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

Examination ofWitnesses (Question Numbers 480-499)


26 NOVEMBER 2008

  Q480  Chairman: Louise Tulett, your finance director, told us that only half of Government departments met the deadline of 30 September. Why are they ignoring you?

  Angela Eagle: The current position is that three departments are yet to submit their restated balance sheets to the National Audit Office as part of this system. One of them, which is the Cabinet Office, is expected to complete that action by the end of next month. There are two remaining departments and it is no real surprise that they are the most complex ones, the MOD and Health Department. We are obviously working with them to see how quickly they can get through what for them are a very complex series of calculations. We are confident that they will be prepared for full introduction but clearly they have got the most difficult task ahead of them. We are supporting them and they are actively engaged in trying to complete it.

  Q481  Chairman: What sanction do you have?

  Angela Eagle: At this stage this is a trigger point of a process where we hope by the end of financial year 2009-10 to be able to completely make the shift to the new accounting system. We do not particularly want to get into sanctions at the moment. We want to assist departments in the shift from the current method of accounting to the new one which requires a great deal of work in some departments. We are being supportive and helpful but insistent, I suppose, would be my response to that. At this stage it is more important that we support this shift rather than resort too quickly to sanctions.

  Q482  Chairman: Does this mean we will have further slippage in the target of moving to hold other government accounts?

  Angela Eagle: We certainly hope not. We are still aiming and reasonably confident that we can do this by 2009-10.

  Q483  Chairman: Who is responsible for HMRC?

  Mr Timms: I am.

  Q484  Chairman: Their Annual Report lists 17 areas in which improvements to internal controls are still ongoing, yet your own resource accounts, at page 27, say no internal control issues in the Treasury Group were identified. Can you explain the difference between those two? Who is right?

  Mr Timms: The explanation is that HMRC for these purposes is not part of the Treasury Group referred to in your second remark.

  Q485  Chairman: I thought HMRC was part of the Treasury Group.

  Mr Timms: In the context that the phrase is used that you just read out, it is not.

  Q486  Chairman: That sentence, in fact, just refers to the Treasury.

  Mr Timms: Yes.

  Chairman: It will be corrected next year I hope.

  Q487  Mr Breed: Can we turn to the PSA targets which I suspect you probably thought we were going to approach. In June 2008 the Treasury and HMRC between them had met or were "on course" to meet only 13 of the 20 PSA targets. Could we ask what went wrong in that sense? Perhaps even more so, bearing in mind the Treasury's performance is very similar to the Government's performance as a whole, that slippage is being reported in 40% of the targets, are actually PSAs working in any meaningful sense?

  Mr Timms: Are we talking about the new PSAs for the current spending review period or is your question about performance on the PSAs in the previous spending review?

  Q488  Mr Breed: In the Annual Report of 2007-08, so it is last year.

  Mr Timms: We are looking back over the past performance. What I would argue is that the PSAs, and there were three PSAs in particular that we were responsible for, were extremely valuable and indeed effective in directing the efforts of HMRC. They were not all met but I do not think that in itself is a surprise. We can go through the individual points in the targets, if you like, but I do think the system worked well in directing effort and raising performance. Of course there were some lessons learnt for drawing up the new set of PSAs across government. We have a smaller number of PSAs now than we had before. I do think that the system in place for the 2004 spending review was effective across government and effective for HMRC.

  Q489  Chairman: Were the lessons learnt that perhaps the previous targets were too challenging so, therefore, you have reduced the hurdles so you can meet a few more?

  Mr Timms: No, not at all. There were, as I have said, many elements in the old PSAs that were achieved and the fact they were highlighted in the PSAs in that way increased the focus on delivering them and raised the level of performance. The key lesson that was drawn, and this is a point about the system across government rather than specifically as it affected HMRC, was that it was better to have a smaller number of genuinely cross-government performance targets. In the new system, with the 30 or so PSAs, most of them have more than one department involved in their delivery whereas in the older system it was more segmented by department. The new system has a smaller number of genuinely cross-government targets and I think that probably is a better way of drawing the system up. There is no doubt in my mind that the previous system did contribute very significantly to raising performance across government and in HMRC.

  Q490  Mr Breed: The PSAs are working but not quite as well as you would have hoped and next year we can look towards a substantial improvement in meeting the targets?

