Select Committee on Treasury Fourth Special Report



1) A note on the AME margin and the golden rule (see Qq 173 & 339 of HC 479-II)

Budget 2004 reset the AME margin in accordance with usual practice. The effect of resetting the AME margin on Total Managed Expenditure (TME) is shown in Table C11 of Budget 2004 and the effect on public sector net borrowing is shown in Tables 2.3 and 2.4. This is consistent with the approach taken in previous Budgets and means the projections for the public finances fully reflect all Budget decisions.

The AME margin acts as a buffer should outturns for AME programmes exceed projections. There is, however, no presumption that the AME margin will be spent. For most years since 1999-2000 (the first year for which AME forecasts were made) AME outturn has been lower than originally forecast on a like for like basis (i.e. after allowing for definitional changes, reclassifications and policy measures announced subsequent to the forecast), usually by a greater extent than allowed for in the AME margin. If the AME margin is unspent the outturn for AME and TME will, other things being equal, be lower than projected in Budget 2004.

The margin against the golden rule is the amount by which the public finance projections can change while the Government remains on track to meet the golden rule. Including the AME margin provides a full and fair reflection of the margin against the golden rule as the decision to reset the AME margin maintained the same overall caution in the projections as a whole.

The golden rule has been consistently defined. It is measured by the average annual surplus on the current budget as a ratio to GDP over the economic cycle. Page 10 of Budget 1997 sets out figures for the current budget as a ratio of GDP from 1985-86 to 1996-97. Page 47 of the Economic and Fiscal Strategy Report 1998 outlines progress against the golden rule from 1997-98 to 2003-04. Since then, the Government has continued to present performance against the golden rule on the basis of ratios to GDP.

Improving knowledge of the fiscal framework is important to building a credible fiscal policy, and while being methodologically sound, the concept of an average annual ratio expressed as a ratio to GDP can be difficult to grasp. Presenting figures in terms of billions of pounds is designed to help people understand the scale of the margin against unexpected events.

The margin against the golden rule expressed in billions of pounds was first used in the 2003 Pre-Budget Report. At that time, the AME margin set in Budget 2003 had been fully used and its inclusion or exclusion from the calculation of the margin against the golden rule would have made no difference.

2)  Details of successes from the devolving business links pilots (see Q 285)

The 2002 Spending Review launched a pilot program of devolved RDA-led Business Link services in the North West (NWDA), East Midlands (EMDA) and West Midlands (AWM). Devolving decision making 2—meeting the regional economic challenge: increasing regional and local flexibility, published alongside Budget 2004, announced that the Government will devolve regional and local Business Link services to the RDAs, with a framework for selling national standards and services to be developed with the Small Business Service, RDAs and other Government departments funding business support and seamlessly integrated, from the customer's perspective, with nationwide services such as'. From April 2005, all RDAs will be granted responsibility for flexibly managing the Business Link services in their areas so as best to meet the needs of their region.

This note details examples of successes from the Business Link pilot program and non-pilot regions.

The potential benefits of devolving the Business Link network to RDAs, identified when establishing the pilots, include better targeting of local barriers to enterprise, better design and delivery of policies to address these barriers, and better overall management of the Business Link network informed by RDAs' greater local knowledge.

These anticipated benefits are now beginning to emerge. The RDAs have been able to tailor regional and sub-regional delivery within a national framework to reflect regional circumstances, the priorities identified in their Regional Economic Strategies, and where appropriate, combining the delivery of Business Link services with other forms of business support, including support for innovation and skills. The pilots are part of a process of ongoing development, in which successes can be measured not only in terms of outcomes but also through examples of good practice that can inform future direction. The emerging findings of an independent assessment of early progress in the pilots provides some of the examples of success requested by the Committee.

The pilots have challenged the RDAs to bring together the delivery of business support products available in a region. By providing a single access point through the Business Link brand there has been an improvement in the accessibility to business support products for businesses. Integrating supply routes for business support products has allowed the RDAs to take a more strategic view of the products needed to stimulate enterprise within the pilot regions. The independent assessors draft interim report[6] states:

"The East Midlands pilot has focused on reviewing Business Link delivery arrangements as part of a wider 'developmental journey'... 'Business Services East Midlands' (BSEM), a new body charged with the operation and on-going development of business support in the region, will be operational from April 2004. It will implement a new brokerage model, quality assurance protocol and seek to align funding streams."

