Examination of Witnesses (Questions 1
WEDNESDAY 16 NOVEMBER 2005
Q1 Chairman: Mr Macpherson, welcome
to the Sub-Committee. I congratulate you on your appointment as
Permanent Secretary and ask you to introduce your team formally,
Mr Macpherson: Thank you. From
my left: John Oughton, Chief Executive, Office of Government Commerce;
Jonathan Stephens, Managing Director, Public Services Directorate;
Mary Keegan is Managing Director of the Government Financial Management
Directorate, also Finance Director of the Treasury and Head of
the Government Accountancy Service; Sue Owen is also multi-tasking
and is standing in as Director of Operations while Samantha Beckett
is on maternity leave, and is also a Director in relation to our
Macroeconomic Policy and International Finance Directorate.
Q2 Chairman: In the departmental
reports, the basis for our session today, there is no summary
by the Chancellor or your predecessor or you of the Treasury performance
in 2004-05. How would you characterise it?
Mr Macpherson: I would characterise
it as a good performance. We are continuing to make good progress
on a broad front. The rate of growth continues to be encouraging;
employment is at a very high level; there is a high degree of
stability; indeed, the OECD recently described the British economy
as a paragon of stability. We have made progress on the international
front and we continue to make progress, working with other departments
on the public services; so it has been a good year. However, we
are always, obviously, aiming to improve.
Q3 Chairman: You have announced this
morning the appointment of a new Second Permanent Secretary. Can
you clear up the mystery of the departure of the previous Second
Permanent Secretary, Sir Nicholas Stern? What happened to him?
Mr Macpherson: I would be very
happy to describe what has happened there. You will recall just
before the summer the Chancellor announced a review of the economics
of climate change. Sir Nicholas Stern is leading that review.
Given that the review was clearly going to cut across government
as a whole, it was decided to make Sir Nicholas the Government
adviser on the economics of climate change and also of development,
following on from his highly successful contribution to the work
of the Africa Commission. In that context it has made sense for
Nick to be based in the Cabinet Office, reflecting his cross-governmental
role. However, he remains head of the Government's Economic Service
and a key member of the Treasury Board. He continues to be located
in the Treasury, although his climate change team is of the Cabinet
Office, so we continue to benefit from his advice.
Q4 Chairman: So he is still in the
Treasury, but not of itis that right?
Mr Macpherson: Yes. A good comparison
is the Prime Minister's Delivery Unit, which is also located in
the Treasury. Location alongside the Treasury can certainly facilitate
Q5 Chairman: Why was all this not
Mr Macpherson: It was publicly
announced; it was announced in a press release in October.
Q6 Chairman: You have not appointed
a new Second Permanent Secretary; you have simply re-badged John
Cunliffe as the Second Permanent Secretary. Does that mean that
you are counting the saving of the Second Permanent Secretary's
salary as an efficiency saving?
Mr Macpherson: Let me just be
clear about the status of Second Permanent Secretary. Over the
last 10 years the Treasury has had as many as five Second Permanent
Secretaries at one go as in 1997, and it has had as few as one;
so there is not some iron rule about how many Second Permanent
Secretaries you have. If you go back to the 1960s, not only did
the Treasury have two Permanent Secretaries, it had something
like five Second Permanent Secretaries and 20 Third Secretaries.
The reason why John Cunliffe was being made a Second Permanent
Secretary is to reflect the special nature of his job, where he
is representing the UK in a wide range of very important international
fora. He has an extremely heavy workload, and is responsible for
macroeconomic policy as well. One of his predecessors, Sir Nigel
Wicks, who was Second Permanent Secretary, only dealt with the
international side! Turning to efficiency, insofar as we have
fewer managing directors and second permanent secretaries, and
we are continuing to achieve a high-level output, then that must
result in an efficiency improvement.
Q7 Chairman: Turning to table 5 of
your report, we see quite a significant jump in your administration
costs, even including the setting-up of the Office of Government
Commerce and the higher running costs of the new Treasury building,
which have jumped from 96 million five years ago to 167 million
this year, which I make a 74% increase. On table 6A, which follows,
mysteriously there was a similar increase from 67 million six
years ago to 112 million, a 67% increase. How can you tell us
you are becoming more efficient if you are spending roughly twice
as much on yourselves as you were five years ago?
Mr Macpherson: There are a number
of issues here. The first most important issue is around the refurbishment
of the Treasury building. You will recall that this took place
round about 2001-02, and we could, I suppose, have knocked the
building down and built a new, cheaper one, which would probably
have cost less than refurbishment. We could have moved away from
that part of Whitehall. However, as with many office buildings
which are deemed to have architectural merit, that would all have
been quite difficult. English Heritage would not have liked it
if we had knocked it down and so on. Inevitably the cost of refurbishment
was more than the value of the building at the point when we occupied
it. One of the reasons for the lumpy increase in our spending
in that year was that difference between the cost of refurbishment
and the value of the building, which was based on London rents.
