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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 331 House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE TREASURY COMMITTEE
PERFORMANCE TARGETS AND MONITORING
Wednesday 9 February 2005 RT HON PAUL BOATENG MP, MR GUS O'DONNELL CB, MS MARY KEEGAN and MS SARAH MULLEN Evidence heard in Public Questions 1 - 104
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Treasury Committee (Treasury Sub-Committee) on Wednesday 9 February 2005 Members present Mr Michael Fallon, in the Chair Mr Nigel Beard Mr Jim Cousins Norman Lamb Mr John McFall Mr James Plaskitt ________________ Witnesses: Rt Hon Paul Boateng, a Member of the House, Chief Secretary, Mr Gus O'Donnell CB, Permanent Secretary, Ms Mary Keegan, Finance Director, and Ms Sarah Mullen, Director, Public Services Directorate, HM Treasury, examined. 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 would 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 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 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 better to 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, their 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 have now 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 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 specific 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 ten to eight. 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 eight more intensively then ten, it could easily be that you could get the same defence deterrents from eight as you could with ten. 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. Q20 Mr Plaskitt: I am sure I am not the only Member of Parliament who has been lobbied quite hard by teachers in my constituency who are concerned about the reform of the teachers' pension scheme. Minister, why is the teachers' pension scheme being reformed? Mr O'Donnell: We are looking across the whole of the broader public sector on pensions. Pensions were set at a time when life expectancy was very different so we are looking now at affordability across the public sector. You will have seen announcements about the Civil Service and moving from 60 to 65, and specific recommendations of changing, moving away from final salary schemes, which will benefit people who do very well in their last two or three years, towards averaging, which actually will help most people and will be overall a net benefit. There are some changes out there. We have to think about, and it is being negotiated area by area, and take account of, for example, what would be appropriate with the military, given the finances are different. For each of these pension schemes there is a discussion going on about what is the right way to do this, bearing in mind the question of ageing, which we should regard as a positive, and the question of how we get fairness between current taxpayers and future taxpayers, which is essentially what this is all about. Q21 Mr Plaskitt: That is interesting because, you see, being lobbied by teachers, obviously I spoke to the Department for Education and asked them for a full briefing on why the teachers' pension scheme is being reformed and it says what you have just said, happily for you. The one word which did not appear in the explanatory note from the Department for Education was that it was something to do with efficiency, it was instead to do with demographics, longevity, affordability of the scheme, all of which I understand. When we asked the Treasury to give us some examples of what counted as efficiency savings, for the purpose of this exercise, why did they offer up "reform the teachers' pension scheme"? What has it got to do with efficiency? Mr O'Donnell: The reasons I gave are fundamentally the reasons for it. It will result, quite possibly, in increases in efficiency as well. Q22 Mr Plaskitt: How? Mr O'Donnell: Having trained teachers for some time and they having got their experience, you are being able to retain them for longer. Mr Boateng: If you can arrive at a scheme which produces a high level of benefit, which forms part of a competitive reward package for teachers, and the scheme still provides the benefits which are sought in teacher recruitment and retention and maintains those benefits but at a lesser cost then I do not think it is unreasonable to argue that is an efficiency. That certainly is the approach which the Treasury has taken. Q23 Mr Plaskitt: Is it not a change in the nature of the pension scheme? What your note said was that it was reduced input for the same or better output, but for many teachers, looking at it, it looks like a change in their pension prospects? Mr O'Donnell: It is both, is it not, but it is giving them the opportunity to work longer, and not all of them will want to retire at 60. Q24 Mr Plaskitt: Do you suggest that I write back to the teachers in my constituency who are lobbying me about this and say the pension scheme is being reformed because it is in pursuit of efficiency? Mr O'Donnell: I think you should give them the answer I gave you first of all and add to that it is completely consistent with improving efficiency in public services. Q25 Chairman: It is consistent with it but not