Environment and Rural Development Committee, 24 Oct 2006

Meeting date: Tuesday, October 24, 2006

Official Report 279KB pdf

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Budget Process 2007-08

This week, we are taking evidence specifically on the Scottish Environment Protection Agency's budget and the issues that SEPA has raised. Next week, we will take further evidence on the budget process from the Minister for Environment and Rural Development.

On a point of order, convener. The Minister for Finance and Public Service Reform has confirmed that the report of the independent budget review group is now complete, but he has refused to publish it prior to September 2007. That is in complete contrast to the promise that he made in November last year and May this year to publish the document when it was complete. How can committees be expected to consider the budget process if they are denied access to the report? Perhaps you can guide me as to whether that is a matter on which I should push for a vote. Alternatively, can you assure me that, before we get into discussing substantive issues relating to the budget, the committee will be shown a copy of the minister's report?

Thank you for giving me notice of the point of order. I do not think that I am in a position to give you anything extra this morning. I have read press coverage on the matter. I suggest, given that we will have the Minister for Environment and Rural Development with us next week, that that might be an appropriate time to raise the issue with him directly. I suggest further that, instead of our voting on the matter today, we should consider the information that we have on SEPA's budget and the paper from the Scottish Parliament information centre, which will allow us to explore the issues that we have discussed previously. We can come back to the issue that you have raised next week, which will give members time to reflect on it.

I accept that.

Are members happy with that suggestion?

Members indicated agreement.

We will now take evidence from representatives of SEPA on its budget. I welcome Campbell Gemmell, who is chief executive; Calum MacDonald, who is director of environmental and organisational strategy; Colin Bayes, who is director of environmental protection and improvement; and John Ford, who is director of finance and corporate services. Members have a copy of the submission from SEPA, which I hope that they will have found useful. We also requested submissions from a range of other stakeholders, to get their views. It would be helpful if you would say a few words by way of introduction, Campbell.

Thank you for the opportunity to give evidence. It might be helpful if I indicate that John Ford deals with finance, Colin Bayes with regulation and Calum MacDonald with strategy—that is slightly easier than telling you their job titles. My chairman is not present, because he is on leave at the moment, but he sends his good wishes to the committee and is interested in what goes on here.

SEPA is 10 years old. We have had an interesting 10 years and we are definitely still learning. Often, what the media say might make you think that we have combative relationships with some of those with whom we work. We have open and lively relationships with many of those with whom we work, but that sometimes goes through an interesting translation process in the fourth estate.

We hope that the £32.7 million of grant in aid without capital, which will be £36.365 million with capital by 2007-08, and the £32.3 million of charging income will enable SEPA to be a robust deliverer of key environmental services to Scotland. That is certainly our objective, which will be delivered largely through our 1,270 staff. About 70 per cent of our budget is, in effect, locked up in our staff, which means that it is a challenge to ensure that we can be as efficient as we would like to be. Despite what some of the other people who have given evidence have said, we have met our efficiency targets for at least the past five years. In the past year, we exceeded our 3 per cent target and achieved a 7.2 per cent efficiency saving. I do not think that that gives us scope for complacency, but it shows that we are serious about ensuring that we are as effective and efficient as possible.

We are trying to regulate 10,200 or so authorised activities in Scotland and are faced with a quite complicated and wide-ranging task that is being delivered through our 22 offices. Including all the activities that are registered with us, rather than just those that we authorise directly, there are around 100,000 activities in Scotland that we are directly involved in regulating. There were 6,000 reported pollution incidents last year, half of which had a direct environmental impact and of which 446 were considered significant, including some 200 to 300 incidents in the agriculture sector alone. So there is plenty going on in SEPA's domain. I hope that we can demonstrate now and hereafter that we represent good value for public and chargepayers' money.

We are happy to take any questions that you would like to ask us.

Thank you very much.

On the one hand, I have some sympathy for SEPA. Since the establishment of the Parliament, there has been a constant flow of new environmental legislation from both Europe and the current Government. I therefore see the rationale in SEPA's taking on more employees to handle all that legislation and the need for a substantial budget for that. However, having represented rural communities since day one of the Parliament, I have received a constant stream of complaints from the rural industries—I expect that most rural representatives have had the same—especially the farming sector and the whisky sector. Concerns have also been expressed by salmon farmers and the aquaculture sector, and so on.

You say that you regulate 100,000 activities in Scotland. How and when are those activities reviewed to find out whether there remains justification, on an environmental basis, for your regulating 100,000 activities in Scotland?

We have been actively involved in the Treasury-driven Hampton review on regulatory inspections and enforcement, and we have considered what would constitute better regulation. We have taken extremely seriously the Water Environment (Controlled Activities) (Scotland) Regulations 2005, which effectively implement the water framework directive in Scotland. We have removed from regulation around 80 per cent of the activities that were previously regulated under the Control of Pollution Act 1974—effectively taking them away from the position that they were previously in. By being risk based, the 2005 regulations dramatically reduce the number of activities that are regulated directly. We do not think of ourselves as a rural or an urban regulator; we are a Scottish regulator, although we recognise that a large proportion of our activity is distributed around the country and could, perhaps, be classified as rural.

