Defra budgets 'not flexible enough'

The Department for Environment, Food and Rural Affairs (Defra) should have made sure it had enough funding to deal with such unforeseen events, the Committee of Public Accounts (PAC) said.

Nearly 50,000 houses were flooded during the summer floods of 2007 and many birds were slaughtered during the outbreak of the virulent HN51 strain of bird flu later in the year. Thousands of farms across Britain were also affected by a ban on the movement of livestock following an outbreak of foot and mouth disease.

The events cost Defra an additional £60 million, which had to be funded by reducing budgets for other activities in the department, the PAC said.

The committee's report, titled Defra: Management of Expenditure, also found that Defra had budgeted to spend more than the funding limits it had been given by the Treasury in two successive years, 2006-07 and 2007-08.

Tory MP Edward Leigh, PAC chair, said: "As the risk of overspending became clear, the department had to make in-year budget cuts to its planned activities. This is a clear example of poor financial management harming the delivery of services."

In 2007-08, the department received £3.6 billion from the Treasury but failed to allocate final budgets until five months into the financial year. The PAC said this was due to three reasons - that the planned expenditure was in excess of funds provided, that budget holders did not declare all financial commitments from the outset, and that the costs of unforeseen floods and animal disease had to be managed.

In 2006-07, Defra made mid-year budget reductions of £170 million to avoid the risk of overspending. The late notification of these reductions caused problems within the department, the committee said. The Marine and Fisheries Agency, for example, had to defer its vessel decommissioning grants scheme to trawler owners intending to leave the fishing industry.

The cross-party committee said there had been a lack of awareness of good financial practice among Defra's board members. But they said the management board has since put in place "more rigorous" financial systems and the problems of the last two years were not expected to recur in 2008-09.

Responding to the report, a Defra spokesman said: "The demands made on the department's budget last year were exceptional with bird flu, flooding and foot and mouth all coming in short succession. It was testament to its solid financial management that Defra was able to manage the cost of these unforeseen events by re-prioritising within its annual budget and avoiding the need to place additional burdens on taxpayers."