Select Committee on Treasury Minutes of Evidence

Supplementary memorandum submitted by HM Treasury (20 September 2004)


Public Sector Turnover: Key Facts

  The Chartered Institute of Personnel and Development (CIPD) "Labour Turnover" survey assesses annual turnover rates throughout the UK economy[24]. Latest results from the 2003 CIPD survey finds that the UK Public Sector had a relatively low turnover rate when compared to rest of the economy in 2002, and in particular when compared to hotel, catering and IT sectors. The 2003 CIPD survey finds:

    —  Average public sector turnover in 2002 = 12.5%.

    —  Turnover across the economy in 2002 = 16.1%.

    —  Average cost of UK turnover in 2002 = £4,301 per leaver.

  The survey can be broken down by specific public sector area as follows:

Public Sector Area Turnover (%)
Central Government10.7%
Local Government11.2%
Other public services11.4%

  *  CIPD 2003


    —  For the UK in general, labour turnover for all employees stood at 16.1% in 2002. This was the lowest rate for the past four years.

    —  Highest rates of turnover (of around 40%) in 2002 were found in call centres, catering, and leisure and hotel sectors.

    —  Turnover in 2002 was also high (greater than 30%) in IT services, food, drink and tobacco, retail and wholesale sectors, and also among sales workers—many of whom are employed on flexible, short term contracts.

    —  Lowest turnover (around 10%) was in manufacturing, transport and storage, and paper and printing sectors. Also low turnover in managerial and administrative staff (as well as public services).


    —  An alternative approach to measuring labour market turnover is to look at job tenure rates: ie the percentage of workers that are in the same job one year later.

    —  Analysis of job tenure shows that public sector workers tend to be less mobile and stay in the same job for longer periods of time.

    —  ONS research[25] shows that (using LFS) public sector workers were least mobile, with 83% in the same job one year on compared to 74% for the private sector in 2001.


  As set out in the 2004 PSA White Paper, the DWP has a target to be paying pension credit to at least 3.2 million pensioner households by 2008. Projections of future Pension Credit take-up were set out in the answer to PQ 187352 from David Willetts (attached).

  Mr. Willetts: To ask the Secretary of State for Work and Pensions what the assumptions are for the number and percentage of eligible pensioners taking up pension credit that underlie his pensioner benefit expenditure projections for (a) 2003-04, (b) 2013-14, (c) 2023-24, (d) 2033-34, (e) 2043-44 and (f) 2053-54. [187352]

  Malcolm Wicks: The Government do not currently produce long-term projections of the pension credit caseload. In the interests of fiscal propriety they do issue long-term expenditure projections. Tabled are the caseloads underlying the projected expenditure.

13 Sept 2004: Column 1394W

  Numbers of pensioner households claiming pension credit underlying the long-term projections of pensioner benefit expenditure are as follows:

  These figures represent take-up of around 75%, corresponding to the achievement of the PSA target of 3,000,000 pension credit households by 2006.

  Estimates have been rounded to the nearest 100,000 cases, are subject to a wide margin of error and should be used only as broad indications of the likely caseload.

  The methodology behind the long-term projections was described in more detail in "The Pension Credit: Long-term Projections", published by the Department in January 2002. A projected growth rate in pension credit spending is derived by applying income growth assumptions and demography projections to the sample pensioner population in the Department's Policy Simulation Model. This growth rate is applied to the medium-term forecast of pension credit expenditure.

  "The Pension Credit: Long-term Projections" (Ref: DWP-PCP-2) is available in the Library and can be found on the internet at:


  As stated in Budget 2004, the Government's provisional economic judgement is that the current economic cycle began in mid-1999 when actual output moved above the trend level. In the second half of 2001, the economy moved below trend with actual output remaining below the trend level since then. The economy is forecast to return to trend by early 2006.

  Progress against the golden rule is measured by the average annual surplus on the current budget as a percentage of GDP since the cycle began. As stated in Budget 2004, the average surplus on the current budget since 1999-2000 is positive in every year of the projection period. The economy is expected to return to trend by early 2006, meaning that over the whole cycle the average surplus on the current budget would be around 0.1% of GDP. On this basis, and based on cautious assumptions, the Government is on track to meet the golden rule and there is a margin against the golden rule of £11 billion in this cycle, including the AME margin.

