Select Committee on Treasury Third Report


Appendix 2: Memorandum of evidence received by the Committee for its inquiry into the 2006 Budget


Supplementary information from HM Treasury following the hearings of the Committee on 29 and 30 March 2006

What proportion of the trend population growth was attributable to migration

The Treasury's projection for population of working age and for migration is based on the Government Actuary's Department (GAD) principal projections. As noted by GAD, projecting migration is inherently uncertain, and in addition to their principal projection for net migration, they produce additional projections under alternative assumptions about migration (high and low). GAD's 2004-based projections are available on their website (http://www.gad.gov.uk/Population/index.asp?dp=Current+projections&subYear=Proceed)

The Treasury's population projections are based on, and fully consistent with, GAD's principal projections. The Treasury derives a quarterly series based on interpolation of GAD's mid-year estimates.

Contribution of migration to Treasury's population of working age projection:

  • For the period 2004-2011 (this covers the period from the take off point for GAD projections until the end of the medium-term projection period), migration is projected to account on average for approximately 90% of the growth of working-age population (working-age population is projected to grow by 0.6% a year from 2004 to 2006, and by 0.4% a year from 2007 to 2011).
  • For the period 2007-2011 the growth of the population of working age is driven entirely by migration. Indeed, excluding migration the working-age population would be projected to fall. This reflects the effect of post-War baby-boom women reaching retirement age as discussed in the Budget 2006 document (page 228).

To indicate the destination of any receipts of the sale of Scottish Water

Scottish Water is treated as a public corporation with ongoing operations in the fiscal projections. Any announcement on Scottish Water would be for the Scottish Executive. The funding arrangements of the devolved administrations, including the treatment of receipts from privatisation of public corporations, are set out in Funding the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly, published by the Treasury in July 2004.

Sanctions relating to Jobseekers Allowance (JSA) and the availability of JSA to those with children

Around 11% of JSA claimants are affected by some form of sanction or adverse decision on entitlement. As an illustration, in 2004/05, there were 1,700,000 new JSA claimants. In the same period, 197,000 people received some form of sanction or were disentitled.

Of the 1,700,000 people who made at least one claim for JSA in 2004/05, 124,000 had at least one dependent child, and of the 197,000 claimants who received some form of sanction or disentitlement, in that period, 17,800 (of those whose status is known) had at least one dependent child.

For those in a vulnerable group who have been sanctioned but not disentitled, including any JSA claimant with dependent children, a hardship payment can be made at a rate of 80% of the benefit.

The aim of the strengthened Fortnightly Job Review (FJR) is not to increase the numbers of sanctions applied but to ensure effective jobsearch. Depending on how claimants respond to the increased focus on jobsearch, there may be an increase in numbers of people whose entitlement to JSA is called into question because of a doubt about their availability for, or efforts to seek, work. Any claimants who lose their entitlement in this way will be able to reapply but will need to demonstrate that they are available for, and actively seeking, work.

What proportion of the £6.4 billion of reported Efficiency Programme savings are cashable.

The cashable element of the £6.4bn will be known after the end of the financial year. Local Authorities provide 2005-06 Backward Look returns on the completed financial year in their Annual Efficiency Statements, expected in July. Approximately 70% of the efficiency gains delivered by local authorities in 2004-05 were cashable.

The 2004 Spending Review (SR04) set the target of over £20bn of annual efficiency gains by 2007-08. The SR04 White Paper sets out that the vast majority of departmental SR04 efficiency targets are for at least 50% of their efficiency gains to be cashable. However, the overall profile will not necessarily look the same in each of the three years of the programme.

Information on the net savings arising from the Efficiency Programme

There are differences across the programme: some parts of the public sector are reporting net efficiencies, and some gross. For example, local government, which accounts for one-third of the Gershon target, is reporting net efficiencies. Departments are being encouraged to measure new efficiency initiatives in net terms where this is possible. However, many of the initiatives that are contributing to efficiency savings are also delivering other benefits, such as modernised services. These are large and complex projects. To disaggregate the costs of implementing those initiatives into the costs relating to extracting efficiency (from 2005/6, and in some cases earlier) and other costs, and to also link savings achieved in different years back to those costs, would be extremely difficult and costly.

To provide any further clarification on costings of PBR 05 Tax Credit measures

HMT's approach to forecasting the cost of the PBR Tax Credit package has already been the subject of explanation in Tony Orhnial's letter to the Committee of 8 December. There is nothing further to add at this stage.

Pension tax limits

The rules governing pension schemes changed on 6 April 2006, offering simpler and more flexible retirement arrangements and more options on how and when people contribute to their schemes, and draw their benefits. A single, universal regime for taxing pensions has now been introduced. The key limits in the new regime are as follows:

  • Tax relief is available on pension contributions up to 100% of people's annual UK earnings.
  • An annual allowance on savings into a pension (annual savings of more than this are subject to a tax charge). The annual allowance has been initially set at £215,000 and it will be increased annually as follows:
Tax YearAnnual Allowance
2006/07£215,000
2007/08£225,000
2008/09£235,000
2009/10£245,000
20010/11£255,000

  • A lifetime allowance on lifetime pension savings (anyone with pension savings of more than this at the time they take their pension is subject to a tax charge). The lifetime allowance has been initially set at £1,500,000 and it will be increased annually as follows:
Tax YearLifetime Allowance
2006/07£1,500,000
2007/08£1,600,000
2008/09£1,650,000
2009/10£1,750,000
20010/11£1,800,000

HM Treasury, 3 May 2006


 
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