9.  Our previous Report highlighted the impact on farmers of the problems encountered by the Agency in implementing the Single Payment Scheme. The Department had not fully appreciated the difficulty of implementing a dynamic hybrid scheme in a tight timescale, and Ministers might have taken a different approach had the Department made this clear at the time. Two other European Member States, Finland and Germany, had chosen to implement the same scheme by taking a more measured approach over a longer period of time. The Department recognised that the scheme appeared to be running more effectively in these countries.[12]

10.  The Department had provided for a total of £348 million in its 2005-06 and 2006-07 financial accounts to cover future liabilities for disallowance by the European Commission. The Department had made provisions of £222 million in respect of the Single Payment Scheme in England, and additional provisions of £92 million for non-Single Payment Scheme expenditure. The Department also made provisions of £34 million for the Scheme in Wales, Scotland and Northern Ireland. The Treasury had set aside £270 million to fund the disallowance provisions, and the balance of £78 million would be financed from the Department's resources over three years. On top of this, the Department had reported accruals and contingent liabilities of £70 million in respect of late payment penalties relating to the 2005 Scheme in England.[13]

11.  The Agency's IT system was rigid and task based and had proved unsuited to processing farmers' claims. In the haste to have the system operational, the Agency had scoped out key project modules, such as the development of software to generate management information on the progress of each claim. Staff have not had the necessary tools to process payments adequately or the information to answer farmers' queries on the progress of their claim.[14]

12.  The proportion of farmers satisfied with the performance of the Agency in 2007 had increased in comparison to the previous year, but the improvement was from a low base. The Agency had paid most farmers earlier for the 2006 Scheme than for the 2005 Scheme (Figure 2), but farmers in England had not received the same quality of service as farmers in Wales, Scotland, and Northern Ireland. Paying agencies in those countries had made full payments for the 2006 Scheme to the majority of farmers in December 2006, whereas, in England, the Agency did not start making payments until February 2007. The Agency was not able to notify farmers of when they could expect to be paid. Whilst the Agency's systems showed the work outstanding on a claim, there was insufficient information to predict the payment date.[15]

Figure 2: The Agency paid 98% of funds for the 2006 Scheme year by the end of June 2007

Source: C&AG's Report, Figure 4

13.  Restoring farmers' confidence in the Single Payment Scheme will depend on the Agency's ability to process claims promptly, and to provide accurate information on the progress of each claim. During 2007 and 2008, The Agency's IT systems had been re-engineered and underpinned by new software. The number of off-line databases was reduced from 90 to 13 and a testing environment for new software introduced. This "Model Office" had allowed new software to be trialled and staff to be trained before implementation on the live system. The Agency was confident that the system worked properly and that there would be sufficient flexibility to accommodate any policy changes made by the European Commission.[16]

14.  The modifications to the IT systems increased the implementation cost of the Single Payment Scheme. The implementation costs and the costs of the Agency's associated business change programme totalled £258 million by May 2006, when the original change programme was closed. In 2007-8, a further £22.8 million was spent on IT changes. Further spending on IT was planned, comprising £19.5 million in 2008-09, and £13.4 million in 2009-10. This would take the total costs of putting the Scheme, and the associated business change programme, into effect to more than £300 million. Between January 2003 and March 2008, Accenture received around £122 million from the Agency for IT support and development. The Agency expected further expenditure of around £10.5 million in 2008-09 and £9.5 million in 2009-10. The original procurement of systems from Accenture had proved inadequate because the risks of failure rested solely on the Agency. New partnership arrangements with Accenture had, however, enabled the Agency to spread risks more equitably, such that if Accenture failed to deliver, they carried a share of the financial risk.[17]

15.  The Hunter review estimated that it had cost the Agency, on average, £750 to process each claim.[18] Around 42,000 claims may, therefore, have cost more to process than the value of the claim itself. Improving efficiency and reducing costs in processing claims is therefore critical. Staff costs had been high because of the resources required to correct errors in farmers' entitlements. At its peak in mid 2007, the Agency employed 4,600 staff, overtime was being worked and shift working was deployed in all offices. Staff numbers have since fallen to around 4,200 people, and only one site continues to rely on shift working. Where few changes occurred on a claim year to year, the payment process could be automated further, leading to staffing efficiencies. The Agency has a target to reduce its resource requirements to 3,500 staff by 2010. The Agency had accepted the recommendations made in the Comptroller and Auditor General's report, and plans to improve the cost effectiveness of its service through the introduction of an e-channel electronic processing system.[19]

16.  In 2007, the farming industry was badly affected by flooding and by animal movement restrictions imposed as a result of Foot and Mouth Disease and Bluetongue disease. The Agency had made a payment of £12.5 million to relieve hardship amongst hill farmers affected by the movement restrictions. It had also made special arrangements in the most severely affected areas to help farmers dispose of fallen stock. The rules of the Single Payment Scheme permitted advance payments to be made in exceptional circumstances, but the Agency did not make advance payments for the 2007 Scheme year because the claims had not been sufficiently validated at that time and to do so would have risked disallowance by the European Commission.[20]

17.  The ability of farmers to predict their payments under the scheme is important for their forward planning, and to avoid inequalities whereby farmers paid earlier than others have a better bargaining position in the market. The Agency had made an initial payment under the 2007 Scheme to 80,000 of the 106,000 farmers by January 2008, representing some 60% of the scheme's funds. The Agency had given priority to claims linked to the Hill Farm Allowance, as these farmers could not receive the Hill Farm Allowance until their Single Payment Scheme claim had been cleared. The Agency also recognised that claims involving common land had been delayed, and it was now giving such cases more priority. Complex, high value claims were, however, likely to take longer to process. The Department has not yet agreed target deadlines with the Agency for processing 2008 claims, but plans to do so and to publish them in the Agency's business plan. Its aim is to pay farmers as quickly as possible.[21]

13   Qq 63, 126, 130, 136; Ev 16 Back

14   Qq 14, 72, 102 Back

15   Qq 14, 41-42; C&AG's Report, paras 10, 12, 3.2 Back

16   Qq 47, 69-72, 82, 150 Back

17   Qq 9, 15-18, 93-109, 149; Ev 16; Committee of Public Accounts, The Delays in Administering the 2005 Single Payment Scheme in England Back

18   Defra Review of the Rural Payments Agency, Report by David Hunter, March 2007, available online at www.defra.gov.uk/corporate/delivery/executive/rpaob/hunter-review-070319.pdf Back

19   Qq 19, 55-58, 73-80; Qq 59-61, 87-88 Back

20   Qq 33-36 Back

21   Qq 36-40, 52-53 Back