Select Committee on Treasury Minutes of Evidence

Examination of Witnesses(Questions 100-119)



  100. Why is it that the Government deflator is a larger figure than that?
  (Mr Macpherson) The Government deflator is a measure which is very much in its infancy, and the Office for National Statistics, quite rightly, are trying to develop better measures of output than those used historically. It may be helpful if I explain just how the Government deflator is estimated. What happens is that you divide the level of spending on public services by an estimate of output, which then gives you the answer of what the deflator is. Now, the Office for National Statistics, as I say, have embarked on a very ambitious programme of measuring output and I think they are making progress. However, I do have some doubts at this stage as to whether the measure of output is the best yet. For example, one way—

  101. You will accept, on the basis—
  (Mr Macpherson) Please can I explain this, because I think it is quite relevant. At the moment the measures of output do not seem to measure quality as effectively as we would like. An example of that is measures of education output, calculated in terms of pupil years taught. So, for example, let us say a teacher was teaching exactly the same number of lessons but, in one case, he or she was teaching a class of 50 compared to a class of 25. According to this measure, output would be twice as high in the class which had 50 pupils in it. It is conceivable that quality could be maintained in that environment, but I have my doubts.

  102. That is very interesting, but that is an issue, no doubt, that you are pursuing with the ONS.
  (Mr Macpherson) Indeed it is.

  103. On the basis of their present figures, cost relative to output is rising a lot faster than 2.5 per cent, is it not?
  (Mr Macpherson) I am not at all certain that it is. It is very striking, looking at the average earnings figures which were published this morning, that public sector earnings are now rising in line with those in the private sector, at a rate of around 3.8 per cent. So it does not require a huge amount of efficiency savings from those 3.8 per cent earnings increases to result in a cost increase of 2.5 per cent.

  Chairman: My colleague, George Mudie, has just come hot-foot from the Vote Office.

Mr Mudie

  104. This was not in the Vote Office until the next day, and that would be after the story appeared in the paper. It does make interesting reading. There is a suggestion, as a politician looking down these headings, it might have taken the gilt off the gingerbread if the opposition had that paper with the other papers, because underspends would be offset against these great statements. So why was it not released—
  (Mr Macpherson) As we said, we will write about what happened, because Adam's and my understanding was that it had been placed in the Vote Office on the day[2].

  105. It was not due in the Vote Office, Mr Macpherson, by their list, till 2.30 the following afternoon, and it was slipped in at 11.30—I presume following press reports on the education budget; the press had obviously gone on the website and discovered its existence, printed it and saw it was released. However, it was not due until Tuesday afternoon. To bring a Spending Review statement out which slipped an important paper like that out a day later asks a lot of questions, Mr Macpherson.
  (Mr Macpherson) You are quite right to pose the question and we will give you an answer when we have found out what happened our end. I should reinforce the point that actually the outturn figures are not wildly different at all from those we published in the budget, so I do not think there is any sort of sense that we were trying to conceal anything; a lot of this is fairly old news. We will certainly come back to you.

  Mr Mudie: It is not old news at all. It is the latest Provisional Outturn and it differs from the previous year's figures in a meaningful way. If you ask Mr Howard if he thought it was old news or would have been useful on Monday, in view of his performance, he would have bitten your arm off to get that statement!

Mr Cousins

  106. This is supposed to be Parliament, not a chorus line.
  (Mr Sharples) I am sorry we cannot give you a full answer on this at this stage because we do not deal with the distribution of the documents directly, but we will find out what happened and give you a full answer.

Dr Palmer

  107. One question, coming back to Mr Cousins' questions: you have identified in the total underspend, of the £2.8 billion, £1 billion was departmental and the rest was depreciation, local authority and public corporations. Can you give us a breakdown of the remaining £1.8 billion. How does it distribute between those three?
  (Mr Sharples) I cannot give you precise figures on that at that stage, but we would be happy to give you a note on that.

  Dr Palmer: That would be great. If you have any identification of particular reasons why one of the corporations postponed a major investment, that would be helpful too.


