Further supplementary memorandum submitted
by HM Treasury
LOCALLY SET
PUBLIC-SECTOR
PAY
There are three major categories of public sector
pay decisions—Pay Review Body decisions, Local Government
decisions and the Civil Service Remit Process.
There are six Pay Review Bodies: the School
Teachers Review Body (STPR), Doctors' and Dentists' Review Body
(DDRB), Nurses and Other Health Professional Review Body (NOHPRB),
Senior Salaries Review Body (SSRB), Prison Service Pay Review
Body (PSPRB) and the Armed Forces Pay Review Body (AFPRB). These
Pay Review Bodies cover work forces that account for 40% of the
public sector paybill. Pay Review Bodies are independent organisations,
supported by the Office of Manpower Economics, which make recommendations
on headline increases in pay bands.
The Civil Service, which accounts for slightly
less than 10% of public sector workers, sets pay through the Remit
Process.
Much of the rest of the public sector paybill
is accounted for by Local Government. Pay decisions for Local
Government employees are influenced by Central Government through
the role of the Office of the Deputy Prime Minister. However,
pay negotiations take place between Local Government Employers
and unions so in practice central control is limited.
Other public sector organisations such as the
public corporations and the police have separate arrangements
for setting pay awards.
There are a variety of mechanisms for pay settling
in the public sector and consequently there are varying degrees
of central control. Centrally collated figures measuring the amount
of local pay are not available.
Since Budget 2003 a greater emphasis has been
placed on the delivery of regional and local pay variations in
pay structures and settlements. The terms of reference in remit
letters to the Pay Review Bodies (PRBs) have been modified to
require them to have regard to regional/local labour markets and
their effects on recruitment and retention. Departments responsible
for workforces covered by PRBs have also been required to provide
robust evidence on local and regional recruitment and retention
issues and make clear to PRBs how they expect pay to reflect these
different markets. Civil Service Remit guidance was also altered
after Budget 2003 to instruct Departments to fully consider local
pay. Local Government Pay and Workforce Strategies, directed at
Local Authorities, also began to incorporate local pay. The 2005
Strategy highlights the importance of considering local pay as
part of a general review of job and pay structures that all Local
Authorities are required to do by the 2004 pay agreement to address
equal pay risks. National and regional advice and pay market intelligence
has been made available to local authorities to help develop appropriate
pay structures.
PAY REVIEW
BODIES
Of the six Pay Review Body groups, all have
pay policies that implement regional pay variation with the exception
of the Armed Forces, a group for which policies on regional or
local pay would be inappropriate.
CIVIL SERVICE
All Civil Service departments, with the exemption
of the Department of Health and the Ministry of Defence, have
pay structures or allowance systems that allow for regional variation
to reflect local labour market pressures.
Following Budget 2003 HM Treasury Remit Guidance
was amended to stress that the "Civil Service needs to be
responsive to local needs and circumstances" and that it
is "expected that local pay arrangements will be fully incorporated
into the total pay plan".
One example of the implementation of regional
pay strategy inside the Civil Service is within the Department
of Work and Pensions (DWP). DWP operates Specified Location Pay
Zones, which have their own pay scales, to cover areas where recruitment
and retention difficulties are causing performance problems. DWP
now have 32 offices in Specified Location Pay Zones. Other regional
pay arrangements means DWP now has 4 different rates of pay in
difference locations - Inner London, Outer London, Specified Location
Pay Zones and National. Flexibility in DWP's local pay arrangements
also allows for recruitment and retention allowances to be paid
on top of base salaries.
Departmental efficiency savings to date
This information is available in departmental
Autumn Performance Reports that have been published and in forthcoming
Departmental Reports which all departments are required to publish
by April. Annual efficiency gains that have been released to date
by departments include:
— The Department of Health has made
£1.7 billion efficiency gains up to September 2005, over
25% of its 2007-08 target, including significant gains from better
admissions management and reduced drugs cost;
— Home Office has made total efficiency
gains worth £834 million, building on the £600 million
of gains reported at Budget 2005, including £300 million
from improvements in the police service; and
— Local authorities delivered more
than £750 million of efficiency gains in 2004-05, and are
expected to achieve annual efficiency gains of £1.9 billion
by the end of the year, exceeding their target of £1 billion.
Tax credits
During the hearing of 7 December the Committee
asked a number of questions relating to the measures announced
in the Pre-Budget Report to improve the operation of the tax credits
system. We undertook to give written answers to the two following
questions
Under what circumstances is there a right of appeal
against an overpayment?
