Examination of Witnesses (Questions 200-219)
MR JON
CUNLIFFE, MR
JONATHAN STEPHENS,
MR NICK
HOLGATE, MR
DAVE RAMSDEN
AND MR
CHRIS MARTIN
14 DECEMBER 2004
Q200 Angela Eagle: It appears from the
Government's policy particularly on labour market flexibility
(I am thinking about the 10-year childcare strategy) that the
view is that there is still more capacity and more potential to
be had out of the labour market because surely the childcare things,
the tax accounts and enabling people have not traditionally been
able to work to get back into the labour market, indicates that
we are quite relaxed about the possible effects on earnings.
Mr Cunliffe: My colleague, Mr
Holgate, might want to say something on that. There is still a
stock of labour to come into the workforce, eg single parents
where the New Deal for single parents has clearly had an effect
and then the whole disability area and the effect that these pilots,
which are described in the PPI, have had. So there are some workers
which could still be brought in and I think the participation
in the labour market and the participation figure, which has been,
through the inactivity figure, fairly flat for a while, could
improve.
Mr Holgate: Lone parent employment
has risen from 45% to 54%. We have an ambition to get it to 70%
by 2010. We know that something approaching maybe 90% of those
on sickness and disability benefits would like to work and, as
Jon says, the Pathways to work pilots are the first significant
evidence we have that we can manage a combined series of interventions
to help them to get back into work quicker than they otherwise
would have done. Third, I would mention older workers. The employment
rate there has risen and it is very important that it carries
on rising from the point of view of people being able to provide
for their own retirement. The employment rate amongst ethnic minorities
has shown a small but favourable closing of the gap with that
of the rest of the population, but there is quite a long way to
go there.
Q201 Angela Eagle: Maybe some of this
needs to be bolstered by protections and rights given to prevent
discrimination in the labour market. If we want people to come
into the labour market, say if they are ethnic minorities, and
there is obvious evidence of discrimination, we do need to get
some protections to them to enable them to participate in a fair
and equal way.
Mr Holgate: Yes, that is absolutely
right. As you know, the provisions of the Disability Discrimination
Act are coming in stage by stage and another stage came in recently.
We mention in chapter 4 of the PBR that the Chancellor has asked
the National Employment Panel and others to look again at what
could be done to help with discrimination against ethnic minorities.
Q202 Mr Heathcoat-Amory: There is one
very large item of public expenditure, pensions, the treatment
of which I find a little bit inconsistent. The private sector
has to use FRS 17 to compute its liabilities. You do this for
resource accounting purposes. Then there is a very large adjustment,
for next year it is £23 billion, to reduce that liability
for national accounting purposes and for the calculation of whether
we have met the golden rule and so on, so it is very convenient
for the Treasury to make that adjustment. I am puzzled as to why
you are not consistent and do yourselves what you require the
public sector to do on this item of expenditure.
Mr Cunliffe: We base fiscal policy
and economic policy on national accounts data and that is the
norm. The national accounts data is set for us by the European
system of accounts which is in turn based on the UN system of
accounts. There is an internationally agreed set of statistical
standards against which countries report and manage macro-economic
policy. There is also a set of accounting standards which apply
to the private sector and which increasingly the public sector
is trying to adopt that are generally accepted accounting principles,
but accountants and economists, because they look at things for
different purposes, will often value them or deal with them in
different ways. There is a whole range of areas where the accounting
treatment and the internationally agreed statistical treatment
are different, not because people are taking different views of
the same thing, but because they are designed to do different
things. It is no surprise that we run fiscal policy in line with
internationally accepted statistical standards and I think we
would be criticised if we did not, and it is no surprise to me
that the way in which statisticians put together national accounts
in some areas differs to the views that are taken in the GAAP.
What we try to and do is present both, we have presented both—and
if you look at the long-term sustainability report you can see
both presented—without arguing that one is better than the
other.
Mr Stephens: There are a number
of differences in treatment between the two different accounting
approaches. Some of them work one way, some work the other way
and I think to pick one out in particular and focus on that exclusively
does not paint a complete picture. For example, in national accounts
single use fighting equipment scores as current spending whereas
the accepted treatment under GAAP rules is to count it as capital
investment and that obviously is quite a significant element,
for example, of the defence budget.
