty of care to the individual, relating to why, having suspended him from his job in March 2006, we did not actually dismiss him until December. The bulk of the money we paid him, as you say, was the salary owed for that period. Again, he got some pay in lieu of notice, but that was predominantly the issue. The payment to him was not in the same category as a bonus or reward for performance against the targets that Ministers had agreed and set, and the fact was that for 2008-09 Tony Cooper had performed well against the targets that Ministers had set. Now, chief executives of the RPA-including Mark-will be on the same arrangements as any other member of the SCS, as approved by Prime Minister, and you would not have that automatic link that traditionally the chief executives of executive agencies would have had.

Q26 Chair: You talked about errors; they got worse in 2010. When the NAO tested the errors in the scheme, they were much higher than in 2009.

Dame Helen Ghosh: I do not think in relation to the SPS 2010 that-

Maggie McGhee: That is the case. In 2010, there was a deterioration in the levels of payments, and overpayments in particular, and we identified that 12% of the claims that we tested were in error.

Dame Helen Ghosh: Sorry, are we at cross-purposes? I think I was talking about the audit you have done on the 2010 scheme this year.

Maggie McGhee: Yes, this year-

Dame Helen Ghosh: This year, the accuracy level has improved.

Maggie McGhee: In the current year’s testing, which we are still finalising-

Dame Helen Ghosh: Which is SPS 2010. I think it is a misunderstanding.

Q27 Chair: No. Are these papers just for us? Okay. I will read to you what is in our papers. This is from "Results of NAO testing of Scheme Payments": in 2008, it tested 102 payments, and errors were found in 18; in 2009, it tested 114, and errors were found in 18; and in 2010, it tested 230 payments and found errors in 28. The overpayment was £25.8 million and the underpayment was £35.3 million.

Dame Helen Ghosh: I think those are the figures that we used when I said that, from that level of estimate of overpayment and underpayment, we now have it down to a £29 million overpayment and a £11.5 million underpayment. That was, as it were, the high point.

Q28 Chair: You have got down to what?

Dame Helen Ghosh: The current figure, as I understand it-

Chair: Is what on overpayment?

Dame Helen Ghosh: £29 million.

Q29 Chair: That is more than in 2010, using the 2010 figure that I have.

Dame Helen Ghosh: It is very difficult for me to comment about figures that I do not have in front of me.

Q30 Chair: I have £25.8 million for 2010. Are you are telling us your estimates of 2011 so far? We always get promises into the future.

Mark Grimshaw: I can certainly tell you the stated balance in the annual report and accounts for 2010-11. There was £54.5 million debit and £24.5 million credit. That is in the stated report and accounts.

Q31 Joseph Johnson: But what is the overpayment and underpayment?

Chair: Quite; what is the overpayment and underpayment?

Dame Helen Ghosh: It is £54 million.

Mark Grimshaw: Overpayments would be the £24.5 million; that is money due back to us. With underpayments-

Dame Helen Ghosh: It is the other way round-the higher figure.

Q32 Chair: The overpayments are what?

Maggie McGhee: Shall I give some clarification? The figure that we have presented outlines our findings on an individual scheme year. The level of estimated overpayments is the upper error limit based on a sample, so it is an extrapolated figure, which gets you to the £25.8 million. If we look at last year’s accounts, there is £24.5 million of overpayments reflected in the accounts, with a bad debt provision-money that would not be recovered-of £13.5 million. Underpayments were £54 million, as reflected in the accounts.

Q33 Chair: So the underpayments have gone massively up.

Maggie McGhee: Obviously, we qualify that balance, because we do not have sufficient evidence that it is complete and materially correct, so that balance is the best estimate that the agency can provide us with. Our evidence, which we have obtained, says that that is not a robust figure.

Q34 Chair: Just to make it clear, you are trying to say to us, "Folks, things have got better in the past year." They have got marginally better on overpayments, which have gone from £25.8 million to £24.5 million. They have got considerably worse on underpayments, which have gone from £35.3 million to £54 million.

Dame Helen Ghosh: I think we are comparing apples with pears.

Chair: Well, then let’s not talk about things that are not audited.

Dame Helen Ghosh: We are comparing apples with pears.

Q35 Chair: Are you comparing the wrong things?

Maggie McGhee: It is figures that are taken at different points and times.

Q36 Chair: In which case, let us look at the facts in front of us about ’08, ’09, and ’10; those are audited figures. It is quite clear to us that more errors were found in 2010 than in 2009, which suggests that things were not getting better-that is all.

Bronwyn Hill: The only explanation I can imagine is this: I remember being told that in 2009, the speed of payments was higher, but that affected the accuracy. That would explain why, in 2010, there was a high level of mistakes.

Dame Helen Ghosh: Absolutely. The whole point of the David Lane review, on the back of the NAO work, was to say, "Let us get to the bottom of the dirty data." The dirty data will have produced evidence of errors. Going back to October 2009, when I talked to the Committee, we thought that the level-I think this was in the NAO Report-of overpayment, in other words, what the taxpayer was owed back, was anywhere between £50 million and £80 million. That is the figure I have in my head. Today, I think, as of the nth of November, we are down to a level-we have worked this through very carefully-at which the amount of overpayment, the amount we are owed back, is around £29 million.

Chair: I think we should not use those figures, because they are unaudited. I am not going to use them in our Report, and it is wrong to use them to try to show a better picture. They are unaudited, and we need to be clear.

Q37 Austin Mitchell: It is still difficult to claim improvement, because other figures point in the same direction. We had the equivalent of the 2010 overpayments and underpayments in previous overpayments and underpayments; they do not seem to have changed much since. We have also got the fact that in May 2011, the NAO decided that the data model was not a sufficiently robust basis for calculating error. In the latest accounts, you have £84 million set aside for EU disallowance, after the £500 million that has already gone in disallowances. That is taken directly from the budget of DEFRA-from every canal user, farmer and fisherman, and from the services that DEFRA provides. We are still allowing £84 million in disallowance. That can hardly be portrayed as an improvement.

Dame Helen Ghosh: Well, it is lower than we have paid in some other years. Of that £84 million provision for 2010, £53 million is for the single payments scheme, and you would expect it-to come back to my 2% point-to be running at about £36 million. We are talking about that difference. £36 million is what you would expect across Europe as the level of disallowance for SPS-more than the level you would hope for, but not that much more. £31 million of that is for fruit and veg schemes. That £84 million is not all about the single payments scheme.

Q38 Austin Mitchell: You say that you were in this situation; as I remember from Margaret Beckett’s evidence to the EFRA Committee, we adopted a more complicated system of valuation than others. That must have been done on DEFRA’s advice; it cannot have sprung fully armed from the head of Margaret Beckett. Why was it proposed that we adopt a more complicated system than everyone else-certainly than Ireland, Scotland, Wales and most European nations? Why has that not been changed, since it produced such a mess?

Dame Helen Ghosh: As I think we have discussed in the Committee on a number of occasions, the then Ministers took the view that we should not have a system that simply froze in aspic people’s historical entitlements. In Scotland, Wales and Northern Ireland, effectively people are still receiving single payments on the basis of what they earned in 2002. We have Scottish once-farmers on the Costa del Sol still receiving their payments.

In England, Ministers decided, for a number of policy reasons, that they wanted what is called the dynamic hybrid system, in which the element that is based on the historical payment-basically, production-is phased out over time, and the element that is based on the hectarage that you bring increases over time. That is the process that has been going on, and they decided that it was a way of breaking the link for farmers between production and support.

Q39 Austin Mitchell: But is has not worked. Even Labour Ministers were not sufficiently bright to have adopted such a system without the advice of the Department. The Department must have wanted it.

Dame Helen Ghosh: As always, as you will know, the formulation of decisions is ultimately for Ministers. There was a variety of advice given, and I was not there at the time, so I cannot give you a blow-by-blow account of why they decided on it.

Q40 Mr Bacon: Why did the accounting officer at the time not ask for a direction on the basis that the route chosen by Ministers-the dynamic hybrid-was not implementable? In your words, "ministers were being told it was possible when it was not in fact possible".

Dame Helen Ghosh: Because Ministers were being told it was possible. I am sure that you will be able to find a good quote from me in your account there, but again, the fundamental issue that arose-it was one of the things that struck me when I arrived-was that the then senior management of the Rural Payments Agency underestimated the complexity of the task, and they were genuinely telling Ministers consistently that they would be able to make the payments. There was no reason-

Q41 Mr Bacon: This is the thing that interests me most. Your saying that "ministers were being told it was possible when it was not in fact possible" prompts the question: who was telling Ministers that? What is absolutely clear when you look into it is that the opinion of the senior people in the Rural Payments Agency-I am referring to Bill Duncan-and senior people in DEFRA, such as David Hunter, was uniformly that it would be crazy to go down the dynamic hybrid route. David Hunter, as you know, described it as madness, and Bill Duncan said that it would be a nightmare.

What I want to know is this: given that the most senior people involved in DEFRA and the Rural Payments Agency said that it would not be doable, and that it would be a nightmare or madness, why were Ministers told that it was possible, when it was not in fact possible? This is supposedly the policy Rolls-Royce that comes up with well-tested policies that can be shown to work, yet the intel and advice of senior officials, both in the RPA and in DEFRA, was that it was a disaster waiting to happen.

