Examination of Witnesses (Questions 240-259)|
15 JULY 2004
MP, MR NICHOLAS
Q240 Chairman: They are wise words to
keep in mind, Chancellor, and it will be scrutinised.
Mr Brown: Your report will no
doubt give advice to the Treasury about how we should be proceeding.
Q241 Chairman: We will continue to give
you good advice, Chancellor.
Mr Brown: As a matter of efficiencyand
you know personally what this meanswe are reducing the
number of Scottish MPs from 72 to 59.
Chairman: Yes, I have been through that
painful process, Chancellor!
Q242 Angela Eagle: Chancellor, the Gershon
report is, I think, quite a profound re-engineering of the way
that government works, and it is a quite detailed piece of work.
However, it has been met with universal scepticism and surprise
that the level of savings of £21.5 billion can actually be
met. When the expert officials gave us evidence yesterday there
was almost universal cynicism that anything like this amount of
saving could be made. Can you comment on that?
Mr Brown: It is very strange that
most newspaper editorials are saying that we ought to do more;
and yet you are telling me that the experts are saying that no
government can do as much. It is certainly true that in the past
attempts at reform in administrative savings had not been as successful
as people had expected them to be, but we have gone through a
process. The fact that this process is so comprehensive and has
led to such big conclusions is reflected, I am afraid, in the
fact that 84,000 jobs are going to go. However, that is only one
part of the change. A very big part of the savings are from the
procurement process. That is by finding a means by which, either
by shared purchasing or by a more efficient system of purchasing,
or by greater competition in the procurement process, we get the
cost of what is a major part of government spending, procurement,
down. The Committee may wish to look at this whole process of
procurement. We have the Office of Government and Commerce; it
has made a lot of savings already. Sir Peter Gershon was head
of that office, and from his ability to see what savings were
made in central government he was able to look at what might come
in other parts of government as well. I would not underestimate
the extent to which this is not only part of a very big process
of work that is now concluded, but the determination to move quickly
to get the results of this.
Q243 Angela Eagle: In moving forward
to trying to do that, there are some very sensible suggestions
in the Gershon report about the capacity for shared back-office
functions, the capacity for co-operation between departmentscertainly
that traditionally have been in their silosif they co-operate
horizontally, then you can make big savings. This is a big culture
change. Gershon also talks about such co-operation between local
authorities as well as central government and the non-governmental
organisations, the quangos and all the other organisations that
spend government money. Is there a tension between this and the
Government's policy to devolve power down, and in essence to create
things like foundation hospitals or fragment management systems;
or do you think that the requirement for these savings to co-operate
is actually not threatened by devolution?
Mr Brown: If the policy is made
by the local body, then that is real devolution. If the local
body, whether a local authority, a hospital or a school, decides
that it wants to go into partnership with other organisations
to deliver certain outcomes, whether it is certain services or
whether it is to run buildings or whatever, then that seems to
me to be the result of a decision made by local people with the
power to make their own decisions. We are not forcing local authorities
into a particular relationship with others, but they themselves
I think will increasingly see that when you can do things electronically,
and when rationalisation is possible because of computerisation,
it might make more sense for there to be a number of departments
that deal with, say housing benefit, or other services, coming
together to do that, rather to have lots of individual departments.
I mentioned Sir Jeremy Beecham, the outgoing Chair of the Local
Government Association. He says: "Locally determined partnerships
should be allowed to form with the private sector, neighbouring
councils and other public sector bodies as appropriate. They ensure
that the income is derived from efficiencies ploughed back into
services for local people or into lower local taxation. What better
incentive?" As long as the policy decision is one that can
be made by the local authority, or the foundation hospital or
the school, then if they can achieve these savings we should welcome
Q244 Angela Eagle: One of the differences
I notice, from listening to your officials yesterday, is that
there seems to have been a switch in Treasury rules. In the past,
departments that made savings often did not get to keep them;
they just went straight back to the Treasury; but because you
have set an envelope for savings, that means that if departments
make efficiency savings, they can keep them and use them within
their own services. This seems to me to provide a much better
incentive for at least central government departments to reform.
