Select Committee on Treasury Second Report


3  Other issues

Efficiency savings and the Civil Service workforce

THE GERSHON EFFICIENCY PROGRAMME: REPORTING AND TRANSPARENCY

40. Alongside the 2004 Spending Review, the Government set out an efficiency programme for the financial years 2004-05, 2005-06, 2006-07 and 2007-08. Based on a review conducted by Sir Peter Gershon, the Government identified targets for annual savings amounting to £21.48 billion across central and local government, savings which were incorporated in the spending settlements announced in July 2004.[169] Under this programme, savings are expressed in annualised terms, so that a saving first achieved in one financial year will, if it is recurring, be reported in the annual total reported within the next financial year. At the time of the 2005 Pre-Budget Report, the Government reported total annual gains achieved by September of that year of £4.7 billion.[170] In the 2006 Budget, the Government reported total annual efficiency savings of £6.4 billion by the end of December 2005.[171] In the 2006 Pre-Budget Report, the Government reported total annual efficiency gains across central and local government of "£13.3 billion by the end of September 2006, more than halfway towards the target of over £21 billion by 2007-08".[172]

41. We have previously examined progress on the Gershon efficiency programme in our Reports on the 2005 Pre-Budget Report and on the 2006 Budget. On each occasion, we have argued that public and parliamentary confidence in the progress achieved would be enhanced by fuller and more transparent reporting by the Treasury.[173] Despite our recommendations, the quality and quantity of information in Red Books and Pre-Budget Reports about the efficiency programme has diminished over time, with only one paragraph in the 2006 Pre-Budget Report being devoted to an account of progress, compared with a much fuller account in the equivalent document the preceding year.[174] Professor Talbot criticised the quality of information available at the time of the 2006 Pre-Budget Report:

We seem to have an interesting law operating here, which is the higher the claimed savings the less information is published about the detail of where these savings have actually come from. It seems to me that the Government must have fairly simple savings by department, given that they are targeted by department, and in turn broken down by the six work streams that were announced in the Gershon Review … We are more or less in the dark about where this £13.3 billion has come from.[175]

42. We have previously argued that the provision of further detail in a single source would enhance confidence in the effectiveness of the central coordinating role played by the Office of Government Commerce.[176] However, in evidence to us, Treasury officials maintained that it was appropriate that departmental details should be reported on only by departments themselves, because those departments were accountable for ensuring delivery of the targets.[177] Following the completion of our oral evidence, most departments have published their Autumn Performance Reports for 2006, and Table 2 sets out the progress to the end of September 2006 as reported in those documents.

Table 2: Annual efficiency savings reported by Government departments to end of September 2006
Department Agreed efficiency target to end of 2007-08

£ million(1)

Reported progress to end September 2006

£ million(2)

Progress to end September 2006/ final target

%
Crown Prosecution Service
35
65
186
Communities & Local Government(3)
620
728
117
Home Office
1,970
1,954
99
Work and Pensions
960
874
91
Trade and Industry
380
304
80
HM Treasury
20
15
75
UK Trade & Investment
35
26
74
Constitutional Affairs
290
205
71
Transport
785
529
67
Northern Ireland Office
90
59
66
Culture, Media and Sport
260
159
61
Defence
2,830
1,684
60
International Development
310
187
60
Health
6,470
3,700
57
Environment, Food and Rural Affairs
610
342
56
Foreign and Commonwealth Office
120
60
50
HM Revenue & Customs
505
225
45
Cabinet Office
25
11(4)
44(4)
Education and Skills
4,350
1,213
28
Total efficiency savings
20,665(5)
12,340
60

Notes: (1) Figures for targets are rounded to nearest £5 million; (2) figures for progress are rounded to nearest £1 million; (3) the target for the Department for Communities and Local Government was originally set for the Office of the Deputy Prime Minister; (4) the reported savings for the Cabinet Office are an estimate based on illustrative information provided in the Cabinet Office Autumn Performance Report 2006; (5) the total target does not match that given in the Gershon Review because figures in column 2 for the Crown Prosecution Service, HM Revenue & Customs, HM Treasury and UK Trade & Investment are derived from 2006 Autumn Performance Reports, because certain smaller departments for which reported progress information is not readily available have been excluded and because local authority efficiency savings targets are excluded unless reported by central Government departments against their own targets.

Sources: Releasing resources to the front line: Independent Review of Public Sector Efficiency, Sir Peter Gershon CBE, July 2004, Table 4.1, p 30; Department for Education and Skills, Autumn Performance Report 2006, Cm 6992, p 58; Department of Health, Autumn Performance Report 2006, Cm 6985, p 19; Department for Transport Autumn Performance Report 2006, Cm 6976, p 40; Department for Communities and Local Government Autumn Performance Report 2006, p 56; Home Office Targets: Autumn Performance Report 2006, Cm 6995, p 11; Department for Constitutional Affairs Autumn Performance Report 2006, Cm 6973, p 25; Crown Prosecution Service Autumn Performance Report 2006, Cm 6982, p 11; Ministry of Defence Autumn Performance Report 2006, p 20; Foreign & Commonwealth Office Autumn Performance Report 206, p 38; Department for International Development 2006 Autumn Performance Report, Cm 6978, p 51; Department of Trade and Industry Autumn Performance Report 2006, p 57; Department for Environment, Food and Rural Affairs Autumn Performance Report 2006, p 69; DCMS Autumn Performance Report 2006, p 36; DWP Autumn Performance Report 2006, p 68; Northern Ireland Office Autumn Performance Report 2006, Cm 6991, p 11; HM Revenue & Customs Annual Report 2005-06 and Autumn Performance Report 2006, Cm 6983, p 54; HM Treasury Autumn Performance Report 2006, Cm 6990, p 26; Cabinet Office Autumn Performance Report 2006, Cm 7004, p 30; UK Trade & Investment Autumn Performance Report 2006, Cm 7001, p 9

43. The information provided in Table 2 is not comprehensive. First, around £2.3 billion of efficiency savings reported to the end of September 2006 are attributable to local government and much of this total is not included in totals reported by Government departments.[178] The difficulty in attributing local authority savings to individual departments' totals has been noted before by us, and was acknowledged by the Treasury.[179] Second, certain departments which contribute to efficiency totals are not obliged to publish Autumn Performance Reports and have not done so.[180] For example, the Chancellor of the Exchequer's departments together have an efficiency target of £550 million, but departments responsible for £25 million of that target do not publish Autumn Performance Reports. Third, Treasury guidance explicitly requires departments to provide a breakdown of progress towards the overall efficiency target up to the end of the second quarter of 2006-07, but the Cabinet Office Autumn Performance Report fails to comply with this requirement.[181] Such weaknesses continue despite past proposals for improvement in departmental efficiency reporting made by the House of Commons Committee Office Scrutiny Unit.[182]

44. In our Report on the 2006 Budget, we recommended that future Budgets and Pre-Budget Reports provide information on reported efficiency savings according to each Government-wide theme or "work stream" identified in the Gershon review.[183] The Government's response to that Report made no reference to that recommendation, and it has not been implemented in the 2006 Pre-Budget Report. On the day after the 2006 Pre-Budget Report was published, the Chief Secretary to the Treasury provided information about three "work streams", telling the House of Commons that, of the £13.3 billion-worth of savings reported, £5.5 billion came from procurement, £2.4 billion came from productive time, and £1.5 billion came from policy funding and regulation.[184] In oral evidence, Treasury officials did not respond to a request for a complete breakdown of the total of £13.3 billion by work stream, although we subsequently learned that such a breakdown had been published by the Treasury separately and shortly before the 2006 Pre-Budget Report.[185] Such a breakdown is important, as Professor Talbot demonstrated in his analysis, which noted that procurement had proved to be the most productive of the work streams, with 70% of the total target to April 2008 already achieved, while progress was less rapid in more labour-intensive areas.[186]

45. In February 2006, the National Audit Office published an initial report on the efficiency programme which indicated that many of the savings reported in the 2005 Pre-Budget were not yet verified.[187] Following the 2006 Budget, we recommended that future Budget and Pre-Budget documents provide an update on verification.[188] The 2006 Pre-Budget Report announced that the Office of Government Commerce had developed, in consultation with the National Audit Office, a framework and criteria against which reported efficiency gains could be assessed.[189] The new guidance establishes an objective for departments to classify gains as "preliminary", "interim" or "final".[190] The Department of Health helpfully uses the new classification in its 2006 Autumn Performance Report, indicating that, of its declared efficiency gains of £3,700 million to the end of September 2006, £2,459 million are final, £1,241 million are interim and none are classified as preliminary.[191]

46. Speaking in the House of Commons on 7 December 2006, the Chief Secretary to the Treasury noted "the importance of providing full information on the [Gershon efficiency] programme, because the more transparency there is, the better the chances of success."[192] We agree with the Chief Secretary to the Treasury that a high level of transparency in the Gershon efficiency programme would improve its chances of success. There is likely to be a correlation between the quality and effectiveness of reporting on the efficiency programme by the Treasury, the Office of Government Commerce and individual departments and the extent of parliamentary and public confidence in the true extent of the progress achieved. We are not persuaded by the Treasury's contention that departmental totals for reported efficiency gains can be issued only by departments themselves because they are responsible for delivery: departments are accountable for their expenditure, but the Treasury is still expected by Parliament to report on departmental expenditure performance. We recommend that future Budgets and Pre-Budget Reports provide a breakdown of reported efficiency gains by department.

47. We welcome the steps taken by the Office of Government Commerce, in consultation with the National Audit Office, to establish a new framework for assessing and reporting efficiency gains, but we continue to believe that the quality and consistency of reporting could be improved. To enhance transparency and enable effective scrutiny, we recommend that the Treasury require departments, in their departmental annual reports and Autumn Performance Reports in 2007 and subsequent years, to provide consistent and comprehensive information on progress against efficiency targets, including by "work stream" in each case, and to classify all reported gains as preliminary, interim or final. We further recommend that Budget and Pre-Budget Report documents provide a comprehensive breakdown of all reported gains by "work stream" and according to their classification as preliminary, interim or final.

