Supplementary memorandum submitted by
HM Treasury following evidence on 14 December 2004
Q235 Financial Inclusion Fund—allocations
to the Devolved Administrations
The Financial Inclusion Fund is £120 million
over three years from 2005-06.
Different elements of the Fund have different
geographical coverage reflecting differing devolved responsibilities.
Where appropriate the Devolved Administrations will receive Barnett
consequentials relating to the Financial Inclusion Fund. Wales
is covered by the £120 million fund so does not receive any
consequentials from this.
The consequentials from the £120 million
break down as follows:
Scotland—£4.887 million
Northern Ireland—£3.316 million
Otherwise, bids to the Fund from organisations
in the Scotland, Wales and Northern Ireland will be assessed along
the same lines as those from England.
Further details on the allocations within the
Financial Inclusion Fund will be announced in due course.
Q236 Council Tax and Local Authority expenditure
The Committee asked for a breakdown of the increase
for the devolved administrations announced in the PBR as a consequence
of the £125 million addition for England. The unrounded figures
are: Scotland £12.675 million; Wales £7.363 million;
Northern Ireland £4.168 million. It is for the devolved administrations
to decide how to allocate these sums.
Q227 Efficiency Technical Notes (ETNs)—The
NAO and Audit Commission's Role
THE PURPOSE
OF ETNS
Following Sir Peter Gershon's independent review
of public sector efficiency, Spending Review 2004 (SR2004) published
targets for government departments to realize efficiency gains
amounting to at least £20 billion in annual efficiencies
by 2007-08.
SR2004 also committed departments to publishing
Efficiency Technical Notes (ETNs) by the end of October 2004.
All the main departments met this deadline.
The purpose of ETNs is to set out how departments
will measure progress against their agreed efficiency targets.
The documents are designed to provide the public and Parliament
with greater clarity on efficiency measurement, thereby increasing
the Efficiency Programme's transparency and accountability. It
is not the purpose of ETNs to describe every detail of a department's
efficiency plans or the detailed processes involved in achieving
efficiencies.
Ideally, ETNs should describe efficiency measures
in a simple way that is easily understood, covering issues such
as baselines and the data that will be used. Balancing the need
for clarity and simplicity with the need to provide an appropriate
amount of detail on data and measurement is challenging. The role
of the NAO and the Audit Commission in advising departments on
ETNs was designed with this purpose in mind.
THE NAO AND
AUDIT COMMISSION'S
INVOLVEMENT
The NAO and Audit Commission were asked to examine
drafts of departments' ETNs against agreed criteria—clarity
of savings, measurement methods, data quality, service continuity,
and readability.
Departments submitted drafts of their ETNs to
HM Treasury in September. The drafts were subsequently passed
on to the NAO and Audit Commission. The NAO and Audit Commission
co-ordinated their efforts and jointly produced advice on the
draft ETNs to departments via a scrutiny panel comprising OGC
and HM Treasury officials. The advice assessed
the strengths and weaknesses of the drafts,
highlighting areas where improvements were desirable. The risks
to efficiency measurement, and ways to mitigate them, were subsequently
discussed at meetings of the panel with the auditors. It was then
for departments to take this advice into account before publishing
their ETNs
The scrutiny covered the main departments of
government, namely Cabinet Office, Crown Prosecution Service,
Department for Constitutional Affairs, Department for Culture,
Media and Sport, Department for Environment, Food and Rural Affairs,
Department for Education and Skills, Department for International
Development, Department for Transport, Department of Health, Department
of Trade and Industry, Department for Work and Pensions, Foreign
and Commonwealth Office, Home Office, HM Revenue and Customs,
HM Treasury, Ministry of Defence, Northern Ireland Office and
Office of the Deputy Prime Minister (for both main programmes
and local government). Departments subsequently published their
ETNs at the end of October 2004.
THE FUTURE
PROCESS
The measurement of efficiency is complex and,
in many areas, this Government is breaking new ground. Further
work will be needed, building on lessons from the measurement
of PSAs and the work of the Atkinson Review. The ETNs published
in October are the first step towards demonstrating the achievement
of efficiency gains. Government took the view that it would be
better to publish documents early and to build on these public
documents as the Efficiency Programme moves forward.
As stated in the 2004 Spending Review White
Paper, additions and amendments to ETNs will be allowed. As departments
identify further efficiencies and develop their plans further,
we expect ETNs to change, develop and improve. We are discussing
with the NAO and Audit Commission how they can be involved in
the future process for renewing ETNs in a way that will add the
greatest value.