Implementation of the Pollution Prevention and Control (Scotland) Regulations 2000 will be reviewed in two years' time—effectively, two years after the majority of PPC activities have gone through a first regulation. Perhaps Colin Bayes can add some detail to that. Similarly with the water framework directive; we are just putting the components of controlled activities regulations in place, and we will certainly want to review those in due course. We are regulating those activities only through regulations that Parliament has already approved, and there is an opportunity to review those two major sets of regulations—the PPC and the WFD, which, in many ways, make up the lion's share of our regulatory activities—at the appropriate agreed forward points.

I assume that SEPA plays an advisory role in providing an environmental justification for those regulations, which remain in place. Many sectors to which I speak are fearful that, because the Government wants to reduce its funding for SEPA and rely on the polluter-pays principle, you will have to raise more income through charges on vital Scottish sectors. Given the fact that you are relying increasingly on the polluter-pays principle, to what extent can you persuade the committee that genuine pollution is taking place for all the activities that are being regulated and that they are being regulated on an environmental risk basis?

I give the example of the on-going concerns in the whisky sector, which were debated extensively in Parliament. Under the 2005 regulations, water abstractions by distilleries are licensed not on an environmental risk basis, but on a volume basis. Indeed, SEPA is imposing a licensing regime, issuing licences and only later carrying out environmental risk assessments. That appears to be bonkers to many Scottish industries. It seems that you are becoming focused on raising charges through hitting many sectors needlessly without putting forward an environmental case.

I refute your general point. Some specific detail on it is necessary, which I invite you to ask Colin Bayes to provide. If activities do not pollute and do not have the potential to pollute, we do not want to regulate them. That is exactly the process that we have gone through with the 2005 regulations. We have taken the risk issue seriously.

However, as I said in relation to agriculture, it is obvious that certain agricultural activities cause pollution. Historically, there have been times when the whisky industry has tried to argue that whisky is not an inflammable material and that, therefore, we should not take seriously the Control of Major Accident Hazards Regulations 1999, which is clearly a nonsense. Depending on the level of control and management that the companies exercise, it is possible for us to minimise the regulatory burden that we place on them. Nevertheless, we should not pretend that a whole series of industrial activities do not have the potential to cause pollution.

Our cousins in the Environment Agency in England have addressed two issues. First, if a company has a robust environmental management system, should it be regulated as robustly as those that do not have an environmental management system? A European study recently reported that having or not having an EMS had no impact on the compliance of the companies. Indeed, if there was any correlation, those companies that had an EMS were more likely to cause environmental incidents. Clearly, we are not going to go down that route, as our cousins in the south have done—and they are rethinking that.

Secondly, the Environment Agency has considered the so-called operator performance assessment. If it is obvious that a company is performing particularly well, should we lessen our burden on it? The Environment Agency has gone down the route of giving a 5 or 7 per cent reduction in fees on that basis. We are not yet convinced that that is a sufficiently robust process. How would it be applied? Would an OPA score be applied to an individual company? Would it change year on year? If so, would we then be subject to the view that we were moving the figures around year on year while companies wanted a consistent long-term view of what their capital and revenue investment would be?

I return to your first point. We balance roughly 50:50 our polluter-pays element and our delivery of public good. The grant in aid is the latter 50 per cent and the polluter-pays element is the charging schemes, which make up the first 50 per cent. There is no logic to say that that should be the right balance; it is roughly what we have come to apply. I would be interested in the committee's views and, in due course, the minister's views on that, as we have not had a discussion about what the balance should be. Frankly, if we reduced the burden on industry—which may or may not be a good idea—the burden would be greater on the taxpayer if the overall targets for efficiency and performance that are set for us are valid, as the Auditor General and KPMG, along with a number of others, seem to think that they are. We do not find it surprising that companies rail against the burden that is placed on them. Nobody likes having to pay taxes or being regulated; nonetheless, that is SEPA's job.

Would it be helpful to have the answer to the supplementary point about the costing in more detail?

Yes.

It is a continual challenge to us whether regulation is proportionate. There is a spectrum of regulation that ranges from, at the left-hand end, general binding rules or a statutory code of practice such as was discussed in the committee's previous evidence session, to registration, licensing or complex licensing at the right-hand end. We are concerned that, where regulation is needed, we should apply the correct regulation in the correct way across that spectrum.

Campbell Gemmell referred to the 2005 regulations. We have taken more than 80 per cent of activities' discharges—which previously had to have a consent and go through a consenting process—into registration. As a result, we have dropped our fee to about a quarter of what it was previously and have reduced our input to the process to a tenth of what it was previously. We have also provided an online registration system to ease matters. The previous system was overburdensome, and we have changed it.

We recognise that there are certain things that would benefit from moving across the spectrum that I have described. We are currently issuing pollution prevention and control permits to high street dry cleaners, but that seems excessive, and I would support anyone who said so. We also issue pollution prevention and control permits for petrol vapour recovery systems on petrol stations. Such a system is a standard piece of kit that lends itself to general binding rules of registration, and we have suggested to the minister that in such cases—and there are other examples like that—we should constantly consider whether we are at the right point on the spectrum, so as not to be overburdensome and so as not to have our staff spending time on low-risk things, when they should be dealing with high-risk things.

