Hansard

Good morning, everyone. Thank you for inviting me to the committee to update you on CAP and on the extremely important fishing negotiations and their outcome. Putting the 2015 CAP payments on a stronger footing and ensuring smoother delivery from the rural payments and services online payments system have been, as members know, my key priorities, and they remain so. They have been my key priorities since the inception of my role as cabinet secretary. As members know, we are making strenuous efforts to put the CAP futures programme and the 2016 payments on a better footing. That is what I promised at the outset that I would do, and that is what we are doing. That has included reviewing staffing and team requirements, and we have put in place a new governance staffing arrangement. I am pleased to introduce today the leaders of that new—or nearly new—team. They are Elinor Mitchell, who is the director of the agriculture division and is the senior responsible owner for the futures programme; Annabel Turpie, who is the chief operating officer for rural payments and leads on ensuring that payments are being made and that we have in place systems and processes so to do, as well as on ensuring that we have CAP compliance; and Eddie Turnbull, who is the head of the information systems division, which is responsible for the provision of information technology services to the directorate, and whose role in the CAP futures programme is to ensure that we get the IT programme that we need to deliver the CAP payments. We have made a great deal of progress on the 2015 payments since my statement to Parliament in September. This committee received a copy of the economy director general’s letter to the Public Audit and Post-legislative Scrutiny Committee, which provides a summary of recent progress. Since 8 December, an additional 1,658 payments have been made to customers, which is an increase in the total number of payments from 38,340 to 39,998. The value of payments made across pillar 1 and pillar 2 schemes has risen from £448 million to £455 million. For our basic payment, greening and young farmers schemes, which are the largest element of CAP funding, 99.7 per cent of estimated eligible claimants have now been paid, with payments totalling £343 million. For beef and sheep schemes, which make up the remaining element of our pillar 1 funding, we have paid 99 per cent of eligible claimants, with payments of a total value of £36 million. Creating a dedicated payments control room has played a large part in turning around our payments performance, by enabling better co-ordination and quicker resolution of issues. For businesses that are awaiting payment, the national loan scheme that I established has provided much-needed support. The president of NFU Scotland welcomed the loan scheme as going some considerable way towards filling the gap in the rural economy. The facts show that 16,357 businesses received more than £145 million to provide cover for the 2015 payment scheme. A large number of them have now received substantive payment. In relation to 2016 CAP payments, my overriding concern is to ensure that rural businesses—our farmers and crofters—receive the 2016 payments as soon as possible and that we continue to support and grow the rural economy. As at 23 January this year, 13,172 businesses have been paid more than £271 million in loans until the 2016 payments are made. Following the successful delivery of the majority of the 2016 loan payments, I decided to close the loan scheme to general applications on 20 January. A small number of top-up loans continue to be processed for businesses that have recently had a transfer of entitlements confirmed. Our loans team is working proactively with those businesses to ensure that any additional support is processed properly. Delivery confidence is improving and our attention is now firmly focused on meeting our commitment to complete the processing of 2016 pillar 1 payments by the end of June 2017, which is within the European Union’s prescribed payment period. I draw the committee’s attention to a consequential factor around the recovery of loans, which I recognise is—understandably—an interest for members of the Public Audit and Post-legislative Scrutiny Committee. By recovering loans primarily through offsetting against the grant that is due, we have taken the initial decision to schedule recovery of such loans. That is necessary to recognise that expenditure on loans added risk to the Scottish Government budget. In practice, there should be no material detriment to anyone, as all applications should be handled within the overall payment window. On the software side of things, we have received assurances from our contractor, CGI, that the IT system functionality for the 2016 scheme will be delivered early in 2017. I met Steve Thorn, CGI’s UK president, on 15 December and on 12 January to make clear the seriousness of the situation. He has now personally overseen the introduction of key contingency steps to deliver the IT. I am sure that members will want to get more detail about that, which I will not go into now; Annabel Turpie will be able to do that. We are much clearer about the risks in the delivery of new IT functionality and how those risks should be addressed. The more robust testing methods that have been introduced pre-launch mean that the system is much more reliable and better meets the working practices of area offices and headquarters staff, as well as our customers, at the first time of asking. My officials are continuing to work closely with the IT contractor and we are monitoring the situation. There is also a continued focus on delivery and support for farmers in our area offices and here in Edinburgh, and I am being kept fully in the picture. It is worth reminding ourselves why we are here and why we decided to build bespoke software. We were responding to clear asks from the rural sector, which wanted three regions, not one. We also faced a significantly reformed, delayed and complex regulatory requirement regime from Europe. The business case to automate some of that was strong then and remains strong now. A compliant CAP IT system will provide value for money. I am seeing progress, but significant programme and technical risks remain, which I am absolutely focused on. I am seized of the on-going challenges as we approach our key deadlines; notwithstanding those challenges, I expect the programme to deliver the necessary components for CAP compliance within its £178 million budget. The original decision to develop a bespoke IT system was sound. The cost of the futures programme, which has helped to deliver our online payment system, represents about 4 per cent of the £4.45 billion of CAP funds that are due to be delivered to Scottish farmers under the new CAP regime by 2020. Because of the complexity of the new CAP, attempting to deliver it without a bespoke IT system would have resulted in significant EU penalties. Our benefits analysis demonstrates that developing a CAP-compliant system will avoid potentially £276 million of financial penalties up to 2021-22. 10:45 To deliver compliance within the budget, we have proactively improved quality and driven down costs by negotiating a number of improvements and changes to the contract with our main supplier. We are happy to answer questions from members about that. On lessons learned, a number of interrelated factors have led to the issues that we have experienced with the CAP futures programme. We have implemented the recommendations of a number of audits and reviews to improve the situation, which is not characteristic of IT projects in the Scottish public sector. There are examples of good practice, including the Scottish electronic tax system, the building and planning business transformation programme and the Scottish wide area network public services programme. It is important to explain that we are applying lessons from other projects, and lessons from CAP are being fed back to other public sector IT projects. The Scottish Government has recently introduced new assurance processes that provide for a more robust and interventionist approach. On staff involvement, my officials are working very hard indeed to get the payments out. I am in daily contact with my senior officials as we drive forward delivery of the CAP futures programme to ensure that support is provided to rural businesses. I have visited many of the rural payments and inspections division offices; staff on the ground have a key role, and their feedback is crucial. I will cut out some of my statement, convener, because I see that you are becoming somewhat impatient—perhaps not unreasonably so. However, we are doing a lot of work, and I think that it is reasonable for me to point some of that out. I hope that I have provided assurance that the work that we are undertaking is having a positive impact on the completion of the 2015 payments and on putting the 2016 payments on a better footing.