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Parliamentary Commissioner for Administration

First Report Session 1998-99

Volume 3 - 1st Report - Session 1998-99

MINISTRY OF AGRICULTURE, FISHERIES AND FOOD

Case No. C.1308/94

Delay in deciding the outcome of applications made for sheep quota from the 1993 National reserve

1.1. Mr X complained that delays by the Ministry of Agriculture, Fisheries and Food (MAFF) in allocating Sheep Annual Premium (SAP) quota from the National Reserve (NR) for the 1993 SAP Scheme (SAPS) year adversely affected his cashflow and his ability to make decisions about his business. He also complained that MAFF failed to warn him about the potential shortage of NR quota. He said that, in accordance with MAFF guidance, he had leased-in, rather than purchased, quota for the 1993 to 1995 SAPS years, to his financial disadvantage.

1.2. My investigation into Mr X's complaint began in October 1995 once the Ombudsman's predecessor had obtained comments from the Permanent Secretary of MAFF after the referral of the complaint by the Member. I have not put into this report every detail investigated by the Ombudsman's staff; but I am satisfied that no matter of significance has been overlooked. The main events are detailed in chronological order in Appendix A, and the dates in my findings refer to that Appendix, unless otherwise stated. Appendix B gives the meaning of the abbreviations used in the report.

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Background

Sheep Annual Premium Scheme

1.3. SAPS is fully funded by the European Community (EC), and aims to compensate producers for the extent to which the average market price for sheep during the marketing year falls below the basic price agreed by the EC. MAFF are responsible for the administration of SAPS in England, and produce application forms and guidance for farmers, as well as making payments on behalf of the EC. Under Commission Regulation (CR) 3013/89, MAFF were authorised to make either two advance payments of 30% of the expected SAP to all producers at half yearly intervals, or a single payment of both advances at the end of the year; and required to pay any balance by 15 October in the following calendar year. MAFF customarily make the final payment after the new financial year begins in April.

1.4. Under the 1992 SAP Regulations producers could apply for SAP in one of two set application periods, from 15 November to 15 December in the preceding year or from 15 January to 20 February in the relevant year. Before the introduction of quotas for 1993, producers could claim SAP on the full number of eligible ewes which they intended to retain on their holdings for a specified period. In June 1992 the EC Council of Ministers decided to limit expenditure on SAPS by introducing individual quotas on eligibility for SAP, effective from the 1993 Scheme. UK producers were generally entitled to receive an 'automatic' quota allocation equal to the number of sheep on which they had received 1991 SAP, provided that they had submitted a claim in 1992. EC rules on quota trading and NRs were laid down in CR No. 3567/92 of 10 December 1992 which was legally binding in the UK. The Sheep Annual Premium and Suckler Cow Premium Quotas Regulations 1993, Statutory Instrument (SI) 1993 No. 1626, which came into force on 1 July 1993, laid down the UK regulations for quota trading and made provisions for the establishment of a NR of quota available for hardship cases and newcomers; while detailed arrangements for the allocation of NR quota were set out in SI 1993 No 3036, which came into force on 7 December 1993.

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National Reserve

1.5. In accordance with SI 1993 No 1626 and CR 3013/89, the UK authorities (including MAFF) established an initial NR for the 1993 SAPS year based on the number of eligible sheep in the 1990 peak year which exceeded the 'automatic' entitlements for 1991 (paragraph 1.4). SI 1993 No 1626 said that the NR would contain seven divisions corresponding to the 'sensitive zones' in which producers' holdings were situated. English holdings were either within the 'English Less-favoured Farming Area' (English LFA—listed in EC Council Directive 84/169/EEC as amended); or within non-LFA areas in Great Britain, generally known as the 'GB lowland'. The UK authorities had to distribute initial NR quota among those divisions in proportion to the total 1992 SAP claim in each zone. They supplemented LFA divisions of the NR by creating additional reserves, the size of which was set by EC regulations.

1.6. Under SI 1993 No 3036, producers in seven categories were eligible to apply for an allocation of quota from the 1993 NR division in which their holding was situated. Categories 1 and 2 covered producers who had submitted a low claim in 1991 for specified reasons (including participation in certain environmental schemes); those who had regularly submitted SAP applications, but who, exceptionally, had not done so either in 1991 or 1992; and those who had claimed for the first time in 1992 but not received a full quota allocation. Category 3 covered producers who had taken over land from which quota had been removed by the previous occupant, provided that the land was not held under a short-term letting agreement (Category 3a); new entrants making their first SAP application (Category 3b); and established 'developers' whose viability would be jeopardised by quota limitations (Category 3c). The legislation also set out categories for NR applications in subsequent years. Producers in Category 3a of the 1993 NR were also eligible to apply to the 1994 NR; but producers in Category 3b of the 1993 NR were no longer considered to be new entrants and hence could not reapply for quota on the same grounds in the following year. UK authorities could only make allocations within the limits of the NR quota available. They were to deal with applications to and allocations from the NR in category order, within each division of the NR. Once all allocations for applicants in that division had been made the relevant Minister was entitled to transfer surplus quota from any division to other divisions. There were no specific provisions in EC or UK legislation covering the timing of 1993 NR quota allocations.

