Select Committee on Treasury Minutes of Evidence

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 (NUTS1 Areas).

  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 kind—eg 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 by region.

  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 weighting.

  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 15,000 more.

  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 year.

HM Treasury

November 2002

previous page contents

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 10 December 2002