Supplementary memorandum by HM Treasury
At the hearing of the Sub-committee on 23 October,
the Treasury was asked to provide a note on five issues.
What is the Treasury's assessment of the ONS publication
on 1998 sub regional accounts?
On 31 October 2002 the ONS released new experimental
statistics on sub-regional government accounts for the calendar
year 1998. The accounts have been calculated for the 37 sub-regional
(or NUTS2) areas of the UK and have also been presented in aggregate
form for the nine English regions and three devolved administrations
The estimates show for the first time the level
of general government Output, government Resources (basically
tax receipts), Uses (government individual consumption expenditure)
and Gross Adjusted Disposable Income (GADI) for each area.
GADI is defined as the financial position of
the government when all current transfers (Uses) have been deducted
from Government Current Income (Resources). It is important to
note that the uses only include government spending which is for
the benefit of individuals and organisations and therefore excludes
collective consumption expenditure (ie government spending on,
say, the FCO and defence which cannot be viewed as a service to
an individual). Therefore the GADI per head for the UK (at £1,469)
does not imply that the UK was in surplus by that amount in 1998.
This new experimental data from the ONS augments
the information on the regional distribution of public spending
currently available in PESA, and represents a useful addition
to our knowledge base. Unlike PESA, the ONS data includes information
on government resources (ie tax receipts) by region and on government
output. But it is important to note that the data are still experimental
and are based on estimating assumptions in some aspects eg for
corporation tax, although the ONS methodology is consistent with
that as agreed by Eurostat (the statistical office of the European
Union). The data are also only available for a single year, 1998.
The data in PESA show identifiable expenditure
on services by region. The PESA concept of "identifiable
expenditure" is in a number of respects similar to that of
"Uses" in the ONS government accounts. "Uses"
includes transfer payments (eg social benefits) and spending on
public services provided to individuals (Asocial transfers in
kindeg health, education), all of which are regarded as
identifiable expenditure in PESA. And it excludes government collective
consumption expenditure on areas such as defence; such spending
is generally classified as non-identifiable in PESA, and not allocated
But there are also significant differences in
coverage between "Uses" in the ONS government accounts
and "identifiable expenditure" in PESA. These differences
mean that a direct comparison between the two data series is not
possible. For example, the ONS "Uses" series includes
debt interest, which is excluded from the PESA series. On the
other hand, the ONS "Uses" series does not include government
capital expenditure, which is included in the PESA series. And
although the other data published by ONS do include tables showing
capital spending by region, they only show capital spending by
general government. The PESA estimates are for the total public
sector, and therefore include the capital spending of public corporations.
How is the RDA budget allocated?
The Single Budget is allocated to the RDAs using
a formula which takes account of various measures of need and
opportunity. The nine indicators are a flat rate for all RDAs
to cover common administrative overheads; an amount per head of
population; GDP per head (inverse); Research and Development spend
(inverse); population of Rural Priority Areas; the number of people
living in the most deprived 10 per cent of wards; the100 poorest
authorities in terms of unemployment rate; the amount of derelict
land and pre used land with planning permission; the proportion
of the working age population classed as partly skilled or unskilled.
The unemployment and deprived wards indicators receive the highest
A floor is operated ie no region receives less
than in the previous year. The budget is allocated over the three
years of the 2002 spending review and by the third year only one
region receives a floor determined allocation.
The formula is determined by DTI in consultation
with the other interested departments and the RDAs.
Are the cost adjustment factors in the health
and SSA allocation mechanisms consistent?
The health and SSA/RSG allocation mechanisms
were described in the Treasury memorandum in May 2002, describing
how departments determine the factors by reference to the circumstances
of the particular local government and health services.
A Standard Spending Assessment is calculated
for each receiving authority. SSAs are built up from the relevant
elements for the major service blocks with various sub-blocks.
The major service blocks are: education, personal social services,
police, fire, highway maintenance, environment, protective and
cultural services, and capital financing. The sum of all the relevant
SSA elements produces a single SSA for each receiving authority,
which is then used as a basis for distributing Revenue Support
Grant. Local authorities, however, retain discretion over their
expenditure priorities both between and within services.
The calculation of the SSA elements for each
block or sub block reflects different client groups and associated
unit costs. There are different area cost adjustments for each
service and they also vary between inner and outer London and
different parts of the south east.
Health authority revenue allocations are informed
by a weighted capitation formula. This calculates health authorities'
fair shares of available resources based on the age distribution
of the population, additional need, and unavoidable geographical
variations in the cost of providing services. The cost weightings
take account of the fact that the cost of providing healthcare
is not the same everywhere. There are different cost factors for
different elements eg for hospital and community health services
(HCHS), HIV/AIDs, discretionary general medical services etc.
The health and SSA formulae are currently under
review as the Committee are aware.
How many jobs does RSA create and does it provide
value for money?
The Treasury memorandum to the Committee in
May noted that spending on RSA in England was around £100
million a year. The actual amount varies from year to year, depending
on offers made, accepted and taken up, and the spending profile
of each project. Between April 2001 and March 2002, over 500 new
RSA grants were committed to across Great Britain totalling around
£250 million over a period of years, which in gross terms
is expected to secure £1.48 billion of private sector investment,
and is forecast to create over 24,000 jobs and safeguard almost
RSA was considered, along with the rest of DTI
spending, within the 1998 Comprehensive Spending Review and 2000
and 2002 Spending Reviews. More fundamentally, the Government
undertook a review of RSA in 1999-2000, which refocused RSA with
a view to enhancing value for money, so that levels of spending,
based on cost per job, are directly linked to the quality of projects.
The criteria include wider regional benefits (spillovers), R&D
content, innovation and skills levels, and other factors, such
as extent of international mobility.
In April 2002, responsibility and budgets for
smaller RSA programmes in England were devolved to the Regional
Development Agencies (RDAs), while maintaining the same value
for money principles.
Have the regional venture capital funds been approved
by the European Commission?
There are nine regional venture capital funds
investing in businesses in each region. There is some public money
in them, subordinated to attract private funds in on top. The
funds have been approved by the European Commission under the
State Aids Risk Capital guidelines. Seven are in operation and
the other two are expected to be before the end of this financial