Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)




  60. Now we have the Treasury witnesses. Mr Likierman, would you like to introduce your team?
  (Mr Likierman) On my left is Adam Sharples, who is Deputy Director of the Public Services Directorate and is in overall charge of the budgeting process, including resource budgeting. On my immediate right is Rosamund Dunn, team leader of the Resource Accounting and Budgeting Team, who amongst many other things has been monitoring implementation and is also now the Treasury representative on FRAB. On my far right is Doug Rayner, who is a member of her team and whose brief includes Resource Estimates and resource-based Supply. I mention those areas because those are the ones that I know interest the Committee.

  61. Can we start by asking you the same question we asked our previous set of witnesses, is everything now in place for the move to resource accounting and budgeting for the year 2001 and 2002?
  (Mr Likierman) I think, Chairman, we will be in a better position to answer that after the fourth trigger point has been passed. I say that because we very deliberately put in place this system of trigger points to make sure that they provided markers for both Parliament and the executive to know that we were on track to deliver this whole process. We are very keen to make sure we take a very close and clear look at the end to make sure that we are on track. I can say at this stage we have no reason to believe we are not on track to deliver resource accounting and budgeting.

  62. I assume that is the general view of your team.
  (Mr Likierman) I hope so, Chairman.

Mr Beard

  63. The general basis for moving to resource based accounting is that it gives a better allocation of resources and a better use of resources. What sort of assurances can you give that that will be realised and that there will be a better decision making process within government, particularly for this year's Comprehensive Spending Review, as a result of the resource based accounting?
  (Mr Likierman) May I take that as an invitation to look at the way in which the change will take place, which is relevant to the issue previously raised by the Committee? This is a process that is going on for some time, as you have already heard. We do not see this as a one-off. We see this as a process of management change within government over a period of years. So far we have been very preoccupied, inevitably, with the business of getting systems in to make sure that we can deliver accounts, how we are going to deliver a resource budget, and so on. There has been a great deal of attention paid to the mechanics so far. We are only really now moving into the stage of saying, "We are beginning to get this information, how are we going to best use it." In a sense you are asking for assurance. We are at the early stages of moving from developing the figures themselves to using those figures[11]. I am very, very confident that once these figures are available within government they will be used by departments because there will be a powerful incentive for them to be used, bearing in mind their much greater sophistication.

  64. Is that going to be within departments or allocating resources between departments?
  (Mr Likierman) Both. In terms of the new information available to my colleagues in the Treasury, in the way the budget is compiled, they will have the means to ask much better questions of the department, and looking at where capital has been used—it has been referred to many times already—will be part of their increased armoury of weapons in a better conducted budget process. Within each department we expect that they will have that information to enable them to look at resources inside the department itself.

  65. Knowing how things are in the cash based system, where would you anticipate, or could you give an example of where you would expect, the greatest advantages to come out of this system?
  (Mr Likierman) I would expect them to come in the area of fixed capital, where there is obviously a huge difference between the cash-based and resource-based processes. Can I take one other example that is often neglected—working capital? Under cash accounting the Government has not recognised working capital as an independent element for control in its own right. Yet the Government has huge amounts of working capital and we are only just discovering how huge those amounts are as the resource accounts are being prepared. In this apparently neglected area, and one which might be regarded as de minimis, I would see the management of working capital to be a major advantage. But looking at the big numbers, fixed assets are where we expect that to come.

Mrs Blackman

  66. I will start with Mr Likierman: you mentioned at the beginning of your speech or your opening address to the Committee that you were very confident about the departments meeting trigger point four. You sidestepped trigger point three and, as we know, there are many departments who have not as yet reached trigger point three or they may have by now. We have a list of those that are due to hit the point in January, February and March. Could we have a mid-term report on their progress?

