Examination of Witnesses (Questions 60
- 79)
TUESDAY 7 MARCH 2000
MR ANDREW
LIKIERMAN, MR
ADAM SHARPLES,
MRS ROSAMUND
DUNN AND
MR DOUG
RAYNER
Chairman
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.
Chairman
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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