Examination of Witnesses (Questions 1-19)
RT HON
PAUL BOATENG
MP, MR GUS
O'DONNELL CB, MS
MARY KEEGAN
AND MS
SARAH MULLEN
9 FEBRUARY 2005
Q1 Chairman: Chief Secretary, can I offer
you a warm welcome to the Sub-committee. I would be grateful if
you could introduce yourself and your team, for the benefit of
the shorthand-writer, and I think you may want also to add an
introductory statement?
Mr Boateng: Indeed. Thank you
very much indeed, Chairman. Paul Boateng, Chief Secretary, a pleasure
to be here this afternoon. On my right is Sarah Mullen, Director
of Public Spending; on my left, Gus O'Donnell, our Permanent Secretary,
who of course the Committee knows well. On his left, Mary Keegan,
who is the Treasury's Finance Director. Chairman, briefly, the
context in which this report was published to Parliament in December
was one which will be known to you of macroeconomic stability,
low inflation, low interest rates, continuing economic growth
and sound public finances. I say that because I am about to go
into the challenges and I wanted to establish at the outset the
basis upon which we come to you this afternoon. There are, however,
a number of challenges, both domestic and global. In his statement
to the House at the time of the Pre-Budget Report, the Chancellor
indicated that by 2015 Asia will be responsible for as much as
25% of world trade yet at present only 1% of British exports go
to China and just 1% to India. Our challenge, therefore, is to
enhance our links with Asia, to build on our strengths, in order
to succeed in the global economy, to establish world leadership
in science, education and skills and enterprise. At home we have
two challenges that I would like to highlight for the Committee.
The first is in implementing the changes in the way that we develop
tax policy. They were announced in Gus O'Donnell's review. The
challenge now is to generate the improvements in policy-making
that flow from bringing strategic tax work and policy development
together within the Treasury and having closer links with the
Treasury's productivity and economic reform agenda and the macroeconomic
work that we do in the Department. The second of the challenges
I would highlight, Chairman, are those around delivering efficiency;
nothing new in that, in that the Government has always had a focus
on efficiency and value for money. The value for money Public
Services Agreements and the stretching outcome focus PSA targets
that we agreed in the 2000 and 2002 Spending Reviews are indicative
of that. What is new is the focus on releasing resources for a
specific purpose, that is the front line, and tracking how that
happens throughout 2004. We have gone further than the value for
money targets because we have agreed challenging but we believe
realistic targets with each department which will release resources
to improve that front-line delivery. We are required to do all
of this while making the savings that we have set out: our administrative
costs to fall by 2.5% in real terms in 2006-07 and 2007-08 and
also delivering a head-count reduction amounting to about 150
posts, and we are already a third of the way there. Those are
the challenges, Chairman. Could I now ask Gus O'Donnell, in the
light of something which has happened today, to make a brief statement
to you as a courtesy.
Mr O'Donnell: Chairman, I know
this is unusual but I thought members of the Committee should
be aware that the BBC this morning published an internal Treasury
document, sent in genuine error to the BBC, relating to internal
advice on a freedom of information request about the UK's withdrawal
from the ERM. Given that the e-mail very clearly was sent by mistake
and given the nature of the document, I am disappointed by the
way in which the BBC have treated this and I have raised that
with them. As to the substance of the FOI request, it asked for
details of Government studies in the aftermath of and lessons
to be learned from Black Wednesday. I can confirm that we have
now released the relevant documents. They are available to all
Right Honourable and Honourable Members in the Library of the
House and to the public on the Treasury website. I wish to stress
that no serving Government Ministers in the Treasury or in any
other department, or their special advisers, have seen the documents
at any time in advance of their release or had any involvement
in the process leading up to their release. The request has been
handled by officials so ultimately I am responsible. I have also
taken legal advice and consulted the Cabinet Secretary in the
Department for Constitutional Affairs. The Act passed by Parliament
allows exemptions to releases in the public interest. The Treasury
has applied relatively small exemptions to the document after
rigorously applying the public interest test, as we do with all
FOI requests, whatever subject or time they relate to. The document
mistakenly sent to the BBC contained outdated advice on exemptions
and the final version released is not consistent with the advice
reported by the BBC in a number of areas. As part of the process,
former Ministers in office at the time were rightly consulted
in advance of the release, as the Cabinet Secretary has confirmed
publicly. This is entirely consistent with long-standing conventions
based on fairness. I can confirm that former Ministers did not
suggest any edits or deletions. The process is now complete. Throughout
the process our concern has been to ensure maximum fairness to
all involved at the time, safeguarding public interest while ensuring
that we comply fully with the Act. Thank you, Chairman.
