Supplementary written evidence submitted
by HM Treasury
FURTHER MATERIAL REQUESTED AT THE EVIDENCE
SESSION ON 11 NOVEMBER 2009
Short notes are attached here on the following
subjects. The committee questions referred to are in brackets.
— Accounting for the fall in net borrowing
(Q. 296).
— HM Treasury's interaction with UK Financial
Investments (Q. 304).
— Benchmarking procurement practice (Q.
306).
— Pensioners and tax allowances (Qs. 330-332).
— Child poverty (covering issues raised
in Qs. 327, 329, 334, 339, 345-349, 378, 385).
HM TREASURY'S
INTERACTION WITH
UK FINANCIAL INVESTMENTS
This note clarifies the principles governing
the exchange of information between HM Treasury and UK Financial
Investments (UKFI) and, specifically, consultation with UKFI on
due diligence information that was in the Treasury's possession.
UKFI was set up to manage Government's shares
in financial institutions at arm's-length and on a commercial
basis. UKFI's objective is to dispose of the investments in an
orderly and active manner, within the context of an overarching
objective of protecting and creating value for the taxpayer, paying
due regard to financial stability and promoting competition.
The Treasury's relationship with UKFI is set
out in more detail in UKFI's Framework Document and Investment
Mandate.[1]
In carrying out its functions, UKFI acts as an engaged and informed
institutional shareholder.
As stated at the hearing, only the Treasury
is in a position to take decisions from the perspectives of both
fiscal and financial stability. In consulting with UKFI on the
recent announcements, the Treasury sought to balance financial
stability and value for money objectives with the need to avoid
compromising UKFI's status as an engaged and informed shareholder
in the banks.
Both UKFI and the Treasury take care at all
times to respect their legal obligations in respect of the information
they hold and share, including legislation on insider dealing
and market abuse, and conditions which apply when confidential
information provided for the purpose of the Asset Protection Scheme
(APS) and financial stability is transferred between the two organisations.
This includes confidentiality agreements signed with the banks,
and FSA regulations on the disclosure of regulatory information.
Over the course of the APS negotiations, the
Treasury sought UKFI's views on the market reaction to each bank's
participation in the APS, Lloyds's alternative capital raising
proposal and the implications for shareholder value. UKFI was
also consulted on final advice to Ministers to ensure that UKFI's
views were accurately reflected. Information discussed with UKFI
included:
— Treasury's analysis of the banks' capital
models;
— the structure of B shares and the contingent
capital instruments;
— RBS strategy for raising capital and
balance sheet structure, including liability management proposals;
and
Information provided by the banks, and seen
by UKFI, has been reflected in public disclosures that have since
been made by Lloyds and RBS.
Given the Treasury's wider responsibilities
for financial stability, and its role as a member of the Tripartite,
the Treasury is also in possession of information that was not
provided by the banks, such as the results of its own due diligence.
At UKFI's appearance before the TSC on 4 November, John Kingman
correctly reported that no such due diligence information was
shared between the Treasury and UKFI. Detailed information on
the FSA's stress testing was not shared. This was because the
Treasury judged that advice from UKFI was not required. In cases
where further advice was needed, the Treasury sought that advice
from Treasury's financial and legal advisers.
ACCOUNTING FOR
THE FALL
IN NET
BORROWING FROM
2009-10 TO 2013-14
The 2009 Budget forecasts net borrowing
to fall from 12.4% of GDP in 2009-10 to 5.5% of GDP in 2013-14.
In cash terms, borrowing is projected to fall by £78 billion
over that period, from £175 billion to £97 billion.
