House of COMMONS









Monday 22 October 2007



Evidence heard in Public Questions 1 - 150





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Oral Evidence

Taken before the Treasury Committee

on Monday 22 October 2007

Members present

John McFall, in the Chair

Mr Graham Brady

Mr Philip Dunne

Mr Michael Fallon

Ms Sally Keeble

Mr Andrew Love

Mr George Mudie

John Thurso

Mr Mark Todd


Witnesses: Andy Burnham MP, Chief Secretary to the Treasury, Ms Mridul Hegde, Director, Public Spending, HM Treasury, Mr Richard Hughes, Team Leader, Comprehensive Spending Review, HM Treasury, and Mr David Ramsden, Managing Director, Macroeconomic and Fiscal Policy, gave evidence.

Q1 Chairman: Minister, welcome to this evidence session with your colleagues. Can I ask you to introduce them for the shorthand writer, please?

Andy Burnham: Good afternoon. On my far left is Dave Ramsden who is managing director and who you have probably heard before. On my immediate left is Richard Hughes who is the head of the CSR team. On my right is Mridul Hegde, who is director of public spending.

Q2 Chairman: Between 1999 and 2008 expenditure within Departmental Expenditure Limits will have grown at 4.9% a year in real terms but between 2008 and 2011 that growth will be cut to 2.1%. What leads you to believe that the public sector is prepared for such a dramatic deceleration in growth?

Andy Burnham: There has been a lot of planning put in place for this Comprehensive Spending Review. As you rightly say, the context for it is ten years of significant if not unprecedented investment in public services. The Comprehensive Spending Review, in my view, consolidates that investment and continues the growth in key departments and on key priorities. It has been well signalled that there would be a slowing of the pace in the growth of public spending. It has been well known in the main departments over the period running up to the Comprehensive Spending Review. The same spending assumptions that were there, that underpinned the spending review 2004, have been maintained underpinning this spending review. It is the right response to the situation that faces us today but if departments make the headway on efficiency, as I have every confidence they will, we have said all along that they will be able to maintain the rate of improvement in public service within the tighter spending climate they are now working in.

Q3 Chairman: There has been a view that the largesse has not been spent as well as possible. Now there is less money. What guarantee can you give us that, with even less money, your spending is going to be better?

Andy Burnham: I hear that said frequently. This idea is just tossed out that the money has not been spent well and it has not produced results. I would like to challenge that and say that across the key departments you can see the improvements are quite staggering, in my view. If I look at the department that I was previously a minister in before coming to the Treasury, you can see there enormous improvement in waiting and waiting times and on the big killers, cancer, coronary heart disease and stroke, that I would say is a major return for the investment that has gone in. In education, the government's stated priority, again you can see considerable improvement in the numbers of pupils gaining five A to Cs. I do not have the figure directly to hand but there is a real improvement of around about 10% in the numbers of pupils getting five good GCSEs. That is a direct result of the investment. Having said that though, I do accept that in this spending review period there should be further pressure on departments to focus and really ensure that every pound that we put in gets the maximum return for the public. I think there is a growing focus on that issue now, whereas five years ago people would have just looked at the headline increases that departments were receiving as being an end in themselves. I think we have moved away from a period where people generally thought that the public services were underfunded to one where now people are looking more critically at what the return is for that investment.

Q4 Chairman: While it is understandable that baselines for spending settlements may not tally with expected outturns for 2007/8, do you agree that it is unfortunate that the Comprehensive Spending Review document did not provide clearer information on current estimates of outturn expenditure for 2007/8, given the scale of the difference between the two? I am considering here the 2007/8 baseline components in table 1.3 which add up to 341.4 billion less than the total DEL that is shown as 344.6 billion.

Andy Burnham: I know the Committee have pointed out that difference to the Department. There is a very good explanation for it which would be common to any spending review, which is that one time limited and one off items of expenditure are removed from the departmental baseline, that would account for the roughly 2.1 billion that explains the difference between the two figures. If the point you are making to me is: was that explained clearly enough in the documentation that supported the CSR, that is something I will take on board and have a look at, but there is a very good and a very sound explanation as to why there is a discrepancy.

Q5 Chairman: At which stage in the spending negotiations were the baselines agreed?

Mr Hughes: It is part of the overall spending review process that we do this with the departments and to some extent it was a rolling programme of looking at particular things within departmental baselines. In some cases, these things were agreed as early as January of this calendar year. In some cases, it was not until the Budget that we finally agreed on what the amount of time limited spending was to be removed from their baseline. In other cases, it was not until the summer or just before the spending review that we reached a final set of figures. The only thing to bear in mind is that there was a big machinery of government change announced over the summer so part and parcel of setting new departmental baselines was not just removing time limited expenditure from within those baselines but also to some extent moving resources around to follow the functions that were being transferred between the old Department for Education and Skills and the new Department for Children, Schools and Families, deciding where the different functions go, what amount of expenditure to attach to each of those functions and then getting those reflected in the final set of allocations that we set out in the spending review. This is a bit more of a challenge than we have usually had in previous spending reviews because we had quite a lot of new departments which we had to create budgets for and that took a good part of the summer for us.

Q6 Chairman: Using estimated outturns for 2007/8 as opposed to baselines, the spending increases for the Department of Health, the Department for Children, Schools and Families and the MoD appear to average 2.6%, 3.4% and 0.5% respectively in real terms of the CSR period compared with the figures stated in the CSR document of 3.1%, 3.9% and 1.5%. Is it a coincidence that these high profile departments are among those most affected by differences between baselines and estimated outturns?

Andy Burnham: I think that is a very important point to raise. If I may, it is a point that needs clarification because it would be absolutely wrong for us to take as a baseline a departmental allocation that included spending that was time limited, had expired or was one off. It would be to inflate the overall DEL allocation if we were to do that. As Richard Hughes was explaining, it was quite proper to take out from those baselines the items that will not recur in the spending period so that we have a proper assessment of the underlying budget of the department. From my point of view, having come into the spending review at a late stage, it was a process of discussion with each department as we reached the final stages of the spending review. Some of the items that account for this change between the DEL plans and the baselines were issues that were matters for discussion between myself and the relevant Secretary of State until the conclusion of the spending discussion.

Q7 Chairman: One of our advisers told us last week that the cost of government consumption from 1997 to 2006 rose 1.7 percentage points faster than the GDP deflator so that, on the basis of similar rates in future, 2.1% real terms growth calculated according to the GDP deflator amounts to 0.4% real growth. Do you accept his figures on the cost of government consumption between 1997 and 2006?

Mr Hughes: We do not accept those figures in the sense that the deflator we use for all public spending is the GDP deflator, the same one we use for economic output, so we can have a consistency reaching across all public spending. We have a sense for how much economic output is being used by the public sector to deliver the resources that it spends in different departments. We have always reported them this way and, if you take the GDP deflator that we needed to deflate public spending figures over the last five years, overall spending on public sector current expenditure, which I think is the same as what you would call public sector consumption, is somewhere closer to 3% or 4% in real terms since 1997.

Q8 Chairman: Do you expect the cost of government consumption to grow at the same rate in coming years?

Mr Hughes: Different cost pressures are different on different departments. Some of them are higher than the GDP deflator; some of them are lower than the GDP deflator. I would not expect overall cost pressures across the public sector to be substantially higher than cost pressures across the economy as a whole. After all, that is where government purchases its services.

Q9 Chairman: Do you agree that the relative price effect substantially diminishes the value of spending increases in areas where costs rise faster than the GDP deflator, such as costs in relation to, for example, defence equipment?

Mr Ramsden: I think it is fair to say that we are very comfortable with our approach at a macro level whereby, as Richard has been setting out, we relate everything to the GDP deflator in terms of the deflator and also we compare growth rates in real spending with what we are assuming about real growth in the economy. As you highlighted, at a micro level, when you are looking at individual department settlements within departments' individual programmes, we do look at the relevant deflators in order to work out our calculations. for example within the MoD, what is the rate of inflation in procurement there; within transport looking more at construction; within the health service looking at the drugs bill. At the macro level you have to have coherence, which is why we do focus on the GDP deflator and real growth and on nominal GDP as a combination of the two. At the micro level, we draw these distinctions.

Q10 Mr Love: If that is the case, do you accept what Mr Weale said to us last week, that the deflators that you use for individual departments are significantly different from the overall deflator for the economy and that therefore the rates of growth that you have been talking about overall, using the GDP deflator, are not the same as the rates of growth that are going to happen because there is this difference at a departmental level?

Mr Ramsden: In terms of thinking of what the contribution different departments make at a macro level, it is right to calculate real growth by using the GDP deflator.

Mr Hughes: I do not think we do accept the point that Mr Weale was making in the sense that the immediately you use the deflator to try to get a comparable serious across departments and across time, you are using a different set of deflators for different government services and you would defeat the purpose of having a single deflator to use across the whole of government spending. For the services where they are expecting much more significant cost pressures over the spending reviews, you would expect for the government as a whole that that is reflected in the fact that they are getting a better settlement than you would otherwise get.

Andy Burnham: Obviously that is reflected in the allocation. You mentioned defence. We can perhaps take the NHS. Obviously pressures are growing at a rate above perhaps other departments with the effects of an ageing population, the cost of drugs and treatment, but those calculations, taking into account the overall DEL allocation made to a department and obviously construction inflation, have been a particular issue that I have been looking at in the context of some of the large capital projects that have received the go ahead during this Comprehensive Spending Review period. Those pressures are taken into account when setting the overall allocation.

Q11 Mr Brady: Earlier this year this Committee recommended that the CSR ought to contain an overall analysis of the impact of inward migration and population growth on public expenditure. Why is that not there?

Andy Burnham: When the government embarked upon this Comprehensive Spending Review process, as you will know, we looked at the long term challenges that the country faces, long term opportunities and challenges for the UK analysis for the 2007 Comprehensive Spending Review, and population change was very much a part of that planning process that underpinned the whole exercise. Now that the overall allocations have been made underpinned by this analysis of population change, it is for individual departments to make a judgment in terms of their own allocation formula about population change in particular localities over recent times. I think I am right in saying that practically all departments have committed to using the very latest data available to support the allocations that they will now seek to make on the back of the spending review.

Q12 Mr Brady: You have made a specific assessment nationally of the impact of inward migration on public expenditure?