And in the North West:

"The pilot achieved early alignment of strategic planning documents and a joint (regional) agenda through the ASP Strategic Plan... Regional activity is focusing on the development of a product catalogue as a means to reducing duplication and inefficiencies. This is due to be produced by December 2004 and will form the centrepiece of simplified routes to market. This will also involve the separation of brokerage and delivery roles for Business Links and the inclusion of the wider business support network. There are proposals for institutional streamlining through the merger of BLO areas and closer working in relation to European funding."

This is expected to result in regional added value in the North West region:

"Regional added value is primarily seen in terms of tools, mechanisms and bringing about cultural change in the 'back office'".

The pilots have also encouraged RDAs to look towards maximising the long-term spillovers between enterprise and related policy areas. This requires new ways of working and new relationships to be formed between regional partners. Although this is necessarily a measure of success that will be better measured over the long-term, there is some evidence to suggest that the pilots have begun to facilitate cross-regional partnership working and encouraged the RDAs to focus on building sub-regional relationships with key stakeholders:

"The North West Alliance for Skills and Productivity (ASP) joint pilot covers the skills and business support agendas. The pilot has invested significant time and resources gaining buy-in through a number of iterations of its strategy".

In addition, the difficulties that the pilot regions have faced provide valuable lessons which will inform best practice in the devolution of the Business Link network as a whole. Specifically, the pilots have highlighted the importance of effectively managing contractual and administrative arrangements:

"The West Midlands pilot has focused on the simplification of contractual arrangements, development of an Enterprise Framework and the appointment of an Enterprise Board. These are seen as developmental activities in the run up to transfer of the SBS contract to Advantage West Midlands from April 2004. This will add to the £40 million of AWM and Structural Fund activity already delivered through Business Links and the pilot will seek to build on strong joint working relations which already exist in the region as a result of this".

The independent assessment also identified non pilots regions that are making significant progress in improving services for small businesses (Yorkshire and Humber through 'Customer First' accreditation process) and increased coordination and cohesion (North East's 'Area Brokerage Partnerships'). The pilots have introduced a greater focus at the regional level on how the delivery, impact and accessibility of services to both start-ups and established businesses can be improved. The pilot program has succeeded in focusing minds throughout the RDAs on the future of business support in their regions. A number of the RDAs have examined the services delivered in their own regions to consider whether their delivery, impact and accessibility to both start-ups and established businesses can be improved:

"The process of change in the North East has been initiated with a series of regional summits which agreed the need to develop a more effective and efficient service for customers. Proposals now involve a new independent business-led Network Board with licensing powers overseeing sub regional 'Area Brokerage Partnerships'. Business Link is the preferred brokerage brand, supported by a series of 'back office' developments including new funding mechanisms, regional QA, mentoring and marketing initiatives. Implementation will commence in April 2004, with one of the key achievements to date seen as the role of the Network Board in controlling the proliferation of new business support initiatives".

"Historically, the South East has enjoyed good links between Business Links and SEEDA. In November 2003, SEEDA made a commitment to endorse Business link as its preferred delivery vehicle and also signalled its intention to take over the regional SBS contract from March 2005. Partners in the region are currently in the process of developing a model to reposition Business Links in the customer relationship, with Implementation Plans to be produced by Autumn 2004".

"Yorkshire and Humber is of particular interest as it was identified in the Stage One (Baseline) report as the nearest neighbour comparator in socio-economic terms for the pilots. The region has been progressing developments as part of a Better Deal for Business which builds on the 'Customer First' quality assurance model in the region and a review of business support in 2003. Customer First has been in development since 2000 and now gives the region a mechanism to control the quality and consistency of business support provision and referrals across the region. 'Better Deal for Business' will be implemented from April 2004 through three demonstration projects which will aim to prove the effectiveness of a Business Link branded single gateway to signpost provision, including workforce development."

