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


Examination of Witnesses (Questions 320 - 339)

WEDNESDAY 11 NOVEMBER 2009

SIR NICHOLAS MACPHERSON AND MS LOUISE TULETT

  Q320  John Thurso: So, one of the risks you are managing for the future is not to rely on the financial sector or the housing market and to look for other things to tax?

  Sir Nicholas Macpherson: The history of tax collecting is that one must always keep an eye on new sources of revenue. If one goes back over the past 300 or 400 years some taxes last a long time like income tax and some excise duties but an awful lot of other taxes come and go. One must get tax where one can find it.

  Q321  Sir Peter Viggers: Looking at departmental strategic objective 1 d(i), which is professionalising and modernising the finance function in government, you claim strong progress, but I see that on page 39 of your report that only 22% of all bodies regularly met all agreed standards for timeliness and accuracy. Are the targets wrong? How can you claim strong progress when only 22% meet the standard?

  Sir Nicholas Macpherson: 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 to the Treasury. All departments are on an upward trajectory, but what that statistic reveals is that there is a lot more to be done.

  Q322  Sir Peter Viggers: What can you do to improve their performance?

  Sir Nicholas Macpherson: You can do quite a lot. Part of it is moral suasion. There is a group of finance directors, of which no doubt Louise is a member. People do not like league tables or being named and shamed, especially by their colleagues, so one can create quite a lot of peer pressure. There are also more direct mechanisms whereby if a finance function in a department is weak both through the Cabinet Office's capability review programme but also in terms of my relationship with permanent secretaries one can draw attention to that weakness and that something needs to be done about it pronto.

  Q323  Sir Peter Viggers: It sounds a little compellable. Does it really matter and, if so, can you not simply tell them?

  Sir Nicholas Macpherson: I think people are receptive to messages on this point. There has been a big step forward on professionalisation. Only six years ago when I used to appear before this Sub-Committee the finance director sitting next to me was not a professional. We have professionals in place. The quality of accounts and financial management and data is improving, but in some areas it starts from a low base. For example, the relationship between resources and outputs and outcomes has tended to lag behind the private sector partly because getting a measure on somebody's objectives is quite difficult. But John Thompson, head of profession, myself and Andrew Hudson who runs the directorate in the Treasury are seriously committed to making progress.

  Q324  Sir Peter Viggers: Would you get a better idea of government reporting performance if you expanded your measure of timeliness and quality of resource accounts to include arm's length bodies such as the Royal Mint?

  Sir Nicholas Macpherson: Getting arm's length bodies more closely involved in the process is critical. One comes back to the clear line of sight point and what determines the departmental boundary. I think this is a real priority.

  Q325  Sir Peter Viggers: Turning to DSO outcome 2(a), supporting low inflation, your overall outcome assessment is met ongoing and the target is 2% with a margin of 1% but average CPI was consistently above 3% during 2008-09, peaking at 4.8% in the fourth quarter of 2008. How can you claim that the target was met ongoing?

  Sir Nicholas Macpherson: Because inflation came back rapidly to within the range. Looking over any reasonable length of time inflation out-turns have been very close to target. There will always be times when it goes over the top of the limit and possibly beneath it, but I do not think that failing to hit the target for a few months means one is not meeting one's objectives. What matters is what the average inflation rate is over a long period and it is very close to the 2% target; indeed, it is threatening to go out at the bottom, but I think that inflation will be rising again soon with the VAT increase coming up. I am reasonably confident that the bank will continue to hit the target.

  Q326  Jim Cousins: Referring to child poverty, do you think you will meet the targets?

  Sir Nicholas Macpherson: It will be very hard work. Over the past two years of published data we have not made as much progress as we would have liked. A lot of resources have been put into tax and benefits to support poor families but progress does not seem to have been reflected in the statistics. It does not mean you give up; if anything, you need to redouble your efforts, but we shall be hard pressed to halve child poverty by 2010 given the recent trajectory.

  Q327  Jim Cousins: Can you supply the Committee with the current take-up rates as you see them for the child tax credit and working tax credit? Can you also supply the Committee with information because there appears to have been a growth of casual and part-time jobs and that does not necessarily trigger ineligibility for working tax credit given the rules that apply? It would be quite worrying if sections of the labour market which are expanding at the present time, particularly for women, did not qualify people for the working tax credit.

  Sir Nicholas Macpherson: I am aware that HMRC publishes data in its annual report, but I would be happy to provide the Sub-Committee with a note.[4]

  Q328  Jim Cousins: What was announced in the Budget in 2007 was that another half a million children would be taken out of poverty. Are you now uncertain about whether you will meet that target?

  Sir Nicholas Macpherson: The measures we have taken in recent Budgets will ensure that child poverty is 500,000 lower than it would otherwise have been. The worry is 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 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.