We also take a risk-based approach to audit. We have a manual that has been consulted upon and is available on our website. It sets a risk-based approach to such things as how often we should check whether someone is complying with their permits. It attempts to take a proportionate approach to the risk of the activity.

You gave some examples of areas where you feel that the approach is excessive. Is that because custom and practice has changed and because general industry standards for dry cleaning and for garages have improved to the extent that good safety practice in the operation of equipment, or ensuring that the right kind of equipment is used, is now so standard that it does not need the kind of approach that was taken before?

I would suggest that, for those two examples, the balance was wrong in the first draft of the legislation. Among the most effective pieces of regulation, at the left-hand side of my spectrum, are the general binding rules for silage and slurry handling in Scotland. They have been extremely effective, but they have been at the left-hand end of the spectrum. I am not suggesting that that is the ineffective end of the spectrum, but that one should look for the appropriate mechanism, and I think that, for the two examples that I quoted, the mechanism is not appropriate. There are far better ways of regulating those activities that are less burdensome to the industry and less demanding on our organisation.

What is your process for reviewing whether the mechanism is appropriate? When we examined the water regulations last year, we had a debate about small, individual water supplies being taken out of the system. You have mentioned that today. Would you approach the Executive so that it could then act on the regulations? What is the process for freeing up the system where appropriate and for being tough where appropriate?

The Executive will clearly receive information from sources other than SEPA; I do not want to give the impression that we are the sole source of advice to the Executive. We clearly get intelligence that suggests that the balance is wrong. I chair two major stakeholder groups in the organisation—one for the regulated PPC industries, and another for industries covered by the controlled activities regulations—and Calum MacDonald chairs a third group, to do with waste management. Those groups provide us with an opportunity to hear feedback from stakeholders—people with permits who are regulated—about whether the level of regulation is right, so we gain intelligence from our close contact with industry and with those we regulate. Ultimately, our mechanism is to feed that information to the Executive and to seek amendments to regulations when the opportunity arises.

When I first indicated that I had a question for the witnesses, I also said that I was interested in the polluter-pays principle, and it seems ironic that that is where a large part of SEPA's budget comes from. If you are going to change the rules, does that mean that you are eating into your budget because you might be taking out of the regulatory system companies that would otherwise be paying?

Your submission addresses waste management issues and the national waste strategy. How much of your resource do you apply to private waste collectors and whether or not they are recycling? I am thinking particularly about paper recycling. I know that in some business centres that have a private waste facility there is no paper recycling, although one would think that that would be a good idea in such places. The issue of permit checking and its impact on your budget follows on from that. If you increase the number of staff that you employ to check companies' permits and whether they are complying, will that leave you short of funding?

There are probably several different elements to the issue. Calum MacDonald may be able to provide some of the information that you are seeking. There is a great deal of confusion in the country about who is responsible for individual parts of the system. We are responsible both for regulating private and public sector-based waste management facilities and for working with the Executive to set the overall framework for waste management in Scotland.

Over the past few years, we have made huge strides towards increasing the percentage of waste that is recycled and bringing down the total volume of waste, although that is a struggle for us all. Putting ourselves out of business is a very interesting challenge. I suspect that it will take rather a long time, although not because of any resistance on our part. The challenges that we all face in Scotland will result in there being a great deal of regulated activity and need for policing for a long time. I stress that we have no direct involvement in the legal process. Nothing to do with fining results in income coming back to SEPA—we are completely separate from that part of the process.

I will stop you for a moment, as your comments relate to an issue that interests me—your relationship with local authorities.

Local authorities manage the bulk of the waste management regime. We issue licences and what are, in effect, exemptions to allow certain specific proscribed activities to be undertaken under a lesser burden than would normally be imposed. The local authority sector has the biggest part to play.

The national waste strategy is an example of our activity that is not funded by fees and charges. It is undertaken largely on the basis of partnership and working with all the sectors that are involved in the management of Scotland's waste. With regard to delivery of the national waste strategy, we are involved much more in persuading and educating than in direct regulation. Elaine Smith specifically mentioned the private waste industry. I presume that she is referring to commercial and industrial waste. The national waste strategy and the national waste plan that arose from it focused on municipal waste—waste that is collected and dealt with by the local authority network that Campbell Gemmell mentioned. The next phase will be to tackle commercial and industrial waste, which is by far the largest proportion of the waste that is produced in Scotland. Again, we will proceed largely on a partnership basis, rather than by direct regulation and force.

Is your budget sufficient for you to carry out that task?

Our budget is adequate for the role that we play in delivery of the national waste plan. The strategic waste fund, which is held and disbursed by the Scottish Executive, is another matter. We do not hold the fund directly, so SEPA is not providing local authorities with the resources to deliver the hardware that is required to deal with waste.

Who is providing those resources?

The Scottish Executive.

We are keen that market development work should be supported, to ensure that we tackle some of the waste streams and create proper working markets in those materials. The issue is not whether that work comes to SEPA. We have made considerable progress in the area in Scotland and have moved significantly beyond having paper mountains because people were unable to get a reasonable price for paper. There are now reasonable markets for glass and cullet, and there has been considerable innovation in that area.