Mr Brown: At this stage, having
set the figures, all the incentives are now for the departments
to do things as efficiently as possible, and to get these efficiency
savings in, because that will release more resources to the front
line. I will just say that there is no more money coming from
the Treasury if they fail to do this: they have signed to these
agreements, that they will make these changes. If they do not
make these changes, then they will pay the price. Therefore, it
is quite important that it is understood that we have set our
figures until 2008. As far as local authorities are concerned,
there are some good examples that the Committee might want to
look at. There is the Sheffield example of the use of telecommunications;
Essex is bringing together a number of councils to procure key
goods and services collectively; and then there is Tynedale, where
seven councils have come together to coordinate their procurement.
There are quite a lot of these things already going on in local
authorities, and we should support them.
Q245 Angela Eagle: Are you worried about
morale issues for staff in the Civil Service faced with a headline
announcement as dramatic as the one you made?
Mr Brown: Peter Gershon has now
reported, and we have accepted his recommendation and that this
is what he proposes. We have accepted the numbers until 2008but
he also said that to go further than that would put the delivery
of public services at risk. Although a degree of change has to
take place, that is the announcement we have made, and that is
the announcement we will follow. Once these changes are made,
I think people will know that that is the limit of what we are
proposing for this period of time. I hope that, having made all
these changes, other political parties will think twice about
giving the impression or continuing to suggest that the public
service workers who are doing the jobs should be made redundant,
given Sir Peter's recommendation, following a great deal of work,
that this is the limit that could be achieved until 2008.
Q246 Angela Eagle: Published with the
CSR this year was the Child Poverty Review, which is an extremely
welcome document. What drew my attention was the new long-term
measure of child poverty that you set out on page 17. Do you want
to share with the Committee your thoughts about the implications
of the inclusion of "material deprivation" as a part
of the measurement?
Mr Brown: I did say something
about this when I gave the Rowntree speech on child poverty about
a week ago. I said then that we have taken too little account
particularly of housing conditions in the circumstances that face
young children growing up. When we came into government, one child
in every three was being born into a low-income household. That
is an astonishing and shocking statistic for this country; that
a third of the children being born in this country were being
born into households where there was poverty and bad social conditions
of one sort or another; and housing is the one that is most emphasised.
For that reason, we think it important to have a target for child
poverty that is not simply about income but which looks at the
material circumstances, housing in particular amongst them. You
may also have seen in the pre-Budget report on fuel poverty, which
again affects poorer households with children as well as pensioners,
that we set a target again to abolish that fuel poverty. A civilised
and advanced society like ours that has got energy and the ability
to provide it, ought to be able to solve the problem of fuel poverty.
That is partly by insulation of houses, partly by good accommodation
itself, and partly by the cost of fuel. These are the issues;
so housing, heating of houses and the condition of houses is important
to us in measuring poverty.
Q247 Angela Eagle: On page 47 of the
report you talk about the Social Fund, and an area that has particularly
worried this Committee, access to affordable credit for those
on low incomes. Can you tell us a bit more of your thinking about
what can be done to tackle over-indebtedness, and particularly
the sometimes usurious rates of interest that poor people have
to pay to get quite modest levels of credit, both from banks that
ought to know better and the more nefarious bits of society?
Mr Brown: The problem we see is
that if people got into difficulty as a result of loans, that
it is right for us to provide from the Social Fund for circumstances
and expenditures that people may not have anticipated, we must
avoid a situation where because of the double-debt rule, which
it is called, people got themselves into the position where there
was so much debt that they became dependent on loan sharks and
on people who were exploiting the circumstances by charging usurious
rates of interest. There are two ways of dealing with this. One
is to improve the operation of the Social Fund, so we will abolish
the double-debt rule, which I hope the Committee will welcome.