Q203 Angela Eagle: On the international
front it does not surprise me at all that governments everywhere
try and hide their liabilities. To hide behind the internationally
agreed standards does not impress me. Surely we ought to take
a lead here and the British Government, if it believes in openness
and transparency, ought to include all its liabilities, and pensions
is a big one, in assessing its international balance sheet and
presenting the overall fiscal picture.
Mr Cunliffe: Certainly to us international
standards for statistics are not, as far as I am concerned, a
way to hide anything; they are a way in which statisticians look
at a number of economic variables and report on them, which are
quite rigorous. They are different to what accounts do but that
is because they are done for different purposes.
Q204 Mr Beard: I want to follow up on
the point that Angela Eagle was making very briefly, where she
was saying with so many people employed why is the savings ratio
not picking up better than it is. In talking about retaining the
higher level limit on the cash ISAs you say you are going to consult
on the issue. There is a wealth of information on this. This Committee
did not believe it was a good idea to lower the ceiling on cash
ISAs, the consumer associations were united on the issue and many
other people were at the same time. Why have we got to delay this
issue for another consultation when clearly the answers are plain
to a blind baby?
Mr Holgate: When we noted that
the temporary increases in the cash and share ISAs were coming
to an end in April 2006 people did comment at the time and I have
the Committee's recommendation here and, as you say, reductions
in those limits appear to run counter to a policy of encouraging
people to save. But the fact is that we have until April 2006
and it is just possible that when one announces something in one
way, people with an interest running against that presumption
speak up and there may conceivably be other parties who have an
alternative point of view. So being explicit that we are open
to representations from across the spectrum does not seem to me
to be a bad thing.
Q205 Mr Beard: It sounds a bit like consulting
until you get the answer you first thought of.
Mr Holgate: I think if we talk
about consultation then we have to have an open mind on the subject.
We do note that, so far as I have heard people responding, including
the Committee, there is a very heavy weight on the side of retaining
the ISA limits where they currently are.
Q206 Mr Beard: In encouraging savings
like this why does national savings not have a more important
role?
Mr Holgate: The policy on national
savings is that they are there to help fund the Government's deficit
in as cost effective a way as possible. They do very successfully
sell products even under that constraint and for the rest I think
we have a financial services industry that, quite rightly and
effectively, competes to see whether it can attract people's savings.
Q207 Mr Beard: Moving to efficiency savings,
you note in the Pre-Budget Report that "since the 2004 Spending
Review there has been good progress both by departments in delivering
efficiencies and in cross-government action to support efficiency."
How are you monitoring this progress, and how much has been saved
so far as a result of the efficiency savings that have been "delivered"?
Mr Stephens: This was the programme
that was set out in the Spending Review 2004 which was primarily
focused, of course, on the spending review years which only really
start in April 2005, but Box 6.1, p123, in the Pre-Budget Report
sets out a number of examples and areas in which departments are
already making efficiency savings whether as a result of procurement
savings, for example the Department of Health cutting £370
million as a result of a renegotiation of prices with the drugs
industry, or reducing workforce numbers, for example the Department
for Work and Pensions has already reduced numbers by over 6,000,
and other examples. In the Efficiency Technical Notes which departments
published at the end of October they set out how they plan to
measure progress against their efficiency targets.
Q208 Mr Beard: How are these savings
being reflected in the tables that are representing nominal expenditure?
Mr Stephens: We always set out
from the beginning that these were not cuts to departmental budgets,
they were genuine efficiency savings which were then available
for re-allocation by departments to front-line services. So the
efficiency savings were not assumed in the arithmetic of the Spending
Review 2004 and so did not affect the departmental expenditure
limits.
Q209 Mr Beard: Even so, it represents
new spending by the department. Should they not be reflected in
some way in the income expenditure tables in future given the
role that they have got?
Mr Stephens: What it reflects
is a re-allocation of spending from activities focused on headquarters,
central services, administration, to front-line public services.
So it is a re-allocation of priorities within the departmental
budget.