  Mr Timms: We have certainly learnt lessons and will continue to do so. I cannot tell you that every single element of the new framework will be certainly delivered. These are stretching targets, and they should be, because we want to aim high on performance. We have certainly learnt lessons and we will be working very hard to deliver all of the new targets.

  Q491  Mr Breed: Can we turn to the unemployment figures which, of course, are higher now than they have been for a very long time. In fact, the number of unemployed people is higher than at any time since 1997. You will know that the Committee has been particularly focused over the last year or so on child poverty. Can you tell us what you are doing there to minimise the effect of this rising unemployment on child poverty?

  Mr Timms: You will know that we have made very good progress in reducing child poverty since 1997. There has been a reduction of 600,000 so far and the headline numbers started at 3.4 million. Measures that were announced in this year's budget will lead to a further significant reduction in the number of children growing up below the poverty line.

  Q492  Mr Breed: Even taking into account the new unemployment situation?

  Mr Timms: Yes. We estimate that the measures in the Budget this year will reduce by half a million the number of children below the poverty line.

  Q493  Mr Breed: But you were using unemployment statistics which clearly are nothing like what we have now.

  Mr Timms: The measures in the Budget will have the effect of reducing by half a million the number that otherwise there would have been. I must say it is not completely clear. The number of children growing up below the 60% median income line, it is not completely clear how they will be affected by what is happening at the moment. It depends in which parts of the workforce unemployment rises in and so on. We are confident that the announcements we made in the Budget will reduce by half a million compared to what the figure otherwise would have been.

  Q494  Mr Breed: You are not taking any additional pre-emptive action in the light of the current economic situation or employment figures?

  Mr Timms: There were, as you will know, some changes in the PBR which will be helpful: the bringing forward of the uprating of child benefit, the bringing forward of the uprating of the child tax credit, both of those will certainly help.

  Q495  Mr Breed: Can we just go to regional inequality which has been a problem for a very long time and is likely to be exacerbated on the impact of the recession. What additional things might you bring in to try and address what was, and is, and has been, a problem of regional inequality for some time but is likely, I suspect, to be made even worse in the next year or so?

  Mr Timms: What we have done, as you know, is announced a major stimulus to the whole economy in the PBR this week worth about 1% of GDP and we believe that will be a very effective measure in rebuilding momentum in the economy across the country. Alongside that, one of the responses that the Government has made to the current challenges is the establishment of the National Economic Council and that is being replicated now by regional councils involving regional ministers and others and the regional development agencies for example. I think that will be a very effective way of concentrating minds in the regions on what needs to be done, and can be done regionally, to tackle the particular challenges which, as you rightly say, vary across the country.

  Q496  Mr Breed: I suspect presiding over the demise of the South East economy to bring it down to the average of the rest is not what we were thinking about, more like bringing up other regional economies to try and tackle what are likely to be quite substantial difficulties in many areas particularly those that are involved in manufacturing and such.

  Mr Timms: Yes. We want to raise it across the country.

  Q497  Mr Breed: Last year the Financial Secretary told us that she would commission some work on the impact of rapid food inflation on the wellbeing of low income families. Can we know what the result of that work was and when it is going to be published?

  Mr Timms: I am not quite sure where that research has got to but I can write to you.

  Q498  Mr Breed: Can you write to the Committee and let us know?

  Mr Timms: Yes.[2]

  Q499 Mr Love: Can I come back to this issue of PSA targets and the unprecedented situation we are now going through? That is the mantra of government, and I have to support it, that this is a whole new ball game we are in. In that whole new ball game do we need to revise and re-look at our PSA targets? Are you, in fact, doing that as we speak?

  Mr Timms: No. I think the framework that we put in place at the time of the Comprehensive Spending Review is right. There certainly is not any general review of the PSAs under way and I do not think it would be right to do so. If we look at the PSAs which HMRC is contributing to, deliver the conditions for business success in the UK, reduce the harm caused by drugs and alcohol and so on, I think those targets, as they have been expressed, remain right for Britain over the three year period we are looking at.

  Ian Pearson: Essentially PSAs look to the longer term, and the longer term objectives that we have set I believe very strongly are absolutely right. There is a big difference between that and, because of the unprecedented changes that we have seen in recent months, some of the short-term things that we need to do. It is quite important that as we go through this difficult economic period at the moment and have to respond to very short-term issues that we do not lose sight of the longer term challenges that face the UK economy and I think the PSA framework that we have got as a Government really sets out those longer terms issues that we need to continue to address.

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