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Transfer and Lease of Quota

1.7. Under SI 1993 No 1626 producers were required to inform MAFF of any transfers and leases of quota during a trading period for each SAPS year which was, in general, to end on 15 September in the previous year. However, the Minister was entitled to determine a different deadline for the 1993 marketing year. An amendment to the 1993 regulations which came into force on 15 November 1994 allowed producers to submit notifications of lease or transfer up to the date on which MAFF received a SAP application from the quota recipient for the marketing year concerned. The initial transfer and lease period for 1993 quota began on 1 July and closed on 6 August 1993, before full legislation on the NR quota allocation was in place (paragraph 1.4). The UK therefore sought and obtained an amendment to CR 3567/92 which allowed Member States to specify a second trading period during which producers with a surplus of 1993 quota (except for those excluded—see paragraph 1.8 below) could sell or lease it to certain producers, including those who had been wholly or partly unsuccessful in their NR application. The UK's second quota trading period was from 19 December 1994 to 28 February 1995. The EC also allowed second trading periods in subsequent SAPS years. The timing of additional SAP payments for sheep covered by quota acquired in a second trading period was not determined by EC or UK legislation. MAFF made such payments when the notification had been processed and the producer's quota record updated.

1.8. Under the 'usage rules' in CR 3567/92, producers who failed to use at least 50% of their quota over any two consecutive marketing years generally had to surrender the unused quota for the second year to the NR. Producers in receipt of NR quota were subject to more extensive 'usage rules' under those regulations. If they did not use all of their quota to cover valid SAP claims over the three following years, they would have to surrender the average of the unused quota to the NR. (That provision was amended slightly from the 1995 marketing year.) NR quota recipients were not authorised to transfer or lease quota during those three years. The UK interpreted the 'usage rules' as applying only to quota fully owned by the producer concerned, and not to leased-in quota. In June 1994 the European Commission decided to amend their regulations so that producers could sell or sub-lease (as appropriate) any 1993 or 1994 quota that was surplus because they had purchased or leased it in to cover a SAP claim before they were informed that they would receive NR quota.

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Jurisdiction

1.9. The Ombudsman's jurisdiction extends only to investigating complaints of maladministration leading to injustice. Issues relating to the content of UK and EC legislation are not for the Ombudsman. In this report I refer to UK and EC legislation and the UK's relations with the EC only to put into context the actions of MAFF to which my investigation has been confined. Nor can the Ombudsman question the merits of discretionary decisions reached by departments without maladministration.

Investigation

1.10. After CR 3567/92 was published in December 1992 (paragraph 1.4), MAFF drafted a consultation paper, in preparation for the introduction of UK legislation, dealing with aspects of the EC regulations where the UK had some discretion. The categories for NR applicants in that paper were different, in certain respects, from those which were eventually introduced. In particular, Category 3b in that paper, 'Producers (including newcomers to farming) who take over land from which quota has been removed by a departing tenant', became Category 3a in SI 1993 No 3036. On 25 January 1993 MAFF sent that paper to industry representatives, requesting comments by 15 February. MAFF initially intended to produce a single comprehensive SI, covering the content of both SI 1993 No 1626 and SI 1993 No 3036 (paragraph 1.4), but decided not to do so because quota trading legislation could be introduced relatively quickly, while considerably more work was necessary to produce legislation on NR quota allocation arrangements. MAFF had to amend their internal timetables for introduction of the relevant legislation (and thus for NR allocation) on a number of occasions. They could not begin to draft the UK legislation until publication of CR 3567/92, in December 1992. Drafting of the legislation then took longer than MAFF expected, because certain matters required considerable internal and external consultation; and, to a lesser extent, because of staffing shortages in both the relevant policy unit and in the legal division over the period.

1.11. MAFF decided to invite Category 1 and 2 producers to apply for NR quota before those from lower categories, because the rules for those categories were relatively simple, and processing could begin before MAFF had produced full explanatory literature, which they believed would hasten allocations. Other factors delayed NR quota allocation thereafter. For example, allocation of sheep NR quota overlapped with allocation of suckler cow reserve quota, and MAFF gave the latter priority because there was a tighter deadline for final payments of premium. MAFF also decided to reassess certain Category 1 and 2 applications which they had previously rejected because of errors by the applicants; and to collect further information from Category 3a and 3c applicants. MAFF considered applications from English LFA producers in full, but limited consideration of GB lowland cases to basic eligibility checks.