Andy Burnham: Yes. That was at the very beginning of the process when the government laid out the broad demographic changes that the Comprehensive Spending Review had to focus on. If you look at the document that I was referring to, there were a couple of paragraphs more on page 33 which were not just looking at the inward migration but also other trends in the population such as the numbers of people aged over 85. These were projections that underpinned the overall analysis. As you will see, paragraph 3.2.6 gives some particular figures about levels of net migration so it was very much in the detailed planning work which underpinned the CSR as a whole.

Q13 Mr Brady: You say you have looked in detail at the inward migration impact on public expenditure. Have you also looked at the wider question of all the departmental spending figures on a per capita basis? For example, could you give me what the specific rate of increase you expect in health spending per capita would be over the CSR period?

Andy Burnham: That is the basis of the detailed discussion that happens at official level between the Treasury and the Department of Health and, in the latter stages, at ministerial level. It is for departments to bring to us the pressures that they are facing as a result of demographic change or the effects of net migration. It is at that level where the overall pressures can be brought to our attention but it is very much for departments now to develop a funding formula that recognises, if there are additional pressures on services, that they have a funding allocation that is sensitive to those changes. All are planning to use the latest population data and there are well established funding formulae to pick out these pressures.

Q14 Mr Brady: Can you tell us what the change will be in per capita expenditure on health over the CSR period?

Andy Burnham: As a result of net migration?

Q15 Mr Brady: The change in per capita expenditure. Obviously it will be as a result of changes in the overall size of the population.

Andy Burnham: I could. I do not have that figure directly to hand. Obviously the per capita allocation differs across the country. You are asking for a figure for the whole health care unit divided by all the people in the country and how that might have changed according to ---

Q16 Mr Brady: Yes.

Andy Burnham: I am sure we could provide you with that figure.

Q17 Mr Brady: Do you accept that all of your plans to enhance spending on public services in the coming years are absolutely dependent on success in restraining the public sector pay bill?

Andy Burnham: Obviously it is a spending review that requires vigilance and discipline in terms of the way in which spending is allocated but also the way in which pressures are managed. That is quite clearly the context in which all departments are operating in the forthcoming period. The government's policy with regard to these matters will remain unchanged, which is that public sector pay awards should be consistent with the government's overall headline target for the government's overall inflation target. There will be no change at all in terms of that position. Given the climate in which departments are operating, there does need to be a discipline with regard to pay. At the very beginning I began by responding to the Chairman, saying that it is important to see the ten year context for this CSR and particularly in relation to pay and workforce I think there is a very important ten year context which is that, progressively over the last ten years, workforce shortages in key professions have been - I would not say eradicated - but addressed. The increases in pay to bring in professionals to the degree that they were needed have largely been successful in my view. Hence, for that very reason, we are now in a different period with regard to public sector pay. It is not so much a period of catch-up to get staff in post and aid recruitment and retention. It is a different period that we are now in.

Q18 Mr Brady: I take it what you are saying essentially is that you increased pay a lot in previous years so now you think you can control pay growth very stringently in an effective way. Do you think, from a pure management point of view, that is a sensible way of approaching individuals' remuneration over a period of years?

Andy Burnham: I would make no apology for the steps the government took to ensure that key, front line professionals were adequately rewarded. Also, there was an incentive to bring in extra staff where they were needed and I would make a robust defence of that. The headline growth rate in pay often does not tell the full story around pay trends within a particular profession. Let me take for example Agenda for Change. Additional to the headline pay increase, lots of staff in the health service would receive an incremental or a developmental payment relative to the banding and the progression that they make on the Agenda for Change pay spine. There will be similar comparable systems across the public sector. If you are asking me: is there a need for ongoing discipline with regard to these matters, with regard to the potential effect on inflation, I would say to you absolutely. There is no change there. The government believes that that is the case. The changes in the economy around perhaps inflation in terms of food or energy prices make it all the more important that there is discipline around public sector pay, which can provide an anchor to keep a grip over inflation.

Q19 Mr Brady: You said that some groups of public sector workers will get bigger increases, whether it is Agenda for Change or whatever it might be. Presumably though, within these very rigorous public expenditure totals and ceilings for pay restraint, that means that some will receive less than the headline level of growth.

Andy Burnham: The point I was making was that there are incremental payments throughout most of the Civil Service and the public sector which do not tell the whole story when people are looking at the pay settlement. Overall - I cannot remember the words you just used - I think we are looking for fair settlements, are we not, that recognise the increase in pay that some professions have seen in the last ten years. It is also true to say there has been a particular grip around pay at the top end of the scale and I think that is something that most people would recognise as being important. Having said that, in this year's discussions with the Secretary of State for Health, there has been a recognition that staff at the lower grades within the Agenda for Change system have perhaps not done as well as others in recent times. There was a particular focus on the very lowest paid staff in the National Health Service. It is essentially a judgment for each Secretary of State and each department to review these matters and make sure there is a pay system which is fair and which recognises where there are particular pressures in the system.

Q20 Mr Brady: Very simply and very briefly, you are confirming that some groups of workers will get pay increases which are below the headline rates of increase?

Ms Hegde: As the Chief Secretary has been explaining, the way public sector pay scales are structured tends to mean that those at the bottom of pay scales will receive proportionately larger increases to those at the top. It is not obvious to me why anyone should be receiving less than the headline increase. It may be that workers at the very top of their pay scale will receive only the headline increase but by and large those will be a minority of workers and the worst paid people on the pay scales will be receiving proportionately more increases. For example, on top of the basic settlements that were settled last year, additional increases of 5% to 9% were available for individual prison officers, 3% to 4% for individual nurses, 4% to 8% for teachers and 2% to 6% for police officers.

Q21 Mr Brady: I am not a mathematician but as far as I can see what you are saying to me is that it is possible, when you have a single, headline level of increase for public sector pay, to pay some people an increase of more than the headline without paying some people an increase of less.

Mr Ramsden: We discussed this with you as well at the hearing last week. The headlines for the pay awards to not include these additional things such as when people are promoted through the grade and all of that kind of thing, so you are comparing slightly different things. That is why public sector earnings are still growing - and have done over the last couple of years - at about 3% or a bit more; whereas our pay awards have been closer to 2% because we have these additional things that are added in as people move up through pay bands.

Q22 Ms Keeble: I want to ask about child poverty and some of the measures that you have in here to deal with that. Looking through it, it appears that the main measure to tackle child poverty is through the increase in the child element of the child tax credit. What is the rationale for that?

Andy Burnham: That has been and we believe remains the most effective way of targeting children with real need. It is obviously possible to do that through other mechanisms, through increases in child benefit, but it is the government's view that increasing the child element of child tax credit is a very, very effective way of making further progress towards the child poverty target. There are obviously other things that can be done to make that progress. I think it is important. I do not want to be misunderstood in saying that that alone is the only mechanism that we use.

Q23 Ms Keeble: What are the other measures?

Andy Burnham: The Chancellor announced in the PBR further increases in the child maintenance disregard which essentially doubled to 20 and doubles again in April 2010 to 40. Child benefit is rising in line with prices in April next year. The combined effect of these measures explains the further 100,000 children who will be lifted out of poverty as a result of these steps. As with all budgets and prebudget reports, a view is taken at any particular time with regard to the state of the economy and numbers in work and obviously then further steps remain open to be taken at the appropriate time.

Q24 Ms Keeble: Have you looked at the real impact the child maintenance disregard will have on earnings of low income families? Obviously it assumes that that money is being paid, which is a very big assumption. It would be interesting to know what analysis has been done of the impact on household incomes in real terms.

Andy Burnham: It is a good question. I do not have that analysis to hand. I can write to the Committee with that. I take your point that it may not reach universally the children that ----

Q25 Ms Keeble: For most of us who look at these cases in our surgeries, we suspect that the impact would be much lower than is projected. How about the child care element of the working tax credit? I did notice that in the list it said that all elements of tax credits were going to be inflation proofed with the exception of the child care element. For my constituents, that is one of the most important elements. I wondered if I had read that correctly and, if so, what the rationale was.

Andy Burnham: Again, that is something I will have to come back to you on. I know the Chancellor is appearing before you later this week and I think he has indicated that he wants to talk to the Committee about child poverty and further steps to be taken.

Q26 Ms Keeble: This is a really key one. There must have been some reason. Either I did not read the note properly or else there must have been some very specific reason that, in all the elements of tax credits, one was excluded.

Andy Burnham: Rather than giving a long answer that does not answer the question, can I just say I do not know the reason? I think what you are saying is right.

Q27 Ms Keeble: Can you confirm that it was actually excluded from the uprating?

Andy Burnham: My understanding is that it was. The recent change that you are referring to is to the child element of child tax credit. I will confirm for you that your understanding is correct. In terms of why that was done, I suspect it would be done because of changes around investment in Surestart and children centres and other increases in provision that the government is making, although I do not know for sure.

Q28 Ms Keeble: Dave Ramsden is nodding. You must have had people in earlier seeing the questions that were being asked at previous sessions of this Committee. I specifically asked about that so I am surprised that nobody can confirm exactly what the position is, or perhaps somebody else can?

Mr Ramsden: My understanding was that the Chancellor would be confirming to you the answers to these questions on Thursday because he was going to be taking questions on child poverty rather than departmental spending.

Q29 Chairman: We have the Chief Secretary of the Treasury here. This is spending. This is why we want answers.

Mr Ramsden: This is just a factual point.

Q30 Chairman: I understand but as a Committee you cannot decide when you are going to answer questions and when you are not. I have a bunch of bolshie people here and they want to ask questions on that.

Andy Burnham: I do not have the answer to the question that Sally is raising. I will endeavour to provide an answer.

Ms Keeble: One of the things that really concerns me is that for women in my constituency who are trying to get out of poverty this is the single most important payment that they can get. It is not 20 or 40 a week. It is not like the 125 a year. Child care costs around about 200 a week for most women and that is just for one child and they have to pay retainers for period that they do not get the child care element. It cannot be an issue about Surestart. Women have to pay for private placements. You cannot take a child to Surestart and then come out of work and take them to their afternoon child care. I cannot understand why nobody here has a focus on the benefit which is the most important for working mothers who want to get out of poverty, because that is what this measure is.

Chairman: If you write to us before Thursday, we can have a look at this before the Chancellor comes.

Q31 Ms Keeble: What happens if I cannot come on Thursday?