PROGRESS TOWARDS THE GERSHON EFFICIENCY TARGETS

48. Notwithstanding the inadequacies of reporting, it is evident that progress has been made towards the Gershon efficiency targets. Where gains are reported on an annualised basis, assessment of progress in percentage terms may not be especially revealing. Nevertheless, the reported total of £13.3 billion annual efficiency gains represents around 62% of the total target for annual gains to be achieved by March 2008, and central Government departments taken together have reported achievement of about 60% of their overall annual target on the same basis. Table 2 shows that several departments are well-advanced in identifying and reporting efficiency savings. The Crown Prosecution Service was able to report savings of £65.2 million to the end of September 2006, compared with an original target of £34.1 million for the entire period to the end of March 2008.[193] The Department for Communities and Local Government has also already exceeded its original overall target, reporting gains of £727.5 million against an initial target of £620 million.[194] The Home Office claimed that it had, by the end of September 2006, already achieved 99% of its target up to the end of March 2008.[195]

49. Other departments reveal significantly slower progress towards their targets. The Department for Education and Skills was able to indicate progress of only 28% towards its final target, but remained confident that the target would be achieved, attributing lags to reporting systems which operated by academic year and to the time taken to gather data from frontline institutions.[196] HM Revenue & Customs reported savings of only £225 million by September 2006, compared with an overall target of £507 million to be achieved by the end of March 2008, although nearly two thirds of the reduction in staff planned for the current spending period had taken place.[197] The Department for Environment, Food and Rural Affairs admitted to having been assigned a "Red" assessment by the Office of Government Commerce in the most recent review of the Department's efficiency programme in November 2006, which we presume uses a traffic light system comparable to that employed for Gateway reviews. To ensure that there is sufficient contingency to meet any under-delivery from those programmes in the Department for Environment, Food and Rural Affairs which it initially expected to deliver the efficiency savings, additional efficiencies have been identified across the wider Department, particularly around procurement activity.[198]

50. Progress measured in numerical terms represents only part of the story. As we have noted before, one of the principles underlying the efficiency programme is that the savings identified must be delivered without affecting the quality of the service provided.[199] In February 2006, the National Audit Office concluded that "the biggest risk [to the efficiency programme] is that efficiency gains are accompanied by unintended falls in the quality of service delivery".[200] During our inquiry into the 2006 Budget, Treasury officials acknowledged that further work was needed to ensure that there were measures in place to verify that the quality of service was not adversely affected by efficiency measures.[201] Professor Talbot highlighted some of the challenges facing the Government in taking forward such work. For example, savings in procurement would require verification that cheaper products or services did not lead to higher failure rates. More generally, measures of public sector outputs were not sufficiently "fine-grained" to verify the effect of efficiency measures.[202] Anecdotal evidence is available which would support the contention that efficiency measures have led to a reduction in the quality of service. For example, the Institute of Chartered Accountants in England and Wales suggested to us that the efficiency programme in HM Revenue & Customs had led to a deterioration in the quality of service which HM Revenue & Customs provided to its customers.[203] When we asked Treasury officials whether the risk of efficiency savings leading to lower quality services had materialised, we were told:

The answer to that must be no, because the precautions we have taken have been to include measures of service quality as part of the assessment that is made when the Office of Government Commerce are assessing whether an efficiency saving has been made. So in order to know whether an efficiency saving has been made rather than a service cut been delivered, that will be clear.[204]

51. We are concerned that the Treasury and the Office of Government Commerce, in their oversight of and reporting on the Gershon efficiency programme, may not have made sufficient allowance for the risk that claimed efficiency savings might not be delivered without a reduction in the quality of service. Departments have every incentive to assert that reductions in service have been avoided in order that efficiency savings can be recorded and targets can be met. If the Government simply asserts that service quality has been maintained if efficiency savings are reported and then accepted by the Office of Government Commerce, there is a risk that the credibility of the overall efficiency programme might be undermined. We recommend that the Treasury and the Office of Government Commerce undertake research into the quality of measures in place within departments to provide assurance that efficiency savings do not lead to a reduction in the quality of services delivered or products provided, and publish the outcome of such research no later than the 2007 Pre-Budget Report.

WORKFORCE REDUCTIONS

52. As part of the 2004 Spending Review, Government departments were set targets for reductions in Civil Service numbers resulting from the Gershon efficiency programme. We have noted before that the targets relate to workforce reductions directly attributable to the programme and that delivery of those targets might not lead to an overall reduction in Civil Service numbers where other factors bring about increases.[205] When we last considered the progress of the programme, we noted that an added difficulty in assessing the reductions in the Civil Service workforce arose from the fact that departmental reports on headcount reductions were not subject to formal review and challenge by the Office of Government Commerce.[206] Since then, the Committee of Public Accounts has recommended that the Treasury "provide a reconciliation of claimed headcount reductions with data from the Office for National Statistics on changes in the overall size of the Civil Service".[207] No such reconciliation was provided in the 2006 Pre-Budget Report, which stated that there had been "strong progress" towards the overall gross target of 84,150 posts by April 2008, with 14,600 posts removed between December 2005 and the end of September 2006, resulting in gross reductions of nearly 55,000. The Government concluded that "the programme remains on course to meet its targets".[208] Table 3 provides further information about progress by individual departments, based on information in Autumn Performance Reports.

Table 3: Gross reductions in posts as a result of efficiency gains reported by Government Departments to end of September 2006
Department Agreed target to end of 2007-08

Number of posts(1)

Reported progress to end September 2006

Number of posts

Reported progress against final target

%
Trade and Industry
1,280
1,293
101
International Development
170
164
96
Health
720
679(2)
94(2)
UK Trade and Investment
200
185
93
HM Treasury
150
128
85
Education and Skills
1,960
1,645
84
Foreign and Commonwealth Office
310
256
83
Work and Pensions
40,000
27,004(3)
68
Defence(4)
15,000
9,965
66
HM Revenue & Customs
16,000
10,461
65
Transport
700
457(5)
65(5)
Communities & Local Government(6)
400
223
56
Constitutional Affairs
1,100
581
53
Home Office
2,700
1,234
46
Environment, Food and Rural Affairs
2,400
416
17
Culture, Media and Sport
30
3
10
Cabinet Office
150
-28
-19
Total efficiency savings
83,270(7)
54,666
66

Notes: (1) See notes to Releasing resources to the front line: Independent Review of Public Sector Efficiency, Sir Peter Gershon CBE, July 2004, Table 4.2, p 31 for further information about definitions and rounding; (2) reduction for Department of Health may include reductions arising from transfers to other NHS bodies not included within Gershon target; (3) the figure for the Department for Work and Pensions only includes posts re-deployed to customer-facing roles up to March 2006; (4) Ministry of Defence figures combine Civil Service and military posts in administrative and support functions; (5) the reported reductions in the Department for Transport include a number of vacancies which the Department is intending to fill; (6) the target for the Department for Communities and Local Government was originally set for the Office of the Deputy Prime Minister; (7) the total does not match that given in the Gershon Review because certain departments for which reported progress information is not readily available have been excluded.

Sources: Releasing resources to the front line: Independent Review of Public Sector Efficiency, Sir Peter Gershon CBE, July 2004, Table 4.2, p 31; Department for Education and Skills, Autumn Performance Report 2006, Cm 6992, p 60; Department of Health, Autumn Performance Report 2006, Cm 6985, p 23; Department for Transport Autumn Performance Report 2006, Cm 6976, p 39; Department for Communities and Local Government Autumn Performance Report 2006, p 57; Home Office Targets: Autumn Performance Report 2006, Cm 6995, p 11; Department for Constitutional Affairs Autumn Performance Report 2006, Cm 6973, p 25; Ministry of Defence Autumn Performance Report 2006, p 24; Foreign & Commonwealth Office Autumn Performance Report 206, p 38; Department for International Development 2006 Autumn Performance Report, Cm 6978, p 51; Department of Trade and Industry Autumn Performance Report 2006, p 58; Department for Environment, Food and Rural Affairs Autumn Performance Report 2006, p 69; DCMS Autumn Performance Report 2006, p 37; DWP Autumn Performance Report 2006, p 68; HM Revenue & Customs Annual Report 2005-06 and Autumn Performance Report 2006, Cm 6983, p 54; HM Treasury Autumn Performance Report 2006, Cm 6990, p 29; Cabinet Office Autumn Performance Report 2006, Cm 7004, p 30; UK Trade & Investment Autumn Performance Report 2006, Cm 7001, p 9

53. Table 3 does not provide a complete picture of reported gross post reductions. The total available from Autumn Performance Reports is slightly lower than the total of 54,963 to which Treasury officials referred in oral evidence.[209] This may be partly the result of reductions in smaller departments which do not produce Autumn Performance Reports. Also, the Northern Ireland Office Autumn Performance Report for 2006 does not include a figure for headcount reductions to September 2006.[210] The Department of Health figures may include headcount reductions which do not fall within the Gershon efficiency programme because that Department reports performance against its own Change Programme which includes transfers to other National Health Service bodies.[211] Autumn Performance Reports also indicate variations in departmental practice in measurement, including in the treatment of agency staff.[212] The Department for Transport reports a headcount reduction total which includes a number of vacancies that the Department is intending to fill, an approach which seems to run contrary to the spirit of the Gershon efficiency programme.[213]

54. Table 3 indicates that there are significant variations in departmental performance in relation to post reduction targets. The Department of Trade and Industry has already exceeded its Gershon target for workforce reductions up to April 2008.[214] The Department for Environment, Food and Rural Affairs, in contrast, reports only limited progress towards its target of a reduction of 2,400 in headcount by April 2008 and is now forecasting a reduction of only 1,100 by that time. The Department explains that this forecast is the result of the fact that it does not expect to secure post reductions in the Rural Payments Agency within the Spending Review period.[215] It is also notable that there are significant variations between departments in performance in relation to monetary efficiency targets as compared with performance in relation to workforce targets. Thus, the Home Office, which has already met 99% of its overall Gershon efficiency target in monetary terms, needs to secure a further workforce reduction of 1,466 in order to meet its headcount target.[216] The Confederation of British Industry has argued that the reported reductions in Civil Service numbers arising from the Gershon efficiency programme lack credibility because of variations in counting methodology between departments and because of the risk that reductions which lead to a deterioration in service will still be counted as "efficiencies".[217] We note that there are significant divergences between reported progress against overall efficiency targets by some departments and their progress on workforce reduction targets agreed as part of the same programme; for example, the Home Office claims to have very nearly met its overall efficiency target, but needs to secure a further workforce reduction of 1,466 in order to meet its headcount target. We support the recommendation of the Committee of Public Accounts that the Treasury provide a reconciliation of claimed headcount reductions arising from the Gershon efficiency programme with data from the Office for National Statistics on changes in the overall size of the Civil Service, and we recommend that such a reconciliation be included in future Budget and Pre-Budget Reports. We further recommend that the Office of Government Commerce undertake a formal review of future departmental returns on headcount reductions to satisfy itself, Parliament and the public that such returns are being reported on a consistent and comparable basis.