part of it, is that right? Mr O'Donnell: It is entirely consistent; that is all I can say. Q26 Mr Plaskitt: Was putting the teachers' pension scheme forward as an example of an efficiency entirely consistent with the guidance you have given departments on their Efficiency Technical Notes? Mr O'Donnell: It is certainly an example where what we are looking for is increases in output and using the same or lesser inputs. Certainly, if it results in that outcome, as we hope, then it is a perfectly valid example and in line with the guidance, I would say. Q27 Mr Plaskitt: Who wrote the Efficiency Technical Notes; were they written entirely within the Treasury? Mr O'Donnell: No. They are written by us in discussion with departments and then we talk to the NAO and the Audit Commission about measurability issues and at the end of the day we come out with Technical Notes. Q28 Mr Plaskitt: Who approved the guidance ultimately which has been given to departments on the Efficiency Technical Notes? Who signed it off and said "That's it; that's the Note"? Did you, Minister? Mr Boateng: The process is one in which the National Audit Office and the Audit Commission examine draft ETNs against every criterion. Gus has mentioned one of them. Q29 Mr Plaskitt: That is the process by which you got to the point where you had the Note, but then who signed it off and said "That's the draft; that's it, I approve it. It can go."? Somebody must have done that. Ms Mullen: Are you talking about the Efficiency Technical Notes or the guidance? Q30 Mr Plaskitt: The Efficiency Technical Notes. Mr Boateng: They belong to each department. Q31 Mr Plaskitt: Who approved the text? Mr Boateng: This was what I was trying to explain, Mr Plaskitt. There is a process, and this is where the scrutiny panel works, and the scrutiny panel consists of the NAO, the Audit Commission and ourselves. They examine the draft ETN against agreed criteria, the measurement methods, the clarity of savings, the data quality, the service continuity, readability. They provide advice to departments. That occurred in and around September 2004. Subsequently, the departments publish their ETNs. The reason why we involve the NAO and the Audit Commission alongside ourselves in these discussions with departments is in order to arrive at a place in which we have a balanced view, the views of the NAO and the Audit Commission are understood and communicated to departments and then subsequently there is ownership of them by the departments. It is for the departments, having been through that process, to publish the ETNs because ownership is absolutely central to the process. Q32 Mr Plaskitt: When we took evidence on the Pre-Budget Report in December, the Chancellor told us that it was the Treasury who issued guidance to departments on their Efficiency Technical Notes. It has been put to us that the Treasury has issued some guidance notes to all the departments. Mr Boateng: Yes. Q33 Mr Plaskitt: Who has the ministerial responsibility for that guidance which went to the departments? Mr Boateng: I did. Q34 Mr Plaskitt: Do you intend to publish that guidance at any point? Mr Boateng: I do not see any reason why we should not publish that guidance and I am only too happy to make it available to you. Mr Plaskitt: Thank you. Q35 Mr Beard: When we took evidence on the Pre-Budget Report last year, the Chancellor told us that it was departments who were accountable for efficiency gains and for showing how these would be made and that individual efficiency proposals were not a matter for the Treasury to take a view on. We were told also that advice was provided by the National Audit Office and the Audit Commission on draft Efficiency Technical Notes via a scrutiny panel, which has just been mentioned, comprising the Office of Government Commerce and Treasury officials. What exactly was the role of the scrutiny panel? Mr Boateng: The role is to assist the various parties, but essentially the department, to arrive at a common understanding, a balanced view of what the NAO's and the Audit Commission's comments on these drafts were, so that can be taken into account by the departments in producing their final Efficiency Technical Note. It is an iterative process, it is one where there is discussion, with the need to ensure that those issues around clarity of savings, measurement methodology, data quality, service continuity and readability have all been thrashed out and we have arrived at a Note which is fit for purpose. They are not uniform documents, they will vary according to the role and responsibilities of the various departments. Q36 Mr Beard: We were told also that it was left to departments whether or not to take the scrutiny panel's advice into account in the published version of the notes. On how many occasions did departments not take any notice of the scrutiny panel's advice? Mr Boateng: I would hope that on every occasion they took some notice of it. At the end of the day, and this is the balance that we have to arrive at, and my colleagues will give you their take on this, what we must not allow to happen is that the departments take the view, "Well, these belong to somebody else, these have been imposed on us by A, B or C." They have