Supplementary memorandum by HM Treasury
RESPONSIBILITIES
OF HM TREASURY
AND DEPARTMENT
OF TRADE
AND INDUSTRY
1. HM Treasury is a finance ministry and
an economics ministry. Both these roles necessitate a close working
relationship with the Department of Trade and Industry (DTI).
2. The Treasury has responsibility for the
Government's spending priorities, tax policy, and the overall
management of the economy. DTI is responsible for promoting enterprise,
innovation, science, engineering and technology; creating strong
and competitive markets; and developing a fair and effective legal
and regulatory framework for commercial activity. There are inevitably
large areas of common interest in the development of economic
policy. Both Departments have an important role in delivering
the Government's overall objectives for promoting enterprise and
fairness in the UK.
3. The benefit of a close and effective
working relationship is that, in carrying out our respective responsiblities,
we can combine the differing strengths of both Departments. By
working together we can, for example, combine the expertise of
the Treasury and Revenue Departments in economic analysis and
tax design with DTI's extensive contacts with industry and research
institutions. And this close and collaborative working relationship
is reinforced by the exchange of officials between our two Departments.
4. As a finance ministry, one of the Treasury's
key objectives is to maintain sound public finances in accordance
with the Code for Fiscal Stability.
5. This means ensuring that all Departments,
including the DTI, follow prudent and effective spending plans
within the agreed Departmental Expenditure Limits. Treasury officials
within the Enterprise Team of the Enterprise and Growth Unit (EGU)
have responsibility for oversight of the DTI's spending plans
and work closely with DTI officials to agree overall limits and
priorities.
6. In addition, in the context of a Spending
Review, officials typically work together on "cross-cutting"
issues, where more than one Department has an interest in an in-depth
thematic review of a particular spending priority. Spending Review
2000 includes a cross-cutting review of the Knowledge Economy,
chaired jointly by Patricia Hewitt, Minister of State for Small
Business and E-commerce (DTI) and Andrew Smith, Chief Secretary
to the Treasury. There is also a review of Science chaired by
Lord Sainsbury of Turville, Parliamentary Under Secretary of State
for Science (DTI) but with the head of EGU from the Treasury chairing
the official level group. The outcome of these reviews will be
reported with the outcome of Spending Review 2000.
7. The Treasury and DTI are both economics
ministries and this means working closely together on a wide range
of issues. These include, for example, trade policy, and measures
aimed at raising the productivity and competitiveness of the UK
economy, reflected in both the Treasury's and DTI's objectives.
8. To this end, our Departments have two
shared performance targets, to: "put in place policies to
narrow the productivity gap relative to other industrial countries
over the cycle"; and, "secure an increase in the number
of successful high growth business start-ups". Delivering
on these targets requires joint working between our departments
at all levels.
9. The Government has introduced a wide
range of measures designed to raise the productivity of the economy.
(These were set out most recently in Chapter 3 of Budget 2000,
Prudent for a Purpose: Working for a Stonger and Fairer Britian,
HC 346.) This strategy has been developed through joint working
with the DTI and a number of other Departments, for exampe.
— the work permits review, launched
by David Blunkett, Secretary of State for Education and Employment,
is being taken forward by an interdepartmental working group chaired
by DfEE, but including Treasury and DTI, along with Home Office
and Foreign and Commonwealth Office officials;
— the Government's strategy to encourage
clusters of innovative firms is being taken forward by a ministerial
group led by Lord Sainsbury, but including Ministers from the
Treasury, DETR, DfEE and DCMS;
— the DTI's development of "equity
gap" venture capital fund programmes is being actively supported
by significant Treasury investment in these programmes and by
complementary tax measures (for example on corporate venturing
and capital gains tax);
— the DTI and Treasury jointly published
"Innovating for the Future: investing in R&D" at
the time of the 1998 Budget, which launched a major consultation
process leading to a number of new policies, most notably the
R&D tax credit for small and medium sized companies introduced
in the Finance Bill 2000;
— in the field of social exclusion,
the Treasury led the Policy Action Team on enterprise, which brought
together DTI and DETR officials as well as business and voluntary
sector representatives. An early response to this work was the
creation of the DTI's Phoenix Fund to support enterprise development
in deprived areas and communities.
10. There are also a number of other fora
where our two departments work closely together on an ongoing
basis. A good example of this is the Cabinet sub-committee on
productivity and competitiveness chaired by the Chancellor, EA(PC).
This committee looks at issues of common interest to DTI, Treasury
and a number of other Departments, and is the focus of close joint
working between our two Departments. It has a joint secretariat
comprising officials from DTI, Treasury and Cabinet Office.
11. The Government's strategy to raise productivity
and competiveness as set out by the Treasury in successive Pre-Budget
Reports and Budgets and by the DTI in the Competitiveness White
Paper 1998, Our Competitive Future; Building the Knowledge Driven
Economy, is the result of a great deal of collaboration and joint
working by our two Departments, combining the strengths and differing
expertise of both organisations.
12. We recently had the first in a series
of working "away days" involving representatives from
EGU of the Treasury and the Central Directorate of DTI. Through
these and numerous other joint events, seminars and conferences,
we hope to build even closer working relations between our two
Departments. We believe that this will contribute to more effective
policy making and benefit the wider economy.