However, although there are many positive signs of progress in improving the co-ordination and coherence of business support, including the management of Business Link Operators, the independent research organisation which was commissioned to produce the early qualitative assessment does conclude that the early development stage has taken longer than expected in all three pilot regions and that it will take some time for the full benefits to be felt. For example, some of the envisaged benefits of new contracting arrangements have yet to be realised and in some instances achieving partner buy-in has taken longer than anticipated. The clear message emerging from the assessment is therefore that while the regions are potentially best placed strategically to manage local delivery of business support, the RDAs will need time and support to develop their capacity and capability to deliver.

The full findings from the independent assessment of the Business Link pilots will be published by the Small Business Service in the Spring.

3)  Examples of the publicity that Inland Revenue will use to encourage people to meet their tax obligations (see Q 369)

The compliance package announced in Budget 2004 will enable the Inland Revenue to identify and address areas of significant non-compliance risk.

Additional specialist resources will be provided to address high-risk issues involving large businesses and individuals with substantial and complex tax affairs. Additional investment will also improve detection of workers not registered for tax, targeted at high risk areas including labour providers. Better management and analysis of data will improve the deployment of new and existing resources.

A further key feature of the package is the provision of better information to taxpayers in areas of significant non-compliance risk. This includes publicity to raise awareness of tax obligations, the assistance the Inland Revenue can provide to help its customers meet their obligations, and the implications of non-compliance. Examples of this publicity include:

  • Small Business and Business Expenses—publicity will be delivered through the established 'Working Together' arrangements. The arrangements, bringing together the Inland Revenue and professional tax and accountancy institutes (CIOT and ICAEW) receive widespread coverage in tax publications, with information aimed mainly at small and middle-sized accounting firms. The Inland Revenue will write to small businesses, reminding them of their tax obligations, offering support and advice and addressing frequently-asked questions.
  • Employer Compliance Construction Industry—the main publicity will be delivered through working with Industry Representatives and through Trade Journals.
  • Tips and Troncs—the Inland Revenue recently published the guidance booklet 'e24'. This is available through the Revenue Website and on a CD-ROM, and was sent to all employers during March. The Compliance package funding will also enable the Revenue to run workshops, offering advice and guidance to employers.
  • Share Fishermen—plans in this area involve a varied campaign comprising posters, press and radio advertising and direct mailing. This will be supported by workshops. This campaign will encourage a widespread use of the voluntary tax saving scheme through which share fishermen will be able to pay regular amounts towards their tax liability.

The additional yield generated from the measures in the compliance package has been audited by the Comptroller and Auditor General and is included in the public finances forecast.

4)  Outcome of discussions between HMT and Citizens Advice Bureaux on financial advice (see Q 320)

The Department of Trade and Industry (DTI) published the White Paper, Fair, Clear and Competitive, The Consumer Credit Market in the 21st Century, in December 2003. This sets out the Government's objectives to "minimise the number of consumers who become over-indebted, and; improve the support and processes for those who have fallen into debt" (paragraph 5.21). Proposals in the White Paper cover financial literacy and debt advice.

Advice can play a part in helping consumers in two separate ways. First, if consumers are to make sensible choices they need information and understanding. Financial advice, education and awareness are designed to help consumers make sense of their finances. As set out below, part of the review of the Financial Services and Markets Act 2000 explores whether greater regulatory certainty might help Citizens Advice Bureaux and other voluntary and community groups play a fuller part in offering this sort of help.

Second, consumers who become over-indebted can also benefit from specific debt advice. In the Report on Transparency of Credit Card Charges, published in December 2003, the Treasury Select Committee drew attention to the excellent work of the voluntary sector: "We commend the work of the Citizens Advice Bureaux and other free money advice services. We welcome financial support from the industry for these organisations and, given the rising prevalence of credit card debts, we expect this support to increase" (paragraph 51). The DTI White Paper builds on this achievement, sets out a vision for 'Joined-up Debt Advice', and contains an undertaking to report on progress to secure a longer-term commitment from interested parties to support this work.

