Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 60-71)

MR CHRISTOPHER DAYKIN, MR ANDREW JOHNSTON AND MR KEVIN DOWN

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 risk.

  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 view?

  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 view.

  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 risks.

  Q66  Mr Todd: There have been suggestions that GAD should be converted into a trading fund. Any progress on that?

  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 in staff.

  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 from?

  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 system.

  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.





 
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