I understand that you are trying, as many have done before, to hang the RPA out to dry. Indeed, in a letter, when it was discovered that suddenly the Department would go down the dynamic hybrid route after all, the Tenant Farmers Association asked the RPA for its reaction, and "No response was received". That is a quote from the EFRA Committee report on this, which is HC 107 from the 2006-07 Session. This is the interesting point: "A senior DEFRA official"-David Hunter, for the avoidance of doubt-"explained that ‘the RPA would do what it was told to do’." I want to know why the accounting officer at the time did not stand up to Ministers and say that it was unimplementable. You have subsequently told this Committee that it was not possible, so why did you not say to Ministers at the time that it was not possible? That was what the senior people inside the Ministry and the agency were saying, so why did you not ask for a direction? Why was that not done?

Dame Helen Ghosh: I do not know why my predecessor, in 2003, did not ask for a direction. We have discussed this frequently-on one or more occasions-in front of this Committee. As you know, David Hunter, a very distinguished member of DEFRA staff, said that as a throwaway line, which is quite different from official, well-thought-out advice from officials to Ministers. All this happened at least two years before my arrival; it was eight years ago, and it is quite difficult to get to the bottom of it. The fact was that Ministers believed that there were excellent policy reasons for going down this track. A number of people, including the then senior staff of the Rural Payments Agency, underestimated how complex it was.

One of the things that I did on my arrival was ensure that there was a much closer connection between the policy and operational sides of the Department, so that people would understand that. That is why, for example, thinking about CAP for the future, there has been very close liaison between Mark and his team and the policy team in DEFRA, to ensure that nobody is in Brussels negotiating something that is, in practice, impossible to implement.

Q42 Ian Swales: All this history is fascinating to those of us who were not around at the time, and it certainly sounds like a ship at sea without anyone on the bridge. May I move on to the whole idea of how we are to get out of this mess? In 2009, the Committee’s main recommendation was that an overarching plan was required. In February 2010, this Committee said that the continuing delay in putting in place a satisfactory action plan was "unacceptable" and "surprising". Will you please talk about where we are on the overarching plan?

Dame Helen Ghosh: Yes. I will just say a bit about 2010, then Bronwyn and Mark can say something about current planning, particularly looking forward to the new CAP. Of course, we have had a number of debates with Amyas’ folk in the NAO about what is a plan and what is not a plan. We believe that we put in a plan in January 2010. As the Committee will be aware, we-and Bronwyn as my successor-have put in a succession of reports on actions thereafter. That has had to catch in flight the six major project recommendations of Lane.

If you look back to the things that the NAO asked us to report on, and the things that Lane has reported on-subject to the agreement on giving some slightly lower priority, such as the corporate services element-in terms of the key elements of both reports, particularly around debt, data and getting a grip on finance, we have had an agreed plan in place and have discussed it with the NAO. I would deny the idea that we did not have a plan. It did not necessarily follow, blow by blow, the NAO recommendations, because it took on board the Lane recommendations. The fact is, in practice, we have been doing the things that we said we would do on debt, data and, particularly, financial grip.

Q43 Ian Swales: My question was about an overarching plan that involves things such as policies on senior staff, IT systems and so on. You are saying that you still do not have that.

Dame Helen Ghosh: No, we do. On all those things, we have a plan. We had a plan for senior staff; that is now put in place, and Mark has a complete team. We had a plan on what to do about IT, and all the contracts for continued support are now in place. We also had a plan for thinking beyond the current contracts into what kind of contracting we need for the future-what sort of organisation the RPA needs to be. That was in place before I left, and has now been taken over by Bronwyn and Mark.

Q44 Ian Swales: In July, your annual report said that you were "developing a five-year strategic improvement plan". Who is helping you with that?

Bronwyn Hill: The agency, so Mark Grimshaw has been preparing the strategic improvement plan. If you like, that is taking a look at everything done following the PAC, NAO and Lane reviews-assessing where all that work has got to, against all the headings that Helen just outlined. I think it answers two to three questions: is what we are now doing achieving the right outcomes? What else could we be doing to improve the current operation-that is, service to farmers, financial controls, legacy and IT issues? What else do we need to do to prepare for the future-that is, for the CAP reforms and the need to invest in substantial change to the famous IT system-and to address the questions around that? That is quite comprehensive.

Q45 Ian Swales: Are you using consultants on the strategic improvement plan?

Bronwyn Hill: My understanding is that it has been driven mainly by Mark and the new senior management team.

Q46 Chair: Maybe Mark can answer: are you using consultants?

Mark Grimshaw: We are not using consultants to drive forward the development of the plan. When you inherit an organisation with just over 300 recommendations, it is relatively straightforward to cluster them into appropriate groups and look at the areas where you need to focus.

Q47 Ian Swales: That is what I would have thought. Why is it taking so long? When do you expect to have this plan?

Mark Grimshaw: The plan is currently going through review in the Department, because of the amount of money that is required to enact it. We are going through the approvals process currently, in order to ensure that the plan drives value for money, as you would expect.

Q48 Ian Swales: When you say the "money that is required to enact it", what are we talking about? Is that more IT?

Mark Grimshaw: No, it is not more IT. It is far more to do with stabilising the current operation and containing the IT system-I am happy to share my views on the development of IT, if you wish-and ensuring that we create an environment that has the appropriate level of data that can be used as a foundation for the future system that will be required to deliver CAP 2013.

Q49 Ian Swales: Our brief says that you have spent £32 million on IT consultants since 2009. Is that right?

Mark Grimshaw: I am not in a position to answer that specifically.

Q50 Chair: Ballpark, does that sound about right to you?

Mr Bacon: Do you mean that you do not know?

Bronwyn Hill: There is a bit of an issue about what we pay IT contractors to run and support our systems. One of things that I know Mark and his team have been doing-because we have done it with them-is looking at the systems that were coming out of support earlier this year, and renewing and extending those three contracts up to 2014, so that we had a plan to transit into the new IT system. That is three of them. We do not call them consultants because it is contracted-out work to Accenture, Steria and Software AG.

Q51 Mr Bacon: What do you call them?

Amyas Morse: We are calling it IT support.

Q52 Mr Bacon: They are people paid on a day rate, are they?

Bronwyn Hill: No, those are contracts. There is a separate category in which, I suspect, you have consultancy advice on IT. That might be the interim director of IT, who is probably on a day rate, and/or other people to help on specific projects.

Q53 Ian Swales: Are you still paying Accenture?

Mark Grimshaw: If it would help, I can tell you exactly how much we paid Accenture each year for the last three years. From April ’08 to March ’09 we paid it £34.8 million. From April ’09 to March ’10 we paid it £37.9 million, and from April ’10 to March ’11, when we took all the key consultants out, we paid it £10.8 million. We have a contract in place now, which is at a reduced rate, whereby we will be paying it somewhere in the region of £9 million per year to the end of the contract.

Q54 Ian Swales: This was against a system-well, you described it earlier as a black box, but you actually thought that this was a package that you were buying that would work when it was delivered?

Dame Helen Ghosh: Indeed. We have supplied the Committee in earlier years with a detailed breakdown of the earlier payments. Yes, we thought that all we would be paying would be basically the annual running costs. As Bronwyn said, there is potential IT consultancy for new developments. There are the running costs of the system that we have-the so-called RITA-and then, potentially, the payment for change. Of course, what has happened is that the payment for change, because of the failings of the initial system as commissioned by the then agency, was such that on a risk and reward basis we paid more money out for change than we were expecting.

Q55 Ian Swales: In those figures that you just gave, what were the running costs? What did you expect the running costs to be, per year? When you bought the system, what did you think you would be paying to Accenture?

Dame Helen Ghosh: Sorry, I am just looking at the letter we sent the Committee in-I may be getting my dates wrong-late 2009, or perhaps 2010. Then, just to give the Committee some idea, looking forward in 2010-11, we were expecting the fixed costs to be about £3.7 million and the variable costs to be £12.5 million. In 2011-12-obviously, I do not know, because I have not got these figures to hand, as Mark has-we were expecting it to be £2.7 million, fixed-cost, and about £5 million variable. Again, the figures kept coming down, particularly around the things we needed to change.

Q56 Ian Swales: Are you saying that, in effect, the taxpayer has suffered from the system being a bad system to start with? To what extent has Accenture suffered from delivering a bad system?

Dame Helen Ghosh: Again, this has been the subject of earlier discussion, and I would be very happy to send the Committee the detailed figures, which I am sure we have. Through much of this process, Accenture was making no additional money out of the system.

Q57 Ian Swales: How much was it losing? That is my question.

Dame Helen Ghosh: Well, quite. That we would have to ask it.

Q58 Chair: Can you answer that, Mr Grimshaw? It sounded to me, from the figures that you read out, as though they were getting over £35 million, or £40 million. It does not sound to me like great suffering.

Mark Grimshaw: I doubt that it was great suffering. However, to pick up on the point that Helen made, the original system, as specified-as the requirements were set-would appear, from the reading that I have done, to have been delivered. The specification for the system did not allow the system to do what was required.

