Examination of Witnesses (Questions 160-169)
14 JULY 2004
MR NICHOLAS
MACPHERSON, MR
JONATHAN STEPHENS
AND MR
CHRIS MARTIN
Q160 Chairman: I notice in your Spending
Review 2004, page 28, you mention that increased consultation
with a wide range of stakeholders will be undertaken. Why was
this Committee not consulted regarding the Treasury's PSA targets?
Do you not consider we are an important stakeholder?
Mr Macpherson: I regard you as
a very important stakeholder. That is—
Q161 Chairman: An omission?
Mr Macpherson: Clearly an omission.
Q162 Chairman: Excellent. So you will
rectify that omission?
Mr Macpherson: I would hope we
can continue to have a very good dialogue with you.
Q163 Chairman: So that is a "yes"?
Mr Macpherson: That is a "yes".
Q164 Chairman: Could you give us an idea
of what mechanism you use to increase consultation with others?
Mr Macpherson: I would give two
examples. There was an event which Sir Nigel Crisp the Chief Executive
of the Health Service has laid on where, actually, there was some
very active discussion between the senior management of the Department
of Health and the NHS, and a wide number of clinical experts and
chief executives of health trusts and strategic health authorities.
Another example I would give is the dialogue which the Home Office
has had with some of the criminal justice agencies. To give an
example of somewhere where that consultation has resulted in a
different target is the crime target. You will recall that the
previous targets identified different sorts of crime—vehicle
crime, robbery and so on. Particularly in response to the representations
of the police, the target this time does not distinguish targets
in terms of separate forms of crime because of the potential this
had to distort behaviour. So there is a tension here. On the one
hand you want to have continuity, because it is only by having
continuity of targets that you really embed, focus and change.
On the other hand, you have got to listen to what people are telling
you about the effects of targets, and adjust them accordingly.
Q165 Chairman: Some departments have
built up—at least according to last year's figures, which
are the latest we have—quite a sizeable amount of under-spend,
which they can take forward to next year. Does this give the department,
in effect, a reserve additional to the contingency reserve held
at the Treasury If so, might this weaken the financial controls
on departments by reducing their incentive to manage their spending
tightly?
Mr Macpherson: I think it is a
very good question and it is one which we spend a huge amount
of time in the Treasury debating. I am absolutely convinced that
the end-year flexibility regime has resulted in a better quality
of spend, but we were surprised by how the stock of EYF (as we
call it) has built up over time. Each year, round about late autumn,
we start to worry about: "Is this going to be the year when
it is all finally spent" and the whole fiscal arrangements
will be put under pressure. We seem to be reaching, I would not
quite say, a steady state but in every year some departments do
continue to rack up under-spends and others do not. You always
think "It is all going to be spent" and it never quite
is. So I think there is a trade-off here and the stock is fairly
stable, is it not, Chris?
Mr Martin: It is. It is worth
pointing out that for most departments the stock is around about
1% of their DEL which is the sort of amount you would sensibly
expect to be carrying over as part of the incentives that Nick
is talking about. There are a couple of areas where the stock
has been larger—education was one that was highlighted last
year and indeed after SR 2000. In the case of education that was
about not school spending, which was bang on the money, but new
programmes, in particular SureStart and Children's Programmes,
that had recently been introduced and, in the end, were taking
slightly longer to get going than we had anticipated. We put the
money in there hoping they would be able to get the grant quickly,
but in the end they lagged a bit. However, the key thing about
the EYF system is that it means that that spending power is still
there, and that spending will still go through to frontline services.
Q166 Chairman: So it is a good question
but there is no real answer yet; it is work in progress. Is that
what you are telling us?
Mr Macpherson: This regime has
been up and running now for four to five years. Over time one
will begin to be able to really sort of model what is going on.
I think the days of huge under-spends are behind us, mainly because,
as Chris said, a lot of the problem was actually about getting
new programmes up and running where I think there was optimism
about how you could do that. Equally, there is no sign that I
have seen—and it may be that new statistics will show something
different—that departments are now beginning to seriously
draw down that EYF in a way which is destabilising.
Q167 Chairman: Last question: What constraints
are there on the extent to which departments can carry forward
under-spends? Where funds have been allocated but not spent for
more than a specific period is there a case for transferring the
funds to other departments which are in a position to spend them?
Is that another good question?
Mr Macpherson: It is a good question
but I will try very rapidly to answer it. In terms of re-allocation,
the Spending Review provides an opportunity. Sometimes—and
I think we did this with SureStart in 2002—you can re-profile
the spending. The other question was how do we manage it? The
one thing which we do have the opportunity to do is if a department
makes a reserve claim—a claim against a contingency reserve—and
it then turns out that it under-spends, we dock the under-spend
from the contingency reserve claim because otherwise they would
actually have an incentive to pretend they needed all this extra
money when they did not. That is the main mechanism we use.
Q168 Chairman: Is there a case for transferring
that under-spend to other departments?
Mr Macpherson: As I say, I think
the Spending Review is the time you can do that. Implicit in the
re-profiling of SureStart was saying, "SureStart took some
time to get up and running, so let's re-profile it, therefore,
at the margin, and reallocate some money to other programmes."
Q169 Chairman: There is little flexibility
in that; it has to be done—
Mr Macpherson: On the whole we
do not try and do it month-by-month, but every two years, say,
in the Spending Review we take an overview of where we are and
set budgets accordingly. For example, the Northern Ireland Office,
this time round, has built up a very large amount of EYF and the
plans for the Northern Ireland Office reflect that. They look
very much as if the Northern Ireland Office has been very much
cut, if you look at its change on plans, but actually that is
just us saying, "You have got all this EYF, kindly spend
some of that."
Mr Martin: It is important we
do only look at it every two years. To be honest, it has probably
taken departments about four or five years to really trust the
Treasury on EYF—that we were not going to take it away from
them. So the incentives only work if there is a measured, set
out process, for example, and that is what the Spending Review
represents.
Chairman: Thank you very much for your
time, Mr Macpherson, and we look forward to you and your boss
coming back tomorrow. Thank you.
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