  With the economy assumed to be on trend from early 2006, the projections show, based on cautious assumptions, that the average surplus over the period 2005-06 to 2008-09 is 0.1% of GDP. Therefore, the Government is on track to continue to meet the golden rule after the end of this economic cycle.

  To meet the sustainable investment rule with confidence, net debt will be maintained below 40% of GDP in each and every year of the current economic cycle. Net debt is projected to remain low and stable rising from 31% stabilising at just under 36.5% at the end of the projection period. The table below (shown in Budget 2004) presents the key fiscal aggregates. The table indicates that the Government remains on track to meet both its fiscal rules.

  The Government will update its economic and public finance forecasts in the 2004 Pre-Budget Report.

Table 2.6

Per cent of GDP
Outturn EstimateProjections
2002-032003-04 2004-052005-06 2006-072007-08 2008-09
Fairness and prudence
Surplus on current budget-1.2 -1.9-0.9-0.4
Average surplus since 1999-2000






Cyclically-adjusted surplus on current budget






Long-term sustainability
Public sector net debt[26] 30.833.234.4 35.335.936.3 36.4
Core debt2130.832.2 32.933.734.3 34.834.9
Net worth[27] 24.322.019.6 17.116.515.4 15.5
Primary balance-0.6-1.7 -1.1-0.8-0.5 -0.2-0.1
Economic impact
Net investment1.01.5 2.22.2
Public sector net borrowing (PSNB)






Cyclically-adjusted PSNB1.6
Central government net cash requirement






Public sector net cash requirement2.1
European commitments
Treaty deficit[28] 1.6
Cyclically-adjusted Treaty deficit231.5
Treaty debt ratio[29] 37.939.840.9 41.541.942.2 42.1
Memo: Output gap-1.2-1.4 -0.8-0.10.0 0.00.0


  Departments provide updates for the performance information website to the Treasury for publication. The Department of Health will publish their plans for measuring the impact of efficiency measures on service effectiveness on their website in October.


  Where additional investment in their housing stock is not required, council tenants can choose for their homes to remain under direct council ownership and management. Very many social homes will meet the decent standard through this retention option without the need for extra resources.

  Where local authorities decide they need additional investment to meet the Decent Homes standard by 2010, they are able to choose from three options: Arms Length Management Organisations (ALMOS) Private Finance Initiatives (PFI) and stock transfers. Of these, ALMOs and PFI leave the stock under local authority ownership. Transfers mean the stock is owned and managed by registered social landlords (RSLs) which raise significant sums of investment from the private sector—over £5 billion so far—to bring up their stock to the decent homes standard, and often go much further. RSLs are not-for-profit social businesses and reinvest any surpluses back into the housing stock, and which are regulated by the Housing Corporation.

  Local authorities are being asked to go through a rigorous Options Appraisal process to decide which option best suits them. The outcome of the Appraisal is then put to a vote by tenants. Where tenants reject a local authority's Option Appraisal the Office of the Deputy Prime Minister (ODPM) has urged local authorities to work closely with tenants within the framework set out by the Government to deliver a solution that will deliver decent homes by 2010.

  Authorities that do not pursue these options cannot expect increased investment above that provided for through mainstream housing funding. There is no 4th Option for additional funding. The Government will not simply throw extra resources at the problem. Where additional money is provided the Government wants to drive up performance, secure value for money and give tenants a say in how the money is spent.

  The three options available are all flexible enough to be tailored to suit individual circumstances, while still delivering Decent Homes. The ODPM is prepared to enter into constructive dialogue within the framework set for delivering Decent Homes and discussions have taken place with a number of local authorities ODPM is working closely with local authorities that are experiencing difficulties to support them in the Options Appraisal process and to ensure they can meet the target by 2010.


  In recognition of the persistence of disparities in employment outcomes for people from ethnic minority groups, the Prime Minister's Strategy Unit reported to Government in March 2003[30] The recommendations included specific policy measures, reviews of current policy and carrying out research where evidence on the best policy response is required. These were accepted by the Government and are now being taken forward by five Government departments working together through the Ethnic Minority Taskforce[31] Recommendations include action to:

    —  improve employability by raising levels of educational attainment and skills;

    —  connect people with work by reforming existing employment programmes, tackling specific barriers to work in deprived areas, and promoting self-employment; and

    —  promote equal opportunities in the workplace through better advice and support to employers, and through more effective use of levers such as public procurement.