The table below breaks down the annual fall in net borrowing relative
to 2009-10 between cyclical changes and other factors, and
discretionary measures.
|
| % of GDP | 2009-10
| 2010-11 | 2011-12
| 2012-13 | 2013-14
|
|
| Net borrowing | 12.4
| 11.9 | 9.1
| 7.2 | 5.5
|
| Change in net borrowing since 2009-10 | -
| -0.5 | -3.3
| -5.2 | -6.9
|
| of which | |
| | | |
| Change in net borrowing due to cyclical and other factors
| - | 1.4
| -0.3 | -1.2
| -2.2 |
| Change in net borrowing due to measures (PBR 08+BUD09)
| - | 1.9
| -3.0 | -4.0
| -4.7 |
|
Almost 70% of the fall in net borrowing between 2009-10 and
2013-14 reflects the impact of discretionary measures announced
in the 2008 Pre-Budget Report and the 2009 Budget, including
the reversal of the fiscal stimulus.
Just over 30% of the reduction is driven by cyclical and
structural changes to borrowing largely driven by economic growth.
Structural improvements include forecast recovery in the financial
sector, supporting income tax and corporation tax receipts, and
rises in asset prices, boosting receipts from stamp duties.
The change attributable to measures includes the reversal
of the temporary VAT cut announced in the 2008 Pre-Budget
Report. If the reduction in VAT is excluded from the 2009-10 baseline
for net borrowing, discretionary measures would account for just
over 60% of the fall in net borrowing between 2009-10 and
2013-14, and structural and cyclical factors almost 40%.
PENSIONERS AND
TAX ALLOWANCES
The Committee asked why some pensioners do not claim tax
allowances to which they are entitled, and asked what HMRC are
doing to help pensioners to claim back tax they may have overpaid
on their savings income.
On tax allowances for people aged 65 and over, the figure
quoted by Mr Cousins appears to have come from the NAO report,
"HM Revenue & Customs: Dealing with the tax obligations
of older people", published on 23 October 2009. Most
of the 3.2 million people who the NAO estimate do not claim
their full age-related personal allowance already have a total
income below this level. These people do not pay any tax (provided
they register to receive their savings income tax-free) and are
not required to inform HMRC of their tax situation. This group
would derive no benefit from claiming a higher allowance, which
is why their allowance may go "unclaimed".
Tax on savings income is collected automatically at source,
at a rate of 20%, by banks and building societies. For most people
this means they pay the right amount of tax, without having to
worry about filling in a tax return. There are, however, some
people who should pay no tax, or the lower 10p starting rate,
on their savings income. Those individuals can claim back any
tax that has been overpaid. Non-taxpayers can also instruct their
banks or building societies to pay their interest tax-free. HMRC
is currently contacting 3.4m pensioners as part of its latest
"Taxback" campaign, which aims to ensure that pensioners
do not overpay tax on their savings income and that they claim
back any tax they have overpaid.
CHILD POVERTY
Child Poverty—performance to date and projections for
the future
The Child Poverty PSA target uses the following three indicators
to monitor performance. The data appears in the Households Below
Average Income (HBAI) Report published by the Department for Work
and Pensions.
— Absolute low income: this indicator measures whether
the poorest families are seeing their income rise in real terms.
The level is fixed as equal to the relative low-income threshold
for the baseline year of 1998-99 expressed in today's prices.
Between 1998-99 and 2007-08 the number of children in
absolute low income fell from 3.4 million to 1.7 million.
— Relative low income: this measures whether the poorest
families are keeping pace with the growth of incomes in the economy
as a whole. This indicator measures the number of children living
in households below 60% of contemporary median equivalised household
income. Some 500,000 children have been lifted out of relative
poverty between 1998-99 and 2007-08 falling from 3.4 million
to 2.9 million.
— Material deprivation: defined on the basis of those
items that cannot be afforded. This indicator provides a wider
measure of people's living standards through a survey which asks
respondents whether they have 21 goods and services, both
child and household items. The 21 items were chosen following
a thorough analysis of all existing UK material deprivation data
to identify a set of questions which best discriminated between
poor and non-poor families. They are designed to work together
as a suite of items that combined present a picture of material
deprivation rather than as individual indicators.
