Rural Economy and Connectivity Committee

Meeting date: Wednesday, September 21, 2016

Official Report 610KB pdf

---

Common Agricultural Policy Payments

Item 3 is to take evidence from the Cabinet Secretary for Rural Economy and Connectivity on the common agricultural policy payments.

The cabinet secretary has now been joined by two different Scottish Government officials: David Barnes, the chief agricultural officer; and Jonathan Pryce, the director of agriculture, food and rural communities. I welcome them to the meeting.

We have a huge amount to cover in a fairly short time, so we will go straight to questions from members. Stewart Stevenson has a question concerning payments.

I will ask two questions, if I may. How much has now been paid out under the basic, greening and young farmer payment schemes?

The NFUS suggests that 9 per cent of the 2015 budget has not yet been paid out. Is that the figure that you have and when do we expect to reach or be near 100 per cent?

Since my statement to Parliament last week, we have continued to make fairly steady progress. The figures are published weekly, as members will know. As of 16 September, the total in respect of those three payment schemes stands at £329 million, which goes to 17,866 claimants. I am advised that 17,634 claimants have received payment in full. Members will be aware that we publish that data each Friday, based on figures gathered at the close of play the previous Wednesday. As to what remains to be paid, it should be remembered that the Government has offered loans to farmers who have not yet been paid, in order to provide cash flow. Around 90 per cent of those loan payments have been recouped.

On the second question, it is estimated that £4 million remains to be paid under the beef and sheep schemes, and that the net amount that remains to be paid under the basic, greening and young farmer payment schemes, after allowing for loans, is £5 million to £6 million, giving a total of around £9 million to £10 million for the pillar 1 schemes.

Finally, let me reiterate what I have said before: getting this issue sorted in full is my priority. A huge amount of work has been devoted to that end and I will not be satisfied until every farmer has received payment of their due in total.

Thank you for that response, but it does not quite square with information that I have before me. On 17 July, I asked a parliamentary question and you were good enough to respond to me yesterday. That response said that the latest figures showed that there were 473 farm businesses that had received nothing and 230 farm businesses that had received something. I am not sure how that squares with the figures that you have just given.

Could you repeat, so that I have it clear, how many farm businesses have so far received absolutely nothing?

Most of the figure that you mentioned will have received loan payments. I want to make that clear.

I am not talking about loan payments; I am talking about the money that they are due.

I am being asked to come up with a large number of statistics. I will do my best, but I will need some assistance from officials, because the last thing that I want to do is to provide an incorrect figure through inadvertence. These are important and complex matters, so I will ask Mr Pryce to say where we are with regard to the specific matters that Mr Rumbles has raised.

As the cabinet secretary said, almost everybody who has not yet received an EU payment has been given a loan or offered a loan. There are certainly fewer than 100 claimants who have not had either a loan or their EU payment.

I am not talking about loans; I am talking about the money that is due to them.

The data that is in the response to your parliamentary question relates to the EU payments position as of last Wednesday. I believe that it states that there are 473 businesses that are still to be paid.

They have received nothing.

They are still to be paid, and there are a further 230 that have received a first instalment, which will be about 80 per cent of the payment. Those 230 will still be awaiting the balance, which will be roughly 20 per cent.

So the figures that I have are correct, and I am correct in thinking that 230 have received something and 473 have received nothing.

Yes. The total that have been paid in full is 17,634.

I understand that the vast majority of those 473 businesses will have received the offer of a loan.

I am not talking about loans—

I am putting the matter into perspective.

My question was about how much—

Fair enough, but I think that I am entitled to point out that you said that they had received nothing, and that is not factually accurate. In almost all cases, they will have received a loan—those businesses will certainly have received a loan.

Just to finish this off, the information that I have is that more than 99 per cent of eligible claimants have had either the CAP payment or the offer of a loan. I would not want anyone to misrepresent the numbers of claimants who have received nothing whatsoever financially, and I am sure that Mr Rumbles would not wish to do that, either.

09:45  

Convener, I would like the minister not to obfuscate.

I am not talking about loans. When a loan is given to a farm business, that does not cover the whole amount of money that it is due. You made that clear. The information that you gave me yesterday in answer to a parliamentary question was that 230 farm businesses have received part payment of the money that they were due nine months ago and 473 farm businesses have received no money that they were due—but you say that they have been given a part loan.

That is right.

The point is that 230 farm businesses’ payments have been processed and they have received part payment. You are basically telling the committee that 473 farm businesses’ payments have not been processed. I simply want to ensure that you have got the figures right, because we cannot discuss anything unless we understand what the figures mean. That is the point.

We are struggling to agree, but we are not disagreeing. The figure of 473 has been confirmed, and I put it in context: that does not mean that those individuals have received nothing at all. Most of them will have received a loan payment and, in most cases, the loan payment will have been of the order of 80 per cent of their pillar 1 entitlement.

It would be useful to focus in on that. Every year, there is a tail of difficult cases that, for one reason or another, have not been settled in full. It would be very helpful if officials describe what those cases involve. Some members, especially those who are in the farming community, will know that there are difficulties with reductions, exclusions, private contract, cross-border cases and entitlement cases. All those cases exist every year and pose particular difficulties, and some claims are not eligible at all.

To avoid any misunderstanding, it would be useful if Mr Pryce had an opportunity to add to what I have said about there always being a tail of cases. I accept that there is a higher tail this year than there was before, but we are working very hard to get through the cases. As I said before, I will not be satisfied until every farmer has received payment in full.