to own them and they have to take responsibility for them, because they will be held to account for their failure or otherwise to deliver on these Efficiency Notes and the targets which they have. Q37 Mr Beard: My question really is, given that very sensible principle, how many exercised it and how many said, "Well, we think the advice that's given by the National Audit Office and the Audit Commission is well worth taking into account and we'll modify what we were going to do otherwise"? Ms Mullen: The process was such that most departments had a discussion with the National Audit Office and the Audit Commission about the advice they had and followed those through. I do not know the exact number but, as the Chief Secretary has said, the way we set up the framework is built very much on the PSA model where departments are responsible for publishing their Technical Notes. We took a decision to ensure that departments published those Notes by the end of October, which was only a number of months after they had been set their targets in the Spending Review. The reason we did that was because we knew from our PSA experience that getting a handle on measurement issues was important to do early in the process, but we did say that we expected those Efficiency Technical Notes to be developed over time, as departments' delivery programmes were developed. We have recognised also that there are some very difficult and complex issues that we are trying to tackle here, in terms of measurements, particularly of output and outcomes, and we will need to go back to that and we want to involve the NAO and the Audit Commission in that process. Mr Boateng: Indeed, some of the Efficiency Technical Notes make specific reference to the difficulties in relation to measurement, and it is right that they should because, in one sense, this is an area where we want to test what works better for some rather than others. That is why we are engaged in a process of discussion with the NAO and the Audit Commission about their future role in scrutinising ETNs. Indeed we would very much welcome the Committee's view, based on all the evidence that you have taken, as to what their role should be and how we might do this better. I think that is one of the contributions the Committee can make and we would welcome that. Q38 Mr Beard: Can I clarify what Ms Mullen has just said. Ms Mullen, I understood you to say that the National Audit Office and the Audit Commission had discussions directly with departments and they had mutual agreements? Ms Mullen: When we passed back the advice from the scrutiny panel to the departments, we invited departments, if they wanted to, to follow up with the NAO and the Audit Commission, and I believe a number of departments did that. Q39 Norman Lamb: So they all see the advice from NAO and the Audit Commission? Ms Mullen: Yes. The departments see all the advice. Q40 Mr Beard: What puzzles me in this is, if that is the case, and you owned up to the NAO and the Audit Commission having discussions with the department, why have the middle-men, why did they not go straight to the department anyway? What was the role of the scrutiny panel? Ms Mullen: The role of the scrutiny panel was to make sure that we understood the comments that the NAO and the Audit Commission were making. The Treasury and the efficiency team, who were also part of the scrutiny panel, would have their own comments too, and we wanted to present one, consolidated, consistent set of comments to the department. Q41 Chairman: How then did we end up with the situation in October whereby the Department for Education Efficiency Technical Notes were 55 pages long and the Home Office one was only three pages long? If we have had all this process and this thoroughness of Gershon and the 2004 Spending Review, how did you sign off something from the Home Office which was just three pages long? Ms Mullen: We did not sign off the Efficiency Technical Notes, they are for departments. Mr Boateng: They belong to the departments. It is a tool for them. Mr O'Donnell: Absolutely, it is a Home Office document. Q42 Chairman: When we asked the Chancellor this, in evidence on the Pre-Budget Report, he said it was all evolving and he was taking note, and so on. Have you given the Home Office a rocket? Mr O'Donnell: It is evolving and work is underway in terms of trying to improve in all areas, I can assure you. Chairman: So that is a yes. Q43 Mr Beard: Could we go back to this question of what the role of the scrutiny panel was because, if the National Audit Office and the Audit Commission were producing the bones of this, can you give us an example of what the scrutiny panel, with the Office of Government Commerce and Treasury officials, added to the process? Mr O'Donnell: When you have got these panels what you are doing, basically, is trying to come up with sensible measures of public sector outputs. This is a specific example of a bigger, broader issue which Tony Atkinson was looking at in his bigger report. You are coming up with ways in which you can measure efficiency changes, so you are trying to validate changes in inputs and outputs, which intrinsically are difficult to look at. If you take the Atkinson one on education, for