Q59 Mr Bacon: So the £500 million spent on something that does not work has subsequently cost us £500 million on top of that, more or less-£420 million, or whatever it is-in fines. We have so far spent nearly £1 billion on making these payments of £1.6 billion. That is more or less right, isn’t it?

Dame Helen Ghosh: Where do you get your £500 million for a system that does not work?

Mr Bacon: £500 million is the cost of the computer system, isn’t it? Mr Grimshaw was just saying that it was not up to spec, weren’t you, in your last sentence? I was responding to what Mr Grimshaw had said.

Q60 Ian Swales: May I correct this, because it is really important? I think Mr Grimshaw just said that it did deliver against the specification.

Dame Helen Ghosh: This is the point.

Q61 Ian Swales: So why did we specify a system which had the failings that you described at the start of your evidence? How could we do that?

Dame Helen Ghosh: And this again comes back to Mr Bacon, and I think it is good to do so, on the question of exactly what we paid Accenture. My figure is that the total amount we paid Accenture over the period is something like £244 million; £214 million if you take into account VAT.

Q62 Chair: Over which period?

Dame Helen Ghosh: Over the period since-

Q63 Mr Bacon: So it is only £400 million, not £500 million?

Dame Helen Ghosh: Sorry, £226 million. It isn’t £500 million that we paid to Accenture.

Q64 Mr Bacon: I am not quite sure how you get to £226 million, but, in any event, even if you are right-

Dame Helen Ghosh: It is a large amount of money.

Q65 Mr Bacon: You are still talking about that plus the- NAO, can you remind us of the total disallowance so far, rather than that that’s being disputed?

Maggie McGhee: The total disallowance, including fruit and veg-

Dame Helen Ghosh: Including non-SPS schemes.

Mr Bacon: Let’s not leave out the fruit and veg.

Dame Helen Ghosh: It is nothing to do with the SPS system.

Maggie McGhee: £427 million has been-

Q66 Mr Bacon: £427 million? That includes fruit and veg?

Maggie McGhee: Yes.

Q67 Mr Bacon: Take out the fruit and veg, what do you get to? Remove the bananas, what do you get to?

Maggie McGhee: £327 million.

Dame Helen Ghosh: £327 million.

Q68 Mr Bacon: Dame Helen, what did you say the number was?

Dame Helen Ghosh: £327 million.

Q69 Mr Bacon: No. Did you say £266 million or £226 million-your alleged number for payments to Accenture?

Dame Helen Ghosh: I think I had £244 million, down to £214 million if you take VAT into account. So it is £214 million on top of £327 million.

Q70 Mr Bacon: £214 million?

Dame Helen Ghosh: No, £214 million on top of £327 million.

Q71 Mr Bacon: Which gives you £541 million.

Dame Helen Ghosh: But not another £500 million.

Q72 Mr Bacon: No, so it is only just over half a billion in order to pay out-this was my earlier point, the number that sticks in my head-around £1.6 billion in total.

Dame Helen Ghosh: Over six years, so it is six times £1.6 billion.

Q73 Mr Bacon: To spend more than £500 million, getting things that do not work and having huge fines, to make £1.6 billion in payments-

Dame Helen Ghosh: No, £1.6 billion times six.

Q74 Mr Bacon: Oh yes, I’m sorry, even more.

The number of staff in the Rural Payments Agency was around the 4,000 mark, but it has come down quite a lot. What is the current figure?

Mark Grimshaw: The number I have here is just over 2,700. It is worth bearing in mind that roughly a third of those work on SPS, the others work on the other schemes that the agency is responsible for.

Q75 Mr Bacon: Of 2,700, it is roughly 900. You have roughly 116,000 farmers divided by 900, so you have about 120 payments each, something like that. It is one payment every three days of the calendar year. I do not understand how it is possible for such a-

Amyas Morse: Just to be clear, as far as the payment to Accenture is concerned, Accenture fulfilled their contract. They weren’t in breach of contract-let’s leave that for a second-which means that when you wanted them to do further work on the contract you had to pay them the commercial rate. You couldn’t penalise them because they hadn’t done anything wrong.

Dame Helen Ghosh: They hadn’t done anything wrong, which is back to Mr Swales’s point-

Amyas Morse: In other words, they would say, "Well, we delivered the contract. You gave us the spec and we built the technology. If you want us to help to make it do something different, you will have to pay us for that, too." That must be it.

Dame Helen Ghosh: That is it.

Q76 Chair: Mr Morse, you and I know from our experience in consultancy that writing those contracts is very important, and they wrote the contract wrong.

Amyas Morse: I am just making sure that we understand-I am not taking either point of view-and that we have it straight in our heads what happened.

Q77 Chair: I want to get one thing clear: in the evidence so far Helen Ghosh has consistently said that there was a big error rate because we tried to speed up payments, but, looking at the statistics provided for us by the NAO, we set a target that by the end of March 2011-this is not a fantastically good target-we would have paid 95% of people. In fact, only 88% of people were paid by the end of March. You, Mr Grimshaw, had manually to sort through the 12%, which is a hugely expensive way of sorting out payments. If speed was the overriding priority, you were failing even to deliver on that in the latter years of your responsibility for the agency, which is why you are back here.

Dame Helen Ghosh: Can I explain that? I did not actually say that we speeded up payment in the middle of this period since 2006. What happened in the middle period, let’s say in the scheme year 2008-09, was that we and the NAO became increasingly concerned about the issue of inaccuracy and dirty data. We had been going hell for leather to pay farmers swiftly. The NAO started to take a much closer interest, as did we, in inaccuracy-Maggie was, I think, around at the time. We and the NAO started looking for inaccuracy in a way that we had not before, so some of the increase in inaccuracy found was because we were both looking for it.

By the time we got to the Lane report and the modelling we did of potential inaccuracy, and by the time we were in discussion with Jim Paice in the middle of 2010 about whether we should shift the balance between accuracy and speed, he was very much of the view that we needed a better balance between the two. I will hand over to Bronwyn at this point. We went into the 2010 payments, which included March 2011, saying, "We will no longer sacrifice accuracy for speed." We consciously decided, as I understand it, in March 2011, that we would not pay those farmers hell for leather; we would pay them as accurately as we could. The fact that at that moment payment slowed down was because we were trying to swing back towards accuracy.

Bronwyn Hill: To round off, having missed in March because we knew we could not guarantee the accuracy, the agency also reflected on what was the best strategy to address both speed and accuracy, so it changed its strategy for this year in the light of what had happened, and it is now taking the more complex cases earlier in the process. If you like, it had historically gone for volume and it is now saying, "No, it’s right to get some of the complex and high-value cases done earlier in the year." So we have recently set it new targets to reflect that.

Chair: Okay, the final thing I want to say before I hand over to Chris is: don’t let us kid ourselves that farmers are happy. The latest evidence we have is that four out of 10 farmers are dissatisfied with the RPA’s performance, and a quarter are dissatisfied with the communication. That is not a place that any public service should be.

Q78 Chris Heaton-Harris: Sorry, this is a very cheap line Dame Helen, but you seem to be sacrificing speed for accuracy in one place and you have now gone to a completely different place where there are lots of problems with speed and accuracy, so I would like to think that we are going to be very tight on that in your new role.

My questions are about the number of farmers affected. Roughly, what percentage of farmers had inaccurate payments made to them in the last audited year?

Dame Helen Ghosh: Do you want this current audit? In that case, I’ll hand over to Mark.

Mark Grimshaw: I’m afraid I do not have that particular number to hand. I am happy to drop you a line.

Q79 Chair: But you should have it. I cannot believe that you don’t have it.

Dame Helen Ghosh: I think we do. At the moment there are 7,802 debtors, which means people who owe us money.

Q80 Chair: We are asking about the last audited year.

Maggie McGhee: The last audited year for SPS payments would be the previous scheme year not the current one, in which case we tested 230 payments and identified errors in 28 cases, which equated to an error rate of about 12%. We are undertaking work on the current year’s payments and are finding a decrease in the level of errors.

Q81 Chair: I have to say, Mr Grimshaw, that I am taken aback a little by the fact that you do not know. Speed and accuracy seem to be two overarching imperatives. The fact that you do not know off the top of your head what the accuracy is, is a bit worrying.

Mark Grimshaw: The question was specifically: how many farmers were affected? That is not a number that I have off the top of my head.

Chair: Well, God, this is about providing a service to farmers. Go on Chris.

Q82 Chris Heaton-Harris: I wonder if I could follow up the Chair’s last question. We were talking about the 12% that you had to do manually, in payment terms. Do you have an error rate for that 12%?

Mark Grimshaw: I would just like to correct the Chair’s 12%. Although I can understand how you got it-taking 88% from 100%-we actually made only 3,000 manual calculations; we do not make manual payments. During the rest of the payment window from December through to June a number of other cases would have gone through the system, so it isn’t 12%, it’s less than 3%-3,000 cases on 105,000 claims.

Q83 Chris Heaton-Harris: Was there a calculated error rate on that 3%?

Mark Grimshaw: There would not have been an error on that 3%, because they would have been manually calculated.