Hold on. I will get in before Jonathan Pryce, if I may.

The cabinet secretary has been quite clear that there is a tail, and I think that we accept that. He has given a full answer, for which I am thankful, and has explained what the tail could include. I am not sure that adding to that would be very helpful.

It would be helpful to ask the cabinet secretary to ask his officials to come back to us post the meeting to clarify matters so that we all understand how many of the 473 farm businesses have been paid, how many have use of a loan, and how many have received nothing. Chasing that matter round any more would perhaps be unhelpful.

What I should have said, cabinet secretary, and what I want to make clear to Jonathan Pryce and David Barnes is that I declared an interest at the start of the meeting that I am a farmer and part of a farm partnership. Peter Chapman has also made a declaration. I am happy to make the same declaration again, but I have already made it, and Peter Chapman has done likewise.

We all know that there has been a problem with payments, but there has also been a problem with explanation and documentation. The scheme was new, and no farmer at the start of it knew exactly how much he would get under it. As payments have gone out, there has been very little explanation and very little documentation to explain what has been paid. Sums have arrived in bank accounts with no explanation. People ask, “Is more money to come? Is that all we will get?”

That has created huge difficulty out there, because farmers have not had the ability to plan ahead and to get a feel for whether more money is to come or whether they have received the total sum. There is still a backlog of explanation and documentation, and that needs to be cleared up, as well. I fully appreciate that we need to get the money out, but we also need to get the explanation out about how you came to the sums of money and whether they are the total amount that is due.

I should say that we have a huge number of questions, so I must ask committee members to keep their questions short and give the cabinet secretary and his team the opportunity to get out their answers—which I ask be made short, too.

In relation to the information technology difficulties, it is a matter of record and will be known that we are talking about the administration of an extremely complex scheme, in which land is divided into three categories and in which we have 4 million hectares—or 400,000 fields, each the average size of five football pitches. The need for accuracy is such that the permissible area of error for the purposes of audit and assessing disallowance is the size of a goalmouth. Farmers well understand the complexity of the scheme.

On the topic of explanation, I think that farmers are aware that the scheme is complex; of course, they all knew that there were difficulties with the IT. I believe that the nature of the loan scheme was clearly explained and was, by and large, appreciated.

Looking forward, I entirely accept the need for explanation, and I hope that that explanation was provided by me in last week’s statement on the 2016 loans scheme, which will inject up to £300 million into the rural economy in the first weeks of November at a time when, I think, some farmers might be making decisions about investment, feed and fuel, fertiliser, the purchase of new tractors and equipment, the building of sheds and other such investments in and improvements to their farms and crofts. There is a need for explanation; I am not sure that it is fair to say that there has been no explanation, but I am very conscious of the need for one.

In that regard, I assure Mr Chapman that in relation to the forthcoming loans scheme we have an appointed official in charge and a team of five working on it. I personally have been involved in two drafts of the letter to farmers, cognisant of the fact that some of the letters to farmers have perhaps been couched in too much legal jargon and not enough common, plain English. I have borne that in mind in the wording of the letter, which I believe should be sent off before or around the end of this month.

I think that it has been explained that for farmers to get their loan, which in normal cases will be up to 80 per cent of entitlement, they will be required to complete and return the form before 12 October. I welcome this further opportunity to make that clear. The need for explanation is absolutely accepted and, as cabinet secretary, I am determined to ensure that we provide that as best as we possibly can.

As for the common agricultural policy payments proper, I have undertaken to come back in January to provide further information. Of course, by that stage, I hope that we will be able to assess all the various issues in relation to penalties and the administration of the CAP payments, which I am sure that we will come on to discuss.

It is entirely fair to make the point about the need for explanation, and we are bearing it fully in mind. I do not think that there is anything else to say on that, unless David Barnes wishes to add something.

Simply to say that, as the cabinet secretary has pointed out, in addition to the big-picture explanations of schemes, a great deal has been done for individual farmers on their cases. There are letters outstanding, and they will be sent to individuals to explain the position in respect of their individual claims.

We are prioritising getting the remaining payments out; indeed, that is our top priority at the moment, and it will affect the timing of when the letters ultimately come out. We would have wished the letters to have been issued sooner—in an ideal world, they would have been—but given where we are we believe that the correct thing is to prioritise the remaining payments over the letters, which will come out in due course.

I say to Peter Chapman that he has had a fairly full answer to his question, but was the question directed more at the fact that farmers did not know the full scope of their entitlements and whether they were paid that money, or more at what will happen in future?

It was about the payment window that we have been working through for the last nine months and an explanation of the moneys that have come into bank accounts. After all, moneys have appeared in bank accounts with no explanation. It is fine to get the money, but you need to know whether it is the total sum, a part payment or whatever. It is awfully difficult for someone to manage their business and plan ahead if they do not know whether there is more to come or whether what they have been allocated is their total sum. That is what I was highlighting.

I accept that all businesses need to have a reasonable certainty and clarity about what the future holds. It is possible for farmers to log in to the IT system and garner the information about their case. That is one aspect of the scheme that I know has been useful to some farmers, although I am sure that I will now receive letters of complaint that not all farmers have been able to access that information all the time. It is one of the benefits of the IT system.

In the previous session, I was on the Rural Affairs, Climate Change and Environment Committee and even I knew—I am not a farmer—about the changes that were going to be made, that fewer payments were going to be made and that fewer applicants were going to get payments. I want to be clear about the 400-odd applicants. The fact is not that they have not received anything; it is that, if they have not yet received their payment, they have been offered a loan. Can you confirm that? It is not that people have not got anything; while they have been waiting for their payment, they have been offered a loan to tide them over.