Andy Burnham: I appreciate that we do owe a specific answer on the point. Obviously the changes that were announced in the Budget this year amount in my view to a fairly serious uprating of the child element of tax credit which is equivalent to 150 per annum. There are further increases planned over the course of this Parliament. That benefits the population that you are talking about. I appreciate that that is not in the child care element. The figures we have are 3.7 million families, 6.9 million children. That is the course that the government is taking with regard to child tax credit.

Q32 Ms Keeble: What is the relationship between 150 a year and 200 a week? That is what we are talking about: outgoings of 200 a week and it is proposed that those be met by an increase in benefit of 150 a year. It does not equate, does it?

Andy Burnham: I will come back to you with a fuller answer on why that decision was taken.

Q33 Mr Mudie: I am intrigued by the Chancellor saying a few things about this. What can we not ask on child poverty? What are we allowed to ask on child poverty?

Andy Burnham: I will do my best to answer whatever you want to ask.

Q34 Mr Mudie: Can you assure us of the year in which we are going to halve child poverty?

Andy Burnham: In the PSAs that underpin the spending review, we recommit to the overall goal for eradicating child poverty by 2020.

Q35 Mr Mudie: That is abolishing it.

Andy Burnham: We recommit to the overall goal. The PSA further recommits us to halve child poverty by 2010/11. There is no resiling from the scale of that challenge. As I was just explaining to Sally Keeble a moment ago, 600,000 children lifted out of poverty. As a result of the measures recently announced, the ones I have referred to today, a further 100,000 children taken out of poverty. Obviously further progress depends on wider trends in the economy, the number of people in work and other wider trends. All of these things obviously are kept under review and the commitment could not be clearer.

Q36 Mr Mudie: I am used to government ministers. When they use the word "challenge" that means it is something they are not going to manage. You have referred to this being a challenge. What is the number of children we need to take out of poverty by 2010/11 to meet the target, so we all know where the hell we are? Child tax credit and all that confuses the situation. We have a target. How we will get there we will discuss but what is the target by the year 2010/11? One of your officials can whisper it to you.

Andy Burnham: I am waiting for inspiration. There has been huge debate about -----

Q37 Mr Mudie: No, there is not. It is in the papers.

Andy Burnham: I am just saying about the baseline, when it is set and whether ----

Chairman: You have mentioned 600,000 and there are another 800,000.

Q38 Mr Mudie: He has more officials than we have.

Andy Burnham: It may be a waffly answer but obviously the test set by the PSA is a range of indicators, absolute poverty, relative poverty and also the new test that people were asking us to increase on material deprivation.

Q39 Mr Mudie: No. In the budget you refer specifically to low relative income and you have pinned yourself as the Treasury. That is the measure. There are numerous measures. You have even projected a target where there is another target but you have pinned yourself at low relative income. I am shocked that you have not given us the figure. Give us the figure.

Andy Burnham: 800,000 is the figure.

Q40 Mr Mudie: No. What do you mean, 800,000?

Andy Burnham: A further 800,000. 600,000 children, you would agree, to this point from when the baseline was set. To meet the target by 2010/11, a further 800,000 children would need to be lifted out of poverty. The measures recently announced, I believe, would take a further 100,000 children out of poverty.

Q41 Mr Mudie: I have 1,700, 1.7, and I will give you 300,000 past measures. The 600,000 we have all accepted - Gordon has said it enough; we must accept it - and we have 200,000 in the 2007 budget and another 100,000 in this prebudget plus the CSR which means 900,000 I will give you. We have 800,000 to get. Can you assure this Committee that in 2010/11 you will have those 800,000 taken out of poverty on the measure you put forward and we accept: low relative income?

Andy Burnham: I can assure you that is the measure by which we will be judged. There is no resiling from that.

Q42 Mr Mudie: Of course it is the measure. We have just taken ten minutes to get out of you that that is the measure on which you will be judged. We are saying now as we sit here, there are 800,000 youngsters. We do not have any sign of the resources in the CSR that runs up to 2010/11 that will deliver those. Maybe this is what the Chancellor is coming to say, that the target has been changed or the years have been moved. If it is not being moved, can you assure this Committee that by 2010/11 those 800,000 will be taken out of poverty? I will warn you about the next question. The next question before you answer that is how. Can you point us to the resources in the CSR?

Andy Burnham: I will do my best to answer both. In any of the PSAs we have set, that is the government's stated intention and we will strain every sinew to get to that target. Bear in mind these PSAs that we have issued really narrow down what are the top level priorities for the government. Child poverty is one of those. There is no resiling at all from the overall goal, nor from the interim goal in 2010/11. If you are asking me today to say that that is guaranteed, obviously there are trends in the wider economy and, with all the wisdom on this Committee, I do not think even the Committee could predict what will happen in terms of the wider economy. If you are asking me: is the commitment genuine and will there be a genuine effort made to get there, I can only say to you that that is absolutely the case. When I was looking at this PSA set, it is the PSA that I would say motivates all of us. We wanted it to be hard edged, to be a real challenge. I personally would think some may proclaim it a huge failure if we get 95% of the way or 85% of the way. Quite frankly, I personally would not see it that way because it will mean a major difference in my constituency around the living standards of children. If the challenge is are we going to do everything we can to put us in a position of getting there, then that is absolutely the conclusion you have to draw from this CSR. Everything else we are doing in terms of investment in schools, in early years education, is all relevant.

Q43 Mr Mudie: Minister, you are a nice fellow and we are friends but I have asked you professionally a specific question. Can you assure us we will meet our target? What I have is, "We will do our best, maybe 95 or 85" etc. Let me point out what you have in front of you. In 11 years you have taken out 900,000. 300,000 of those are still to be delivered but we will give you those, so in 11 years you have taken out 900,000. You are assuring this Committee that with two budgets left you will rescue another 800,000. I started off giving you the opportunity to say the target had been shifted because I have great sympathy with you. I cannot see how you can do it. Sitting at that table, how are you going to rescue 800,000 with two budgets when you have rescued 900,000 in 11 years? Do you still assure us you are going to do it?

Andy Burnham: In any of the 30 PSAs - dare I say it - it is kind of an unfair question because the government can lay out its intention and the spending to try to meet that intention. It would be to invite me to give a misleading answer if I were to say in all 30 cases will the government meet every dot and comma. That is why I cannot give a yes or no because nobody knows what will change on the way to it. If you are asking me are we committed to the target, are we committed to the overall goal of eradicating child poverty, then there is a very firm answer to that question.

Q44 Mr Mudie: Once the Chancellor came to us and I questioned him on millennium goals, which are 2015. I was assured the answers were there. Two years later in questioning he admitted one of the key ones would take 120 years to deliver. You are sadly placed because you are coming in in the last spending review, but we have been asking him consistently because we have seen, instead of the line going that way, a real problem to get to the target. I cannot believe you can assure us. If you want to refer this to the Chancellor on Thursday, fine, but I cannot see how any Treasury official could assure us on that record that in two years you will do it.

Andy Burnham: Of course I will tell him of our polite and friendly discussion and I am sure he will come well ready to answer where I have not been able to. You say two budgets to go. Let us not dismiss that. At every stage of this journey, the government has opportunities to take further steps to prioritise the tackling of child poverty above other priorities and it can do that at further budgets.

Q45 Mr Mudie: We have the CSR covering that period. I could say to you, if I were really being brutal, take the book and show us in the CSR because that is not two budgets. That has stated what we are going to spend in all the areas up to 2010/11 and it is not there. It is with real anger I look at kids in my constituency and in your constituency. Where will they be in 15 years?

Andy Burnham: I do not feel anger for having made the progress that we have. The social progress that we have seen in this area is huge but there are more things that we can do. The work that DWP are doing around extending New Deal Plus for lone parents will have an impact in this area. The investment that the CSR makes available for skills and for adult learning will have an impact in this area. I think it is not possible to refer to one thing, be it the child care element of child tax credit, be it child tax credit itself, be it child benefit.

Q46 Mr Love: Can I go back to the pay issue that we discussed earlier on because I notice you have responsibility for public sector pay. I am rather mystified by the decision to suggest that there would be a 2% norm for all the years of the Comprehensive Spending Review. I say that in recognition of the imposition of the 1.9% this year that went down relatively badly and the decision about three years has gone down very badly. I wonder if you can just explain to me the rationale for 2% for the whole of the spending review. Is there not a need for flexibility in this?

Andy Burnham: There is but there is not a 2% stricture on all awards. The government's policy remains that public sector pay awards should be made consistent with the inflation target. As you will see in this year's discussions, there have been different situations reached in different professions. It is not a standard picture that is uniform across the public sector. There were decisions made in respect of the Armed Forces that obviously were particular to the pressures being faced there. I was referring a few months ago to low paid staff in the NHS.

Q47 Mr Love: Let me pursue you a little bit and give you an idea of where my mind is moving. Some of the trade unions representing the staff have talked about recruitment retention but I am particularly interested in motivation. How do we motivate the workforce to do the things that you are interested in in this Comprehensive Spending Review? Let me focus particularly on the efficiency drive that you are each and every individual government department to undertake and the administrative savings which are widely interpreted as reductions in staff. How are you going to achieve that with this stricture of a 2% norm over the three year period?

Andy Burnham: If there is discipline in pay it will help departments reach their value for money targets and also live within their overall spending allocation. It is true that there has been a focus on reducing the headcount within the public sector but this Committee I believe, along with others, has recommended that particular headcount targets should not be carried forward into this spending review period. As you probably know, that is something that is not going to happen. There will be more flexibility, to go back to your first question, around how these things are managed. I think that is something that the Committee should welcome. Generally, if you look at the PSA set, if you look at value for money plans, there is a desire here to give more freedom, more ability at local level to manage these pressures without constraining people in a particular direction around managing workforce pressures. I think that answers your question. That will help departments find a way through what is undoubtedly in some cases a challenging financial climate.

Q48 Mr Love: The 1.9% adaptation of the original Senior Salaries Review Board recommendations was widely perceived as undermining their role. We have another two years of 2% pay norms. Let me take a specific example. If they were to recommend something above the 2%, would you again adapt their recommendation and, if you do, do you not believe that that will undermine their whole role in the pay setting process?

Andy Burnham: The context for the decision that you are referring to was inflation going through the 3% barrier and that obviously triggered a letter from the governor. There was concern about levels of inflation within the economy and linked to pressures elsewhere it could have had an inflationary effect across the system. The argument is not one that is particularly easy to make to trade unions or to public sector pay professionals but the context for everything that we do as a government, but particularly as the Treasury, is that we want to ensure that the stability there is in the economy, which every employee benefits from, public sector workers included, remains so that we do take seriously any upward pressure on inflation and accordingly steps are taken to ensure that there is a rigour and a control in the system overall. It is not a gratuitous approach to public sector pay; it is one born of discipline, of rigour, of wanting to ensure that the stable economy that we have enjoyed remains. That is at the heart and foundation of everything we do.

