3 THE TREASURY GROUP'S PERFORMANCE
33. The Treasury Group consists of HM Treasury, DMO
and The Office of Government Commerce (OGC). In 2008-09, the Treasury
Group reported against two Departmental Objectives:
DSO1: Maintaining Sound Public Finances; and,
DSO2: Ensuring high and sustainable levels of economic
growth, well-being and prosperity for all.
It also reported against Public Service Agreement
9ending Child Poverty (PSA9)for which it has the
34. The Treasury rated its overall performance against
DSO1 as 'Some Progress'. It recorded 'strong progress' against
three DSO1 outcomes:
- professionalising and modernising the finance
function in government;
- professionalising and modernising the procurement
function in government; and,
- managing government cash, debt and reserves efficiently
It recorded 'no progress' against one DSO1 outcome:
- managing public spending.
Finally, two DSO1 outcomes were not assessed:
- meeting the fiscal rules; and,
- ensuring that the tax yield is sustainable and
The Treasury rated its DSO2 overall performance as
'some progress'. It recorded 'some progress' against five DSO2
- promoting the efficiency and fairness of the
- supporting fair, stable and efficient financial
- raising productivity with sustainable improvements
in the economic performance of all English regions including narrowing
the gap in growth rates between the best and worst regions;
- protecting the environment in an economically
efficient and sustainable way; and,
- pursing increased productivity and efficiency
in the EU, international financial stability and increased global
It recorded a 'met-ongoing' assessment against one
- supporting low inflation.
Two DSO2 outcomes were not assessed:
- improving the incentives and means to work; supporting
children and pensioners; and helping people plan and save for
the future; and,
- improving the quality and value for money of
The Treasury recorded 'no progress' against PSA9:
- halve the number of children in poverty by 2010-11,
on the way to eradicating child poverty by 2020.
This section looks at both DSOs and the PSA, and
also looks at the Treasury's progress towards introducing International
Finance Reporting Standards (IFRS) across Departments and publishing
Whole Government Accounts (WGA).
35. In the previous section, we questioned whether,
as currently defined, the indicator for the first, and yet to
be assessed, DSO1 outcome outcome 1(a) meeting the fiscal
rules could ever meaningfully be assessed. In this section,
we turn our attention to one of the DSO1 outcomes which was assessed.
During our Treasury evidence sessions, we probed the extent to
which some of the underlying data for DSO Outcome1d(i)
Professionalising and modernising the finance function in Governmentsupported
the Treasury's assessment of 'strong progress,' drawing the Permanent
Secretary's attention to the fact that of the 59 bodies required
to report monthly in-year figures to the Treasury in 2008-09 an
average of just 13 (22%) regularly met all agreed standards for
timeliness and accuracy.
He responded that
These targets are very new and are part of raising
the bar in terms of departmental performance. This is particularly
about the quality of monthly reporting of spending in the Treasury.
All departments are on an upward trajectory, but what that statistic
reveals is that there is a lot more to be done. 
He accepted that "you can do quite a lot"
to improve departmental performance here, and suggested that "moral-suasion"creating
"quite a lot of peer pressure"could play a key
role, as could "more direct mechanisms" through the
Cabinet Office's capability review programme and his own relationship
with other departmental permanent secretaries.
36. We also put Treasury Ministers on the spot.
Exchequer Secretary Sarah McCarthy-Fry MP asserted that the poor
outcome to date "does not mean we are not on the right track"
 and pointed to "a
review of the Corporate Governance Code"
as evidence that the Government was taking action further to improve
the finance function in Government. We look forward to seeing
a significant improvement in the timeliness and accuracy of Departmental
monthly in-year monitoring figures next year, as the actions highlighted
by the Permanent Secretary and Minister take effect.
37. Under DSO2, we queried first how the Treasury
justified a "met-ongoing" assessment against its supporting
low inflation outcomeDSO Outcome 2(a) supporting low inflationgiven
that, as shown in the table below, in 2008-09 it missed its inflation
target in three out
of four quarters and that, by its own admission, "since May
2008 and until recently, CPI inflation has exceeded the threshold
above which the Governor of the Bank of England is required to
write an open letter to the Chancellor, as set out in the remit
for the MPC."
Table 4: Inflation performance 2008-09
| ||2008 Q2
|Average CPI (per cent)
38. The Permanent Secretary defended the assessment on the grounds
that "inflation came back rapidly to within the range
matters is what the average inflation rate is over a long period
and it is very close to the 2% target."
Exchequer Secretary Sarah McCarthy-Fry MP similarly justified
the assessment "presumably because we got there at the end
of the year."