  108. Any other questions? Could I just ask, the press notice claims DEL spending will rise by £24 billion in 2003-04, 40 billion in 2004-05 and £61 billion in 2005-06. Do you think the press notice made it clear that it was stating that these were changes compared to 2002-03 rather than year-on-year? What we have calculated is that for year-on-year public sector net investment, the rises in spending are £23.8 billion, £16.3 billion and £21.2 billion rather than what was put in the press notice.
  (Mr Sharples) You are absolutely right that the first run of figures that you quoted are changes from the spending this year, in 2002-03. That presentation has been used consistently and, I hope, is explained very clearly in all the different documents and statements that have been made.

  109. But the headline figures are £24 billion, £40 billion, £61 billion, whereas, really, what they are in terms of year-on-year are £23.8, £16.3 and £21.2. You can see how some people would feel, maybe, a little bit cheated by looking at that and then finding out what the real figures are year-on-year.
  (Mr Sharples) As I say, I think in every presentation we have been very careful to say that in three year's time we will be spending £61 billion more than we are spending this year. That seems to us to be the clearest way of explaining what is happening and the overall increase in spending on public services within Departmental Expenditure Limits. Of course, you are absolutely right there are many different ways of explaining what can be quite a complicated run of figures, but we hope we have been clear and we hope we have been consistent.

  110. I think there is going to be a fear that you have not been as clear and transparent as you could be. Again, if you could take that back. It is important.
  (Mr Macpherson) One thing I would say is that we have really tried very hard to provide a lot more tables and information in as clear a way as possible. I think the annexe at the end is significantly longer than in 2000, but clearly we can always improve these things.

Mr Cousins

  111. Can I just say, Chairman—I am trying desperately hard with this—this does not seem to separately identify the capital budget, does it?
  (Mr Macpherson) Yes, it does. I think Table 1A on page 4 sets out the provisional capital outturn.
  (Mr Sharples) Table 1 is the resource outturn—that is current spending—the second table shows the same figures on the capital budget.

  112. This is purely the departmental budget; it does not include the additional information that we have asked for.
  (Mr Sharples) This shows—for those of you who have this document in front of you—in the middle column the Final DEL. That is the final provision once you have added in the end-year flexibility entitlement that has been drawn down through estimates. The last column shows the provisional outturn, which is the best current estimate of the outturn, which can be compared with that final provision. It is, of course, only a provisional estimate because this will be subject to confirmation when the departments' accounts for this year are audited in the autumn.

  113. It shows a substantial underspending on DTI, does it not?
  (Mr Sharples) There is an underspend on DTI, yes.

  114. What is the percentage?
  (Mr Sharples) I do not have the percentage immediately to hand, I am sorry, but it can be calculated if anyone has a calculator.

  115. If I told you it was 20 per cent would you be surprised?
  (Mr Sharples) I would be surprised if it was that high but anyone with a calculator should be able to confirm this.

Mr Laws

  116. Mr Sharples, I just want to clarify the Government's attitude once more to this underspend that we have got in education last year, which we have just discussed. I draw your attention to that well-established vehicle of Government communication The Sun which says "Miss Morris, the Education Secretary, was furious yesterday when she learned that £1.2 billion earmarked for education last year is still sitting in the bank awaiting projects to be finalised". There seems to be an impression coming across from one part of the Government that something has gone wrong here and we should be concerned that this money has not been spent, but the Treasury's attitude seems to be that this is no bad thing, just good management of resources. Which is, actually, the view of the Government?
  (Mr Sharples) The point I was making earlier was a general point about underspending. Of course ministers are concerned to ensure that spending which is planned, which is intended to deliver improved services, is flowing through effectively to delivery.

  117. Is the Government happy or unhappy that there was a £1.2 billion underspend in education last year?
  (Mr Sharples) We want to see the spending which has been planned for education flowing through to deliver the improvements in schools and colleges that the budgets were intended to—

  118. So the Chancellor would share the fact that Miss Morris was furious—he would have a similar view?
  (Mr Sharples) I am sorry, I cannot comment on the Chancellor's view. He will be talking to you tomorrow.

  119. What about your view?
  (Mr Sharples) My view, as I say, is that ministers will want to ensure that the money that they have put into budget in order to deliver improvements in public services is being managed effectively and flowing through to deliver those service improvements.

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