  Q329  Jim Cousins: You have reminded us of the important gloss that the target is relative; it is half a million less not of the fixed figure but where it would have been. It would be interesting to measure it and obtain your analysis of where the figure would have been and why; that is, the moving target which is the basis of your comparison.

  Sir Nicholas Macpherson: This is a very complex area and analysing it is difficult, but I would be very happy for the Treasury to give you a note on it.

  Q330  Jim Cousins: It is a little disappointing that pensioners are not mentioned at all under outcome 2(c). Perhaps I need to place on record that although I am of pensionable age I do not claim the state pension. Therefore, I am not asking about something of which I am a direct, personal beneficiary at the present time. I was quite disturbed to see recently that amongst the over 65s there are three million pensioners who do not claim the enhanced tax relief who could so and 2.5 million pensioners pay tax on their savings, because tax is deducted at source—it is a withholding tax on savings—when they should be receiving those savings tax free. What are the government doing to ensure that pensioners claim the much larger tax relief to which the over 65s are entitled?

  Sir Nicholas Macpherson: First, I am sorry that this section does not contain a reference to pensioners. We will endeavour to do better next year. Second, I am aware of the problems of take up in all sorts of areas relating to old people. I do not have before me information about what HMRC is doing. I am pretty sure that it has run campaigns to ensure that old people who do not pay tax reclaim what they are entitled to. Again, I would be happy to come back to you on that.

  Q331  Jim Cousins: There is a growing body of evidence to suggest that pensioners who do not take up the enhanced tax relief and get their savings tax free as they should are very often women who live on their own. The Leader of the House may be reassured to know that sometimes the old boys care very strongly about the old girls. I am concerned that it is particularly women who lose out by not claiming their entitlements. What measure are you taking in that regard?

  Sir Nicholas Macpherson: I agree with you on that. Historically, it is that group which is most likely to be living in poverty. I am aware that the Department for Work and Pensions has done a lot of work to promote the take up of pension credits.

  Q332  Jim Cousins: I am talking here about tax which is your direct responsibility.

  Sir Nicholas Macpherson: Tax policy is indeed my responsibility. I am not trying to get out of responsibility for this in any way. The implementation of that policy is a matter for Revenue and Customs, but I shall find out where HMRC is on this. Tomorrow I am to see its Chief Executive, Lesley Strathie, and I will come back to you.

  Q333  Ms Keeble: Dealing with child poverty, one of the key measures has just come in, namely the changing rule about housing benefit.

  Sir Nicholas Macpherson: Yes.

  Q334  Ms Keeble: Do you know how that is progressing? There were real issues about whether local authorities would be able to implement it.

  Sir Nicholas Macpherson: To the best of my knowledge, the implementation is working, but again I shall be happy to give you a note on that. I am sorry that I am promising to send in so many notes.[5]

  Q335  Ms Keeble: How do you know it is progressing properly? Do you liaise with DCLG on it?

  Sir Nicholas Macpherson: We have a mechanism for ensuring that the Treasury, Work and Pensions, CLG and the Department for Children work closely together. There is a structure which supports the PSA process. I assume that if there was a serious problem with it I would be aware of it.

  Q336  Ms Keeble: One impact is that you give more money to families on housing benefit; the other is that you take money away from those who are on rent allowance. Have you seen what the impact will be of taking money away from people on rent allowance at the same time that you give money to people on housing benefit?

  Sir Nicholas Macpherson: We try to model these things to get a decent distributional analysis to inform policy, so those sorts of calculations will be done.

  Q337  Ms Keeble: These are exactly the same families; it is just that some are in council and some are in private tenancies. The former get more help with their rent and the latter have money taken away from them.

  Sir Nicholas Macpherson: Certainly, the impact of some of these policies can be consistent with what you say. One of the problems is that historically rent allowances in particular have supported rents which are far higher than in the local authority sector. People have always tried to reform housing benefit which is a very difficult matter.

  Q338  Ms Keeble: I am not asking questions about the reform of housing benefit but the amount of disposable income that families have after housing costs. With housing benefit it will be more because they can keep more but with rent allowance it is taken away because any money that is left over is removed from them. I want to know about the income of poor households after housing costs. Are you measuring it and, if so, how?

  Sir Nicholas Macpherson: This would be measured both at the time the policy is being modelled but also when you get the child poverty statistics. The child poverty statistics are done both before and after housing costs.

  Q339  Ms Keeble: Can we have the figures from your modelling about how many families got how much money through the changes in housing benefit and how many families with children lost how much money as a result of the rent allowance claim and compare them with the results, presumably after three months, so we know what has happened to household incomes?

  Sir Nicholas Macpherson: I can give you that information assuming we have it. It is the Department for Work and Pensions that is responsible for housing benefit.


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