Examination of Witnesses (Questions 1
THURSDAY 8 FEBRUARY 2001
DAYKIN CB, MR
1. Good morning, Mr Daykin. Could you introduce
(Mr Daykin) On my right is Mr Andrew Young, who is
the Deputy Government Actuary on the social security and pensions
policy side and, on my left, is Mr Andrew Beer, principal establishment
and finance officer.
2. Could I begin with a very general question?
To what extent does the Treasury take a practical interest in
your work? They are the overseeing department, I think that is
the best way of putting it but, for instance, do they get involved
in the question of whether it might be profitable for you to be
(Mr Daykin) Yes. The Treasury is concerned mainly
with our structural issues and financing, the reporting of our
affairs to Parliament and with the monitoring of our efficiency,
so an issue such as whether the department should continue in
its present form or whether it should be privatised would certainly
be an issue for consideration by the Treasury.
3. Are you aware of them having made such an
(Mr Daykin) A major assessment of that particular
proposition was made just over ten years ago, just before I became
the Government Actuary.
4. By the Treasury?
(Mr Daykin) The Treasury requested that a review be
carried out, and a review was carried out, and the conclusion
was reached that it would not be desirable to privatise the Government
Actuary's Department as such but that it should be made more open
to competition. At that point we were put on to a full repayment
regime which means that every department who uses our services
has to pay hard money for those services, and we are also subject
to competition in the sense that all our clients are entitled,
if they wish, to seek their actuarial advice from elsewhere.
5. Do you remember what the specific overwhelming
argument against privatisation was?
(Mr Daykin) There were a number of arguments, partly
on the grounds of confidentiality and the need for certain sectors
of the government to have a ready source of actuarial advice of
its own without having to go to firms that could be in some way
conflicted. Secondly, the issue of value for money and the decision
that the Government Actuary's Department provided extremely good
value for money to the government and, thirdly, the fact that
having a specialist unit involved in doing this enables one to
have people who are trained and equipped to provide services to
government in the areas where it particularly needs those services
which do not in all cases correspond directly to the sort of work
which might be done by most actuaries in the private sector.
6. Does it prevent you or make it more difficult
for you to compete in certain sectors, for instance, overseas,
by being an adjunct of government here?
(Mr Daykin) We have always been able to do work overseas
and, in some ways, the fact that we are the Government Actuary's
Department of the UK is a selling point overseas because governments
in other legislatures are quite interested in the idea of using
our services rather than a firm that is operating for profit because
they see us as specialists in the area of social security, pensions
policy and financial services regulation and, at the same time,
we are not seeking to make a profit and we do not have a conflict
of interest. In that way, therefore, it is a unique selling point
and we have done more and more work overseas as time has gone
on, but it is still quite a small proportion of our total activity.
7. What sort of proportion?
(Mr Daykin) About 15 per cent.
8. And you do not find it difficult to run a
Chinese walls system? The confidentiality point is not at risk
with your overseas work?
(Mr Daykin) There has not been very often a confidentiality
problem with overseas work in relation to working for other governments
because they are not usually in direct conflict with the United
Kingdom government. We have a potential conflict occasionally
if we advise an international body such as the World Trade Organisation,
for example, which we have advised on occasions where there may
also be a UK government interest in negotiations that are taking
place and there may be people in the Government Actuary's Department
advising the UK government on those issues.
9. Finally on the subject of overseas, do you
see the proportion of work you do overseas increasing or being
able to be increased in the future?
(Mr Daykin) I think we do, yes. That is one of the
areas that has been identified as suitable for further expansion
where we have unique selling points and where the experience that
is gained from doing work overseas can be very beneficial both
for the staff and also for our clients in the UK in terms of the
better understanding we gain of worldwide activities.
10. So are you being very proactive in marketing
(Mr Daykin) Yes, we have been quite proactive in two
principal areas so far. Firstly in the area of social security
work and, secondly, in the area of advising insurance regulators
and pension regulators.