Recycling of textiles is a more difficult problem. There is a series of challenges. Organisations such as the Waste and Resources Action Programme—WRAP—work hard to promote and create markets and we are keen to support that work. However, the issue is not largely about money. A low level of financial support is required, but the main work is co-ordination, raising profile and trying to engage the private sector more effectively to develop and sustain those markets.

We are often seen as the regulator, but we have a function of providing advice to companies on waste minimisation, which is funded through our grant-in-aid funding. We also organise, and are the main sponsor of, the yearly vision in business for the environment of Scotland awards, which aim to raise awareness of the issue through education and encouragement, not through our regulatory activities.

Eleanor Scott has a brief supplementary question.

It might not be that brief, so I will let Rob Gibson ask his question.

Thank you—I apologise for butting in.

How much involvement has SEPA had with the Minister for Finance and Public Service Reform's attempts to make savings in the administration of Government services?

We have participated in several processes, including the consultations on shared services and transforming public services. The committee can see our submissions to those. We have also participated in the on the ground programme, which is a Scottish Executive Environment and Rural Affairs Department initiative to consider how backroom services can be shared between various services that come under the SEERAD umbrella and the scope for more effective front-line delivery. SEPA is working with Scottish Natural Heritage to develop a shared office in Aberdeen. Our Aberdeen office is one of our major laboratories. The new development will bring SNH's Aberdeen office under the umbrella.

In Galashiels, we are considering bringing together SEPA, the Forestry Commission Scotland, the state veterinary service, the agricultural advisers and SNH. That is an interesting pilot. The chosen location is close to the end of the proposed Waverley railway line, so we await the development of that line with interest. That is an example of our trying to give the public a more obvious way in to a series of organisations whose public services overlap. That takes us back to Richard Lochhead's point about the accessibility of rural services. Galashiels is not as rural as other areas, but it is a rural location where a more joined-up service would probably be welcome.

It is difficult actually to obtain backroom savings, although they may be relatively easy to identify. John Ford has been working with the on the ground group and with the finance directors of other non-departmental public bodies to try to find more efficient ways of working. For example, rather than us all recruiting individually, that could be done through a grouped process. Similarly, procurement work could be shared. We have already taken significant steps, but the rhetoric and the reality are different—it is hard to follow through on the rhetoric.

I am interested in that final remark. More than 10 per cent of your staff are involved in finance and corporate support. Are those not precisely the kind of backroom operations that could be shared more easily between Government departments?

It is possible to do that, but when we already have a well-functioning and good-value professional service, I am reluctant to say that the way of making progress is to reduce that or to share it with other organisations, which may have different terms and conditions, pay regimes, pension arrangements or working hours. The police service and Stirling Council share a common payroll facility and we are exploring how we could use that idea. However, with human resources and finance staff, although some services can be delivered efficiently as bulk process activities that provide pro rata savings, others are sensitive to the culture of the organisation or the nature of the service that is provided. I do not want us to progress so fast that we break something that works, just because it seems that a few jobs could be saved here or there.

I do not know whether John Ford wants to add to that. We spent quite a lot of time considering the possibilities. We are certainly open to the notion of making those sorts of shared service work.

On the spectrum of saving, SEPA and other organisations have to make themselves as efficient as possible internally in relation to support services and frontline staff. From 2002-03 to 2007-08, our ratio of backroom staff to other staff is projected to drop from 14 to 10 per cent. We have implemented efficiency savings and have others in train; we are getting there. Nevertheless, there are other areas in which we can become more efficient.

We should consider the opportunities to share backroom services with other organisations. However, we should not stop considering our own efficiency savings and think that if another organisation carries out a service for us, efficiency savings become its problem. People working on the ground have to operate as efficiently as possible. That will allow us to come together with efficient services and to make further efficiency savings.

It seems to me that many other organisations could make exactly the same pleas. I am interested to hear what you have to say in this on-going business of efficiency savings. Given that finance systems are shared with many other organisations, would you not give them higher priority?

Sharing finance services is certainly feasible. The work that Scott-Moncrieff did for the family of non-departmental public bodies highlighted bulk processing as an area in which efficiency savings could be made. We are exploring that. It is worth mentioning that we offered information technology and communication support to the Crofters Commission and Deer Commission for Scotland, because, given that we had a bespoke system, it was easier for us to offer them such support, almost on a free consultancy basis, than it would have been for them to go out to the market and, perhaps less critically, buy in a service that might not have done what they needed it to do. We are already sharing services; it is a question of how far we can go and how formalised that has to be. We could continue to share a lot of services informally. We will certainly report back in due course on how our exploratory work, under the Scott-Moncrieff umbrella, progresses.

I want to return to waste issues. Like Elaine Smith, I have a few reservations about the polluter-pays principle. I would much prefer to have a polluter-stops principle, because, too often, the polluter-pays principle means that someone can pollute as long as they can pay for it. I am sure that among the postbag issues that my colleagues hear about is the fact that some of the burden of regulation falls not on the people who are polluting, but on the people who are attempting to clean it up. You mentioned your commitment to trying to bring down the total volume of waste. One of the ways to do that would be to stop classifying as waste things that patently are not waste.

