c262/96
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Parliamentary Commissioner for Administration
Investigation into delays in making payments under the Arable Area Payments Scheme
C.262/96
1. Mr A, a farmer, complained that the Ministry of Agriculture, Fisheries and Food (MAFF) delayed making his payment under the 1995 Arable Area Payments Scheme (the scheme). He said that his local MAFF Regional Service Centre (the Centre) failed fully to answer his enquiries about that delayed payment; that MAFF refused to pay him interest for loss of use of the money; and that the delay had put him at a competitive disadvantage compared to other producers in both the United Kingdom (UK) and the European Union (EU), who had received their payments earlier.
2. The investigation began in August 1996 once my predecessor had obtained comments from the then Permanent Secretary of MAFF. I have not included in my report every detail investigated by my staff; but I am satisfied that no matter of significance has been overlooked. The main events are detailed in chronological order at 3. On 1 July 1992 Council Regulation (CR) (EEC) No 1765/92 established the scheme to compensate farmers for loss of income caused by a reduction in support prices for certain arable crops. It provided for payments per hectare to the producers of various cereals, oilseed, and protein crops. MAFF were responsible for the administration of the scheme in England; that included overall control of the application process and the payment of claims on behalf of the European Community (EC). Claims were split into main and simplified schemes. Under the main scheme, payments could be claimed on as much or as little land as the applicant wished; but in order to qualify, a proportion of land had to be set aside. Under the simplified scheme, payments could be claimed on only a limited area of crops, but there was no requirement to set land aside. Article 10 of CR No 1552/93 provided "The compensatory payments for cereals, protein crops and linseed, and the compensation granted by virtue of the set-aside obligation, shall be paid between the period 16 October to 31 December which follows the harvest". MAFF have said that in practice, in recognition of the fact that some claims might present particular difficulties, and payments under the scheme should not be made before completion of the validation process (see paragraph 4), the EC allow a tolerance of about 4% of payments to be made after 31 December before applying financial penalties on member states. 4. The scheme for 1995 was one of a number of EC schemes administered through the Integrated Administration and Control System (IACS) which, under article 1 of CR No 3508/92, member states were required to adopt as a claim-checking, anti-fraud measure. Article 13(1b) required member states to have implemented all the elements of IACS by 1 January 1996 at the latest, though after discussion in 1996 that was later extended by one year. Article 4 directed member states to set up an alphanumeric identification system for land parcels (continuous areas of land on which a single crop is raised by a single farmer, forming a field or part of a field). In the UK an alphanumeric system based on National Grid field numbers was introduced in 1993. In 1995 MAFF revised the arrangements and introduced a unique numbering system to satisfy EC concerns about the UK's field numbering system; farmers were asked to re-number their fields, replacing them with a single number where previously there had been more than one. Article 6(1) of Commission Regulation (EEC) No 3887/92 required MAFF to conduct administrative checks stipulated by article 8 of CR No 3508/92, including a cross-check of parcels to ensure that arable aid had not been granted twice. In England that was achieved by means of administrative and computerised checks. A fundamental requirement of the scheme was that eligibility depended on the use of land at 31 December 1991. New checking procedures, introduced in 1995 as part of the phased introduction of the full IACS system, required links to be created between each part-parcel of land in the 1995 claim and equivalent part-parcels through each preceding year's database back to 1993, in order to identify whether each parcel of land claimed as part of the scheme was unique and eligible. The 1993 data in turn led to the base eligibility. Farmers were required to submit applications by 15 May each year, indicating all the agricultural parcels, including land covered by the set-aside measures. Under Commission Regulation (EEC) No 3887/92 producers were required to reimburse any overpayment under the scheme, with interest (unless the wrong payment was due to an error by the member state). 5. In 1995 MAFF issued instructions (GEN 19) to their Regional Service Centres (Centres) explaining the purpose of IACS; section 5 "Office Procedures" gave details of the application process. GEN 19 told Centres to carry out an initial check of applications under the scheme in strict order of receipt to ensure that all relevant sections of the form and field data printouts had been completed and signed, and were supported by appropriate maps and documentation. At that stage the claim was lodged as valid. After that initial check applications were to be processed in priority order; the examples given of priority claims were "those applications subject to remote sensing and claims for oilseeds" (advance oilseed payments had to be made by the end of September). Following a pre-data input check of the field-data printouts the information was input to the computerised database; at that stage parcel linking of land was carried out (within the computer system) and validation of the application attempted ( 6. In a 1994 booklet "Commitment to Service", MAFF set out the performance targets for Centres. They said that telephone enquiries would be answered in full; and that cereals and set-aside payments under the scheme "will be made between 16 October and 31 December". They said that if they experienced any difficulties in meeting their targets, they would publicise that fact and "If we have difficulty in meeting our targets in a particular case, we will let you know why". 