Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 60-79)


11 DECEMBER 2006

  Q60 Chairman: Welcome to you. John, can you identify yourselves for the shorthand writer, please?

  Mr Whiting: John Whiting, PricewaterhouseCoopers and Chartered Institute of Taxation.

  Professor Talbot: Colin Talbot, Manchester Business School.

  Mr Chote: Robert Chote, Institute for Fiscal Studies.

  Dr Weale: Martin Weale, National Institute of Economic & Social Research.

  Q61  Chairman: Stern, Eddington, Barker, Leitch, Lyons and Gowers, a plethora of reports; what is the function of these reports? Does it open up the discussion on public policy options for the Government or does it delay difficult decisions? Who wants to start on that? What about you, Colin?

  Professor Talbot: I think probably the first question to ask would be what is the purpose of Pre-Budget Reports. I hate to sound like a broken record but it seems to have become, I was going to say mini-Budget but judging by the volume of documentation we have had this time round it is more like a maxi-Budget. We are now in a situation where we will have three announcements of public spending plans in the next seven months: the Pre-Budget Report, the Budget and the Comprehensive Spending Review next July. That, coupled with all of these policy reviews attached to the PBR, presumably more coming out with the Budget and even more coming out with the Comprehensive Spending Review, does certainly muddy the waters a little bit to put it mildly.

  Q62  Chairman: Does anybody else have any comments?

  Mr Whiting: One comment from the tax point of view. They can be very useful in surveying what is possible but then the issue is often what happens after that, are they carried through or are they just left to gather dust?

  Q63  Chairman: What is your experience? Have they been carried through in the past?

  Mr Whiting: I think you can only say they are mixed.

  Q64  Chairman: Tell me one that has been carried through and one that has not.

  Mr Whiting: As one that is currently being carried through one might point to the Planning Gain Supplement and the discussions there, which have been quite constructive. It is a wide-ranging review and it has been narrowed down. Where it gets to rather depends what happens over the next year or two.

  Q65  Mr Todd: It is certainly good news for consultants in this particular field, is it not?

  Mr Whiting: I could not possibly comment!

  Q66  Mr Todd: The review of the Gershon savings. Earlier this year the NAO gave what in their terms was a fairly critical analysis in which it suggested that without proper baselines and with relatively little evidence it was hard to verify the savings that have been made to date. Are we a little nearer to hard knowledge in this hard?

  Professor Talbot: I would say no. In fact, 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. All we have had so far in terms of analysis of that information is four examples in the PBR itself and three bits of data given by Mr Timms in a parliamentary answer about the break down, but only on three out of the six issues on work streams within the efficiency review, so we are more or less in the dark about where this 13.3 billion has come from.

  Dr Weale: Could I just add that since we do not, and I think in some areas never will, have good measures of public sector output inevitably we are not going to do terribly well at trying to measure public sector efficiency.

  Q67  Mr Todd: I was going to turn to that. It will be difficult to know whether one is comparing a like-for-like service delivery, for example. What we may be seeing is reduced expenditure but actually a reduced level of services. Certainly that has been argued by some Civil Service unions. Is that reasonable to say?

  Professor Talbot: I do not think we can say a great deal either way at the moment. The only bits of information we have got are, as I said, Mr Timms gave a parliamentary answer in which he said of the 13.3 billion which is currently being claimed, 5.5 billion must come from procurement, 2.4 billion from productive time and 1.5 billion from policy funding and regulation work stream. The other three around corporate services, transactions and the other category, which is 11% of the total, there is no information about. If you look at those figures carefully, in terms of the target for savings from procurement, for example, according to that we are running at about 70% of the target having been met. On the productive work time area we are running at about 47% of the target having been met. On policy funding and regulation we are running at 41% of the target having been met. I would be really interested to hear why that is the case, what has happened to the other three work streams and a break down by department as to where that money has come from.

  Q68  Mr Todd: The ONS has published a consultation paper on the measurement of public service outputs and productivity. Has that assisted in this matter?

  Professor Talbot: The largest area of work which both Atkinson and the ONS studies have looked at are the two areas which are most important for particularly the productive time work stream of the efficiency programme, which is health and education. Between them, they are actually responsible, on my calculations, for 88% of the productive work time savings, just from those two departments, but they have been looking at it at a very high level in terms of the overall economy and the contribution of public sector activity to the economy in terms of raising productivity. I do not think it goes down to a detailed enough level to really apply adequately, if you take productive time work stream as an example, to have really good measurement of the quantity and quality of outputs against which we could say those have remained constant or they have gone up as a result of improved working practices and we have saved money as a result of that. As far as I can see we do not have the measurement systems for doing that, and I would agree with Martin on that.

  Q69  Mr Todd: We seem to have roughly the same problem on headcount reduction as well. Since Civil Service headcounts, public sector headcounts, go up in some areas anyway, working out a net position accurately is hard to do, is it not?