I might be about to show myself up as one of the people who are confused about who is responsible for what, but I hope that you will enlighten me. NFU Scotland raised the issue of road planings. An inert substance that has been used on one road can be reused on a farm road, but it would be classified as waste. Topsoil is classified as waste unless it is put through a riddle and the stones are taken out; it then becomes a product. There are many such issues, about which I could go on at length, but I will not. Who decides what is classified as waste? Why make things difficult for people who are trying to do something that is beneficial to us all?

I agree with everything that you said. Waste is a particularly difficult area, given the definitions that Europe has put in place. We are trying to avoid the discussion going all the way to the European Court of Justice. We are in the process of consulting on better waste regulations. I hope that we will get as much input as possible from throughout Scotland so that we can identify the opportunities to simplify the burden of regulation. We do not want to regulate these types of activity, but we have to take a proportionate and precautionary approach.

We must consider, for example, when the grain size of the soil that a lorry is carrying is of such a size that it becomes a lorry of stones. It is easy to say that it is ridiculous that SEPA should consider stones to be waste, but, if the stones have soil around them, which may be from an area in which, say, organophosphate dip was disposed of on a farm, would we want that to be deposited somewhere else near a watercourse? Sometimes the definition is used rather too prescriptively, but we need to find ways of making obviously useful materials non-waste. Road planings are an example. If, like stones, they are used on the farm we have no problem with them being considered a useful material. Depending on what happens subsequently, we must conduct a case-by-case review, because there may be a pollution risk to the environment. To be precautionary, we must take that seriously.

We have identified tallow as a fuel. We think that it is a fuel rather than waste, but the matter is debatable at a European level.

It took a considerable fight by a lot of interested people to get recognition of that.

Indeed.

If someone wants to move a tonne of soil from A to B, they obtain and pay for their waste management licence and they are then allowed to move the soil. What do they get for the fee that they pay? Does someone come and test the soil for organophosphates? What do they test it for?

They might test the soil for organophosphates in certain circumstances, depending on what the material appeared to be. We try to apply common sense. We must also ensure that the resource is available to us. We do not have staff that can be switched on and off, depending on the problem that is presented. We must maintain a cohort of expertise within the organisation. In effect, the resource may well be available for other issues but is also there to be consulted when we face a specific challenge, such as when we are asked, "What is this material?" When we are presented with materials, it is often the case that neither the owner of the materials nor we know what those materials are, so we must take a sensible approach to assessing them.

Sure, but to return to the topsoil issue, a person pays the fee whether or not there is a risk. Once the fee has been paid, someone decides whether there is a risk and they come and test the topsoil. If there is no risk, the fee is a contribution to SEPA's finances to keep someone standing by in case there is a risk somewhere in the future.

I have not identified any of my 1,260 staff members that are twiddling their thumbs, but I take your point that, in that sense, there is an element of cross-subsidy. However, that is an essential part of maintaining the system. If 100 per cent of our staff were funded through grant in aid such a cross-subsidy would not be necessary, but as it is at least some of the staff costs have to be met—and should be met, if we take the polluter-pays philosophy to heart—by the charging mechanisms. The charges exist to ensure that assessments can be made.

I do not want to hijack the meeting by talking about topsoil all day, but I return to situations in which charges are being paid by people who are not polluting but are clearing up pollution.

One case that was brought to me relates to someone who runs a quarry but also does skip hire, so he deals with material such as builders waste. He has a waste management licence because he does that work. That is fair enough. He has a crusher for the rock because he runs a quarry out in the country, but because he also crushes builders waste to make recycled aggregate—I am sure that we all agree that we should be trying to use recycled aggregate and preserve virgin material—he has to get a specific licence at the cost of a couple of grand for the same crusher that he uses for the rocks. It produces the same dust from the rocks, but he is told that he has to pay to get a licence to crush builders waste. How can that be justified? That is a disincentive to make recycled aggregate, because he cannot sell the recycled aggregate any cheaper than the virgin aggregate that he gets from his quarry.

My short answer is that that is not a good rule. That is exactly the type of issue that we want to identify under the banner of better waste regulation. The consultation should identify every such situation in which we could make the rules better. I agree with your rationale. However, we are here to police that which already exists, which is why we do that.

At one point, registration of the application of certain materials to land was not subject to any charge and was not subject to any regulatory oversight. In fact, a committee of the Parliament looked into the matter following a petition that came from concerned residents in a particular area, as a result of which the waste management licensing exemption regulations were changed to introduce a charge so that SEPA could be more proactive in its oversight of some of the activities.

We did almost nothing previously and it was very much a paper exercise, but concerns that were expressed by the Parliament led to the introduction of more proactive oversight of exempt materials—for want of a shorthand word—going on to land. I am not saying that we have got it exactly right, which is why I said that we are always receptive to intelligence that suggests that there might be areas in which it is not right or in which it is acting as a disincentive to sensible practice.

Who decides what constitutes waste?

