Examination of Witnesses (Questions 80-99)|
11 DECEMBER 2006
Q80 Angela Eagle: In the last 10
years we have an increase, the Leitch report says, in those with
high level skills from 21% to 29% and a fall in those with no
or low skills from 22% of the working age population to 13%. The
report then comes out with a slew of proposals about how this
improvement could be continued. How effective overall do you think
that Leitch's proposals will be in terms of turning around this
skills gap that he identifies?
Dr Weale: What we found at the
National Institute looking at the DfES programme for delivering
basic skills was that it seems to raise people's aspirations.
Whether and how that will work with school children instead of
adults I am not sure but I think it is something that we have
to try. I would expect it eventually to be effective, but it will
be a very slow process.
Q81 Angela Eagle: For school children
certainly. Clearly there is a range of government policies at
a macro-economic level to do that from Sure Start onwards, all
the help with parenting and education, et cetera, but Leitch is
always about adults.
Dr Weale: Yes. With adults, as
I say, the evidence that we found from looking at basic skills
was that it improves their aspirations and that is likely gradually
to feed through to employment but I think it is going to be a
Q82 Angela Eagle: This issue of the
Train to Gain scheme, which has been piloted, I understand, with
30,000 employers and a quarter of a million employees having benefited
from it at pilot stage, seems to be an issue that Leitch decided
is one of the main delivery mechanisms for getting employers more
engaged in basic skills education. Do you share his optimism about
that as a delivery process? None of you have read it, have you!
Mr Chote: I think one issue to
bear in mind is that Train to Gain is built on the employer training
pilots and certainly some of the assessment that has been done
of that so far suggests that there is pretty high deadweight in
that. So quite a lot of the money that is spent through that is
actually given to companies for training that they would have
been doing anyway. One of the concerns has to be how much of this
would be additional to what would be happening anyway.
Q83 Angela Eagle: There is clearly
an issue even though there has been an improvement in basic skills
levels and also an economic need to try to get our workforce to
engage at a higher level of skill too. What I am trying to ask
you is, if you are not enthusiastic about what Leitch has come
up with, what is the way to do this? Surely everybody agrees that
we have to try to do it given the globalisation trends.
Dr Weale: For school children
what is important is to have a framework in schools where the
principle is that every child can be taught basic skills. I think
we still have an environment where it is assumed that there will
be some children who cannot read by the time they are 11 and even
adults who are happy to boast that they are no good at arithmetic.
As I say, that will be a very slow process but if you look at
other countries and the teaching methods they use, they do seem
to be more successful.
Q84 Angela Eagle: Already we have
a load of young adults and those already in the workforce, mainly
doing low level jobs or unskilled jobs, that do fall behind. The
Leitch report shows that in all its starkness. We have to deal
with adult training too. It is not something that employers have
traditionally been excessively good at. There is clearly an economic
need to do it as well as a need about fairness in society. Is
what Leitch suggests the way to deliver it, that is what I am
trying to get at? It is not only an issue for schools, it is about
Mr Chote: One issue you raise
on fairness and efficiency as to whether the money that one is
spending on adults rather than children is for fairness reasons
or efficiency reasons. There are those who would say that the
marginal pound you have available would be better spent in terms
of the long-term outcomes on younger people rather than older
people, and the question to what extent
Q85 Angela Eagle: Quite a lot of
that has already been done. You were mentioning the education
statistics earlier for the amount of money expended. I am trying
to get at skills in work.
Mr Whiting: One comment from a
tax point of view. There is an argument that says encourage the
employer to provide the skills training by perhaps giving them
an additional deduction in the same manner as the Research and
Development Tax Credit and so allow the employer to have a deduction
of 125%, or 150% of the actual spend. This recognises that many
employers, particularly small ones, pay twice for training in
the sense that they pay the cash and of course they lose the time
of the employee. Yes, they get the employee back in a better trained
state but that sort of pump-priming in the manner that would encourage
the employer to look hard at the skills that would pay back in
their workforce might pay some dividends, which I think, is in
line with some of Leitch's recommendations.
Q86 Mr Love: In his statement last
week the Chancellor announced net efficiency savings of 3% and
administration budgets to be cut by 5% across the board. Obviously
that would have kept his colleagues happy on equality of sacrifice,
but is it sense? Is there room for the same levels of efficiency
savings and administrative cuts in every department?
