Select Committee on Treasury Minutes of Evidence

Examination of Witnesses(Questions 120-139)



Mr Mudie

  120. I am just having a look at these figures. Take me through them, because the net cash requirement for education in the final provision is £23.520 billion—as I see it. You put me right. Top of page 6.
  (Mr Sharples) This is looking at individual votes and requests for resources which do not quite match the Departmental Expenditure Limits.

  121. Just bear with me, as a simple man from Scotland and Yorkshire. As I understand it, this vote heading would say "We made £23.5 available to education as a net cash requirement, but in the spending provisional outturn the net cash requirement was only £19.6", which suggests a bit more than is being suggested.
  (Mr Sharples) I cannot immediately explain the logic there.

  122. It is all right. This is what happens when you get documents in the middle of the hearing.
  (Mr Macpherson) I think I can explain it. It comes back to me. This is because the original estimates, I think, precede the point at which employment was hived off the old Department for Education and Employment and it became the Department for Education and Skills, and Employment was shunted off to form the DWP. I think it might be helpful if we provided you with a note[3]3.

Mr Cousins

  123. Just to come back to this, looking at the capital spend, you said it was £1 billion, this table you have drawn our attention says very clearly it is £2 billion and it shows an underspending on the capital budget in the Department for Education of about 14 per cent, in the DTI almost 19 per cent, and in Home Office services 20 per cent.
  (Mr Sharples) This comes back to the point that I was trying to explain earlier, that the final DEL shown in the second column of these tables sums to more than the control limit we apply across departments.

  124. Mr Sharples, we are not having that. You have made a great play at this Committee today of how these underspends do not matter because you have got end-year flexibility so that you can carry the money forward. That is precisely how the final DEL figures are arrived at.
  (Mr Sharples) The final DEL figures include the draw down of end-year flexibility. I am sorry this is a little bit archaic but I will do my best to explain it. At the beginning of the year, each department has a stock of end-year flexibility, which is the sum of the money that has been carried forward from the previous year plus any unused money from earlier years. That figure is set out in the last table of this document and that is available for the department to draw down during the year. During the year the department decides how much of that it thinks it needs to use and it comes to Parliament and seeks a supplementary estimate to draw down part of the end-year flexibility. That then becomes added to its departmental expenditure limit and after going through all the supplementaries you end up with a total which is shown in that middle column of the tables there. The final outturn then can be compared with the departmental total. The point is that departments are able to manage their budgets more flexibly now that we have changed the rules to allow carry over of unspent provision and thus manage their programmes, taking one year with another, to ensure that services are delivered effectively.

  125. So the Department for Education and Skills, looking at the new table, has carried forward £426 million on its capital budget from last year into this year so it is all right. The Department of Trade and Industry has carried forward over £400 million of capital investment from last year into this year and that is all right. It does undermine the credibility of these huge increases in capital spending that you have planned in, does it not?
  (Mr Sharples) I do not think it does undermine the credibility because I come back to the point that what we are planning for is the total and the total has been delivered. We planned to spend £212.5 billion last year on spending within DEL and in the end we spent £212.4 billion. That is a shortfall of 0.05 per cent—

  126. It is capital budget I am talking about.
  (Mr Sharples) Okay.

  127. It is the capital budget. There is a different story there.
  (Mr Sharples) I am just emphasising that we planned for a total and we come out spending in line with that total. As I said earlier, there is a small shortfall, round about a billion on the total of capital spending against our plans for the year. The figures that you were pointing to quite rightly in the table there are a different concept. They are spending by individual departments against their individual totals once they have drawn down end year flexibility and added it to their budgets. The point is, if you like, that we allow a degree of over programming in our budgets. We allow departments to operate at totals which are slightly higher than the total that we operate to.

  128. How much of the increase in planned capital investment in the next three years represents an element of over programming?
  (Mr Sharples) It does not because those are our plans and that is what we expect to deliver. That is equivalent to the plan we had last year of £212.5 which is exactly what we did deliver. £212.4 was the outturn. We spent last year exactly to within 0.1 of a per cent. We spent last year exactly what we proposed to spend, what we planned to spend, which gives us confidence that when looking forward and looking at the plans for forward years that we will spend the plans which have been set out.
  (Mr Macpherson) As I said earlier, I think we are entering far more of steady state on end year flexibility. It is far more likely that these sums will be spent. Conceivably if departments were to get such a grip on their public spending and have even more ambitious plans than they have now they could overspend on plans set out here and they could do so legitimately because of the stock of end year flexibility which they have on capital spending.