That costs money and it has got to be made available. Secondly,
the Department of Trade and Industry is taking more action, both
in terms of consumer education about loan sharks and people who
are charging usurious rates of interest, and also in trying to
clean up the industry. You have to take action on both sides.
Q248 Angela Eagle: Do you think there
is any merit in having a top rate of interest that can be charged
in these circumstances? The Germans do it.
Mr Brown: A lot of this is illegal
Q249 Angela Eagle: The nefarious bits
are, but quite a lot was being charged by very respectable banks,
as we discovered when we were looking into credit cards and other
Mr Brown: This is an issue. A
ceiling on interest rates is one thing; proper transparency is
probably a better way forward so that people know what they are
getting into when they get into it. Your recommendations about
cleaning up the way APRs are reported and given to the public
is very important. I would just say that there is a lot of work
to be done on consumer education here, so that people know what
they are getting into. If we could tackle the poverty problem
at its roots, then the need for people to become dependent on
these loan sharks could be lessened.
Chairman: Chancellor, George will come
in later on the child poverty aspect. Can I go over PSA targets
with you. I note that your former Chief Economic Advisor, who
used to grace the seat beside you, was quoted recently as saying
that the biggest lesson from the Government's first term was that
the Treasury had been, "centralising policy, and they did
not realise early enough that they had to allow greater flexibility
and more local decision-making to occur". First of all, do
you agree with him? I am sure you will. Secondly, what measures
in the Spending Review will reverse this trend towards centralisation
and empower local decision-makers?
Mr Brown: In case you think that
his was the first job cut we made at the Treasury, he has moved
to a new position as a parliamentary candidate.
Q250 Mr Mudie: Did you fill the job?
Mr Brown: We have Mr Ellam here
who is in charge of policy and planning.
Q251 Mr Mudie: A missed opportunity!
Mr Brown: He is creating jobs
in the regions. The issue of PSAs is that we do want to move towards
far more local accountability. It is a far better system. Let
us take the Health Service: if a local hospital was able to publish
what it was doing at a local level, people would spot the fact
that, for example, that the numbers for operations for cataracts
or hip joint replacements are not going through fast enough. They
then ask the question, "What is happening?" Changes
are made, and that is the sort of process that is more likely
to yield results in the longer run than not having that information
available at a local level. I would dispute those who say that
PSA targets have not had an effect. I read out to you, right at
the beginning, a number of things that we had achieved as a result
of setting that target. If you had not had a target for nursery
education for every three-year old and it was not a national target,
it would have been difficult to achieve it, because some would
not have wanted to do it. The money would not have been available
for it to be done, and the priority might not have been given
by some local authorities. That is a balanced judgment as to where
national standards are set, and how you balance that off with
local accountability. Increasingly, I say that we will move to
greater local accountability.
Q252 Chairman: What mechanisms have been
used to increase consultation with stakeholders on the specification
and measurement of PSA targets? I mentioned to Mr Macpherson yesterday
that our Committee was not consulted on that as one of the stakeholders,
and I hope that that has been remedied. Is that correct, Mr Macpherson?
Mr Macpherson: We will definitely
be consulting you as a key stakeholder for the next spending review.
Mr Brown: He is probably taking
the blame for my mistake, but the important thing is that in the
areas where public services are being provided, there was a very
big and extensive consultation about the targets. There is one
example that is known to all of us, and that is overseas development
aid. To set our objectives for the future in these areas, we have
had long and detailed discussions with the British NGOs, with
organisations working in Africa and elsewhere, and not only did
we have these discussions but as I said in my speech to the House
of Commons, we had thousands of individual letters pressing us
on these issues. I could send a note to the Committee of all the
different individual letters pressing us on these issues. I could
send a note to the Committee of all the different organisations
that were in touch with us on other issues.