Q49 Mr Todd: What is the difference between a PSA and a DSO?

Andy Burnham: The 30 PSAs that we have published, shrinking down from a much greater PSA set in the first spending review, 1998, I would argue are a distilled expression of the government's over-arching and main priorities. I am not sure George Mudie welcomed my reply before but I would take it as some reassurance that eradicating child poverty in that set of top priorities above all else is what the government is trying to achieve. A DSO would span the range of government business that is carried out by a particular department.

Q50 Mr Todd: DSOs are less important than PSAs?

Andy Burnham: I would not say it is possible to immediately say that that is the case.

Q51 Mr Todd: That is what you rather implied, I think, by your example.

Andy Burnham: A large number of the 110 PSAs that we had at Spending Review 2004 expired with this existing Spending Review. I think round about, if I remember rightly, 90 expired. When I was a Health Minister I was always clear that there would come a time when you operationalise a target to which the Government had been working over a number of years. It is up to departments to work out how best to do that without allowing there to be any slippage back from the improvement that had been made. The PSAs, differently, set the big goals, the areas where as a Government we want to see the kind of social progress that we believe in, and I would say that is the difference.

Q52 Mr Todd: So in the Treasury's objectives or PSAs, where would you put meeting the fiscal rules?

Andy Burnham: Obviously they are at the heart, as I was explaining to Andy Love a moment ago, of everything we do - that stability within the economy - but we are now looking at a period where they have become pretty much entrenched in the way the Treasury works in terms of how established they are as a guide for the way in which the macroeconomic framework works.

Q53 Mr Todd: Are you going to answer my question, Andy, which is bearing in mind, as you have indicated, that was a PSA and it is now a DSO, it is a little difficult ---

Andy Burnham: Maybe David wants to say something ---

Q54 Mr Todd: It is quite difficult to see where any distinctions lie. Maybe David is going to help us here.

Mr Ramsden: I think the difference is that the PSAs which we have been discussing in the context of child poverty in particular are a cross-government target to which the Treasury also contributes. It is highlighted in Chapter 5 of the PBR/CSR. Meeting the fiscal rules is an absolutely core Treasury objective. It is table 1.1 of the PBR/CSR where we give you our update, as we do at each PBR and Budget. I think we have written to you stressing the fact that it is not a PSA does not mean that it is in any way reduced in importance or the emphasis we put on it, it is just that it is a Treasury-specific DSO; we will lead on it, we will be held responsible for it.

Q55 Mr Todd: So that implies that the PSAs are cross-departmental.

Andy Burnham: They all are and without exception there will be a lead department.

Q56 Mr Todd: So the distinction is that PSAs are cross-departmental and DSOs are purely departmental?

Andy Burnham: More or less. DSOs are business as usual, they are mainstream, core functions of the department in question and often will relate purely to the department. PSAs will take a bigger ---

Q57 Mr Todd: The Government has made great play of the fact that the number of PSAs has been sharply reduced, but they have introduced a collection of DSOs, which add up to virtually the exactly the same number as the PSAs if you put the two figures together. Do you think that was quite the intent of that exercise, that if you add the PSAs and DSOs together they add up to pretty much the same number as the PSAs that we had before?

Andy Burnham: I do not necessarily accept that.

Q58 Mr Todd: I think mathematically it is right.

Andy Burnham: There are indicators underpinning each DSO - this really gets technical ---

Q59 Mr Todd: I am going to ask you about those too.

Andy Burnham: --- whereby we will be ensuring that there is not a proliferation of targets. Let me be absolutely straight with you in saying that there is a need for vigilance here in that my wish to see a reduction of targets on the front-line is a genuine one. I do not want to see the reintroduction of a similar burden by the back door.

Q60 Mr Todd: I understand that.

Andy Burnham: Lastly, can I just say that there is a commitment to reduce the data burden on public bodies by 30%.

Q61 Mr Todd: We will come to that, if I get a chance. Can I just say the two added together add up to slightly more than the number of PSAs set in the last Spending Review.

Andy Burnham: There are 30 PSAs.

Q62 Mr Todd: And there are 97 DSOs.

Andy Burnham: Sorry, 103 DSOs according to my figures.

Q63 Mr Todd: We missed six in the stats here. And there were 110 PSAs in 2004.

Andy Burnham: 11O PSAs with 500 indicators underneath them. To be absolutely honest with you, there are about the same number of DSOs as there were ---

Q64 Mr Todd: Do you think it is important that all the PSAs should be measurable and have some sort of baseline assessments attached to them and so on? Those are the criticisms that have been made in the past that some of them have been a bit hard to nail down. Do you think that is what we should have?

Andy Burnham: I do.

Q65 Mr Todd: So for example "Reduce the impact of conflict through enhanced UK and international efforts" - we are going to have that PSA nailed so that we can measure it in some way?

Andy Burnham: The indicators are an attempt to express what would amount to progress towards each PSA.

Q66 Mr Todd: I do not think we have got the indicators on that one.

Andy Burnham: I agree with you that there is a need for accountability in this system, but I also feel that we should move away, where we can, from the setting of targets at a national level. I think it is sensible delivery to allow people to set more goals at local level so that they can have a sense of ownership of that ambition.

Chairman: We will reconvene in ten minutes.

The Committee suspended from 5.22 pm to 5.34 pm for a division in the House.

Chairman: Mr Todd?

Q67 Mr Todd: We were interrupted just when we were talking about vagueness in the objectives or the PSAs that have been set. What did you make of the Ministry of Defence DSO to "build for the future"? It sounds more like rhetoric than any sort of objective. It may be military code for something. What do you think it actually meant and how do we measure it?

Andy Burnham: A good question. I would wait and see the indicators, is my first response.

Q68 Mr Todd: Presumably you will be auditing these indicators and deciding whether they are appropriate?

Andy Burnham: We are discussing all of the indicators with the relevant departments at the moment. I think a key part of the Spending Review has been about preparing the country for the future. The MoD settlement is a very important part of that.

Q69 Mr Todd: I think you have conceded the point, Andy. We have got outcome indicators for the 30 new PSAs, of which there are 156. There are 27 indicators published for the Treasury's DSOs. What is your guess as to the number of indicators we will have for the total suite of PSAs and DSOs? If you extrapolate the Treasury's figure then it is going to be quite a large figure because you have got 103 DSOs, I think you said.

Andy Burnham: There was a witness before the Committee not long ago who quoted a figure of 1,400, and I would like to take this opportunity today to say I do not believe it would come anywhere near that. We will publish, Mark, the full set of DSOs and their relevant indicators later in the year. As I said, if the line of questioning is saying they are just being slipped in by another name, I want to be upfront with you in saying ---

Q70 Mr Todd: The number of indicators is not going to be materially less than that which we had before.

Andy Burnham: Let us be absolutely clear; they are. There were 105 indicators underpinning the 110 PSAs in Spending Review 2004 and 150 indicators underpinning the 30 PSAs now. Beneath that, in terms of departmental objectives, we are looking at about the same number of DSOs, so there are big differences in the system that is now being created as opposed to the one that was in place for the last Spending Review period. We will publish the indicators for the DSOs in due course but, as I say, it is my intension to further whittle down, if we can, the number of those indicators. I am on the record as saying that targets across the public sector played a very important part in the change and the improvement of public services that we needed and were right for their time, although we should move to a situation where there is less reliance upon them. Just to finish the point, if that is not the effect in reality of the system we create then it will be a big disappointment to me.

Q71 Mr Todd: Okay, but the Government has already said it is going to halve the number of indicators it had in 2004. As I said, the indications of what we know are that that will not happen. You do not have the full list, I accept that, but the items that we do have, if you extrapolate them reasonably - and I do not necessarily take Colin Talbot's 's view of where it should be - but even a more cautious approach than that would suggest you will not halve the number of indicators.

Andy Burnham: I do not know. I think if you look at the ---

Q72 Mr Todd: When you say you do not know, Andy, are you saying we are not adhering to the target of halving the number of indicators?

Andy Burnham: I am just indicating there is a further piece of work yet to be published that will give you the full story and that remains work in progress for now. I was just about to challenge your assertion there in saying that there is good evidence to suggest from what we already know that we will make that, because if you look at local government, for instance, previously operating with an indicator set of 1,200, the Secretary of State for Communities and Local Government has worked incredibly hard. She and I have made a particular effort around Whitehall to bear down upon and whittle away unnecessary burdens on local authorities, and it has required some tough choices. It also requires a change in thinking which is that it does not mean if there is not an indicator or a target that something then does not happen at a local level. As a result of all of that work we are now looking at 198 indicators for local government. On any basis that is a major reduction.

Q73 Mr Todd: Another area of controversy has been how you measure performance and how you report it. One criticism is that it is not externalised, that users and customers who enjoy the benefits, or otherwise, of whatever the PSA might have been, do not get asked for their perspective on the outcomes there and so it is an internally driven measurement. The other is that the NAO does not audit the performance either but instead looks at the systems behind the performance, which is a rather more limited approach. What is your view of this?

Andy Burnham: In terms of the style of this system that we have put in place, you are absolutely right to emphasise the experience of the user, and you can look at a range of examples - health is one that springs to my mind where patient satisfaction itself becomes an important measurement by which we judge whether or not we are getting value for money in our public services. I think that is a very important shift, in my mind, away from things that measure inputs, be they a four-hour A&E wait to another kind of input, to one where we are looking at the quality overall of what public services provide.

Q74 Mr Todd: Lastly, is there any evidence of linkages between good performance in PSAs from 2004 and resource allocations now? Can you pick an example where someone said, "Right, they have done that really well, they have met their PSA targets and now we have put some extra resources in to make sure that is entrenched or improved on further"? Is there an example of that?

Andy Burnham: The one that I would point towards is local government and local area agreements. That is very much the logic of the system that has been put in place there.

Q75 Mr Dunne: Chief Secretary, before this hearing you had gained a reputation - rare but commendable amongst your current Cabinet colleagues - for candour in the way that you deal with questions.

Andy Burnham: I have probably wrecked it today though!

