Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



  Q20  Peter Viggers: The National Audit Office reported in March 2005 that in 20% of the PSA data systems departments are not collecting sufficient data for the targets to be accurately assessed. What action did you take on that?

  Mr Stephens: We worked with departments to produce a new set of targets as part of the 2004 Spending Review. We endeavoured to learn a number of the lessons that should have been learnt from the earlier set of targets, and in particular we ensured that early in the process, before the targets were agreed or set, there was an early engagement on the technical specification of the target. This enabled us, with the 2004 set of PSAs, to publish within a couple of weeks of the Spending Review pretty well a full set of technical notes, setting out the detailed technical specification of precisely in technical terms what the target meant, how it could be measured, the period it would be measured over, the data sources and how they would be validated, et cetera. I think the NAO recognised in its report that this represented a significant step forward on the previous approach, where a number of these technical issues had only been identified well after the targets were set, and in some cases had proved impossible to resolve. I think we have made significant progress in specification and technical understanding.

  Q21  Peter Viggers: In some areas meeting of targets is a matter of ticking boxes and does not promote efficiency at all—for example, in the National Health Service where patients have been left in ambulances rather than being taken out of the ambulances, because time starts running when they come out of the ambulance. This is a matter of fact. How do you monitor whether the targets are valuable in promoting efficiency?

  Mr Stephens: I think there has been an awful lot of valuable focus on the role that targets play in promoting efficiency and effectiveness. There have been a large number of studies. The Treasury contributed its own side of this area in the Budget 2004 document on devolved decision-making. Undoubtedly, there are important messages that we have learnt since the introduction of PSAs in 1998. For example, most targets are now outcome-focused. The input intermediate targets have been abolished, and that has enabled us to reduce markedly the numbers of targets, recognising that it is important to focus down the attention and effort. We have also learnt important lessons about the specification targets to avoid just this sort of perverse impact that you might be referring to. For example, on NHS waits, that has led us in the course of the Spending Review 2004 to develop a target that embraced the whole period from a patient coming in to the system to being treated and not splitting it up. We have improved the involvement and consultation with frontline deliverers. There have been significant lessons learned from our own experience from the independent external reports that have been done; and internationally, in terms of measurement of public services, performance management of public services, the UK is generally reckoned to be world-class in its system. That said, there are inevitably some dilemmas remaining. Do you go, for example, through a simple target that provides a high degree of focus but risk some perverse effects; or do you go for a more complex target that then becomes more difficult to monitor and follow through?

  Q22  Peter Viggers: Does this focus on targets and micro management sometimes miss the big picture? How do you measure, for instance, the fact that pensions are in crisis, or that means testing is now rather seriously eroding people's trust in savings?

  Mr Stephens: Targets are certainly not the be-all and end-all, nor do I think that in PSAs they amount to micro management. We have 110 PSAs across the whole of the public services—£250 billion of money, and that works out at about six or seven targets per department, which is not an unreasonable setting of national priorities for that amount of public money being spent. Indeed, the focus on target outcomes and a devolved responsibility around resources to deliver those, enable departments and public services to have a high degree of freedom on how to deliver that. I recognise too that as the system gets devolved out, you can have a multiplication of targets. That is one of the things we addressed in devolving decision-making in the Budget 04, and we took a number of steps to try and reduce that and to retain the focus on a few key national priorities.

  Q23  Peter Viggers: What are the sanctions if departments do not meet their targets?

  Mr Stephens: The key sanction is that the departments are publicly accountable. They are committed to this. Regular performance information is published, and as a matter of fact it is a matter of public accountability, including in this place for Ministers, as to whether or not they have met those targets.

  Mr Macpherson: I would also add that permanent secretarial pay is determined, amongst other things, by performance against targets. We have a strong incentive in ensuring that our departments deliver.

  Q24  Chairman: Has any permanent secretary's pay actually been affected?

  Mr Macpherson: Undoubtedly.

  Q25  Chairman: By the failure to deliver?

  Mr Macpherson: I am too new to this post to have seen a complete pay round, but my understanding is, yes.

  Mr Stephens: Can I say that "off course" does not automatically mean that a sanction is required; the first question is: "That is interesting; what has happened; what shall we do?" It may mean that some external event has changed, which then causes delivery plans to be changed.

  Q26  Chairman: And gets the Permanent Secretary off the hook! Is that right?

  Mr Stephens: Well . . .

  Q27  Mr Love: This is a rich seam but I think I will avoid it just at the moment! I want to carry on where Peter Viggers left off in relation to PSA targets, and the Treasury's own targets. Last February the then Chief Secretary to the Treasury, who has now gone off to South Africa, said that the Treasury was responsible for its own PSA targets. What arrangements are in place for peer review of the Treasury's targets?

