Select Committee on Environmental Audit Minutes of Evidence



Memorandum submitted by HM Treasury

REVIEW OF PUBLIC EXPENDITURE ALLOCATIONS

1. What guidance did the Treasury give Departments on assessing the consistency of existing subsidies, tax exemptions and spending allocations with the Government's commitment to sustainable development?

  The Deputy Prime Minister wrote to all his Cabinet colleagues at the commencement of the CSR, reminding them of the significance of sustainable development and the need for them to bear it in mind in carrying out their spending reviews.

  Standing guidance to Departments on the assessment of spending and other policy proposals for their environmental impacts is contained in the Treasury document Economic Appraisal and Evaluation in Central Government (revised 1997), and in DETR's publication Policy Appraisal and the Environment.

2. Were the impacts of all tax policies and tax expenditures on the environment and sustainable development reviewed within the CSR? Please describe what work has been undertaken how it was reported and what conclusions were reached?

  The CSR was a root and branch review of the Government's spending priorities for the rest of the Parliament. It was not directly concerned with taxation. The Government's tax policies have been developed in its Budget and Pre-Budget Reports.

  Departmental Ministers undertook thirty zero-based reviews of their Departments' expenditure programmes to determine how best they could contribute to the achievement of the Government's aims and objectives, including sustainable development. The reviews considered the impact of spending programmes on the environment where this was significant.

  Six of the reviews, including that on the countryside, were carried out on a cross-Departmental basis to ensure that policies and services were designed to meet the full range of public concerns in an integrated way.

  A Ministerial Committee on Public Expenditure, chaired by the Chancellor of the Exchequer, co-ordinated the reviews and examined the allocation of resources between Departments.

  The results of the Comprehensive Spending Review were reported in two stages. First, the Economic and Fiscal Strategy Report, published in June, established the overall financial envelope for the next three years. Then the CSR White Paper, Modern Public Services for Britain described how expenditure has been allocated between spending programmes to deliver the Government's priorities. The White Paper summarised the conclusions of the CSR. Departmental news releases put out in the following days gave details of their individual spending plans.

3. What did the Chancellor mean by "unjustified subsidies"? Did this include subsidies referred to by the [Government] Panel [on Sustainable Development] as having adverse environmental impacts?

  Unjustified subsidies might be defined as those subsidies whose cost to the taxpayer is not justified by their benefits to society. A subsidy which had some adverse environmental impacts could still be justified if its economic or social benefit outweighed its cost, including the environmental cost. But a subsidy whose environmental cost was greater than its economic and/or social benefit would certainly be included in this definition.

4. Were all subsidies, tax exemptions and government spending allocations and their impacts on the environment reviewed within the CSR for all departments?

5. In particular did the Government review those areas identified by the Panel: the agricultural production related subsidies; the tax regime and financing of the energy and transport sectors? What conclusions were reached?

6. Please list Departments and the subsidies which they identified as unjustified within their existing spending programmes and detail the strategies agreed for "rooting them out".

  Amongst many other factors, the reviews considered the impact of expenditure programmes on the environment where this was significant. Environmental impacts were looked at in depth in the case of all the areas picked out by the Panel—with the exception of the tax regime, which was outside the CSR's coverage—as well as in several others. The environmental implications of spending on, for example, overseas aid, forestry, fishing, planning, the science base, rationalisation of the defence estate, urban regeneration and rural development were also discussed. The conclusions of the CSR were set out in the White Paper and individual Departments' subsequent news releases.

7. Why did the Government not set out in the CSR document its principles for subsidies, as agreed in response to the Panel? Will it be doing so in some other forthcoming document?

  The Government's Sustainable Development Strategy, to be published early next year, will explain how subsidies and other policy instruments can help move society closer to sustainable development, and will set out the guiding principles the Government will follow in using them.

8. Modern Public Services for Britain states that the Government is reforming the system of industrial subsidies to businesses to ensure that the taxpayer gets value for money. To what subsidies is this referring? What are the terms of reference for these reforms? When are they to be implemented?

  The Government will set out in the forthcoming Competitiveness White Paper how it intends to refocus support for business on the priorities of promoting innovation, productivity, technology transfer and sustainable growth.

DEPARTMENTAL AIMS AND OBJECTIVES

9. Why was the opportunity not taken in the CSR to demonstrate the comprehensiveness of the Government's commitment to sustainable development through reflecting it in all departments' aims and objectives and to make more explicit the Treasury's term "sustainable growth" as meaning environmentally as well as financially sustainable growth?