Q76 Mr Dunne: I did say before this session; I am leaving it to others to judge. The Permanent Secretary last week acknowledged that in putting together the Budget, the PBR and the Comprehensive Spending Review it was prepared under considerable pressure. I appreciate that you deal mostly with the expenditure side of the balance sheet, but in order to make sure that you have got the revenue required to meet the expenditure set out in the CSR when were the tax-raising measures finalised to allow you to afford your spending priorities?

Andy Burnham: The Chancellor is the person to give you chapter and verse because he is the person who makes the decisions about the tax content of the Pre-Budget Report, not me, but he has gone on the record as saying, as have I, that the measures included in the Pre-Budget Report were under consideration from the time that he began in the Department. I would refer you to an interview he gave, his first as Chancellor, in the Financial Times where he gave a very clear indication of many of the measures that he ultimately ended up taking in the PBR. If the suggestion is that the Treasury would import at the very last minute a tax measure without there having been a proper process of consideration of the detail, well, that is a suggestion that I would, quite frankly, refute entirely.

Q77 Mr Dunne: Would you also refute that in the context of changes to business taxation which representatives of the business community are discussing with the Chancellor this afternoon because they had not been consulted?

Andy Burnham: The direction was flagged very clearly by the former Chancellor, now Prime Minister, at the Budget, where he made a clear commitment at the time that has been carried forward that we would work towards further simplification of the tax system, and where there were layers of complexity that we would seek to remove that from the system. If your question is do we then invite people in to discuss at what rate the tax change should be set, then of course we do not do that.

Q78 Mr Dunne: I understand we do not discuss under any Government the rates in advance of changes, but rather the methodology, the system, the notion, in particular in the context of promoting enterprise and business growth in this economy. The previous Chancellor (the current Prime Minister) introduced measures in previous Budgets, particularly in the early Budgets, to promote long-term savings and investment. The latest Pre-Budget Report completely reverses that and some of the winners from this Budget are those who are short-term speculators in property and investment portfolios.

Andy Burnham: There are some big assertions made there that I am afraid I do not agree with. You say "completely reverses that". Let me gently point out that rates of capital gains tax in 1997 were considerably higher than they are today and higher than they will be after revisions are made. Secondly, at 18%, 18 pence in the pound, that stands good comparison with capital gains rates of taxation around the world. It is hard to make a statement about direct comparability because lots of other systems do use differential rates according to the assets being disposed of, but, having checked this out in detail, I am confident in saying that our rates stand good comparison. Again, just to set it in a broader point of context, it is coupled with a headline fall in the overall rate of corporation tax, so I just do not accept the notion that this combines to create a business unfriendly climate.

Q79 Mr Dunne: I would be interested to hear the outcome of the conversations which the Chancellor is having this afternoon. We will obviously get to those later in the week. Can I turn to efficiency gains for a moment. The Public Accounts Committee undertook a review of the claims for the Gershon savings that have been made which are repeated in the PBR and they found that some three-quarters of the efficiency gains which were claimed were, to some degree or another, bogus or not cashable. Would you like to comment on what level of efficiency gains has actually been achieved compared with the 21.5 billion claimed?

Andy Burnham: My comment would be to refer you, Philip, to the NAO's assessment of those savings. Their assessment is that the savings are indeed real. I am looking for the direct quote that they gave, but I believe it was along the lines of there is good reason to believe that three-quarters of the savings have been realised or are likely to be realised. Let me give the exact reference: "The NAO have already stated clearly that over three-quarters of the gains claimed represent real efficiencies and that challenges in measuring the rest does not mean that efficiencies are not being made here as well." I think I would question the PAC Report's assessment that 74% of the gains are unreliable. I do not believe that is a correct reading of the NAO's comments on this matter.

Q80 Mr Dunne: I think one of the reasons they made those comments is because the on-going costs of implementing change were not taken into account in calculating what the efficiency saving was, and the Government has acknowledged that, or appears to have done, by changing the basis of calculation for the current Comprehensive Spending Review. Surely if you acknowledge today that it was done wrongly before, there is some reasoning behind that, otherwise why change the basis of the calculation?

Andy Burnham: I do not acknowledge that it was done wrong. Through Sir Peter Gershon's original work we set a very challenging goal for the public sector and I think the progress that has been made in the last Spending Review is excellent. That is not to say that we cannot refine and improve the system this time round. I have already referred to, in my view, the very sensible recommendation this Committee made around not rolling forward the headcount reduction target. I think what you are seeing in this Spending Review period is a more sophisticated approach to these matters and more freedom for local bodies to decide exactly how to release these savings. Let me just put this to you: the detailed savings that departments are proposing can be extracted from the PBR/CSR document; it is quite simply the case if they do not extract those savings then they will not be able to deliver the spending plans and the goals that they have set themselves for this CSR period, so that should be a reassurance to everybody.

Q81 Mr Dunne: Can we come on to the future in a moment, I just want to dwell on the past for one more question. Just to give you an example, which is a topical one and has been quite politically sensitive, and that is when DWP introduced the Post Office Savings Card, it chose to ignore the cost of that new measure, which I believe is 164 million, when assessing the efficiency gains it was going to make from its introduction. Under the new Treasury model for calculating efficiency gains, you would have recognised that cost, but you did not then and yet you are still claiming it is a saving.

Andy Burnham: On the specific example could I ask Richard Hughes to comment.

Mr Hughes: You are right to say that we are learning the lessons of the past programme. The savings from the Gershon programme were measured on a gross basis. We are moving to measuring them on a net basis so that we understand what the implementation costs are and what the savings are separately. That is a better reflection of the budgetary flexibility of departments. In the specific case of the DWP, there were implementation costs associated with realising the savings that that department had to realise, but in practice the department achieved bigger savings on its Departmental Expenditure Limits over the last financial year such that it came in slightly under its Departmental Expenditure Limits for the year, so the idea that this department is not finding real savings which is enabling it to reduce its expenditure year-on-year cannot be the case.

Q82 Mr Dunne: I was not arguing with that actually; I was just arguing that your methodology was wrong, and you have acknowledged it is wrong, and therefore your efficiency gains are not as great as you claim them to be.

Mr Hughes: That was the basis on which Gershon calculated his figures and how we measured them over the four years. I think all we have acknowledged here is that we are learning the lessons from it and implementing them in the next Spending Review.

Q83 Mr Dunne: Thank you. One of the other conclusions of the Public Accounts Committee was that some of the implementation and efficiency savings could impact on service delivery and quality. When you look forward, if we can move it on to the CSR, the biggest departmental gain from efficiency savings is in the Department of Health, where some 25% of the total gains across government are to be found - 8.2 billion - over the three years. Could you give the Committee and beyond some reassurance that this extraordinarily high level of efficiency savings is not going to lead to service quality cuts, the sort of Gordon's cuts that we have seen up and down the country through hospital and ward closures in the last year or two?

Andy Burnham: I think that if the question is whether there is further efficiency to be extracted from the National Health Service, I have to answer that yes there is. As a Health Minister, I oversaw the introduction of a series of what are called "productivity matrixes" in the NHS. They cover areas as diverse as the numbers of generic as opposed to branded statins that are prescribed. They cover areas such as the number of hospital trusts that are still routinely bringing in patients for a pre-operative bed day. They cover a whole range of steps that could be taken to improve productivity. If you look at how since the introduction of those matrixes the NHS has responded, it has actually taken a considerable amount of money out of the system in response to in their introduction. I think there is still further to go. The figures that departments have produced for us are worked through in detail. They are, as I say, costs that they will have to extract to deliver their plans in full, and I have every confidence that these steps can be taken without damaging quality of services. Let me just make one last point, if you take in health a target like the 18-week maximum wait, I would argue that that is a very clever service improvement target and that the productivity and efficiency drive very well supplement the service improvement. The two things are not contradictory, ie you either have efficiency or you have service improvement. To get to the 18-week target, hospital trusts and PCTs have to take a very critical look at the patient journey and unnecessary steps on that journey so that they maximise the amount of time where patients are being progressed through their journey. The meeting of the 18-week target will see a major productivity benefit to the National Health Service, in my view, so it is not the case that efficiency or productivity lead to a deterioration in the quality of service. I believe in that particular specific instance you will see a service improvement coupled with a major productivity gain for the NHS.

Q84 Mr Dunne: Can you reassure us that there will not be hospital closures and ward closures as a result of these efficiency gains?

Andy Burnham: I know the Conservative Party has taken the view that all hospital reconfiguration is a bad thing, but I would say that is, quite frankly, to ignore the changes that are being made in the way that health care is delivered, and is to ignore the serious productivity and quality benefits that can be made from making difficult but often sensible changes to the way Health Service reconfigurations are done. As a Health Minister, I looked specifically at this issue and Sir Ian Carruthers, former acting Chief Executive of the NHS, reviewed all configurations underway in the Health Service. I think I am right in saying there was none (if there was one I stand to be corrected) where cost savings were not the reason for that reconfiguration. In every case it was a desire to improve the quality of care to the public for the resource available; it was a clinical case for change. If some are going to stand against any of those changes then I think that would be a very foolish thing to do.

Chairman: I want to try and move on, Minister, we need shorter answers.

Q85 Mr Dunne: I point you to the mental health ward closure in Ludlow Community Hospital in my constituency if you are looking for one that was driven by cost considerations. I have a couple of final questions. One of the areas where you have shown remarkable candour is in relation to the health budget going forward, where I think you acknowledge that the reduction in capital spend by the NHS last year is the reason that you have been able to portray the increase over a new baseline as 4.4%. What is the actual increase, if one had ignored that sleight of hand?

Andy Burnham: I dispute the premise of the question. The actual increase is on how much is the NHS spending this year; that is the important thing. The Treasury will look again at spending estimates for any department in year to ensure that when it comes to the estimates process it is putting reliable and taut spending assumptions to Parliament when we are going through that process. Having been in the Department of Health at that time, it was quite clear that the Department was not going to spend that level of capital; therefore a reassessment was made to Parliament of a more realistic budget. If the suggestion is it was purely done so that a bigger increase could be then presented at the Spending Review, that again is a conspiracy theory I am afraid that is factually wrong because that is not what happened. The Government did make a change in the Budget this year and it was reported publicly. I was on the record at the time as having commented on that and it was a sensible thing to do to ensure that the Budget presented to Parliament was a credible one, otherwise it would not have been a credible Budget and the NHS would not have been able to spend that capital.