Q84 Chris Heaton-Harris: I just wanted to check that, because it is all going so well.

Dame Helen said something that kind of concerned me about relating information back to the European Commission about policy areas, how the policy had worked and everything. Up until the European Commission stepped in, I assume that information was being passed back to them about how the RPA was working in the United Kingdom, and it was supposedly working quite well. So the Commission never got a feeling from us that it was not going well at any stage?

Dame Helen Ghosh: Sorry. Do you mean before 2006?

Chris Heaton-Harris: Absolutely. We were just relating back that we believed that everything was going well.

Dame Helen Ghosh: What happened was that the Community agreed the new CAP scheme in 2003-04. Every member state then decided how it was going to be implemented and what model it was going to use, and I think-I was not there at the time and I am not an expert on the policy negotiations-we then had to clear our plan with them and say, "This is what we are proposing to do as a policy." They then do not come and check how we are getting on with implementing the policy.

Chris Heaton-Harris: No. I am interested in the information going back to them.

Dame Helen Ghosh: They then will be-the NAO will know this partly because they act as an agent for the Commission-looking at how you are implementing post-implementation. So of course they were looking at the accuracy of our first-year of the SPS 2005 and then subsequent years, partly through the NAO and partly through the kinds of discussion we had with the Commission. So they did not oversee our process of implementation. They would start to take an interest when we started to make the payments or not.

Q85 Chris Heaton-Harris: Okay. When they started taking money back, as it were, did they also offer ideas on how we could tighten up what was going on with our payments?

Dame Helen Ghosh: Again, the NAO and finance colleagues would be able to give you more detail. They do not offer a sort of consultancy service. What are they are concerned about is "protecting the integrity of the scheme." For example, we made interim payments in that first year to farmers to give them cash flow. We would have sought their opinion about whether that kind of interim payment would or would not affect the integrity of the scheme-would we be able to get the money back if we had overpaid? They take opinions on that kind of thing. If we think we are about to do something like make an interim payment or change what we are doing, we would check with them how it would relate to their rules about the integrity of the scheme.

Bronwyn Hill: I asked how the EU audits what we are doing year-on-year. I think the figure in 2010-although I may have conflated them-was that they came in and did about 20 audits, some of which the NAO would do as their agents and some of which they did as sort of higher auditing bodies. This year, I think the list is 22. From what I understand, because of the problems in England, they came in earlier to us as a member state than they went to some other member states and they started to do the audit.

I have to say that it is a strict regime, which you will be pleased to hear, and it is a strict audit. They will often, for example, take a sample-just as the NAO does-and then make a judgment as to what that sample tells them about the whole scheme. One of the challenges that we and other member states face is that when they cannot take a massive sample-106,000 applications-they will take a view. I do not know why, but they tend to go between fixed rates, so you can be 0%, as in totally okay. The lowest level of, if you like, failure is 2%. They then apply that 2% simply to the overall value of the scheme. If you fail the 2% test, you go up to 5%. So one of the challenges for Mark, in particular, with help from DEFRA, is constantly trying to actively manage that back down to 2%, which is considered good. I checked how other member states were doing. Over the past six years, there is no member state that has no disallowance penalty. I am not saying that England is perfect.

Chair: We were second from bottom.

Bronwyn Hill: We were second from bottom after Greece. There were other member states that were twice as bad.

I just want to add one further thing because several members of the Committee have rather questioned the original policy choice. They are quite right to question it, but the move to area-based payments is exactly what the Commission solidified just recently in their CAP reform proposals. The other member states are looking rather nervously at our experience and saying, "My God, we’ve got to do this better."

Q86 Mr Bacon: Well, they will just look at Scotland, won’t they? Or is Scotland historic?

Bronwyn Hill: What I am trying to say is that in the new arrangements, the Scots and the Welsh are worried-we have been speaking to them-because they will have to move, over a transition period, to the same regime that we are paying. The Commission policy is to move everyone to area-based, away from what they were entitled to get in-

Q87 Mr Bacon: When you say the same regime, do you mean dynamic hybrid?

Bronwyn Hill: I suspect it will be different, because there are a lot of other proposals to change CAP, not all of which the UK Government agree with. As you can imagine, we are making very strong arguments that whatever the new regime is, it ought to be simpler for farmers, landowners and paying agencies, and it’s not at the moment.

Q88 Mr Bacon: Is it going to involve yet another digital mapping exercise?

Bronwyn Hill: I don’t know whether we have to re-map, but we have to keep our maps up to date.

Chair: To be absolutely honest, knowing how these-every country has to agree this, so we are at the negotiations. Hopefully-

Q89 Chris Heaton-Harris: The reason I was asking is that I was a Member of the European Parliament for 10 years before I came to this place. I enjoyed sitting on its equivalent Committee to this, and being told about how we weren’t running the Rural Payments Agency very well. I used to enjoy telling them about the overall status of their accounts. The European Court of Auditors used to issue fairly regular reports about the state of this that suggested different methods of going forward. I wondered if any of those actually trickled back to the Department.

Bronwyn Hill: We certainly see the ECA reports. In fact, we have what is called a UK certification authority-sorry, I might have the wrong word-within the Department. Actually, it sits in the agency, and it covers all the reporting and discussions with the European Commission on behalf of Northern Ireland, Scotland, Wales and England. It is a sort of constant process of them, I guess, saying on the back of audits, "Well, we’ve found X irregularity; you need to do something about it," and us saying to them, "This is what we’re planning to do and this is how we’re going about it." But they don’t, I think, approve the actions as such. It is still the responsibility of the member states and the devolved Administrations.

Chair: Let’s move on.

Q90 Stephen Barclay: Can I come back to the 2009 recommendations by this Committee, one of which was that you, Dame Helen, should personally take responsibility for an action plan? Did you do so?

Dame Helen Ghosh: Indeed I did, and we submitted an action plan on 29 January 2010.

Q91 Stephen Barclay: How many work streams and actions were in that action plan?

Dame Helen Ghosh: A number. By then, of course, we were focused on the outcome of the Lane review, which was then in full flight. My recollection of that action plan was that we had a number of streams, of which, as I said earlier, the ones to which we were giving most priority, because they were ones that the Committee and the NAO seemed to be most interested in, were the ones around getting a grip on the finance systems in the organisation, and the-

Q92 Stephen Barclay: You referred earlier to six recommendations from Lane. Mr Grimshaw, who is still in the process of pulling together his plan, referred to 300 recommendations. I was just trying to bridge the gap between the two. Normally, with an action plan, you would have RAG ratings, and you would be able to track the performance on the work stream. Can I come back to the question of how many work streams there were? How many of those were off track when you moved from your post?

Dame Helen Ghosh: The six priority project strands that we shaped our action plan into on the back of the Lane review-as I said, it caught in flight the October 2009 NAO report-were the 2010 SPS delivery, which was our delivery priority; the debt and data project, which was the cause of the greatest discussion by this Committee; our defence against disallowance, which brings us back to the point about how we were negotiating and talking to the Commission; the financial control system, because we had planned a dearth of financial controls, for example, about things like hedging; a project about corporate back-office services, to which, to be honest, we gave slightly less priority; and the issue about ICT continuity, which, again, we knew we had some time for. So I would say the most important ones were 2010 SPS delivery, debt and data, and the financial controls issue, and in January 2010 our RAG ratings around all of those would have been, I would have thought, towards the amber-red or red side, which is why we gave them particular attention.

Q93 Stephen Barclay: To recap, how many work streams were there?

Dame Helen Ghosh: In the Lane report, there were six.

Stephen Barclay: No, not in Lane-in your action plan?

Dame Helen Ghosh: I can look back at my action plan and tell you what there were, but those were the priority projects we were focusing on.

Q94 Stephen Barclay: So you are unclear actually how many actions there were-

Dame Helen Ghosh: But I could easily tell you if I had my letter in front of me.

Q95 Stephen Barclay: Right. And what funding was agreed for that action plan?

Dame Helen Ghosh: I think we concluded that a large amount of the action plan could be done on the back of existing RPA budgets, but we did allow some additional funding-my recollection is of tens of millions-for some of the actions that we might need to take around, for example, the support for the financial controls or the debt and data project. So we expected there to be some additional funding required for the plan.

Q96 Stephen Barclay: So you cannot give me a figure. You put together an action plan, on the basis of a recommendation from here-

Dame Helen Ghosh: And from the David Lane report.

Q97 Stephen Barclay: But it is unclear. Today, you cannot share with us how many of those were actually rated red when you left or what the agreed finance was for that action plan.

Dame Helen Ghosh: I can certainly give you the full details. Appropriate and adequate funding was agreed for all those strands.

Q98 Stephen Barclay: Sure. It is rare that Whitehall would ever say that appropriate funding was not in place. Perhaps you could send us a note with the action plan, the RAG ratings and what the budget signed off.

Dame Helen Ghosh: I am very happy to send you another copy of the action plan I sent you in January 2010.

Q99 Stephen Barclay: The point is that you were tasked by this Committee with putting an action plan in place, personally, and what Mr Grimshaw is saying to us today is that he is, today, in the process of pulling an action plan together on which the financing-the funding-has not been agreed.