7. Section 35A(1) of the Supreme Court Act 1991 provides: "Subject to rules of court, in proceedings (whenever instituted) before the High Court for the recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the Court thinks fit or as rules of court may provide, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and - (b) in the case of the sum for which judgment is given, the date of the judgment." 8. Under section 12(3) of the Parliamentary Commissioner Act 1967, I may not question the merits of discretionary decisions of departments taken without maladministration. In this report I refer to EC legislation and relations with the EC only to put into context the actions of MAFF, to which my investigation has been confined. 9. For the sake of clarity I give the following summary of the events described more fully in Appendix A. On 29 March 1995 Mr A applied for cereal and set-aside payments under the 1995 scheme. By May the Centre had completed pre-validation checks on his claim; those details were input to the computer in July. On 1 September, and again on 23 October, Mr A's claim failed validation as several land parcels remained unlinked. The claim was returned to the validation queue, where a considerable backlog had developed. By his own account, from November onward Mr A telephoned the Centre on a number of occasions to ask about the progress of his application, and was told that his "payments were in hand". On 12 January 1996 the claim again failed validation. On 20 January the claim was successfully validated; and on 31 January MAFF sent a payment of £51,571.82 to Mr A. 10. Meanwhile, MAFF had taken action to improve the performance of the computer systems in the Centres; and on 5 December, having realised that they were unlikely to meet the deadline for payments under the scheme, they had introduced measures to reduce the amount of checking required on simplified claims (paragraph 3). That did not result in any improvement to the number of claims forecast to be cleared by 31 December. On 18 December the then Minister issued a press release, which reflected his answer to a Parliamentary Question (PQ) saying that only 58% of the payments due under the scheme had been made between 17 October and 13 December; he attributed the delay to administrative difficulties created by implementing complex EC rules on validation. On 21 December MAFF's legal section warned that a UK court might award interest if an applicant sued MAFF for a statutory debt. They also noted that MAFF's failure to make payments by 31 December might be viewed by me as maladministrative. On 5 January 1996 MAFF's legal adviser minuted the then Permanent Secretary saying among other things that there was "a legal obligation to make [scheme] payments by 31 December 1995" and "As there is no legal obligation to pay interest and no statutory authority for paying it, and given the precedent that would be created by paying interest voluntarily, I think that the Minister would want to consider carefully the propriety of paying [interest] in the absence of court proceedings". On 9 January the then Permanent Secretary wrote to the then Minister saying that MAFF's charter standards (paragraph 6) were not defined in absolute terms; the fact that payments under the scheme had taken longer to make than expected represented an error of judgment which in his view did not constitute maladministration. On 10 January the Minister's office wrote to the then Permanent Secretary saying that the Minister's "inclination is that we should make an ex gratia payment on the basis that it was our error that kept people out of their money". On 11 January the Minister recorded that, although he had been attracted by the principle that the Government should be accountable when at fault, he had concluded that, given the repercussions to other schemes and departments, the shortness of the delay would not justify compensation. On 26 January the Minister wrote to the Member explaining the problems which had arisen and saying that 83% of claims had been paid by 31 December and he expected that the remaining valid claims would be paid by the end of January. 11. The then Permanent Secretary said that MAFF regretted that about 17% of payments due under the 1994/95 scheme had been made after the 31 December deadline; he acknowledged that, in the planned circumstances, that should not have been the case. He said that Mr A's claim, although not simple, was representative of those received and had been dealt with in a way similar to other claims that had been delayed. In MAFF's view those delays had resulted from the need to validate claims to the exacting standards required under EC rules. He explained that the resulting information technology and staffing resource difficulties had been much greater than could reasonably have been anticipated. Entering part-parcel data had proved to be more onerous than expected. Further problems had arisen with validation because of the need to link new field