Q2 Chairman: That is not quite relevant
to our proceedings today. It does put us at some disadvantage
in that obviously we cannot pursue those matters now, but you
have informed us. Fine. Can we get back to the subject in hand,
which is performance targets. Can we just be clear, Chief Secretary,
that you actually approve each PSA target with each department?
Mr Boateng: The process is one
where, as a result of the lessons learned over successive Spending
Reviews now on targets, we have a much greater involvement of
the stakeholders, the departments themselves and indeed others,
in terms of the formulation of those targets. Throughout the process
of creating the targets the departments are intimately involved,
and indeed in the course of the Spending Review process, as you
can imagine, or indeed as you know, as Treasury Ministers in the
course of these processes have done traditionally, I meet with
Secretaries of State and they too have an opportunity to make
an input as well as their officials into the development of the
targets. Yes, they are agreed with me.
Q3 Chairman: I understand the involvement
and the input, as we would expect. I just want to be absolutely
clear. You have to approve each target?
Mr Boateng: Personally I do, yes,
indeed.
Q4 Chairman: Of each department?
Mr Boateng: Yes indeed.
Q5 Chairman: How do you ensure that the
outcome of a target is measurable?
Mr Boateng: What we seek to do
is ensure that the guidance which you will be aware of, and it
sets out the needs for targets to be specific, measurable, accurate,
relevant and timed, will be followed and that the success or otherwise
of the departments in achieving these targets is capable of being
monitored, as we do with all the departments, in their departmental
reports and in the Autumn Performance Report. Some considerable
care is taken in ensuring that these are targets which we are
capable of monitoring and measuring success or otherwise.
Q6 Chairman: How much trouble did you
have doing this? Were there a number of targets which you had
to send away for further work, or is this just a continuous process
across Whitehall, or was it the case that, say, four or five of
them had to be redone?
Mr Boateng: Gus O'Donnell will
give you his take on it, but I sense that it was very much an
evolving process. There would be discussions amongst officials.
Secretaries of State would have an input in their bilaterals with
me and we would arrive at an understanding and agreement subsequently
published in the course of the Spending Review outcome. Gus, have
you got anything to add?
Mr O'Donnell: Just to add that,
as part of the Spending Review process, of course, there are negotiations
with departments about resources going forward. At the same time,
we are negotiating about the toughness of targets and the two
are a joint exercise and obviously there are discussions with
the Prime Minister as well.
Q7 Chairman: Who approves your own target,
Chief Secretary?
Mr Boateng: This is I think a
particularly important area because it is absolutely essential
for the credibility of the process and my own credibility with
my own colleagues in Cabinet that they feel that we in the Treasury
are subject to the same guidance on setting PSA targets as other
departments. Let me give you an example from my own previous experience
as Financial Secretary, when I was a departmental minister responsible
for Customs and Excise. I went through the same rigorous process
with the then Chief Secretary, Andrew Smith, who was also, of
course, a colleague of mine in the Treasury, as we put all other
departmental ministers through.
Q8 Chairman: Yes, I understand that,
but who approves the Treasury's PSA target itself, not the Revenue
or the Customs but the Treasury's?
Mr Boateng: I do.
Q9 Chairman: You approve your own target?
Mr Boateng: No, because it is
not my target as such. As Chief Secretary I have to approve the
target that has been set for Customs and Excise, for Inland Revenue,
as was, and indeed for the Treasury as a core department of the
Chancellor.
Q10 Chairman: So you do approve your
own target?
Mr Boateng: I approve my own target
in the sense that I am a Treasury Minister, but in the process
of arriving at the target I have to stand outside my own departmental
position and work to the guidance, and of course I am assisted
by the fact that the Treasury has a spending team which shadows
the domestic Treasury, in the same way as spending teams shadow
other departments. That team assesses Treasury bids and targets,
it did so in the last Spending Review, and of course we have other
checks in place because some of our targets are shared with other
departments and therefore are checked and challenged by more than
one spending team, and indeed have to be negotiated, quite properly,
with other departments.
Q11 Chairman: You have two PSA targets
concerning efficiency savings that are required under the 2004
Spending Review, some £20 billion of efficiency savings right
across. Why do not the other departments have specific PSA targets
on the amount of efficiency savings that they have to achieve?
Why do you not pin them down to specific efficiency savings by
department?
Mr Boateng: The SR04 sets out
clear efficiency targets for all departments. The Treasury has
its own efficiency target and, as you rightly say, Chairman, a
PSA target, PSA Target 9. HMT's efficiency target covers the efficiency
of HM Treasury but PSA 9 reflects our wider responsibility as
Treasury for efficiency across Government. We work closely with
the OGC efficiency team in helping departments meet their efficiency
targets and indeed this mirrors the joined-up approach we are
taking with the Prime Minister's Delivery Unit on PSA delivery.