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1.12. MAFF timetables therefore had to be further amended. A timetable dated 22 February 1994 shows that MAFF hoped to make NR allocations to Category 3-7 applicants by mid-May that year. By late May, they estimated that it would take until the end of July; and a June 1994 timetable says that in order to meet MAFF targets, MAFF Regional Service Centres (RSCs) needed to allocate all NR quota by September (related papers show that MAFF staff already doubted whether RSCs could meet that requirement). A minute of 11 July shows that the estimated date had moved from June to September; and in August MAFF were still planning to issue rejection letters by 30 September, although they believed that quota allocations would take another three weeks.

Summary of Mr and Mrs X's actions

1.13. I give the following summary of the events detailed in the chronology. Mr and Mrs X established a new flock of 517 ewes in September 1992 on the expectation, but without any absolute assurance, that they would receive a quota allocation from the NR as new entrants to sheep farming. They applied for 1993 SAP in November 1992, for 1994 SAP in January 1994 and for quota from the 1993 NR in April 1994. They acquired on lease 250 units of quota for 1993, 400 units for 1994 and 566 units for 1995, before they were told in December 1994 that for 1993 there was no NR left for new entrants to sheep farming in lowland Britain and that they would not be eligible as new entrants for later SAPS. During this period—which covered the 1993, 1994 and 1995 SAPS—Mr and Mrs X (and other applicants) could not, under the UK regulations, have purchased quota in 1993, as opposed to leasing-in quota, without jeopardising their outstanding NR application. Mr and Mrs X then leased in a further 257 units in the second 1993 trading period to cover the shortfall in their 1993 and 1994 SAP claims. By 19 April 1995 MAFF had paid their three years' SAP claims for their eligible sheep in full.

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MAFF's comments on the complaint

1.14. In his comments on the complaint the Permanent Secretary told me that, in theory, NR quota allocation should precede the quota trading period for the same year, which should in turn precede that year's application period for SAP. He said that MAFF had not been able to follow that sequence in their arrangements for the 1993 SAPS year. He accepted that the long delay in informing applicants of 1993 NR quota allocations meant that MAFF had fallen below the highest standards for administering SAPS, although he said that was not due to the actions of MAFF alone. He attributed the delay to the late publication of CR 3567/92; to the large number of Category 3-7 quota applications (6,400); to a decision to give Category 3c applicants a second opportunity to supply information; and to the fact that MAFF had to complete NR quota calculations for LFA divisions before they could tell whether there was any surplus quota available for transfer to GB lowland areas. He said that MAFF had not given Mr X any grounds for believing that he would definitely receive an allocation of quota from the NR. The Permanent Secretary said that Mr and Mrs X had, to an extent, followed MAFF's advice to safeguard their position by leasing quota; and had therefore received much of their 1993 and 1994 SAP at the same time as other claimants. They had also benefited from the second trading periods sought by MAFF to protect the interests of NR applicants. He said that he believed the price of leasing quota for 1993-1995 was slightly less than the cost of purchasing it in 1993. He suggested that the purchase price of quota might fall in 1996, when producers who had leased out quota for three years would have to dispose of it; and 1993 NR quota recipients would be allowed to dispose of their quota (paragraph 1.8). He said that MAFF could not accept responsibility for the business decisions of producers, or for the market price of quota.

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Later developments

1.15. Following correspondence between the Ombudsman's staff and MAFF, the Permanent Secretary said that MAFF accepted and regretted that the delays, particularly in 1994, meant that the 1993 NR applicants had had to make business decisions about the acquisition of quota based on less than complete information and thus some uncertainty. Due to the uncertainties over the supply and demand figures (of and for quota) MAFF did not accept that those delays could reasonably have been eliminated, although arguably they should have been significantly reduced. The Permanent Secretary also said that MAFF also accepted that (albeit unwittingly) they had misled producers who were considering whether or not to apply to the NR as to the timing of future events, but at no time had MAFF ever suggested to producers, particularly newcomers, that the availability of quota from the NR was anything other than uncertain.

Findings and remedy

Delay

1.16. In practice, full UK legislation on NR allocation could not be introduced until December 1993 (paragraph 1.4), largely due to the detailed consideration and consultation required (paragraph 1.10). MAFF could not alter the dates of the initial 1993 quota trading period to restore the preferred sequence in which NR quota allocation would precede all quota trading for the same SAPS year (paragraph 1.14). Although the precise dates of the initial 1993 trading period were not set by legislation, that period had to end before the initial 1994 trading period opened, to avoid administrative confusion; and the end of the latter period of 15 September 1993, which was determined by legislation (paragraph 1.7), fell before full UK NR legislation was in place in December 1993 (paragraph 1.4). I have seen no evidence that MAFF staff were unduly slow, or otherwise inefficient, in dealing with the complexities that arose during the drafting process and conclude therefore that delays in the allocation of 1993 NR quota up to the end of 1993 were not in MAFF's control.