Dame Helen Ghosh: Ah, those are two quite different issues, and I think it is very important the Committee understands that. The action plan that we put in place post-Lane review and in anticipation of actions later in 2010 is not the same as the action plan for how we now get ourselves in a fit place for implementing CAP, whatever it is.

Q100 Stephen Barclay: Are you saying there are 300 recommendations in an action plan purely to deal with CAP, Mr Grimshaw?

Mark Grimshaw: No, I am not saying that.

Q101 Stephen Barclay: It is to deal with some of these legacy issues, surely?

Mark Grimshaw: What I am saying is that across the NAO, the Public Accounts Committee, David Lane, Hunter and our internal audit recommendations-that is all of the areas that I would be able to go to to source recommendations-there are just over 300.

Q102 Stephen Barclay: So some of them are the legacy items from Dame Helen’s tenure. What I am unclear about, Dame Helen, is this: from when you took personal responsibility in 2009 to the day when you handed over responsibility, how many actions there were, how well they were funded and how many of those have been closed off. For example, the accounts during your time were qualified three years running. On your action plan, by what date would you have expected the accounts to have ceased to be qualified?

Dame Helen Ghosh: The early qualifications on our accounts were-again, the NAO can correct me-for the first two years and again, I think, this year, because we did not have sufficient data to be certain. The concern that the NAO had was around the certainty of the overpayment and underpayment, which was specifically the target of the debt and data project. That is the thing we gave the focus to, and that is how-we will come back to the apples and pears, I am sure-we moved from the situation in October 2009 to where we are today, in terms of where we are on debt and data and our understanding of where the over- and underpayments will happen.

Chair: I think Mr Morse may be able to help on this.

Dame Helen Ghosh: One of the actions that we took under the action plan was to build a model, agreed with the NAO, on what kinds of cases were likely to be trickier than other cases. We had a model on which we could base an estimate of difficult cases-for example, where there had been a lot of trades, commons were involved or you were on the border. That enabled us to say, "Okay, it’s probably about 14,000 of the 106,000 cases; we will now use those as the focus for our under- and overpayment work." We were already starting to build a model against which you could get debt and data, and therefore financial controls, more accurate, so there was lots of action.

Q103 Stephen Barclay: I would expect senior civil servants to be building a model to address what the issue was. What I was asking was, in terms of your action plan, when you were expecting to be in a position to have satisfied that issue. What was your target date in your action plan?

Dame Helen Ghosh: Our target date would always have been-if we could possibly have achieved it-the next year’s accounts. As it happens, the work that we did demonstrated that, for example, given that we probably had around 14,000 cases out there that might be inaccurate, it was probably unlikely that we were going to get to that level of absolute certainty about the debtors and creditors the next year. The level of disallowance is also a reason why it is the case that we get qualification.

Q104 Stephen Barclay: So you missed the target date for the next year. Are we now in a position on your action plan, or have we moved to a different action plan?

Dame Helen Ghosh: That would be for the NAO to decide.

Q105 Chair: We did have three years of non-qualification, which is bad. Terrible. [Interruption.] Apologies. Go on, help us on this stuff.

Maggie McGhee: There were three years of qualification. In the first year of qualification-2008-09-there were three different elements of qualification: first, the debtors, secondly, disallowance and, thirdly, foreign exchange transactions. The Department correctly addressed the foreign exchange transactions; that qualification disappeared.

The key issue that we were discussing was the underpayments and overpayments. The agency commissioned a project, led by agency staff but using consultants, to look at developing a model which, based on the data they had on debtors, would indicate how far that could be understated-that is, how many cases had not been identified to date. That work indicated a potential 6,797 cases where a debt may have arisen but which was not currently recorded in their books.

However, the work did not take that forward then, to look at those cases in detail to see whether a debt should be established in that area. That is one of the key reasons we limited the scope of our audit opinion to say that we cannot give an opinion on that figure. We cannot say it is complete; we cannot say it is accurately measured.

Chair: Everybody give briefer answers please.

Q106 Amyas Morse: I’m sorry to have to say this, but you know that when that action plan was produced we expressed to you that we did not think it was adequate. You know that.

Dame Helen Ghosh: I do.

Amyas Morse: Not only did I write to you to that effect, but we met on it and you expressed your views in good faith. For the record, I cannot let it go by without saying that we did not regard that as an adequate response to the task the Committee had placed. We put that on the record at the time, to be clear about that.

Q107 Stephen Barclay: Could Dame Helen explain why, given that it was the third time in four years that the Committee had looked at the issue, and the NAO had expressed on an issue for which she personally was asked to take responsibility, the action plan was not adequate?

Dame Helen Ghosh: These things arise when there is a difference of view between the Department and the NAO. To take that specific: the NAO was of the view that, in relation to all our historic cases, we should re-examine every single one of the 106,000 cases-payments of farmers. We took the following view. I come back to the level of overpayment and underpayment compared with an annual payment out of £1.6 billion. Reworking-getting a private A N Other to rework all the cases-was not good value for money for the taxpayer. Therefore, we decided to go down the track of the modelling, which Maggie describes, to say, "Let’s look and see how many you would expect to be inaccurate, that we don’t know about already." That is what produced the almost 7,000-7,000 we broadly knew about, 7,000 we didn’t know about. Of that number we have about 5,000 left to check, which is indeed one of the things that Mark is doing. We don’t know whether there is an inaccuracy there.

Again, we believe that we were being asked to move more swiftly than we thought we should, or needed to, on replacing the IT system. We believed that we would be able to find support into the future, and that is why we disagreed with that element of the action plan.

Amyas Morse: I only wanted to say that our disagreements were a bit wider than that. We felt there should be a comprehensive plan. If it is now to be in place, we look forward to seeing it. We felt at the time that there should have been a comprehensive plan, covering all the interdependencies in the RPA, making it clear with milestones and targets what was to be done. It is not that you didn’t produce actions; there were a number of short-term actions in a plan. We did not feel that was what had been asked for. In fact, I have no reason to change my view on that.

Q108 Joseph Johnson: You do not appear to have been taking the NAO or PAC recommendations sufficiently seriously. For example, you went ahead and commissioned the £1.9 million Lane review, which ended up reiterating exactly what the NAO and the Committee appeared to have been telling you and your Department for many years for free. What exactly did you gain from taking that course of action and not simply following the recommendations of the NAO and the PAC?

Dame Helen Ghosh: The review was what we thought we needed and it went more broadly than any work that the NAO had done, which was focusing on the very important financial issues. It took an overall view of the RPA’s state of health, including the comments that the Chairman read out about leadership and getting that under control. As you say, it cost us £1.9 million. We recouped something like £90 million the following year simply on the improved arrangements around hedging as part of our financial controls project.

Q109 Joseph Johnson: But would that not have been possible just on the basis of the NAO recommendations?

Dame Helen Ghosh: It was not a crucial-

Q110 Chair: Do you agree with that, Amyas? Would it have been possible on the basis of your recommendations?

Dame Helen Ghosh: I don’t think hedging formed part of the discussion that we had with NAO.

Amyas Morse: We did not cover hedging in our report.

Dame Helen Ghosh: So the review was more comprehensive than the work that the NAO had done. I do think that £1.9 million was value for money. Indeed, the incoming Government in May 2010 picked up, and moved forward with, the review’s recommendations. Jim Paice has obviously taken a very close interest in that.

Q111 Joseph Johnson: Do you feel that this session will contribute towards making the leadership of the agency more accountable in future, given that your successor will be called to account for her performance?

Dame Helen Ghosh: I can assure you that after making three PAC appearances, three EFRA Select Committee appearances and a PASC appearance, I felt pretty accountable during my period here. I am sure that Bronwyn will continue to be as accountable as I was.

Q112 Chair: Just tell me, were you to get the job of top civil servant-whatever it is going to be called-what lessons would you take from that experience in the way that you would be manager supreme in the new structure?

Dame Helen Ghosh: I take the lessons from the RPA that I have taken from other parts of my career. When you start any project, it is extremely important to have a very close relationship between the policy makers and the operational deliverers, and to agree with Ministers realistic success criteria and timetables. That is something that I have learned over the years, both from this and from other experiences.

Chair: Into UKBA, says she.

Q113 Fiona Mactaggart: You might feel accountable, but we still do not know who ordered IT equipment that does not work, which cost, in the end, £500 million. But anyway, we need to look to the future.

Mr Bacon: What Ms Mactaggart means is that it does not do what it needs to.

Dame Helen Ghosh: May I come back? They did not order £500 million of IT that did not work. We have spent around £214/44 million, and the thing that-

Q114 Fiona Mactaggart: Does that include the annual costs associated with it?

Dame Helen Ghosh: They built what they were asked to build.

Q115 Fiona Mactaggart: Exactly. And that is why the person who asked them to build the wrong thing-

Dame Helen Ghosh: Johnson McNeil.

Q116 Fiona Mactaggart: -ought to be held accountable.

Dame Helen Ghosh: And he was-he appeared in front of this Committee at the time.

Q117 Fiona Mactaggart: My concern is where we go from here; I am not an historian. I am concerned about two sets of things. One is overpayments and underpayments. We keep talking about this in terms of modelling, and I want to know what happens to make sure that when people have been underpaid or overpaid, the taxpayer reclaims or the farmer gets it back. Would you like to explain, Bronwyn?