At the point we occupied it, London commercial rents were very
low. One of the reasons why our spending turned out to be lower
last year, in terms of the outturn in our resource accounts, than
the numbers in the departmental report was that rents rose and
therefore the value of the building rose, which gave rise to an
exceptional credit on our accounts.
Q8 Chairman: Can we cut through all
this mandarin prose? If it was 67 million five years ago and now
it is 112 million, what is the increase attributable to that which
is not attributable to the new building? Between 112 and 67, what
is not the new building?
Mr Macpherson: The main change
since 2000 was, in the run-up toI think the best way of
looking at this
Q9 Chairman: Can you not just answer
my question? If it is the new building, and it was 67 million
a year to run the Treasury and now it is 112 million, what is
the bit that is the new building? How much is the new building
adding to the burden?
Mr Macpherson: The key thing to
look at in table is the core underlying costs, which is the top
line. It shows an increase through the early part of this decade.
It may be helpful if I tried to explain that. I was going to say
that it relates to a decision to increase the numbers of people
in the Treasury round about 2000-01. Until that point we were
carrying quite a large number of vacancies. People were working
excessive hours. We took a decision to increase the number of
staff by around 140 in the early part of the decade. Since then,
obviously, we have also taken on board a significant transfer
of people from the Revenue and Customs
Q10 Chairman: That is a separate
line, with respect.
Mr Macpherson: No, that is
Q11 Chairman: It is not in the top
Mr Macpherson: Absolutely. I am
just trying to explain the context of the staff numbers. The fact
is that for the core Treasury the main driver of spending is people.
Q12 Chairman: Then you have got more
Mr Macpherson: As I say, in the
early part of the decade we increased the numbers of people working
in the department.
Q13 Chairman: My colleagues may pursue
that. Are you able to offer the Treasury Committee further news
on the date of the Pre-Budget Report?
Mr Macpherson: I think an announcement
on the date of that will be made very, very shortly.
Q14 Chairman: You will recall that
the Committee has recommended two months' notice, but that seems
to be only weeks away. You are not able to help me any further?
Mr Macpherson: I recognise that
it must be irritating, planning the work of the Committee but
not having a date. Equally, it would help to have a date in terms
of planning our work. Part of the problem through the end of this
year are issues around international meetings, G7 meetings, ECOFIN
meetings, some of which are changing, which means it has not been
possible to announce it yet. I am mindful of your recommendation,
and, as I say, I am optimistic that an announcement will be made
Q15 Chairman: Has the announcement
ever been as late as this?
Mr Macpherson: If you would find
it helpful, I would be happy to check when we have announced previous
PBRs and when they have taken place.
Q16 Peter Viggers: The setting of targets
is a central and increasing essential part of the Treasury's management
of the economy. It is stated that the Treasury encourages departments
to provide full and clear reporting against its public sector
agreement targets. What form does this encouragement take; how
do you encourage departments to report to you?
Mr Macpherson: We encourage them
to do it by creating a reporting framework. The most important
elements of that framework are departmental reports, which are
generally published in the spring, and autumn performance reports,
which are published towards the end of the year, which set out
in detail current performance against targets.
Q17 Peter Viggers: Did I understand
that to mean that the initiative for setting the targets comes
from the department itself, or is it something imposed by the
Mr Macpherson: Targets have to
be owned by departments. We would never seek to impose them. The
principle of good management is that people who are delivering
the relevant services understand the targets and buy into them,
and are motivated by the targets. We would not impose them, but,
inevitably, as part of the Spending Review process we are keen
to ensure that the taxpayer is getting something important and
concrete and ambitious in exchange for the resources that the
Treasury is putting in to services.
Mr Stephens: Targets are agreed
between the Treasury and the department and adopted collectively
by the Government as part of the Spending Review process. It is
a well-understood part of the process now that departments and
the Treasury agree targets.
Q18 Peter Viggers: When they report
on the meeting of targets, how does the Treasury monitor whether
the statement of meeting of targets is correct or not? Do you
have internal mechanisms to check the meeting of targets?
Mr Stephens: The primary responsibility
and accountability on reporting of targets is for the department
to do so. The data systems underlying targets are validated by
a process involving the NAO and Audit Commission. They have published
a useful report covering some of the data systems already, and
I gather that they are planning to publish a further one in due
course. Of course, a lot of the information that is reported on
is publicly-available statistics.
Q19 Peter Viggers: Local authorities'
targets are monitored and independently validated by the Audit
Commission, and Health Service targets are independently monitored
by the Healthcare Commission. Are there similar external monitors
for public sector?
Mr Stephens: The National Audit
Office and the Audit Commission are involved in validating the
underlying data systems, and earlier this year the National Audit
Office published a report covering, from memory, a number of Government
departments' data systems. A number of the performance indicators
used, not least reporting performance on Treasury targets on the
economy, are of course produced from national statistics information,
which has its own independent verification procedures.
1 Note by the Witness: The Government has undertaken
to give as much advance notice as possible of the date of the
Pre-Budget Report and of the Budget. The House of Commons received
18 days' notice of the date of the PBR in 2005. 13 days' notice
was given in 1998, 15 in 2000 and 12 in 2002. Back