It is extremely difficult to give a short answer to that question. Waste has been defined in the European waste framework directive and in decisions on cases that have been through not only the European courts but courts in the UK. It is not an easy area and the constant challenge is to find the right balance between encouraging the use of materials that will ensure that virgin materials are not used and protecting the environment adequately. At the other end of the spectrum, as we well know, some people want to use unsuitable materials.

We have worked with companies such as Lafarge to ensure that they are capable of using waste solvents for fuel. Although the solvents could quite easily have been classified as waste under current definitions, it was patently obvious that they had a very high calorific value and could be an effective fuel if burned in a plant with decent control. Similarly, because of the significant risks that are posed by fly-tipping, we have allowed the operator that I mentioned and other operators that have suitable control to burn tyres for fuel.

In Switzerland, Lafarge adds road sweepings into the fuel chain when making cement. That is an excellent use of material and is certainly far better than turning it into landfill or depositing it elsewhere. If we are smarter about this in Scotland, we will find that a lot of materials can be properly treated as such instead of being treated simply as waste.

We were certainly unhappy about the rules on small waste oil burners. I will not call them daft, but I think that if people are able to heat small industrial premises and estates with small-scale materials it is completely barking then to make them manage such estates like huge industrial complexes. Under those rules, small waste oil burners must have control applied to them.

Are those EU rules?

Yes, they were EU rules that were effectively passed into Scottish legislation. In that regard, we missed the opportunity the first time round; however, we have another opportunity to make things rather simpler, and I hope that we will take it.

We are getting away from the main issue, which is our exploration of your budget. However, I should say that, on previous occasions when we have dealt either with anecdotal evidence from constituents or with certain waste, energy or agricultural issues, the committee has been frustrated to find that a material that might have already been used and might, in one sense, be described as waste could become a resource in other respects if an intelligent approach were taken. It is simply a matter of common sense that things should not go to landfill if they can be used somewhere else. As a result, you can take it as read that we will enthusiastically support any move that you might make to review such connections. We have certainly raised the issue with the minister, particularly with regard to waste and energy matters.

As the witnesses are aware, we have received submissions from various organisations including the Confederation of British Industry Scotland and the NFUS. The CBI feels that although your intentions are good and honourable, your culture does not allow you to deliver on them. For example, its submission says:

"We believe that SEPA does not have enough incentive to improve its performance, because it knows that it can simply pass cost overruns on to its ‘customers', a luxury few businesses enjoy."

I have had such conversations with Iain McMillan directly, too, but I completely refute the assertion. Rather like the NFUS, the CBI presumes that we have not met our efficiency targets, but we have—we have met them repeatedly. However, the CBI does not give credit for that in its response. I wonder what the cost overruns are. I am keen to see specifics about what the CBI considers the cost overruns to be.

We have challenges when we try to frame appropriate regulatory activities without knowing what the final regulations will be. At the UK and Scotland levels, we have a habit of being rather late to refine regulations. I will not use the term "cobble together", but we often have to move relatively quickly to finalise the detail of the regulatory regime. We do that pretty professionally. If we take the opportunities to review as we go along, we should be able to provide greater confidence.

I acknowledge that we do not yet always deliver the service that we or industry would like. We have good interactive relationships with some sectors that speak frankly to us and give us useful information to work with. Some industries are rather more critical without necessarily being as constructive.

I am happy to respond to any question that the CBI or members can frame. I noticed that the CBI's submission mentioned a level playing field and comparisons with England. We have published a benchmarking document on our website that compares our charges with those in England. We are more expensive in some cases and cheaper in others. I am not sure whether we should level down or up, but I am sure that we will have an interesting discussion about that.

To be frank, some targets to which we are working probably need to be refined. We need to be held to new and more demanding targets on some matters.

That is one of the points that the CBI makes. What sanctions can be levelled against SEPA? The CBI says that your

"general efficiency target is to determine 72% of licence applications within the statutory time limits. This is unacceptably low … any private sector business that only ‘delivered' on time to its customers 7 times out of 10"

would go out of business.

Colin Bayes will pick up the detail on that. The language that the CBI uses is interesting. That is not our "general efficiency target"; it is one of 21 targets. Last year, we met 17 of our 21 targets, including one that was on our internal efficiency, which we exceeded by more than 100 per cent. Colin Bayes can add detail about the target on our turnaround of licences.

I preface my comments by saying that I am not comfortable with where the figure stands. I will explain the process for dealing with an application. First, the quality of the application that arrives on our doorstep matters. When we receive poor-quality applications, as we do, we rarely refuse them. We try to work with an applicant to deal with an inadequate application, although we could apply the letter of the law and reply by saying, "Thank you very much, but your application is inadequate." Working with an applicant takes time and, without doubt, it impinges on our ability to turn around applications quickly.

Some legislation requires us—rightly—to undertake public consultation, which means that timescales are sometimes not met. Some legislation gives the minister the right to call in an application. When that right is exercised, I assure members that an application certainly fails to be dealt with in the specified turnaround time. For some licences, a company is required to take a test of financial competence, and companies are sometimes not speedy in taking that. Before some licences can be granted, planning permissions are required to be in place. All that I am saying is that several constraints exist. As I said, I am not complacent about the issue; I am just explaining that some aspects are outwith our control.