RELOCATION AND LOCAL PAY ARRANGEMENTS

55. As part of the efficiency reporting process, departments indicate the progress they have made towards the target established following the publication in March 2004 of a report by Sir Michael Lyons on public sector relocation. That report called for 20,000 Civil Service posts to be relocated away from London and the South East by 2010.[218] At the time of the 2005 Pre-Budget Report, the Government indicated that 6,300 posts had been relocated by the end of September 2005 and that over 7,800 posts would have been relocated by April 2006.[219] In the 2006 Pre-Budget Report, the Government stated that, "as at the end of September 2006, over 10,500 posts have been successfully relocated", including over 2,400 posts relocated to Wales, over 2,200 relocated to Yorkshire and the Humber and over 2,000 relocated to the North West.[220] The following day, during Treasury questions in the House of Commons, the Chancellor of the Exchequer referred to the fact that "10,179 posts have already been announced for relocation".[221] In oral evidence, Treasury officials confirmed that 10,574 posts had actually been moved outside London and the South East.[222]

56. Although the Civil Service relocation programme is reported on together with the wider efficiency programme, Professor Talbot argued that there was a potential tension between relocation and efficiency in the short-term. Relocation was costly, and would not necessarily bring savings without regional differentials in pay.[223] Treasury officials pointed to the wider benefits from relocation, including the benefit to local economies and the benefit of different labour market conditions. Treasury officials suggested that relocation might solve recruitment and retention difficulties, although both they and the Chancellor of the Exchequer re-stated the long-standing Treasury support for local variation in Civil Service pay reflecting local labour market conditions.[224] We recommend that, in reporting the outcome of the Comprehensive Spending Review, the Treasury report on the economic benefits of relocation to the receiving locations and on the extension of locally flexible pay in the public sector, and estimates the contribution of both factors to achieving Treasury targets on reducing the differences of Gross Value Added per head across regions and countries.

EFFICIENCY, VALUE FOR MONEY AND THE COMPREHENSIVE SPENDING REVIEW

57. When we last examined the Gershon efficiency programme, we drew attention to the potential to carry forward the benefits of the Gershon efficiency programme into the spending period to be covered by the Comprehensive Spending Review. We also emphasised the potential to learn some of the lessons from the limitations of the Gershon programme in the design of a programme for the period up to 2010-11.[225] In response, the Government confirmed that:

For the Comprehensive Spending Review, the Government will look to put in place an efficiency and value for money framework that builds on the success of the current programme while seeking to learn lessons and to make improvements where appropriate.[226]

58. The 2006 Pre-Budget Report contained announcements relevant to this new framework. The Chancellor of the Exchequer announced that, "for the years to 2011, I have reached agreement with Secretaries of State for net efficiency savings in their overall budgets of 3% a year; and to cut their administration budgets by 5% a year".[227] The Treasury also indicated that the focus of the value for money programme within the Comprehensive Spending Review would be on delivering net cashable savings, which differs from the Gershon programme in which savings have largely been calculated and reported in terms of gross savings.[228] We intend to report further on these announcements in our forthcoming Report on the Comprehensive Spending Review: emerging issues.

Expenditure on education

59. The overall scale of expenditure on education in the period from 2007-08 onwards will be set out in the Comprehensive Spending Review later in 2007. In advance of the outcome of that Review, the 2006 Pre-Budget Report contained two announcements relating to expenditure on education. First, the Chancellor of the Exchequer announced that payments direct to schools in 2007-08 would be increased: the typical primary school would receive £50,000, compared with £39,000 in 2006-07; the typical secondary school would receive £200,000, compared with £150,000 in 2006-07.[229] These increases mean that direct payments to schools will rise to an average of £200 per pupil for primary schools and £225 per pupil for secondary schools.[230] Second, the Chancellor of the Exchequer announced new totals for capital expenditure in education up to 2010-11, of £8.3 billion in 2007-08, £8.6 billion in 2008-09, £9.1 billion in 2009-10 and £10.2 billion in 2010-11.[231] The totals announced for the period from 2008-09 to 2010-11 mean that capital expenditure on education will see an annual average growth in real terms of 4.1% over that period.[232]

60. Mr Chote described the way in which capital expenditure increases in education had been announced as "opaque".[233] His interpretation was that all of the newly-announced capital expenditure in education for 2007-08 was for higher and further education, amounting to £0.1 billion in real terms, so that capital expenditure on schools would be in line with the previously-announced total.[234] Taking the latest announcements into account, he calculated that capital expenditure in education would increase by 4.3% a year in real terms in the period from 2007-08 to 2010-11, compared with an annual increase in real terms of 15.9% in the period from 1997-98 to 2007-08.[235] Mr Chote also suggested that, of the new totals for payments direct to schools set out in the 2006 Pre-Budget Report, only £20 per pupil arose from additional spending commitments in the Pre-Budget Report itself, as opposed to prior spending announcements.[236]

61. In oral evidence, Treasury officials indicated that the new education capital expenditure announced in the Pre-Budget Report was £250 million, all of which was for further education colleges.[237] This was later confirmed by the Chancellor of the Exchequer in a correction to his oral evidence, which had originally given a lower figure for capital expenditure in further education of £100 million.[238] However, in oral evidence, the Chancellor of the Exchequer pointed out that direct payments to schools might give rise to capital spending.[239] He also confirmed that around £20 per pupil of the increase in direct payments—around 10% of the totals referred to in the Pre-Budget Report statement—arose from new spending commitments announced in the Pre-Budget Report.[240] Looking forward to capital expenditure on schools up to 2010-11, the Chancellor of the Exchequer indicated that "the test of this is going to be the number of primary schools that are given new facilities and the number of secondary schools that are given new facilities".[241] Success will thus depend on the effective delivery of the Primary Capital Programme and of the Building Schools for the Future Programme. The Primary Capital Programme was announced in 2005 and aims to rebuild or refurbish at least half of all primary schools in 15 years from 2008-09, subject to future spending decisions. There are approximately 17,500 primary schools in England. The Government has already allocated £150 million to the programme in 2008-09 and £500 million in 2009-10 and 2010-11, "with investment expected to continue at least at this level into the future".[242] The Building Schools for the Future Programme was launched in February 2004 with the aim of rebuilding or refurbishing 3,100 out of 3,500 secondary schools over 15 years.[243] Over £2 billion a year, including PFI, is available for that Programme in the period up to 2007-08. The Treasury recognised that "there have been some delays to the early roll-out of the programme", but the Chancellor of the Exchequer indicated that it would move into "higher gear" in future years and cover more local authorities.[244] Given the central role assigned to education expenditure in the presentation of the 2006 Pre-Budget Report, we would have expected Treasury officials to be better prepared to provide information on the detail of education spending. We are seriously dissatisfied at the lateness and vagueness of the information supplied to the Committee subsequent to our oral evidence, which fails to meet the detailed questions put to both officials and the Chancellor of the Exchequer at the meeting. It would be premature to reach an assessment of the overall trend of public expenditure on education in advance of the announcement of the outcome of the Comprehensive Spending Review. However, the early announcement of capital spending plans for education up to 2010-11 provides a welcome opportunity for the path of expenditure on an annual basis up to 2010-11 on major capital programmes, including the Building Schools for the Future Programme, to be set out at an early stage. We recommend that such information be provided at the time of the announcement of the outcome of the Comprehensive Spending Review.