numbers back to previous field numbers; in previous years local data handling practices in Centres to ensure prompt payment of individual claims had resulted in corrupted data, which had also had to be corrected. Finally there were the expected problems arising from the applications in terms of genuine queries about data wrongly entered. All those complications had caused the computer's failure to validate claims (paragraph 4). Staff had had to examine manually files going back a number of years. The Permanent Secretary acknowledged that if there had been more than one problem on a particular claim the manual process would have had to be repeated, and as a result that claim might have had to re-join a queue several times before validation was achieved. He said that the problems had created a heavy demand on staffing resources; and the corresponding intensive use of the computer system had slowed the processes and created further delays. By the time the magnitude of the problem had become fully apparent it had not been practicable to deploy extra staff who would have had to be trained by those required to clear the claims. As a consequence of the delays experienced in the validation process, and despite the best efforts of staff, only 83% of the 46,874 claims had been paid by 31 December 1995. While MAFF acknowledged and regretted the disruption to Mr A's business, the Permanent Secretary nevertheless contended that following the Minister's announcement warning about delayed payment, Mr A should have anticipated that payment might be made at any time up to 31 January. 12. The Permanent Secretary said that the issue of interest payments had been considered by Ministers following requests from Members and the National Farmers' Union (NFU). Ministers had written to the NFU on 16 January 1996, and to other farming organisations, saying that interest payments would not be justifiable as the relatively short delays had resulted from the administrative complexity of the scheme; MAFF had tried to pay claims by 31 December or as quickly as possible thereafter. Appropriate interest payments had been made if delays had resulted from the shortcomings of MAFF staff. Having reviewed Mr A's claim, MAFF did not believe that it fell into that category. The Permanent Secretary considered that the problem had been caused by the unexpected difficulties in validating claims under the scheme, rather than any error or negligence by MAFF. He said that steps had been taken to prevent similar delays in 1996. 13. On the question of telephone enquiries from Mr A, the Permanent Secretary said that, although the Centre had no record of any enquiries from him, MAFF did not doubt that he had made them. The Permanent Secretary said that in answering such enquiries staff would not have been in a position to offer any detailed advice unless a claim presented any specific difficulties, which that particular claim had not. The advice that the "payment was in hand" was a reasonable description of the situation where validation might have been completed and payment made at any time. In his view, any attempt by MAFF to have dealt with cases in any particular order with a view to establishing a timetable would have resulted in greater delays in making payments and in discrimination between claimants. 14. In reply to enquiries by my staff, the then Permanent Secretary said that he did not think it justifiable to ignore the unique circumstances that had led to such a number of late payments. The difficulties which had faced MAFF were described well in a report which they had commissioned from the National Audit Office (NAO) in 1996 (see entry in Appendix A). The Permanent Secretary said that that report had confirmed that MAFF had been unable to avoid making some payments late. If MAFF had sought to make more payments before the deadline date, such payments would not have been properly validated and would have been subject to disallowance by the EC at considerable cost to the UK Exchequer. The Permanent Secretary said that the alternative, making payments a little after the deadline, had also exposed MAFF to financial penalty but at a far lower level; in fact, because the EC had accepted that the difficulties had not been of MAFF's making, they had not applied a £17 million penalty that MAFF would otherwise have incurred because of the late payments. 15. The Permanent Secretary also explained that the general instruction to which staff had been working at the time was that when an application failed to pass validation and it was apparent that the problem could not be resolved quickly, they should return the claim to the validation queue and turn to the next claim in order. The reason that claims were failing had been problems with the computer software, rather than with the claims themselves. He said that that explained why they had not needed to return the claim to Mr A for additional information or confirmation of details. Efforts had been devoted to clearing up the computer problems; there had been little point in deploying staff on trying to resolve individual claims manually when there were other claims that might be dealt with without problems. MAFF's key objective had been to pay as many claims as possible properly within the deadline. The Permanent Secretary said that Mr A's claim had been delayed from 23 October to 6 December 1995 by the need for an information technology solution to a problem which had affected many other claims. By the time a solution had become available on 6 December there would have been a substantial queue of applications awaiting validation and the claim would have had to wait its turn. The Permanent Secretary concluded that the delays for Mr A's claim "were caused by factors beyond our control". 