Bronwyn Hill: Because we pay farmers every year, we try and calculate the correct level of what they owe us or what we owe them. We then either seek to recover it from them in the next year’s payment or pay it back to them. Because we make the payment every year, we can adjust it according to that. There is a more detailed explanation if you want to hear it, but that is the general approach.

Q118 Chair: Is it right that you no longer have a target on overpayments and underpayments? That is what we have been told.

Mark Grimshaw: We don’t carry a specific target, no.

Q119 Chair: That’s crazy. We have spent a lot of this afternoon talking about a really serious problem that has to be sorted, and you have removed the target. Why?

Mark Grimshaw: The target has to drive the activity, so what we are seeking to do is to have accuracy, and accuracy by its very nature will negate-

Q120 Chair: What’s the target then?

Mark Grimshaw: We don’t currently have a target for accuracy. It’s not a measure that the agency’s had previously.

Q121 Chair: Why not? Perhaps that’s a question for Bronwyn. Why on earth not?

Bronwyn Hill: That’s a good question. We have a series of targets, and I guess you have to decide which targets drive the best overall performance. If you remember, we are trying to improve the service to farmers who would like to be paid earlier and more accurately. If we get those payments accurate, we will gradually over time reduce the debt-

Q122 Chair: Why haven’t you got this as a target? We have spent a lot of time talking about this.

Bronwyn Hill: I guess because it is a difficult one to set correctly.

Chair: Sorry?

Bronwyn Hill: It is a difficult one for which to decide the appropriate level of target, given that, as we said, we are looking to reclaim or pay the ones that we know about as we go through the payment window, so it is not the ones we know about. Remember that the problem is with the cases that look similar, but because we haven’t reworked them we do not yet know whether they are debtors or creditors. So there are two different things going on here-one is the ones we know about. They are subject to some issues around de minimis and how much you can claim back through a payment from a farmer. If, for instance, we discovered that a farmer owed us more than 100% of what we were going to pay him, we would clearly need to adjust the recovery of that debt. So, there are some issues about making this-

Q123 Chair: I don’t understand. All this takes us away. It’s all very interesting stuff. You’ve got huge inaccuracies, over five years, of overpayments and underpayments, and some you know about and some you don’t, but all that stuff does not take away from the fact that, as one of the key objectives in a plan-strategic, action or whatever-you ought to have: "To improve accuracy and prevent overpayments and underpayments." Why on earth haven’t you got that as an objective, expressed through a target?

Bronwyn Hill: There are two things we are talking about here. We have a target for minimising the risk of disallowance, so there is a target for the agency, which is, "Keep it down to 2%." That is a way of driving accuracy.

Q124 Chair: That is indirect. Why haven’t you go it as a direct one?

Fiona Mactaggart: You think more about the EU bureaucrats than about the farmers you are providing this payment system to. That is what it sounds like to me.

Bronwyn Hill: That’s not fair. I was saying that when we know we owe someone some money, we take steps through the next payment window to give it back to them. When we know that they owe us some money, we take account of the position of the farmer. For example, we would not go after them for a very significant part of the claim. I am looking at Mark because he knows more details. We have a system for reclaiming or for paying back when we know that we owe it. I was trying to say that that is not the same as a target never to make a mistake.

Q125 Mr Bacon: It’s not a target never to make a mistake. What the Chair was asking about, and I share her astonishment that you do not have one, is a target for accuracy-99.7%, 99.8% or whatever. Mr Grimshaw, just to clarify, you said earlier I think that you do not have that kind of target. That is correct, isn’t it?

Mark Grimshaw: That’s correct.

Q126 Mr Bacon: One of you said earlier that you had had a target for speed, and indeed that that had incentivised bonus payments.

Dame Helen Ghosh: Previous chief executives had that incentive for speed.

Q127 Mr Bacon: Yes, and of course if people are incentivised in terms of their bonuses by how quickly they make payments, surprise surprise they make payments quickly, whether they are accurate or not-just shove it out the door. You got rid of that-thankfully. The obvious corollary would have been, "Right, if we want them to be accurate, let’s have a target to make them accurate." You haven’t done that. Could you tell us, Mr Grimshaw, what the components of your incentive package are? What are you incentivised on to get your bonus?

Mark Grimshaw: Me personally?

Mr Bacon: Yes.

Mark Grimshaw: I have a set of objectives that are agreed with Bronwyn and one of the directors general.

Mr Bacon: It doesn’t surprise me that you have a set of objectives; I am asking what they are.

Mark Grimshaw: They are related to the-

Q128 Mr Bacon: No Mark, I’m not asking what they are related to-just what they are. What are the objectives that you must meet to get your bonus?

Mark Grimshaw: Okay, I must achieve the agency’s targets as published.

Q129 Mr Bacon: They don’t include accuracy. That’s right, isn’t it?

Mark Grimshaw: No, they don’t include accuracy, but they include, for example, 78% of value delivered by the end of December.

Q130 Mr Bacon: When you say value, you mean payments by value.

Mark Grimshaw: That’s right, yes. And 95% by value and volume by the end of March.

Q131 Chair: So, speed?

Mr Bacon: A sort of speed, Chair.

Mark Grimshaw: It is, but that is not the way we have set it up. The more important element is value, because value is key to the claimants. In terms of the comments around accuracy, my experience tells me that there is benefit only in setting a target that you can measure. At the moment, we do not have a mechanism by which we can measure accuracy, because unfortunately it fluctuates, as a result of the poor data, on an almost daily basis.

Q132 Ian Swales: So you are incentivised to look after big farmers quicker than small farmers. Is that what you are saying?

Mark Grimshaw: I am not saying that at all.

Q133 Ian Swales: You said value.

Mark Grimshaw: It is the percentage value of the fund that we are able to pay out.

Q134 Mr Bacon: It is easier to get that up with a small number of large payments than a very large number of small payments.

Mark Grimshaw: That would be one way of doing it. I do not think it is a holistic way of delivering it, mind you, which is why we have agreed a set of indicators with the industry-so, the NFU and the Tenant Farmers Association. They have been involved in the way that we have created this.

I personally share the Committee’s concern about the way the targets are structured and the way that the agency is currently tasked, which is why, in talking to both Bronwyn and the Minister during my tenure, we have changed things to make it more difficult for the agency actually to achieve targets. We want to make sure we deliver on time and accurately for as many claimants as we possibly can.

Q135 Chair: You have just said that you cannot measure accuracy.

Mark Grimshaw: You cannot measure accuracy, but what you can do is take out the elements that lead to inaccuracy. If we sort the data out, the default is that things will go through smoothly and they will naturally be accurate. The problem we have at the moment is a legacy one, and tackling the legacy is-

Q136 Amyas Morse: Can you give a target on cleansing the data?

Mark Grimshaw: I do not carry a target on cleansing the data currently.

Q137 Chair: What do you carry a target on? Very quickly, because we do not want this session to go on, what are the targets? It completely muddles and bemuses us.

Mark Grimshaw: I can tell you what the targets are. We have a number of what are called indicators these days-they are not called targets. The first indicator is to give a strong commitment to our customers through the implementation of a clear set of customer service standards.

Chair: That is answering the phone on time. Go on-next.

Mark Grimshaw: The customer charter was actually published today, for the first time in the agency’s history.

Q138 Chair: I notice that the customer charter has absolutely nothing in it about paying money on time and accurately.

Mark Grimshaw: I will get to that.

Q139 Fiona Mactaggart: It is just as fast if you speak in Welsh as it is if you speak in English, which is good.

Mark Grimshaw: Yes. One would hope so.

The SPS fund to be paid in a cost-effective manner between 1 December 2011 and 30 June 2012. Then, we have one that is split into two areas, which is to process and pay valid claims by volume for trader schemes-so all the things that sit out outside of the single farm payments scheme; the other £1.3 billion of transactions we are responsible for-and, to minimise the risk of disallowance and make payments accurate to within materiality. That is not particularly helpful and it is something that we will be changing in the fullness of time.

Q140 Nick Smith: Have you just announced that today?

Mark Grimshaw: No, that was published in our business plan back in the spring.

Q141Nick Smith: Six months ago?

Mark Grimshaw: Yes. What we have announced today is the customer charter, which covers, as the Chair mentioned, such things as the speed of answering the telephone or responding to a letter. Those are things you would expect to have in an organisation that knows where it is going. Those indicators are supported by another 12 sub-indicators, which I can read out to you if you would find it helpful.

Mr Bacon: Send us a note with them.

Mark Grimshaw: Yes, by all means.

Chair: It astounds me that the key things about this scheme from the farmers’ perspective-I think Fiona said this, if she wants to come back in-are that they should be on time and accurate, and not high-level measurements. That is of great concern to me and probably other members of the Committee.

Q142 Fiona Mactaggart: Dame Helen and Bronwyn have both referred to the 2013 CAP negotiations. I want to know what advice you are giving to Ministers about the things that they should be pressing for in those negotiations, so that we are not put in a situation where this Committee will be asking you to come back because whole new messes have been made.