Q86 Mr Dunne: This Committee, before I became a member of it, recommended that in each PBR and Budget Report there was an analysis showing the performance of departments against targets for efficiency savings. There does not appear to be one in this PBR despite the Treasury acknowledging that was something that would be worthwhile. Could you comment on when you are intending to do that and whether you agree with the Committee's conclusions?

Andy Burnham: I do, I think the Committee has made some very valuable reflections in the whole area of efficiency. There was a document published alongside the CSR which does look backwards at the last Spending Review and comments on efficiency progress to date. In due course we will be publishing all of the delivery agreements for the value-for-money savings that departments have identified so the Committee will be able to scrutinise the detail of those, and I believe I am correct in saying they will be reporting twice yearly on progress towards those targets, so there will be no lack of accountability on this front. Essentially we are mainstreaming the whole efficiency drive, which I think is something the Committee has called for. In this area, if not in other areas, we can say legitimately that the Treasury has responded to the sensible views that this Committee has put forward.

Q87 Mr Fallon: Chief Secretary, how many new prison places not previously announced are being funded over this spending period?

Andy Burnham: The overall commitment for new prison places is 9,500.

Q88 Mr Fallon: That was previously announced, Chief Secretary. Could you answer my question how many new places are being funded over this period?

Andy Burnham: If I could answer it would be helpful. 8,000 were previously announced and then a further 1,500 were announced. This Spending Review commits resources to make those prison places available. There is not a new announcement of any additional places, as far as I understand, in addition to those already announced.

Q89 Mr Fallon: So the answer is nought. The first sentence of paragraph DE7.14 implies that 8,500 of the original 9,500 will be delivered by 2012. Is it correct, as The Guardian says, that only 500 of those are actually brought forward into the 2012 timeframe?

Andy Burnham: It is true that the 8,500 are funded from within the Spending Review settlement and that funds have been allocated for a further 1,000 places, but we are awaiting the report of Lord Carter on issues related to the prison estate and to sentencing reform before a firm timetable is given for bringing the further 1,000 places and when exactly they will be delivered, but the commitment is to 9,500 places.

Q90 Mr Fallon: I understand the extra 1,000; what I am trying to get at is of the extra 8,500 how many of those have actually now been brought forward into the 2012 spending period which would otherwise have fallen out of it? Is the answer to that, as The Guardian alleges, just 500.

Andy Burnham: 8,500 is the commitment by 2012. There is a question about a further 1,000 places but we are awaiting Lord Carter's report and then, in discussion with the Ministry of Justice, we will return to that issue.

Q91 Mr Fallon: Before we get to the 1,000, was it always the intention to deliver the 8,500 by 2012?

Andy Burnham: Obviously that predates my time in the Treasury to some degree. When the former Home Secretary made his announcement, I believe in the summer of 2006, that related to 8,000 places. Clearly there have been further announcements made since then. Obviously in this Spending Review there was a settlement with the Home Office some considerable time ago in the course of this Spending Review. What this CSR does is it formalises those commitments and gives a realistic timetable by when these new places can be delivered.

Q92 Mr Fallon: I turn now to education spending. On the basis of the settlement you have announced in the CSR, in what year will you meet your long-term aim of matching state school spending per pupil with average private sector spending?

Andy Burnham: There is not a timetable alongside the CSR to make that change. It is in my notes somewhere the resources that have been allocated to the Department for Children, Schools and Families. Per pupil funding in the maintained sector will rise to 6,600 in 2010-11, so on the back of the spending settlement we have given the Department that is how far it will go. However, it is true to say that that is not then at the level of the independent sector and there will need to be further steps taken to close that gap.

Q93 Mr Fallon: But you cannot tell this Committee how much nearer the Government is as a result of this CSR to getting towards that target?

Andy Burnham: Per pupil funding will increase by a fifth within this CSR period. I do have a figure somewhere, Michael, for spending in the independent sector but I cannot lay my hands on it.

Q94 Mr Fallon: It was 8,000 in 2005-06.

Andy Burnham: It closes the gap. Does it eradicate the gap? I believe no is the answer to that.

Q95 Mr Fallon: The IFS suggested earlier this year that on the present rate of growth in state spending you would hit the target in 2020-2021. Does that accord with your own forecast?

Andy Burnham: Well, as I say, the rate of growth that we are seeing in this CSR is pretty dramatic actually and it is growing significantly over the period. Obviously it depends ---

Q96 Mr Fallon: I think 3% is the figure you have given us, is it not?

Andy Burnham: I said per pupil funding would grow by a fifth between this year, 2007-08, and 2010-11. If you take the two figures, it will go from 5,550 in this year to 6,600 in 2010-11. I believe current forecasts would say that spending in the private or independent sector would be around 8,000 at that time, so there is a gap but it is clear that the Government is taking steps to close it.

Q97 Mr Fallon: Are the IFS way out then when they say you will not hit it until 2020? You must have some idea of when you think you will hit it? Is it 2015 or 2020?

Andy Burnham: We are closing a fifth of the gap in this Spending Review. If you are asking me to carry out future Spending Reviews today, then I am not able to do that. I think what I have explained, Michael, is that we will make a major stride forward towards that in the course of this Spending Review, and the next time round we would look at it again, and obviously the intention would be to get there as soon as we possibly can, given the affordability constraints at any particular time.

Q98 Mr Fallon: The 8,000 of course was baseline. That is what private school spending was per pupil in 2005-06 so that is where they are starting from. Can we turn finally to your PSA for education. You say in your PSA Delivery Agreement 10 at paragraph 1.2: "It is a considerable achievement that the gap between children from lower income and disadvantaged backgrounds and their peers has not widened." You are saying that you have made no progress at all and that is a considerable achievement. Could you explain that?

Andy Burnham: The gap has not widened. Is that "narrowing the gap in educational achievement"?

Q99 Mr Fallon: PSA Delivery Agreement 10 and 11, paragraph 1.2: "It is a considerable achievement that the gap between children from lower income and disadvantaged backgrounds and their peers has not widened." Why are you claiming an achievement for making no progress?

Andy Burnham: Without wanting to make this an unduly party political session, I would suggest that it widened significantly in the period preceding 1997, and with the support that this Government has put in to stop young people falling behind at school - so the early years support, the one-to-one support within the classroom - I think we can demonstrate that we have stopped that process that was underway where children from low income backgrounds were significantly under-achieving, particularly at secondary school. If you are asking whether that is the extent of our ambition, no, that is why we have a specific PSA further to narrow the gap in educational achievement between children from low income and disadvantaged backgrounds and their peers. That is the Government's policy. If you ask me would we have wanted to have seen more progress, we would want to see more progress in this area. That is why we are recommitting to it in this PSA.

Q100 Mr Fallon: What I am getting at is the language that you are using - and this has been referred to by other colleagues here - describing all these targets seems to be completely unreal and "Alice in Wonderland". You are saying, "We have made no progress but that is a considerable achievement."

Andy Burnham: No, as I say, we halted the widening of the gap that happened in the late 1980s/early 1990s. There was a widening gap in academic educational attainment between children from low income backgrounds and those from other backgrounds. It is impossible to say that it was any one thing - the investment or the PSA - and I would argue it was both together, but that widening has been stopped. That is a cause for celebration, in my view, but is it enough, then no. Whereas in the last ten years we have stopped and improved the deterioration that we were seeing, we now need to go much further and narrow the achievement gap.

Q101 Mr Fallon: I am just amazed that you can take credit or celebrate the fact that you have made no progress. You are asking us to celebrate with you the fact that you have made no progress.

Andy Burnham: Let me localise this. In my constituency, many schools, one in particular I can think of, were getting around about 15% five A to Cs in 1997. To make a direct comparison now, that school is getting 45% five A to Cs. There has been an improvement particularly in children from low income backgrounds. Is it enough? We want to go further.

Q102 John Thurso: Can we turn to the tingling excitement of the Barnett Formula!

Andy Burnham: Have we got a division coming up soon?

Q103 John Thurso: What impact, if any, do the baseline adjustments have on the settlement for the devolved administrations?

Andy Burnham: None actually.

Q104 John Thurso: I just want to know, I have not got a clue what the answer is, which is why I am asking.

Andy Burnham: Obviously the Barnett Formula is applied to direct spend in any given year and then the formula is stringently applied. As we were talking about before at the very beginning around adjustments made to baselines, the Barnett Formula is then applied to the new spending totals for this spending period.

Q105 John Thurso: So the actual adjustment to the baseline makes no impact to the cash that the devolved administrations will get?

Andy Burnham: No.

Q106 John Thurso: Can I ask you about the Scottish settlement. On page 12 there is table 1.3 and at the bottom of that it has the total Departmental Expenditure Limits, which show that the average annual real growth per cent for the totality of government is 2.1%. If you look at many of the services that are common in Scotland - health, education, all these sorts of things - they typically seem to have average growth rates of 3.1, 3.94, and so on and so forth, yet Scotland has gone up by 1.8%, which slightly seems to defy logic. How is that explained?

Andy Burnham: I am not sure it defies logic. I will bring Richard Hughes in in a moment but let me try and explain to begin with. Obviously overall growth in spending, as you rightly say, is 2.1%. Not all of the spending that you have referred to in the table is in areas that are devolved. So take for instance international development, where a very large increase accounts for a considerable proportion of the growth funds available, that is obviously not then passed on through Barnett.

Q107 John Thurso: Let me help you here with my question. I quite understand that. The growth rate is 11% but we are talking about a figure that moves from 5.4 to 7.9. If on the other hand you look at, say, health you are talking about things that are moving from 91.8 to 111.4, so when you are coming to your average at the end you would expect that kind of number to have hugely more weight. I just find it interesting that government overall is 2.1 and Wales comes out at 2.4, which is there or thereabouts, but Scotland comes out at 1.8. I am not sure why it seems to be below the curve.

Andy Burnham: Northern Ireland comes out at 1.7. There are different comparability factors attached to different departments so it is technical, but obviously the devolved administrations receive different funding under Barnett according to which department is getting the uplift.

Q108 John Thurso: So you would say that the charge that Scotland is being hard done by is absolutely wrong?

Andy Burnham: I would say it is absolute nonsense.

Q109 John Thurso: Splendid! I like that reassurance.

Mr Hughes: On the technical point about why the growth rates are different, it is an artefact of the way the Barnett Formula operates. The Barnett Formula is designed to provide the devolved administrations with the same absolute nominal increase per head as UK departments get in England, but because spending per head is higher in Scotland already and is higher in all the devolved administrations, the real increase you see, as published on their budget in 2007-08, is a lot lower than what you see in the corresponding figures.