example, the question of whether it should be numbers of pupils or attendance numbers, a very specific point which comes out in Atkinson. When you are doing the ETNs you have got the NAO coming at this with their specific hat on, but you have got the Audit Commission with their experience of local authorities giving another view, and you have got the Treasury and the OGC, all having different views. The point of bringing them all together is so that the department can ensure they are not being told contradictory things and we can sort that out and come to considered advice. Then they can go away and with their responsibility publish their Technical Note, which we hope will get better through time, the ETNs. Q44 Mr Beard: Does not this process jeopardise the independence of the National Audit Office and Audit Commission, and that is what they are there for? They are there scrutinising these things because they are independent and by putting them into this circus you are bringing their independence into question, surely? Mr Boateng: That would be utterly counterproductive because what they bring to the table, literally, in terms of the panel meeting, is that very independence. Our presence, as the Treasury, and the presence there of the efficiency team with the department is to make sure that we draw on their input, arrive collectively at a clear understanding of what it is that they are saying, so that there is no misunderstanding about the advice which has been given to the department and we are all clear about the extent to which it has or has not been taken. It goes back to the point that you made at the very outset, Chairman. Mr O'Donnell: It is in the very nature of precisely what modern audit is all about. When I talk to Sir John Bourn about the NAO's role and James Strachan about the Audit Commission, it is very much about getting involved in the process earlier, being able to improve things and not be a sort of ex post analyst that gives either a tick or a cross. It is about getting in early, helping sort out these difficult issues and helping departments improve their performance. Q45 Mr Beard: I understand that. My question is not about their role, my question is about what the scrutiny panel is doing on top of what is their role? Mr Boateng: What it is not doing, Mr Beard, is conducting a negotiation. It is about arriving at an understanding. It is about clarification. It is about identifying where the criteria need to be applied, identifying any difficulties and being clear as to the advice which then is given to the departments and it is then for the departments to act on them. Indeed, as you rightly point out, looking at them subsequently, there is a judgment to be made as to the extent to which they have or have not been particularly satisfactory in terms of that which is produced. Q46 Mr Beard: The Chancellor assured us that this is an evolving process and the National Audit Office and the Audit Commission would be asked to provide further advice. Will you ensure, as we recommended when we looked at this last, that this advice and each department's response to the advice are published? Mr Boateng: We do not have any current plans to publish in this way, partly because of the issues that Sarah has described. We have got some pretty difficult measurement issues here which will need to be handled and, as I say, there is explicit reference to those in a number of the ETNs. I do not see myself immediately, but obviously it is something that we can reflect on in the light of your own view, much benefit to be gained in publishing advice on early drafts of ETNs. Q47 Norman Lamb: Would it not provide a fantastic incentive for departments to get their act together? Mr Boateng: I think the problem, Mr Lamb, is that one wants to ensure that departments are encouraged and supported to engage. Q48 Norman Lamb: The Home Office is not. Mr Boateng: That they are not frightened off by the notion of being, at that early stage, when you have got early drafts, "named and shamed". That is my take on it but others may have a different view. Mr O'Donnell: I think it is better if we give them a chance and we have an iterative process, and when we come with something which we think is reasonable then is the time to move forward. Q49 Norman Lamb: So far, you have not been very successful with the Home Office. Do you think you might get to a time when you do name and shame? Mr O'Donnell: It will be a decision for Ministers, in the end. We would hope very much that we would get the improvement without having to go that far. Q50 Chairman: Just finishing off on the Efficiency Technical Notes, you told us at one point that the reason you involve the National Audit Office and the Audit Commission is to ensure confidence in and the credibility of the measures. If we never know whether their advice was followed, how can we be sure there is confidence or the measures are credible, if we do not know that the advice was followed or not? Mr O'Donnell: Certainly it will be the case that when those targets are finally there and we are trying to audit them it will be very clear, I think, whether we have made a good job of coming up with smart efficiency measures so that they are