Bronwyn Hill: Shall I give you some examples, because there is a lot of advice going to Ministers on the new arrangements?

Fiona Mactaggart: Yes, please.

Bronwyn Hill: A typical example is that the Commission is proposing a cap on payments, with a sliding scale. Over a certain amount, you would stop getting it and the Commission would say, "But you can offset that cap by the cost of your labour on a particular organisation or farm." We are saying that the cost of collecting that information, auditing it and checking it completely outweighs any potential benefits from a cap. That is one example.

Q143 Mr Bacon: How is it proposing to price labour in that equation? It does not know.

Bronwyn Hill: It’s not clear yet. Another example is that, as part of the greening of pillar one, which includes the agriculture funds, there should be a requirement on crop rotation. Certain farmers would have to have three crops a year. The cost of us going out and checking whether they are rotating crops seems to be out of all proportion to any potential benefit. Those are just a couple examples of things that have come out in the Commission proposals, where we are saying to Ministers that they need to push back hard on whether the benefit in policy terms justifies the burden on farmers and the risks of disallowance.

Q144 Mr Bacon: When is this supposed to be-the agreement or whatever shape it takes-signed in ink?

Bronwyn Hill: In theory, we assume that it would normally be from 2014, so you would be signing them off in 2013. In practice, we are very clear, as are others, that these things always take longer to negotiate-there are 27 member states, the European Parliament and co-decision-so one of the risks that we are having to manage in looking to buy a new IT system is how we transition between the current scheme and the future scheme.

Q145 Chair: You’ve only got your IT contract until 2014, so you may have to extend that.

Bronwyn Hill: Yes. If I may, one of the things that I should have explained earlier, when we were talking about the strategic improvement plan, is that it paves the way for a new system. We have a major project, which is being run with the Treasury and the Cabinet Office because of the risk of the project, which we are calling a future options programme. There is an entirely separate piece of work, which is linked back into the SIP, to ask about the options for the new way of running it. Should we outsource some of the processes? Should we simply buy in a better spec of IT system? At the moment we are looking at seven or eight different options. We are hoping to refine those down to three or four with a view to starting the initial stages of procurement in the spring of next year.

Q146 Mr Bacon: Spring of 2012? That is before you know what the IT system will have to do. That is exactly the same problem that they had last time in trying to spec an IT system before they knew what it has to do. There is a chap behind you laughing about it.

Bronwyn Hill: The reason I am laughing is that that is not what we are going to do. If I may explain, you have to start the process early, because it takes a long time to procure IT systems or business process outsources. The way we plan to approach it is through something called competitive dialogue. We want to test the market to see what sort of solutions they can come up with. We are absolutely clear that we will not be settling detailed terms until much later in the process, but if we do not start some time in 2012, we will not have the run-in to do that proper process to reach a decision.

Q147 Mr Bacon: In that competitive dialogue, which sounds like a new piece of consultancy jargon, do you expect to pay participants for their participation up to the point where you get to the final bidding competition, like they do in the MOD?

Bronwyn Hill: I am not familiar with the MOD’s procurement.

Q148 Mr Bacon: You’re not expecting to?

Bronwyn Hill: I would not expect to pay someone to bid, but if bidders asked for costs to be met, we would have to look at why they were asking. Competitive dialogue is new. I am used to ITT and BAFO and so on. My understanding is that it is quite a good technique when you are not entirely clear what you want and you do not want to spend too early. It addresses the lessons we learned last time round.

Amyas Morse: Just a point for the record as regards the capitalised costs of the system. We were talking about this earlier. Some £260,000 has been paid to Accenture, with £240,000 further costs-

Joseph Johnson: Million.

Amyas Morse: Yes, sorry. Some £260 million.

Q149 Chair: With all that, when will the payments be accurate and on time? What year can we expect that?

Bronwyn Hill: That is a really good question. Under the current scheme, bearing in mind that this is a different answer to the one I would give to a farmer, because technically "on time" means within the payment window which closes in June, in reality we would much rather get most of the payments done in December. The question is how we can progressively improve on the current targets. So we are setting the agency target each year with a view to them improving the speed, which is "Do I get paid in December or later?".

Q150 Chair: Okay. Give us some view about the commitment that you are willing to make-you, and through you, Mr Grimshaw-on accuracy and timing?

Bronwyn Hill: I’ll be honest. Mark may want to offer you something. My view is that we should look at the experience every single year that we do it, reflect on what went well and what went badly and consider how much more money we are prepared to invest, given that the cost of the claim is one of the things we are trying to push down, because in my view there is a fine judgment to be made between the value for money for the taxpayer of how much it costs us to handle each claim, versus the importance of making the payments as quickly and as accurately as we can. My view is that it would be wrong to set a commitment now until we know what the experience-

Q151 Chair: Can I tell you why this is hugely important? You have talked about the costs of making claims and we have not dealt with that, but there is an issue around admin costs. The NAO reckons that so far there is extra expenditure, i.e. a loss to the taxpayer of £1.3 billion. Right? It calculates that on the basis of the money we have forgone in Europe-half a billion-and £800 million on the extra costs of administration, compared with Scotland. That is a heck of a lot of money and it sounds to me from what you have said about the new scheme, that we would be lucky to get it in 2015-let’s say 2016 or 2017. That is a long time. With the greatest respect to Helen Ghosh, she had five years and I think made marginal difference. You’ve now got another five years before there is a new scheme and we cannot, in defending the taxpayer’s interest, sit back and say, "Well £1.3 billion lost to the taxpayer over the next five years is acceptable." So you’ve got to have targets for improvement.

Bronwyn Hill: I agree with the disallowance risks, although, as we explained earlier, 2% is about as much as I can promise to deliver. The reason I am saying is that we have made provision in our spending for the spend to cover 2% because that is the minimum-

Q152 Chair: When will you get to that?

Bronwyn Hill: We are almost at that-

Q153 Chair: Are you expecting, therefore, that the accounts will not be qualified next year?

Bronwyn Hill: Obviously that is for the NAO to judge but my understanding is-

Q154 Chair: Well, it must be your ambition?

Bronwyn Hill: If the NAO continues to regard any disallowance, even 2%, as irregular, I assume it will continue to qualify. Personally, my view is: what can we achieve? I think 2% is the target-

Q155 Chair: By?

Bronwyn Hill: Well, we are at 2% now on SPS and it is maintaining it at that and improving if we can. But because it goes from 2% to 0, it is very difficult.

Q156 Chair: Okay. And the bigger question that I put to you?

Bronwyn Hill: On the Scotland point, I wanted to-

Q157 Chair: The whole thing-£1.3 billion.

Amyas Morse: In putting this forward, we said all other things being equal.

Bronwyn Hill: Which they are not. To make it very clear, with apologies to the NAO-I think he understands the point-Scotland runs a completely different scheme. They don’t change the entitlements every single year. They run it on the basis of historic information about what the farmer was entitled to in 2000-02.

Q158 Chair: You could change it, couldn’t you?

Bronwyn Hill: No. We can’t go back now because the way forward is to area-based payments. That is the whole basis of the CAP reforms.

Q159 Chair: So are you telling this Committee that because of the difference in the scheme, we could look forward to the taxpayer, on the NAO’s calculation, losing a further £1 billion over the next five years, if the new scheme is not implemented until 2016?

Bronwyn Hill: I think I would argue that we are not losing money compared with the Scots, because we are operating a different scheme. That is not to say-

Q160 Chair: Well, we are. It is costing us more per claim, which the NAO has calculated over time so far has been £800 million, and over the next five years could be another £800 million. So, we are losing money.

Bronwyn Hill: If I may, Chairman, I asked the Welsh-I happened to be talking to my opposite number there-"How on earth do you keep your scheme costs so low?" The answer was, "We have fewer applicants, partly because of policy and partly because we have fewer farmers. We run a much simpler scheme for policy reasons," and I think there was a third answer: they have lots of local offices that-

Q161 Chair: So we can look forward; I understand all that.

Dame Helen Ghosh: It is not a loss.

Chair: I understand that, but we are going to have this system-

Q162 Mr Bacon: Did you say, "It isn’t a loss"?

Dame Helen Ghosh: It is counterfactual-

Chair: It is an extra cost.

Dame Helen Ghosh: It is an additional cost.

Q163 Chair: It is an extra cost that could be used to give a little more to my constituents for better schools or more generous free school meals or whatever. It is an extra cost to the taxpayer.

Dame Helen Ghosh: Based on a decision made by a Government on policy grounds to operate this particular policy. That is why it is, again, a slightly apples-and-pears thing to consider.

Bronwyn Hill: To be absolutely clear, we cannot go back to the old system.

Dame Helen Ghosh: No.

Bronwyn Hill: There is no reverse mechanism.

Q164 Amyas Morse: I would just make one point, if I may. I understand that these are different systems-we couched it that way-but none the less, all the extra money paid over the years to try to make up for the deficiencies in the information system and all the hand calculations and the other stuff have added very considerably to the cost per claim. Even if we had run the same system properly, it would have been a lot cheaper, right? That must be true.

Dame Helen Ghosh: That must be true, and I would entirely agree with that.