Mr Plaskitt

  129. Could I just follow that on. In the light of the discussions we have been having for the last almost an hour, I want to come back to table 1.3 and this 39 per cent increase in the transport allocation. I believe you said most of that was capital spending?
  (Mr Sharples) That is right.

  130. It is a 39 per cent increase in the first year of the new review period. In the light of what we have just been talking about and the evidence in the outturn document we have now got, it is a simple question really, are you absolutely confident that 39 per cent spending will be done in that year?
  (Mr Sharples) Can I say two things. The first is that I think those figures are subject to a bit of distortion because funding for the Underground is not fully accounted for in the base line figure for spending this year. It is expected that there will have to be some additional spend this year which is not in those numbers whereas the spending on the Underground in future years is accounted for in these numbers. So there is a slight distortion which exaggerates the apparent growth rate.

  131. How much does that account for?
  (Mr Sharples) Certainly that will reduce the apparent growth rate, I cannot give you a precise figure but we will be happy to come back to you on that. Is there an overall growth rate planned in transport spending between this year and next year, yes there is and it is quite large, as is in line with the transport plan, and fulfilling the plans that the Government set out at the time of the last spending review.

  132. Has there been any previous year in which a department—let us just take Transport—has ever delivered an increase in the capital spend of that sort of magnitude? Has it done it before in recent history?
  (Mr Sharples) I do not think it would be wise to put too much weight on the figure you quoted earlier because I think it is almost certainly subject to this distortion I mentioned.

  133. It is in the document. If it is not worth much, I do not know why it is in there. It is there, it goes from 7.66 to 10.69, I make that 39 per cent.
  (Mr Sharples) I think it would be more relevant to look at the table, if I can point you to the table on page 169, which sets out the breakdown of the budgets into resource and capital. You will see there that the increase in capital spend for transport, looking at the bottom half of the table which is the capital element, transport spend goes up from 2.9 this year to 3.4 next year. Now that is an increase but more like, I think, 16-17 per cent rather than the 33 per cent you quoted earlier.

  134. So where is all the rest of that money going?
  (Mr Sharples) Well, if you look up at the top of the table on the resource line, there is a larger increase there between this year and next year and that will be distorted by the fact that this year's figures do not yet fully reflect the costs of London Underground.

  135. In other words we have to do a lot more digging for the small print than we have in here to understand what some of these tables mean. To be honest, someone could look at table 1.3 on page 16 and look at the transport line and reasonably conclude that its expenditure would rise by 39 per cent between 2002-03 and 2003-04. You are actually saying that is not true?
  (Mr Sharples) What I am saying is it is subject to a distortion which I mentioned just now which I believe is explained in the transport chapter of the document. You are absolutely right, there is an ambitious underlying growth in capital spending that is being planned here. As I said earlier, that is something that the Government is strongly committed to: raising capital spend to deliver better infrastructure, better transport services in rail and the other services.
  (Mr Macpherson) I think the targets are extremely useful both in terms of resourcing but also in terms of the Department focusing on what it should be there for. Only a few years ago departments did not have any targets and my guess is that large amounts of the Civil Service really were not totally clear what they were supposed to be delivering in terms of outcomes. That has really changed. In terms of the 2010 targets, I think actually they are useful. Child poverty is a very good example. The Prime Minister announced in 1998 or 1999 that his ambition was to abolish child poverty within a generation. Now that sounds like a—

  136. Sound bite.
  (Mr Macpherson) It sounds like a sound bite but it is not. Because we followed that up with a detailed commitment to halve child poverty by 2010 and there is a firm commitment in the PSA to reduce it by a quarter by—I cannot remember offhand what the date is but it is 2004 I think.

  137. We got a figure today which suggested rather than meeting your target you were only a third of the way on child poverty. Are you challenging that target? Are you challenging that fact?
  (Mr Macpherson) My recollection is that the data is published with a lag.

  Chairman: Yes.

Mr Mudie

  138. Not very comforting to the children who are not reached, is it?
  (Mr Macpherson) I can confirm that large amounts of resources have been allocated towards children and in my previous job, actually, I worked on this and certainly when I left it I think something like £6 billion extra had been targeted towards children through the tax and benefit system which was having a significant effect on poverty.

  139. I went through the Education Annual Report following the 2000 spending review and they had a number of targets which they openly in their Annual Report said they failed to meet. What would you have done with that in the Treasury? What would that have done? Would it have rung bells? Would it have meant meetings?
  (Mr Macpherson) We take targets very seriously.

3   3 Ev. 25. Back

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