Child poverty

BACKGROUND

62. In delivering the 2006 Pre-Budget Report to the House, the Chancellor of the Exchequer underlined the Government's commitment to addressing child poverty:

To ensure that every child and young person has the best start in life … we must address the causes and roots of child poverty. In April [2007], child benefits paid to the poorest child, which were only £28 a week in 1997, will rise to £64 a week. These tax credits are the main vehicle that has ensured that, since 1997, 2 million children have been taken out of absolute poverty and almost 1 million children out of relative poverty.[245]

In its effort to address child poverty, and as part of the 2004 Spending Review, the Government set itself ambitious Public Service Agreement targets: between 1998-99 and 2010-11, to halve the number of children in relative low-income households; by 2020, to end child poverty. The targets are the joint responsibility of HM Treasury and the Department for Work and Pensions. The Government defines child poverty as the number of children living in households with equivalised household income—that is, income after deducting direct taxes and adding tax credits and benefit payments—below 60% of the median household income. The 2004 Spending Review targets followed on from an earlier target, set in the 2002 Spending Review, to reduce the number of children in low-income households by at least a quarter between 1998-99 and 2004-05. As we discussed in our Report on the 2006 Budget, although the Government took significant steps towards meeting this target, the target was not met.[246] Data published by the Department for Work and Pensions in March 2006 showed that, against the Government's Spending Review 2002 target, child poverty before housing costs fell by 22.6%, from 3.1 million to 2.4 million children, but by only 17% after housing costs, from 4.1 million to 3.4 million children.[247]

2006 PRE-BUDGET REPORT ANNOUNCEMENTS

63. The 2006 Pre-Budget Report announced that, from April 2009, "every mother-to-be will become eligible for child benefit from week 29 of their pregnancy".[248] Currently, parents cannot claim child benefit until a child is born. The Government explained its decision to extend child benefit in this way by reference to "the importance of a healthy diet in the final weeks of pregnancy and the additional costs faced by parents when their children are born".[249] According to the Pre-Budget Report, this extension in child benefit would mean that "women will be up to £200 better off by the birth of their first child and up to £130 better off at the birth of subsequent children", although there is no explanation of the basis on which these calculations were made.[250] The Pre-Budget Report did not set out the estimated cost of extending child benefit in this way from April 2009. Following the conclusion of our oral evidence sessions, the Government told us that the reason child benefit was not scheduled to be extended to pregnant women until April 2009 was that, in order to implement the extension, the Government would need to "make the necessary legislative changes, which will require primary legislation, and put in place the administrative arrangements, including changes to the IT system, to deliver the new entitlement".[251]

64. The 2006 Pre-Budget Report also confirmed the announcement made in that year's Budget that the Government would continue to increase the child element of the child tax credit at least in line with earnings until the end of this Parliament, in order to "provide a solid foundation for meeting the target to halve child poverty".[252] The Pre-Budget Report stated that, as a consequence of this earlier announcement, from April 2007 the child element of the child tax credit would increase by £80 to £1,845 a year, representing a total increase of £400 since the introduction of tax credits in April 2003.[253] The Pre-Budget Report also noted that, since Budget 2006, projected expenditure on the child and working tax credits had been revised upwards, due to "new information about 2005-06 show[ing] higher levels of entitlement than forecast, which resulted from a number of factors including lower earnings growth among low-income households".[254]

MEETING THE 2010-11 TARGET

65. We discussed with Mr Chote what more the Government needed to do in order to meet its 2010-11 child poverty reduction target. He commented that the Chancellor of the Exchequer had "not found very much extra money" in the Pre-Budget Report to contribute towards meeting the 2010-11 target.[255] Mr Chote argued that, in order to meet the 2010-11 target, the Government

would need to have gone from roughly about 2.7 million children, approximately 21%, in poverty on the new 2010 target definition in 2004-05 and it would need to drop by a million, that is to 1.7 million or approximately 13% in 2010-11 for the target to be met. [The Institute for Fiscal Studies and the Joseph Rowntree Foundation have] estimated that this would cost around £4.5 billion. If, for example, the Government were to … either put the money into the child element of the child tax credit, which is the most well targeted element, or, if you wish to minimise some of the means testing involved, to split it between payments on the child tax credit and additional child benefit payments for larger families, which tends to be poorer families … that would have cost about £4.5 billion. In the absence of spending that money we would expect the level of child poverty to rise from 2.7 million in 2004-05 to 2.8 million or thereabouts in 2010-11.[256]

Following the publication of the 2006 Pre-Budget Report, both the Child Poverty Action Group and One Parent Families called on the Government to invest a further £4 billion in order to achieve its 2010-11 target.[257] The Child Poverty Action Group commented that "the Chancellor of the Exchequer must do much more in next year's Budget and [the Comprehensive Spending Review], or the Government will fail to meet this important target".[258]

66. We asked Treasury officials what there was in the Pre-Budget Report that demonstrated how the Government intended to meet its 2010-11 target. Officials told us that the Government remained committed to achieving this target and that its strategy for doing so remained that set out in a strategy document published alongside the 2001 Pre-Budget Report.[259] When asked whether the Government expected the steps outlined in the strategy document to be sufficient to meet the 2010-11 target, officials responded that the Government "will take stock of progress over time because progress is affected by movements in earnings and there will be measures in future Pre-Budget Reports and Budgets".[260] We raised with the Chancellor of the Exchequer the question of how the Government intended to achieve its 2010-11 target of halving child poverty, given that, according to the Institute for Fiscal Studies, child poverty needs to fall by half as much again in the next six years as it has in the past six years if the target is to be reached.[261] The Chancellor of the Exchequer told us that he did not "necessarily accept" the estimate of the Institute for Fiscal Studies and the Joseph Rowntree Foundation that it would cost the Government £4.5 billion to reach its 2010-11 target, in part because he considered that that estimate did not take proper account of the contribution to be made by getting more people into work. He expanded on this point:

There is a whole series of ways that you can reduce child poverty. The most important way … is to get people back into work. If people are in work, earning a wage and able to contribute to their children's upbringing that is the best way by which you can reduce child poverty. We are determined, obviously, to get more people into work. We have had some success—2.5 million more in work—but there is more to be done. That will [be] the principal means by which—getting more people into work—we give families higher incomes.[262]

Nor did the Chancellor of the Exchequer appear to accept that the Government had not achieved its 2004-05 target. When we asked whether he accepted that the Government was not currently on course to achieve its 2010-11 target, he responded:

We actually met our previous target, which was for the first five years. So we met our previous target and we have got to do what we can to meet the next target but, as I say, there is a range of things that a government can do to meet these targets.[263]

MEASURES AVAILABLE FOR MEETING THE 2010-11 TARGET

67. The Government's decision to extend child benefit to pregnant women has been welcomed by child poverty campaigners. The Child Poverty Action Group described it as a "tremendous boost" for parents and considered that it would "help the poorest children [to] get a better start in life".[264] However, members of the Campaign to End Child Poverty, including the Child Poverty Action Group and Save the Children, called for the Chancellor of the Exchequer to go further and increase child benefit for younger children to the rate received for the older child, which they considered would lift 250,000 children out of poverty.[265] The Paymaster General, the Rt Hon Dawn Primarolo MP, has told the House of Commons that the cost of raising the value of child benefit for all children to the rate payable for the eldest child would be £1.7 billion in 2006-07, and estimated that taking such a step could lower child poverty by between 250,000 and 300,000 children.[266] When we sought the Chancellor of the Exchequer's opinion on the possible introduction of such a measure, he said only that "it is right that in this period, when we are looking at the issues related to child poverty, we look at all the representations and I cannot give you any particular new answer today".[267]

68. In addition to the Government's decision to extend child benefit to pregnant women, we also discussed with witnesses the most appropriate measures for delivering financial support to low-income families. Mr Chote described tax credits as "the most targeted measure", and thus as a more effective way of achieving the 2010-11 target than child benefit:

If you want to get to the target by 2010-11, if you were to do it not by tax credits but by child benefit, for example, then that is much more expensive because it is that much less well targeted.[268]

However, the effect of tax credits on achievement of the 2010-11 target was by no means certain:

Even the targeted measures are imperfect partly because of take-up and … you do not know from one year to the next what the trend in pre-tax and benefit earnings is going to be at different points in the income distribution. For example, if median earnings are growing particularly quickly then the hurdle to get over gets that much higher.[269]

We asked Treasury officials how confident the Government was that tax credits were the most effective mechanism for dealing with child poverty. Officials told us that, although tax credits were "one mechanism among a number", the Treasury had carried out "a great deal" of modelling which "specifically" compared the impact of increases in child benefit with increases in tax credits.[270] This modelling had shown that "raising the child element of tax credits is a more cost-effective way of raising the incomes of low income families than increases in child benefit".[271] In subsequent written evidence, the Government stated that "increases in both child benefit and the child element of the child tax credit can reduce the numbers of children living in poverty".[272] The Government referred to modelling showing that, if around one million more children were to have been lifted out of poverty before housing costs in 2005-06, by means of child benefit or tax credits, the Government would have needed either to increase child benefit by £15 per week in all rates of child benefit, at a cost of £10 billion in 2005-06, or to increase the child element of the child tax credit by £14 per week, at a cost of £5 billion.[273]

69. We asked the Chancellor of the Exchequer why he had chosen to deliver additional financial support to expectant mothers by means of child benefit, which is available to all families regardless of their income, rather than by means of tax credits. He considered that it was the universal nature of child benefit that made it the most appropriate means of delivering additional support. He accepted that child benefit did not target those on low incomes, but emphasised the importance of assisting

all mothers at this particular point in their lives … not simply the poorest mothers … There are issues about nutrition and about the health of the mother as well as issues about the health of the child … I felt in these circumstances it is right to help all mothers and not just some mothers … I believe in child benefit.[274]

He said that assistance for low-income families was the "second aspect" of the Government's policy, coming "on top of child benefit", in the form of the child tax credit.[275] The Chancellor of the Exchequer described the child tax credit as the "biggest single factor in reducing child poverty in this country in recent years, and the reason we met our first target and the reason we have reduced child poverty continuously".[276] Finally, he suggested that the Government was already "doing quite a lot" to help expectant mothers:

Support available for low-income families after 29 weeks includes a [Sure Start] maternity grant at £500 … There is a second element of our help as well, and that is support for diet and nutrition, where we provide between £6 and £12 a week for mothers for the nutrition of the mother-to-be and, then for the nutrition of the child in the years from 0 to 1. So for low-income families, in addition to child tax credit at a higher level, there is also available the maternity grant and, as I have just said, help in particular payments for nutritious food, including milk and other baby foods. So I think we are doing quite a lot to help mothers at this stage in their pregnancy and at the point at which a child is born …[277]

OUR CONCLUSIONS

70. The Chancellor of the Exchequer told us that the Government had "actually met" the first of its targets to reduce child poverty—namely, to reduce the number of children in low-income households by at least a quarter between 1998-99 and 2004-05. This conflicts with earlier statements by the Secretary of State for Work and Pensions, the Rt Hon John Hutton MP, acknowledging that the Government had not achieved this target. In March 2006, when the final figures showing the Government's performance against its 2004-05 targets were released, the Department for Work and Pensions described the 2004-05 target as "only narrowly missed before housing costs (BHC) are deducted, with a reduction of 23%. The reduction achieved AHC [after housing costs] was 17%."[278] The Secretary of State for Work and Pensions acknowledged that, despite the Government's achievements in reducing child poverty, "we have not quite reached our first target on child poverty …".[279] Given that the Government has previously accepted that, although significant steps were taken towards achieving the target, the target was not met, we expect the Chancellor of the Exchequer to explain the basis of his statement in the Government's response to this Report.