Professor Talbot: No, and they
did not do that last time either. The Gershon target was 2.5%
per year for three years, but it was not 2.5% for every department.
The Cabinet Office target in terms of the actual amount of money
in relation to its budget that it was supposed to save was 0.4%
of its budget per year for three years, whereas DWP's was 5.8%
per year for three years. There was a huge degree of variation
in the actual targets which were set for departments, even though
allegedly this was an across the board 2.5% target. That is the
first thing. Clearly there is a lot of variation in what is possible
within individual departments. Secondly, I think the 3% figure
is quite interesting. If you assume that the public sector is
largely much more labour intensive than the rest of the economy,
and the labour intensive parts of the economy are the most difficult
to achieve efficiency or productivity gains in, then I find it
quite odd that we are expecting a 3% gain in efficiency across
the public sectorthis is not just central government, this
is central and local governmenta 3% increase when the overall
productivity increase in the economy at the moment is running
at about 2.4% according to the PBR. Obviously they are not measuring
exactly the same things but it seems to me to be an extraordinary
idea that you can achieve that level of efficiency gains in areas
which are primarily labour intensive. If I can refer you back
to the answer I gave earlier about the discrepancies between the
different work streams, it is quite obvious if you look at the
figures, the small amount of information that we do have, the
fact that on the productive time work stream, which is the one
which is focused on individual's work and how they do it, we are
only running at about 47% of the target according to the figures
which have been released, whereas on procurement, for example,
we are running at 70% of the target. It is quite clear that it
is much more difficult to achieve efficiency savings in those
areas where you are looking at human resources issues essentially.
Q87 Mr Love: Let me take you on.
They also announced that the Value for Money Programme will be
delivering net cashable savings. Gershon was gross. Is that going
to be an improvement? Will that really get their noses to the
Professor Talbot: First of all,
it would be nice if they did actually measure things net because
one of the things the National Audit Office pointed out in their
first report was that we do not know from the way the information
is being reported about the efficiency gains whether or not they
are being reported net or gross, and in most cases they seem to
be reported gross which means they are not necessarily real efficiency
gains, or not as much as is being reported if you are disregarding
the costs of actually implementing them. The fact that they are
moving towards supposedly cashable gains is interesting. Because
of that I would be interested to see that because the main area
of non-cashable gains in Gershon was areas like the productive
time activity because they were not forecast to release cash,
they were forecast to improve the quantity and quality of output
by improving the way in which people worked. Are they saying that
those things are no longer going to be done in the new forecast?
We do not know, there is not enough detail there to be able to
Q88 Mr Love: But it will be tougher
if they do not include that?
Professor Talbot: Yes, absolutely.
Except that we do not know, because they have not said, is this
going to be on the same basis as the Gershon efficiency savings,
which is that the savings were retained by departments and local
authorities, so those that did make real savings released cash
to do things and those that did not did not. To that extent, it
is not money that is supposedly flowing back to the Treasury.
Q89 Mr Love: The Chancellor also
in his statement set out the proposed levels of public sector
capital investment up to 2011-12. Can I ask Mr Chote how that
compares with trends in recent years?
Mr Chote: Yes. The quick answer
while I find the table is that it is much slower, again coming
back to this point that there has been a big step up with adjustment.
Q90 Mr Love: I would say take your
time but the Chairman will start to pressure you in a second.
Mr Chote: Averaging capital spending
the real increase to come increase is 2.7% a year, the real increase
to come, compared with 15.5% under Labour to date. As I say, you
have to bear in mind the fact that when Labour came in there was
an initial attempt to get capital spending up which did not work
out and it actually dropped to a lower level in the first term
than previously, but there has been a subsequent much larger increase.
It would be unrealistic to expect capital spending to continue
to be growing at 15% or so, but 2.7% is the real growth rate over
CSR 2007 on those figures.
Q91 Mr Love: The other side of that
equation, of course, is asset disposals. They are talking about
£30 billion of surplus assets by 2010-11. How does that compare
with recent disposals? Is there any reason to believe that they
can get up to that level based on the sorts of assets that they
are talking about disposing of?