Q210 Mr Beard: I understand that. There
has been great emphasis on this as being the means by which you
can balance the books and put money into the NHS and other departments.
We are not getting any reflection of this in the main documentation
that indicates Government income and expenditure.
Mr Stephens: Just to emphasise,
this has not been assumed or taken into account in the arithmetic
of expenditure limits or, for example, in the calculation of the
golden rule. It is our intention that departments will report
regularly against the efficiency targets that they have and demonstrate
progress against those targets in, for example, their departmental
reports and from that it will be possible to see the amounts that
are being saved, the numbers of posts that are being reduced and
therefore the amount of savings that are available for re-allocation
to the front line.
Q211 Mr Beard: There is a certain amount
of cynicism about this exercise in dismissing these savings as
`fairy gold', they should not enter in because they are ephemeral.
Would that not be offset if you were publishing a table in here
at least saying what the savings are and what they are projected
to be over the period?
Mr Stephens: We did indeed do
that in the Spending Review 2004 when we set out a programme allocated
across different departments for savings amounting to more than
£21 billion a year by 2007-08 and it is our intention for
departments to report progress against those targets.
Q212 Mr Beard: And those will be published?
Mr Stephens: Yes, in departments'
reports.
Q213 Mr Beard: But in the Pre-Budget
reviews or the Budget?
Mr Stephens: We are already attempting,
although the programme has not properly got under way before the
start of the 2004 Spending Review period, to set out in chapter
6 the early start against that efficiency programme and we aim
and fully expect that in future publications we will continue
to report on that.
Q214 Mr Beard: To report progress?
Mr Stephens: Yes.
Q215 Mr Beard: When we took evidence
on the spending review in July we were told that the Efficiency
Technical Notes setting out how the efficiency savings were going
to be achieved and measured had not been published because they
were to be scrutinised by the National Audit Office and the Audit
Commission first. The published notes do not appear to contain
any reference to having been scrutinised by the National Audit
Office. Are they "audited Efficiency Technical Notes"
in the same way there are "audited budget assumptions"?
Mr Stephens: They have been through
the same process as we have used and has been well established
for some years now on their equivalent public service agreement
Technical Notes in which the underlying methodology and data quality
are considered by the NAO and the Audit Commission and that was
the process that was gone through before the publication at the
end of October.
Q216 Mr Beard: Why is that not said?
Given their importance, why have you not asked the NAO to produce
a written report on the Technical Notes as you do the Budget assumptions?
Mr Stephens: As I say, the directly
comparable set of Technical Notes is those that have been used
for the Government's delivery targets set out in the public service
agreements. There is now a well established procedure in which
the NAO and the Audit Commission scrutinise those documents and
the measurement proposals in advance of publication and that is
the process that was gone through.
Q217 Mr Beard: Given that all of this
was central to the Chancellor's Budget, why are you not publishing
a note in the same way as you do for Budget assumptions? Just
saying you have never done it in the past is not really an answer.
Mr Stephens: We have published
and Departments have published Efficiency Technical Notes in their
proposals and those have been through a process of scrutiny by
the National Audit Office. If you like, I am very happy to write
to set out and explain the process[3].
Q218 Mr Beard: I would be grateful for
that, but I think in future it would be beneficial, if the National
Audit Office is going to pronounce on these, if they were published
with the notes, not just for me but for general consumption. In
a Written Answer this week given by the Financial Secretary you
note that the National Audit Office and the Audit Commission provided
advice on the draft Technical Notes but they were not asked to
sign off the content of Notes. What does that mean?
Mr Stephens: Again, it is the
same process as we went through for the technical notes on PSA
delivery. The NAO scrutinise these for the underlying methodology
and for the data sources that are being used. It is not, of course,
their responsibility to sign off on individual targets or proposals
as to how departments intend to meet individual targets.
Q219 Mr Beard: So the process is comparable
with the scrutiny of the Budget assumptions?
Mr Stephens: I am sorry, I am
not fully familiar with that process of scrutiny so I do not want
to make a direct comparison. What it is directly comparable with
is the process of scrutiny that the Government's outcome targets
in public service agreements go through.
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