71. In the 2004 Spending Review, the Government set itself a second target of reducing child poverty by 50% between 1998-99 and 2010-11. There are some indications that the Government is not currently on course to achieve this target. The Institute for Fiscal Studies and the Joseph Rowntree Foundation have estimated that it would cost the Government £4.5 billion more than it is currently spending on reducing child poverty to achieve this target by means of the tax credits or child benefit systems. Shortly before the 2006 Budget, the Institute for Fiscal Studies commented that it was "already too late for the Government to influence child poverty rates in 2005-06 and 2006-07 by changing benefit and tax credit rates".[280] This meant that "a third of the next target period has in effect already elapsed—and we do not know if progress will have improved or worsened over this period".[281] When we took evidence from Treasury officials on the 2006 Budget, on 29 March 2006, officials could tell us only that it was "too early to say … exactly what other measures may be needed to reach the [2010-11] target".[282] We note also the mention in the 2006 Pre-Budget Report that the earnings of low-income households have grown less than the Government expected.[283] The Government's initiative to end child poverty is now focused on its second target—to reduce child poverty by 50% between 1998-99 and 2010-11. We are concerned that the 2006 Pre-Budget Report fails to set out clearly how the Government proposes to meet its target to halve child poverty by 2010-11. We recommend that, either in the 2007 Budget or in reporting the outcome of the Comprehensive Spending Review, the Government outline its strategic position with respect to the 2010-11 target. The Government should both set out its progress to date towards achieving the target, including the measures it has implemented to date, and specify how it intends to achieve the target, including the extent to which it expects various measures to contribute towards achieving the target.

72. The announcement in the Pre-Budget Report that child benefit will be extended to every mother-to-be from week 29 of her pregnancy will lead to a welcome boost in income for all mothers-to-be. However, we are concerned that the changes to child benefit will not come into effect until April 2009. The Treasury's modelling has shown that raising the child element of tax credits is a more cost-effective way of raising the incomes of low-income families than is increasing child benefit. As the Government itself notes in the Pre-Budget Report, and as the Chancellor of the Exchequer pointed out to us in oral evidence, low-income families are already able to claim the Sure Start maternity grant, worth £500 per child, to help with the additional costs associated with pregnancy and a new baby.[284] Both universal and means-tested benefits have a legitimate contribution to make towards the Government meeting its target to halve child poverty by 2010-11. If the Government is to meet the 2010-11 target, it will need to channel additional resources directly to low-income families, for example by increasing the child element of the child tax credit or the Sure Start maternity grant. Such measures would allow the Government to achieve its aim of assisting parents financially in the final weeks of pregnancy: eligibility for the child element of child tax credits could be extended to 29 weeks, and the Sure Start maternity grant is already available from week 29 of pregnancy.

73. Finally, we note a concern that arose during oral evidence from Treasury officials. In our Report on the 2006 Budget, we discussed the changes in levels of high marginal deduction rates which have taken place under the current Government.[285] Marginal deduction rates show how much of each additional pound of gross earnings is lost through higher taxes and withdrawn benefits or tax credits. We concluded:

The introduction of tax credits has contributed to the reduction in the number of households facing the highest marginal deduction rates of 70% or more from 740,000 before Budget 1998 to 240,000 under the 2006-07 system of tax and benefits. However, the number of households facing marginal deduction rates in the region of 60% to 70% has increased since 1997 and now appears to have levelled off at around 1.5 million households.[286]

We therefore recommended that the Treasury analyse the characteristics and income distributions of households facing marginal tax rates in the region of 60% to 70% and the extent to which these high marginal tax rates were discouraging people from entering the workforce, from working longer hours or from acquiring additional skills. We further recommended that the Treasury publish the findings of such analysis at the time of the 2006 Pre-Budget Report.[287]

74. The Government response to our Report in July 2006 indicated that it would "continue to report on policy and progress in making work pay in future Pre-Budget and Budget Reports", but did not address our specific recommendations.[288] Given that the Government had not published the analysis we recommended, either in its response or alongside the 2006 Pre-Budget Report, we asked Treasury officials what progress the Government had made with our recommendation. Officials told us that the Government had "a great deal of standing analysis of the impact of marginal deduction rates", but were unable to point to any specific analysis carried out in response to our April 2006 recommendation.[289] In the absence of any specific analysis, officials pointed us to Table 4.2 in the 2006 Pre-Budget Report, which sets out the impact of the Government's reforms on high marginal deduction rates.[290] Table 4.2 updates data which has appeared in every Budget document since at least 1998. Written evidence subsequently provided by the Treasury stated that the Government recognised "the importance of evaluation of this and other issues surrounding the introduction of tax credits" and noted that HM Revenue & Customs had "actively promoted and published significant research into the impacts of the Working Families Tax Credit".[291] The Working Families Tax Credit replaced Family Credit in October 1999, and was itself replaced by the new tax credits in April 2003. HM Revenue & Customs' research had not so far revealed "any widespread adverse impacts on average hours worked or on shorter-term wage progression".[292] We have previously noted the significant reduction in households facing marginal tax rates of 70% or more between 1998 and 2006-07, while recommending further Treasury analysis of the characteristics and income distributions of households facing marginal tax rates in the region of 60% to 70%. We are disappointed that the Treasury appears to have taken no action about this recommendation. At the very least, we expect the Treasury to notify us if it does not intend to act on one of our recommendations, giving reasons why. We intend to return to the issue of high marginal deduction rates when we examine the 2007 Budget, by which time we expect the Treasury to have published the findings called for in our earlier recommendation.

Delays in improvements to the tax credits regime

75. In the 2005 Pre-Budget Report, the Government announced a package of measures to reform the tax credits regime, most of which were scheduled for implementation between April 2006 and April 2007. The following two measures were included in the package:

76. Several announcements with implications for the administration of tax credits were made in or at the time of the 2006 Pre-Budget Report. The Report itself announced that, following the move, in 2006, of the deadline for the return of end-of-year information from the end of September to the end of August, in 2007 the deadline would be moved again, to the end of July, thus further shortening the renewal period to four months. The Government stated that this change "will further reduce the time over which claimants are paid on potentially out-of-date information".[294] On the same day that the Chancellor of the Exchequer delivered his Pre-Budget Report, the Paymaster General made a written statement to the House on tax credits, announcing that HM Revenue & Customs had concluded that it was "not possible to make a risk-free introduction" of the automatic limits on recovery of excess amounts announced to the "original timetable"—that is, the date of November 2006 announced in the 2005 Pre-Budget Report.[295] The Paymaster General said that:

Introducing fully automatic limits remains a key priority, and from April 2007 I have instructed HM Revenue & Customs to introduce an IT solution to ensure that claimants will benefit from reduced rates of recovery without them having to ask for this service.[296]

In the interim, HM Revenue & Customs was taking steps to try to ensure claimants could access the reduced rates. The Paymaster General also made two further announcements: that the Government would not now begin migration of the remaining income support/jobseeker's allowance recipients with children to the child tax credit in 2007, and that HM Revenue & Customs was "putting in place special arrangements for a small proportion of claimants who may experience disruption in their payments following the processing of changes in their circumstances, and will update the IT system in April 2007 to prevent this".[297]

77. At the time of the Paymaster General's 6 December 2006 announcement, the Low Incomes Tax Reform Group expressed concern that the delay in implementing automatic limits on recovery "could put the more vulnerable claimants at risk of financial hardship" and called for HM Revenue & Customs to "suspend collection of all overpayments from those claimants until the technology is in place to deliver the improvement".[298] This statement echoed earlier concerns raised with us by the Low Incomes Tax Reform Group, Citizens Advice and the Chartered Institute of Taxation in December 2005, when the November 2006 timetable for implementation was first announced, that delaying introduction of automatic limits on recovery until November 2006 would be detrimental to claimants. These groups argued that the limits ought to be put in place prior to that date.[299] During oral evidence, Treasury officials confirmed that the Paymaster General's statement meant that HM Revenue & Customs would be required to have an IT solution operational from April 2007.[300] Officials ruled out suspending collection of overpayments, as mooted by the Low Incomes Tax Reform Group, on the basis that it would not "be appropriate to cancel all demands for repayment because not all households will be facing hardship and difficulty".[301] Officials were unable to tell us to which categories of claimants the Paymaster General was referring when she said that "special arrangements" were being put in place for "a small proportion of claimants who may experience disruption in their payments".[302] In subsequent written evidence, Treasury officials clarified that the Paymaster General was referring to those claimants who "report a new change of circumstance before the IT system is updated in April 2007".[303]

78. We also discussed with Treasury officials the Paymaster General's announcement that the Government would not now begin migration of the remaining income support/jobseeker's allowance recipients with children to the child tax credit in 2007. This migration was originally scheduled to take place from April 2004.[304] In February 2006, a senior official at the Department for Work and Pensions, Mr Adam Sharples, told the Work and Pensions Committee that that Department and HM Revenue & Customs had agreed to migrate the remaining 330,000 families receiving income support or jobseeker's allowance to tax credits between July 2006 and April 2007.[305] Treasury officials confirmed to us that the Paymaster General's announcement represented a further delay to the Government's timetable.[306] The affected families would be migrated across to the child tax credit "as soon as the IT is robust enough to permit that to happen without risk or any interruption to their income", although officials were unable to specify when that might be.[307]