An important factor in determining the turnaround time for a licence is whether the regulatory regime is right. We opened the discussion earlier about moving from licensing to a different point on the spectrum of registrations. We believe that we have had considerable success in changing that on discharges to the water environment, applications for which have a 21-day turnaround time, which is much shorter than the time for a licence application. We are confident that what we have done to get the regulatory framework right, as well as our performance, will cause the licence application figure to rise. The figure is not good enough. It is not always within our control, but I am confident that it will rise.

You will have seen the raft of criticisms from NFU Scotland. It claims:

"There is a lack of transparency in charges. There is also no explanation as to why charges in some instances are higher in Scotland than in England."

Can you handle that criticism?

Again, Colin Bayes can perhaps add to what I am about to say.

We have published our benchmarking data on our website. They show that some elements of the 11 charging schemes are more expensive in Scotland, but some are cheaper. Given that there are different circumstances in Scotland, I am happy that the regime is as it is, although we have, with the Executive and DEFRA, committed ourselves to looking at new charging schemes and new regulations as they are introduced with a view to trying to align the relevant charges. However, there are significant differences in how pollution prevention and control, for example, are regulated in England and Scotland. Direct pound-for-pound comparisons are therefore meaningless. We must be careful about the use of such data.

Could SEPA be more transparent?

We publish the data on our website—I do not see how we could be more transparent than that. Indeed, CBI Scotland and Scottish Water said in their submissions that we are considerably more transparent than we were. Perhaps we are on a journey and we need to go a little further, but our transparency is already significant.

That is a good description. We are on a journey, but we need to go further. We should consider what we did under the controlled activities regulations. We established a regulatory stakeholders group that oversaw the activities that we considered would be necessary to deliver the duties in question, the number of inspections that we planned and the build-up of costs. Furthermore, we appointed independent auditors to report not to SEPA but to the stakeholders group on whether we had properly done our costings. The NFU was represented on that stakeholders group. Charges have not always been developed in such a manner, but that is probably the best practice that there has been in the United Kingdom for developing charges. I hope that we will see more of that kind of approach. A pollution prevention and control stakeholders group will go through a similar process.

I read NFU Scotland's comments on groundwater charging. It has pointed out that farmers in Scotland are charged £170 for authorisation to dispose of sheep dip while farmers in England are charged only £138. Why is there such a difference in charges? What did not come out is that a permit is required for every disposal site in England and Wales. If a farmer has two disposal sites for spent sheep dip, he will require two permits there. In Scotland, we thought that that system was crazy and that a farmer should need only one permit to have disposal facilities on his farm—we thought that such a system would be far preferable. Whether the farmer has one facility or 10 facilities does not matter. Equally, we allowed one crofting township to hold a permit on behalf of all its crofters; individual crofters did not need permits. You have to look at the details behind the headlines. Charges are lower for many farmers and crofters in Scotland.

The answers that have been given are useful because the issues that have been raised are the kind of issues that people are concerned about whenever any new environmental regulation comes to the committee. People are concerned about the transparency that exists and the rationale behind the different costs. Members will probably be interested in the analysis on SEPA's website.

I am interested in the target of processing 72 per cent of licence applications within statutory time limits. An explanation has been given, but I am still slightly bothered by the matter. A statutory time limit should mean exactly that. Is there scope for considering when you start to count? Do statutory time limits take into account applications that need to be consulted on or called in? It seems to me that something is not right that could be put right.

I sympathise with you. We could be more sophisticated in how we show that performance target. The legislation does not discount the period for public consultation, for example. We can exceed the statutory period only with the agreement of the applicant. That is the important thing to know. If the applicant turns round and says, "Sorry, I do not want the time limit to be extended," the application will be deemed to have been refused and the applicant can appeal to the minister. There are checks and balances. We do not discount the period during which public consultation is taking place nor do we discount when the application is called in. Perhaps we should discount that period. I am pleased to say that the number of applications that are called in is not very high but, nevertheless, those have an impact on the performance statistic.

I just worry about the ripple effects on people who are waiting for licence applications to be determined. However, those people can appeal.

Yes, those people can appeal. Within the organisation, we have a management instruction that any licence application that is crucial to an economic development will be fast-tracked. In those cases, we will meet the applicant early to ensure that we get a good-quality application, which is the foundation for dealing with any application quickly.

Do the statutory time limits for different licences perhaps need to be made more pragmatic and workable?

I would rather that we worked on getting the correct regulatory level that I have described and see what impact that has. In the first six months of this financial year, we turned round 1,639 registrations for point source discharges within 21 days. That is considerably better than we did previously. We were able to do that because we now have a more proportionate regulatory regime that facilitates that.

Our difficulty is that the 72 per cent target is a very clumsy measure that covers some hugely diverse things, but I do not think that moving the goalposts would be the right answer. We need to tease out the components and perhaps have explicit sub-targets for different regimes. We are keen to try to refine the measure. We know that it is not good enough, but we also know that it is a bit of a bucket term that is not easy to interpret.

The measure becomes more reasonable once we dig underneath it.

I want to ask about the two environmental targets that SEPA has not met. My first question is on minimised and recovered non-municipal waste. We know that such waste constitutes the bulk—about 70 per cent—of our waste in Scotland, but we are doing a lot better on domestic waste. Do we need a statutory or notional target if we are similarly to reduce the levels of non-municipal waste?

