Select Committee on Treasury Eighth Special Report



(a) We recommend that the Treasury review its staffing level, particularly the number of staff devoted to the control and monitoring of public expenditure (paragraph 6).

The staffing of the Treasury is regularly reviewed in the light of the demands on the Department.

(f) We recommend that, at the strategic level, the Treasury gives greater attention to ensuring that it gets the balance right in its co-operative workings with other departments (paragraph 25).

(r) We recommend that the Government publishes a formal statement of the relationships between the Treasury and other departments, particularly in relation to public expenditure control and micro-economic policy (paragraph 48).

The objectives of the Treasury and other Departments are set out in the Public Service Agreements (Spending Review 2000: Public Service Agreements 2001-2004, Cm 4808). The relationship between the Treasury and other Departments is set out in A Guide to the Centre of Government, (see paragraph 8 below). The formal division of responsibilities for expenditure is set out in Government Accounting and the Resource Accounting Manual.

The Treasury has promoted joint working between departments with fifteen cross-departmental reviews organised as part of the 2000 Spending Review. Separate PSAs were published for five areas of cross-departmental work and a number of other targets are shared by more than one department. In the 2002 Spending Review, this work will be built on in two ways: first, the Government is reviewing the fifteen reviews done last year to assess progress and to identify areas for further work or changes; second, an additional seven reviews were selected, to be completed in early 2002, that will provide solutions for more efficient use of resources and more effective provision of service. The reviews will be reflected by departments in their individual spending plans, pooled budgets (where appropriate), and Public Service Agreement targets.

(h) We recommend that the Government should be clearer about the incentives and sanctions associated with the PSA system (paragraph 31).

A department's performance against its PSA targets is one of a number of factors taken into consideration during a Spending Review. PSAs form a cornerstone of performance management systems throughout Government. Better performance management is a theme of Civil Service reform. Each PSA includes a section setting out who is responsible for delivery of each target stating where certain targets are the joint responsibility of more than one Minister. Within a department responsibility is delegated by the accountable Minister through a cascaded structure of targets for each business unit, sub-unit and individual.

(j) We remain strongly of the opinion that the assessments of departments' performance against their PSA targets should be the subject of external review, by a body accountable to Parliament, such as the National Audit Office, the Audit Commission, or another body, rather than the Government. We recommend that, if the Government appoints an external auditor of its PSA targets as we suggest, the auditor should publish a concise annual report showing the progress made against targets by every department and making recommendations for improvements (paragraph 33).

(k) We recommend that, even if the Government decides against appointing an external auditor for the whole PSA system, the measurements of performance against the Treasury's own targets should be externally validated (paragraph 34).

As was noted in evidence, the auditing of PSA performance has been considered by Lord Sharman's review of Accountability and Audit in Central Government. The Government is committed to ensuring that PSA targets provide high quality, reliable information. The Technical Notes, which have been published for each PSA setting out how each target will be measured and assessed, contribute to this aim. In its evidence to Lord Sharman the Government said that the introduction of some form of independent validation would help provide assurance on the quality and integrity of the PSA data. A Treasury-led working group, including representatives from the National Audit Office and the Audit Commission, will be developing details on how external validation of the data systems underlying PSA targets might be implemented.

Progress against PSA targets is already reported in departments' annual reports.

(m) We are concerned that the Treasury's role within Government in respect of the monitoring of PSAs is too powerful (paragraph 36). We recommend that the Public Services and Public Expenditure Cabinet Committee be reconstituted so that its dominance by Treasury Ministers is reduced (paragraph 38).

Reports of performance against PSA targets are published in annual departmental reports. It is therefore open to anyone, including Parliament and the public, to assess whether departments are achieving their objectives. At the centre the Treasury works with the Cabinet Office to monitor performance against PSA targets and form a joint secretariat for PSX. PSX and the Treasury also work closely with the Prime Minister's Delivery Unit, which focuses on the key areas of education, health, crime and asylum, and transport. The membership of Cabinet Committees is a matter for the Prime Minister.

(o) The capacity of other departments to help the Government set strategic priorities and to monitor the performance of departments should be strengthened (paragraph 42).

The Prime Minister's office and the Cabinet Office, including its Performance and Innovation Unit, have important roles to play in the setting of the Government's strategic agenda. As described in paragraph 5, the Prime Minister's Delivery Unit plays an important role in monitoring performance in key areas. A description of the respective functions of the three departments—A Guide to the Centre of Government—was published in January 2001 and is available at This document is being revised to reflect the new organizational structure of the Prime Minister's office.

(p) There may be good reasons for the revenue departments to retain significant expertise in tax policy, but we are convinced of the need for the Treasury to build up its own capacity to analyse detailed tax issues and to take a more strategic view of the tax system and of the impact of taxes on the economy than hitherto. We recommend that, in response to this Report, the Treasury informs us of what action it intends to take in response to the peer review of the Inland Revenue's policy-making capacity (paragraph 45).

(q) We firmly believe that in the area of tax policy the Treasury could do better. We recommend that the Treasury give more attention to this area in order to ensure that the tax system is "fair and efficient", one of the Treasury's PSA objectives (paragraph 46).

(t) We recommend that the Government clarify the relationships between Treasury officials and the officials who staff the Chancellor's other departments (paragraph 51).

Inland Revenue and Customs and Excise are separate Government departments, reporting to the Chancellor of the Exchequer and Treasury Ministers. They have lead responsibility for advice to Ministers on policy in respect of the taxes they administer. The Treasury works closely with the responsible departments but does not seek to duplicate their expertise. Its role is to co-ordinate, to take an overview of tax policy, and to ensure consistency with other areas of Government policy. Greater intervention by the Treasury in the details of the Revenue Departments' policies would be inconsistent with the more strategic role for the Treasury which both the Government and the Committee support. The peer review of Inland Revenue policy-making relates to the detailed delivery of that department's responsibilities. Responsibility for responding to it will therefore fall to the Inland Revenue, not to the Treasury.

