Administration and expenditure of the Chancellor's departments, 2007-08 - Treasury Contents

Conclusions and recommendations

1  We note the ongoing underspending against estimate by the Treasury Group and we are concerned that this may represent under-delivery or poor estimate preparation. We recommend that the Government takes steps to ensure that the Treasury presents an accurate estimate to parliament and delivers against the approved estimate. (Paragraph 9)

2  We recommend that, in its response to this Report, the Government indicates whether any of the Treasury Group's End-Year Flexibility will be transferred to other Departments or how else it might be used. (Paragraph 10)

3  While we recognise that the quantity of staff is not the only factor in the delivery of services, we are concerned that continued headcount reductions in the Treasury Group may now leave its constituent organisations unable to provide the required economic support and management during the economic downturn. We recommend that the Government reconsider any planned further headcount reductions in the Treasury Group in the light of the demands on the Group of the economic downturn. (Paragraph 15)

4  The nationalising transactions of 2008-09 raise some complex accounting questions for the Treasury. In order to ensure that the Treasury Group's 2008-09 Annual Report and Accounts can properly be laid before Parliament before the summer adjournment, we recommend that the Treasury engages early with the National Audit Office to agree appropriate accounting treatments for the transactions surrounding the nationalised and part-nationalised banks. (Paragraph 20)

5  We were disappointed to note that the Treasury Annual Report was published separately to its Resource Accounts in July 2008. We recommend that, in order to aid users of the accounts, the Treasury publishes future Annual Reports and Resource Accounts in a single, combined document prior to each summer adjournment. (Paragraph 21)

6  By nationalising financial institutions, the Government has taken on responsibility for significant liabilities. In order for public scrutiny to be effectively performed, the magnitude and nature of these liabilities must be comprehensively disclosed. We recommend that the Treasury quantify and disclose the liabilities involved in the nationalisations and part-nationalisations of financial institutions. These disclosures should appear in the Treasury Group Resource Accounts, must be at least as comprehensive as those made by major banks and should go further then meeting the minimum acceptable accounting standards. (Paragraph 23)

7   We recommend that in future years the Treasury disclose the total bonus payments made to staff in their Resource Accounts. (Paragraph 24)

8  We recommend that the Government ensure the Treasury is sufficiently resourced to manage its extended responsibilities arising from the economic downturn, especially those regarding financial stability. (Paragraph 28)

9  Given the interest in the fully nationalised institutions of Northern Rock and Bradford & Bingley, and the Treasury's role in their governance, we recommend that the Government publishes key performance information for these institutions within the Treasury Group's own Departmental Report and Resource Accounts. (Paragraph 30)

10   We recommend that the Government identify and publish performance measures for UK Financial Investments and report against these measures on a six-monthly basis. (Paragraph 32)

11  The adoption of International Financial Reporting Standards will fail if the Treasury does not assert its authority and aid departments in meeting the agreed milestones. We recommend that the Government take steps to re-emphasise to all departments the importance of meeting IFRS implementation deadlines. (Paragraph 37)

12  We recommend that the Treasury considers not only the presentation and authorisation of expenditure but also the way in which the revised documents might best facilitate parliamentary scrutiny. (Paragraph 39)

13  We acknowledge that the requirements of the alignment project mean that it is not possible for parliament to maintain control over gross totals. We are concerned that without adequate levels of information regarding income, parliament's authority may be diminished. We recommend that the new estimates provide appropriate levels of information relating to income. We do not wish to impose an unreasonable administrative burden on the departments and hope that a pragmatic solution can be adopted. (Paragraph 41)

14  The increase in planned gilt issuance for 2007-8, announced in Budget 2008 reportedly surprised the market. We recommend that the Debt Management Office reviews lessons learnt from this process in order to ensure the market is better prepared in future. (Paragraph 47)

15  We note that the forecast gilt issuance for 2008-09 has increased from £80bn to £146.6bn. These higher levels of gilt issuance, at a time when other governments will also need to raise cash, significantly increase the risk that supply of Government debt might outstrip demand and uncovered gilt auctions might result. We note the Debt Management Office's confidence in its ability to cope with the occasional uncovered auction but we seek assurances that the Government has put in place contingency plans capable of responding to repeated uncovered auctions. (Paragraph 49)