  In the case of the Treasury, the CSR White Paper ("Modern Public Services for Britain") did make clear that the Government understands "sustainable growth" to mean environmentally as well as economically sustainable growth. The White Paper (page 25) points out that in the long-run the two are indistinguishable, and that a healthy environment is not only essential to our quality of life but to the sustainability of economic growth as well.

  Whether other departments' aims and objectives should explicitly repeat the Government's overarching commitment to sustainable development is ultimately a decision for them. Green Ministers have, however, been invited to report to the Cabinet Committee on the Environment on whether sustainable development should be formally incorporated into the remit of existing departments and NDPBs. Ministers are also considering whether to incorporate sustainable development into the aims and objectives of all new bodies when they are set up.

10. Why have the revised aims and objectives for the Treasury not addressed the commitment of the Statement of Intent on Environmental Taxation over time to reform the tax system to increase incentives to reduce environmental damage?

  The Statement of Intent on Environmental Taxation was reaffirmed in the March 1998 Budget and in the Pre-Budget Report of November 1998.

11. In the absence of clarification in Departments' aims and objectives regarding their link to the Government's commitment to sustainable development, will the forthcoming Sustainable Development Strategy set out clearly how individual departments' activities contribute to the Government's strategy for sustainable development?

  The Strategy will set out how the Government is working across all policy areas to guide development in a sustainable direction.

12. Why have the Treasury and other departments not made a commitment in their statements on how they would deliver against their objectives to doing so in a way which addresses their environmental impacts and implications for sustainable development, alongside their commitments to operate efficiently and effectively and as good employers of staff?

  The Treasury notes that Green Ministers have been invited to report on whether all Departments' aims and objectives should make explicit reference to the Government's objective of sustainable development.

PUBLIC SERVICE AGREEMENTS

13. Will Public Service Agreements address departments' management of their environmental impacts as well as their efficiency and effectiveness? If not, why not?

  All PSAs will set targets for resource efficiency and productivity. Inefficient use of public resources runs counter to sustainable development objectives. Where management of their environmental impacts is a significant factor in a Department's core activity, the Treasury would expect it also to be picked up in the quantified key policy goals set out in the PSA.

  The Treasury expects that all the PSAs will be relevant to sustainable development, including environmental impacts where these are judged to be significant.

14. Will there be a joint Public Service Agreement from DETR and MAFF in respect of the joint aim of enhancing opportunity in rural areas and strengthening countryside conservation?

  This is still being considered.

15. Will the new Cabinet Committee responsible for reviewing departmental spending and performance against their public service agreements also consider departments' management of their environmental impacts? If not, why not?

  The Cabinet Committee's remit is to monitor progress against public service agreements and review public expenditure allocations. It will consider Departments' management of their environmental impacts as part of scrutinising their resource efficiency and elsewhere where this aspect of their work has been judged significant enough to warrant coverage in their PSA.

16. Will the Cabinet Committee responsible for reviewing departmental spending include the Deputy Prime Minister to ensure that wherever possible departments have taken opportunities to develop services and facilities consistent with the Government's commitment to sustainable development?

  Members are drawn from among non-Departmental Ministers or Ministers in charge of Departments with relatively small levels of public expenditure. The Deputy Prime Minister will be invited to attend discussion of any item in which he has a Departmental interest. There will be many other channels open to DETR to encourage and assist other Departments as they develop services and facilities consistent with the Government's commitment to sustainable development. DETR Ministers chair or are members of various other Cabinet Committees; there is also the interdepartmental network of Green Ministers.

17. In support of the Cabinet Committee's work will either the Treasury or the Cabinet Office Performance and Innovation Unit have a responsibility for reviewing departmental performance in relation to the Government's commitment to sustainable development?

  The secretariat for the Committee will be provided jointly by Cabinet Office and Treasury officials. It will provide the first line of support for the Committee in its audit of Departments' performance against their PSAs, calling in assistance from other Departments/agencies or outside experts as necessary. In the case of Departments' performance in relation to environmental aspects of the Government's commitment to sustainable development, the secretariat would expect to draw on the assistance of the DETR Sustainable Development Unit. The Treasury expects that all the PSAs will be relevant to sustainable development in its broadest sense.

18. What will be the procedures for Departments seeking funds in addition to their three year Departmental Spending Limits? Do these procedures require submission of environmental appraisals of additional activities or spending?

  Departments will have to fund new programmes from within their allocations.

19. What will be the timetable for the next major review of departmental spending limits? And will there be changes to the procedures for that review compared with those employed for the CSR?

