MR JON CUNLIFFE, MR MARK NEALE, MS SARAH MULLEN AND MR CHRIS MARTIN

29 MARCH 2006

  Q280  Mr Todd: They commented that 108 of the top 300 projects did not have a baseline.

  Ms Mullen: The figure I have got is something like 85%.

  Q281  Mr Todd: There is a difference between the number of projects and the value. You have quoted the value and they have quoted the number.

  Ms Mullen: I would accept that there are a number of projects that do not yet have a baseline.

  Q282  Mr Todd: What about the proportion of the savings that is cashable as opposed to related to service quality?

  Ms Mullen: I am not sure what your question is there.

  Q283  Mr Todd: There has been a claim that £6.4 billion has been achieved to date.

  Ms Mullen: Yes, that is what we have reported in the Budget.

  Q284  Mr Todd: It has not been clearly identified what proportion of that is cashable savings and what are other improvements in services which have a monetary value.

  Ms Mullen: I do not know what the distribution between the two is off the top of my head but I could provide you with a note on that. In terms of the overall savings by 2007-08, then we broadly expect it to be half cashable and half non-cashable, but that is not to say that the profile through the next three years will necessarily show that half/half split, it will depend on the different projects and the timing on which they come on-stream.

  Q285  Mr Todd: We also need something which shows the investment cost that has been put in to achieve those savings. Presumably that is available for the £6.4 billion that have been claimed to date. Is there something which sets out how we will take that into account in future in measuring efficiency savings in the remainder of the £21.5 billion programme?

  Ms Mullen: The way that that saving is calculated is as a gross saving and not a net saving, so it is not net of any upfront costs, it is a gross figure.

  Q286  Mr Todd: If that is the case, can we have a calculation of the net outcome because I think that is what most people probably would perceive as being a saving?

  Ms Mullen: That is not the basis on which the Gershon study was put together.

  Q287  Mr Todd: I agree that is not the basis, but in the real world most of us look at the amount of money that has been committed to achieve a certain saving as being relevant to the saving overall. Would you not accept that? Therefore, it would be useful to us to have a picture which included that perspective.

  Ms Mullen: We will have to look at that.

  Q288  Mr Todd: To be honest, I think most people now recognise that there needs to be rather greater transparency over this whole programme. The NAO Report identified some concerns about quite what was going on and how clear it was to people what was being achieved. Would you not agree that that is pretty essential?

  Ms Mullen: I would say that the programme does have quite a lot of transparency and I think the NAO acknowledged that. It is really for departments to set out the detail of how they are achieving their targets in their performance reports and departmental reports.

  Mr Todd: I do not think that is adequate because this is a centrally directed programme.

  Q289  Peter Viggers: I want to ask a couple of questions about the tax credits. In the Budget the Chancellor talked about the possibility of using £500 million to raise personal tax allowances and then he went on to say that he preferred to spend the £500 million changing tax credits. The documents produced by the Treasury—it is page 14, Table 1.2—make it absolutely clear that the amount that the change in tax credits will cost is not £500 but £940 million. Can you comment on that?

  Mr Neale: The forecasts for tax credits expenditure reflect a number of factors, not just the decision to link the child element to earnings. Changing our forecasts of tax credit take-up and the slightly slower growth of incomes, particularly towards the lower end of the income distribution, lead to an increase in tax credit spending.

  Q290  Peter Viggers: That seems to chime quite well with the Government's response to the Treasury Committee Report on tax credits which said, "There are also complicated interactions between elements of the package announced in the 2005 PBR that make the costs of individual elements meaningless". Perhaps you wrote that. Do you think that the projections of costs of different aspects of tax credits meet the normal Treasury criteria in terms of robustness and accuracy?

  Mr Neale: I am satisfied that our forecasts are robust. I know the Committee has asked about this in the past. I have not been back in the Treasury long enough to have written the piece of text you refer to, but I do endorse the view entirely that you cannot take these individual measures separately and cost them separately because they each interact on the other. Indeed, I myself have not seen a separate breakdown of the costs of the individual measures, only the forecasts of the overall costs.

