Examination of Witnesses (Questions 80-99)
RT HON
PAUL BOATENG
MP, MR GUS
O'DONNELL CB, MS
MARY KEEGAN
AND MS
SARAH MULLEN
9 FEBRUARY 2005
Q80 Mr Cousins: Does it mean that these
broadly-drawn objectives which have no targets, which are Treasury
objectives, will continue to have no targets?
Mr O'Donnell: I think, when you
look at the whole range of Treasury targets, you will see some
that are very specific. On the macroeconomic side, you could say
things like sort out a macroeconomic framework, a method of controlling
inflation so inflation stays close to target. Instead it is very
clear, inflation target 2% CPI, absolute clarity, absolute objectivity,
very easy to measure. When you come to the financial services
area, it is more difficult. I wish there were a simple target
which was as clear as that. We are trying to set up a system which
ensures that the financial services industry is efficient, well-regulated,
works well for consumers and all the rest of it. I do not think
there is a simple, efficient target, but I do think that it is
our job to try to work towards getting more measurable targets,
certainly.
Q81 Mr Cousins: If I could put the point
to you another way. The Chief Secretary's very important opening
statement to the Committee, the first thing you mentioned, Chief
Secretary, was this very important issue of whole new areas of
world trade and Britain's limited participation in that. Are we
to see Treasury or combined Treasury and DTI targets which actually
address that challenge? They do not exist now; so are we or are
we not?
Mr O'Donnell: If we were to have
a target in the trade area it would be to do with enhancing world
trade, I think, doing as much as we could to enhance world trade.
I do not think we would aim specifically at bilateral trade balances.
Q82 Mr Cousins: But you do see the difficulty;
you came along this afternoon and made a very important statement,
and one that I take very seriously, and yet now we are being told
that there is not going to be a target which actually reflects
that challenge?
Mr Boateng: I think, Mr Cousins,
the question for you, for the Committee and for us is whether
or not such a target is necessary for us to do the things that
we do and are doing more of with the DTI and the Foreign and Commonwealth
Office around trade, whether bilateral or multilateral. The reality
is that the emphasis which I shared with you and the challenge
I shared with you at the outset, which was articulated very clearly
at the PBR by the Chancellor around China and India, affects the
sort of work that we do, the meetings that we have, the visits
that we make, the priority we give to those meetings and visits.
I do not think that priority would be given any greater enhancement
by the fact that there was a specific target around China or India,
necessarily.
Mr O'Donnell: Trade competence
for negotiating on trade is actually at EU level and the departmental
lead is DTI, departmentally. It is DTI that are responsible for
our negotiating position in WTO.
Q83 Mr Cousins: Do forgive me, Mr O'Donnell,
but in his opening statement the Chief Secretary did not say "Here's
a very important challenge, but of course it's for the DTI and
the European Union to do."
Mr Boateng: One reason why I did
not was because, if you look at PSA 9, helping departments deliver
their PSA targets, that does mean that we have some responsibility,
in some sense, for all PSA targets.
Mr O'Donnell: It is something
on which we will work together.
Q84 Mr Cousins: Exactly. There is some
working together with other departments, and here I am looking
at Objective VI, which is expressed in PSA Target 7. The objective
is about expanding economic and employment opportunities for all.
The target is about increasing the employment rate and decreasing
the unemployment rate. The commentary that you give is that you
are on course. The employment rate has gone up by 0.1%, the unemployment
rate has gone down by 0.4%. That is clearly consistent with the
target, but then you end up with a slightly odd situation, from
my point of view, that this broad objective, of which the target
is the expression, expanding economic and employment opportunities
for all, can be satisfied by a performance in which we have increased
the inactivity rate of the labour force by 0.3%, which seems a
bit odd. Does it seem to you to be odd?
Mr O'Donnell: Let me put it this
way. We have virtually record employment levels. Also we have
reduced unemployment quite dramatically, and in particular we
have reduced long-term unemployment quite dramatically. Certainly
I think the challenge going forward, I would agree with you, given
unemployment has come down to really historically incredibly low
levels, is going to be around inactivity, going forward. Hence
DWP's five-year plan, hence all the work and the announcements
which have been made recently providing capacity benefit and about
pathways. Those pathways pilot projects are really successful;
there are increasing inflows back into work of newly-registered
people, quite dramatically, and that looks to be a policy that
is working very well. The idea is to expand that policy and that
will relate directly to your point by increasing employment rates.