The White Paper recognises that the current level of face-to-face debt advice is not sufficient, and that the Government will work with others to address this shortfall. The White Paper explains that:

"Face-to-face advice is best provided at a local level. Local authorities and the voluntary and community sector are best placed to target specific geographical areas of need and are able to operate economies of provision. Clearly, co-ordination of needs analyses and funding at a local level is the most effective way of addressing local shortages. For example, in the case of debt advice provided through the New Deal, DWP will be working through Jobcentre Plus districts to consider local analyses of need" (paragraph 5.43)

The Treasury is closely involved in work being led by the Financial Services Authority (FSA) to develop a national strategy for financial capability. The Financial Secretary to the Treasury is a member of the Financial Capability Steering Group that gives direction to this work. As part of this work, which brings together government, industry and the voluntary sector, issues of borrowing and debt, and access to generic financial advice are being addressed. As the White Paper sets out, the FSA propose to publish further, more detailed proposals, shortly.

Finally, in February 2004 the Government published proposals, in the review of the Financial Services and Markets Act 2000, to review the regulation of financial advice provided by community and voluntary advice agencies. This includes consultation on whether more can be done to reduce the impact of regulation on advice centres, such as Citizens Advice Bureaux.

5)  Outcome of December 2003 Saving Gateway evaluation (see Q 401)

The Saving Gateway pilot final evaluation is due in early 2005. No substantial conclusions can be drawn until the full research findings are received, however indications so far are good. The latest interim evaluation report showed that 1,478 accounts had been opened (the target was 1,500), and the participants were mostly drawn from young families with children. By the end of January 2004, a total of £300,000 had been deposited, with £28,000 withdrawn since the start of the pilot, leaving a total balance of around £272,000. There was little evidence that people had transferred money from existing savings accounts or borrowed to save. This report is available on the HM Treasury website. The Government looks forward to further evaluation evidence to assess the effectiveness of matching as a tool to incentivise saving.

6)  Note regarding prosecution of retailers selling illicit spirits (see Q 406)

In 2002-03, HM Customs and Excise brought 21 successful prosecutions for the evasion of duty on spirits, and a further 34 for offences concerning mixed excise (which could include spirits).

Prosecution is only one of a number of sanctions Customs have at their disposal to disrupt the supply of illicit spirits. Customs normally reserve prosecution for those cases where maximum impact can be achieved, most notably against the 'guiding minds' behind a major criminal organisation responsible for the bulk supply of non-duty paid product.

Customs will also prosecute where other sanctions are seen not to be effective (such as for repeat offenders), and in other extreme circumstances. The London exercise mentioned at the Budget 2004 Treasury Select Committee hearing was targeted at the low-level supply of illicit spirits. Customs do not currently intend to prosecute any of those found to be selling non-duty paid product, for a number of reasons:

  • in the absence of a tax stamp, most of the time it is not possible to establish 'guilty knowledge'—in which case attempted prosecution is futile;
  • even in those instances in which Customs may have sufficient evidence to prosecute, civil alternatives are equally effective and more proportionate. The seizure and non-restoration of non-duty paid stock is itself a significant financial penalty — especially in the cases where Customs effectively cleared the retailer's shelves. In some cases Customs also seized vans and lorries that were clearly being used to transport illicit products. Moreover, local licensing officers routinely accompanied Customs on these visits and are currently considering whether or not to renew the liquor licenses of some of the 143 offending retailers; and
  • Customs wanted to maximise the number of retailers they could check during the course of the exercise. Prosecution, including the process of establishing 'guilty knowledge', is currently very resource-intensive and would have taken officers away from the frontline. Customs judged that the additional benefits of pursuing prosecutions against the retailers involved in this operation against which a case might successfully be made were not proportionate to the additional costs and risks.

Tax stamps applied to spirits will make both the identification and, where appropriate, prosecution of those selling non-duty paid product far more straightforward.

HM Treasury
28 May 2004

6   Regional Business Support Pilots Evaluation, Stage Two, Draft Interim Report to the Small Business Service-ECOTEC Research and Consulting Limited. Back

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