The Tax Credit Office sends claimants a new
award notice wherever an in-year change of circumstances leads
to a revised tax credit award. Every award notice confirms that
the claimant has a right of appeal against the decision on entitlement.
If a family chooses not to appeal against a decision sent out
within the tax year they still have an opportunity to appeal when
they receive their final award notice at the end of the year.
Appeals must be made in writing either on form
TC623 or by letter and against a notice of decision that carries
appeal rights. An appeal must be made within 30 days of the notice
of decision to which the appeal relates (although there is provision
for the acceptance of late appeals if it is in the interests of
natural justice to do so).
All appeals can be settled by agreement (in
part or in total) in the same way as tax appeals. The claimant
has a 30 day window to say that they have re-considered the issue
and are not happy to settle by agreement.
If agreement cannot be reached the appeal is
heard before an Appeals Service tribunal (unlike tax appeals which
are heard before the General or Special Commissioners of Inland
Revenue). The TCO have published a detailed form (WTC/AP) giving
advice on how to appeal against a tax credits decision.
If either party is dissatisfied with the tribunal's
findings an appeal against this can be taken to the Social Security
Commissioner.
Claimants can only appeal the Tax Credits Office
decision on their entitlement. If they accept the decision about
that their entitlement is right, but dispute a decision to recover
an overpayment, there is no right of appeal but they should get
in touch with the Tax Credit Office straightaway. Any recovery
of the overpayment will be suspended whilst the Disputed Overpayments
Team review the case. They will consider a wide range of factors
in determining whether the overpayment was caused by official
error and whether it was reasonable for the claimant to have thought
they were being paid the correct amount. The overpayment will
be remitted if the Tax Credit Office find that this is the case.
If, after reviewing the case, a decision is
made that the overpayment should be recovered the claimant can
ask for a further review if they have any additional facts that
could influence the original decision. If a claimant is unhappy
that matters are not resolved to their satisfaction, and consequently
want to pursue the matter further, they are advised to contact
the Tax Credits Office.
The Paymaster General, in her statement of 26
May, confirmed that she had asked HMRC to review their Code of
Practice on overpayments (COP26). In addition, the Paymaster,
in her letter to the Ombudsman of 29 July (on www.ombudsman.org.uk),
said that the scope for adopting a statutory test will also be
considered as part of HMRC's review of COP 26. The Paymaster General
will make a statement in due course.
Q222 (7 December 2005) Ms. Keeble "Can
you explain how you looked at the practical working patterns of
the people claiming this and fitted the new design into their
work patterns? One of the real problems with the design of it
previously was it did not match with the practicalities of the
lives of people getting this."
The decision to move the renewal deadline to
the end of August was made with the understanding that this was
within school holiday time. It was considered that the change
was, on balance, better for families for two reasons. Firstly
evidence from the first two years of the system's operation shows
that the vast majority of families renew their awards well in
advance of the 31st August. Secondly it was thought that potential
inconvenience of a shorter deadline in the school holiday period
was outweighed by the impact the change would have in reducing
the length of time for which tax credit payments might be made
based on out-of-date information.
Claimants are encouraged to complete the renewals
process as soon as they have the information to hand that enables
them to do so. If families renew their claims swiftly HMRC are
able more quickly to ensure that they are receiving the right
amount of tax credits for their circumstances, thus reducing the
possibility of excess payments.
The longer that families are in receipt of provisional
payments at the start of the year, the longer some will be being
overpaid and the greater the impact on those families when payments
are eventually adjusted for the remainder of the year.
Renewals packs are issued from early April and
the majority of claimants who need to respond will have four months
in which to do so. The vast majority of claimants will have the
information they need to enable them to respond well before the
start of the summer holidays.
The change in the deadline will be advertised,
highlighted by intermediary organisations and clearly explained
in the renewals packs. We believe that this change will improve
the service they provide to claimants and will not have an adverse
impact on those families looking forward to their August holiday.