easily auditable. Q51 Chairman: We might still never know whether the advice of the National Audit Office was followed? Mr O'Donnell: It is one of those difficult questions, whether you are for ever publishing advice from people; you get into sort of gaming then as to whether people aim off from their advice. Ms Mullen: There is nothing to stop the NAO or the Audit Commission doing, as they do in a number of areas and have been doing, for example, on PSA data systems, an investigation and audit (EFM ?) study. Q52 Norman Lamb: Minister, how would you define an efficiency saving? Mr Boateng: I would define it in a way that is focused on the optimum use of a given amount of resource and the maximising of the outcome, in terms of the benefit from the application of that resource. It is reduced inputs for given outcomes. That is how I think I would define it. Q53 Norman Lamb: With that in mind, one of the OGC's efficiency proposals, according to your own Efficiency Technical Note, is to, and I quote: "generate additional income from services currently provided free." How does that fit within the definition you have just given? Mr Boateng: The way that I would approach that is to say - - - Q54 Norman Lamb: That it is not an efficiency saving? Mr Boateng: No. I would not say that because if you have an enhanced quality or quantity of service for the same level of inputs - - - Q55 Norman Lamb: You are just charging for something that you have not charged for in the past. How is that an efficiency saving? Mr O'Donnell: It is the whole process that charges and prices can actually lead to a more efficient allocation of resources. Q56 Norman Lamb: Oh, come on. Mr O'Donnell: Is that not the case? Q57 Norman Lamb: That is stretching things a bit, is it not? It is a perfectly legitimate thing to consider, I fully accept that, you know, "Let's see if we can get in some extra income by charging for this service," but it is not an efficiency saving? Mr O'Donnell: I would disagree, in the sense that by charging for services what you find is those that actually get no value out of the service will not use it, therefore you can economise there, not provide that service to people who are not prepared to pay for it and, by charging a reasonable price, you can generate income and ensure that service is provided to those who most value it. Q58 Mr Cousins: What about people who cannot afford it? Mr O'Donnell: That is certainly true and there are distributional questions that we will need to consider very carefully, whenever you move to charging, I agree. Q59 Norman Lamb: What specific activity is the Treasury undertaking to ensure that joint back office functions, which was one of the ways which Gershon identified for making efficiency savings, are delivered across government departments? Mr Boateng: I gave one example in response to an earlier question from the Chairman, in that we have now a cross-departmental Shared Services Forum, which is helping departments get best value out of human resources, out of finance functions, departments are given practical help in achieving that, I think the toolkits that have been made available to them, which were examples of best practice. Q60 Norman Lamb: But is this department actually doing a back office function? Mr Boateng: Let me give you an example. We are working with the ODPM and the Cabinet Office on developing a shared human resources function. Mr O'Donnell: I have been involved in this quite a lot. Basically, we are doing this because we think it is a good idea for us but also we want to do it as a pilot for relatively small departments in Whitehall to get together and provide shared services. At the start of this project the Cabinet Office, ODPM and the Treasury got together, we have looked at our HR functions and decided what it is we need to change so that we can have a common aspect to those. Q61 Norman Lamb: Do you mean one HR department covering several departments? Mr O'Donnell: It is not quite that. What it will mean is, basically, there will be some HR policies that are specific to departments, so you need within the Treasury, say, some, what we call, HR business partners who will be there to handle specific cases, if you have a disciplinary case within a department, for example. If there is a core aspect of HR policy, say, to do with appraisal, pay, all those sorts of things, basically that will be an information service which we hope will be available commonly to all three departments, so each department will have a residual core of people in HR but there will be one common service. Q62 Norman Lamb: So you actually establish a separate back office HR function which provides services to each of those departments? Mr O'Donnell: That back office function may well not be located in London. Q63 Norman Lamb: It could be outsourced? Mr O'Donnell: Indeed, in due course, once you have sorted out this commonality of the HR functions, or what you can, then you can move on to considering whether that is appropriate value for money or not. Q64 Norman Lamb: In the pilot you are talking about, where is that likely to be located? Mr O'Donnell: I am not sure that we have announced that yet, I am afraid. Mr Boateng: Do we take that as a bid, Mr