Examination of Witnesses (Questions 140-159)
21 MARCH 2005
MR JON
CUNLIFFE, MR
DAVE RAMSDEN,
MR TONY
ORHNIAL, MS
SARAH MULLEN
AND MR
JOHN KINGMAN
Q140 Mr Mudie: Is it for both capital
and revenue—current and capital—or is it just capital?
Mr Cunliffe: No, they can use
it for capital and revenue.
Ms Mullen: The two are separate.
Q141 Mr Mudie: I understand the two are
separate, but there was a reference here to saying you allow capital
and I wondered if current was not, but carry on?
Mr Cunliffe: The pattern up to
now, as my colleague has said, has been for departments to under
spend. It has also been for departments to draw down EYF in the
winter and the spring and then to return it. That is on average.
Some departments have used it; others have cautiously drawn it
down.
Q142 Mr Mudie: I am sorry; Ms Mullen
was speaking about this. What do these initials stand for?
Mr Cunliffe: End Year flexibility.
I apologise.
Q143 Mr Mudie: So they draw it down?
Mr Cunliffe: They draw it down
because they think they are going to need because they do not
want to over spend, so they need to draw it down, and they are
allowed to draw it down—Parliament approves it—and
then it turns out that they do not need it, some of them, and
they pay it back again. Some do and some use it. As a way of stopping
those end-year surges in expenditure which are bad for value for
money and which the Treasury always used to get concerned about,
it has been quite a powerful way of doing that. This year, for
the first time, more of them on average, because it is an average,
have done that. As that situation started emerging . . .
Q144 Mr Mudie: What did you do?
Mr Cunliffe: We obviously started,
because one gets reports in, we need to know where we are at the
end of the year, so if the situation was going to be different
to previous years, we obviously wanted to know what their plans
were, not just what their draw down was because you can see that
in the parliamentary draw down, but how many of them are going
to return it and how many of them are going to spend it. There
was a lot of discussion with departments about, "This year
are you going to spend it?", and in the end the sum of that
was that some departments said yes.
Q145 Mr Mudie: Is that the context of
the discussions? Is the context of the discussions, "Are
you going to spend it?" with heavy overtones that, "If
you are, we do not want you to spend it"?
Mr Cunliffe: By the time these
end-year discussions took place, if they needed it they had to
spend it: because had they not spent it, had they not drawn it
down—and they are entitled to draw it down and spend it—they
would have over spent. So there was no sense that you cannot spend
it.
Q146 Mr Mudie: Mr Cunliffe, thanks to
the technical brilliance of our Chairman, we know that this end
of year spending—current spending—is something in
the region of £9 billion. Can you afford to have all £9
billion drawn down? You must impose some limits on them, must
you not?
Mr Cunliffe: The stock is about
£8 or £9 billion, I think.
Ms Mullen: At the beginning of
2004-05 the stock was £8.8, I believe. We obviously will
not know how much of that stock has been used, but—
Q147 Mr Mudie: That is big enough, though
is it not?
Ms Mullen: —historically
departments have added to the stock rather than taken away from
it, and we have no reason to believe that there will be significant
consumption of that stock.
Q148 Mr Mudie: No, but it is a pretty
recent policy introduced recently, not recently, but in this administration's
lifetime, of allowing end of year flexibility.
Mr Cunliffe: Yes.
Q149 Mr Mudie: So the 8.8 has been built
up over that period of time. Are you rationing the ability of
departments to spend that, and, if you say "No" to me,
what happens if departments decided to spend it in one splurge?
What would happen to the Golden Rule this year? Take the two questions
first. Are you rationing them per year?
Mr Cunliffe: We do not ration
them in the way they spend it. They have to explain what they
want to use it for, they have to come to Parliament, et cetera,
but it is not—
Q150 Mr Mudie: So if education, social
services and health came this year and had said, "Look, there
is an election coming. There is some question that other parties
might want to cut public expenditure. We had better get this money
spent", you would have just allowed them to spend that 8.8
billion in this financial year?
Mr Cunliffe: But actually they
do not do that. What they do is they have three-year expenditure
plans, they have programmes. This change went along with trying
to make the whole public expenditure system—
Q151 Mr Mudie: No, what you said is that
this 8.8 billion that is stored up, deferred spending, is extra
to the three-year public expenditure?