The Government's target to halve child poverty requires it
to reduce the number of children in relative low income poverty
to 1.7 million by 2010. In 2007-08, the latest statistics
available, there were 2.9 million children in relative poverty.
Since, then the Government has introduced a number of additional
measures targeted at reducing child poverty: the Government estimates
that as a result of measures announced in and since Budget 2007 around
a further 500,000 children will be lifted out of poverty.
This is analysis is based on estimates from HM Treasury's tax
and benefit simulation model which uses the Family Resources Survey
and simulates the impact of changes in tax and benefits on household
income and therefore poverty. This model focuses on simulating
changes in relative poverty, the model has not been developed
to accurately simulate the level of absolute poverty, or material
deprivation, as requested by the Committee.
Child poverty is a result of a number of complex and varied
factors and can be influenced by changes in economic circumstances,
levels of employment and demographics. There is significant uncertainty
about the impact on child poverty of the current economic circumstances
and the Government faces additional pressures as a result of the
extraordinary economic events. However, the Government remains
committed to tackling child poverty and has taken further steps
at Budgets and Pre-Budget Reports even in difficult times and
is now taking forward the Child Poverty Bill which will enshrine
in legislation its commitment to eradicate child poverty by 2020.
Graph 1
TIME SERIES ANALYSIS OF CHILD POVERTY INDICATORS
Take-up of Tax Credits
Child Tax Credit (CTC) is an income related payment for parents
and carers of children or young people who are still in full-time
non-advanced education or approved training. It is a single system
of support for families, independent of parents' employment status,
thus providing a stable source of income as parents move into
work.
Work is the most effective route out of poverty. Working
Tax Credits (WTC) "tops-up" income from low-paid work,
improving incentives to work while also helping to ensure a decent
income for families. For people who face a significant barrier
to working full-time, such as those with children or a disability,
Working Tax Credit is available if they work at least 16 hours
a week. Other people who do not face these barriers and who work
less than 30 hours a week are not generally entitled to Working
Tax Credit, because working for less than 30 hours per week
is less likely to create a strong attachment to the labour market
and lead to sustained employment. Creating financial incentives
to work part-time for people who could work full-time would therefore
be counter-productive as a means of making work pay and tackling
poverty. Nevertheless, to help people affected by the recession
the Government announced in the Budget that from 31 July
there will be a four-week run-on of entitlement to the Working
Tax Credit for people who cease to qualify as a result of working
shorter hours. This is worth up to £32 for a single
person on the National Minimum Wage and £68 for a couple,
and will help people with the transition to shorter working hours.
The WTC also contains a childcare element, which provides
support with up to 80% of childcare costs, to a maximum eligible
amount of £175 a week for one child or £300 per
week for two or more children.
Take up of tax credits is higher than any previous system
of income-related support for in-work families. In 2006-07 take-up
of the child tax credit was 81% rising to 92% for those earning
under £10,000. Take-up of the Working Tax Credit by people
with children is 88% and 20% for those without children. In Budget
2009 the Government announced an ambitious target to raise
take up of WTC among people without children by 100,000 by
April 2011. HMRC will continue to expand its work with employers
to increase take-up which is now reaching around 750,000 employees
at over 50 organisations and its work with Jobcentre Plus
to help those going in and out of work. Budget 09 also announced
that HMRC will begin new research-driven marketing aimed at the
half a million people who stand to gain the most from taking up
WTC, and launch a pilot using data from Pay As You Earn records
to identify and contact potentially eligible people.
Take-up of the childcare element of the Working Tax Credit
A take-up rate for the childcare element cannot be calculated
in the same way as for Working Tax Credit or Child Tax Credit.
This is because we do not have an estimate of the number of people
who are eligible for the childcare element as this relies on use
of formal childcare as well as work status. The administrative
and survey data we currently hold does not allow us to determine
which tax credit recipients are entitled to, but not claiming
the childcare element.
