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

Examination of Witnesses (Questions 360 - 379)



  Q360  Mr Love: Whilst I accept that you can continue to look to make efficiency savings from the areas you have talked about—the estate and other functions—the obvious question that arises from it is: is it not important for you, the government and country that you do nothing to impair the ability to continue to respond to what clearly everyone thinks is a continuing major economic dislocation? Therefore, sitting here before the Sub-Committee today are you confident that the Treasury can continue to do the job it has been doing for the past year even with its efficiency programme?

  Sir Nicholas Macpherson: I am confident that £35 million is deliverable. Ultimately, the question is that if you keep seeking to impose very demanding efficiency targets there are risks. My personal view is that there is a certain level of Treasury staffing below which you may have a problem. You need a certain number of people to run a decent, functioning finance ministry. In my time at the Treasury the number of people within it has tended to vary between about 900 and 1,300. I would become quite worried if we ended up at, say, 750.

  Q361  Mr Love: But a lot of the reductions were made in recent years. You started out top heavy and you have made reductions. You are now being asked to continue to make those reductions against the present backdrop. Does that not raise some concerns about whether you can continue?

  Sir Nicholas Macpherson: We have to manage the risks. We have expanded recently to deal with specific challenges, but with the end of the negotiations with RBS over the asset protection scheme at a stroke quite a lot of resources will be released. What I am keen to avoid is the Treasury becoming a flabby organisation. The Treasury is at its best when it is quite small and focused, but clearly on the financial stability side for a few years yet we will need a lot more people than we had five years ago.

  Q362  Nick Ainger: I find it difficult to resolve two positions. I refer to the figures on pages 87 and 88 which show a significant increase in staffing. You go on to say that in key positions you have recruited a second permanent secretary, a new managing director, two additional directors working on financial stability and a new director of corporate services. In addition the department has recruited a new position of director of communications strategy supported by a new economic briefing unit. An awful lot of staff at senior level are being appointed. I do not suggest they are not needed, but overall my calculation is that this year an extra 250 staff are being recruited, both permanent and casual, and your predictions are that these levels of staffing will continue right the way through to March 2011. As staffing is presumably your main expenditure how on earth can you say that you will meet the cash-releasing efficiency saving of £35 million?

  Sir Nicholas Macpherson: The savings are cash-releasing but some of them will have to be reallocated within the organisation.

  Ms Tulett: We had a baseline in our CSR settlement with which the Sub-Committee will be familiar. Sir Nicholas and the spending team had discussions with the Chancellor. We have temporarily had access to an extra £20 million EYF to fund those areas that required it, so the £35 million efficiency comes from the core Treasury which we have bedded into the CSR 2007 settlement. The additional £20 million is what finances some of the increase that you see now, but because we hope it is not something that we have to sustain long term we are currently accessing it from the EYF and when we have the next spending review clearly we shall have to look at the baseline.

  Q363  Nick Ainger: But the figures on page 87 indicate that from March 2008 to March 2011 in virtually all the departments, but certainly in the core Treasury group, there are very significant increases in staffing. That occurs in exactly the same period when you are supposed to be delivering the £35 million cash-releasing efficiency programme. It just does not add up.

  Ms Tulett: The 107 kick-up from 1,136 to 1,243 was the result of our having to fill vacancies that I believe we discussed with the Sub-Committee last time. Vacancies do not score towards our efficiency, so that was money already in our baseline. When we had to re-deploy people rapidly to the front line to deal with the financial services we then in slower time backfilled them. Therefore, the net increase that represents the marginal effect which would be funded from the additional £20 million EYF is the second year figure of 143. The first year kick-up of 107 got us back to the 31 March 2007 level. I know that in previous hearings we had a discussion about the fact we had dipped and were running with a high vacancy rate.

  Q364  Nick Ainger: Quite frankly, I still do not see how the numbers add up. Given the number of people and the grades at which you are recruiting I do not see how the £35 million can be delivered. I understand why perhaps it should not be delivered, which was the point Mr Love made, but you are still pursuing it and things have moved on. Your department has come under enormous pressure and has responded extremely well. Surely, you should be saying that you cannot do this; it is not deliverable?

  Sir Nicholas Macpherson: I distinguish how much money the Treasury will spend from the number employed over this period. Clearly, we are spending more and are employing more people. Cash-releasing efficiency saving reflects things like how we exploit the building and much of it will help fund the Treasury rather than go back to the Exchequer. It is really a cash-releasing efficiency saving that supports the level of activity in which the Treasury is engaged rather than one that just represents a cut in our budget.

  Q365  Nick Ainger: We shall see what happens in the next annual report. To move on, the staff surveys within the Treasury indicate some very positive things and I am sure that in part that is to do with all the recruitment that is going on rather than the shedding of staff. As you are probably aware, a couple of weeks ago we had before us HMRC where it is not the same picture. I do not know whether you have read the transcript or seen the staff survey within HMRC. When asked whether staff felt that change was well managed within HMRC 11% were positive and 70% were negative; when asked whether when changes were made they were usually for the better 9% agreed and 67% disagreed; when asked whether on the whole HMRC was well managed 11% agreed and 64% disagreed; and when asked whether overall people had confidence in senior civil servants and senior management 11% agreed and 60% disagreed. Lesley Strathie recognises the very serious position she has inherited. HMRC is, if you like, your military wing; you need them to act effectively particularly now in ensuring that you get in every bit of tax to which the Treasury is entitled. What will you do? How can you, who appear to be able to deliver good staff morale within your core departments, translate that into a massive improvement in HMRC?