Yes, that is what we have aimed to do. In the questions and answers following my statement last week, I made it clear that, over the summer, I asked that the records be checked in the 17 area offices to ensure that everybody had received an offer of a loan. As a result of that exercise, an additional 30 businesses were identified and offered a loan. Not everybody takes up the loans, but everybody has had an offer. Although I will not be satisfied until every farmer has received payment, I was determined to ensure that every eligible farmer had the opportunity to obtain a loan to ameliorate and mitigate their financial circumstances. That was extremely important, and it was why we embarked on the loan scheme for 2016.

I was absolutely delighted that the NFUS president, Allan Bowie, said that in doing that we have

“shown a clear commitment to the wider rural economy.”

He added:

“Knowing that up to 80 percent of your support package will be delivered in early November gives clarity and certainty to farm businesses. This announcement will have a positive impact on the whole rural economy.”

I am very pleased with the good working relationship that I have with the NFU and its president, and I am pleased that that was its response to the statement that I made last week.

I do not want to labour the point, as there are many other questions that need to be asked today, but the cabinet secretary and his officials have said that they will reflect on the complexities involved in some of the cases. Although you said that it might not benefit the committee to hear about those today, I am not a farmer and I do not understand the complexities involved in those applications; therefore, even if we do not have time for a full explanation of them today, it would be useful to have that information sent to the committee. It would be useful to hear exactly why some people have not received a payment or a loan offer and why those cases are taking so long.

The cabinet secretary is nodding his agreement. If it would help, Jonathan Pryce could briefly give a list of some of the types of case that have been delayed, without giving an explanation. It would also be useful to have a written response on that.

The main reason why we have had this long tail in this particular year is that there are a number of things that are brand new in the new and more complex CAP. Therefore, things have had to be done in the first year of the new regime that will not have to be done in future years. There has been a lot of allocation of land parcels—fields—to the three different regions, which is an inherent part of the calculation of the basic payment scheme. We have had to do that this year but will not have to do it in future years unless new land comes in.

The other reason—the other significant factor—that has affected the tail this year has been that some of the most complex functions have required IT to be built to properly reflect those functions and that IT has taken longer to come through. Again, the development of that part of the IT is a year 1 issue and the systems should be there for future years. It has, however, taken longer than we would ever have expected to get some of those IT fixes in place.

10:00  

Thank you.

Farmers welcome the extra effort that has gone in to try to process the situation that we are in. However, the cabinet secretary wrote back to me after the last meeting and gave me an indication of the extra costs in the form of extra staff time, extra overtime, the extra staff who were required and any expert advice that was needed. Can you summarise that as of today, cabinet secretary, so that we know what the failures of the system have cost, because that would be useful?

I will certainly give you the information. I am not quite sure that I accept the last subclause of the question, which I think added a slightly tendentious element to it, if I may say so.

We have always made it clear that, in ensuring that the CAP payments were delivered and the problems were overcome, we asked staff to give more than their normal contribution and I am delighted that they did so.

I visited eight area offices to speak to the staff and to try to understand, as the guy who carries the can, what the problems were and to learn from them. You have asked previously about overtime costs. There are approximately 400 rural payments and inspections division area office staff and they worked a total of 3,567 hours overtime between 1 February and 30 April, at a cost of £106,000. That is just one statistic; there are lots of others. I could go on and on for several minutes if you want, but just think about that—that is overtime for 400 staff at £106,000, which is around £250 each. That cost—£106,000—is a small fraction of a city financier’s bonus.

We have that overtime from dedicated public servants and I would be astonished if any member said that that was anything other than the right thing to do for farmers and it is a relatively modest cost for the public purse. That cost provides for excellent extra work from staff who are often from or related to the farming community and who are well trusted and respected by the farmers who, every day, they are determined to assist to the best of their ability.

I make no apology whatsoever for that overtime cost. I do not know whether the Conservative policy is that it should not have happened but in my shoes, as the Government cabinet secretary responsible, I think that it was money well spent.

You gave a figure there for a short period of time. The situation regarding farm payments, if you prefer it to be called that, started in November last year, if not earlier. As we have heard, it is still going on today.

You gave a small figure. I would like to know the total cost, broken down—I asked for this at the last meeting—by how many extra staff have been employed and how much they have cost, and the extra overtime right across the board.

Your comment about the staff in local offices is perfectly right. We farmers absolutely rely on them and we are very grateful for the extra work that they have done. However, we have had to ask them to do that extra work and it is only right that we account for that extra work. Can you give me those figures, please?

I can run through them now if you want, but it will take several minutes.

I am happy to have them supplied in writing post-committee, if I may.

I will look at the information that we have provided to the committee already and if further information is required to supplement that, I will certainly do so. I have a lot more information here but I think that I have made the point that I wanted to make.

I have, too.

Gail Ross has a question on the extra work and loans.

The loan scheme has been welcomed by all the farmers I have spoken to. Most of the issue has been covered, and I thank the cabinet secretary for that and for talking about the staff in the local offices. Every time that I have dealt with those staff, they have been absolutely amazing. I, too, thank them for all their hard work.

A number of payments are made throughout the year—they do not all happen at the same time. Will the cabinet secretary give us a brief outline of when each payment happens or is due to be paid?