79. We are concerned to learn that HM Revenue & Customs has failed to meet its original timetable of applying, from November 2006, automatic limits on recovery of excess amounts paid in cases where tax credits awards are adjusted in-year following a reported change. We will be watching closely to see whether HM Revenue & Customs manages to comply with the Paymaster General's instruction to introduce such automatic limits in April 2007. We are concerned by the Paymaster General's announcement that the timetable for migrating the remaining 330,000 families who receive income support or jobseeker's allowance—some of the poorest families in the country—to the child tax credit has slipped yet again, given that these families were due to be migrated from April 2004. We intend to take these matters up with the Government in the first half of 2007, when we follow up our June 2006 Report on The administration of tax credits.[308]

Climate change and environmental taxation

80. In the 2006 Pre-Budget Report, the Government welcomed the Stern Review on The Economics of Climate Change, stating that the review's key conclusions were "in line with the Government's existing policy, including … using multilateral emissions trading as a primary means of pricing carbon in the economy … and incentivising behavioural change especially on energy efficiency".[309] Prior to the Pre-Budget Report, we had announced our intention to undertake an inquiry into the implications for HM Treasury policy of climate change and the Stern review, following the publication of Sir Nicholas Stern's review of The Economics of Climate Change on 30 October 2006.[310] We published our terms of reference on 14 December and expect to take evidence on this inquiry early in 2007.[311] In this section, we summarise the main relevant announcements in the 2006 Pre-Budget Report; we will examine these announcements in greater detail in the course of our forthcoming inquiry.

81. In presenting the 2006 Pre-Budget Report to the House, the Chancellor of the Exchequer stated that the Government intended to use market mechanisms and incentives to work towards global carbon trading, and that the Government aimed to "make London the world's leading centre for carbon trading".[312] The Pre-Budget Report described the EU emissions trading scheme as "the world's most significant step towards carbon pricing", and as the United Kingdom's "principal pricing instrument and a key component in a comprehensive United Kingdom framework to effectively mitigate climate change".[313] The Pre-Budget Report reiterated the Government's aim of developing the EU scheme "as the basis of a global carbon market" and "forging an EU agreement to a post-2012 framework".[314] In evidence to us, Treasury officials described the EU scheme as "the only game in town in terms of an international trading system that helps us establish a price for carbon", although officials also agreed the EU scheme had had "very significant teething problems".[315] According to officials, the Government drew

very significant comfort from the [European] Commission's recent announcements on the national allocations where every country other than the United Kingdom had their provisional allocations rejected and the Commission is proposing to tighten up their allocations. That is absolutely vital to the working of the [EU emissions trading] scheme.[316]

82. The 2006 Pre-Budget Report stated that the Government recognised "the role that air passenger duty can play in tackling the climate change impact of aviation" and that it would therefore double existing air passenger duty rates with effect from 1 February 2007.[317] Table 4 shows the changes in rates of Air Passenger Duty since 1994.

Table 4: Changes in air passenger duty rates since 1994 (rate levied per passenger)
1 Nov 1994 1 Nov 1997 1 Apr 2001 1 Feb 2007
Domestic flights and flights to an EEA destination Combined rate[318]
£5
£10
Economy rate
£5
£10
Non-economy rate
£10
£20
Flights to a destination outside the EEA Combined rate
£10
£20
Economy rate
£20
£40
Non-economy rate
£40
£80

Source: HM Revenue and Customs, 'Air passenger duty: Summary of chargeable passengers, liability declared and receipts', September 2006 bulletin, and Pre-Budget Report 2006, para 7.82, p 176

The Government considered that the doubling of rates would have significant environmental benefits, delivering carbon savings of around 0.3 million tonnes of carbon (MtC) a year by 2010-11: "when the effect of non-carbon dioxide emissions is taken into account this has a climate change impact equivalent to saving around 0.75 MtC per year by 2010-11.[319] The Government estimated that the increases announced in the 2006 Pre-Budget Report would generate an additional £3.465 billion for the Exchequer between 2006-07 and 2009-10.[320] We discuss the timing of the implementation of the increase in air passenger duty rates later in this Report.[321]

83. The 2006 Budget announced that the main fuel duty rates would rise in line with inflation from 1 September 2006.[322] However, in July 2006, the Government announced that, due to sustained oil market volatility, the increase would not in fact go ahead in September and the position would be reviewed at the time of the 2006 Pre-Budget Report.[323] The 2006 Pre-Budget Report announced that the Government would increase the main fuel duty rates in line with inflation by 1.25 pence per litre, from midnight on 6 December 2006.[324] According to the 2006 Pre-Budget Report, "it is the Government's policy that fuel duty rates should rise each year at least in line with inflation as the United Kingdom seeks to reduce polluting emissions and fund public services".[325] The Chancellor of the Exchequer confirmed in the House that he would not restore the fuel duty escalator and that he had rejected a real terms increase in fuel duty.[326] The Pre-Budget Report noted that "rates remain 15% lower in real terms than they were in 1999, when the fuel duty escalator was abolished": since the abolition of the fuel duty escalator, the Government has raised duty rates on the main fuels only once, in the 2003 Budget.[327]

Other taxation issues

MISSING TRADER INTRA-COMMUNITY FRAUD

84. The Government defines Missing Trader Intra-Community (MTIC) VAT fraud (sometimes called "carousel fraud") as "a large-scale organised criminal attack on the EU VAT system, with the aim of creating large unpaid VAT liabilities and fraudulent VAT repayment claims".[328] As part of its strategy against MTIC fraud, the Government has been seeking to secure a derogation from European Union VAT law to permit the introduction of a reverse charge VAT system for goods most commonly used in MTIC frauds. Such a reverse charge would change the system for collecting VAT on certain goods so that it would be collected only at the point of sale to the consumer, rather than at different points in the supply chain—a change which the Government states will remove the mechanism by which the fraudster steals VAT in the supply chain.[329]

85. Alongside the 2006 Pre-Budget Report, HM Revenue & Customs published its 2005-06 estimates of attempted MTIC fraud and actual losses resulting from such fraud:

HM Revenue & Customs' current assessment, based on operational data, is that attempted MTIC fraud in 2005-06 was in the range £3.5 billion to £4.75 billion. A significant proportion of these attempted frauds are stopped so the potential impact on VAT receipts is substantially smaller. HM Revenue & Customs estimate that for 2005-06 VAT receipts could have been reduced by between £2 billion and £3 billion due to MTIC fraud.[330]

HM Revenue & Customs reached these estimates using a different methodology from that it had previously used to obtain estimates of losses resulting from MTIC fraud between 2000-01 and 2004-05. HM Revenue & Customs considered it necessary to change its methodology because "fraudsters have changed the way they operate".[331] Table 5 shows HM Revenue & Customs' estimates of losses resulting from MTIC fraud between 2000-01 and 2004-05, obtained using the earlier methodology:

Table 5: Estimates of losses resulting from MTIC fraud between 2000-01 and 2004-05
Financial year
Lower estimate
Upper estimate
2000-01
£1.3 billion
£2.5 billion
2001-02
£1.7 billion
£2.5 billion
2002-03
£1.5 billion
£2.3 billion
2003-04
£1.1 billion
£1.7 billion
2004-05
£1.1 billion
£1.9 billion
Totals
£6.7 billion
£10.9 billion

Source: HM Revenue & Customs, Measuring indirect tax losses—2006, 6 December 2006, Table B3

In addition to the estimates published alongside the 2006 Pre-Budget Report, the Paymaster General wrote to the Committee setting out some additional information on MTIC fraud.[332] The Paymaster General acknowledged that, although HM Revenue & Customs' anti-fraud activities "did help to mitigate the negative impact [of MTIC fraud] on VAT receipts" in 2005-06, "the increasingly complex nature of the fraud meant that over this period HM Revenue & Customs did not always have sufficient evidence necessary to deny all suspect claims".[333] She noted that HM Revenue & Customs had re-deployed a further 600 additional staff to the MTIC strategy, bringing the total number of staff to over 1,400, and concluded that "operational indicators" pointed to "a much improved position in 2006-07".[334]

86. At his appearance before us on 13 December 2006, the Chancellor of the Exchequer provided us with an update on recent developments in the Government's fight against MTIC fraud, which he described as "the biggest single attack on the taxation systems of the European Union".[335] The Chancellor of the Exchequer informed us that, on 12 December 2006:

an agreement was reached on the derogation we have sought with France and, with the support now of other Member States, I am confident that the derogation will be adopted … The reverse charge will move the mechanism for stealing VAT from around 90% of goods currently traded in carousel fraud … I am pleased that the measure that we have sought in the European Union is now going to be acted on immediately.[336]

The Chancellor of the Exchequer noted that, for the purposes of the public finances and in line with the Code for Fiscal Stability, the Government had "cautiously estimated" the impact of the reverse charge as yielding an additional £500 million in 2007-08, "although the true impact will obviously depend on the levels of fraud in future years".[337]

87. Earlier, we had discussed with Mr Chote and Mr John Whiting of PricewaterhouseCoopers the potential effectiveness of the reverse charge sought by the Government. Mr Chote described the reverse charge as "a good way forward", but said that it was not guaranteed to solve the problem of MTIC fraud, because the reverse charge moved the risk of fraud from those goods subject to the reverse charge to other types of goods.[338] Mr Whiting commented that, in arguing for the reverse charge at EU level, the Government's reasoning appeared to be that "we need to block what we know about", whereas "the French and certain other countries" had reasoned that "we have to block everything in one go".[339]

88. The scale of Missing Trader Intra-Community fraud appears to have tripled between 2004-05 and 2005-06, to between £3.5 billion and £4.75 billion in 2005-06, with an estimated negative impact on VAT receipts during the year of between £2 billion and £3 billion. We welcome the Chancellor of the Exchequer 's announcement that the United Kingdom Government has reached an agreement with France to secure a derogation from European Union VAT law to combat such fraud. We trust that the European Union will now act promptly upon this measure and we will make our own representations to our opposite members in other national parliaments. The Government has predicted that the reverse charge will move the mechanism for stealing VAT from around 90% of the goods currently traded in Missing Trader Intra-Community fraud. Following the implementation of the measure, we will look for the emergence of evidence that the Government's prediction has in fact been borne out.