  Mr Stephens: As I said, these are publicly set targets. In Treasury's case a high amount of information is published very readily—the main economic statistics are published monthly or even weekly. I would guess the performance of the economy is the single most scrutinised area of government. In addition, the Treasury Board, with its independent non-executive directors, regularly reviews performance against the Treasury targets.

  Q28  Mr Love: I am somewhat bemused by that answer. The Treasury prides itself on its tough approach to the targets it sets for other departments. Are we to assume that you are objective enough to set the same tough standards for yourself?

  Mr Macpherson: I think you can assume that. I should only add that this Committee should be holding us to account, and indeed does.

  Q29  Chairman: Does that mean you will dock your own pay?

  Mr Macpherson: I am accountable, amongst other things, to the Cabinet Secretary and Head of the Home Civil Service, Sir Gus O'Donnell, who will no doubt take a very dim view if, following his very excellent performance, Treasury performance against targets goes into freefall—but it will not.

  Mr Ruffley: Is that a guarantee?

  Q30  Mr Love: You are therefore telling us that the targets you set are sufficiently challenging. I will assume that that is the case. Let me turn to some of the targets we are talking about, specifically nos 5 and 6. I see words like "will reduce the persistent gaps"; "will define measures to improve performance"; "it will demonstrate progress". It seems rather nebulous, if I may say so, and I would ask you to comment on that; but going a little further, in your report on the Spending Review 2002 you indicated that both targets were "on course". Why wasn't a higher, more challenging, specific level of attainment included in your PSA targets for 2004?

  Mr Macpherson: First, these targets are I think very challenging. These are very fundamental issues which the Treasury is seeking to address, like the underlying rate of growth of the economy, productivity growth, child poverty, employment and so on. These are massively challenging objectives. In many ways the 2004 targets are moving the agenda on, so that whereas in 2002 the objective was, say, to reduce child poverty by a quarter by 2004-05, now we are seeking to halve it by the end of the decade. In other areas too we have adapted the target to reflect new circumstances. There are some areas like changing the composition of regional growth, in relation to which we are seeking to change trends that have gone on for 80 odd years. I just do not accept the premise that these targets are not challenging.

  Q31  Mr Love: But it is very difficult for an external judgment to be made. You are saying, taking your example of regional growth rates, that the target is to reduce the persisting gap. I fully accept the difficulty, and fully accept that the long-term trend is a theme in this area. However, do you not think that a more quantitative target would assist those who are looking at the performance of the Treasury to make a real judgment on whether the improvements are being made?

  Mr Macpherson: There are two issues here. One is whether the target is quantitative; to which the answer is that it very much is quantitative. If you look at the technical note that sets out the data around the PSA, it is very explicit and clear, and very demanding. There is that issue, but then there is the issue about how you monitor performance. You make a good point here: you get data on regional output once a year—the last data we have is from December last year—so what we need to do, and what we have been doing increasingly, is to develop proxy indicators such as the unemployment rate in the North-West, the performance at GCSE and so on, which would give us some intermediate measures that will allow us to monitor progress.

  Q32  Mr Love: Coming back to the final point, which I do not think you have addressed, you indicated in 2002 that you were making progress, and yet you did not set a more challenging target. If there is a quantitative arrangement, why have you not set more challenging targets for yourself at 2004? Presumably, we are asking the question looking into the future in the next Spending Review. Will you set yourself an even more challenging target for that? After all, if you take the child poverty issue that you started off with, plainly there are more challenging targets as we go forward. Whether the Government will deliver them is an issue that no doubt we will debate in the future.

  Mr Macpherson: There is a trade-off here, with all targets, between continuity and change. Having a target and then keeping it in the same form for more than five minutes helps you in managing the organisation because it is only over a period of years that these targets really take root in terms of how people approach the job. As you say, where you are making demonstrable progress it is important to make the target more ambitious. We do not want a situation where everybody achieves all their targets; that would suggest that—

  Q33  Mr Love: It would be good for permanent secretaries!

  Mr Macpherson: It would be, but somebody has to stand up against that, and the Treasury does. I think a system where everybody is achieving their targets probably has something wrong with it.

  Q34  Chairman: The Treasury target just says you have to demonstrate progress, and is not really a target.