My colleagues have more expertise on that issue. However, there are essentially two types of payment: pillar 1 and pillar 2. I referred earlier to pillar 1, which covers three categories: basic payments, greening payments and young farmers payments. The other payments cover schemes that support various types of farming activity. In recent years, the single farm payment—of course, it has been replaced by BPS and greening—was paid in December. The less favoured area support scheme was paid in March and coupled support for beef was paid in April.

For 2016-17, loans for BPS and greening will issue in November, with the balance starting to be paid early in the year. We would aim to deliver the LFA and coupled support schemes as close to previous timescales as possible, although we recognise that those could be delayed by a month or so.

They are not on the note, but there are a couple of specialist schemes that are generally paid later in the year, such as rural payments. I wanted to give a complete answer to Gail Ross. I do not know whether I have missed out anything; perhaps Mr Barnes or Mr Pryce could add to that.

As members know, the common agricultural policy is split into two pillars. The cabinet secretary has explained what the previous practice was and the plans for the pillar 1 schemes. He did not describe the practice for the Scottish upland sheep support scheme in previous years because that was a brand new scheme in the first year of the new CAP. Those pillar 1 payments are subject to a European payment window.

Pillar 2 payments are not subject to the same payment window and have generally been made later in the year. The cabinet secretary has mentioned them—they are the rural priorities scheme and the land managers options scheme. Those are legacy schemes; they are contracts that were entered into with farmers under the previous pillar 2 Scotland rural development programme, so those contracts will tail off as they come to the end of their life.

From 2016, we will begin to pay out under the equivalent contracts in the new Scotland rural development programme. The so-called agri-environment climate scheme payments will begin and will gradually take the place of the rural priorities and the land managers options.

We move on to discuss the information technology in relation to the scheme. Rhoda Grant has the first question.

How much has the IT system cost to date? What is the total budget for completion and when do you expect it to be fully complete?

As at 31 July this year, the CAP futures programme has cost £140 million. The total budget for completion is £178 million. The principal cost is that of the new IT system but the programme budget includes other necessary elements, such as staff training and programme management costs. The two figures that I think the member wanted to elicit from me are £140 million to date, and £178 million in total.

Do you have a completion date?

It is 17 March. That is the end of the duration of the programme for which the budget was set.

Will the computer system be provided on that date in the form that it was contracted to be, or will it have changed because of the problems that have been faced?

The computer system is designed to deliver the functionality to enable the administration of the new CAP payment system. The CAP payments change from year to year; in other words, the rules and the programmes change, and that adds to the complexity. Commissioner Hogan has indicated that there will be changes to BPS in this coming year. Whenever there is any change, IT solutions, or IT fixes, as they are called, are required to deliver functionality on specific aspects of the scheme.

The scheme is dynamic, not static, and the programme provides the framework for delivery of payments. Of course the budget is large, and we are mindful of the Audit Scotland reports, to which we have responded in full. It is reasonable to point out that although the budget is substantial, it was conceived and designed to administer payments totalling £4.6 billion, I think. The cost of the computer system is a relatively small percentage of the total payment that it was designed to administer in the job that it was supposed to do. However, plainly we must do what we can to address the financial issues, and I might well be asked about that. We certainly have achieved some reductions in the budget, which I can go into, if members are interested.

So the computer system has not been scaled back in any way—is that what you are saying?

It would not be correct to say that. I do not ever wish to mislead a parliamentary committee in any way. Originally, it was hoped that the system would have the functionality to deliver text messages to farmers, but it was decided early on that, given the more immediate challenges of administering payments, additional functions such as that would have to wait for another day. I mention that because some functions that originally were desired for the system have not been delivered, and we do not anticipate their delivery by March 2017. I am not sure whether that is what Rhoda Grant is driving at.

That is what I am driving at. It would be useful to get a note of that after the meeting.

There are one or two other aspects and I am happy to write to the committee to list any functions that have not been delivered.

I have received lots of letters from members who are diligently representing constituents and who are quite fairly speaking on behalf of farmers who have had problems with receiving their payments. I do not think that I have received one letter complaining about the lack of a text message, but I could be wrong and I will check that out as well.

There is probably a hierarchy of needs here, and money takes precedence over a text message.

Agreed.

However, it will be useful to know what has been scaled back.

Given the problems that have been faced with the system, could the developer be subject to any financial penalties for the delays, which would cover some of the additional costs that the Scottish Government faces?

The dealings with our contractor have been a long and detailed process, much of which took place prior to my appointment. I met Steve Thorn in June and earlier this month. We have achieved reductions in the payments due on the contract and we have the details here. We are looking and expect to deliver further improvements and savings, if you like, under the contract. I think that we have the details here, but as far as I can see neither of my officials seems able to find them.

We have taken very seriously the task of ensuring that as far as possible we hold the contractor to account to deliver functionality and ensure that no elements of excess payment are paid under the contract. We have dealt with that extremely seriously and I am happy to write to the committee with the details. There have been some positive achievements. They are relatively minor in the scale of £140 million, but savings of a couple of million pounds have been achieved. Further measures have been added to the contract to incentivise success going forward.

It would be useful to have a note of that and for it to be broken down into efficiencies and penalties to the developer.

Mr Pryce will be happy to give some more information that might be of help.

10:15  

We have been working with the contractor to press down on the costs of the system. From November, we expect to see a reduction of about 10 per cent or more in costs. It is essentially a reduction in the costs that the main supplier is underwriting.

But there are no penalties.