  Peter Viggers: If it is possible for the Treasury to clarify the situation a bit more, in a manner which enables the observer to understand the process more clearly, that would be very helpful. Thank you.

  Q291  Angela Eagle: The Chancellor announced some extra measures in tax credits to shore up the process which have been substantial in alleviating child poverty. There must have been some work done in the Treasury to move forward on the target, to cut it in half and then go further as it is clear that tax credits cannot take the whole strain of that. Is the Treasury doing any work to anticipate the next steps in achieving the child poverty target for the CSR?

  Mr Neale: Yes. We keep progress towards the child poverty target under continuing review. The major changes I have already described to the child element of the child tax credit and measures to support lone parents are reflected in the Budget. Looking forward, achievement of the target obviously depends on quite a wide range of factors. It will depend on how incomes grow in the economy generally, how the incomes of people towards the lower end of the income distribution grow and it will depend on what happens in the labour market. I think it is too early to say now exactly what other measures may be needed to reach the target.

  Q292  Angela Eagle: It would be nice to know that somebody was doing some work on how we take it further because the tax credits system will not deliver the target at its end. It is a very good start but it will not be the policy tool which delivers final success, will it?

  Mr Neale: Tax credits have made a very significant contribution and will continue to do so. The labour market also makes a very important contribution in helping people with children move back into the labour market where they have been out of it. That is what one of the measures in the Budget is designed to support. Other measures that the Government has announced in the Welfare Reform Green Paper will also make an important contribution, and we do keep the progress under continuing review.

  Q293  Ms Keeble: What is the break down between those three elements?

  Mr Neale: I do not think it is possible to break it out quite so precisely; it is not an exact science.

  Q294  Ms Keeble: How do you know if your measures are working or reaching the targets?

  Mr Neale: We can see the steady fall in the number of children living in households with below 60% of median income year-on-year.

  Q295  Ms Keeble: But you cannot project?

  Mr Neale: You cannot project precisely what individual measures will deliver because much depends on how the underlying economy is performing and how incomes are moving in the economy.

  Q296  Kerry McCarthy: I want to ask about environmental taxation based on the ONS definition of what is an environmental tax rather than the Treasury's. According to the ONS the proportion of total tax revenues made up from environmental taxes has fallen almost every year since 1999, from a peak of 9.8% down to 8.3% in 2004, which is the lowest figure for over a decade. Do the environmental tax measures in the Budget help address this downward trend?

  Mr Neale: I do not think the right way to measure the effectiveness of the environmental measures in the Budget is in terms of the revenues coming into the Exchequer. The point of the measures in the Budget is to change people's incentives and the incentives of business, and I think we need to look at the effectiveness of these measures in terms of whether they are indeed having an impact on people's incentives and behaviour.

  Q297  Kerry McCarthy: So your argument would be that the fact the percentage of taxation is falling is a sign of the success of the measures, would it?

  Mr Neale: It could be in the sense that business and households are moving away from energy intensive consumption. What I am saying is that the amount of revenue being raised through environmental taxes would not be our main measure of the impact and effectiveness of those measures. The impact and effectiveness needs to be judged in terms of behavioural change and the savings we make on greenhouse gas and carbon emissions.

  Q298  Kerry McCarthy: So when you are considering the level of environmental taxation you do an analysis of the underlying behaviour and the changes in patterns of behaviour, do you?

  Mr Neale: The analysis we make is what impact our policy instruments whether they are tax or public spending or regulation will have on people's behaviour.

  Q299  Kerry McCarthy: With air passenger duty, though, in terms of changes of behaviour there, you have got a situation where it was cut for short-haul flights in 2001 and passenger numbers have gone up by 35%, greenhouse gases from aviation by 10% and revenue has gone down by 8% because of the cut and it has been frozen for the fifth year in succession. That does not seem to be having an impact in terms of modulating people's behaviour.

  Mr Neale: I think it has had an impact on emissions. I think you are right to pick up the contribution to emissions that the transport sector makes. That is why the UK Government has been taking the lead in the EU to bring the transport sector and the aviation sector within the EU Emissions Trading Scheme. We see that as the most effective way of creating the kind of incentives that I described in the aviation sector.