Examination of Witnesses (Questions 200-219)|
12 DECEMBER 2006
Q200 Mr Fallon: You set this out
at great length and there is a box explaining it at great length,
so it confirms my belief that the longer the explanation the more
serious the error. You are supposed to be good at forecasting
this stuff. You said North Sea oil revenues would be £13.5
billion and, in fact, they are going to be £10 billionthat
is a 21% error in just nine months. Why did you not forecast all
these things would happen?
Mr Ramsden: We did our best.
Q201 Mr Fallon: You did your best?
A 21% error?
Mr Ramsden: At the macro level
what we were trying to do at Budget 2006 was take account of the
fact that there were significant increases in oil prices which
were leading to significant increases in investment, and our assessment
was it would lead to less of a fall in production. That investment
would feed through into production. Indeed, our forecast still
showed that happening in the medium term, but it has not happened
in the short term. It is a forecasting error and we are extremely
transparent in accounting for it.
Mr Cunliffe: If I can just make
a couple of general points, the difference in that year between
Budget and PBR, taken overall, is 0.12 billion on the plus side.
If I can make another point, it is that, as we have reported to
this Committee before, I wish we could forecast 18 months out
with complete accuracy. We cannot. No other forecaster in the
world can. Our fiscal forecasting record compares quite well with
other forecastersbetter than the Americans and better than
most Europeansand our economic forecasting record compares
quite well. When you are asking the question that you have had
an unprecedented rise in the oil price and you are trying to work
out what effect that will have on one part of the global oil picture,
you can make assumptions and you can have models but whether 18
months out you can predict that with accuracy I would very much
doubt. I would very much doubt that we could find a similar example
in UK or other history where that sort of thing is forecast with
100% accuracy. It is sensible to look at our overall forecasting
record on public sector net borrowing, but if you want to look
at the forecasting record for individual components of that, I
think you then need to look at it against other forecasters.
Q202 Mr Fallon: This is a very big
component and you are supposed to be making cautious forecasts.
Let us turn to inflation. In March you said it would be 2.65%
in September and it turned out to be 3.6% in September. That has
added another £1.5 billion a year to your pension and social
security bill. How did you get that wrong?
Mr Cunliffe: I think our forecast
for inflation in March was very similar to the Bank of England's
forecast and very similar to other commentators' forecasts. I
am afraid the point about forecasts is that they do not give you
100% accuracy. When one is dealing with a very large price shock
on oil and trying to work out how it will go through to the economy
and the extent to which it will come through to inflation, that
it a very big puzzle for the Bank of England, and it is a puzzle
for us as well.
Q203 Mr Fallon: If you had not got
all this wrong by £5 billion a year you would not have had
to put up taxes by £2 billion from April. So all our constituents
are having to pay for these errors.
Mr Cunliffe: The taxes were forecast.
They were in the equation. We had the same revenue forecast going
forward but, unfortunately, you have to base your forecasts on
the past, and when you are dealing with areas of large uncertainty,
such as how does the world respond to a big oil shock, you cannot
take the uncertainty away.
Q204 Mr Fallon: So I am right: last
Wednesday you had to increase taxes next year by £2 billion
a year because of forecasting errors of £5 billion.
Mr Cunliffe: No, I do not think
that is right at all.
Q205 Mr Fallon: Why are taxes going
up by £2 billion a year?
Mr Cunliffe: I think last Wednesday
the PBR set out the fiscal position for the next three years,
which includes some tax increases and it includes some revenues
with shortfalls, but I think to assume that there is a direct
causal relationship between the two is not right.
Q206 Mr Todd: Can we turn to the
Gershon Review and progress on it. First, if I quote the Chief
Secretary from five days ago, he said: "It is important that
we provide full information on the programme because the more
transparency there is the better the chances of success".
Is that information that is contained on 140-141 the sum total
of the disclosure about this subject that we are going to be entitled
Ms Brivati: If I may try to answer
that, there is some information in the PBR document about progress
in the Gershon programme. This gives the latest achievement on
Gershon, which is that we have, so far, reached £13.3 billion
of efficiency gains against our £21.5 billion target. It
is not the sole total of information that will be available because
departments will publish in their departmental reports individual
departmental achievements and contributions to that target.