Departments will also be required to report
on efficiency in their Departmental Reports, as efficiencies are
achieved. This should add further clarity and transparency on
how gains are being measured.
Q232 Comment on specific examples in department
efficiency plans
The Treasury Select Committee asked for the
Treasury view on specific examples within departments efficiency
plans, including the Ministry of Defence example of cutting submarines,
the issue of fines in Department for Transport, and DfES's plans
to raise teachers' retirement age.
Each department agreed their efficiency proposals
as part of Sir Peter Gershon's review process, with the review
team. It is, therefore, the responsibility of departments to explain
how their individual proposals will release efficiency gains and
how the proposals fit with the departmental sections set out in
the Sir Peter Gershon's report.
Central Government Current Spending: background
to and impact of ONS decision to reclassify NHS Trusts from the
PC to the Central Government sector of the economy
SUMMARY
No impact on the Government's overall fiscal
position by moving NHS Trusts from PC to CG sector. This is because
the fiscal rules measure the transactions and liabilities of the
entire public sector, not just the government sub-set of the public
sector.
There is no change in DH DEL caused by this
switch. This is because the relationship DH has with NHS Trusts
in order to control their expenditure has not changed. As noted
above there is no impact on the fiscal position and as such no
need to change control arrangements.
There is however a drop in Public Sector Current
Expenditure as transactions between DH and NHS Trusts now consolidate
out as transfer payments inside the central government sector.
This reduction in spending is matched by a reduction in Public
Sector Current Receipts, which no longer benefit from an amount
equal to the gross operating surplus of NHS Trusts.
BACKGROUND
ONS announced on the 2 July 2003 that NHS trusts
in all four countries of the UK were to be reclassified from the
Public Corporation (PC), to the Central Government (CG) Sector.
The switch was affected in Public Finances First Release on 30
July 2004[3]
and is reflected in the annual ONS publication the Blue Book.
SECTOR CLASSIFICATION
A body is considered part of the public sector
if government or another part of the public sector controls it.
Control is defined as the ability to dictate corporate policy.
The public sector divides into the General Government sector and
the Public Corporations sector. This split is based on whether
a body is market, ie selling goods and services and so a PC, or
non-market, ie financed by general taxation, and as such part
of General Government. The distinction for public sector bodies
can be difficult. After looking at the way NHS Trusts are financed
ONS decided that a non-market classification was appropriate.
It is expected that once the new trading/tariff
arrangements come into force—c2008, that NHS Trusts will
once again be considered market bodies and accordingly score as
Public Corporations.
IMPACT
The Government's two fiscal rules cover the
public sector in their entirety. As such switching a body between
the sub-sectors of the national accounts due to a reclassification
has no impact on either the Golden Rule or the Sustainable Investment
Rule. Indeed the fiscal rules were designed to ensure that total
levels of public sector expenditure and debt are measured and
controlled, and that liabilities of publicly owned enterprises
are properly recorded.
IMPACT—CONTINUED
Whilst no impact on the two fiscal rules there
is a small impact on the government's preferred measure of expenditure,
called TME, or Total Managed Expenditure. TME is a consolidated
measure of public sector current and capital spending. This consolidation
means that intra public sector transfers of interest and dividends
are consolidated out, ie TME only scores interest and dividends
paid to the private sector. The same is true of other transfer
payments such as current and capital grants.
However this is not true for transactions in
goods and services between general government and public corporations,
or any subsidies paid to public corporations. These all score
in TME. Public Corporations' receipts of these payments form part
of their Gross Operating Surplus, which is a revenue item on the
same side of the accounts as other current receipts.
This means that when NHS Trusts were in the
PC sector the amount paid by DH to NHS trusts to make a profit/pay
dividends scored in TME. This was balanced in the overall public
sector accounts by the gross operating surplus of NHS Trusts,
which had benefited from these payments.
Now that NHS Trusts are part of CG these payments
are considered transfer payments between institutions in the CG
sector and are consolidated out accordingly. This results in a
drop in TME equal to the gross operating surplus of the Trust,
net of NHS trust depreciation that now also scores in TME with
other non-trading capital consumption.
IMPACT ON
DH BUDGETS
Under Resource Accounting and Budgeting the
DH DEL budget measures a combination of the transactions between
DH and NHS Trusts and NHS profits/losses. Because the relationship
between DH and NHS trusts has not changed the budgeting framework
has remained the same. As noted above the change in sector classification
has no impact on the fiscal rules and as such there is no weakening
of control over the public finances.
HM Treasury
15 December 2004
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