Conclusions and recommendations
1. Parliament lacks visibility over the
impact of the Government's fiscal consolidation measures. The
Treasury plans that, by the end of the current Parliament, some
£126 billion of consolidation measures will be achieved from
a combination of spending cuts (some £100 billion) and increased
tax revenues (around £26 billion). Officials explained that
tax revenues were not increasing as expected and, although the
spending cuts were being delivered, they were less clear where
the savings had been made. The Treasury told us that the planned
savings over the spending review period included some £20
billion from welfare savings, £20 billion from reducing the
public sector workforce, £6 billion from pay restraint, and
£5 billion from increasing pension contributions from public
sector workers. The make-up of the remaining savings was not clear.
Recommendation: The WGA is a key means by
which Parliament holds the Government to account for its management
of public finances, including its progress in delivering fiscal
consolidation measures. The Performance Report part of the WGA
is now the most appropriate place to set out the impact of the
government's fiscal consolidation measures on Government finances
so that trends in performance can be assessed.
2. The Government has made progress in reducing
the deficit but the challenges in meeting current and future targets
for eliminating the deficit look very challenging.
The Treasury estimates that it will have reduced the deficit in
the public finances from 11% of Gross Domestic Product in 2010
to 5.5% by the end of the current Parliament. The challenge in
delivering further fiscal consolidation measures during the next
Parliament should not be underestimated. Under present policies
some £250 billion out of over £700 billion public expenditure
is protected from spending cuts and tax receipts continue to be
well below forecasts. This leaves the challenge of identifying
and delivering further expenditure cuts as very testing. As well
as the uncertainty around the levels of tax revenues, the challenge
of delivering further savings in public sector spending is likely
to be greater than that experienced so far given the large areas
of expenditure that are protected. The Government also has existing
commitments to meet long term obligations such as the costs of
nuclear decommissioning, where costs continue to increase at a
massive rate, and the ability to recover student loans where estimates
of write-offs also continue to grow fast. Long-term fiscal consolidation
will not be achieved without better management of the risks and
uncertainties in the public sector balance sheet. The Treasury
has acknowledged that its Spending Teams need to better understand
the impact of current spending decisions on future generations.
Recommendations:
· The
Treasury should use the WGA to set out the risks and uncertainties
it faces in meeting fiscal consolidation and how these are being
managed.
· The
WGA should also set out how Spending Teams have used WGA information
to influence the next spending round and beyond.
3. The Treasury does not currently assess
the level of fraud and error across the whole of Government. They
know that in 2013-14 fraud and error on tax credits amounted to
£2 billion and fraud and error on benefits and pensions amounted
to £3.3 billion.
Recommendation: As
we recommended last year, the Treasury should:
· collect
information across the whole of Government so that it can disclose
the totality of monies lost through fraud and error.
· develop
a consistent and coherent policy across Government for tackling
fraud and error with a view to reducing the losses concerned.
4. The WGA does not provide Parliament with
information on national or regional spending.
The WGA currently provides an analysis of expenditure between
central government, local government and public corporations.
We believe that an analysis of national and regional spending
would demonstrate to Parliament the effective allocation and use
of resources on a national and regional basis. We welcome the
Treasury's agreement to include this disclosure in future.
Recommendation: The Treasury should develop
and implement an action plan and timetable for the future disclosure
of expenditure on a national and regional basis.
5. The Treasury has not demonstrated sufficient
oversight in ensuring that all parts of the public sector comply
with the government's expectations on pay restraint.
Pay costs form a significant part of public sector spending and
a lack of control over pay could negate savings made elsewhere.
The Treasury sets the framework for public sector pay but has
been slow to exert its direct control over decisions taken by
the wider public sector when setting remuneration packages. For
example, although the Treasury took steps to eliminate automatic
annual increments as part of its own pay awards system, it has
yet to see this achieved throughout the rest of the public sector.
The Treasury has also been slow in identifying and addressing
seemingly excessive pay awards for some roles in the education
sector, such as University Vice Chancellors and 'Super-Heads'
and has only recently started to collate information in areas
such as the Academy sector. Given this track record, we are sceptical
as to whether government are taking this matter seriously and
are concerned that messages around the need for pay restraint
for the public sector are undermined by remuneration packages
offered to more senior public servants.
Recommendations: The Treasury should:
· set
clear expectations of appropriate senior level pay, and pay restraint
more generally, for all publically funded bodies to apply;
· publish,
a clear picture of pay trends across the whole of the public sector
within the WGA; and
· enhance
accountability for the decisions made by public bodies by expanding
the scope of the WGA Remuneration Report to include senior banded
salary details for other WGA sectors as well as those for the
civil service.
6. Off payroll arrangements across central
government still occur too often and have yet to be tackled throughout
the wider public sector.
We have concluded previously that better procedures were needed
to manage 'off-payroll' arrangements, where individuals organise
their pay to be remitted to a limited company to avoid income
tax, across the public sector. Guidance from the Treasury and
Cabinet Office now requires these arrangements to be reported
in central government accounts and we welcome this improved transparency.
However, we are concerned that there are no similar arrangements
in the local authority and public corporations sectors. We also
welcome the Treasury's stance in sanctioning central government
bodies that have failed to follow guidance, but are disappointed
where Treasury oversight has failed to ensure some departments
are addressing problems effectively. For example, in 2013-14,
there were some 2,214 new 'off-payroll' arrangements within central
government and, in 27% of cases, departments did not insert clauses
into contracts allowing them to seek assurances on individuals'
tax obligations.
Recommendations: The Treasury should:
· continue
to work with the Local Government Association to set clear expectations
on the use of such arrangements across the local authority sector;
· develop
appropriate frameworks for disclosing off-payroll arrangements
within local government and public corporations; and
· in
light of applying the existing guidance over the past two years
within central government, consider lessons learnt and where this
guidance can be strengthened so that all departments are consistent
in their application of the guidance.
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