The table below gives estimates of the number of families
benefiting from the childcare element at points in time based
on our snapshot statistics for tax credits awards. This number
has increased by 78% since New Tax Credits were introduced in
2003, and also there are now over twice as many families benefiting
from it as from the childcare tax credit in the Working Families
Tax Credit, the predecessor system. However, during this time
the number of families eligible for the child care element will
also have grown, for example the Government has increased the
amount of support in tax credits by increasing the proportion
and maximum costs allowed for child care as well as increasing
the child element above indexation.
Table 1
FAMILIES BENEFITING FROM THE CHILDCARE ELEMENT
|
| Numbers benefiting1
| Average weekly help
|
|
| July 2003 | 264,400
| £43.20 |
| October 2003 | 285,600
| £43.43 |
| April 2004 | 317,700
| £43.67 |
| December 2004 | 331,300
| £45.75 |
| April 2005 | 337,400
| £45.60 |
| December 2005 | 356,000
| £48.97 |
| April 20062 | 374,300
| £49.90 |
| December 20062 | 395,800
| £60.13 |
| April 2007 | 413,700
| £61.26 |
| December 2007 | 427,600
| £64.19 |
| April 2008 | 448,800
| £65.30 |
| December 2008 | 461,500
| £68.37 |
| April 2009 | 470,400
| £68.69 |
|
Notes
1. Those claiming the childcare element and with CTC above the family element.
2. Proportion of childcare costs allowed increased from 70% to 80% on 6 April 2006. The higher rate would be reflected in the December 2006 snapshot onwards. The April 2006 snapshot was taken on 5 April 2006 so would be based on 70% of costs allowed.
3. Source: HMRC Provisional Statistics at snap shot dates available at http://www.hmrc.gov.uk/stats/personal-tax-credits/cwtc-quarterly-stats.htm
|
Further analysis of the number of families receiving the
child care element of the Working Tax Credit can be found in the
statistics published on our website at http://www.hmrc.gov.uk/stats/personal-tax-credits/cwtc-quarterly-stats.htm
Employer Supported Childcare
The estimated costs of Employer Supported Childcare were
published in the Tax Ready Reckoner and Tax Reliefs supplementary
document at PBR 2008. In this document, the estimated costs to
the Exchequer of Employer Supported Childcare was £400 million
in 2007-08 and £500 million in 2008-09.
Most people claiming tax relief and National Insurance Contributions
exemptions on Employer Supported Childcare have a household income
that is too high for them to be eligible for childcare support
through the tax credit system. Around one third of the funding
for Employer Supported Childcare goes to the 6% of parents who
pay tax at a higher rate.
Housing benefit
Budget 2008 announced that, from October 2009, Child
Benefit would be disregarded for the purposes of calculating Housing
Benefit (HB) and Council Tax Benefit (CTB). The implementation
date was subsequently changed to 2 November 2009 to
align with the changes to regulations which increased the HB and
CTB capital thresholds for claimants of a pensionable age. This
also allowed the local authorities more time to make the necessary
changes to their software and instructions to staff. Given the
timescale, involved, it is too early to say, but so far no local
authorities have reported difficulties with its implementation.
As a result of this measure, around 200,000 working
families will gain about £1,000 a year, making them
an average of £20 a week better off. However, there
is currently no reliable way of modelling the combined impact
on child poverty of the Child Benefit disregard and the Local
Housing Allowance (LHA) reforms announced in Budget 2009. This
is because DWP does not currently hold quality assured data on
the family breakdown of LHA customers. Although we are not able
to say how many LHA customers have children, we estimate as a
rough guide that around 45% of HB customers in the private rented
sector have children (Family Resources Survey 06/07).