Mr Chote: I do not have that number
on me. I think 30 billion has been the number for quite a while,
has it not?
Professor Talbot: I am not sure.
The basic problem is where are these assets coming from and identifying
them. They are setting targets for them. It would be very interesting
to see what the assumptions are behind those targets.
Q92 Mr Love: Based on recent experience
there is no reason to believe that level of asset disposal could
be achieved? We have not disposed of anything like that level
of assets over the period of this current Spending Review.
Mr Chote: I do not know over what
time period that would be.
Q93 Mr Fallon: Robert Chote, you
have drawn attention in the last few days to the increase in the
number of people living in households of less than 40% of median
earnings. Could you just clarify that particular figure for us
and tell us what the proposals are in the PBR to reverse that
Mr Chote: If I could start on
the 60% child poverty target. We did some work with the Joseph
Rowntree Foundation on what would be needed to get to the child
poverty target in 2010-11 and to do that you 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. We estimated that this
would cost around £4.5 billion. If, for example, the Government
were to do as JRF suggested, 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, as I say, 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. The Chancellor
has not found very much extra money in the PBR to contribute towards
that. There have been extra child benefit payments promised from
2009 onwards for
Q94 Mr Fallon: If I could just stop
you there. It is not the expenditure I want, I am coming to that,
I just want to know the numbers. What has been the increase in
the number of people living in households of less than 40% median
Mr Chote: I do not have the 40%
figure. It depends on which measure of income you usebefore
or after housing costs. John Hutton has used one measure where
he stood up and gave a PQ answer in the House, which you may be
referring to, in which he said there had been no increase, which
is true on one of the two measures and using 1997-98 as a base.
There is an increase of an amount, and I cannot remember of what
amount, if you use either 1996-97 as a base or you use the excluding
housing costs or including other housing costs measure.
Q95 Mr Fallon: You are using that
latter measure for your 60% calculation.
Mr Chote: The one that is relevant
now for the target is before housing costs 60% and with the OECD
method for adjusting for family size, all of which is different
from the measures that we have used for the target to date.
Q96 Mr Fallon: Okay. If you turn
to B80 tucked away at the back it says that they have revised
upwards projected expenditure on Child and Working Tax Credits
by about half a billion, as a result of a number of factors, "including
lower earnings growth among low-income households". Why have
the earnings of those in low-income households grown less than
the Government expected?
Dr Weale: I would say one factor
we would need to or want to consider is immigration. The recent
surge of immigrants has typically been disproportionately taking
low-skilled jobs which does not mean that the migrants themselves
are low-skilled but that has had an impact on depressing wage
growth in that part of the labour market.
Mr Chote: That sounds quite plausible,
Q97 Mr Fallon: Does that not suggest,
therefore, that tax credits might not be the most effective mechanism
for relieving child poverty?
Mr Chote: They are the most targeted
measure. 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, but even the targeted measures are imperfect partly
because of take-up and, as you say, 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.
Q98 Jim Cousins: My questions are
mostly for Mr Whiting. I did ask in the earlier session about
the European Court of Justice decisions. The Government has announced
some first strike/counter strike responses to that. Do you think
the Government is going to be successful in containing tax losses
from these European Court of Justice decisions?
Mr Whiting: Obviously much depends
on precisely the terms of the judgments, some of which are expected
tomorrow and there will be more to come. There has been a bit
of a trend recently for the judgments coming down from the European
Court to be, one might say, equivocal in terms of exactly where
the line should be drawn. In the sort of estimates that were initially
made as to the costs maybe not so much is at stake, but clearly
there is a lot of money at stake with these decisions. You then
put it in terms of will the Government be successful in containing
them. That is a very difficult question because if the European
Court says that the UK tax system is wrong under European law
then it is rather difficult for the Government to say, "But
we will not pay the money back" because people have been
paying taxes under mistake of law and should, therefore, be repaid.
The action that is necessary is to have a good and proper dialogue
as to how to make sure the system is robust going forward and
there are signs of that dialogue starting to happen.
Q99 Jim Cousins: On the specific
point on the containment of retrospection, the Government has
indicated that it wants to take a legal power to contain that
to six years.
Mr Whiting: Yes.