FUTURES CURVE FOR OIL PRICES AT BUDGET 2005
and PBR 2005
Source: International
Petroleum Exchange
FIGURES FOR CORE INFLATION, AS PLOTTED IN
BOX 2.3 ON P 21 OF PBR 2005
|
| Oil price in GBP per barrel
| Consumer Prices Index (CPI)
| CPI 12mth: CPI excluding energy & seasonal food SPECIAL AGGREGATES
|
|
| 2001M1 | 17.33
| 0.9 | 0.8
|
| 2001M2 | 18.97
| 0.8 | 0.7
|
| 2001M3 | 16.84
| 1 | 1
|
| 2001M4 | 17.87
| 1.1 | 1.1
|
| 2001M5 | 19.99
| 1.7 | 1.3
|
| 2001M6 | 19.88
| 1.7 | 1.5
|
| 2001M7 | 17.36
| 1.4 | 1.6
|
| 2001M8 | 17.92
| 1.8 | 1.9
|
| 2001M9 | 17.56
| 1.3 | 1.5
|
| 2001M10 | 14.05
| 1.2 | 1.3
|
| 2001M11 | 13.21
| 0.8 | 1.3
|
| 2001M12 | 12.94
| 1 | 1.5
|
| 2002M1 | 13.60
| 1.6 | 1.7
|
| 2002M2 | 14.34
| 1.5 | 1.6
|
| 2002M3 | 16.67
| 1.5 | 1.5
|
| 2002M4 | 17.82
| 1.3 | 1.3
|
| 2002M5 | 17.41
| 0.8 | 1.2
|
| 2002M6 | 16.27
| 0.6 | 1.2
|
| 2002M7 | 16.59
| 1.1 | 1.5
|
| 2002M8 | 17.40
| 1 | 1.2
|
| 2002M9 | 18.27
| 1 | 1.2
|
| 2002M10 | 17.69
| 1.4 | 1.5
|
| 2002M11 | 15.48
| 1.6 | 1.5
|
| 2002M12 | 17.94
| 1.7 | 1.6
|
| 2003M1 | 19.35
| 1.4 | 1.4
|
| 2003M2 | 20.40
| 1.6 | 1.5
|
| 2003M3 | 19.13
| 1.6 | 1.4
|
| 2003M4 | 15.89
| 1.5 | 1.5
|
| 2003M5 | 15.88
| 1.2 | 1.2
|
| 2003M6 | 16.63
| 1.1 | 1
|
| 2003M7 | 17.55
| 1.3 | 1.3
|
| 2003M8 | 18.73
| 1.4 | 1.3
|
| 2003M9 | 16.78
| 1.4 | 1.3
|
| 2003M10 | 17.62
| 1.4 | 1.3
|
| 2003M11 | 17.10
| 1.3 | 1.2
|
| 2003M12 | 17.10
| 1.3 | 1.1
|
| 2004M1 | 17.15
| 1.4 | 1.3
|
| 2004M2 | 16.50
| 1.3 | 1.3
|
| 2004M3 | 18.49
| 1.1 | 1.1
|
| 2004M4 | 18.54
| 1.2 | 1.1
|
| 2004M5 | 21.09
| 1.5 | 1.3
|
| 2004M6 | 19.29
| 1.6 | 1.4
|
| 2004M7 | 20.71
| 1.4 | 1.2
|
| 2004M8 | 23.42
| 1.3 | 1.1
|
| 2004M9 | 24.13
| 1.1 | 0.9
|
| 2004M10 | 27.57
| 1.2 | 0.9
|
| 2004M11 | 23.18
| 1.5 | 1
|
| 2004M12 | 20.54
| 1.6 | 1.3
|
| 2005M1 | 23.60
| 1.6 | 1.3
|
| 2005M2 | 23.93
| 1.6 | 1.2
|
| 2005M3 | 27.82
| 1.9 | 1.4
|
| 2005M4 | 27.04
| 1.9 | 1.4
|
| 2005M5 | 25.93
| 1.9 | 1.4
|
| 2005M6 | 29.53
| 2 | 1.5
|
| 2005M7 | 32.93
| 2.3 | 1.8
|
| 2005M8 | 35.86
| 2.4 | 1.8
|
| 2005M9 | 34.66
| 2.5 | 1.7
|
| 2005M10 | 33.07
| 2.3 | 1.6
|
|
Source: Ecowin, ONS.
Numbers underlying Chart A3 (page 189) in PBR 2005: The output
gap
Output gap is the difference between actual and trend output
(non-oil basis), expressed as a percentage of trend (ie output
gap = {actual output - trend output} / trend output).