If the main supplier is unable to reduce the costs of those contractors, it has made the commitment that it will bear the effect, so that could be a penalty for them.

But it is not a penalty that will be imposed by the Scottish Government. I am trying to get at whether the contract was written with built-in penalties for problems such as those that we are now experiencing.

We have reintroduced a penalty regime and a service credit regime, which means that the contractor is incentivised to meet the timetables it has committed to and that it incurs penalties if it does not meet them.

Are those additions to the contract? Were they not in the original contract?

The original contract allows for penalties in the service credit regime. We are putting those regimes properly in place for the next period, which covers the remainder of the programme.

I am sorry, but I am not following you. You seem to be saying that there were no penalties in the original contract and that now, because things have gone wrong, you have put some penalties in for the future. However, that will not require any penalties to be paid for the mess that has gone before.

If we were to go back to the earlier period of the programme, the contractor has not charged for all the work that it did.

That is not a penalty; it is a voluntary contribution from the contractor in good faith.

The contract does not specify a penalty regime. Under the contract, when the contractor commits to a certain section of the work by agreeing to something called a work order, those work orders can—but do not have to—include an incentive and penalty regime. In the early days of the contract, it was not possible to apply a penalty and incentive regime essentially because of the early stages of the work. The Auditor General made the point some time ago about this not being the kind of contract that could be awarded on a fixed-price basis, because the requirements were still subject to change.

Now that we are much further through and we have seen significant improvements in the supplier’s ability to marshal together all the tools, we have entered into a service credit and penalty regime for future work orders.

It seems very strange to have done this and shut the stable door after the horse has bolted.

I have a question for the cabinet secretary about an inquiry into the whole IT system. He is on record as saying that he will deal with the problem first, then look at an inquiry into what went wrong. Will he hold an independent inquiry into what happened and when will that take place?

The member is absolutely right. The priority for us and for farmers is to resolve the remaining difficulties with the IT system and to restore the operation of the system to a proper footing. Anything that detracts from that process by taking away senior officials’ focus would be counterproductive and most unwelcome to staff, who are determined to do their job to the best of their ability. That point seems to have been accepted across the board and I welcome that.

However, lessons need to be learned and I remarked on that in my statement early on in this parliamentary session. We have already had the benefit of a series of very thorough inquiries by the Auditor General. Here is the inquiry report, “Common agricultural policy futures programme: an update”—a Rolls-Royce of an inquiry, which was not the first of the Auditor General’s report into the IT system. Members will recall that Audit Scotland conducted a forensic inquiry that looked specifically at difficulties with the system from the beginning. The report was published on 20 May 2016—the date of my appointment—but the process of looking at those difficulties continues. The Auditor General, Caroline Gardner—whom I met in order to explain the work that we have done to put matters on a proper footing—has indicated that she will give evidence to the Public Audit Committee, as will Mr Pryce and Liz Ditchburn from my directorate.

I believe that there has been an appropriate inquiry into those aspects of concern, although it is not over and the work continues. The purpose of today is, quite appropriately, to subject us to scrutiny—although not exclusively on IT matters—and questions have been asked and answered, and further information will be provided. My view is that the work of the Rural Economy and Connectivity Committee, which you have chosen to do, and the Public Audit Committee is—quite properly—to hold us to account. That work, coupled with the solid work carried out by the Auditor General, constitutes an appropriate and sufficient form of inquiry, but it is for Parliament to decide whether more needs to be done and, if members believe that more needs to be done, I am open to considering that.

However, if an additional form of inquiry were seen by anyone to be necessary, I cannot see that it would be sensible or prudent to commence that for some considerable time because of the need to deliver the task in hand. My view is that the parliamentary committee inquiries and the substantial, forensic, painstaking and comprehensive inquiry already conducted by the Auditor General means that—putting it in layman’s terms—anything more would be duplication. I suspect that that would also not be welcomed by many farmers, who might see it as spending more time and money on something that has already been thoroughly examined.

I am mindful of the time as we have a lot to get through. I remind everyone to keep their questions as short and snappy as possible.

Mindful of your strictures, convener, I suggest that what I am about to ask is responded to in writing as it is complex. I used to lecture postgraduate students on the management of exactly this kind of project, so my questions are very detailed and precise.

First, I want confirmation that there is a project office in the computer development—I am getting a nod to that. On that basis, it should be easy and about 10 minutes’ work on the part of that office to give me the number of tasks that there are and the work breakdown structure, which will give me a sense of how big the project is; the number of delivery phases that the office has chosen to adopt; from the change log, the number of outstanding changes that there are, the number that have been redressed and the number that have been deferred to other phases; and, of those changes, the proportion that have come from the client—in other words, the changes that have been made as customers have come to understand the need—and those that have come from errors.

Finally, I would like to know from the error log the number of errors that have been found; of those that have been found, the number that have been fixed; and—fundamentally—the current estimate of the number of errors still to be found. In case anyone thinks that it is impossible to predict things that you have not found, I should say that, if those in the project office are not able to give me that figure, that will instantly tell me that there is poor design in the testing system, and accordingly I would like to see their document that describes their testing approach.

Those matters might be of interest only to me, but they will help to inform how I am able to help the committee and others later on.

As I am sure that members appreciate, Mr Stevenson has considerable expertise in and business experience of such matters from his former banking career. We take his questions seriously, and I think that they are relevant and important. He is absolutely right in that I do not propose to answer them right now, but I will write to him there anent and continue to engage with him and benefit from his knowledge—on the proviso that he does not charge us a consultancy fee for so doing.