Q253 Chairman: I will maybe bring that
question up at a later time, Chancellor. We have seen a number
of targets, including transport congestion and regional economic
performance where it is not possible to measure progress against
them due to inadequate data. How many of the targets set in the
previous spending review is it still not possible to measure progress
Mr Brown: We have the 1998 Spending
Review. The figures are 250 total targets, and 85% have been met
or partly met already. Some of these targets of course were set
for 2010, but that is a measure of our progress. To suggest that
not to meet one target means that the whole system falls down
is ridiculous. There will be circumstances when it is difficult
to meet one target, but generally there has been massive progress,
particularly in education and health, as a result of the announcement
that we are going to go ahead with these things. As I say, as
far as the Treasury is concerned, our main targets are inflation
target and fiscal rules being met.
Q254 Chairman: Why does the Treasury
public sector performance website indicate that the Department
of Health has still not developed an index to measure improvements
in NHS effectiveness two years after the target was set?
Mr Brown: This is a debate about
productivity generally, is it not? There has been a study commissioned
under Professor Atkinson to look at this whole question of how
you measure public sector productivity, and that, I suppose, is
performance effectiveness. I will write to you on that, if you
like; but there is this whole debate about the measurement of
productivity, which is continuing with the review taking place
Q255 Chairman: I am happy if you write,
but, as I say, I do not think it comes over well when the Treasury
website says that a new approach for measuring the effectiveness
has been finalised with the Department of Healthand that
has been there for two years.
Mr Brown: Yes, but that is why
we have set up this review, to look at productivity. The public
sector productivity figures in every country are subject to so
much criticism about how it is measured, and that is why we have
set up this review.
Q256 Chairman: How has promoting choice
in public services been a priority in the spending review; and
do you see from the Treasury point of view any tension between
increased choice and devolved decision-making and efficiency?
Mr Brown: I think they go together.
The issue for the Treasury is making possible more choice through
increase in capacity. If you had surplus capacity in every area,
it would be easy to be able to give people all the choices. The
problem has always beentaking the end of the last government,
there was a lot of talk about choice, but there was limited capacity.
We are expanding capacity, and that makes it possible for people
to get more of their preferences met.
Q257 Mr Walter: Chancellor, perhaps we
can now look at one or two of the departmental programmes, starting
with the Department of Transport.
Mr Brown: If I am being fair to
this Committee, I would say that if you want to look in detail
at any individual departmental programme, that is a matter for
the department itself. The Secretary of State for Transport is
actually making his statement on transport in the next few minutes,
as a result of the announcements we made on Monday. I can, and
should, talk about the global figures, but the individual operation
of both the transport policy and the workings of the Department
of Transport are really a matter for you to talk to the Transport
Select Committee about or to the Transport Minister through the
Q258 Mr Walter: This is a major item
within the Department of Transport's departmental expenditure
that I would like to ask you about.
Mr Brown: I would just stressI
know you like to think that the Treasury can give answers on all
sorts of things, but transport matters are a matter essentially
for the Department of Transport, and they have a very good Secretary
of State who would be happy to look at these matters with you
if you could arrange a joint investigation with the Treasury Committee
and the Transport Select Committee. You cannot expect me to answer
for the individual details of transport policy. I think it would
be unfair of this Committee to expect that.
Q259 Mr Walter: Would you be concerned
if, within transport policyand I am referring now to Network
Railif Network were borrowing? Let me talk about Network
Rail. Tom Winsor, the Rail Regulator, announced in March increased
spending of 7 billion over the Railtrack settlement by Network
Rail. How has that extra money been accounted for, particularly
the additional money required by the Regulator in 2004-05, which
is a total of 3.14 billion over two years? Has that been included
in the departmental expenditure limit? Can that money be borrowed,
Mr Brown: I think that your question
is perhaps based on a misunderstanding of the relationship between
Network Rail and the Government. Network Rail is an independent
2 Ev 57 Back