Appendix A: Chronology of the main events

MAFF received an information technology solution to a computer problem they had had; by then, a considerable backlog of applications had built up.

The Division reminded Regional Directors that the Permanent Secretary had asked them to provide weekly reports on the situation with the scheme. They said that the weekly figures should include a percentage forecast of the payments which would be made by the end of December and the end of January; they anticipated that there might well be an overspill of "genuine query cases" greater than 4% after the end of January.

The Finance Director of the Intervention Board wrote to the European Commission saying that they were finding that they would not meet the deadline of 31 December to make all payments. He attributed the difficulties to the new computer requirements for IACS. He estimated that £170 million out of a total £1,180 million might not be paid until January, with the possibility of delay into February on claims which required further checking.

The Division noted that the Intervention Board would not be able to recover from the European Agricultural Guidance and Guarantee Fund any compensatory payments classified as ex gratia.

The Division prepared for the Permanent Secretary a draft of the first weekly progress report on the scheme. They said that in accordance with the Permanent Secretary's instructions, Centres had, on 5 December, introduced arrangements to reduce the checking on simplified claims (paragraph 3). The number of post-validation manual checks on both main and simplified claims had been reduced; revised instructions had been issued to Centres "not to establish parcel links where these have not already been created and, subject to other necessary checks, to pass claims for immediate payment. Safeguards have been put in place to ensure that these claims are picked up again in the New Year so that the integrity of the IACS data base can be assured." The Division also gave details of the actions that were being taken to improve the performance of the computer systems at the Centres. They estimated that 81% of payments would be made by the end of December and 95% by the end of January.

MAFF's Agencies and Citizen's Charter Division recommended to the Permanent Secretary that the fact that many payments under the scheme would not be made by the 31 December deadline should be publicised by Parliamentary Question (PQ) and Press Notice, as MAFF were committed by the Citizen's Charter to giving advance notice of missed target times.

The Division wrote to the Centre in their role as lead region for the scheme. They said that at least one Centre had taken a conscious decision not to implement the reduced requirement for simplified claims. That Centre might already have completed the parcel links for such claims but the Division thought that unlikely; while there was no real difficulty in carrying out that work the time spent on the task must be at the expense of processing main scheme claims (paragraph 3) by the end of December. They asked the Centre to investigate.

The Regional Director responsible for the Centre wrote to other Regional Directors expressing her concern that, despite the introduction of the simplified procedure, the forecasts for payments expected to be made by the end of December and the end of January were no better than they had been before. She said that it had come to her attention that some Centres had decided not to implement the simplified procedure; that was not an option. She asked for confirmation that Centres were applying the procedure and for an explanation if their forecasts were not showing a corresponding improvement.

The Centre reported to their Regional Director and the Division that feedback they had received from Centres indicated that the simplified procedure had had no immediate impact. Some Centres had already processed the vast majority of their simplified claims before 5 December; other Centres were concentrating on claims with higher monetary value.

The Division replied saying that while they accepted that Centres might have had good reasons for having completed the processing of simplified claims, in the light of an early instruction to concentrate on main claims of higher value, those Centres would need to be sure that they could show that that processing had not been at the expense of the higher value claims. It was difficult to see how the Centres could justify the claim that they had had the time or resource to handle what amounted to some 37% of the total number of claims without an adverse effect on main scheme payments. The Division also said that they were perplexed at the failure of some Centres to achieve an improvement in the level of forecasted payments when they had previously said that they were concentrating on high value payments. If resources had been targeted that way the Division would have expected that a large number of simplified claims would be still outstanding.

After answering the PQ, the then Minister issued a press release about the delayed payments. He said that MAFF had commenced payments under the main scheme on 17 October and as at 13 December 27,209 (58%) of the claims had been paid. Centres were making every effort to meet the 31 December deadline, but the burden of validating claims to the exacting standards required under EC rules had proved greater than originally estimated and it seemed likely that some claims would not be paid until after the deadline. He regretted that delay but hoped nevertheless that all valid claims would be paid by the end of January.

The President of the National Farmers' Union (NFU) wrote to the then Minister expressing concern that a large number of payments would not be made by 31 December. He said that the timing of those payments had a great impact on farmers' cash flows; the delay undermined their ability to compete in the EU market, particularly when most French producers had received their payments in October. He asked the then Minister what action would be taken to prevent a similar occurrence in 1996. He said that without a commitment to pay interest, MAFF's Charter Service Standard lacked credibility; he urged MAFF to pay interest to those whose claims were not paid by 31 December.