  (Mr Likierman) Can I hand that over to my colleague Ros Dunn, who has been monitoring implementation? Before I do, can I just reassure you that I did not sidestep the issue of Trigger Point 3. We simply want to look at the whole trigger point process, as agreed with Parliament, as and when decisions are made. There was no intention to sidestep.
  (Mrs Dunn) I think Mr Likierman handed over to me because he knows I have the page open in front of me. At the point at which the January memo was produced twelve departments had not yet been issued with the Trigger Point 3 assessment; we now have five of those twelve that have been assessed. By this point in time we had expected there to be seven. Two—I must tell you, not enormous departments—the Serious Fraud Office and the Crown Prosecution Service have not yet been assessed, although we thought that they would have been in January. This has been because of new concerns that have arisen in discussions with the NAO and are still being pursued. All of the rest were due to come in by the end of March. We monitor the position pretty closely and all our expectations are that they will come in by the end of March. As of now we are pretty well where we expected to be, with two minor delays that have been caused by new issues having arisen since January.

  67. Could you see those minor delays on the horizon? It is no surprise to you that those two small departments did not manage to reach the point at the right time?
  (Mrs Dunn) It has been a feature of the process. It was difficult at the outset to predict all of the issues that would arise during the audit of the 1998-1999 accounts. It would be fair to say that where, for reasons to do with timetabling, not all of the necessary work had been done by the time we had hoped, it was possible that work continued after that would bring to light new issues. In this case, it was a case of some new issues to do with costs awarded. I do not have absolutely all of the details to hand because the process has not been completed and we do not have a record of exactly what the position is and will be at the end.

  68. How is the Treasury progressing towards this point?
  (Mrs Dunn) I should hand over to the principal finance officer to answer that.
  (Mr Likierman) We had a meeting yesterday with the National Audit Office and they assured us their work would be completed by the end of March, so we are on track for that.

  69. Would you like to be say any more about the boundary issues that led to this hold-up? What exactly were the arguments about?
  (Mr Likierman) There were some issues concerning our holdings in international financial institutions. You mentioned the question of unexpected issues, these are the kind of issues which have no parallel in the private sector and where we are in a new territory in terms of the way in which certain things should be handled are concerned. This is an issue which has been discussed for quite a long period and where we are trying to feel our way with the National Audit Office as to where the boundary should lie in respect of these holdings. This has been a cause of one of the problems we have had.


  70. Are we talking about the IMF?
  (Mr Likierman) We are, yes. This gives rise to a number of issues. We are on quite new territory here. If we look at the two examples that my colleague gave, if you remember we are dealing with a very large slice of national income and we are applying a set of principles to some quite complicated institutions. I do not think it is any surprise to us that unexpected questions come up. Indeed, as I might have said to this Committee at some previous stage, we know there will be problems but we do not know where the problems will be. It would be inconceivable if there were not problems as part of the implementation of something of this magnitude.

Mrs Blackman

  71. Were there any other issues around boundaries in that particular area you mentioned or was that a particularly thorny one?
  (Mr Likierman) That has been, I must tell you, and continues to be a particularly thorny one. We have not yet resolved that particular issue.

  72. You hope you will by the end of March.
  (Mr Likierman) We certainly will one way or the other by the end of March, yes.

  73. Public expenditure guidance is going electronic, incorporating existing manuals and updates. When it goes on to an electronic network will it also spell out very clearly the changes that have been made from the original guidance so that it is clear to see where things have moved forward and moved on?
  (Mr Likierman) Are we thinking about the budgeting side or about the accounting side?

  74. All of it. I gather you are putting guidance from a variety of different areas on to an electronic system, that was my understanding.
  (Mr Sharples) That is absolutely right. The plan is to use the Government Secure Intranet to publish guidance on public spending issues generally for all departments and then to use that to provide electronic links between different documents. We think this will be a more efficient way of publishing the information.

  75. This is an internal system.
  (Mr Sharples) This is information and guidance for departments. That is the target audience.

  76. They would not be publicly accessible.
  (Mr Sharples) Not in the normal course of events but some material is put on the Treasury's public website.

  Mrs Blackman: Thank you.