16  The unprecedented increase in gilt issuance levels in 2008-09 has created pressures for the Debt Management Office staff and such pressure increases the risk of mistakes being made. We recommend that the Government review the resources of the DMO in the light of its significantly increased workload. (Paragraph 51)

17  We note that 2008-09 will see a dramatic increase in the workload of the Debt Management Office and thus an increased risk of control failure. We recommend that the DMO revisit controls relating to publications in order to ensure that factual errors are minimised. (Paragraph 54)

18  We note that the DMO takes an average time of 10 minutes to publish the results of its gilt auctions compared to the 2 minute publication time achieved by other countries. While the discretionary checks performed by the DMO may account for some of this disparity, we recommend that the DMO sets a target for further reducing the delay. (Paragraph 57)

19  We note that a technical breach within the CRND function of the Debt Management Office occurred in 2007-08. Any technical breach is a serious matter. We note that in this instance the DMO has been advised that no adverse consequences resulted, and that a review of the procedures in place has been undertaken. We recommend that the DMO undertakes regular reviews of its control environment to ensure that emerging risks are mitigated where possible. (Paragraph 60)

20  We are disappointed that after three years the measurement of performance against the Government's target to reduce regional inequality remains problematic. We welcome the work of the Office for National Statistics and recommend that the Government publishes the results of the work on regional deflators as soon as it becomes available. (Paragraph 64)

21  We recommend that the Treasury reviews its reporting against its child poverty target in order to ensure that users of the accounts can easily see performance against each of the three measures individually. We are concerned that, despite assurances that the Treasury has "redoubled efforts to meet the 2010 target", it may be beginning to resign itself to failure, an attitude which will not help those children still living in poverty in the UK. (Paragraph 69)

22  We are concerned by the scale and amount of CSR2004 Public Service Agreements which have been missed and recommend that the Government explains why the rate of failure against targets across departments was so great. (Paragraph 72)

23  We note that achievement of the Lisbon goals will not feature in any Public Service Agreement during the CSR 2007 period. We are concerned that this omission will lead to progress against the Lisbon goals being omitted from Government reporting. We recommend that the Treasury publish within its Annual Report an update on progress against the Lisbon goals. (Paragraph 74)

24  The 2008-09 financial year is the first year of delivery against the Departmental Strategic Objectives and Public Service Agreements arising from the CSR2007. In our review on administration and expenditure in 2008-9 we will be examining HM Treasury's performance against these targets. (Paragraph 77)

25  We are disappointed that HRMC took 12 months to replace its Chief Executive, thereby deepening the uncertainty felt by staff members already part way through a far reaching review of HMRC's operations. We recommend that the Government ensure a full permanent senior management team is in place in HMRC as soon as possible. (Paragraph 80)

26  We believe that having a 'Permanent Secretary for Tax' alongside the Chief Executive and Chairman of HMRC may obscure clear lines of accountability. We recommend that HMRC publish and widely circulate clear information on the respective responsibilities of its senior management team, including responsibility for data management. (Paragraph 82)

27  It is our view that HMRC's explanation of the basis for the payment to Stuart Cruickshank is wholly inadequate. We are further unconvinced that the £88,125 received by Stuart Cruickshank represents good value for the taxpayer. We recommend that the Government ensure that all departments are adhering to best practice regarding ex-gratia payments. (Paragraph 88)

28  We note the National Audit Office's assertion that, in order to maximise the benefits of its Transformation Programme, HMRC must convince staff of its benefits. The low levels of morale within the Department are startling with profound potential impacts on both the Transformation Programme and core service delivery. We will continue to monitor the efforts made by senior management to improve matters. We seek an explanation of how Ministers will monitor and report progress. (Paragraph 92)