Lamb? Norman Lamb: It is going to be outside Dover; in London and the South East. Q65 Mr Beard: Have you not just reinvented the Civil Service Department? Mr O'Donnell: No. Remember, this is just looking at this as a cost, there are three relatively small departments and the idea being can you have common services for those three; but it will be different when you are dealing with, say, MoD, which has military and different aspects. It is not one department for the whole set of Civil Service. That struck us as one of those massive projects which was very unlikely to succeed. We are starting with a pilot, relatively small, which actually is working already and by the work we have done so far we have been able to cut the size of the Treasury HR function already quite substantially. Ms Keegan: Can I add to that the work I am doing on financial management. John Oughton, who is the Chief Executive of the Office of Government Commerce, and I, with Ian Watmore, who is the new Head of e-Government, and Alice Perkins from the Cabinet Office looking after HR, the four of us are working together and with departments not only on improving effectiveness but also efficiency of the corporate services area and looking specifically at the shared services arena. That has given an example on HR. If I can look at examples on finance, we are looking at families of entities within departmental groups and encouraging the larger departmental groups to look at internal shared services. At the moment we are faced with a condition where some departmental groups use certain software in certain agencies for their accounting systems and we are looking at trying to bring a commonality of software and shared services which would have two effects. One is a saving of cost, because you would not have a finance function in every individual agency within a departmental group. The other is greater effectiveness and efficiency because the combined numbers that provide the departmental measurements of resource use will effectively be produced more quickly. So we are looking at the shared services arena not just between departments, as was suggested, but also in the bigger groupings inside departments to get better effectiveness but also contribute to the efficiency savings which Sir Peter Gershon identified in the corporate services area when he did his report. Q66 Norman Lamb: Is it right that you have identified the possibility of a shared finance function between Treasury, OGC and the Debt Management Office? Ms Keegan: Yes, indeed. We are well progressed on that and we hope to be up and running on that in the autumn of this year. Q67 Norman Lamb: Could it be extended to cover the Revenue Department, is that something which is being considered? Ms Keegan: I think Revenue Departments are rather enormous, compared with the size of the operations. Q68 Norman Lamb: In a way, it is a very limited proposal, is it not? Ms Keegan: It is. On the other hand, it will drive efficiency and those are some of the numbers identified in our own Efficiency Technical Note within the Treasury group. We are making sure that in our software choices for the Treasury group we look at other compatible departments and make sure we do not make software choices which would stop us doing shared services elsewhere in due course. Basically, there are only two sorts of software available for the finance market. We are opening possibilities whilst taking steps that we can do in a measured and careful manner to make sure we keep the processes under control. Mr O'Donnell: One obvious point relating to your earlier question about Revenue and Customs is clearly the fact of bringing them together. There is now a single Finance Director who is trying to do all of that, for those two very large departments. Q69 Norman Lamb: Just returning to the point about outsourcing, and you said that is an objective longer term, you sort out your back office function and then you look to see whether it is possible? I am not trying to put words into your mouth. Mr O'Donnell: Value for money. Q70 Norman Lamb: Do you see considerable scope for outsourcing, once you have got those functions properly sorted out? Is that a plan? Ms Keegan: My own view would be to take that carefully and cautiously. I think we ought to take all the savings we can ourselves and not outsource before we have driven the efficiencies in ourselves and I think there are various ways of doing outsourcing. Departments with very different activities, not accounting departments, if I can put it like that, could outsource potentially within Government but to a specialist financial function for transaction work. I think we need to explore all the options very carefully and that is exactly what this forum of the four of us is doing at the moment. Q71 Norman Lamb: Recognising the size and importance of the overall efficiency programme, we recommended in our report on the PBR that consolidated progress reports should be produced in the forthcoming Budget and Pre-Budget Reports. What conclusions have you reached on that, Minister? Mr Boateng: The Chancellor has said I think to the Committee, and it remains the case, that he will report on progress at Budget time. We will report on efficiency