Q12 Chairman: Yes, but the point I am
making is you have also PSA Target 10, which commits you to a
specific figure of a further £3 billion saving on procurement.
Why have you not made the other PSA targets include specific efficiency
savings?
Mr Boateng: We have required all
departments to deliver collectively and individually to the clear
efficiency targets that we have set for them.
Q13 Chairman: Collectively; but you have
not set them a specific departmental efficiency saving?
Mr Boateng: Yes.
Ms Mullen: In the Gershon Report,
we actually set specific targets by department and set those out
in a summary where departments were committed to a specific financial
saving.
Q14 Chairman: Yes, but are they PSA targets,
those?
Ms Mullen: They are not within
their PSA targets, but they still have to meet these targets by
2007-08.
Q15 Chairman: This is the point I am
getting at. Why do not the departmental PSA targets include specific
efficiency-saving targets, as your own one does?
Mr O'Donnell: The point being
that you have got the Gershon process and the PSA target process;
we believe that they are entirely consistent. The whole point
of the Gershon process and the efficiency savings we are trying
to get to, is to reduce, for example, back office functions in
order to deliver services to the front line, which allows you
to better deliver your PSA targets. The idea is that these things
should be completely consistent with efficiency plans which departments
draw up in consultation with us and, in exactly the same way as
the Prime Minister's Delivery Unit, the Efficiency Unit found
that they could work most effectively by co-locating themselves
on the first floor of the Treasury. I can tell you, it is getting
crowded, because we now have the OGC's Efficiency Unit on the
first floor of the Treasury so that they can work closely with
the spending teams to ensure that the PSA targets and the efficiency
targets are the same.
Q16 Chairman: I understand all of that.
The question was why the efficiency savings are not part of the
PSA targets? That is what I do not understand.
Mr O'Donnell: The PSA targets
are all about outcomes; the efficiency targets really are—
Q17 Norman Lamb: But it is part of your
outcomes target?
Ms Mullen: It is the OGC's outcome
target because the OGC is focused on securing savings in procurement
outcomes.
Mr Boateng: I think where the
problem arises in this is because of the nature and complexity
of what we used to describe as the Chancellor's departments. As
the OGC is one of those departments, it makes sense to require
of it, as we do, the delivery of specific efficiency savings,
and we have a target to require it to do that. Of course, in the
ordinary course of events, with other departments, it is the OGC
efficiency team which is responsible for the implementation of
the efficiency programme, who stand working with the spending
teams at the Treasury, who have a good overall understanding of
the departments, to ensure that each of the departments delivers
to its PSA and to the requirement that we make of it in relation
to efficiency. I do not think, Chairman, they feel that they have
got some sort of a let-out on efficiency because it happens not
to be incorporated within their PSA target, they are well aware
of the pressure that is on them to deliver.
Q18 Chairman: All right. Who ensures
that the efficiency savings which the departments propose do meet
the definitions in the Gershon review and they are not met simply,
for example, by reducing service provision? Who actually polices
whether or not they are proper efficiency savings; is that you,
is it the OGC?
Mr Boateng: The OGC has the responsibility
to ensure, working with the departments, that they deliver on
their efficiency targets. The role of the OGC efficiency team
is to drive forward and co-ordinate the implementation of the
Government's Efficiency Review, and they seek to do this. If you
take the enabling role of the OGC with departments, and indeed
with the wider public sector, they have to make some pretty fundamental
step changes in order to deliver their efficiency gains. If you
take the example of corporate services, the OGC has facilitated
what we call the Shared Services Forum. That brings together departments
to help them understand how they can do better in the areas that
are necessary to deliver on that, so their human resource functions
and their finance functions, and they work closely with us in
the Treasury and with the Cabinet Office in order to make sure
that these responsibilities are delivered.
Q19 Mr McFall: Just to add to the Chairman's
question on that. One of the MoD's targets, I think, is cutting
submarines from 10 to 8. Is that an efficiency saving or is that
a spending cut?
Ms Mullen: I do not know the detail
of it but I think that is an example of where what the MoD is
intending to do is deliver the same outputs and outcomes in terms
of its defence capability with less input. So, yes, it is an efficiency
saving.
Mr O'Donnell: If you are using
8 more intensively than 10, it could easily be that you could
get the same defence deterrents from 8 as you could with 10.
Mr McFall: Actually I have the HMS Clyde
Submarine Base in my constituency and there would not be one of
the naval personnel who would say to me that is an efficiency
cut, they would tell me it is a spending cut; they have done that
already.
Mr Cousins: You are not thinking of employing
some American company as a sort of project integrator to deliver
the target?
Mr Beard: Another one was related to
teachers' pensions.
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