16. The Permanent Secretary accepted that the issue of a press notice outlining the difficulties in meeting the deadline for payments under the scheme had not relieved MAFF of the obligation to comply with the EC Regulation. He said that the purpose of the press notice had been to fulfil their undertaking in "Commitment to Service" to give an explanation if they had problems in meeting their targets (paragraph 6). MAFF had not claimed that the press notice relieved them of their responsibility to meet the deadline, and they did not dispute that the legislation imposed an obligation on the UK to make payments by the final payment date, but they did not accept that any delayed payment should automatically give rise to a right of interest for the period of the delay. The Permanent Secretary said that the question of entitlement to interest in such a case appeared to be a legal one, and MAFF did not regard failure to offer interest in itself as maladministrative. On that basis, he had concluded that it would not be appropriate to pay interest to Mr A for the loss of use of his payment. 17. The High Court judgment of 10 February 1998 (see Appendix A) established that there was a legal entitlement in farmers to recover payments under the scheme provided that the qualifying conditions were fulfilled, and "the respondent [MAFF] accepts that if I conclude, as I have, that the section [of the Supreme Court Act - see paragraph 7] is in principle applicable to these claims so that action by writ might have been brought in respect of them, interest should be payable". Whatever the circumstances surrounding MAFF's handling of Mr A's claim, following that judgment and MAFF's acceptance of the situation I considered that it would be manifestly inequitable for them to continue to refuse him interest for the late payment of his claim. The restriction of interest payments to those who had initiated proceedings was clearly unsatisfactory. 18. However, in another case in which I was investigating delayed payments under the scheme MAFF contended that the High Court judgment mentioned above made it clear that MAFF's obligation to pay interest resulted from the fact that the farmers concerned had initiated proceedings regarding entitlement to the principal sum outstanding on their claims, before those sums had been paid; and that the ruling did not create a free-standing entitlement to interest on any delayed payments, irrespective of the reasons for the delay. Although I stand by the statement at the end of the previous paragraph, I have therefore thought it right to go on to consider the way in which MAFF made arrangements to administer the scheme for 1995. The NAO review commissioned by MAFF (see the penultimate entry in Appendix A) reported on the procedures, payment timescale and management of the scheme for 1995, together with the associated IACS processing (paragraph 4). NAO found that the main cause of delay in making payments had been the extra work caused by setting up part-parcel links, which required the input of three years of data. I agree with that conclusion; and I acknowledge that as the then Permanent Secretary said (paragraph 11), MAFF were faced with a difficult task by the need to validate claims to the exacting standards required under the EC legislation. However, I find that many of the problems which faced MAFF were of their own making. MAFF had known since 1992 that IACS was to be fully operational by 1 January 1996 ( 19. NAO also found that MAFF's 1995 management information had not been adequate to monitor and reliably forecast processing throughput; and that MAFF's senior management had not been made aware of the problems with payments under the scheme until November 1995. Had MAFF been better informed earlier they might, for example, well have been able to deploy extra staff to help the situation, or introduce appropriate easements at an earlier stage. By 5 December, when they introduced a system of reduced checking for simplified claims (see 20. Once MAFF's senior management became fully aware of the situation they had two choices. First, they could have made payments without proving eligibility; farmers would have received their payments on time, but it was likely that substantial EC penalties would have been incurred. The second choice, the one taken, was to prove eligibility and make a substantial number of the payments after the deadline; that was also likely to result in penalties, but at a much lower level (the EC's subsequent decision not to impose penalties for late payment saved the UK some £17 million). I find no maladministration in the choice of the decision which MAFF reached; but the inevitable consequence was that many farmers, through no fault of their own, were deprived of the use of, in some cases, large amounts of money for a period of several weeks. 21. In his comments to my predecessor the then Permanent Secretary said that the problem over payments had been caused by unexpected difficulties in validating claims, rather than any error or negligence by MAFF. I take a different view. The problem was caused by poor planning, under-resourcing, inadequate information, failure to administer the scheme effectively, and the corruption of data - some of which had apparently been done knowingly - in previous years, seemingly for the sake of expediency. I note that on 21 December 1995 MAFF's legal department recognised several categories of maladministration into which the situation with the scheme might be seen to fall. That was an appropriate and timely warning which, if heeded, might have avoided the need for my intervention. I criticise MAFF for the way in which the scheme was planned and administered, and for their failure openly to acknowledge that situation. 