29  We are concerned that individuals without access to the internet, notably less well off or elderly taxpayers, may face increased levels of non-filing penalty charges following the revision to the paper filing deadline. We recommend that the Government should publish any analysis available to it of the demographic profile of those facing non-filing fees following the 31 October paper filing deadline. If such evidence is not available to the Government then it should be commissioned as a matter of urgency. (Paragraph 95)

30  We recommend that HMRC disclose information regarding the financial case for individual office closures in order to allow better public scrutiny of these decisions. (Paragraph 99)

31  We ask the Government to update the latest progress made by HMRC against Kieran Poynter's recommendations regarding information security. (Paragraph 103)

32  We are extremely concerned by the level of fraud within HMRC. We will continue to monitor the steps taken to improve controls. To assist us in this we recommend a disclosure of immediate past known fraud levels to provide a benchmark. (Paragraph 107)

33  We recommend that the Government ensure the performance against agreed targets by PFI contractors is published within Departmental Annual Reports in order to enable clearer scrutiny of these recipients of public funds. (Paragraph 110)

34  We recommend that HMRC reviews the contracts with its IT provider in the light of the very serious errors which have recently occurred and seeks financial compensation where appropriate. We regard it as wholly unsatisfactory that people entitled to Child Trust Fund payments should not have received them owing to the poor performance of an IT contractor. We seek assurances that the contracts drawn up with the PFI companies adequately allow for appropriate compensation to the taxpayer in the event of serious performance shortcomings. (Paragraph 114)

35  We note that the introduction of HMRC's new IT system has been delayed by a year. We accept that postponing the 'go live' date until testing is complete is prudent. HMRC should publish the performance targets for the new system in terms of reduced open cases and other measures so that we may better monitor its effectiveness. (Paragraph 117)

36  Low staff morale is a risk to the quality of service delivery. We note that staff satisfaction in the Valuation Office Agency is worryingly low. We will continue to monitor management's performance in improving staff morale and safeguarding the delivery of services. (Paragraph 121)

37  We note the Valuation Office Agency's recognition that its communication with businesses affected by the revaluation of statutory ports had been deficient. We hope that the Agency can apply the lesson learnt from this situation to all future revaluations. (Paragraph 127)

38  We note that Port Occupier's are facing bills for backdated business rates which do not take account of payments they have already made to Port Operators towards rates. We recommend that the Government take steps to ensure that the financial liabilities faced by Port Occupiers take such payments into account. (Paragraph 131)

39  Port businesses are facing backdated charges because the Valuation Office Agency failed to identify discrepancies in the ratings at the time of the 2005 revaluation. This mistake was compounded by the VOA's failure to communicate changes promptly and effectively with Port businesses. (Paragraph 136)

40  The Government's proposal to extend payment terms for port businesses comes too late for those firms which have already ceased to operate in the face of the huge rates bills presented. It is probable that, even with an eight year period to pay, the backdated and prospectively increased rates bills may make many firms technically insolvent. We recommend that, in recognition of the fact that the Valuation Office Agency is to blame for the situation faced by the port firms, the Government takes steps to mitigate further the difficult position faced by port businesses. (Paragraph 139)

41  We are concerned that the Government Actuary's Department's estimated net expenditure position deviates so far from its actual outturn. We do not accept that the Department is justified in building in 'headroom' of some £2.8m (38%). We recommend that GAD reviews its supply estimate process and improves budgeting to ensure the validity of forecasts and estimates laid before parliament. (Paragraph 145)

42  We are concerned to note that prior to 2007-08 the Government Actuary's Department were operating a bonus system which made no reference at all to performance. We recommend that the Government ensures that bonus payments are performance-based and of a reasonable scale. (Paragraph 148)

43  We note the controversy surrounding the valuation of miners' pensions and recommend that the Government Actuary's Department issues a statement addressing the risk of future liabilities being faced by the ultimate guarantor of these schemes, the UK taxpayer. (Paragraph 151)

44  We note the Government Actuary's equanimity regarding the impact of Equitable Life on the reputation of Government Actuary's Department. We hope that GAD have learnt lessons from its involvement in Equitable Life and will reflect on the findings of the Health Service Ombudsman. (Paragraph 154)

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Prepared 23 January 2009