Q85 Mr Cousins: The Department for Work
and Pensions in fact have accepted then that it is perverse to
say you are on course to achieving this objective when the information
to support being on course demonstrates a rising inactivity rate?
Mr Boateng: What we see is that
economic inactivity has increased slightly, from 7,732,000 to
7,920,400. Of course, I think it is worth bearing in mind that
does reflect an additional 263,000 students since 1997, and when
students are excluded there has been, in fact, overall, a fall
of some 74,000. You see then that the proportion of working age
not in employment has fallen from 27.6% to 25.6%. What we are
saying is that clearly we recognise the importance of reducing
economic inactivity, we have implemented comprehensive reforms
to extend employment opportunity to all and, this is the important
thing, we are working very closely with the DWP in achieving that
outcome. What I think is perhaps an equally interesting example,
although a more positive one, is what we have done on child poverty,
because that is a good example, it seems to me, of how we are
achieving change by working together, ourselves through tax and
benefit reform and the DWP through front-line delivery, and the
result there is very positive.
Q86 Mr Cousins: That is an interesting
one because that target, number 8, is the expression of Objective
VII, which is to promote a fair and efficient tax and benefits
system with incentives to work, save and invest. The target which
is the expression of that is precisely this very important issue
of reducing the number of children in low-income households. I
wonder if I could put it to you, Chief Secretary, that the way
Objective VII is expressed, particularly its last phrase, with
incentives to work, save and invest, means that automatically
any benefit with a savings cap or a savings test for eligibility
must be excluded from consideration under that objective, must
it not, because any benefit with a savings cap or a savings eligibility
before you can take it up is not consistent with incentives to
work, save and invest? Do you see the point I am making?
Mr Boateng: I can see the point
you are making but I am not sure I accept the case you are trying
to go to.
Mr O'Donnell: This is the nature
of tax-benefit systems, that you have to deal with this issue
of if you want there to be minimum standards, or whatever, you
have to have some way of tapering, once you start getting into
that world you have to make trade-offs between those two points
you have made. That is why I think, when you are talking about
these, we are talking about fairness but with incentives, and
this is not to say that this will not mean that you will have
to make some difficult trade-offs when you are sorting out tax
policy.
Q87 Mr Cousins: Let me put the point
to you another way. If Objective VII had just read promote a fair
and efficient tax and benefits system, that would be one thing,
but by adding in the phrase with incentives to work, save and
invest, virtually the whole range of benefits which affect older
people are ruled out and cannot be included or tested by that
particular objective, can they?
Mr O'Donnell: No, not at all,
because some of the things you are trying to do with older people
is give them incentives, for example, to work longer, so you have
got changes to pension regimes, for example, which can have implications
for that.
Mr Boateng: Which contribute to
a fair and efficient tax system.
Q88 Mr Cousins: You could not test pension
credit against that, could you? You could not test council tax
benefit against that, could you? Council tax benefit has a savings
eligibility test, pension credit has a savings incomes cap, so
they would be excluded?
Mr Boateng: No, because it is
certainly fairer than the situation which existed before. That
is the whole basis upon which one makes the appeal to pensioners.
Q89 Mr Cousins: These targets, which
express these broad objectives, are shared with the Department
for Work and Pensions. Does the Department for Work and Pensions
have an input into this?
Mr Boateng: Yes; very much so.
Q90 Mr Cousins: Do they ever comment
on the actual design of the benefits and the schemes and how it
affects the target?
Mr Boateng: Very much so.
Q91 Mr Cousins: How have they been changed
as a result?
Mr Boateng: The whole process
is one which has officials and Ministers talking together to arrive
at a common place and to seek to reconcile, to deliver, on the
sorts of trade-offs which Gus O'Donnell has outlined. We have
a common objective, we approach it in different ways because of
our specific responsibilities, but we are obliged to work together.
That I think is the great benefit of shared targets.
Mr O'Donnell: If you look at the
papers that we have released at Budgets and PBRs, I think you
will find a very large number of joint DWP-Treasury papers on
all of these issues.