Mr Cousins

  77. Just a factual question, have the main unfunded public sector pension schemes now achieved a place in the timetable? What is the position of the Ministry of Defence, because in Mr Rayner's memorandum to this Committee specific attention was drawn to that?
  (Mrs Dunn) The position with the public sector pension schemes is that we have put them through the same timetable, but because they are not departments in their own right, the criteria applying to them are not exactly the same. Having said that, I think all but three were through at the time of the January memo.

  78. Those were three very substantial ones.
  (Mrs Dunn) There are still some outstanding issues in relation to these, and I know they were subject to legal advice that the National Audit Office took. They had an opinion which in turn gave rise to some further questions and so that process is continuing with further legal advice being sought. I think we can have some degree of confidence in the timetable being met because very often the issue is not about whether or not we can get the numbers, but if you have the numbers, where you put them and how you treat them. There are a lot of cases with outstanding issues, where the fact that the policy has not been resolved is not as threatening to the timetable as it might appear because you know what the number is, you just do not know whether or not you should put it in one place or another. My understanding is that that is the case with the outstanding question arising in respect of the pension schemes.

  Mr Cousins: Would you feel able to let the Committee know what these legal issues are and what the nature of the discussion is over, because here we are talking about the three main public sector pension schemes, teachers, the NHS and the Civil Service?

Mr Davey

  79. Can I come back on that point that Jim Cousins picked up in your note, Mr Rayner, to the Committee, where you say, Annex A, paragraph 17, "The NAO's examination of the 1998-99 Defence Resource Account found that major problems remain, however, in validating accounting information for stock from the department's existing supply systems, which form a significant proportion of the department's accounts." Clearly it must be very worrying for you, do you think the final implementation of the resource accounts for the Ministry of Defence will be a major hinderance to you?
  (Mr Likierman) Can I say something about the Ministry of Defence as a whole? From the start of this project it has been clear that the Ministry of Defence is in a league of its own in terms of the accounting problems it faces. It started off with systems that could charitably be described as primitive, that is to say a lot of the resource accounting changes have also been involved in moving the department's systems to where they should have been when this process started. We have always known that the Ministry of Defence would be different from all other governments departments, its asset holdings dwarf those of other departments and the complexities of accounting for them dwarf other departments as well. We have seen that as being something which we have to take account of in the implementation process. If I may go back to the first question the Chairman asked me about being on track, if the Ministry of Defence has issues which are very much confined to itself, that is to say they are not duplicated elsewhere in government, there is a question of whether we can cope with those and let everything else go ahead. If we had problems that were similar across the whole of government then clearly we would be much more concerned about the nature of the implementation process. There is no doubt at all that it will take a number of years for the Ministry of Defence to sort out all its problems on stock holdings, asset holdings. That is acknowledged throughout Whitehall by those involved in the process and by Treasury. We do not see it as being something which has an equivalent in the forty-five other departments, as far as we can see.
  (Mrs Dunn) May I just add a point on that? I think it is important to remember that Trigger Point 3 involves an assessment of dry-run accounts for the financial year 1998-1999. What we are talking about is the implementation of a system where live resource accounts will first be presented for the financial year 2001-2002. The position for 1998-1999 is bound to improve in the space of two more years with the experience of doing resource accounting. It has always been part of our plan that things would work in that way. Another point to add about the Ministry of Defence is that it was recognised by all parties concerned, particularly the National Audit Office, that the position at the beginning of 1998-1999 was a lot worse than the position at the end. In a sense, what you have to look at is how their performance is improving. Their year-end position for 1998-1999 was much better than their start-of-year position, and that gives us confidence to say that by the time we get to the year 2001-2002, we think that the position and the quality of the data will be considerably improved compared to what it was like at the beginning of 1998-1999.

11   Note by Witness: The Government announced on 21 December 1999 (Official Report, col 584w) that the next spending review, in 2000, would be conducted on a resource basis, fulfilling the Government's commitments in the Code for Financial Stability and elsewhere to introduce a resource accounting and budgeting approach for planning and accounting for the costs of resources consumed by government. The review is currently under way on a resource basis, which will allow decisions on spending plans to be taken with better information, particularly about the assets held by departments. Back

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