progress across Government as part of our reporting against PSA 9 and that will mean providing information in the HM Treasury departmental report and, of course, doing what we do now as a matter of course, which is providing regular updates on our PSA performance website. Obviously, in our next departmental report we will have to report against our own efficiency target, as will other departments. Q72 Norman Lamb: Will it become a regular feature, do you think, of Budgets and PBRs that monitoring and reporting on efficiency savings will feature? Mr O'Donnell was nodding. Mr Boateng: That is fine, but Mr O'Donnell is a permanent official, I am Chief Secretary and I am not about to commit the Chancellor, in any respect, to the content of the Budget after next. Q73 Norman Lamb: It is not a one-off thing, is it? Mr Boateng: He said to you that he will report on progress and efficiency at the Budget. This is an ongoing process. I would be surprised if you did not receive future reports on efficiency, if I can put it in that way. Q74 Mr Plaskitt: How many incidences of slippage have been reported to you by departments against their efficiency targets? Mr Boateng: We have not started yet, of course, in terms of the actual counting of the target. What we are witnessing actually is already considerable progress. I gave you an example in terms of our own target in relation to posts. We are a third of the way there already and we have not yet begun the formal timing of the target. Ms Mullen: The financial savings of efficiency targets are for the SR04 period, so they will start April 1 this year, so departments are in a planning phase at the moment, working very closely with the OGC efficiency team to make sure that they are ready to implement. Mr Boateng: We can give you some. If you look at local government, I think the expectation there is that we will be releasing some £30 million of resources this year through better use of e‑transactions, and the universal application of e‑procurement across local government is expected to deliver £1 billion of savings by the end of 2005, so people have not been standing still. The Department of Health has negotiated savings on medicines which will save the NHS £1 billion per year from 2005-06. There has been considerable saving already through better procurement deals and the use of e‑auctions, which I believe you have either taken some evidence about or certainly have referred to in previous hearings, and that has delivered £2 billion. Q75 Mr Plaskitt: That is fine. It is likely, however, in the future that there will be some reports of slippage against these objectives. What will happen if you receive a report of slippage? Mr O'Donnell: We will be working then very much with OGC. OGC and our spending teams and our efficiency teams will work with the departments to help them get back on track. Mr Boateng: I will tell you one thing that will certainly happen. It will be the subject of adverse comment at PSX, which the Chancellor chairs, there will certainly be adverse comment there. The reality too is that, in terms of Chief Secretary bilaterals with Secretaries of State, if there is slippage we will want to discuss why and what we can do to help. Q76 Mr Plaskitt: Will there be any consequences beyond adverse comment? Do you own any sanctions? Mr Boateng: I do not need to tell members of this Committee that Ministers know very well what they are expected to deliver. Permanent Secretaries know very well what their Ministers expect them to deliver and everyone is clear about the adverse reaction if one does not. Mr O'Donnell: Permanent Secretaries' objectives are about delivering, making sure the departments help deliver their PSA targets. Q77 Mr Plaskitt: I am just trying to get a flavour of what will happen when there is a problem with slippage? Mr Boateng: We will get alongside and help address it. Ms Mullen: Ultimately, departments have an incentive to deliver these efficiencies because it means they have more resources for their front-line services, so there is a carrot and a stick in here as well. Chairman: It is not clear about the stick. Q78 Mr Plaskitt: Does it go to the other extreme, that if there is slippage and there is not much progress on getting it reported you use the opposite and say "We might have to withdraw resources from your department. If you can't spend it efficiently, you can't have the money."? Mr Boateng: I give you my experience, for what it is worth. I have done two Spending Reviews now and my experience in the interim between the two Reviews is that Secretaries of State and officials have very much in mind the sorts of judgments that will be made of them and their departments in the course of the negotiating process of the Spending Round to come. If you are not able to satisfy your colleagues either within the Civil Service or as Ministers that you can spend your money wisely and effectively then you are not likely to make a very convincing case for more resources next time round. That is the reality. Mr O'Donnell: Exactly the same techniques that were used with the Prime Minister's Delivery Unit are being used by the Efficiency Units, so they will be doing regular reports to the Chancellor and Prime