I am sure that he is doing this for the good of everyone in Scotland.

I want to ask the cabinet secretary about EU disallowance penalties—

Hold on, Mr Chapman.

Are we not there yet?

Do you have a specific question about IT?

No.

I would like to continue with that issue, and I think that Richard Lyle has a question on it.

I will try to be brief, convener. Again, I agree with Mr Stevenson. I am not a farmer or an IT consultant, but I at least live in the real world. In the real world, there was a system, but pillars 1 and 2 changed; the money went down; the number of applicants was reduced—please correct me if I am wrong, cabinet secretary—and we had an IT system that, from what the cabinet secretary said earlier, had to take into consideration the land that people have down to the size of a goalmouth. Some people were getting paid according to what they had, some were not getting paid at all and others were complaining.

The issue is not a new one. On several occasions, the previous rural affairs committee discussed CAP payments and the new way that they were going to come in. What changes to the CAP and the administration of it caused this situation? Moreover, could we have foreseen it? After all, hindsight is a wonderful thing. Those are, I think, the most important questions that have to be answered.

I will try to answer those questions briefly. I think that the major change was the agreement—which was reached after careful consideration and discussion with, inter alia, the NFUS—that land be divided into three categories. That immediately made an already complex task more complex.

Should we have foreseen that problems would arise? I am not blessed with foresight, either. Perhaps the answer is yes, and perhaps everybody should have foreseen that. I do not mean this as a political point but, to some extent, the process that we have been going through in the past few years is not dissimilar to the process that England went through in 2005, when there were even greater problems of an IT nature that went on for several years. Anyone who wants to know more about that should read “The Blunders of our Governments” by Professors Anthony King and Ivor Crewe, which makes very good reading.

The main challenge, however, has been the complexity of the scheme and the need to marry the mapping of each holding—we should bear in mind the detailed requirements for carrying out that mapping, with a number of fixed co-ordinates being taken of various boundaries, all by hand inspection, and then conveyed to a tablet—with the IT system.

The communication between the tablet and the IT system has been a source of huge frustration for the people working in the RPID offices, who have been trying to do their work every day but cannot complete it because of IT problems. Let us spare a thought for the people who have been bearing the brunt of that in the offices in Dumfries, Ayr, Galashiels, Hamilton, Inverurie, Inverness and Stornoway, all of which I have visited. It is fair to say that the sheer frustration at not being able to do their jobs created a bit of demoralisation among the staff over several months last year.

10:30  

However, moving on to the less gloomy part of this short answer, convener, I note that improvements have been made since then and that specific IT fixes have been delivered for many of the schemes. The process of farmers filling in the single application form has been much more successful than it was in the previous year and we received assurances from CGI—our contractor—following our most recent meeting that functionality will be delivered early next year to enable payments to proceed and be delivered by the end of June.

Mr Lyle’s commonsense approach is correct. Perhaps, in hindsight, the process was just too complex to be delivered in combination with a brand-new IT system. However, there we are—hindsight is a great thing.

What is the timetable that the CAP IT system contractor has committed to? I will be brief, because it is often said that I take too long with questions. When will the system be complete and fully functional? I take it that, after all the problems that we have had this year, next year should be plain sailing.

That is not a phrase that I am planning to use, but I restate what I said to Parliament, which is that our contractor, CGI, has assured me that IT system functionality will be delivered early next year so that final processing can be undertaken thereafter. The functionality will be in place, but there will then be processes to go through before the payments can actually be made and be received by individual farmers.

In tandem with that, around 5 per cent of farmers have to be inspected each year in order to comply with the EU audit system, and the IT system needs special processing functionality to deal with the inspection results. However, I inform the committee that the IT contractor intends to deliver the main processing functionality that is needed for all cases separately from that special functionality for inspections. Once the functionality is in place, our area offices will carry out the processing tasks to enable payments to be made.

Thank you. I am sure that the disappointment of the staff on the front line, which the minister made entirely clear, is echoed by that of the people who have to work with them—that is, the farmers. It is a double-edged problem, and I do not think that the difficulties for either group should be underestimated.

Peter Chapman wants to move on to talk about potential penalties.

Given all the problems that we know about, we might not meet all the criteria and we could have EU penalties and disallowances, which can happen for reasons such as not paying out the money in time, late issue of final entitlement letters, failure of cross-compliance in system checks and failure to have in place a land-mapping system that is fit for purpose. There are lots of problems out there and lots of hurdles to jump over. What estimate of disallowance have you made for the 2015 payments, minister?

I agree with much of what the member said, but it is important to say that there are two issues here that we should not conflate or confuse. First, disallowance is the process of assessing penalties for making inaccurate payments, so it is a process of each application being considered to ensure that the payment has been properly made and not improperly made. That is disallowance, and the late penalties would apply to our role and our performance in compliance with the EU system—it is important to start from that point.

Obviously, we all aim for 100 per cent accuracy but, like all member states, we have in the past suffered small amounts of disallowance following audits. In other words, a small proportion of the total payments have not been properly paid in accordance with the rules. As Mr Lyle has just confirmed, the rules are incredibly exacting and complex, which has been commented on unfavourably by Commissioner Hogan himself. He has recommended a less penal approach for farmers, and we support that.

I think that all parties would agree that the application of disproportionate penalties for administrative errors has been a feature of the regime for a long time. In previous years, the level of disallowance following audits has been of the order of 1 or 2 per cent. That puts us in the middle of the pack compared with other member states; we have had a lot less disallowance than our friends down south have had.