ROLES OF
TREASURY DIRECTORATES
1. The Committee has asked for an explanation
of the respective roles of the Treasury's Directorates, of which
there are six:
— Budget and Public Finances (BPF)
— Financial Regulation and Industry
(FRI)
— Financial Management, Reporting and
Audit Directorate (FMRA)
— Macroeconomic Policy and International
Finance (MPIF)
— Personnel Accommodation and Information
Services (PAIS)
2. In addition, the teams responsible for
— the Department's external communications—including
its press office and publications unit; and
— Ministerial private offices.
report direct to the Permanent Secretary.
3. The annex reviews the Treasury's objectives,
identifying, for each, the lead Directorate and the main contributions
made by other parts of the Department. In practice, however, a
very large proportion of the Treasury's work cuts across these
formal organisational structures. Much day-to-day work routinely
involves cooperation between networks of people, from around the
organisation whether informally or in cross-cutting teams. Part
of the role of the Managing Directors and Directors is to ensure
that links are made across directorates. Links between people
in different Directorates are often as close as those between
those in the same Directorate. As noted in paragraph 4.1 of the
Treasury's initial Memorandum for this inquiry "The Treasury
is a fairly small organisation . . . We regard the size of the
core Treasury as an asset. It allows us to be fast-moving and
flexible, with strong internal networks."
Annex A
RESPONSIBILITY FOR
TREASURY OBJECTIVES
1. Maintaining a stable macroeconomic framework
with low inflation—lead Directorate: MPIF.
MPIF is responsible for the macroeconomic policy
framework. In advising Ministers on macroeconomic policy it consults
closely with other Directorates including FRI and BPF.
2. Maintaining sound public finances in
accordance with the Code for Fiscal Stability—lead Directorate:
BPF.
MPIF is responsible for the fiscal policy framework—the
Code for Fiscal Stability. Within that framework, BPF co-ordinates
the Budget an Pre-Budget Report and manages the public finances.
This involves close liaison with PSD. Preparation of the Budget
involves most Directorates.
3. Improving the quality and cost effectiveness
of public services—lead directorate: PSD.
PSD is responsible for the planning and control
of spending on public services. It has a number of cross cutting
teams which include the General Expenditure Policy team, which
is responsible for the planning and control system (including
Supply); the team introducing resource accounting and budgeting;
the team advising on public sector pay, and the secretariat of
the Public Sector Productivity Panel. PSD also includes most of
the Treasury's "spending teams" which deal with particular
services (eg health, education, defence). The network of spending
teams includes some outside PSD—for instance, the spending
team dealing with DSS issues forms part of BPF, reflecting the
link with tax policy.
4. Increasing the productivity of the economy
and expanding economic and employment opportunities for all, through
productive investment, competition, innovation, enterprise, better
regulation and increased employability—lead Directorate:
FRI.
Issues which determine the UK's rate of sustainable
growth, such as investment, innovation and regulation fall in
many cases to FRI, which works closely with DTI on the Government's
policy towards business. Because taxation and public services
also have important effects on these issues BPF and PSD also have
important roles in pursuit of objective 4.
5. Promoting a fair and efficient tax and
benefit system with incentives to work, save and invest—lead
Directorate: BPF.
BPF brings together policy on taxes and benefits,
working closely with DSS and the Revenue Departments. FRI is involved
in issues affecting business.
6. Maintaining an effective accounting and
budgetary framework and promoting high standards of regularity,
propriety and accountability—lead Directorate: FMRA.
FMRA is responsible for developing the framework
of accountability, accounting and internal audit in Government,
for monitoring the implementation of that framework by Departments,
including financial reports to Parliament. It works closely with
spending teams on many of these issues, including resource accounting
and budgeting.
7. Securing an efficient market in financial
services and banking with fair and effective supervision—lead
directorate FRI.
FRI is responsible for the Financial Services
and Markets Bill presently before Parliament, which establishes
the new framework for financial regulation. But its role on financial
services is about promoting competition and effective markets,
as well as regulation.
8. Arranging for cost effective management
of the government's debt and foreign currency reserves and the
supply of notes and coins—lead directorate MPIF.
MPIF is responsible for the framework for the
management of public debt and foreign currency reserves. It works
closely with BPF and PSD, who are in the lead on the main determinants
of that debt.
9. Promoting international financial stability
and the UK's economic interests and ideas through international
cooperation as a way of increasing global prosperity including
seeking to protect the most vulnerable groups—lead responsibility
MPIF.
MPIF includes the teams principally concerned
with the international financial system, monitoring of the international
economy, and relations with other states and the EU. But many
teams throughout the Treasury contribute to this objective, and
have strong international links. These international links are
coordinated in MPIF.
10. Maintaining a professional, well motivated
and outward looking organisation committed to open and accountable
conduct of policy both here and abroad—lead responsibility
PAIS.
PAIS is charged with providing the people, accommodation
and access to information—notably through IT—which
the Treasury needs to do its business. Many day-to-day responsibilities
for management of staff and other resources are devolved to line
managers in all Directorates.
11. Managing its running costs efficiently,
economically and effectively—lead responsibility FMRA.
Whilst FMRA is responsible for Treasury's financial
systems, and manages the overall financial position, most operational
budgets are delegated to managers in Directorates and teams.
9 May 2000
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