  Annually Managed Expenditure will, as it implies, be reviewed yearly. The next review of Departmental Expenditure Limits will take place in 2000-01. The review will take place on a Resource Budgeting basis; exact procedures have not yet been determined.

APPRAISAL OF SPENDING PROPOSALS

20. Within the CSR process did the Treasury require Departments to appraise the environmental and sustainable development implications of their proposed programmes and to inform the Treasury of the results? If not, what was the reasoning for this?

21. Did Departments submit environmental appraisals to support policy proposals in their CSR?

22. Where the results of environmental appraisals were not submitted did the Treasury identify whether they had been undertaken? And, where the impacts were deemed not to be significant, did the Treasury confirm that departments based this conclusion on appropriate and robust initial screening?

23. Did the Treasury review departments' valuations of environmental costs and benefits in their environmental appraisals?

24. If the Comprehensive Review Process did not involve environmental appraisal how does Treasury explain this against the commitment of the Government to environmental appraisal of policies and programmes?

  The Treasury did not police Departments' use of environmental appraisal in the CSR process. Where the environmental implications of a spending programme were judged to be significant, Departments were expected to be able to provide data to inform discussion. Valuations of environmental costs and benefits were subject to discussion and scrutiny.

25. Did the Treasury draw on any additional expertise to review the sustainable development implications of departments' proposals? In particular, did they involve Ministers or staff from DETR in the review of departments' proposals to consider these matters?

  DETR staff were involved in or saw papers for those other reviews whose environmental implications were most significant.

26. In particular, what consideration was given to the sustainable development implications (both positive and negative) from increasing spending on school buildings and further and higher education; investment in hospital buildings; and road and bridge maintenance and renewal of public sector housing?

School and hospital buildings

  Environmental concerns as well as economic and social objectives helped to justify a programme that will double capital expenditure on school buildings between 1996-97 and 2001-02. Many school buildings are quite inefficient in their use of energy, partly because there is a large backlog of repair and maintenance. Many others are old: they do not make use of modern insulation materials; and they make poor use of space.

  The net effect of our plans will be positive, with an overall reduction in energy use and CO2 emissions and the opportunity to replace older materials with environmentally sounder products.

  In some cases there may be a need to rationalise school sites, largely in response to changes in local populations. The mix of effects will be unique to individual areas but may include benefits and/or costs to the environmental, economic and broader social aspects of sustainable development. For example, improvements to the fabric of schools and better use of capacity will contribute to increasing pupil standards; the concentration of car and bus trips on fewer sites may benefit some localities.

  Similar considerations applied in the case of the hospital investment programme which will be funded as a result of the CSR. The NHS Modernisation Fund will provide a 50 per cent. increase for publicly funded capital investment to help modernise hospital buildings.

Further and higher education

  The review concentrated on the contribution of further and higher education to the social and economic aspects of sustainable development. If considered the global environmental impact of FHE in terms of the total number of students, teachers, other workers, buildings and energy and other resources used. It did not, however, examine in any detail how far the environmental impacts might change as the overall scale of outputs and inputs was varied.

Road and bridge maintenance

  The transport spending review was conducted in tandem with the development of the integrated transport White Paper, which explicitly took as a central theme the importance of sustainable development. The review of trunk roads assessed proposals against a range of criteria, including impact on the environment, the economy and the social dimension. The results of the roads review were published in A New Deal for Trunk Roads in England. Chapter 8 of that document provides an overview of the environmental and other benefits and costs of the decisions.

Public sector housing renewal

  The housing review addressed the positive and negative implications of housing policy for social and economic progress and, to a lesser extent, environmental protection. The review considered environmental factors in less detail because these were already subject to consideration in a number of parallel reviews looking in detail at the impact of housing on the environment: the environment CSR, which covered the Government's programmes for promoting energy efficiency in the housing stock; the Government's consideration of its policies for accommodating the demand for new housing arising from the projected growth in the number of households in England and Wales; the current review of the Building Regulations, which is examining the scope for Regulations to deliver improvements in the energy efficiency of new and existing buildings; and consultation on revising the UK Sustainable Development Strategy which is addressing action to help build sustainable communities and to encourage sustainable construction practices.