The question was about the late payment penalties for 2015. In her report, the Auditor General estimated that the total level of penalties could be between £40 million and £125 million. I assure members that we do not expect that that scenario will apply. However, the process by which the cumulo penalty is computed cannot be carried out until the payment period is over for the purposes of the scheme, and I think that that date falls in the middle of October. It will be possible to do the maths only after that. The maths do not involve just Scotland; they involve the member state—the United Kingdom.

I could go into the rules, which are incredibly complex, but suffice it to say that it is not possible to give a clear answer at present because we have not reached the end of the period. The computation depends not just on us but on the performance of Administrations elsewhere in the UK. I undertake that, as soon as we can come to a conclusion on what the figure will be, we will—quite properly—report that information to Parliament; we will not sit on it for months. However, I do not expect that we will be able to do that for some time to come. The process is incredibly complex. I have undertaken to report back to Parliament in January next year. By that time, I might be able to report what the figure is; I would certainly like to be able to do that.

Even before I took the oath as cabinet secretary, I met Commissioner Hogan, with the First Minister, in Bute house to advocate that flexibility be granted. We were not the only country to do so—France did so, too. I was very pleased that our advocacy played a part in securing flexibility so that the worst consequences will not be visited upon us. Commissioner Hogan’s granting of that flexibility was much appreciated. It illustrates that the European Commission is capable of being flexible and helpful in some cases, but that is a debate for another day.

I do not know whether my officials have anything to add but, for the reasons that I have stated, I hope that the member will accept that it is not that we do not want to answer; we cannot. There is no answer at present—it is not possible to give one—but as soon as we have one, we will share it with the committee.

I am sure that the committee and Parliament would welcome receiving that information as soon as it is available.

We are very short of time. Mairi Evans has a question. As there are two further areas that I would like to cover, I would be grateful if it could be as brief as possible.

You will be glad to hear that the cabinet secretary touched on the answer in his previous response, convener. I was going to ask what the disallowance picture looks like over the most recent period and how it compares with the position in the rest of the UK and across Europe. If the cabinet secretary can give us any broad figures on that, it would be helpful.

We do not have figures yet, but we will come back with them as soon as we do.

I should say that, in May, a massive effort was made by the people in the area offices and in Saughton house. A huge amount of money went out between May and the end of June, by which time we have to have paid out 95.25 per cent—do not ask me why the 0.25 is there—of the total pillar 1 funding in order to avoid an element of penalties. An enormous amount of work was done to get closer to that 95 per cent than appeared to be possible on 20 May, and I am extremely grateful to all the staff who were involved.

Jamie Greene has a question on debt in agriculture.

Before I move on to that, I note that, further to Mr Pryce’s response to Rhoda Grant’s questions on penalties, it is still entirely unclear to the committee whether the Scottish Government has any financial recourse with the IT contractor. Perhaps the Government could provide a fuller answer in writing on the current situation with regard to penalties that we can apply to the IT contractor, given the IT problems that have been experienced this past year.

We will add that to the list.

Thank you.

The cabinet secretary will be aware that debt in the agriculture sector has increased by around 9 per cent in the past year and that there has been a worrying trend over the past five to 10 years. Does the cabinet secretary accept that, specifically this year, the debt increase in the farming community has potentially been caused by delayed payments? In general, what are his views on debt in the agriculture industry and how we might address it in future?

That is a reasonable question. As with all questions, the thing is to look at the facts. The most recent facts that we have are the figures that were published last Monday, which indicate that loans to Scottish agriculture increased by 9 per cent to £2.2 billion, which is up £177 million from the figure of £2.03 billion last year. At the same time, similar figures for the UK that were published by the Bank of England also show increases although, to be accurate, the categorisation was slightly different, as those figures were for loans to the agriculture, hunting and forestry sector.

Moreover, a further important fact to note is that, since 2010, lending has increased year on year to the UK agriculture, hunting and forestry sector, where lending has increased by 51 per cent. However, in the Scottish agriculture sector—without hunting and forestry, although I am not sure that we have much in the way of hunting—lending increased by 46 per cent. There is no doubt that there has been an increase in the level of bank debt but, according to those statistics from the Bank of England and other official statistics, the lending increase over that five-year period appears to have been higher south of the border than it has been north of the border.

I deal in facts and evidence, because that is the only way that a minister can or should make decisions. Looking at the facts, any case that is constructed to demonstrate that the problem is more acute in Scotland kind of falters on the ground that the facts show that the level of debt appears to have increased more south of the border. I was keen to read that into the record, because I was not able to do so at the same length during my statement in Parliament last week, when the issue was raised by colleagues.

Of course, we absolutely appreciate the willingness of our banks to lend to farm businesses. Just yesterday, I met one bank and I am meeting two others this afternoon. The good relationships that exist between banks and the farming sector are an asset—they are tried and trusted relationships. Some other sectors have difficulty in gaining access to finance. I will not go into that now, but I know that the prudent approach that farmers take to managing their finances and the fact that there is substantial security value in most farms are perhaps why bankers view farms and farming as a reasonable proposition.

Obviously, we recognise that any further financial pressures are likely to have some effect, which is another reason why I was pleased that, in the farming sector if not in the political world, there seems to be such a broad welcome for the fact that, in November, we will inject a substantial amount of money—up to £300 million—into the rural community. That money will of course benefit farmers and crofters, as it is their entitlement by way of a loan, and it will also filter down through the whole farming world, including the contracting sector and the rural community. I was delighted to see that The Scottish Farmer recognises that, as does the National Farmers Union and various local newspapers with substantial farming communities. That will perhaps make a contribution to tackling in some respects the matter that the member has identified.