  Sir Nicholas Macpherson: The Treasury and HMRC are very different organisations. I wish I could say that morale is high in the Treasury because of something I am doing. I think it reflects a far wider range of factors. We are small and are in one location. We have a relatively senior staff balance in our organisation, whereas HMRC is 80 times bigger than the Treasury and has far more junior grades. The Treasury has very high staff turnover; HMRC has extraordinary low staff turnover. It has had quite ambitious efficiency savings which genuinely have been driven out. It is important that the Treasury understands HMRC; it has a huge responsibility in ensuring that it is adequately resourced to do the job. There is now a greater dialogue between the Treasury's board and that of HMRC. We met each other only the other day. We have big obligations in terms of the policy design of a tax system which is manageable from their point of view. They start from a very low base. I have been very impressed by Lesley Strathie's approach to the organisation. I have met people who work in HMRC who are pleased that they have someone running it who really understands what it is like to work in a large organisation, because she worked her way up from the bottom in the employment service. We want to support HMRC and I hope it will get better results.

  Q366  Nick Ainger: Members of the PCS trade union have told me that at this difficult time they would like to see the same level of investment going into their organisation as has gone into the Treasury's, but clearly the reverse has happened. We want to drive efficiencies at this time but they believe that it may affect their tax take. Have you looked at that in any way?

  Sir Nicholas Macpherson: We have continuing close dialogue with HMRC about this because it is important that it is resourced to do the job. The Treasury has had a bit more resource, but in the general run of things that would not make a huge amount of difference to HMRC because it is just a far bigger organisation. Grade for grade, those who work in HMRC are paid more than people who work in the Treasury and it is of interest that that does not seem to impact on the morale of the two organisations.

  Q367  John Thurso: You asked all government departments to restate their 2008-09 accounts on an IFRS basis including the opening balance sheet by 10 December 2009. How many made it?

  Ms Tulett: Forty-one out of 43.

  Q368  John Thurso: What about the Treasury itself? What is the impact of IFRS on your own resource accounts?

  Ms Tulett: Quite considerable, but most of that came about through FRS which was something we had to implement in the set of accounts that you have in front of you. The step change between IFRS and FRS is not a major one for us. We have submitted our return which is currently being audited by the NAO.

  Q369  John Thurso: Does the move to IFRS mean that more PFIs will appear on the balance sheet? If so, what will that do to the net debt figure?

  Ms Tulett: I do not know the answer across the whole of government, but for the Treasury the answer is that it will not because our existing PFI deal has been on our balance sheet since the day it went operational. I am afraid I do not have available the information across government.

  Sir Nicholas Macpherson: My recollection is that inevitably it will result in more PFI deals being on the balance sheet, but increasingly large amounts of them are on the balance sheet anyway.

  Q370  John Thurso: Do you still intend to publish whole government accounts for 2009-10?

  Sir Nicholas Macpherson: Yes, we do.

  Q371  John Thurso: Do you intend to include in those accounts the investments in the part-nationalised banks?

  Ms Tulett: No, we do not. We have taken the policy decision not to do that, in the same way we do not consolidate them within the annual report and accounts.

  Q372  John Thurso: They will remain off-balance sheet items?

  Ms Tulett: They will remain out of WGA but obviously they will continue to produce their own reports.

  Q373  John Thurso: It will be the whole of government accounts less the banks' accounts?

  Ms Tulett: We are not consolidating them.

  Q374  John Thurso: How do you account for the money that you have put into them? If you were doing this in a normal institution you would either have it as an historic cost or would mark it to market or whatever. Will you show it in your balance sheet?

  Ms Tulett: Yes.

  Q375  John Thurso: Therefore, you will show it as a separate entity at cost?

  Ms Tulett: No; we show it as mark to market.

  Q376  John Thurso: You record the loss at the balance sheet date?

  Ms Tulett: Yes.

  Q377  Chairman: Page 100 shows that last year the number of MPs' letters answered in 15 days fell quite dramatically below your 80% target to 60%. At the same time you have set up a Treasury twitter channel. Do you have your priorities right? Why are you not answering our letters?

  Sir Nicholas Macpherson: Earlier this year we were inundated with letters and I think that by March we had a backlog of about 5,000 letters. We recognised there was a problem and put a huge amount or resource into dealing with letters over the summer. I think we now have a backlog of about 100. I have sent a letter to a number of MPs to apologise for the delay; I apologise once again, but in the absence of a further crisis in the banks I am confident that we shall be back on track. Even if we answered every letter on time for the rest of this year we will still end up with something like 55% or 60% of letters being replied to within target but I am very confident that we shall do better next year.

  Q378  Ms Keeble: I was dismayed by the lack of information about what is happening on child poverty and the lack of measures. I question the seriousness of the Treasury in tackling child poverty.

  Sir Nicholas Macpherson: I should like to reassure you that we take it very seriously. The annual report at 260-odd pages is already very long. There is a publication every year by the DWP that goes into huge detail.

  Q379  Ms Keeble: But you are responsible for the delivery.

  Sir Nicholas Macpherson: We are responsible for reporting against the target and we chair the interdepartmental group which takes work forward on this. I take it very seriously, which is one reason why recently I announced I would move someone at very senior level, Mark Neale, to work full time on the child poverty agenda over the next few months. We need to look at child poverty not just from the point of view of income but in order to re-energise our approach to public services and how we work with different tiers of government, in particular local authorities, to promote the child poverty agenda.

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