Q110 John Thurso: That is a very good answer, so the point is that because our spending is higher already, the percentage increase, which is the same as in England, actually comes out at a lower figure?

Mr Hughes: Yes.

Q111 John Thurso: Can I come to the Department formerly known as the DTI, DBERR or whatever it is called, it appears to have a real terms cut of 2.6%. How can the department charged with leading business and enterprise have afforded a 2.6% cut?

Andy Burnham: Sorry, I missed the question, John.

Q112 John Thurso: I will start again.

Andy Burnham: Just the end will do.

Q113 John Thurso: I am not having much luck this week! The Department of Business, Enterprise and Regulatory Reform, whatever that stands for, if you go back to this table on 1.3 it stays constant, which means that the percentage average annual real growth is minus 2.6? Why is the department that is charged with pushing through all the support of business and all of the other things, one of the few departments to have a real terms cut in its budget?

Andy Burnham: There are some difficult choices being made about where to put the growth that is available to departments. DBERR is not alone by any means in facing a difficult settlement. They have an ambitious value-for-money programme that will release some 307 million over the course of the Spending Review period. I think it is important to make the point that the levers of the DTI formerly, and now DBEER, are predominantly through regulation and through other means by which they influence growth, productivity and inward investment. It is not always associated with being a main spending department which would require headline increases.

Q114 John Thurso: In D11.9 the Nuclear Decommissioning Authority is one of the clear winners in that its spending over the period actually rises by 338 million by 2011, which is clearly a goodish settlement for them, although there are risks still with the MOx plant and Thorp, but in giving them their settlement does the Treasury accept their policy and plan for socio-economic regeneration which accompanied their bid for this CSR round?

Andy Burnham: You correctly identify the elements of the plan. They will have an additional 338 million, representing growth of 4.9%. That principally is to allow the NDA to reduce risk at some of their most hazardous facilities. If you are asking me something further around the regeneration ---

Q115 John Thurso: My understanding is that they specifically requested that the Treasury agree their socio-economic regeneration policy as part of this settlement and therefore my question is: did they get that agreement from the Treasury?

Andy Burnham: That is probably a matter for the NDA.

Q116 John Thurso: They said they had asked the Treasury for that specifically.

Andy Burnham: I think in common with all bodies now they will be waiting to see their exact settlement from the Department and they will then obviously have to ---

John Thurso: But I understand that they specifically asked the Treasury to agree their socio-economic regeneration policy, which involves them spending money on socio-economic regeneration projects as part of their CSR review, so that that was absolutely nailed. My understanding was that DBERR concurred and asked the same of the Treasury, and I was wondering therefore what the Treasury's answer was.

Q117 Chairman: Could you give us a note on that?

Andy Burnham: I will give you a note on that.

Q118 Ms Keeble: I wanted to ask a question about the Home Office. The announcement for the Home Office included more for terrorism and more for neighbourhood policing. The amount for terrorism was spelt out but there was no detail on the neighbourhood policing bit, so can you say how much more you expect to see spent on neighbourhood policing and how that will be protected so that it does actually produce neighbourhood policing, and what this means in terms of numbers of police officers and also whether that means that the funding of PCSOs, who presently are partly reliant on the council for funding (and it is a Conservative council which is I think threatening to end the funding) will now be secured?

Andy Burnham: I believe the settlement gives the Home Office, and beyond, the Police Service the funds they need to take forward neighbourhood policing, which is obviously at varying degrees of implementation around the country.

Q119 Ms Keeble: What is the breakdown? Of the extra money there has been a clear amount earmarked for terrorism but I have not heard anything more about the details for neighbourhood policing, and it was really about that and how you are going to make sure it is actually spent on neighbourhood policing, because presumably it will just go into police authority budgets?

Andy Burnham: The right answer is to say that it is a matter for the Home Office to decide within its overall growth of 1.1% how to allocate those resources.

Q120 Ms Keeble: But the announcement in the House specifically said terrorism and neighbourhood policing, which is very good news, and there must therefore have been some expectation about how much would go on that.

Andy Burnham: These are the questions that the Home Office will now consider. What I was trying to explain is that the settlement overall gives them sufficient, in my view, to fund priorities in counter-terrorism but also in terms of completing neighbourhood policing. We think it is enough to ensure that the police precept does not rise by more than 5%, it is enough to ensure that police forces around the country are well provided for, but I am not going to do the job of the Home Secretary and say, "And we now expect this much to be spent on community support officers, this much on police forces," that is not my job.

Q121 Ms Keeble: Okay, but the announcement very clearly in the House talked about neighbourhood policing. You have said that it provides enough for neighbourhood policing generally, which has already been announced, and it also means that the police authorities should not have to put up their precepts too much. There is obviously an issue about if they do not put up their precepts then they do not have the money for the neighbourhood policing as well. You must have done some sort of analysis about what this would mean in terms of the amount that could be spent on neighbourhood policing, how that relates to the previous plans for neighbourhood policing, and therefore what it might mean in terms of officers on the beat, which is what people are interested in. It would be very helpful if we could perhaps rather than debate it now have a note as to what the calculations around that were and what the projections were at the time.

Andy Burnham: We will happily provide that, Sally. Again the context here is a 50% increase in the last decade for police forces and, as I say, the settlement we have given them sustains and builds, albeit more slowly, on that growth, but we will give you a note on precisely that.

Q122 Mr Todd: Flood defences; since the announcement, a revolver has been whipped out and placed to the Government's head in that the insurers may review the agreement they have on the packages they offer in flood defence areas because they regard the package announced as inadequate. What is the Government's position on that? Your colleague Kitty Ussher has said that she is going to review the statement of principles this year. What does that mean?

Andy Burnham: The Government's position is that in this year we are spending 600 million a year on flood defences. Over the course of the CSR it will rise to 800 million.

Q123 Mr Todd: With most of the increase in the last year, unfortunately.

Mr Hughes: That is not the case. The Secretary of State for Environment, Food and Rural Affairs announced that it would be a more or less steady increase over the three years.

Q124 Mr Todd: Maybe I have misread the information but I see 650 million in 2008-09, 700 million in 2009-10; and 800 million in 2010-11 so, as I said, most of the increase is towards the end of the period. I do not know but it seems like that to me.

Mr Hughes: It was 300 million in 2006-07 so it has been going up at quite a fair clip.

Andy Burnham: Could I answer the point about the ABI particularly. In all of the preparation leading up to the CSR and the submissions that the ABI made - and I could read them out but I will not delay the Committee in doing so - there was a repeated reference to the need for 750 million per annum for flood defences by the year 2011. The CSR delivers 800 million per annum in the final year of the CSR. Yes, there have been terrible floods in the country since those statements were made, but I do not know what the meteorologists would say about whether this was a one-in-200 or one-in-100 year flood. I do not believe it is right to say after the CSR that the commitment that we have given is not enough because we have more than met the ABI's request.

Q125 Mr Todd: So you are saying to the insurance industry "Do your worst", are you?

Andy Burnham: All I am pointing out ---

Q126 Mr Todd: My constituents who are regularly affected by flood will be listening with anxiety to those sorts of things.

Andy Burnham: Well, they should not feel anxiety about a major increase in investment in flood defences. I would hope they would feel somewhat cheered by that level of investment.

Q127 Mr Todd: The IRR on flood defences is 27%. You get tremendous value for money for the investment.

Andy Burnham: Sure, and let us remember that Sir Michael Pitt is conducting a review of the flood defences this year, and at the end of the spending period that we are in, the estimate is that the Government has taken 100,000 homes out of a flood risk. If you look, as Richard Hughes was just saying a moment ago, at how much further we will increase the flood defence budget in this Spending Review, I think people have got reason to feel that the Government has responded in the right way to the changing environmental circumstances around us. As I say, it more than meets the repeated requests of the ABI running up to the Comprehensive Spending Review.

Mr Todd: Which I told them was inadequate, but never mind.

Q128 Mr Love: Can I turn to local government, last week the Institute for Fiscal Studies told us that the 2004 Spending Review settlement of a 2.4% real terms increase in funding had to be topped up during that Spending Review. Can you give us an idea where you think funding for local government will be eventually and some idea of why the funding had to be topped up in that way?

Andy Burnham: In the last Spending Review?

Q129 Mr Love: In the Spending Review currently coming to an end.

Andy Burnham: Again I do not want to evade the question, but obviously I was not in the Department at the time when the modelling was done for the last Spending Review. This time round we have taken a very close look at the pressures on local government and obviously that is a situation that we would not want to see repeated.

Q130 Mr Love: Perhaps you could give us a note on where the figures are for that, that would be helpful.

Mr Hughes: It is in the Public Expenditure Statistical Analysis from July 2007. We have published the local authority number of 158 billion.

Q131 Mr Love: Which page is that? I am sure our Clerks are scribbling it down as we speak.

Mr Hughes: It is page 84, table 7.1.

Mr Love: That is very kind of you. I think I will leave it ---

Mr Todd: Read it later!

Q132 Mr Love: Absolutely. The real question that I wanted to ask you, and it does relate to this Spending Review that we are discussing today rather than the previous one, is there are many especially in local government, who say that the reason why their expenditure has to go up in this way is because there are additional responsibilities and legal demands made upon them by central government. What gives you the confidence coming before us today to think that that particular process will not continue and therefore there will not be a need to revise upwards again expenditure in local government?

Andy Burnham: The settlement gives local government growth in all three years of the Spending Review. That means under this Government the local government settlement has grown in every single year, and that was not always the case. In terms of the actual quantum delivered in this Spending Review, it meets, in my view (having looked at the LGA CSR submission in some detail) the bottom line request in terms of meeting pressures and enabling there to be a business as usual test, and on that basis this Spending Review meets that test. I believe the request from the LGA was 1.4, 0.6, 0.7 growth to meet that business as usual test, and the spending settlement we have delivered does that. You then asked about burdens placed on local government. The Secretary of State for Communities and Local Government, like we did with targets, also did a very serious piece of work in advance of the Spending Review this time, not after the event - to remove ring-fences from local government funding where they existed, and some 5 billion worth of funds that would previously have had a ring-fence attached to it are now being given to local government without that stricture, which we think will be a further help. In addition to that, we have given local government what was the request from the LGA which was to fund the concessionary fares policy through a special grant regime rather than putting it through formula grant, and overall, as I was saying before when I was answering Mark Todd's question, the number of targets has fallen from 1,200 to 198 performance indicators, yes, I am recognising that it is a challenging settlement, but it is growth and there is further flexibility delivered in the ways I have just described.