  Since April 2004, specialist employment advisers have been introduced in Jobcentre Plus districts with high ethnic minority populations, to work with employers on diversity issues and open up vacancies to ethnic minority jobseekers. In recognition of the important role that employers play in enabling people from disadvantaged ethnic groups to overcome barriers to their participation in the labour market, Budget 2004 announced the introduction of "Fair Cities" initiatives in three areas later this year, to work with employers and other local stakeholders to develop strategies in order to improve employment outcomes for people from disadvantaged ethnic minority groups.

  Budget 2004 also announced the piloting of worksearch premium of £20 per week, for those in a family in receipt of the Working Tax Credit who are not working, who agree to join the enhanced New Deal for Partners, and who voluntarily choose to actively search for a job. The pilot areas will be in parts of London, Birmingham, Bradford, Blackburn, Leicester and Luton. This initiative will address the inactivity of partners of those in lower paid employment, and has the added advantage of addressing the lower employment rates of some ethnic minority groups.


  The key benefits of using resource based accounts and budgets are that they distinguish between resource consumption and capital investment and better capture the full economic cost of delivering public services. Resource accounts record costs and income when they are actually consumed or the benefit is received rather than when cash is spent or received. They also capture the non-cash costs related to capital investment, including:

    —  depreciation, representing the consumption of capital assets over their useful economic life;

    —  a cost of capital charge of 3.5% on net assets, reflecting the opportunity and financing costs for government of holding capital; and

    —  provisions for future payments such as compensation payments or early retirement liabilities.

  This better information on true costs of delivering services is a cornerstone of the system of public expenditure planning and control, and informs the setting of resource budgets which are affordable within the fiscal rules.

  Resource budgeting also provides incentives (through the capital charges and the ability to retain the proceeds from most asset sales) for departments to scrutinise their asset base and dispose of superfluous assets to release resources for other priorities.

  Resource based information informed budgetary allocations to departments in the 2004 Spending Review. Departments were required to fully consider the non-cash consequences of their investment plans. This information was scrutinised by the Treasury and discussed with departments and has informed the resource allocations in this Spending Review. Following the completion of the Spending Review, departments are required to publish revised Departmental Investment Strategies (DIS) in the autumn. These will set out their overall asset management strategy over the Spending Review period in more detail, including an asset disposal strategy explaining the budgeting impact asset disposals will have.

  The Treasury will continue to work with departments to ensure that the accounting and budgeting rules support the fiscal rules and set the right management incentives for departments.


  From 1 May 1997 to 1 April 2004, when departments most recently submitted data to the Treasury, PFI projects with a total capital value of £36.2 billion were signed. As part of our commitment to openness and transparency in our PFI programme, we report to Parliament on the total number of PFI projects signed, details on the projects themselves and their total capital value in the Budget itself.

  The table below sets out estimates of the capital value of PFI projects currently in procurement where contracts are expected to be signed over the period of the Spending Review:
YearEstimated Capital Value of PFI projects (£m)

  The actual capital value of projects signed in later years will be higher than the figures in the above table. This is because they will also include projects that are currently being developed and are not yet in procurement.

  Data on projects in development is not held centrally by the Treasury.

24   Chartered Institute of Personnel and Development (CIPD), "Labour Turnover Survey 2003", Table 5. "Turnover" is calculated by CIPD using the "crude wastage method". This is defined as: (No of leavers in a set period/Average No employed in same period) x 100. Back

25   "Job mobility and job tenure in the UK", Back

26   At end March; GDP centred on end March. Back

27   At end December; GDP centred on end December. Back

28   General government net borrowing on a Maastricht basis. Back

29   General government gross debt measures on a maastricht basis. Back

30   Ethnic minorities and the labour market, Cabinet Office Strategy Unit, March 2003. Back

31   Department for Education and Skills, Department of Trade and Industry, Department for Work and Pensions, Home Office and the Office of the Deputy Prime Minister. Back

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