Q92 Mr Cousins: Yes, but we have not
got the papers which actually show the iterative process by which
the targets are formed?
Mr Boateng: No.
Q93 Mr Cousins: Finally, I wonder if
I could ask you to look at the one which deals with regions, Target
6, to express Objective IV. It does seem to me, having looked
at it, you describe yourself as being on course to achieve a target
for which the performance measures as yet do not exist, which
is quite bold, and the statistical tests that are set out mean
that it will be impossible for a considerable period of time to
have the statistical basis of knowing whether the target is being
achieved. In your own guidance you say that performance measures
should be attributable, reliable and verifiable. This target is
not reliable, in the sense that we do not have yet even the performance
measures, and it will not be verifiable for, well you may still
be around, Mr O'Donnell, but I do not anticipate that I will be,
which is a shame really, given my interest in the topic. Do you
see the difficulty?
Mr O'Donnell: Given the increase
in longevity, I feel very confident that you will be around.
Q94 Mr Cousins: I meant around in a position
where I could ask these questions.
Mr O'Donnell: Ah; that is a political
correction. If I can, what you are talking about really behind
this is a lot of analysis done jointly, by ODPM, DTI and the Treasury.
Essentially we have got this issue, quite close to my heart, about
can we reduce the disparity between regional growth rates and
can we raise the overall performance of regions. When I started
my academic life back in Glasgow, I did some work on regional
economics. The biggest problem that we had was data and we still
have a problem with data. That is why we set up recently the Allsop
Report, which has started a whole process of trying to improve
regional statistics and the ONS recently have started publishing
more. In December they published gross value added data for 2003,
which give us some estimates of growth rates for particular regions
and can tell us whether these growth disparities are reducing
or not, and the good news is they are reducing. If you look at
the top three, in terms of gross value added per capita, they
grew at 3.6%, the richest three regions; if you take the bottom
six they grew at 5.4%. I admit there is a lag in the statistics
becoming available.
Q95 Mr Cousins: You do say, you see,
that this target will only be assessed over the economic cycle
and you tell us also that you will not be reporting progress against
these measures until 2006?
Mr O'Donnell: What I am telling
you is the numbers which have been released so far in annual numbers.
What we do not know, of course, is whether the fact of these regional
disparities coming together is a cyclical phenomenon such that
one area is growing faster than another, so, absolutely right,
and I am trying desperately not to claim too much. All I am saying
is that so far that seems to have been the way things have gone.
Yes, over a cycle we will be able to tell whether this is cyclically
sustainable or not.
Mr Boateng: We are doing work
in order to better understand what policies actually do work and
do make a difference, and I think that is a significance of the
work that the PSA project team is doing, supported by the consultancy
from Frontier Economics.
Q96 Mr Cousins: What is Frontier Economics?
Mr Boateng: It is a consultancy
firm.
Q97 Mr Cousins: It is a good name.
Mr Boateng: They conducted a wide-ranging
review of the scale and the causes of regional disparities in
growth rates because my understanding is that we still have a
way to go in fully understanding what lies behind it.
Q98 Chairman: It does seem to me, some
of these targets, and I can refer you to Annex C of your document,
if you look at some of the Spending Review 2004 targets, they
are still fairly vague. Terms like make sustainable improvements
and demonstrate progress, or demonstrate further progress. If
you look at Target 4, Chief Secretary, or Target 6, or Target
5, these could all be met by a change of one kicking four people
off incapacity benefit, for example? They are not number-specific,
are they?
Mr Boateng: What we do have in
relation to them, however, is some assistance in the PSA Technical
Note. If you take Target 6, success there is defined as where
the trend growth in every region should be at least 0.25% higher
by 2008 than over the baseline period, and the gap in the average
trend growth rates for the lagging six regions and the leading
three regions should have reduced by at least 0.25% by 2012, which
goes back to the point that Gus O'Donnell was making to Mr Cousins,
over the baseline period. We try, in the Technical Notes, I accept
the point that you make when you read them in that way, to give
them a greater degree of grip, of purchase.
Q99 Chairman: Yes, but that information
is not in this document?
Mr Boateng: No, and that may be
the fault.
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