Supplementary memorandum from HM Treasury
In response to your questions at the PAC hearing
on 8 September 2010, this letter provides further clarity on the
Department for Communities and Local Government's CSR07 Value
for Money programme.
Departmental targets were negotiated on an individual
basis between departments and the Treasury. A 3% reduction in
the resource element of Departmental Expenditure Limits was used
as the starting point for negotiations across government.
The Department for Communities and Local Government
(CLG) published their initial efficiency plans in its CSR07 VFM
Delivery Agreement in January 2008. In the document CLG described
how it planned to make savings and the risks associated with these
initiatives.
The majority of CLG's CSR07 VFM savings were
due to be made through the Affordable Housing Programme through
reducing the unit cost of subsidizing affordable housing. These
savings were dependent on a number of factors including cross
subsidies from the wider housing market and continuing increases
in land values. The risk posed by falling land value to CLG's
VFM programme was acknowledged in the delivery agreement. At the
time of publication in January 2008 these risks were judged to
be reasonable. Over the course of the CSR period there was a major
downturn in the housing market, driven by global events, so this
risk was crystallized.
As a consequence a large part of CLG's planned
efficiency savings became undeliverable on the timescale envisaged.
From the start of the CSR07 period the Treasury
monitored departmental savings internally both through the priority
projects process and via contact between officials. By monitoring
departments externally and internally, my officials have been
aware of the challenges they faced. The issues surrounding CLG's
savings were identified at an early stage, once the housing market
downturn started, and CLG and Treasury officials worked closely
to explore he scope for mitigating action, which in this case
was limited.
The responsibility for delivering each department's
programme rests with that department. From my appearance before
the Committee, I know you find this frustrating. The Spending
Review next month will provide a new opportunity to review the
performance regime associated with public spending, and the balance
of responsibility between the Treasury and Cabinet Office on the
one hand and service departments on the other.
24 September 2010
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