Calum MacDonald might want to field some of the detail of that question.

Again, our difficulty is about where we are trying to get to. I am certainly keen that the overall figure should come down, but I am not sure that we have the arrangements in place as yet to bring that down. As the committee has picked up, four of SEPA's targets measure the performance not just of SEPA but of the waste industry or water industry or whatever. For example, on composting, we are heading towards significant figures that probably far exceed real compost markets in Scotland. Achieving those levels has been a necessary stepping stone towards better municipal waste management, but we do not want an excess of something for which there is no market and that we cannot do anything with. We need to consider how we can refine the processes for reducing waste volumes in a way that ensures that we have in place appropriate markets for the streams that might arise.

Does Calum MacDonald want to add to what I have said? It is a hard target to meet.

The target is hard to meet. I am not sure that I can add much to what Campbell Gemmell has said. A number of different approaches are possible, but I am not sure at this stage whether we need a statutory target.

Given that the target is to

"Complete the national framework for dealing with non-municipal waste",

I suppose that the failure is to deliver a national framework. However, non-municipal waste is such a huge part of the waste stream in Scotland that I wonder whether anyone is breaking down that target into different types of targets. Eleanor Scott asked earlier about road waste and whether it is reused or is just thrown out. I want to know whether the same kind of energy is going into considering these issues. At European level, we have clear targets for domestic waste. Does the absence of similar European targets for non-municipal waste make it less of a priority? I would not be surprised if you answered yes to that question. However, SEPA has still not met a target that it set.

I think that my answer is, "Yes, but." I encourage the committee to have that discussion with the minister. I think that the target is not particularly smart and needs to be significantly improved. Given that we have only an overarching responsibility, the target needs to be distributed more effectively to those who can implement it directly.

I was just interested to see that next year's target is to

"Achieve milestones in the national framework for dealing with non-municipal waste."

It is a slightly different way of wording the target, but I do not have a clear sense of it.

It is largely a timing issue. We are saying that we still want to do this but that an awful lot is happening with the national waste strategy and the national waste plan. We have not put the municipal waste issue to bed yet. It is where we are in the flow of time. We need to sort out the municipal waste elements first and then we can concentrate on commercial and industrial waste.

My second question is about diffuse agricultural pollution, which I know has been on the agenda of SEPA and the Parliament since day 1 of the Parliament. You have a target to

"Prepare and implement environment improvement plans to improve … catchments"—

we would be interested in that under water framework directive issues. You have begun to identify priority catchments but only in priority areas and there is still no progress on the implementation of improvement plans. Where do you go from there? The target for next year is just to

"Promote good practice and compliance."

Again, there is a timing issue. In effect, the corporate plan target to which you refer was put in place almost three years ago. In some respects we have moved a little faster than was expected; for example, the consultation on the general binding rules for diffuse pollution is out—we are pleased that the minister and his department have taken that forward. In effect, they have taken our advice that general binding rules are a better way of going about achieving targets than taking a more tackety-boots type approach to the regulation. That is encouraging. Given all the work that we did on the prevention of environmental pollution from agricultural activity code—we hope that the GBRs will end up looking like it—I think that there is a strong framework that we can see being implemented.

We also found it difficult to get the plan in place and to get skilled people into the organisation, which is an issue that we have raised with the minister and the deputy minister. We were therefore slower in getting some of the framework and bureaucratic elements done, but we have made quite good overall progress thus far. The targets need to be revisited in our next corporate plan for the next spending review period, and they will be.

I noticed that the briefing says that the environment agencies north and south of the border have different VAT status and that if you had the same VAT status as the Environment Agency, you would be able to reduce your fees by 5 per cent. Where are we with that debate? Have you been writing to HM Revenue & Customs? Has the minister supported you?

We have 10-year-old bruises on our foreheads. Unfortunately, some decisions that were made early on in the establishment of SEPA were probably flawed and we have suffered as a result of that. The issue has been revisited.

We have on-going discussions with the sponsor department about reviewing our status and bringing us into line with the EA. However, the process is not simple, as I am sure that you will appreciate.

Would it require primary legislation at Westminster?

Yes, we believe so.

So there was a lack a foresight in the early days of the establishment of SEPA, which predates us all. However, it is quite a significant issue.

I thank you all for fielding all the questions that we have asked. It is appropriate that, 10 years on, we should subject SEPA to some strategic scrutiny. When individual regulations come before the committee, we burrow down into an issue, so it is quite useful to be able to look at the organisation as a whole and ask some questions.

When I was reading the NFUS submission, I was struck that many of the points would be more appropriate for the minister because they are about the policy framework under which SEPA operates. There is an issue to do with the appropriate balance between public sector funding to improve the quality of the environment and business funding to make sure that that side is regulated properly. That is an on-going debate that we might want to rehearse next week when the minister is here.

I thank the representatives from SEPA for the submission that they gave us in advance and for letting us test other stakeholders' view of the agency. It has been a useful process.

We will have a brief break and then continue with our business.

Meeting suspended.

On resuming—