(s) It is our view that departmental Select Committees would benefit from relevant evidence from the Treasury on its relationships with other departments. We hope that, in the next Parliament, arrangements will be made defining how and when the Treasury should give such evidence. We can see that Treasury Ministers and officials could be overwhelmed by too many such requests for evidence, but there needs to be a recognition that the Treasury shall give evidence on appropriate occasions. A protocol should be devised by the Liaison Committee to set out the ground rules (paragraph 50).

While Treasury Ministers and officials have given evidence, both orally and in writing, to several select committees of both Houses in the last Parliament and in the present Parliament, the Treasury would not expect to give evidence on issues for which Ministers in other departments are answerable to Parliament.

(u) The Treasury has a duty to Parliament to provide helpful, timely answers to questions tabled by Members. We recommend that the Treasury reviews its policy on answering parliamentary written questions, with a view to improving its performance (paragraph 52).

The Treasury's performance in answering Parliamentary questions on time has improved considerably since the 1998-99 session and the department is meeting its PSA targets in this area. In 1999-2000, 59 per cent of named day written questions were answered on the nominated day and 72 per cent of ordinary written questions were answered on time, as were 89 per cent of House of Lords written questions. The figures for 2000-01 were, 63 per cent, 77 per cent and 91 per cent and those for the present session to date are 72 per cent, 81 per cent and 94 per cent, respectively.

(v) We have given our suggestions for improving the scrutiny of PSAs. We believe that the new procedure for dealing with resource accounting and budgeting also allows for improved scrutiny if Select Committees make best use of it. We also support the Liaison Committee's proposals for strengthening the Select Committee system. We trust that proposals to make a reality of these improvements in parliamentary scrutiny will be devised by the Modernisation Committee and quickly brought before Parliament (paragraph 54).

(w) Parliament lacks the resources necessary to hold the Treasury fully to account. Parts of the Treasury's work, such as on the tax system, are inadequately scrutinised, while other aspects, such as the Treasury's influence over other departments in relation to public expenditure, are hidden from our view. We strongly support the calls by the Liaison Committee and others for the House to employ more permanent staff to help Parliament better hold the Treasury to account (paragraph 57).

The Government has welcomed the contribution made by the Treasury, Public Accounts and Liaison Committees to the move to resource accounting and budgeting. It agrees with the Committee's observations about the potential improvements in scrutiny made possible by the change. The substance of these recommendations is, however, a matter for Parliament.

(y) We can see that the appointment of Ms Margaret Exley as a 'non-executive director' is an interesting experiment in obtaining an outsider's view and advice on management issues. We are not convinced that the title 'non-executive director' is an accurate description of this role and indeed it may be confusing. In any event, we recommend that the Treasury's annual report to Parliament should include an account of the role and activities of anyone who occupies this position in future (paragraph 59).

A brief statement about the Treasury's non-executive Director was included in last year's Departmental Report.

(z) We recommend that the Treasury draws up an action plan to improve the department's culture and working conditions and to ensure that the targets set for the representation of women, people with ethnic minorities and people with disabilities are met. This action plan should have a Board level sponsor and an update on progress should be published regularly; amongst other benefits this would facilitate parliamentary scrutiny (paragraph 64).

Treasury's Management Board is well aware of these issues and has been pursuing them with commitment for some time. A key step was the production, in December 2000, of a strategic management plan called Change in the Treasury. It was underpinned with further plans in specific areas, some of them of longer standing. These include a Career Deal for Treasury staff; action plans on issues such as diversity and stress in the workplace; and a PFI deal for improving the Department's accommodation. Delivery against these plans has been under way for some time, and they are already having effect. A second edition of Change in the Treasury was produced in July 2001.

A description of the Treasury's management is provided to Parliament each year in the Departmental Report. Future editions will pay particular regard to the issues raised by the Committee.

(aa) The Treasury told us that, in terms of construction costs, the present deal for the refurbishment of the Treasury building was cheaper than either the previous deal or the rejected Scheme A and the discounted cost of the new deal is significantly lower than the Public Sector Comparator (paragraph 72).

(bb) The Treasury had an excellent opportunity in the refurbishment of its own building to set an example of best practice in the development of PFI projects. We invite the Treasury to take this opportunity to explain why it revived a version of the original PFI deal with the original private sector partner without a fresh tendering process and to report on the progress of the project (paragraph 73).

Ministers suspended negotiations with Exchequer Partnership Plc (EP) in July 1997, considering that the structure and scope of EP's proposals needed further development. At Ministers' request, officials then embarked on a review of the available options.

Following this review, Ministers concluded that a resumption of the PFI project with EP offered the best way forward in value for money terms. They therefore announced on 8th October 1998 that discussions with EP were being formally reopened to explore whether a basis could be found for developing the earlier PFI proposals. Ministers were satisfied that the scope of the project remained consistent with the terms of the original competition launched in June 1995, and that discussions with EP could therefore continue without the need for a further competition. Details of the contract were announced by the Chief Secretary on 5 May 2000 (col 231W).

The NAO has recently produced a report on the separate funding competition for the project. This found the Treasury had achieved its objectives and the competition resulted in savings of £13 million in npv terms over the life of the contract.

Work commenced on site in July 2000 and is progressing well. EP is on track to complete the works by the contracted date and the Treasury will move in next summer.

HM Treasury
November 2001

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