MAFF sent to the Permanent Secretary a weekly progress report on the scheme. They said that the simplified procedure had not improved the figures as many of the simplified claims had been processed during periods when computer processing time for main claims had been slow. That had ensured that all available resources had been fully taken up on the scheme. They reminded the Permanent Secretary that although simplified claims represented nearly 40% of all the claims that had been received they accounted for only 5% of the monies due. They said that there was little more that could be done other than to resolve any outstanding queries with farmers and to rely on the efforts of staff. The forecast calculations attached estimated that 82% of payments would be made by the end of December and 98% by the end of January.

MAFF's legal adviser told the Permanent Secretary: "There is a legal obligation to make payments by 31 December 1995. Failure to meet this date gives a farmer the right to issue legal proceedings for the debt. The Council Regulation contains no provision for interest to be paid on late payments. There is no general principle of English law which would require MAFF to pay interest on late payments. Any payment of interest would, therefore, be ex gratia. However, if a farmer issues proceedings for an outstanding debt, a claim for interest could be incorporated as part of that claim. If such a claim were to be pursued it is in the discretion of the court whether or not interest should be awarded, and at what rate. The court's approach would invariably be to order interest to be paid if the principal sum had been paid late. If MAFF has already paid the debt before proceedings have been commenced it is unlikely that a claim for interest could be successfully made on its own. Whilst we cannot rule out the possibility that the court might award damages for the farmer having been out of his money on the basis of a claim for breach of statutory duty, so far as we are aware this would be a novel decision. 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 in the absence of court proceedings."

The Agencies and Citizen's Charter Division wrote to the Director providing drafts for the Permanent Secretary to consider sending to the then Minister and for the Minister to use in replying to the NFU. The draft minute to the Minister argued that the delays over the payments did not amount to maladministration. My predecessor had found maladministration in a handful of MAFF cases of delayed payment but the circumstances had been different; in those cases there had been specific faults in the handling of individual claims whereas with the scheme the problem was simply that the task had proved to be more complex and time consuming than had been originally forecast. Indeed, it was only at a very late stage that it had become apparent that there would be a significant number of payments made late. The minute proposed that the Minister should reject any claims for compensation, but acknowledged that there was an element of risk in such a strategy; if one claim for interest succeeded, MAFF would in equity be obliged to pay in all similar cases, whether they had been the subject of proceedings or not. A manuscript note on the draft said that not only would MAFF need £500,000 for interest payments for delayed payments, but they would be setting a precedent for a range of other payments; that would have tremendous ramifications for other departments and create resourcing issues for grant payment work. In the draft reply to the NFU, the Agencies and Citizen's Charter Division gave the same reasons for the delays and said that interest payments would not be appropriate in the generality of cases. There might be individual cases where the delay was alleged to have had some specific cause and MAFF would be prepared to examine any complaints of that sort in the usual way though they did not think that compensation would be warranted.

The Division wrote to the Agricultural Attaches at the British Embassies in Bonn, Paris, Rome and Madrid asking them to confirm whether their respective host administrations (all member states) had met the 31 December deadline for payments under the scheme and whether they proposed to compensate farmers where the deadline had been missed.

The Permanent Secretary sent a minute to the then Minister about the letter from the President of the NFU. The Permanent Secretary said that MAFF's charter standards were not defined in absolute terms; that the delays were different from a previous case in which my predecessor had recommended interest payments where a charter standard had not been met because of "repeated" errors. The Permanent Secretary said: "I do not believe this would be a fair description of the late payments with which we are now faced. Clearly payments have taken longer than was originally anticipated but this could be said to represent an error of judgement. However, a misjudgement of this kind does not, in my view, constitute maladministration." He said that in previous years payments had been made on time and indications were that the system had been adjusted satisfactorily to allow payments to be made on time in 1996. He suggested that the Minister should reject the NFU's claim for interest. The Permanent Secretary also said that MAFF had considered their legal position; he had been advised that the inclusion of a deadline in EC legislation would confer rights on individuals. If an individual began an action against MAFF for debt where payment had not been made it was likely that an English court would award interest. If that ever happened others might start to complain that they had not received interest even if they had not started legal proceedings. There would be a strong possibility that, either via a complaint to me or in some other way, it would eventually be decided that they would have to pay interest to all whose payments were late, whether or not they had started proceedings. The Permanent Secretary noted that the courts had awarded interest in an action against the Intervention Board where payment had been delayed by computer failure. He said that his analysis was speculative and that the courts might take a different view, but he was clear as matters stood that MAFF would not be justified in paying interest even if they wished to do so.