Minister, John Oughton will be doing that, so that process will be going forward as well when there is scrutiny at that level with Secretaries of State. Mr Boateng: It concentrates the mind wonderfully knowing that your failure is unlikely to be made clear. Q79 Mr Cousins: Some of the Treasury's own objectives are drawn very, very broadly, drawn so broadly, in fact, that they do not actually have targets associated with them. Is that something that you are going to put right? I am thinking here of Objective V, which refers to fair dealing in financial services, and Objective X, which refers to improving the environment. There are no targets for that; the Treasury objectives but without targets? Mr Boateng: I will make a general point about the nature of the objectives and then perhaps colleagues would like to come in on some of the specifics, and I would like to share with you a specific about the environment. The Treasury objectives are designed to cover the whole remit of the Treasury's activities. If they were very precise and narrow, and one understands the attraction of that, Mr Cousins, the downside would be that they would not reflect the full remit of what the Treasury does or would be so numerous that, in fact, they would not be particularly effective management and performance tools. One of the things we have been trying to do is get smarter about our targets and to have fewer of them so that they are that much more useful. As a policy-making department, as a department which contributes towards policy-making, we have a choice of having broad targets based on outcomes or narrow targets based on process, and we prefer not to hide behind the process. We accept that we do not control all the external factors which influence outcomes but we have to take into account, as you rightly said, Mr Cousins, the environment in terms of, for instance, the input that we make into something like the Energy Policy Review. I was acutely aware, as Financial Secretary making an input into that Review, about three and a bit years ago now, that we needed to have regard to environmental considerations. We had other considerations too and we came at it from the wider perspective that the Treasury has. I would say, in my experience, that Defra, for instance, would come in and make their contributions to that Energy Review with a much greater specificity around the environment. I would expect that, but it would be quite wrong for me simply to be concerned, as a Treasury Minister, with those issues of spending and the economics without actually having, as I was required to do, that wider remit around the environment. That was my interpretation, going about my job. 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 can say things like sort out a macroeconomic framework, a method of controlling inflation so inflation stays close to target. 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 the point you are getting on about 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 eight, 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 and all the rest of them, 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, ODPM, DTI and Treasury, and 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 are conducting 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. Q100 Chairman: Perhaps it could have been, so that people could see how you yourselves are actually going to measure it? Mr Boateng: They are published, of course, but, you are right, someone simply reading this would not necessarily make the reference over to the Technical Note. Q101 Chairman: Someone reading this might think you could meet these phrases by very minimal improvement, or am I being cynical about it? Mr Boateng: I think that is a fair point. Ms Mullen: That is why we introduced Technical Notes and published them, to allow that to happen. Mr Boateng: Looking at this, you would not know necessarily, if you were an ordinary lay reader, that Technical Notes had been produced to underpin it, so we should do something about that. Q102 Chairman: I think it would be useful if you could join all this up? Mr Boateng: Yes. Mr Cousins: If I could raise just one other point with you. Mr O'Donnell did make a statement about another matter here this afternoon and I appreciate very much the fact that he took this opportunity to do it. Clearly, it would not have been right for the Committee in any way to have pursued the point, nor are we in a position to, but I simply ask, as we have got both yourself and Mr O'Donnell here, that if the Committee did decide it was a matter that it wanted to explore, whether Mr O'Donnell would be happy to come back and speak to us about that again; if we did, and I am not saying that we would? Q103 Chairman: I think this is for the main Committee, but you can answer that? Mr O'Donnell: I am at the Committee's disposal, as ever, on any matter. Q104 Chairman: Chief Secretary, you have offered to publish, I think, without review or reference to the BBC, the guidelines on ETNs, so perhaps we could have those without further ado, which will be extremely useful? Mr Boateng: Yes, Chairman. Chairman: Can I thank you and your colleagues for attending this afternoon. Thank you very much. |