  The housing review concentrated on the major welfare consequences of Government expenditure programmes, such as housing benefit and capital expenditure by local authorities on the housing stock. The overall aim of the review was to ensure that housing policies contributed to the social dimension of sustainable development by offering everyone the opportunity of a decent home and so promoting social cohesion, well-being and self-dependence. The main outcomes on public sector housing renewal were: provision of an additional £3.9 billion over the next three years to tackle the maintenance backlog in local authority housing, so delivering social benefits, improving the energy efficiency of the stock and enhancing the local environment; maximisation of these outputs by efficiency improvements in the use of public resources, to be driven by the introduction of Best Value, and the establishment of a Housing Inspectorate; more localised investment decisions so that local authorities can take a more strategic approach to housing, taking better account of local needs and priorities and improving the contribution that capital investment in housing makes to social, economic and environmental progress; and, to reduce social exclusion, greater tenant involvement in housing management, and the development of a new strategy to address the problems of Britain's most deprived neighbourhoods.

  On housing more generally, an extra £174 million will now be targeted on an expanded and more focused energy efficiency drive, to reduce fuel poverty and help to meet the UK's commitment on climate change.

PROCEDURES FOR TAKING SUSTAINABLE DEVELOPMENT INTO ACCOUNT IN NEW INITIATIVES

27. What authority does the CSR report confer? Do all new spending proposals contained in the CSR require further approval from Treasury based on detailed policy appraisal work? Will Cabinet approval be required?

  The spending plans in the CSR White Paper are agreed Government policy. They are intended to set out a clear and firm framework for the remainder of the Parliament.

28. Has provision been made for DETR to consider the sustainable development implications of other departments' spending proposals agreed in the CSR, prior to their further approval?

  Where the details of spending proposals agreed in the CSR do require further collective policy agreement, DETR Ministers will have the usual opportunities to comment and suggest changes.

29. At project approval stage for expenditure programmes agreed within the CSR does Treasury stipulate what documentation it requires on environmental impacts and the results of environmental appraisal as part of its review process?

  The Treasury will expect individual projects to have been appraised in line with its guidance on economic appraisal (Economic Appraisal and Evaluation in Central Government). The guidance stresses the need for all identifiable costs and benefits, including impacts on the environment, to be taken into account in considering proposals, and offers guidance on how environmental costs and benefits can be valued.

30. What arrangements has the Treasury made to consider the sustainable development implications of Departmental Investment Strategies and bids for funding from the Capital Modernisation Fund before making allocations? Does Treasury guidance set any prerequisites regarding sustainable development implications, for example in terms of reducing energy use in modernised facilities compared to the facilities replaced?

  Though they will be approved by the Treasury, Departmental Investment Strategies are not so much an instrument of Treasury control as a management tool for Departments themselves, to help them ensure that the funds already allocated by the CSR for capital purposes are focused on the key objectives and priorities of the Government. They are also designed to demonstrate that the investment will be good value for money, by showing that appropriate systems and incentives are in place and by paving the way for the capital management plans to be produced under Resource Accounting and Budgeting.

  In a real sense, the whole process is designed to ensure that Departments' capital programmes meet the test of sustainable development by making sure that investments offer a return which fully compensates future generations for the cost of borrowing to finance them.

  All bids for funding from the Capital Modernisation Fund must be supported by an appraisal carried out in accordance with Economic Appraisal and Evaluation in Central Government. Guidance to Departments on making bids will specifically draw attention to the need in this appraisal to make all the expected costs and benefits transparent, including any impact on the environment.

31. Has the Treasury given guidance to DfEE, DoH and DETR regarding how to ensure value for money for their investment programmes in schools, hospitals and council housing? Does this guidance address sustainable development considerations?

  Please see answer to Questions 29 and 30 above.

32. Will Treasury have a role in approving the rules or individual projects within the capital investment programmes in education, health and local authority housing?

  In the case of education and housing, Treasury is involved in the development and approval of rules governing the different elements of the capital investment programme. With the exception of PFI projects, it is not normally involved in the approval of individual projects. However, Treasury will be involved in the approval of capital funding across Departments under the Capital Modernisation Fund.

  In the case of health, Treasury will be involved in approving individual projects if they fall above the Department's delegated authority, or are otherwise "novel, contentious or repercussive".

33. What arrangements have been put in place to maximise the potential sustainable development impact of the Invest to Save budget?

  As with the Capital Modernisation Fund, bids for funding from the Invest to Save Budget must be supported by an appraisal carried out in accordance with Economic Appraisal and Evaluation in Central Government. In order to allow decision making to take sustainable development-type factors into account, the guidance to Departments on making bids specifically draws attention to the need in this appraisal to make all the expected costs and benefits transparent, including any elements which cannot easily be valued in monetary terms.

23 November 1998


 
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