TAXATION OF ALTERNATIVELY SECURED PENSIONS

89. Alternatively Secured Pensions (ASP) were established with effect from April 2006. They are available to people aged 75 and over who do not want to buy an annuity and they work in a similar way to unsecured pensions, but have slightly different rules. The 2006 Pre-Budget Report stated that "ASPs were introduced to meet the specific need of certain groups that have a principled religious objection to the pooling of mortality risk in annuities. It was never the intention that ASPs would become a mechanism to avoid compulsory annuitisation, or to leave a tax-favoured lump sum that could then be passed on."[340] Accordingly, the 2006 Pre-Budget Report announced the Government's intention to propose legislative changes in order to deter people from using ASPs to pass funds on to heirs. There would be a requirement to withdraw a minimum level of income each year from an ASP fund, and the transfer of funds from ASPs on death as a lump sum to pension funds would attract an unauthorised payments charge. The Government also warned that, "if these proposals prove unworkable, or there is continued evidence of the use of pensions tax relief to provide capital sums throughout retirement, the Government will consider whether to remove access to ASPs altogether".[341] Mr Whiting thought that the Treasury's earlier plans had inadvertently raised hopes that "ASPs could be used to preserve capital that could be bequeathed in some way". He also argued that, "if the ASP route is to be tightened as outlined, the tax charges involved—which could amount to 70% with a 40% scheme administrator charge—need to be reviewed and made fairer".[342] Treasury officials told us that the reason that "the Government has taken the action they have is because they [the ASPs] have been marketed primarily to wealthy people as a way of using tax relief to build up large capital sums to pass on their death".[343] The Treasury stated that changes made to the regulations in ASPs in the Pre-Budget Report protected its revenues.[344]

PLANNING-GAIN SUPPLEMENT

90. In the 2005 Pre-Budget Report the Government began a process of consultation on a possible Planning-gain Supplement, designed to capture the benefits from the grant of planning permission, with the proceeds to be used to finance local infrastructure projects. When we first examined the proposals, we asked the Treasury to give full consideration to applying lower rates of or a total exemption from Planning-gain Supplement for brownfield sites.[345] Following the 2006 Budget, we noted positive comments about the process of consultation that was taking place in relation to Planning-gain Supplement.[346] As part of that process, the Communities and Local Government Committee has reported on the Planning-gain Supplement, advocating a clear funding formula to determine how much revenue from the Supplement is returned to each local authority and arguing against discounts or exemptions for brownfield sites.[347]

91. In the 2006 Pre-Budget Report, the Government indicated that it would move forward with the implementation of Planning-gain Supplement if, after further consultation, the levy continued to be deemed workable and effective. The Government stated that Planning-gain Supplement would not be introduced earlier than 2009. The Government suggested that it was not minded to introduce a lower rate of the Supplement for brownfield sites. The Government proposed that at least 70% of revenues from the Supplement would be hypothecated for local infrastructure priorities and would be returned to the local authority area in which they were generated. Remaining funds would be returned to the regions to help finance strategic infrastructure projects.[348] In oral evidence, Treasury officials confirmed that the money to be allocated to local authority areas would be given directly to local authorities to invest in the infrastructure needed to support new development.[349] They also indicated that they expected the revenue yield from Planning-gain Supplement to be greater than that available to local authorities as a result of section 106 agreements.[350] We welcome the measured way in which the Government is consulting on and taking forward proposals for a Planning-gain Supplement.

The Leitch Review on skills

92. The Final Report of the Leitch Review of skills was published the day before the 2006 Pre-Budget Report 2006. The aim of the Review was to address the issue that a large proportion of people in the United Kingdom have low skills. As set out in the interim report of the Review,

over one third of adults in the United Kingdom do not have a basic school-leaving qualification, double the proportion of Canada and Germany; five million people have no qualifications at all; and one in six do not have the literacy skills expected of an 11 year old and half do not have these levels of functional numeracy.[351]

The Chancellor of the Exchequer told us that that "we have got to do better at the adult skills level and we have got to do better at getting young people, with apprenticeships and with other college qualifications, the skills that are necessary for the future".[352]

93. One of the main recommendations of the final report of the Leitch Review was that all public funding for adult vocational skills in England, apart from community learning, should be routed through Train to Gain schemes and Learner Accounts.[353] Learner Accounts are a mechanism to provide people with some Government funding, which they can spend at an accredited learning provider of their choice.[354] Train to Gain schemes involve the Government providing support to firms to train their employees up to Level 2 (five good GCSEs) and Level 3 (2 A levels).[355] When asked how effective the recommendations in the Leitch Review Final Report would be in addressing the United Kingdom's skill deficit, Dr Weale said that providing basic skills training to adults was likely to raise their aspirations, which would eventually have a positive impact on employment, but he thought that this would be a slow process.[356] Mr Chote pointed to evidence suggesting that a large proportion of funding in previous Government-subsidised training schemes was "deadweight", in the sense that funding went to firms which would have paid for training for their employees anyway. [357] It is envisaged that the Train to Gain schemes would employ skill brokers to target "hard to reach" businesses to counteract this problem.[358] We welcome the Leitch Review Final Report's aspiration of making the United Kingdom a world leader in skills by 2020. We expect to comment further on the economic importance of skills training when we report on the outcome of our inquiry into Globalisation: its impact on the real economy.


169   Releasing resources to the front line: Independent Review of Public Sector Efficiency, Sir Peter Gershon CBE, July 2004 Back

170   Pre-Budget Report 2005, paras 6.11-6.13, p 129 Back

171   Budget 2006, para 6.13 and Box 6.2, pp 132-133 Back

172   Pre-Budget Report 2006, para 6.18, p 140 Back

173   HC (2005-06) 739, para 74; HC (2005-06) 994-I, para 76 Back

174   Pre-Budget Report 2006, para 6.18, p 140; Pre-Budget Report 2005, paras 6.11-6.13 and Box 6.1, pp 129-130 Back

175   Q 66 Back

176   HC (2005-06) 994-I, para 76 Back

177   Qq 207-208 Back

178   The estimate of £2.3 billion is arrived at by combining the figure of "around £1.9 billion" of efficiency savings to the end of March 2006 (Pre-Budget Report 2006, para 6.18, p 140) with the total of £442.2 million of new gains reported by councils for the period April-September 2006: "Local Government on track to deliver a further £1.3 billion efficiency gains", Communities and Local Government News Release 2006/0182. Back

179   HC (2005-06) 739, para 73; Q 214 Back

180   HM Treasury, 'Publication of 2006 Autumn Performance Reports', PES (2006) 08, para 4 Back

181   Ibid, para 9; Cabinet Office, Autumn Performance Report 2006, December 2006, Cm 7004, pp 29-30 Back

182   "Scrutiny Unit Review of 2005 Departmental Annual Reports", available at www.parliament.uk under Liaison Committee memoranda, chapter 4 Back

183   HC (2005-06) 994-I, para 76 Back

184   HC Deb, 7 December 2006, col 435 Back

185   Q 210; Public Finance, Supplement on Government Efficiency, December 2006, p 21. £0.9 billion of savings were attributed to corporate services, £0.5 billion to transactions and £2.5 billion to "Other". Back

186   Ev 77 Back

187   National Audit Office, Progress in improving government efficiency, February 2006, HC (2005-06) 801-I, p 5 Back

188   HC (2005-06) 994-I, para 76 Back

189   Pre-Budget Report 2006, para 6.19, p 140 Back

190   Office of Government Commerce, 'SR04 Efficiency Delivery: Assessing, reporting and signing off gains', www.ogc.gov.uk Back

191   Department of Health, Autumn Performance Report 2006, Cm 6985, December 2006, p 20 Back

192   HC Deb, 7 December 2006, col 435 Back

193   Crown Prosecution Service, Autumn Performance Report 2006, Cm 6982, December 2006, p 11 Back

194   Department for Communities and Local Government, Autumn Performance Report 2006, pp 55-56 Back

195   Home Office, Home Office Targets: Autumn Performance Report, Cm 6995, p 11 Back

196   Department for Education and Skills, Autumn Performance Report 2006: Achievement against Public Service Agreement targets, Cm 6992, December 2006, p 58 Back

197   HM Revenue & Customs, HM Revenue & Customs Annual Report 2005-06 and Autumn Performance Report 2006, Cm 6983, December 2006, pp 53-55 Back

198   Department for Environment, Food and Rural Affairs, Autumn Performance Report 2006, December 2006, p 67 Back

199   HC (2005-06) 994-I, para 74 Back

200   HC (2005-06) 994-II, Ev 66 Back

201   HC (2005-06) 994-I, para 74 Back

202   Q 68; Ev 78 Back

203   Ev 61 Back

204   Q 216 Back

205   HC (2005-06) 739, para 75 Back

206   HC (2005-06) 994-I, para 78 Back

207   Committee of Public Accounts, Fifty-fifth Report of Session 2005-06, Progress in improving government efficiency, HC 978, Recommendation 6 Back

208   Pre-Budget Report 2006, para 6.20, p 140 Back

209   Q 221 Back

210   Northern Ireland Office, Autumn Performance Report 2006, Cm 6991, December 2006, p 12 Back

211   Cm 6985, p 23 Back

212   Department for Culture, Media and Sport, Autumn Performance Report 2006, p 37; Department for Environment, Food and Rural Affairs, Autumn Performance Report 2006, December 2006, p 69 Back