A subsequent supplementary memorandum from the Treasury confirmed
The rationale behind the 'met-ongoing' assessment
is that consumer price inflation (CPI) hasn't been more than 1%
above or below the 2% target since February, but also that the
monetary policy framework allows the Monetary Policy Committee
to look through short-term fluctuations to keep inflation at target
over the medium term. As the latest MPC remit states:
The Framework takes into account that any economy
at some point can suffer from external events or temporary difficulties.
The framework is based on the recognition that the actual inflation
rate will on occasions depart from its target as a result of shocks
and disturbances. Attempts to keep inflation at the inflation
target in these circumstances may cause undesirable volatility
Whilst we understand the logic of the Treasury's
position, it still appears disingenuous to claim, with no further
explanation, that a target has been met when that target has in
fact been missed in eleven months out of twelve, and we recommend
that the Treasury reflects on the terminology used to assess this
39. We also probed the Treasury on a second DSO2
outcomeimproving incentives and means to work; supporting
children and pensioners and helping people plan and save for the
future. We expressed our disappointment that neither of the indicators
against which this outcome will in future be assessed related
to the supporting pensioners element. As we put it to both the
Permanent Secretary and Ministers, this is an important area not
least because large numbers of pensioners are paying tax on their
savings when they should not. The Permanent Secretary told us
that he was "sorry that this section does not contain a reference
to pensioners" and that "we will endeavour to do better
We recommend that the next Treasury Committee test whether this
commitment to provide a DSO2 indicator for pensioners has been
fulfilled next year.
40. We have regularly scrutinised the Government's
progress towards its ambitious and challenging child poverty targets,
and warned of the growing risk that it would fail to meet themmost
recently in our Pre-Budget Report 2009.
During our Annual Report hearings, we were concerned by the
lack of detailed knowledge displayed by Permanent Secretary Sir
Nicholas Macpherson on this key area of Treasury responsibility,
drawing from him the admission that "from a personal perspective
I have had less time to devote to the details of this agenda as
in previous years."
With regard to reaching interim and final child poverty targets,
we were also less than reassured by his observation that:
there are trends at work in the economy which
mean one is running quite hard sometimes to stand still. I am
optimistic that those measures [taken by the Government in recent
Budgets] will have a positive impact on people's lives. What I
am less confident about is that they will translate on a one-to-one
basis in the child poverty statistics.
He went on to explain that one of the trends "is
due to the effect of globalisation. There are huge forces at work
in our society that tend to stretch the income distribution."
Although Ministers were more upbeat about the potential for, in
the words of Financial Secretary the Rt Hon Stephen Timms MP,
"further substantial progress", even he accepted that
"hitting the 2010 target would be a stretch". 
41. On the weight of evidence from both our 2009
Annual Report and 2009 Pre-Budget Report hearings, the Government
will fall well short of its target to halve the numbers of children
living in poverty
by 2010-11. We reiterate, therefore, our 2009 Pre-Budget Report
recommendation that the Government clearly sets out the steps
it proposes to take to move nearer its 2010-11 target in
the time available and to achieve the eradication of child poverty
Implementation of International
Financial Reporting Standards
42. The Government has committed to preparing public
sector accounts in accordance with International Financial Reporting
Standards (IFRS). In our report last year
we noted that the Government's timetable for achieving this had
slipped from 2008-09 to 2009-10. In oral hearings this year, Ministers
confirmed that the implementation of IFRS to the revised timescale
Ministers also reassured us that the Government remains on-track
to publish Whole of Government (WGA) accounts for the first time
in July 2010 for the 2009-10 financial year.
In our Pre-Budget Report we noted that while PFI contracts will
show on balance sheet in departmental accounts prepared under
IFRS, they will not appear in the calculations of net debt in
whole of government accounts. We reiterate our view that future
Pre-Budget and Budget Reports should include a reconciliation
between Public Sector Net Debt calculated on a national accounts
basis, and the same figure calculated using the IFRS principles
which apply to departmental accounts.
56 HM Treasury, Annual Report and Accounts 2008-09,
July 2009, HC 611, p 39 Back
Q 321 Back
Q 322 Back
Q 417 Back
Q 418 Back
2% as measured by the 12 month increase in the consumer prices
index (CPI).The target allows for fluctuation of 1% above or below
the 2% target Back
HM Treasury, Annual Report and Accounts 2008-09, July
2009, HC 611, p 54 Back
Ibid., p 55 Back
Q 325 Back
Q 435 Back
Q 330 Back
Treasury Committee, Fourth Report of Session 2009-10, Pre-Budget
Report 2009, HC 180 Back
Q 381 Back
Q 386 Back
Q 456 Back
From the 1998-99 benchmark figure of 3.4m in relative poverty.
The current relative poverty figure is 2.9m. Back
Treasury Committee, First Report of Session 2008-09, Administration
and expenditure of the Chancellor's departments 2007-08, HC 35 Back
Q 537 Back
Q 544 Back