Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 240-259)

15 JULY 2004

RT HON GORDON BROWN MP, MR NICHOLAS MACPHERSON, MR JONATHAN STEPHENS, MR MICHAEL ELLAM AND MR CHRIS MARTIN

  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 efficiency—and you know personally what this means—we 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 departments—certainly that traditionally have been in their silos—if 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 that.

  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 2008—but 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 money-lending.

  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 such things.

  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 against?

  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[2]

  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 Health—and 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 been—taking 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 Select Committee.

  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 stress—I 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 policy—and I am referring now to Network Rail—if 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, if necessary?

  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 company.


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