|
| 1990Q1 | 3.47
|
| 1990Q2 | 3.01
|
| 1990Q3 | 1.60
|
| 1990Q4 | 0.46
|
| 1991Q1 | -0.39
|
| 1991Q2 | -1.11
|
| 1991Q3 | -1.98
|
| 1991Q4 | -2.53
|
| 1992Q1 | -2.69
|
| 1992Q2 | -3.19
|
| 1992Q3 | -3.35
|
| 1992Q4 | -3.56
|
| 1993Q1 | -3.26
|
| 1993Q2 | -3.33
|
| 1993Q3 | -3.12
|
| 1993Q4 | -3.07
|
| 1994Q1 | -2.41
|
| 1994Q2 | -1.70
|
| 1994Q3 | -1.03
|
| 1994Q4 | -0.71
|
| 1995Q1 | -1.11
|
| 1995Q2 | -1.07
|
| 1995Q3 | -1.08
|
| 1995Q4 | -0.87
|
| 1996Q1 | -0.72
|
| 1996Q2 | -1.15
|
| 1996Q3 | -0.93
|
| 1996Q4 | -0.06
|
| 1997Q1 | -0.03
|
| 1997Q2 | -0.08
|
| 1997Q3 | -0.13
|
| 1997Q4 | 0.25
|
| 1998Q1 | 0.22
|
| 1998Q2 | 0.08
|
| 1998Q3 | 0.36
|
| 1998Q4 | 0.48
|
| 1999Q1 | 0.16
|
| 1999Q2 | -0.03
|
| 1999Q3 | 0.10
|
| 1999Q4 | 0.59
|
| 2000Q1 | 1.23
|
| 2000Q2 | 1.24
|
| 2000Q3 | 1.39
|
| 2000Q4 | 1.08
|
| 2001Q1 | 1.02
|
| 2001Q2 | 0.51
|
| 2001Q3 | 0.00
|
| 2001Q4 | -0.21
|
| 2002Q1 | -0.43
|
| 2002Q2 | -0.81
|
| 2002Q3 | -0.61
|
| 2002Q4 | -1.01
|
| 2003Q1 | -0.98
|
| 2003Q2 | -1.09
|
| 2003Q3 | -0.72
|
| 2003Q4 | -0.36
|
| 2004Q1 | -0.03
|
| 2004Q2 | -0.06
|
| 2004Q3 | -0.39
|
| 2004Q4 | -0.57
|
| 2005Q1 | -0.98
|
| 2005Q2 | -1.19
|
| 2005Q3 | -1.31
|
|
Source: Actual output: non-oil GVA (Chained Volume
Measure)—Office for National Statistics—Series identifier:
UIZY.
The methodology used to compare Treasury forecasts with those
of the US Congressional Budget Office (Table 2.3 of the 2005 End
of year fiscal report)
Table 2.3 compares the accuracy of the Treasury's public
finance projections with those of the US Congressional Budget
Office (CBO), expressing the forecast differences as a percentage
of outturn receipts.
Table 2.3
ABSOLUTE AVERAGE DIFFERENCES BETWEEN FORECAST AND OUTTURN
|
| % of outturn revenues
|
|
| Year ahead
| 2 years ahead | 3 years ahead
| 4 years ahead | 5 years ahead
| 6 years ahead |
| USA, Congressional Budget Office | 3.0
| 6.0 | 9.3
| 11.0 | 12.1
| 13.5 |
| UK, HM Treasury | 2.9
| 4.1 | 4.9
| 6.8 | |
|
|
Note: Data for USA is from 1981 onwards (1982 excluded)
and refers to the primary balance. Data for UK is from 1970-71
onwards for one year forecasts, 1980-81 onwards for two year forecasts,
1980-81 onwards for three year forecasts, using forecasts from
the previous outturn as proxies between 1994 and 1997 and 1980-81
onwards excluding 1981-82 and 1983-84 and again using autumn proxies
between 1994 and 1997 for four year forecast, and refers to PSNB
or PSNCR.
Source: US data from The Uncertainty of Budget Projections:
A Discussion of Data and Methods, CBO February 2005 (http://www.cbo.gov/showdoc.cfm?index=6119&sequence=0).
In absolute terms, the forecast differences for the Treasury
and CBO are calculated as follows:
— Treasury: Actual PSNB (or PSNCR before 1998) minus
Projected PSNB/PSNCR
— CBO: (Actual revenues minus projected revenues)
minus (Actual non-discretionary outlays minus projected non-discretionary
outlays)
These raw forecasts differences are expressed in terms of
percentage of GDP and billions of dollars respectively. In order
to compare them, we need a common unit of measurement. Typically
in Chapter 2, differences are expressed in terms of a percentage
of GDP. However, the CBO projections cover only US federal government
activity while Treasury forecasts refer to the whole of the public
sector. Since 1981, US federal government revenues have averaged
18.4 per cent of GDP. Over the same period, UK public sector current
receipts have averaged 39.8 per cent of GDP. As such, a difference
of 1 per cent of GDP would represent approximately twice the degree
of inaccuracy for the CBO as for the Treasury. To correct for
this, the forecast differences are expressed as a percentage of
actual receipts.
16 January 2006
| 