Q207 Mr Todd: Bearing in mind the
difficulty of both getting a consistent picture across a wide
range of departments with slightly different ways of delivering
this and the need to impose some methodological consistency anyway
on how these things are measured, would it not be rather better
to have a coherent government picture of delivery in this rather
than relying on individual departments to say it in their own
Ms Brivati: The reason we rely
on departments to report their own progress against targets is
that those targets are departmental targets and the Secretaries
of State for those departments have accepted those.
Q208 Mr Todd: This programme was
announced in a huge fanfare and then subject to large-scale political
competition at an overall corporate level in government. I think
it is not unreasonable to expect some consistent overview other
than the overviews already brought about by the NAO and, to some
extent, by Public Accounts.
Ms Brivati: Departments remain
accountable for their targets, and that is an important point
in terms of ensuring delivery of the targets. We do aggregate
the numbers to report overall progress and that is why we are
reporting it in the PBR. As you say, there are methodological
issues which we continue to explore with the NAO about how best
Q209 Mr Todd: So the answer to my
question is we wait until the NAO produce their next report on
how you are getting on?
Ms Brivati: No, that is not the
answer I am giving you. I think the answer I want to give you
is that there is more information in the public domain about the
methodological issues and how we approach those, which is publicly
available on the OGC website, for example. We hope that that illuminates
the issues about how progress and efficiency is measured.
Q210 Mr Todd: Let us take the little
bit that we have been given in this exercise. Of the reported
savings of £13.3 billion, the Chief Secretary gave information
on 7 December that total savings of £8.4 billion were attributable
to three work streams but did not give us any information on the
remaining work streams and how those broke down. Can you give
us some information on that?
Ms Brivati: I do not think I have
that breakdown with me.
Q211 Mr Todd: Local authorities are
expected to meet their Gershon efficiency target a year ahead
of target. What incentives are there to achieve that?
Ms Brivati: What incentives are
there on local authorities to achieve it?
Q212 Mr Todd: Yes.
Ms Brivati: Local authorities
operate under the same sorts of incentives as other public sector
Q213 Mr Todd: Are we going to await
the same reporting framework for them as for individual departments,
so we will hear from all the individual local authorities how
they have been getting on?
Ms Brivati: It has been our practice
to subsume the local authority efficiency achievement in departmental
Q214 Mr Todd: How is that going to
be achieved, with all the local authorities around the country
achieving these savings in their own different ways without any
coherent audit framework across them?
Ms Brivati: I do not think I would
agree with you that there is not a coherent audit framework for
that. The way in which efficiency gains are measured by the OGC,
which reflects the advice we have had from NAO, takes that difficulty
into account the difficultyand it is a difficult matter
to attribute local authority efficiency progress to department
totalsbut that is the way we have done it over the course
of the programme so far.
Q215 Mr Todd: There is a risk, of
course, which the NAO have identified, that this programme will
actually deliver lower quality services. Indeed, there have been
comments that that has actually happened. To what extent is that
taken into account in the way in which you examine the success
or otherwise of this programme?
Ms Brivati: It is taken into account.
We have been conscious from the outset that that is a risk in
terms of pursuing and delivering efficiency savings.
Q216 Mr Todd: Is it a risk that has
been delivered in reality?
Ms Brivati: 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 OGC 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.
Q217 Mr Todd: Bearing in mind the
straitened circumstances of the Department of Health budget at
the moment, does the saving of £3 billion in the last 18
months suggest that this programme is being achieved without pain?
Ms Brivati: The circumstances
of the Department of Health budget and the reasons for what is
going on in the NHS are many and different
Q218 Mr Todd: There is no contributory
factor from the Gershon review in this process?
Ms Brivati: I would hesitate to
make a direct link between the two.
Q219 Mr Todd: There seems to be a
slight contradiction over the relocation of civil service posts.
The Chancellor said thata very precise figure10,179
posts had been announced for relocation, but your own document
gives a rather rounder figure of 10,500 having actually been relocated.
Which is true?
Ms Brivati: The figure I have
is that 10,574 posts have been relocated out of the South East.