Pre-Budget Report 2009 - Treasury Contents

Examination of Witnesses (Question Numbers 73-79)


14 DECEMBER 2009

  Q73 Chairman: Good afternoon. John, welcome back. Could you introduce yourself for the shorthand writer, please, and then we will go along the row?

  Mr Whiting: John Whiting, Chartered Institute of Taxation and Low Incomes Tax Reform Group.

  Professor Heald: David Heald, Professor of Accountancy at the University of Aberdeen.

  Mr Chote: Robert Chote of the Institute for Fiscal Studies.

  Mr Harker: David Harker from Citizens Advice.

  Q74  Chairman: The PBR has promised support to tackle youth unemployment and ensuring that those aged over 50 can come back into work. Are there any other groups that you have found to be particularly hard hit by this recession?

  Mr Harker: Certainly the people who are at risk of repossessions and people with debt problems and other people on low incomes.

  Mr Whiting: I would just observe from a business point of view a lot of small firms are struggling with cash flow and to that extent the help that has been given over spreading tax bills has been quite effective.

  Q75  John Thurso: I am not sure who to ask this question of. I really want to talk about the efficiency savings. John, would you like to tackle that? The commitments that the Government has set out in the PBR, which ones stand out as delivering most benefits and which ones look decidedly flaky?

  Mr Whiting: I think my main reaction to those various efficiency savings is almost to look at it in terms of greatest risk. Sitting here as a taxman, the main area that concerns me, perhaps inevitably, is the potential cutbacks at HM Revenue & Customs, and to a certain extent the Treasury. Will that make the tax system more difficult to run? In particular, will it have quite a knock-on for those without advisers who struggle to get their tax bills right, very often the low-paid who do not necessarily know exactly what to claim, how to claim the benefits to which they are entitled? I am sorry, I am answering your question in a rather different way, Mr Thurso. That is the main concern that I have with those savings, plus the inevitable one of will they be delivered.

  Q76  John Thurso: Let me ask Professor Heald, which ones of the efficiency savings do you think have got real teeth and which ones are paper tigers?

  Professor Heald: The major point I would make is very heavily flagged efficiency programmes from Gershon and operational efficiency plans, have created a degree of scepticism about whether efficiency savings are genuine or not. There is a very serious presentational issue in terms of saying, "this chunk of money will be saved in this particular way". My view would be that we have a much more decentralised public sector than we had 20 or 30 years ago. Essentially, the best people to make the judgments about where efficiency savings can be made are actually the people on the ground, so I would very much emphasise that when we get the next Spending Review, setting the spending envelopes, letting the people who run the organisations decide how best to achieve the cost savings that are required. I am very sceptical about these top-down plans.

  Q77  John Thurso: What I am driving at is the evidence we have had in the NAO Reports where 25% of claimed savings have been highly dubious and another 50% questionable. In answer in this Committee, officials have pointed out that these are not cash savings, they are resource savings, and therefore it might not actually involve any money. As an old-fashioned businessman it seems to me that cash is king and if you are dealing with a deficit it is actually about cash. I am slightly struggling to understand this very large number of efficiency savings, whether it is real or a distraction.

  Mr Chote: One point to bear in mind is that it is a significantly lower number than the Government has claimed in the previous two exercises. Gershon was 26 billion and they are claiming they are going to have achieved 35 billion over the period spanned by CSR07, so 12 by the standards of those two looks relatively modest. That is not to say whether when you quiz the NAO in the future they are going to be any more confident that a higher proportion than 25% of these are well-founded than otherwise. In a sense, it is quite striking how much of the low hanging fruit the Government thinks has already been picked.

  Mr Harker: A few points on this. One is I think there is significant scope if departments are prepared to change the way in which services are delivered, and we have done some quite interesting work with the Cabinet Office and the Transformation of Government people particularly on accessing and processing benefit claims, but there is some considerable doubt about whether there is the will to bring these through in practice, so what we have seen in other areas—DWP, JobCentre Plus—has been a degradation in service levels. So many of the other things that are designed to improve economic performance, like getting people back into jobs, are built around personalisation, helping people as individuals find their way into work, and yet we are finding shorter and shorter periods of time devoted to those individuals and their interactions with JobCentre Plus. There is a lot of things hidden within the PBR and one of the things I was going to raise later is the 360 million cut to the Legal Aid budget, much of which is identified as efficiency savings in the courts system, but there is a fear that if that cannot be achieved there will be a reduction in eligibility for Legal Aid with a direct knock-on consequence for citizens who may have problems.

  Q78  John Thurso: Would it be fair to say in any business if you went to the CEO and said, "I am going to save you large amounts of money but I do not actually have a plan to achieve it yet", he would chuck it out? Is that the level of scepticism you have about a great deal of these so-called efficiency savings?

  Mr Harker: I think that is a fair point.

  Mr Whiting: Yes.

  Q79  Mr Love: The Government is also looking to deliver £16 billion worth of asset and property sales. Is that realistic?

  Professor Heald: I have just spent a month in Australia and the story was running just before I left and there was a statement to the Commons with one of the Treasury ministers clarifying what those numbers meant. There is an important issue about the focus on net borrowing and the focus on net debt. One of the things which is underplayed in the Pre-Budget and very much underplayed in the Long-Term Public Finance Report is what is actually happening to Government net worth. We are obviously going to have a very difficult period fiscally compared with the experience of the last 10 years and it is very important that we do not reduce net borrowing and net debt by ways which build us future problems. If the public sector has got assets which it does not use well and it does not need then very clearly timely disposal of those assets is very sensible. If it is simply a matter of disposing of assets whatever the market value in the present circumstances, whether or not you need them in the longer term, simply to bring the borrowing numbers down—that is undesirable. Though clearly disposing of surplus assets when the market permits is a perfectly sensible part of fiscal consolidation, the idea that one can achieve a great deal by a fire sale of assets is just wrong.

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