Q165 Amyas Morse: So we could look forward to significant savings in the cost per claim. Even allowing for all the exclusions, we could still expect more efficiency and a lower cost per scheme.

Chair: It’s a different line for the "Not me, Guv" excuses, really.

Dame Helen Ghosh: Yes, and I think the point about cost per claim, as I understand it, and working with the NAO on the cost per claim, is that it is still much too high, but it has come down by, I think, 15% or 20% this year, so we are driving it down.

Chair: It has come down, but I am not interested in that. It is a relative cost.

Q166 Mr Bacon: It is not huge; it is £1,300 instead of £1,700. I clearly remember you, Dame Helen, telling us last time that the Minister had misunderstood his brief when he went on the radio and trashed the NAO figures. I hope that you have come to your senses on the NAO’s calculations, which were carefully and accurately amortised, so I have no reason to doubt them.

Dame Helen Ghosh: I remember the discussion about amortisation very clearly. As I understand it, we now have an agreed definition and process, and an agreed target for next year. On either the PWC, as was, or NAO basis, we have exceeded our target for bringing the cost down this year.

Q167 Austin Mitchell: I am glad to get the last question in, because otherwise I might lose out on my bonus for asking questions.

The cost per claim is still £1,334, which seems a bit high to me. It is probably as high as the cost of processing Mr Grimshaw’s bonus, on the calculations he gave us. A claim cost that high-£1,334-prompts the thought that came to me when I read Michael Lewis’s book on financial disaster tourism, "Boomerang". He says that the Greek railways have revenues of €100 million a year, but their staff costs are €400 million a year, so it would be more sensible to take all the passengers, send them by taxi, and close the railways down. On those per-claim figures, it would be more sensible for you to send a member of your staff round in a Rolls-Royce with a big bag of gold, handing it out to farmers depending on the length of the drive across the farm; that would show how much land they had. That is a prelude to asking: why the hell is the cost so high? Why is it four times the amount in Scotland? How much higher would it be if you included the costs of the disallowances from Europe, which are a cost on the system?

Dame Helen Ghosh: I will ask Mark to comment on the actual cost this year. I think the figure you quote, which is an arithmetical calculation on the basis that all sorts of costs are thrown in, is greatly exaggerated. I think the agreed target for 2012 is £760 per claim. I agree that it is still too high.

Q168 Chair: Let us be fair about this: the figures that the NAO has arrived at include things such as depreciation-perfectly legit. For in-house management purposes, you may want to look at other things, but if it is looking at the real cost to the taxpayer, you have to include all the aspects.

Mr Bacon: That is holistic, to use Mr Grimshaw’s word.

Bronwyn Hill: I think the answer to your question is indeed that some of it is historical, because we are talking about amortisation. Historical, by definition, unless you write it down, you cannot do anything about. The bits that we can do things about are people costs. My understanding is that operational each year is 60%. That is one of the reasons why we have been able to reduce the costs by roughly 20% over the last two years, on either measure. Actually, ironically, because the NAO view starts from a higher level, we come down quicker from its figure, but actually what we are saying is that we are looking at both costs as we go forward.

Q169 Austin Mitchell: Why are the costs of the disallowances not included in the total cost of processing the claims?

Bronwyn Hill: That is a good question.

Maggie McGhee: We do not include them in our calculation; nor are they included in the agency’s calculation. That is because it would be an estimate at a point in time. The disallowance takes a number of years to flow through, so you would not have an accurate figure.

Q170 Stephen Barclay: To pick up on the NAO finding that 12% of farmers’ claims that the NAO tested contained an error, can you at least assure us that when the new system is introduced, the basic data around farmers will be accurate by then?

Bronwyn Hill: One of the questions that we need to address-this is where the strategic improvement plan comes in-is how much we need to invest now in what we call cleaning or tidying up the data to prepare for the new scheme.

Q171 Stephen Barclay: So after five years with Dame Helen as accounting officer with personal responsibility for looking at this closely, today, as we approach negotiations on the 2013 CAP, we still do not know how much it will cost to sort out the basic data from farmers?

Mark Grimshaw: No, we do not, because we have not asked that specific question. One of the points that will come up in the future options programme is whether or not you actually need to use historical data, or whether in fact you simply draw a line and say that new applications equal new data.

There are three key data sources that we have difficulty with. They will be familiar to you: the entitlements database, the land database and the customer database. Not one of those databases is currently accurate, and part of the work that we propose in the strategic improvement plan is to bring all those data to a point where they are considered accurate, therefore leading to accurate claims. The challenge is whether you do it now, or whether you simply contain the current scheme and build for the future.

Q172 Stephen Barclay: Sure, but is it not remarkable that we spent £5.3 million on consultants who were looking at debt and data, but they did not provide a sufficiently robust basis for calculating over and underpayments? We have had four Public Accounts Committee hearings on the issue and the NAO has looked at it repeatedly, yet we are not in a position to say how much it will cost to fix the basic data.

Surely, to go back to Austin’s point, one of the reasons why it is four times more expensive in England than in Scotland is that we are trying to fix the problem rather than address it at source. If we actually addressed it at source and got the basic data right, speed, accuracy-all those issues-would improve, and the cost per claim would fall exponentially, yet you are not in a position today, after five years as accounting officer, to give this Committee any reassurance about how much addressing the problem at source will cost. It seems quite a remarkable position to be in.

Mark Grimshaw: I do not think Helen would be in a position to do that part, mainly because you would actually have to go back to 2005 and work every single claim forward from that point, which just seems an unacceptable challenge.

Q173 Stephen Barclay: Okay. To come back to my original question, could contagion from the current position flow into the post-2015 position?

Mark Grimshaw: No. I think the way forward will be either to contain the current data and leave them behind, or take the decision to invest in the data claims and have them certified before you moved them forward.

Q174 Stephen Barclay: We are either going to get it again, or we are going to cleanse it?

Mark Grimshaw: Yes.

Q175 Stephen Barclay: But we could have cleansed it earlier.

Nick Smith: Why had you not cleansed it earlier?

Dame Helen Ghosh: That comes back to the very first comment I made: had we said right at the beginning, in 2006-07, "Actually, we’ll stop focusing on the speed of payment and we will simply cleanse the data." I said what I regretted; I regret that we did not do that, but that would have basically meant freezing payments to farmers. What we have been doing ever since then is trying to catch up, as we go along, with cleansing the data.

Q176 Nick Smith: You repeated the same basic error, which was not getting the data right.

Dame Helen Ghosh: As I said, when we look back, if we had frozen the system and said, "Now we will cleanse the data," particularly because we were busy building in things like more confusion and more dirty data around interim payments, which farmers desperately wanted, we could have cleaned the data earlier, but with every year that went on we would, as Mark says, have had to unravel the history of each claim, including very complex trading in entitlements, which is another element to the confusion around the data, back to 2005.

Q177 Amyas Morse: I am very sorry, but just to follow on from what you were saying, which was very interesting-thank you very much, Mr Grimshaw-if you did decide to cut off the old data, you would have to do something to clear up the balances. What would you have to do? Would you just have to take it that you were giving people a buy on money they owed, and pay people who owed you? I guess you would have to do that, wouldn’t you? You could not really collect from people without proving the amount they owed, and you are not going to be able to say to them, "I am not giving you your money back, because I am not going to look at the data." So you would have to take a bath in order to clear the fund, wouldn’t you?

Mark Grimshaw: I am not sure that you would necessarily take a bath-

Amyas Morse: A shower.

Mark Grimshaw: A shower, maybe. You would certainly have to run the tail of the scheme beyond the start of the future scheme, so there will be a point when this Committee is considering two SPS schemes.

Q178 Mr Bacon: An old system and a new system running side by side? We have never heard that before-not in the case of the Child Support Agency or anything like that. It is a nightmare.

Dame Helen, it is reported in the newspapers-the Chair alluded to this earlier-that you are applying to be the head of the civil service. I always take the view, on things that I read in the newspapers, that 50% of what you read is correct, but you can never be sure which 50%, so I do not necessarily take what I read at face value. Can you confirm that you are applying to be the head of the civil service?

Dame Helen Ghosh: I will only say that-

Q179 Mr Bacon: Have you been interviewed?

Dame Helen Ghosh: I am not going to comment on a personal matter.

Q180 Mr Bacon: It is not only a personal matter. It affects 500,000 civil servants, all of us, and value for money. Your track record is obviously a pertinent matter in this. I notice that you were a director general in HMRC at the time of the transformation programme merging Inland Revenue with Customs and Excise, which was an interesting move that has not been universally well received. You have been involved in DEFRA for five years, with the Rural Payments Agency dragging around your ankle. Now you are at the Home Office, with the Border Agency dragging around your ankle, and it is quite obvious that Ministers and civil servants are at daggers drawn at the moment. I understand that the head of the civil service is to be part time. The Home Affairs Committee Chair said the other day that he was very concerned that you were being considered for the role, and that your Department, which he called a troubled Department, needs a full-time boss.

Dame Helen Ghosh: All I can say is that were I to have applied for the role, I am sure that that is something that the Prime Minister would take into account.

Mr Bacon: That is very clear. Thank you.

Chair: Thank you very much indeed.

Prepared 16th November 2011