Examination of Witnesses (Questions 60-71)|
1 NOVEMBER 2006
Q60 Mr Todd: Did they give reasons
why it might not be appropriate? Granted it might cost money.
Mr Daykin: The Treasury consider
that the UK Government should carry its own risks and should not
pay money to private sector insurers to do that risk-carrying
for it, I think is the short answer. As far as our international
work is concerned, I do not feel that we are doing work that has
a particularly high risk profile; it is very different from much
of the work that private sector clients might be doing in mergers,
acquisitions and that sort of thing. We are advising on long-term
financing of social security schemes with many years before the
outcome will be known, and of course it will be different from
what we have projected. We are advising in the field of insurance
regulation but we are not the regulators, we are simply providing
input to regulatory processes in other countries. So I think we
are well in control of the sorts of risks that are potentially
there whilst not being ignorant of the fact that there is a possibility
that there could be a risk.
Q61 Mr Todd: However, it is not a
possibility which would lead you to make any provision for that
Mr Daykin: We are not able to
do that in advance. As a government department we have to operate
on a year-by-year basis. We cannot put money aside either for
investing in the future or for provisions for liabilities or anything
else; we are purely on a cash basis from that point of view.
Q62 Mr Todd: You have outlined why
you believe many of these contracts are low risk, certainly in
terms of them ever being visited in your lifetime on the GAD.
Have you done any appraisal of the scale of risk that might be
involved in any incorrect advice to a foreign client?
Mr Daykin: It is very difficult
to quantify because most of the things that we are working in
do not have a sort of readily establishable value as to what could
be a liability. So the short answer is no, we have not done an
appraisal of that because I think it would be extremely difficult
to carry out such an appraisal.
Q63 Mr Todd: For someone to make
a claim against you they would not merely have to demonstrate
that you produced an outcome which was different from what eventually
turned out, because that would be what everyone would expect,
but more that you failed to use tools and information that were
available to you at the time of the contract in giving an answer
to your client.
Mr Daykin: Yes, or that we were
negligent in the way in which we carried out our work. I think
the checks and balances we have on the work we do, the peer review
process, our openness to exposure to ideas from outside, all make
it very unlikely that we would ever be found to have done work
of this nature in a negligent way.
Q64 Mr Todd: So you share the Treasury's
Mr Daykin: I think from a commercial
point of view, if we see ourselves, the Government Actuary's Department,
as a quasi-commercial organisation, the proper thing to do might
be to take out private insurance, but that is not the view of
government as a whole.
Q65 Mr Todd: I was asking for your
Mr Daykin: I think for government,
as a whole, it clearly is correct not to take out private insurance
because the Government is big enough to be able to bear its own
Q66 Mr Todd: There have been suggestions
that GAD should be converted into a trading fund. Any progress
Mr Daykin: We carried out our
own appraisal of this immediately after the Morris review. The
view of the management board at the GAD is that there would be
nothing to be gained for us or for the public interest in moving
to a trading fund, but it is under review. Kevin, would you like
to say what the current state is?
Mr Down: Yes. The current situation
is I have had a number of meetings with Treasury officials over
the last two or three months, Treasury is currently considering
the case and we are awaiting their decision.
Q67 Mr Todd: But it is GAD's view
that there is no advantage in pursuing this course?
Mr Daykin: We believe so, yes.
It would not, for example, give us any freedom in relation to
our charging structures because we would still be bound by the
Treasury fees and charges rules. There would be a limited possibility
to carry money forward from year to year, but we would be under
the control of another department so we would lose our independence.
So I think it would be very detrimental from the point of view
of the perception of GAD as being an independent entity.
Q68 Mr Gauke: Can I come back very
briefly on the administration costs we were talking about a moment
or so ago? I mentioned the 17% increase from 2005-06 to 2006-07.
You mentioned it was because of more actuaries. According to the
figures here in Table 6, the increase has gone from 108 full-time
equivalents to 111. Were they particularly expensive, high-paid
new actuaries or have you all had a good pay rise?
Mr Daykin: No, our pay rises are
very much controlled by central government considerations. We
have recruited across the whole range including actuaries, who
are a relatively expensive commodity.
Q69 Mr Gauke: There does seem to
be a disparity between the 17% increase and the cost, which you
say is largely down to more actuaries and the actual increase
Mr Down: The plans are based on
the budgets, and the net admin cost is the figure that we are
aiming for and working towards. There is potentially some headroom
in here so we will not reach the full admin costs, and also we
will not generate the income. The net figure is the control that
we are working towards rather than the gross figures.
Mr Daykin: I am struggling a little
to see which figure you are comparing. Where is the 17% coming
Q70 Mr Gauke: The 17% is comparing,
on Table 5, looking at "total gross administration costs"
from 2005-06, estimated outturn.
Mr Daykin: Right. Okay. They are
completely different bases, I think. It is not real outturn; these
are the figures that happen to be in the Treasury system. So that
was not the true estimated outturn for the year in any real sense.
Q71 Mr Gauke: I was comparing estimated
outturn with estimated outturn, but I was a lawyer, not an actuary!
Mr Daykin: This is not actuarial,
this is Treasury
Mr Newmark: This is a Treasury accounting
Mr Gauke: Treasury funny money.
Mr Newmark: Like all Treasury accounting!
Mr Gauke: I think on Treasury funny money
we will stop.
Chairman: We are going to leave it there,
Mr Daykin. Thank you very much for coming today and thank you
to your colleagues as well. We now move to the next session on
the Royal Mint.