213   Department for Transport, Autumn Performance Report 2006, Cm 6976, December 2006, p 39 Back

214   Department of Trade and Industry, Autumn Performance Report 2006, December 2006, p 58 Back

215   Department for Environment, Food and Rural Affairs, Autumn Performance Report 2006, p 69 Back

216   Cm 6995, p 11 Back

217   Confederation of British Industry, 'CBI Analysis of the Gershon Efficiency Savings', December 2006, p 1 Back

218   Sir Michael Lyons, Well placed to deliver?-Shaping the pattern of Government service, March 2004 Back

219   Pre-Budget Report 2005, para 6.16, p 131 Back

220   Pre-Budget Report 2006, para 6.21, p 141 Back

221   HC Deb, 7 December 2006, col 426; emphasis added. Back

222   Q 219 Back

223   Qq 70, 119 Back

224   Qq 220, 226-234, 388 Back

225   HC (2005-06) 994-I, paras 77-79 Back

226   Treasury Committee, Fourth Special Report of Session 2005-06, The 2006 Budget: Government Response to the Committee's Fourth Report of Session 2005-06, HC 1472 (hereafter HC (2005-06) 1472), p 8 Back

227   HC Deb, 6 December 2006, col 312 Back

228   Pre-Budget Report 2006, para 6.26, p 142; HC (2005-06) 994-I, para 75 Back

229   HC Deb, 6 December 2006, col 314 Back

230   Pre-Budget Report 2006, para 6.73, p 153 Back

231   HC Deb, 6 December 2006, col 314 Back

232   Pre-Budget Report 2006, para 6.47, p 148 Back

233   Q 74 Back

234   Q 73 Back

235   Ibid Back

236   Q 76 Back

237   Q 242 Back

238   See footnote to Q 402. Back

239   Qq 398-399 Back

240   Qq 405-406 Back

241   Q 413 Back

242   Ev 85 Back

243   Pre-Budget Report 2006, para 6.46, p 147; Qq 427, 430, 435, 476 Back

244   Ev 85; Q 427 Back

245   HC Deb, 6 December 2006, col 308 Back

246   HC (2005-06) 994-I, para 86 Back

247   Department for Work and Pensions press notice, 'New figures show good progress on poverty-Hutton', 9 March 2006 Back

248   Pre-Budget Report 2006, para 5.11, p 103 Back

249   Ibid Back

250   Pre-Budget Report 2006, para 5.11, p 103; currently, for the tax year 2006-07, parents receive £17.45 a week for the eldest child (£17.55 lone parent rate) and £11.70 a week for each additional child; from 2007-08, the lone parent rate will be abolished. See www.hmrc.gov.uk and Pre-Budget Report 2006 press notice, 'Income tax allowances, national insurance contributions, child and working tax credit, fuel duty and air passenger duty rates', 6 December 2006. Back

251   Ev 83 Back

252   Budget 2006, para 5.6, p 98 Back

253   Pre-Budget Report 2006, para 5.9, p 103 Back

254   Pre-Budget Report 2006, para B.80, p 242 Back

255   Q 93 Back

256   Q 93; see Joseph Rowntree Foundation, What will it take to end child poverty? , 6 July 2006. Back

257   Child Poverty Action Group press notice, 'CPAG welcomes new money for child benefit, but much more needed to meet 2010 child poverty target', 6 December 2006; One Parent Families press notice, 'Follow-up action needed to PBR 2006', 6 December 2006 Back

258   Child Poverty Action Group press notice, 'CPAG welcomes new money for child benefit, but much more needed to meet 2010 child poverty target', 6 December 2006 Back

259   Q 266; HM Treasury, Tackling child poverty: giving every child the best possible start in life, December 2001 Back

260   Q 268 Back

261   IFS press notice, 'Government misses child poverty targets', 9 March 2006 Back

262   Q 448 Back

263   Q 450 Back

264   Child Poverty Action Group press notice, 'CPAG welcomes new money for child benefit, but much more needed to meet 2010 child poverty target', 6 December 2006 Back

265   Child Poverty Action Group press notice, 'CPAG welcomes new money for child benefit, but much more needed to meet 2010 child poverty target', 6 December 2006; Save the Children UK briefing, 'Hard Times', 13 November 2006. Major funding members of the campaign to end child poverty are: Barnardo's, Child Poverty Action Group, The Children's Society, The Frank Buttle Trust, NCH, NSPCC, and Save the Children. Back

266   HC Deb, 25 October 2006, col 1942W; based on a 60% contemporary median income poverty threshold, and depending on the choice of equivalisation scale for household incomes. Back

267   Q 465 Back

268   Q 97 Back

269   Ibid Back

270   Qq 269-272 Back

271   Q 269 Back

272   Ev 83 Back

273   Ev 83; HC Deb, 18 April 2006, col 541W Back

274   Qq 451-452 Back

275   Q 452 Back

276   Q 454 Back

277   Q 456; eligible parents-essentially those receiving income support, jobseeker's allowance or tax credits-can claim the Sure Start maternity grant at any time from week 29 of pregnancy until the child is three months old. The grant is worth £500 per child and is intended to help with the additional costs associated with pregnancy and a new baby. Back

278   Department for Work and Pensions press notice, 'New figures show good progress on poverty-Hutton', 9 March 2006 Back

279   Ibid Back

280   IFS press notice, 'Government misses child poverty targets', 9 March 2006 Back

281   Ibid Back

282   HC (2005-06) 994-I, para 91 Back

283   Pre-Budget Report 2006, para B.80, p 242 Back

284   Pre-Budget Report 2006, para 5.11, p 103; Qq 451, 456 Back

285   HC (2005-06) 994-I, paras 83-85 Back

286   Ibid, para 85 Back

287   Ibid Back

288   HC (2005-06) 1472, p 9 Back

289   Qq 275-277 Back

290   Q 277; Pre-Budget Report 2006, Table 4.2, p 98 Back

291   Ev 84 Back

292   Ibid Back

293   Pre-Budget Report 2005, Box 5.2, p 97 Back

294   Pre-Budget Report 2006, para 5.15, p 105 Back

295   HC Deb, 6 December 2006, col 14WS Back

296   Ibid Back

297   Ibid Back

298   Low Incomes Tax Reform Group press notice, 'Christmas risk for tax credits claimants', 7 December 2006 Back

299   Treasury Committee, Sixth Report of Session 2005-06, The administration of tax credits, HC 811-II, Ev 100, 104, 122 Back

300   Qq 279-280 Back

301   Q 282 Back

302   Q 281 Back

303   Ev 83 Back

304   Number Ten, HM Treasury and Inland Revenue, The Child and Working Tax Credits: The Modernisation of Britain's Tax and Benefit System, April 2002, para B13 Back

305   Oral evidence taken before the Work and Pensions Committee on 6 February 2006, HC (2005-06) 895, Qq 33-34  Back

306   Qq 285-288 Back

307   Qq 283-284 Back

308   Treasury Committee, Sixth Report of Session 2005-06, The administration of tax credits, HC 811-I Back

309   Pre-Budget Report 2006, para 7.12, p 160; Stern Review on the Economics of Climate Change, 30 October 2006 Back

310   Treasury Committee press notice, 'Treasury Committee announces new inquiry into climate change and the Stern review', 22 November 2006; available at www.parliament.uk/treascom.  Back

311   Treasury Committee press notice, 'New inquiry: Climate change and the Stern review: the implications for HM Treasury policy on tax and the environment', 14 December 2006; available at www.parliament.uk/treascom. Back

312   HC Deb, 6 December 2006, col 309 Back

313   Pre-Budget Report 2006, para 7.16, p 161 Back

314   Ibid, para 7.18, p 162 Back

315   Qq 299, 301 Back

316   Q 299 Back

317   Pre-Budget Report 2006, para 7.82, p 176 Back

318   That is, both economy and non-economy rates. Back

319   Ibid, para 7.82, p 176 Back

320   Pre-Budget Report 2006, Table B4, p 226 Back

321   See paragraphs 97-100. Back

322   Budget 2006, para 7.59, p 164 Back

323   Pre-Budget Report 2006, para 7.53, p 170 Back

324   Ibid Back

325   Ibid Back

326   HC Deb, 6 December 2006, col 310 Back

327   Pre-Budget Report 2006, para 7.53, p 170; HM Revenue and Customs, Hydrocarbon oils: Historical duty rates, available at www.hmrc.gov.uk Back

328   Pre-Budget Report 2006, para 5.133, p 126 Back

329   Ibid, para 5.135, p 127; BBC News website, 'Key UK anti-fraud rule delayed', 7 November 2006; Q 316 Back

330   HM Revenue & Customs, Measuring indirect tax losses-2006, 6 December 2006, para 2.12 Back

331   Ibid, para 2.10 Back

332   Ev 82 Back

333   Ibid Back

334   Ibid Back

335   Q 316 Back

336   Ibid Back

337   Q 316 Back

338   Q 103 Back

339   Q 104 Back

340   Pre-Budget Report 2006, para 5.75, p 118 Back

341   Pre-Budget Report 2006, para 5.76, p 118 Back

342   Ev 75 Back

343   Q 291 Back

344   Ev 81 Back

345   HC (2005-06) 739, para 88 Back

346   HC (2005-06) 994-I, para 111 Back

347   Communities and Local Government Committee, Fifth Report of Session 2005-06, Planning Gain Supplement, HC 1024-I, paras 73, 46 Back

348   Pre-Budget Report 2006, paras 3.116-3.123, pp 69-70 Back

349   Q 307 Back

350   Qq 308-309 Back

351   Leitch Review, The Skills in the UK: The long-term challenge, Interim Report, Executive Summary, December 2005, p 3 Back

352   Q 346 Back

353   Prosperity for all in the global economy-world class skills: Final Report of the Leitch Review of skills, December 2006, p 4 Back

354   The Leitch Review Final Report, Box6.3, p 111 Back

355   Ibid, Box 4.1, p 75 Back

356   Q 80 Back

357   Q 82 Back

358   The Leitch Review Final Report, Box 4.1,p 75 Back


 
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