10:45  

Jamie, I am sure that debt in agriculture worries everyone on the committee, but we are quite short of time. If you are happy, I would like us to move on to the issue of the EU. The cabinet secretary will not be surprised that the matter has been raised. I ask Mike Rumbles to lead on it.

Convener, I am due to give a speech, by arrangement, at 11 o’clock.

I have three or four minutes on my watch.

We inherited the common agricultural policy when we entered the European Union. It was not designed for our agriculture; it was originally designed for French, German and Italian farmers. We are now leaving the European Union and the UK Government has guaranteed pillar 1 farm payments for the next four years. I do not want to discuss what the UK's response is; I would like to discuss what your response is, cabinet secretary. Because agriculture is entirely devolved to Scotland, it is going to be your responsibility. The design of a new system for Scottish agriculture when the four years is up must be an important issue for you—if not at the top of your agenda, it must be near the top. Have you set up a team of civil servants in your department to design a Scottish system that we will use from 2020?

Do you not want to answer the question, cabinet secretary? As you know, all funds that come to us from the UK Government in the block grant—

I am happy to give an answer, but I am over the time that we agreed with the clerks and the issue is not about CAP payment. I am happy to provide an answer, but the question is very much political. I respectfully suggest that it is not part of the remit of today's inquiry into the CAP payment issue.

Cabinet secretary, we thought that you were leaving at 10.50. That is the information that we got, and that is the timescale to which I have been working. I apologise if, for some reason, I have been slightly misinformed.

I am happy to answer the question if you want me to.

If you have time, I would be grateful.

I do not want to be precious, but the question covers a lot of areas. First—

What are you doing about it?

Hang on, Mr Rumbles. You asked several questions. Which of your several questions would you like me to answer?

Have you set up a team—

Hold on, Mike. I will simplify the question for the cabinet secretary. What processes have you put in place to start looking at what is going to happen post-2020?

We have already had engagement with the sector. Roseanna Cunningham and I have led discussions with key stakeholders—all ministers are doing that. We are preparing in that respect.

The matter is not as simple as Mr Rumbles would have us believe. There is absolutely no certainty about what is going to happen following the referendum, because article 50 has not yet been triggered. Until it is triggered, there will be no formal process. I am no expert on it, but that is my understanding. There is a total lack of clarity.

CAP payments are a reserved responsibility. Mr Mackay has sought guarantees from David Gauke, the Chief Secretary to the Treasury, in relation to the CAP funding and SRDP funding. Thus far, we have received assurances in respect of pillar 1 up to 2020—up to the end of the multiannual period—and we have guaranteed that we will pass all that money on to farmers.

The second strand is the SRDP money—the pillar 2 funding. That is essential, because we cannot make plans in a devolved Parliament until we know what our budget is going to be. We do not know what our budget is going to be because, despite having asked the UK ministers—I wrote to three of them in June and August—we have not received any confirmation of up to £360 million of SRDP funds.

A huge shadow hangs over the farming community. Many of the farmers are looking to sign up to the SRDP, but the only elements that have been guaranteed by Mr Gauke in his letter are those contracts that have been or expect to have been entered into prior to the autumn statement. All the rest—we estimate the amount to be £360 million—is shrouded in total uncertainty.

I put the issue back to committee members. How can a Government plan when we do not have clarity over the budget, which is set by another body, namely the UK Government? Of course, as soon as we get clarification, we will be able to remove the doubt. I have visited many farms and spoken to individual farmers about the issue. Many of them do not know what to do, because the UK Government, despite the fact that the referendum was several months ago, has not got a clue about whether it will guarantee the farm payments component that would have been guaranteed up to 2020 through our continued membership of the EU. Certainty has been replaced with—by definition, Mr Rumbles—total uncertainty.

With respect, that is not my question.

There are two issues here. First, given that the cabinet secretary’s time is up, as it were, I would like to submit a couple more questions on the EU to him; I would also like to submit Mike Rumbles’s question in a specific form. I ask whether the cabinet secretary would be good enough to respond to those questions after the committee, as he has offered to do with previous questions.

Secondly, bearing in mind that you are very short of time, is there anything that the cabinet secretary would like to say in summary before he goes?

I am happy to continue to work with the committee in order to complete the task of getting CAP payments on to a proper footing. I am very pleased that we have made substantial progress, and that the national loan scheme that we introduced seems to have been welcomed by the farming community. I hope that the committee in its deliberations will be able to conclude that the loan scheme is a pragmatic measure that provides, as I think a Conservative member mentioned last week, certainty and clarity for the rural communities in the coming winter months.

Cabinet secretary, I thank you and your team—Jonathan Pryce and David Barnes—for coming and giving evidence to the committee. I think that the committee would ask me to put on record that we look forward to having an opportunity to question you further in January next year, as you have said that that is approximately the timescale when you will be in a position to come back to Parliament and to brief it on the payment situation. I also look forward to having an opportunity to discuss with you how the committee can help take forward business for farming in Scotland. Thank you very much for your time and your honesty.

I suspend the meeting to allow the cabinet secretary and his team to depart, and for those members of the committee who wish to do so to refresh themselves before we go on to the next item, which is of equal importance.

10:52 Meeting suspended.  

10:58 On resuming—