22. I now turn to the consideration given by MAFF to the possibility of paying compensation by way of interest for the loss of use of payments made after the deadline. In their papers the first mention of compensation was on 5 December 1995 when the Division sought policy and legal advice on the principle. On 11 December it was noted that any compensatory payments classified as ex gratia could not be recovered from the EC. At a meeting on 14 December the then Permanent Secretary said that interest would not be paid because the delay to payments did not constitute maladministration; the minutes of the meeting did not record any reasoning behind that statement. On 21 December MAFF's legal department gave the comprehensive advice on the matter of interest payments which is outlined at appendix A. They drew attention to what they saw as a significant risk that I would view as maladministrative MAFF's failure, without good cause, to meet a clearly set out and unequivocal Citizen's Charter deadline for payment; and they listed several categories of maladministration into which they thought the situation with the scheme might fall. On the basis of that advice, both the Director and the Regional Director responsible for Cambridge were of the view that interest should be paid to those farmers who had been disadvantaged despite having done all that MAFF had asked of them. On 4 January 1996 the Director told the then Permanent Secretary that, although on strict legal grounds it appeared that there was a strong case for the payment of interest, the Permanent Secretary would want to take account of "policy considerations", which he indicated were the considerable resourcing costs attached to paying compensation; the need to examine cases individually on their merits and to do individual calculations, all of which would impact adversely on other work; and the fact that the payment of compensation would establish an important (and unwelcome) precedent which could impact on other schemes administered by MAFF. In the event of a reference to me the Director was "not confident of our ability to refute a charge of maladministration" and he drew attention to my predecessor's view - a view I share - that "if targets are expressed as mandatory ....the case for compensatory redress is strong". The Director expected that I would also take the view that MAFF's publication of the payment dates in the EC Regulations as charter targets reflected a belief on their part that they could meet the targets, and that their subsequent failure amounted to maladministration. After taking into account the practical and policy considerations the Director recommended the payment of interest on delayed payments. Following a discussion the next day the legal adviser minuted the Permanent Secretary setting out the legal position as he saw it (paragraph 10). 23. MAFF's Agencies and Citizen's Charter Division were not in favour of making interest payments. They did not consider that the delays in making the payments amounted to maladministration; their view was that the problem had simply been that the task had proved more complex and time-consuming than MAFF had forecast, and it had only been at a late stage that it had become apparent that a significant number of payments would be late. (To my mind, poor forecasting and inadequate management information are clear examples of maladministration.) They were clearly worried about setting a precedent which they considered would impact on a range of other payments, would have ramifications for other departments, and would create resourcing issues for grant payment work. Whatever the merits of those arguments, it does not follow from them that payments which are fair, just, and necessary to redress administrative failings should not be made. On 10 January the Director recorded that the complexities of the scheme and the computer problems had contributed to the delays, but a substantial part of those delays had resulted from MAFF's failure to forecast accurately the resources required to administer the scheme, and in particular from their failure to allow for the clerical burden of linking part-parcels of land back through each year of the scheme. I agree. Meanwhile, on 9 January the then Permanent Secretary had advised the then Minister that MAFF's charter standards were not defined in absolute terms; payments had taken longer than anticipated, but could be said to represent "an error of judgement" which in his view did not constitute maladministration. The then Permanent Secretary was clear that, as matters stood, MAFF would not be justified in paying interest. The then Minister's inclination was "that we should make an ex gratia payment on the basis that it was our error that kept people out of their money". It is not clear what happened next; but by 11 January the Minister had concluded that "we are unlikely to be able to make any additional payments in a realistic timescale, given the sensitivity and the read across to other areas. Provided we make every effort to complete the outstanding payments by the end of January, we could claim that these particular cases were de minimis". However, in a later minute the Minister's office told the Director that the Minister had agreed that "we should not forget in all this the significant amount of time-wasting which occurred because of the wrong information supplied by farmers in the first place. However, we could not ignore the fact that responsibility for much of the delay lay at our own door". I note too that on 16 January MAFF's Principal Finance Officer said that the fact that funding for compensation would have to be from MAFF's cash-limited vote was all the more reason for not making interest payments. 