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1.17. Further delays, for which the Permanent Secretary has accepted that MAFF bear a measure of responsibility (paragraphs 1.14 and 1.15), and which prevented decisions on Category 3-7 applications being taken within the initial 1995 trading period, were caused by pressure of work and by certain administrative decisions concerning the processing of NR applications (paragraph 1.11) which cumulatively caused an unacceptable delay. That delay affected individual producers differently according to the strategy they had adopted to safeguard their SAP position. Producers such as Mr X, who followed MAFF's advice and leased, rather than bought, quota, incurred extra costs which arose from the cost of leasing quota in the first and re-opened 1995 quota trading periods and the subsequent cost of then buying quota in the 1996 trading period and the associated costs of commission agents and value added tax.

1.18. I put it to MAFF that they could have done more to reduce the delays in 1994 and to have informed applicants to the 1993 NR of the outcome of their applications before the end of the first 1995 quota trading period on 15 September 1994. By the time Mr and Mrs X were notified of the unfavourable result of their NR application in early December 1994 they had leased in 396 quota units (in the first 1995 trading period) and 170 units (in the reopened 1995 trading period) which, if they had known the results of their application earlier, they would have bought. That injustice deserved compensation and that compensation might be the difference between buying 1995 quota in the first trading period on the one hand; and the cost of leasing 1995 quota in the first and reopened trading periods and the cost of buying quota in 1996 plus the associated commission charged of the quota agents for leasing 1995 quota on the other. In reply the Permanent Secretary said that he accepted that analysis and also that Mr and Mrs X were due compensation on that basis. He also agreed that compensation would be offered to other producers whose circumstances were similar to those of Mr and Mrs X; MAFF had begun an exercise to identify such producers.

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1.19. I cannot directly attribute any cashflow problems experienced by Mr X to MAFF's actions. In so far as he had leased-in quota during the initial 1993 quota trading period, MAFF paid 1993 SAP to Mr X (1 December 1993 and 13 May 1994) in accordance with the timings given in the EC regulations (paragraph 1.3) (although somewhat later than suggested by MAFF in their autumn 1992 'Explanatory Leaflet'). He was not affected by the delay in payment of SAP to NR quota recipients, as he did not receive NR quota. The European Commission allowed second trading periods in order to limit the problems caused by the delay in allocating NR quota, and MAFF therefore had to make payments outside the normal schedule on quota obtained during those periods.

Information provided

1.20. I have seen no evidence that MAFF misinformed Mr and Mrs X about the availability of quota for new entrants while Mr X was planning to enter the business. Mr X's father had been warned by the then Member that a degree of risk was involved in entering the sector (14 November 1991), and MAFF subsequently confirmed that arrangements for new entrants were indefinite (19 December 1991, 20 July 1992, 10 August 1992). The broad description of the NR in the press notice of 12 October 1992 (which MAFF provided to Mr X shortly after) might have led new entrants to infer that they would receive NR quota. MAFF might with advantage have clarified in that press notice that eligible producers would only receive quota if sufficient was available in the NR (paragraph 1.6). However, Mr X's plans were well advanced by then, as he had already moved to the farm and acquired a flock. A few months later, MAFF gave most producers a clear warning about limitations on the availability of NR quota in their Notes for Guidance (December 1992); but they are not certain whether they gave that booklet to Mr X. I believe that MAFF should have provided their Notes for Guidance to all 1993 SAP applicants, including new entrants, as a matter of course. Mr X received MAFF's letter of 23 July 1993, which encouraged producers to consider their options in case their NR quota applications were unsuccessful—an implicit warning that a shortfall was possible. Mr and Mrs X acted upon that advice by leasing substantial quota in the initial quota trading periods for 1993 to 1995; and in doing so protected their interests to an extent.

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Conclusion

1.21. I found that the problems that had arisen in 1993 in the course of introducing the SAP quota system were not attributable to maladministration on the part of MAFF. However the cumulative delays in 1994 amounted to maladministration which resulted in an injustice to those producers who incurred additional costs in following MAFF's advice to protect their SAP claims. The Permanent Secretary has apologised for those delays, agreed to compensate Mr and Mrs X and is considering a compensation scheme for producers in similar circumstances. I also criticised certain aspects of the information which MAFF provided to Mr X, although I did not find that Mr X had been misinformed about the availability of quota for new entrants. I regard the Permanent Secretary's apologies, the compensation offered to Mr and Mrs X, and the offer of compensation for producers in similar circumstances as a satisfactory outcome to a partly justified complaint.

28 August 1998

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Appendix A

Chronology of main events

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Appendix B

Abbreviations used and their meaning

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Last updated: 26 April 2006