ALIGNMENT (CLEAR
LINE OF
SIGHT) PROJECT
UPDATE
The Government published its proposals for a better aligned
public spending framework in March 2009 (Cm 7567). The Liaison
Committee responded to these proposals in its report "Financial
Scrutiny: Parliamentary Control over Government's Budgets"
(HC 804) in July 2009. The Liaison Committee's report accepted,
on behalf of the Parliamentary Committees generally, all of the
Government's recommendations on alignment, as well as making a
number of other recommendations about Parliament's scrutiny of
government expenditure. The Government has since responded to
the Liaison Committee report. The Government's response was published
by the Committee on 2 November (HC 1074).
The Government is very grateful for Parliament's support
of the proposed alignment changes, which have enabled us to move
towards phased implementation of the new spending framework, beginning
in April 2010. At present, the necessary primary legislation is
passing through Parliament as part of the Constitutional Reform
and Governance Bill. The parts of the Bill relating to alignment
passed their Committee stage in the House of Commons on 4 November.
The Government is also planning to put a further memorandum
to the Liaison Committee, Treasury Committee and other interested
Committees. This will cover a number of implementation issues
on which the Committees have asked for further information, such
as the format of Supply legislation and resolutions, as well as
any new issues that have arisen since the Treasury's memorandum
in March 2009.
Subject to the passing of the legislation and any further
comments received from the Parliamentary Committees, the Government
is planning to implement the budgetary changes arising from alignment
from April 2010 and the full changes to Estimates and resource
accounts from April 2011.
OGC CONTRIBUTION TO
THE RESPONSE
TO THE
TREASURY SUB
COMMITTEE
The Office of Government Commerce (OGC) is currently piloting
the second wave of Procurement Capability Reviews[2]
(PCRs) which compare the procurement capability of the top 16 spending
departments using a bespoke procurement capability model. This
model uses a mixture of qualitative judgements and quantitative
metrics to score departmental performance from nine perspectives
(under broad headings such as leadership, governance and processes).
Ratings have been published and a "Green" rating can
equate to "world class"—as determined by OGC research
and comparisons with a range international procurement benchmarks
which have been drawn from recognised international benchmarking
organisations. The programme of reviews continues, with a greater
focus on quantitative metrics, which naturally lend themselves
to easier benchmarking—the results will continue to be made
public.
On procurement outcomes, in pricing, for international markets
such as energy we track against internationally recognised pricing
indices, such as Platts (standard market energy index); and our
collaborative approaches to certain categories are breaking new
ground internationally. However, it will not always be possible
to compare prices directly across international boundaries because
the nature of consumption (ie customer behaviour) and the supply
side (structure of markets, strength of competition) varies from
country to country. Within the collaborative programme, OGC will
continue to support the strengthening of Government's relationship
with its top suppliers (most of who are international players).
The UK is a good exporter of Procurement practices; over
20 countries follow the Office of Government Commerce's (OGC)
GatewayTM procurement assurance process. International standards
have been set by our PRINCE2 and MSP products for project
and programme management and ITIL processes for IT service management.
This work will continue because since these standards are regularly
updated and maintained through consultation and peer review by
a pool of international experts.
It should be noted that the imminent publication of the first
Operational Efficiency Programme "back office" benchmarking
report will enable all public bodies employing more than 250 people
to compare their performance across a number of metrics relating
to back office costs, which includes procurement measures of efficiency
and effectiveness. The metrics against which benchmarked performance
is assessed were developed and agreed by the Audit Agencies (NAO,
Audit Commission, etc) after an extensive period of research,
which included a comparison with international standards.
The above are just a few example of the ways in which OGC
will continue to make use of international comparisons. OGC seeks
to continue to support the UK's leadership in this field and extend
it through programmes of collaborative procurement, PPM and capability
further into the Public Sector.
1
http://www.ukfi.gov.uk/releases/Framework%20Document%20July%20Revised%20Version.pdf
and
http://www.ukfi.gov.uk/releases/UKFI%20Mandate.pdf Back
2
http://www.ogc.gov.uk/procurement_capability_reviews_pcrs_update_about_procurement_capability_reviews_pcrs.asp Back
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