  Dr Weale: The headcount target is quite misplaced, I think. Increasing efficiency means saving money but reducing headcounts and employing consultants to do the same thing is unlikely to be in any sense a saving. Equally, if people are de trop losing one person on 100,000 per year it is better than losing two people on 30,000 a year. Headcounts obscure all of that and I think are actually a distraction from efficient running of the public sector.

  Q70  Mr Todd: I think the OGC denied that there was a basis for thinking that a load of consultants had arrived in lieu of established posts, but you remain sceptical of that, do you?

  Dr Weale: It remains a risk, yes.

  Professor Talbot: In the OGC's own guidance to departments they warn against that as a risk, so I do not think that they do not think it is a possibility. I agree with Martin but I would add on the relocation issue, if you remove staff to another part of the country at some considerable cost presumably in terms of compensating staff purchasing new buildings or whatever you have to do in order to relocate them, and their salaries remain the same, because despite the Treasury wanting to have regionalised salaries within the Civil Service we do not yet, the net benefits of that are likely to be negative in the sense that it has cost you money to relocate people and you have made no efficiency savings at all, so why it is constantly put into the efficiency agenda is beyond me.

  Q71  Mr Todd: Presumably one of the arguments was that over the long-term the establishment costs of posts in less expensive parts of the country, disregarding the salaries, just the cost of buildings and other services, would be less, would it not?

  Professor Talbot: Possibly.

  Q72  Mr Todd: The Government has said that it is on track to meet its target to relocate 20,000 civil servants. Do you see any sign that it is helping recruitment and retention issues because mainly they are transferring them to less heated parts of the labour market?

  Professor Talbot: I have not seen any data on that. I would point out my calculation two years ago was that the 20,000 target more or less brought us back to the distribution of civil servants that we had in 1997, it was not achieving any change, it was simply that the growth in the Civil Service had been concentrated in London and the South East.

  Q73  Mr Gauke: Can I just ask Mr Chote to begin with on expenditure on education. You have made some sceptical noises about the Chancellor's big announcements in the PBR statement. If we could take them in turn. First of all, the capital expenditure, the £36 billion over four years. You said that is mostly old money, could you elaborate on that?

  Mr Chote: Yes. Essentially these amounts for schools had already been announced at the time of the Budget, so the new announcement was effectively the capital spending for colleges and universities and there it was effectively new money amounting to about £0.1 billion in this year's prices. That is roughly 2% a year real terms increase. If you were to look at overall capital expenditure in education the numbers now pencilled in for 2007-08 to 2010-11 would be 4.3% a year real increase compared with 15.9% under the period from 1997-98 to 2007-08, the previous decade, so quite a step down from that. That would divide between schools dropping from 16.3% to 4.9% and other HE and FE from 14.5% to 2%. Certainly you can get a nice big number by adding together the totals over the next four years but in terms of the growth rate you are stepping that down. To a degree one should point out that when Labour came in there was initially a further fall in public sector investment and then an increase. If you are saying you are moving from a very low base, there would be a step adjustment and you would not be expending expecting capital expenditure to increase at the sort of percentage rates you saw during that catch-up.

  Q74  Mr Gauke: Just to go back to something you have said. As far as what was announced in the PBR on capital spending, that relates more to colleges than to schools?

  Mr Chote: That is right, yes. This is opaque in the way it was presented but it looks like the schools money is the same as it was before and the new announcement is HE and FE.

  Q75  Mr Gauke: So the capital spending is no different, the PBR did not make any difference specifically on schools?

  Mr Chote: No.

  Q76  Mr Gauke: Just on the current spending, the £200 per pupil going directly to the schools, how much of that is new money?

  Mr Chote: £20 per head. Budget 2006 had announced £60 and previous announcements and plans have been £120, so that gets you to your figure of £200.

  Q77  Mr Gauke: Twenty quid. What is that in percentage terms? What are we talking about here?

  Mr Chote: Here, of course, what we do not have yet is the current spending for education for the period of the Spending Review, which will be one of the key announcements that we get next year. If we are looking at this famous aspiration that the Chancellor set up to get towards the £8,000 per head spent in the private sector in 2005-06, which is current and capital, the gap before the Pre-Budget Report was about £2,350 and it has now fallen to £2,330, so obviously if you were to continue to increase at the rate of 20 quid per announcement we could be waiting quite some time.

  Q78  Mr Gauke: We would be waiting for about 200 years, would we not, if it was 20 quid?

  Mr Chote: More relevantly perhaps, when we met last time after the Budget I think we said that if we were to increase the school spending per head by the rate of the economy we would be talking about 17 years or so, but crucially now this depends on what the Chancellor says on current spending for education when we get to the CSR next year. That will tell us realistically how long it will take to close this gap.

  Q79  Mr Gauke: We will be none the wiser until then. There was a report in the Financial Times, I think this was relating to education capital, about a 4.1% increase.

  Mr Chote: As I say, total education spending looking forward rising 4.3% a year in real terms, down from about 16% the previous decade.

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