24. There were obviously widely differing views within MAFF as to what constitutes maladministration, whether there had been such maladministration, and whether interest should be paid for loss of use of those payments which had been delayed. My own view is quite clear: there was significant maladministration. I find MAFF's stance in refusing to pay interest for loss of use of the principal sum to be indefensible. Farmers who had submitted applications correctly within the rules of the scheme had a legitimate expectation that payments would be made no later than 31 December 1995 - it was a requirement of CR No 1552/93 ( 25. I now consider MAFF's handling of Mr A's application. He lodged it on 27 March 1995, well in advance of the deadline of 15 May. Although the application was not simple, it was nevertheless representative of those received by MAFF; and there was no requirement for them to ask for confirmation of details or for additional information. The Centre carried out promptly their initial check of the application, and some six weeks later completed the pre-data input check ( 26. From November 1995 onward Mr A made a number of enquiries about the progress of his claim and was told that his "payments were in hand". MAFF have accepted that he made such enquiries, and that that was the explanation he would have been given. But was that a reasonable description of the situation? When he first made an enquiry no action was being taken on his claim - it was in a queue where it remained until 12 January. Clearly the information he was given was misleading; it implied that timely payment would be made. While I agree with MAFF that to have checked the progress of individual claims would have imposed a huge strain on already overstretched resources and added to delays, I criticise them for misleading producers by not telling the truth - that there were large backlogs, and that they could not say when payment would be made. I criticise MAFF for misleading Mr A in that way, and for not honouring the "Commitment to Service" promise to let individuals know why MAFF were having difficulty in meeting their targets (paragraph 6). 27. Finally, I consider Mr A's claim for compensation. The then Permanent Secretary had rejected the claim on several grounds, none of which I considered sustainable. My view was strengthened by the fact that had Mr A's claim been processed and paid within the deadline, and MAFF had subsequently found that he had been overpaid, they would have charged him interest. I put it to the then Permanent Secretary that I found MAFF's stance on refusing ex gratia payments on such cases to be indefensible. After considerable correspondence and discussion between MAFF and my staff, the Acting Permanent Secretary told me that he wished to make clear that MAFF did not accept certain of my findings. They did not accept the argument for basing compensation as a matter of equity on the existence of a legal right; if the applicant did not have a legal right to receive payment by 31 December 1995 in circumstances where his claim had not been fully processed by that date, his remedy would be in the courts rather than with me, and there would be no place for an equitable principle of the kind I envisaged. MAFF also disputed that the High Court judgment of 10 February 1998 was relevant to Mr A's case. My view is that while he could have commenced proceedings for recovery of the amount as a debt on 1 January 1996, which in all probability would have earned him an award of interest also, it is not reasonable to expect him to have done that. I remain of the view that farmers who did not issue proceedings in such circumstances should not be at a disadvantage in comparison with those who did. 28. The Acting Permanent Secretary said that the edition of "Commitment to Service" ( 29. The Acting Permanent Secretary said that, after considering the matter very carefully, he proposed to compensate Mr A, and any other applicants in England whose payments had been delayed in 1995 in the same circumstances as have been identified in Mr A's case. He said he wished to underline that other such cases with similar features should be judged on an equally close assessment of the facts. I have told MAFF that I shall be looking to them to apply that commitment to all those who through no fault of their own received their payments late. The compensation will take the form of interest reflecting the delay between the target date for payment (31 December 1995) and the dates when payments were actually made, subject to a de minimis threshold of £50 compensation. I have found that many of the problems which MAFF encountered over the validation and payment of claims under the scheme were of their own making. I regard the offer of compensation to Mr A and those in the same circumstances to be a suitable outcome to a justified complaint. M S BUCKLEY Parliamentary Commissioner Statutory and administrative background
(a) in the case of any sum paid before judgment, the date of the payment, and
Jurisdiction
Summary of Case
MAFF's initial comments on the complaint
Later developments
Findings
Conclusion
for Administration
July 2000