Mr Cunliffe: No.
Q152 Mr Mudie: So they cannot spend it?
Mr Cunliffe: No, I am not saying
that. What I am saying is that if you look at how departments
spend, what they spend on, they have programmes. They do not suddenly
run in at the end of the year and say, "We want to spend
X". But the other thing, which I think the system has proved
pretty much, is that—
Q153 Mr Mudie: Jon, when you say that,
though, take education, education will have built up in those
figures a good proportion of that 8.8 billion. If education wished
to spend that money in any given year, is it negotiated with you
or do they have the permission to spend it automatically?
Mr Cunliffe: As I said, they have
to discuss it with us; they have to discuss it with Parliament.
With all the incentives in the system, all of the history and
the evidence is that actually what they do is they use it sometimes
to smooth out, and this seems to me what they have done this year,
but they tend to accumulate it because they like to be in control,
and, if you like, it goes the other way but it builds up. This
hypothetical case of them all deciding in February that they all
have something they want to buy urgently I think is theoretical,
but it is not real.
Q154 Mr Mudie: There is no truth in the
rumour that the Treasury are stopping departments such as defence
spending some of this brass to keep the expenditure level down?
Ms Mullen: No.
Q155 Mr Mudie: That is reassuring. There
is a reference in here to some of this money moving from health's
DEL to the AME for foundation hospitals. What is this all about?
Why are you raiding the mainstream budget for these foundation
hospitals?
Ms Mullen: I do not think the
change has any impact on the fiscal aggregates. It is just a classification
change, I understand.
Q156 Mr Mudie: Could you give us a note
about that?
Ms Mullen: Yes.
Q157 Mr Mudie: There is some wording
in paragraph C63 that I would like to clear with you. Maybe it
is just written as it should be, but it says something like, "Net
payment to the EU were higher than expected payments in 2004-05,
being offset by lower expected payments in 2005-06". That
could read one way or it could read another way. The other way
is you have been hit by higher than expected payments this year
to the EU—. Let me put it a different way. Are you guaranteed
to get those back in the next financial year? Is that what this
means?
Mr Cunliffe: Pretty much. There
are two things happening here. One is the EU operate on a calendar
year basis, not a fiscal year basis, and they are able to call
forward some of the assessed contributions in the first quarter
of the year, which is the last quarter of our year, so there is
some calling forward, but that will be offset from the future.
The second thing that happens is that we pay out structural funds
and they pay us back. The time lag between those two things happening—
Q158 Mr Mudie: So the figures are not,
"We have spent more this year than we expected"?
Mr Cunliffe: No, it is the timing.
I think there is something in C77 also about this.
Q159 Mr Mudie: The last thing is under
spending by departments on capital. The last three years, our
brief says, you have under spent to the tune of £10 billion.
In view of the fact that public expenditure is very important
to make up the shortfall from previous years, what action are
you taking to do something about this and who are the major culprits?
Ms Mullen: Our estimated out-turn
in the Budget is now 18.3 billion. That figure is still 20% higher
in real terms than the figure for 2003-04 and I believe it is
the highest real figures for net investment going back some time
to the mid seventies. There are two things going on, I think,
firstly, central government. Historically we have been reasonably
good at meeting our forecast on central government. This year
we have been slightly less good, and the reason for that is that
we have not actually allocated the capital reserve. We also have
a capital reserve as well as a resource reserve and we have not
allocated that this year. That is the reason why central government
investment is coming below where we were expecting it to be at
the PBR, although I think it is still broadly in line with where
we were at the last budget. The other factor is local authorities
and public corporations which, of course, are subject to more
devolved decisions, and, in fact, they make their decisions on
the basis of what they think makes sense from a value for money
point of view. On the local authority side, apparently asset sales
have been financing quite a lot of their activity and net investment
is net of asset sales. That is why the public sector net investment
figures for local authorities is lower than expected, because
they have sold more of their assets than expected which has been
financing the activity.
Angela Eagle: How much extra has been
spent on pensioners since 1997 by government changes?
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