  Mr Macpherson: I am willing to send you the relevant part of the technical note because there is a difference. We have to keep these targets to two sentences or so in terms of the high-level presentation; but underpinning that is some really hard data explaining what the process means. If you have time, Jonathan will read it out, but I am happy to send it to you.[2]

  Q35 Mr Love: The only thing I would worry about is that you mentioned earlier—and I have taken the point—that these targets are in areas that the media and other bodies are interested in as far as Government targets are concerned; yet many in the media would not look to the detail of the technical notes. Is it important that we make full publicity use of the value of the overall PSA targets to make sure we are getting our message across?

  Mr Macpherson: I am quite sure that everybody can work harder on the presentation. One of the issues about PSAs, which we were very keen to ensure when they were created, is that they should take root and become the currency of debate, particularly political debate but debate more generally. In a sense they are trying to encapsulate the issues that the citizens and taxpayers of this country care about. Anything we can do to get the presentation better to encourage that debate can only be a good thing.

  Q36  Mr Todd: While one can appreciate that the setting of targets is a political process, and that the focus on particular areas is one that politicians should make, the technical process of deciding whether that target produces meaningful information ought to be one that can be assessed objectively and, I would have to say, externally. What attempts have been made to ensure that there is an audit of the technical side of whether the targets that have been chosen are appropriate and meaningful? Proposals have been made by committees in the past that there should be such a step, either by the NAO or some other body. What approach have you taken on that?

  Mr Macpherson: It is fair to say that we have been quite receptive to people who have commented on target-setting. I remember the Public Affairs Select Committee produced a very thoughtful report on PSAs two or three years ago. There were two responses. One was to enter into a greater dialogue with so-called stakeholders about what you are trying to achieve, so that there is buy-in and understanding say from the police or from doctors; but the other thing at a more technical level is ensuring that through the NAO's audit of data systems we have credible, sensible data systems underpinning the targets. That was raised earlier. Clearly, the NAO has suggested that in certain areas the targets are falling short. One of the reasons why we wanted the NAO to make those kinds of suggestions was to seek to improve them.

  Mr Stephens: There is a process of technical scrutiny of the technical issues as targets are developed, before they are finally agreed. A number of outside experts are involved in that, including the NAO. It is not a formal audit at that stage, but their advice is available and effective.

  Q37  Mr Todd: For this to work, you have to make sure that firstly the data systems are in place that allow you to measure what you are doing. The NAO has criticised the absence of data systems in some areas, to measure what you are attempting to achieve. The second thing is to ask if that is the right thing to measure if the outcome that you are seeking is this one. Peter has made a reasonable point about precisely where you measure delivery of somebody into hospital or something of that kind. That is perfectly reasonable. There is a technical issue of what you should be measuring in this process. Should there not be a thorough external audit of those?

  Mr Stephens: I agree. I think those are very valid issues to look at. They are important lessons to have learned from the technical specification targets and they are formally addressed in validation of systems carried out by the NAO. It has been recognised by the NAO that this can point to a significant improvement in that area of technical specification, understanding the data systems underpinning targets. I would also say that sometimes you come across a dilemma in this area. You can sometimes have a very reliable source of information, which meets the criteria of being reliable and easy to measure, but may not be measuring quite the things you are wanting to impact. Then you face a bit of a choice—do we go with that, with an understood, well-validated measure; or do we try to create a new measure that more accurately reflects exactly what we are trying to reflect—but of course that new development can potentially carry new burdens with it? That is a genuine dilemma in target-setting.

  Q38  Mr Todd: The criticism I make is that that choice is internalised; you are making it, and although you suggested that there is an iterative process with a number of outside bodies making suggestions, it is undoubtedly the case that there is not a full external process of asking, "have they got this right; does it make sense to do it this way; have they got the data in place to deliver the information required?" Can I turn to the question about productivity, which is one of your targets—"productivity gap narrowing". Your chart, particularly figure 3.2 on page 23, shows the narrowing of the gap. To some extent I suppose it depends what time lines you choose to use on your graph as to how meaningful that is. One would suspect that if you extended that graph backwards by 20 years, say, you would see perhaps more meaningful information of change. How did you select a particular point to present that by?

  Mr Macpherson: We selected 1995 as a starting point because that was a year where, on the basis of macroeconomic analysis, the key countries seemed to be at broadly the same point in the economic cycle. Part of the problem with measuring productivity is that it is influenced by—

  Q39  Mr Todd: As we know, cycles are subject to some review as to quite where we sit in them, are they not?

  Mr Macpherson: It is always important to know where you are in the cycle, but it is fair to say that in terms of the UK, USA, France and Germany, 1995 is a sensible starting point.

2   The technical notes are available on HM Treasury's website, Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2005
Prepared 30 December 2005