Q133 Mr Love: I am sure you would want to put out the message again today that you expect local government to live well under 5% in terms of council tax increases, but that is not the question I want to ask.

Andy Burnham: I certainly do, substantially below 5%.

Q134 Mr Love: Just to finalise that, you are also asking local government to make efficiency savings of nearly 5 billion by the end of this Spending Review. Are you confident that you can deliver all three - the efficiency savings, the expediture within the limits you set, and a council tax increase over those three years that is well below 5%?

Andy Burnham: We made particular provision at the request of the Secretary of State, but we had already made provision within our plans, to make funding available to support local authorities in their value-for-money endeavours and there is 150 million specifically for that purpose in the overall spending settlement for DCLG. We think that will help local government make those efficiency savings. By way of comparison, if it helps, in the Spending Review 2004, that fund was around about 25 million, so that is evidence of our commitment in this area and we do take it incredibly seriously.

Q135 Mr Mudie: On health and relating to Andy's question, we were dealing with vulnerable youngsters, let us deal with vulnerable older people. Even under Thatcher old people could get a free home help and could be looked after and it is a mark of shame that two-thirds of local authorities are now no longer providing a free home help or any home help on demand. You will know from your health days that because of demographic pressures only the "serious" are being given home care. This has been a scandal that the Government and local authorities have taken comfort in blaming one another for but doing nothing about. The sad thing is the help to do anything about that is 190 million over the Spending Review period plus, of everything, a Green Paper. How can a Labour Minister be satisfied with that as a response to the scandal of the neglect of old people in our local communities?

Andy Burnham: As I said at the beginning ---

Q136 Mr Mudie: 190 million, Andy.

Andy Burnham: I think to some degree social care has been a neglected area in recent times.

Q137 Mr Mudie: Ivan Lewis thought it was a "challenging" area, to come back to our previous conversation.

Andy Burnham: The direct funding that the Department of Health puts into social care is part of the story but it is not the whole story. Obviously the main route through which adult social care is funded is via local authorities. In all my discussions with the LGA and others they have all said - and I have accepted this entirely and I think we all know this from our own constituencies - that the pressures in social care funding are significant and they are a real pressure. The uplift that I have just described in local authority resource will equate to some 2.6 billion in 2010-11 and will help meet those pressures. The Department of Health specific grant in terms of social care is increasing and there is something else, which I am not sure is in this document but is welcome nevertheless, and that is a commitment by the Department of Health to fund the Partnership for Older People (POPS) and it is quite a significant amount of money that goes directly into services for older people.

Q138 Mr Mudie: Andy, you know it is not happening. The King's Fund Report by Wanless, the Joseph Rowntree Report, the CSCI Report, your own Social Care Commission, all said that these elderly people are being neglected and that there needs to be a policy change. Everybody looked at this Comprehensive Spending Review as the first sign that we would be shamed into doing something for our elderly. What you have put in amounts to 60 million a year extra for these elderly in a budget of 589 billion spending. How the hell can you say that even starts looking at the situation?

Andy Burnham: I agree with you, it is a very large issue and it is one of growing importance to us, but let me just refer you, George, to the ADSS who responded to the CSR by saying: "Today's announcement is clear evidence that the Department of Health has truly recognised the importance of social care." They were I think commenting particularly on the Green Paper. I know you have said the Green Paper is not the whole of the answer, but actually the time has come to make some searching assessment of how we are going to fund social care into the future.

Q139 Mr Mudie: Andy, you had a very good report from Wanless, I think it is now two years old, and it is not just a superficial report, he puts some hard questions about people contributing. It is a really thorough report in terms of something we should be out in the country asking. We have had two years, we have done nothing, and now we are suggesting next year we will have a Green Paper - not a White Paper, a Green Paper - and by 2010-11 the end of this Spending Review, we will only spend 60 million. The funding that you are speaking about between Health and Social Services is dealing with the people that are the most severe that are already getting the resources. Anybody that is not categorised as severe does not. A 93-year-old war veteran and hero with medals in a wheelchair approached me on Remembrance Sunday. He has had his home care taken from him. It amounted to an hour a fortnight. He lives on his own and he has an 83-year old woman coming in from next door. He got his hour taken from him. He was assessed: you are not severe, you do not need it. That puts into the arena that is what we are doing, that is what we are ignoring. Here is a Spending Review from the Labour Government for the next three or four years and we have put no money in to address that. Are you not shocked?

Andy Burnham: Well, I share with you the importance that you attach to these areas and I believe very strongly from my time in the Department of Health that we need to see, not just talk about it, real integration of health and social care at a local level. I believe that passionately. I would like to see PCTs use some of the flexibilities, George, that they have been given around spending health resource in a different way, if that will benefit the individual and keep them happy, healthy and at home. I think that that is something that the new PSA framework we have got should encourage, and I would be quite happy to see that happen. There is evidence of increased funding for social care in this Spending Review, but I think given the complexity of these issues it would not be right for the Government just to come up and say, "Here is a whole new way of doing it." We are going to take this forward." It has to be done with a degree of consensus and a degree of acceptance that this is the right way to go, given the importance of these matters to the country. To pick up your point about the gentleman on Remembrance Sunday, I think there is a different view between the generations of how these things can and should be funded, to put it ---

Q140 Mr Mudie: We cannot give an hour a fortnight to a 93-year-old war hero living on his own? What kind of society do we live in? Even under Thatcher he would have got it free three days a week. What the hell are we developing into?

Andy Burnham: I agree with you that we have to get a better basis by which social care is funded - the Green Paper is an attempt to do that - and look at all of the support that is available and then make it as fair as possible, but Ivan Lewis, the Care Minister, is doing some excellent work in this area.

Q141 Mr Brady: Having been deprived, members of this Committee, of the opportunity to ask questions of the Prime Minister about the European Union this afternoon, I just wanted to direct your attention to the table on total managed expenditure, table B11, which shows net expenditure transfers to EC institutions rising from 4.7 billion in 2006-07 to 6.6 billion in 2010-11, an increase of nearly 2billion which is over 40%. Why is that increasing by over 40% when domestic expenditure is having to go up by just 2% a year?

Andy Burnham: Can I refer this one to my colleague Richard; it is quite a complicated answer.

Mr Hughes: It is wrong to look at that line and extrapolate too many conclusions. Our net expenditure to the EU is just that, it is a combination of the balance between receipts and expenditure that go out to the EU, and there are things that happen both on the receipts side and on the expenditure side. There are a number of things which we have reflected newly in this publication that were not reflected in the last Spending Review, in particular changes around the UK's abatement arrangements with the EU. It is wrong to look at that line and extrapolate it to saying there is somehow a 40% change in how much is going out to the EU institutions, because there is a comparison to be done about the overall balance of spending that goes out to the EU versus the amount of receipts that come back into us.

Q142 Mr Brady: But it is principally due to the reduction in the size of the UK abatement?

Mr Hughes: No, I did not say that at all.

Q143 Mr Brady: What percentage of it is due to that?

Mr Hughes: I am afraid I cannot speculate on how much is attributable to that, there are a large number of inflows and outflows and this is expressed in net terms rather than in gross terms and is the difference between very large numbers of individual in-year changes, and inter-temporal changes can be very misleading.

Q144 Mr Brady: Could we have another letter in the next few days pointing out what percentage of that increase to 2010-11 is due to the change in the abatement?

Mr Hughes: We can provide that information, yes.

Q145 Mr Dunne: I have a final question just following up on George Mudie's very powerfully made point about how the CSR is addressing the shortage of funding for adult care. My question relates to that and also the allocation of LEA funding across the country. There are certain areas of the country - and I represent a very rural area - where we are an increasingly attractive venue for people to come and retire and therefore there are demographic pressures on our local authorities to fund the issues that George has highlighted at one end of the extreme, and at the other to fund school places, which, for example, by comparison with the numbers you were discussing when Michael Fallon was questioning you, Shropshire receives 3,551 per pupil, which is less than 75% of the average 4,800 funding per pupil 2005-06 and yet the local authority has to deal with higher transport costs and providing education over a wide rural area. What has the Treasury done to look at the allocation of funding across local authorities at both ends of the spectrum given that most of the calculations are based on 2001 Census data which is now woefully out of date?

Andy Burnham: The precise allocations are a matter for the departments concerned so they are a matter for the DCFS and, in the case of health, funding for DH and also DCLG, so it would be wrong for me to intrude upon their territory. That is what those departments are now doing. They are now looking at the overall allocation and making sure that they have a funding policy, an allocations policy that best targets need. I would hope I would stand corrected by saying that I think all of those mechanisms take account of rurality when funds are allocated. Speaking for my former department, it is certainly the case that the health funding allocation formula takes account of rurality when allocating funding to PCTs. Then in terms of population, as I was saying before, all departments are getting the most up-to-date figures, so that is the position in terms of how each is responding differently to make sure that the funding allocations are fair.

Q146 Chairman: Can I just ask a final question, if it was appropriate to consult the Treasury Committee regarding the Treasury's departmental strategic objectives, why was the Committee not consulted regarding those of Her Majesty's Revenue and Customs? Can you give me a note on that?

Andy Burnham: I think I will probably have to!

Q147 Chairman: Okay. Lastly, how are things going in the tax credits office?

Andy Burnham: I am sure my esteemed colleague Jane Kennedy will be before you soon.

Q148 Chairman: Let me give you an example. Today as a constituency MP I got eight letters through from HM Revenue & Customs about tax credits and they say: "Dear Mr McFall, we are very sorry for the delay in sending you a full reply to the complaint that you sent us on 7 August 2007 but I can confirm that we are currently working on your constituent's complaint and aim to send you a reply by 25 December 2007." So ready for Christmas Day! There is my Christmas present!

Andy Burnham: Maybe you will get it on Christmas Day.

Q149 Chairman: I think you should take it back.

Andy Burnham: Joking apart, I will refer that to Jane Kennedy.

Q150 Chairman: I think so.

Andy Burnham: Can I just say Chairman, she is taking a very detailed and focused look at the operation of the system.

Chairman: Michael tells me she is coming to the Sub-Committee. Chief Secretary, thank you for your attendance this evening and we look forward to another session some time; we do not know when.