House of Commons - Administration and expenditure of the Chancellor's departments, 2008-09

Administration and expenditure of the Chancellor's departments, 2008-09 - Treasury Contents

3 THE TREASURY GROUP'S PERFORMANCE AGAINST OBJECTIVES

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:

DSO2: Ensuring high and sustainable levels of economic growth, well-being and prosperity for all.

It also reported against Public Service Agreement 9—ending Child Poverty (PSA9)—for which it has the lead responsibility.

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 and effectively.

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 risks managed.

The Treasury rated its DSO2 overall performance as 'some progress'. It recorded 'some progress' against five DSO2 outcomes:

promoting the efficiency and fairness of the tax system;
supporting fair, stable and efficient financial markets;
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 prosperity.

It recorded a 'met-ongoing' assessment against one DSO2 outcome:

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 public services.

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).

DSO1

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 Outcome—1d(i)— Professionalising and modernising the finance function in Government—supported 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.[56] He responded that

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.[58]

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" [59] and pointed to "a review of the Corporate Governance Code"[60] 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.

DSO2

37. Under DSO2, we queried first how the Treasury justified a "met-ongoing" assessment against its supporting low inflation outcome—DSO Outcome 2(a) supporting low inflation—given that, as shown in the table below, in 2008-09 it missed its inflation target[61] 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."[62]

Table 4: Inflation performance 2008-09[63]

	2008 Q2	2008 Q3	2008 Q4	2009 Q1
Average CPI (per cent)	3.4	4.8	3.9	3.0

38. The Permanent Secretary defended the assessment on the grounds that "inflation came back rapidly to within the range…what matters is what the average inflation rate is over a long period and it is very close to the 2% target."[64] Exchequer Secretary Sarah McCarthy-Fry MP similarly justified the assessment "presumably because we got there at the end of the year."[65] A subsequent supplementary memorandum from the Treasury confirmed that:

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 in output.

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 indicator.

39. We also probed the Treasury on a second DSO2 outcome—improving 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 next year."[66] We recommend that the next Treasury Committee test whether this commitment to provide a DSO2 indicator for pensioners has been fulfilled next year.

PSA9—Child Poverty

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 them—most recently in our Pre-Budget Report 2009.[67] 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."[68] 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."[69] 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". [70]

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[71] 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 by 2020.

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[72] 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 remains "important"[73]. 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.[74] 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.