Examination of Witnesses (Question Numbers
160-179)
MR NICHOLAS
MACPHERSON AND
MS LOUISE
TULETT
22 OCTOBER 2008
Q160 Mr Todd: Since the Treasury
has gone further into this line of business, presumably some of
the principles established, in accounting terms, have now been
determined so that you do not have to go through this exercise
once more. Am I right in thinking that? All organisations are
slightly different, but, nevertheless, the principles, in accounting
terms, are likely to be established from the first experience?
Ms Tulett: Indeed. We have learnt
during the course of that, and we also, obviously, have had the
advantage of these events happening a lot earlier in the financial
year than the Northern Rock TPO, and, indeed, we have to appreciate
the full impact of these in order to do our winter and spring
supplementaries. So we are on the front foot.
Mr Macpherson: In Treasury traditionally
the accounts have actually been quite simple and easy to do. We
are going to be in a more complex world. We have got Bradford
and Bingley, we have got a number of Icelandic banks which, like
it or not, we are going to be having financial relationships at
least with the administrators thereof. The recapitalisation has
not actually happened yet, and some of the votes on those recapitalisations,
in particular the one around HBOS and Lloyds TSB, will not actually
take place until December. We are going to try and be ahead of
the curve on this and anticipate accounting issues, but you should
be under no doubt that the Treasury's accounts this time next
year are going to have bigger numbers in them and they are going
to be more complex numbers.
Q161 Mr Todd: I think we were thinking
that might happen. Presumably you are also going to need to address
some of the other aspects of the package recently announced. There
are some notional liabilities, at least, involved in some of the
commitments made of guaranteeing inter-bank lending, and so on,
which, again, will require careful consideration in accounting
terms. Have you started that?
Ms Tulett: We have, and we are
very alive to those. The detail of those will be further explained
in the winter and spring supplementaries as well as in the accounts.
Q162 Mr Todd: Looking at your accounts
previously, those sorts of liabilities have tended to be left
as noted but unquantified?
Ms Tulett: Yes.
Q163 Mr Todd: Is that the direction
that is going in or is it rather too early to say?
Ms Tulett: I think you can be
assured that whatever we put into our accounts, the NAO will make
sure we represent a true and fair position of our situation.
Q164 Nick Ainger: In your resource
accounts you have published the details of bonus payments to six
senior staff out of the 16 members that are names unpublished.
They are described as "senior management". Presumably
they are all on the Treasury Management Board. What particular
successes had those six achieved, including your good self, Mr
Macpherson, to actually receive a bonus payment?
Mr Macpherson: First, we published
these details for the first time, reflecting this Committee's
recommendation, so I am very pleased that we have done that. Secondly,
just to be clear, the bonuses relate to the year prior to which
they are paid, so they would relate to achievements in the year
2006-07. I think 2006-07 was, as I recall, a reasonably successful
year, meaning these bonuses will reflect performance across a
range of objectives but at their heart is an outcome focus. Finally,
I should just be clear what bonuses are. It has been government
policy over quite a long period, in particular, for the senior
Civil Service to remunerate more through what I would call variable
pay, also known as a bonus, and less through consolidated pay.
It is tempting to look at these and think, "Gosh, here is
some addition", but actually these aspects of remuneration
fall within the overall pay remit, and so, on the whole, people
have been getting less money through consolidated pay and rather
more through this mechanism, which also, from a value for money
point of view, has the advantage that these bonuses are not pensionable
and, because they are not consolidated, any percentage increase
the following year will not cover this level of remuneration.
Q165 Nick Ainger: You did not really
answer my question. Obviously six out of 16 implies that 10 members
of the senior management board were not performing as well as
the others, and Ms Tulett is included in that.
Mr Macpherson: I am sorry, I should
have explained that. Where people's bonuses are not recorded,
it is because either they did not receive a bonus for performance
reasons or at that point they were not a member of the Treasury
Board and so they are not covered. I do not want to embarrass
Louise, but I think she has been, under difficult circumstances,
performing really well, so I would hope that there would be a
bonus against her name the next time we publish some accounts.
Q166 Nick Ainger: But it would be
helpful if actually that could be explained, because that is published
in the accounts and implies that six people out of 16 have achieved
their targets or have gone past their targets and the others have
not done that.
Mr Macpherson: If we have not
made that clear we will seek to be even clearer next year.
Q167 Nick Ainger: We are pleased
that you have published what you have published, but in a parliamentary
answer it has been revealed that there, in fact, have been a total
of 459 bonus payments made by the Treasury in 2007-08. Why did
you not disclose the details of the bonus payments made to Treasury
staff as a total, which was a recommendation that we did make
and which was accepted by the Government?
Mr Macpherson: If we have failed
to do something which we agreed to, we certainly need to look
at that. I would be very happy to look at that anyway. I would
not want to get into a situation where we are publishing information
about relatively junior staff, because I think there is an issue
around confidentiality, but your point is a perfectly good one,
which is that you need to know about how much we spend on remuneration
and we need to break down what that remuneration is.
Q168 Nick Ainger: It was perfectly
all right to reveal it in a parliamentary answer; presumably it
is perfectly all right to put it into the accounts?
Mr Macpherson: Absolutely, and
we are always seeking to improve the quality of the accounts.
Q169 Nick Ainger: Okay. Can we move
on to bonus payments in the newly nationalised banks? It has been
reported that Richard Pym, the Chief Executive of Bradford and
Bingley, is due to receive a bonus of £300,000 for his performance
in 2008. Is it the intention to pay this bonus to someone who
led his institution into nationalisation?