11. What sort of form does your marketing take?
(Mr Daykin) We are active members of the International
Social Security Association and the International Association
of Insurance Supervisors and a new network which has been established
of pension regulators. We attend frequently at their meetings
and speak at them. We then get the opportunity to meet up with
counterparts in other countries who are in all of these organisations
and are able to offer them suggestions that the Government Actuary's
Department might provide them with services: we then usually follow
that up with letters sending them our brochure and encouraging
them to take advantage of the services which we offer.
12. Would your present status as a government
agency prevent you from setting up a fully-fledged agency abroad
(Mr Daykin) I do not think there would be any justification
for that at this stage because this work overseas is very widespread;
it is not in a particular location but is really across the whole
world and a bit here and a bit there, and at the moment we try
to do as much of the work as we can from the UK. Inevitably some
people have to spend some time travelling but most of the work
is done from London because we are trying to juggle a whole lot
of different priorities for different clientsboth UK and
international. In this case we have now got a unit which is specifically
concentrating on overseas work so they can do that without more
conflicts, with UK clients feeling that they are not getting a
13. And you will try and get the percentage
up from, say, 15 to about 20/25?
(Mr Daykin) Yes. I think we would aim to get it to
20 and maybe, eventually, to 25 per cent.
14. What was your role in relation to the problems
currently affecting Equitable Life?
(Mr Daykin) I think it would probably not be proper
for me to speak specifically on Equitable Life because of client
confidentiality issues but, in relation generally to work that
we do for the supervision of the insurance industry, we have for
many yearsprobably for nearly 40 years nowbeen the
actuarial advisers to the regulators who were involved in the
prudential regulation of the industry. We have not played any
significant role in relation to marketing regulation but in relation
to prudential regulation we have provided assistance to, successively,
the Department of Trade & Industry, the Treasury and the Financial
Services Authority specifically on individual companies, reviewing
their financial status and providing them with a confidential
report on each company each year and, also, advising on matters
of general regulatory policy.
15. In your annual analysis of Equitable Life's
financial position, did it give any indication of the problems
that are now facing the firm?
(Mr Daykin) I am afraid I am not really able to answer
on the specifics of Equitable because that would be a matter of
client confidentiality between the Government Actuary's Department
and its respective client.
16. Is that accurate? You are aiding the regulation
of the Equitable Life; this is a matter of public debate and concern;
and we are inquiring into it. That seems to me to be a proper
basis for the question and I would be obliged if you would answer
(Mr Daykin) I understand that but, as with other actuaries
who give professional advice, we are bound by our professional
code of conduct and that requires confidentiality on all matters
between the professional and their client. Of course, it is open
to the client if they wish to disclose informationsubject
in this case, of course, to other regulatory and statutory constraints.
As far as the professional giving the advice is concerned, however,
it is a professional confidentiality requirement, and if I were
to breach that then I would be potentially subject to losing my
membership of the actuarial profession.
17. In what sense are you a client of Equitable
(Mr Daykin) No, the client was the Department of Trade
& Industry, or the Treasury, or the Financial Services Authority.
18. Why does that require confidentiality? They
are all public bodies.
(Mr Daykin) All the information and advice which we
will have given successively to those bodies is the responsibility
of those bodies rather than ours.
19. I am sorry but I am absolutely mystified
by this. Are you telling us that you can tell this Committee or
any other Parliamentary Committee nothing about the advice you
gave to the previous insurance regulators or the present one at
allnothingand that is client confidentiality?
(Mr Daykin) I can tell you things about the generic
advice we have given which is in the public domain, but not the
specific advice on a particular company.
Mr Beard: Chairman, could we have your advice?
The Committee is set up with the authority that it has; is this
a reasonable response to our request for information?
Chairman: Mr Daykin, you are just another agency
of the Treasury, really. We are looking at a whole range of agencies
and we have not yet come to a position like this where some sort
of professional coverage has been used to give a blanket "No"
on all specific questions, so I think we must try and probe on
this. You obviously are not in a position to break your professional
code, if that is what you are claiming, but you are a government
body accountable to Parliament, like everybody else, and I think
we must try to get the sort of answers we are trying to get and
it is for you to judge whether your professional protection is
adequate or not.