Letter from the Permanent Secretary, HM
Treasury to the Chairman
Following my letter to you of 8 October, and
the publication of the Pre-Budget Report and Comprehensive Spending
Review, I am now in a position to reply substantively to the points
raised in your letter of 5 October.
You ask about the differences between Public
Service Agreements (PSAs) and Departmental Strategic Objectives
(DSOs). The new performance framework set out at the CSR represents
a tightening of the Government's highest priorities for the CSR
period, with far fewer indicators and targets given PSA status.
Departments will still need to manage the entire span of their
business—which is what DSOs are for. The Treasury will ensure
that our DSOs, and the PSAs to which we contribute are underpinned
by robust measurement systems. However, as the reporting framework
is developed, it will also be important to strike the right balance
between measuring progress and avoiding excessive reporting burdens.
There are no plans for DSO Delivery Agreements, though like other
departments we are building our business planning process around
our DSOs.
You ask specifically about the fiscal rules.
Although there is no longer a PSA covering the fiscal rules this
does not change their status or make them any less important.
They are a fundamental part of Treasury activity and as a result
are clearly reflected within the Treasury's DSO outcomes. The
fiscal rules remain integral to the Government's fiscal framework.
As we set out in our response to your report on The 2007 Budget,
the Government will set out in the normal way the details of the
fiscal position under the framework over the next cycle when it
provides its view on the end of the current economic cycle. As
you will have seen from the PBR/CSR document, while evidence from
the broad range of cyclical indicators is monitored by the Treasury,
latest National accounts data and the Treasury's trend output
as assumptions imply output passed through trend towards the end
of 2006, though it is still too soon to assess whether or not
the economic cycle has ended. The fiscal rules have helped support
economic stability, protected a historically unprecedented increase
in public sector net investment and maintained net debt at a low
and sustainable level. The Government will continue to publish
its assessment of progress against the fiscal rules in each PBR
and Budget.
You ask about the indicators for the Child Poverty
PSA. We will use three indicators to measure progress: relative
low-income, absolute low-income and a combined relative low-income
an material deprivation measure. The income measure of poverty
will use 60% of median income. For the combined measure, we will
use a 70% median income line an will combine this with material
deprivation to provide a wider view of living standards. The precise
construction of the indicator has been set out in the measurement
annex of the Child Poverty PSA Delivery Agreement, published alongside
the Comprehensive Spending Review. The Treasury will use relative
low-income as an indicator for our DSO as we have the most important
levers for making progress on this measure. The combined relative
low-income and material deprivation indicator will be affected
by a range of levers that the Treasury does not directly control
and thus is most appropriate to use the relative low-income measure
for performance management.
On supporting fair, stable and efficient financial
markets, I am grateful for you comments about the need to include
a public indicator on stability. The range of issues this objective
covers makes it particularly challenging to sum up in a small
set of indicators. We have continued to develop the set since
I wrote to you in September and we now intend to include a public
indicator. Our objective around improving incentives and helping
people to plan is about encouraging individuals to save appropriately,
by providing the right access, opportunities, and incentives to
save, and improving information and financial capability to help
in individuals make the right saving decisions for them. It does
not automatically follow that we should be setting indicators
for levels of saving, or numbers of people saving, as saving may
not be appropriate for all. Even if we are starting from the premise
that either more individuals should be saving, or that those individuals
currently saving should be saving more, there are challenges around
defining a suitable indicator in this area.
You asked how the outcome of promoting the efficiency
an fairness of the tax system would be measured. The main tool
here is impact assessment of individual policy measures, which
will present the relevant evidence on the positive and negative
effects of such interventions. We are still considering what other
measurements might be appropriate.
You also asked how we would measure our European
and international work. While our overall aim includes outcomes
such as high and sustainable levels of economic growth and prosperity
in the EU and world economy the Treasury's role here is primarily
one of influencing our EU and international partners and it is
difficult to set quantitative outcomes for this. We will therefore
seek to measure our success in influencing the policy debate and
international structures, which we use to make progress on our
objectives, by taking as our milestones the outcomes of major
events including in EU and international finance ministers meetings,
and public progress reports on agreed goals. These milestones
would include the annual debate on Lisbon by the Spring European
Council, summed up in Presidency Conclusions, the National Reform
Programmes an the Commission's Annual Progress Report on Lisbon.
You raise the important issue of the extent
to which the Treasury itself can be held to account for all of
the outcomes covered by our DSOs. It is in the nature of our business
that delivery some times requires us to work through or with other
parts of government, In these cases is not always possible to
isolate the Treasury's contribution in a meaningful way for reporting
purposes, but we do not see this as a reason for shying away from
our responsibilities or from public accountability for them.
Thank you for you continued interest in, and
your helpful contributions to, the development of our DSOs.
15 October 2007
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