Mr Macpherson: Richard Pym. I
am trying to remember which name is which. He is the Chief Executive
of Bradford and Bingley?
Nick Ainger: Yes, now employed by the
Treasury?
Q170 Mr Todd: Fairly recently, I
think.
Mr Macpherson: I think the issue
here is that he was recruited very recently indeed. The problem
facing Bradford and Bingley as it sank towards its demise was
that it was very difficult for them to recruit anybody at all.
My guess is that the only basis on which they would get Mr Pym
was to guarantee certain payments. We are putting governance in
place around B&B and we will have to see what is a contractual
commitment and what is not. I cannot give you an answer on that
right now.
Q171 Nick Ainger: It is an important
issue. The committee were recently in Tokyo looking at the Japanese
experience, and one of the things that we were advised by those
that had gone through the Japanese banking crisis 10 years ago
was the need to carry public opinion with events such as nationalisation
of banks, and it is not going to carry public opinion if someone
who appears to have failed in their responsibilities, which has
led to the demise of their institution as a publicly quoted institution
which had to be nationalised, is going to receive a bonus. I hope
that this is a matter which is under review, because public opinion
will not accept performance-related pay for failure.
Mr Macpherson: I think you raise
a really good point, and it certainly informed the announcement
of recapitalisation 10 days ago. It was made very clear in that
announcement that certain people would be leaving their institutions
without a bonus. Public opinion does matter on this, especially
when taxpayers' money is at stake, and we take the issue of remuneration
very seriously and we will in any regime which is put in place
for the future. The problem on these occasions—and I think
it happened with some of the people on the Northern Rock Board
who fell by the way side through last autumn—is where there
is a contractual commitment. Some people may choose to waive that
commitment, and that is, I think, an honourable thing to do, but
I do not want to get into the individual circumstances of Mr Pym
because these issues, at an individual level, can be quite delicate.
Q172 Nick Ainger: Just for the record,
if it is decided that he should leave his post by mutual agreement,
he actually stands to receive £1.5 million for ending that
contract. Let us not go into the detail of that, but will that
payment, if it is made in those circumstances, appear in the resource
accounts for 2008-09?
Mr Macpherson: I certainly would
hope that that payment would appear in Bradford and Bingley's
accounts, and given that the rump of Bradford and Bingley is still
operating, it will have to account very clearly for its actions.
Obviously, the Treasury is accountable in terms of the framework
under which Bradford and Bingley will operate from hereon, so
it will be a matter of public record, and you can rightly hold
us to account in terms of how remuneration operates.
Q173 Nick Ainger: But will it appear
in your accounts for next year?
Mr Macpherson: I would not think
so, because there was no record, for example, of the Northern
Rock---. For some of this period in these accounts Northern Rock
was in public ownership but we do not consolidate Northern Rock
within the Treasury's accounts, but it will be very public and
you can hold us and, indeed, the banks to account, because you
can call the relevant people before you.
Q174 Chairman: Mr Macpherson, just
to be clear, these are now, in effect, departments of the Treasury,
so we would expect their accounts to be available to us or grouped
with yours.
Mr Macpherson: They are nationalised
industries effectively.
Q175 Chairman: Accountable to you.
Mr Macpherson: They are accountable
to us. We are responsible for ensuring that there is public accountability
here and that their accounts are very clear, and our accounts
need to factor issues around them into our reports, just as we
do now with the Bank of England, which is another nationalised
bank. The Bank of England publish accounts, you require the Bank
of England to appear before you and we are accountable for the
governance of the Bank of England.
Q176 Chairman: I think a better parallel
might be the Royal Mint. This is now a department that, effectively,
reports to the Treasury, is it not?
Mr Macpherson: The Royal Mint
is. The Royal Mint at present is, effectively, a Civil Service
department. There is a question about whether it has converted
from trading fund status into a company, at which point its status
would be more relevant to the Bank of England, but I take your
point.
Q177 Chairman: What I think Mr Ainger
wants to know is will this information be published by you and
will you be accountable for it?
Mr Macpherson: We are accountable
for the governance of these banks. We have a section covering
arms' length bodies in our annual report. Consistent with our
responsibilities for the governance of these institutions, we
have to set out our role, the framework under which we are operating,
and we have to ensure clear and timely accounts to be published
by the institutions in question. For example, the Bank of England
publish their accounts every year, it is a matter of public record
what Mervyn King is paid, it is a matter of public record what
his pension is, and no doubt you cover that as and when you discuss
these matters with him.
Q178 Nick Ainger: I just do not see
what the problem is in publishing this information if it is available
elsewhere. Why not pull it altogether so that we can actually
see what has been going on in one document with all these nationalised
banks?
Mr Macpherson: We clearly need
to consider how we can brigade the information in a way which
is helpful to you. We are going to set up an arms' length body
to manage our shareholding in these various financial institutions,
and, again, I will take away your message and we will consider
how best to respond.
Q179 Sir Peter Viggers: You signed
off an estimate of Treasury expenditure but you substantially
under spent last year. Why was that?
Mr Macpherson: I will get Louise
to comment on that. Some of it, as ever, is to do with the accounting
treatment of the building. When the value of the building goes
up we get a negative impairment which reduces our spending. Louise,
do you want to give chapter and verse?
Ms Tulett: I can. I think probably
the best reference point is page 57 of the accounts, which talks
about the administration costs and the non-pay expenditure, and
on there you will see that there were three exceptional items,
one of which was a reversal of the impairment on the building,
so there was a £15 million reduction in spending there, which
was the prime reason for the under spend.
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