In an internal minute the Director noted that MAFF faced substantial penalties in respect of payments not made by 31 December. The Director estimated that 83% of payments had been made by 31 December; that left about £160 million unpaid. While he acknowledged that the complexity of the scheme and the computer problems had contributed to the delay, in his view a substantial part of the 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. He said that it was too early to draw any firm conclusions about whether they could avoid similar problems in the future. He noted that there would be restrictions on resourcing the following year; despite additional funds having been allocated to the regions the Centres would still have smaller budgets.

The then 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. In addition, it would be a good discipline on Governments, particularly at a time when we are urging other people to make prompt payments of their bills". The Minister had commented that MAFF need not describe the payments as interest, nor did the payments need to be paid at a full compound rate of interest. The Minister had asked for an indication of what the costs would be of a premium rate of 3%.

The Head of the Division wrote to the Permanent Secretary summarising replies from the attaches in Germany, France, Italy, and Spain. Each country had made the majority of their payments under the scheme by the due deadline. No compensation had been or would be paid on any payments made late as the delays were not attributable to fault by the authorities.

The then Minister's office wrote to the Regional Director responsible for the Centre saying that in general terms the Minister had been attracted by the principle that the Government should be accountable when at fault. However, "the Minister has 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".

Mr A complained to the Member that the payment that should have been made to him by the end of November had been received by the British Government in the latter half of October and had since "lain idle in Government funds". He had not received a cheque, an explanation, or a letter of apology. He argued that farmers were "being swindled at least out of the interest this money might have been earning us and we are being placed at a grave disadvantage commercially vis a vis our so called partners in Europe". The Member took up with the Minister the matter of farmers in his constituency still waiting for their payments under the scheme.

MAFF's Principal Finance Officer wrote to the Permanent Secretary saying that funding for any interest/compensation payments would have to come from MAFF's cash limited vote rather than from the Intervention Board's non-cash limited vote for the scheme; she concluded that that was all the more reason for avoiding going down that route.

The then Minister wrote to the President of the NFU expressing his regret for the delay in making payments under the scheme; he agreed that the situation was unsatisfactory. He said that MAFF were making every effort to make the majority of the payments by the end of January, but there would be some cases where outstanding queries would take longer to resolve; the delays had been caused by the administrative complexity of the scheme having proved greater than had been anticipated. Having considered MAFF's obligations under their charter, he had concluded that the short duration of the delay would not justify compensation. He said that he had asked for a review of the resources that would be needed for future work on the scheme; he was confident that staff would endeavour to avoid delays in payment, but he could not offer absolute assurance that MAFF would meet future deadlines.

The then Minister's office told the Director that the then Minister had written to the President of the NFU refusing compensation for delayed payments; the Minister would be writing to the agricultural press expressing his regret about the delay. They said that the Minister had agreed "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". The Minister had asked for a full explanation of what had gone wrong and as much reassurance as officials could give that there would not be similar problems with the 1996 payments.

The head of the Division sent the Permanent Secretary a summary of the payments position up to 14 January: 91% of claims had been transmitted to York for payment; 87% of total claims had been paid. He understood that 1,000 of the 4,400 unpaid claims involved queries outstanding with farmers, action due to debt recovery or probate/bankruptcy complications; the remainder were under consideration by Centres. The Division estimated that 98% of payments would be made by the end of January.

The Minister replied to the Member expressing his regret that some farmers had not received their payments. He said that staff in the Centres had made every effort to make payments as soon as possible, but the "burden of validating claims to the exacting standards required under the Community rules had proved to be greater than originally estimated; that had resulted in unforeseen delays". Despite those delays, 83% of claims had been paid by the end of December and he expected the remaining valid claims to be paid by the end of January. He confirmed that MAFF would bear the Member's concerns in mind when they reviewed the allocation of resources for payments in future years.

The High Court handed down judgment on an application for leave to move for judicial review brought by an individual farmer, and the NFU on behalf of 120 other farmers, against MAFF. The judge said:

".......... there is not the slightest doubt that the Community law regime which established the scheme for set-aside payments created a legal entitlement in the farmers to recover the grant or aid in question provided that the qualifying conditions were fulfilled. So far as the amounts fell to be diminished by imposition of the sanctions laid down for over-declarations, the balance remaining due fell as surely within the entitlement as in the case where the farmer makes no over-declaration. .......... there is no discretion in the respondent whether or not, or how much, to pay. This is as true in a case such as the present as in one where no sanctions are imposed..........

In the result I propose to grant the declarations sought on the basis that the parties have, by their conduct, treated these Notices of Motion as if they constituted claims to which section 35A [paragraph 7] applied, and that the respondent accepts that if I conclude, as I have, that the section is in principle applicable to these claims so that action by writ might have been brought in respect of them, interest should be payable."