House of Commons - Treasury

Hansard

Archives

Research

HOC Publications

HOL Publications

Committees

Select Committee on Treasury Seventh Report

5 The Treasury Group's performance against objectives

Introduction

83. The Treasury Group has eight objectives set out in its departmental annual report relating to the period from 2005 to 2008, some of which are linked to PSA targets.[204] Performance against some of these objectives, notably the objective relating to the maintenance of a stable macroeconomic environment, is regularly considered during our scrutiny of Budgets and Pre-Budget Reports. Other aspects of performance against objectives have been considered in previous chapters.[205] In this chapter, we examine aspects of the Treasury's performance in relation to its objectives and PSA targets in more detail. We also examine changes to the Treasury's performance framework arising from the establishment of new Departmental Strategic Objectives.

International objectives and measurement issues

84. One of the Treasury's current PSA targets is to ensure that "90% of all eligible Heavily Indebted Poor Countries (HIPC) committed to poverty reduction that have reached Decision Point by end 2005 receive irrevocable debt relief by end 2008".[206] The Treasury stated that 28 countries had reached Decision Point by end 2005, of which 22—79%—had reached Completion Point and were thus in receipt of irrevocable debt relief, and drew attention to World Bank and IMF estimates that a further four countries were expected to complete the initiative by the end of 2008, so that the Treasury was on course to meet the target.[207] The Treasury stressed that those countries still to receive irrevocable debt relief were post-conflict and fragile States, while some remained in conflict, so that continued close support and flexibility from the United Kingdom and the international community will be necessary in order to achieve irrevocable debt relief for all.[208]

85. The removal of existing international debt burdens does not itself guarantee debt sustainability for the countries concerned, particularly if inappropriate new borrowing is taken on by those countries, as Mr Macpherson acknowledged.[209] The Treasury stated that it was "working with our international partners to promote debt sustainability, including through responsible borrowing and lending practices".[210] Particular problems arise with so-called "vulture funds", whereby private firms buy up defaulted debt and seek full payment through court proceedings in third-party States. Mr Macpherson assured the Sub-Committee that this was a matter that the Treasury took "very seriously" and viewed as "an area of considerable concern".[211] Subsequently, the Treasury stated that it was working to prevent debts being sold to vulture funds in the first place and to limit the damage from cases already underway. However, it noted that any legislative action would not apply retrospectively to debts already purchased by such funds, and also stated that it had no plans at present to bring forward legislation.[212]

86. Another Treasury objective with a multilateral dimension involves "working with our European (EU) partners to achieve structural reforms in Europe, demonstrating progress towards the Lisbon Goals by 2008".[213] One of the aims of the Lisbon strategy was to increase employment across the EU to 70% by 2010. At 64.4% in 2006, EU 27 employment remains well below this target and the Treasury has stated that "it is clear that the Lisbon Goals will not be realised in full".[214] Mr Macpherson pointed to the need for further "structural labour market reform" and thought that, taken as a whole, the EU was "behind the curve" in relation to employment.[215]

87. In its new Departmental Strategic Objectives for the period from 2008 to 2011, the Treasury re-states its commitment to pursue "increased productivity and efficiency in the EU, international financial stability and increased global prosperity". However, beyond the new PSA relating to accelerated progress towards the Millennium Development Goals, the Treasury has eschewed measurable outcome indicators for this element of its Objective, considering that:

Due to the nature of the Treasury's primarily influencing role in this area, it is difficult to set quantitative outcomes. The Treasury intends to monitor our performance in influencing the policy debate and the international structures we use to make progress on our objectives by taking as our milestones the outcomes of key events, including EU and international finance ministers meetings; the annual debate on Lisbon by the Spring European Council; the National Reform Programmes; and the Commission's Annual Progress Report on Lisbon.[216]

88. The Exchequer Secretary subsequently expanded upon the general problems of identifying measurable outcome indicators in relation to the new Departmental Strategic Objectives:

The NAO are involved on the efficiency savings side jointly with HMT about how you define and measure performance in these ways. That does not mean to say that for some particular indicators or some DSOs, which are very general, that there is a very easy and quick way of measuring them. Some of this is uncharted territory in terms of how you measure inputs and outputs. To some extent, in the difficult areas there will be a feeling of a way forwards. Some ways of measuring and accounting are not as easy as the National Accounts or measuring inflation, so there is going to be a range of things that are easy and crisp to see and measure and tick or not, and then there are going to be those areas where it is a lot more complex. All we can do in the public service is try to work transparently with other organisations, including the NAO, to evolve a way of measuring performance in a way that is adequate and does not set up perverse incentives.[217]

89. We accept that a number of the outcomes set out in the Treasury's Public Service Agreements for the period from 2004 to 2008 and in its Departmental Strategic Objectives for the period from 2008 to 2011 are not subject to easy measurement. We also accept that the Treasury's own direct influence in relation to some of its international objectives will be necessarily limited. However, this reinforces the importance of external scrutiny and audit of Treasury performance. We note that the Treasury proposes to monitor its performance in influencing the policy debate and the international structures it uses to make progress on its objectives by taking as its milestones the outcomes of specified key events. We recommend that the Treasury arrange for independent monitoring to be included within assessments of those key international events relevant to the Treasury's international objectives. We further recommend that the Government clarify, in its response to this Report, whether data sources used for the purposes of measuring performance in relation to Departmental Strategic Objectives will be the subject of audit by the National Audit Office.

Regional economic growth

90. The Treasury's PSA 6 for the period to 2008 relates to regional economic growth and states that the Treasury will:

Make sustainable improvements in the economic performance of all English regions by 2008 and over the long term reduce the persistent gap in growth rates between the regions, demonstrating progress by 2006.[218]

In evidence to the Sub-Committee in November 2005, Mr Macpherson described this target, which was also in the targets set under the 2002 Spending Review, as "a departure for the Treasury, which historically … has not taken regional development as seriously as it should have".[219] In October 2006, he stated that he was encouraged that, in 2003 and 2004, "underperforming regions" had the highest growth rates, while noting that the revival of the financial services industry might make further gains more difficult to achieve.[220] The Treasury's departmental annual report in June 2007 noted that data on regional nominal Gross Value Added per capita showed that "the poorer performing regions narrowed the gap in growth rates with London, the South East and East in 2005".[221] The Treasury's Autumn Performance Report published in December 2007 stated that, during the period from 2002 to 2005 as a whole, "the bottom six regions (North West, North East, Yorkshire and the Humber, West Midlands, East Midlands and the South West) grew at the same average annual rate (2.1%) as the top three (London, South East and the East of England)".[222]

91. In November 2007, Mr Macpherson stated that "we are making some progress on this regional target", but stressed that there were lags in the provision of relevant data so that "it is terribly early days".[223] An additional complicating factor relates to economic cycles. The Treasury has stated that there is evidence to suggest that the top three regions are ahead of others in their economic cycle.[224] In the 2006-07 departmental annual report, the Treasury stated that "a full assessment of trends in regional economic activity and disparities can only be fully determined when a full economic cycle is complete".[225] The Autumn Performance Report uses similar phraseology, but refers to the need for "the current economic cycle" to be complete.[226] We find the reference to the "current" economic cycle in a document published in December 2007 somewhat puzzling in view of the fact that, in the 2007 Pre-Budget Report, the Government indicated that output had passed through trend towards the end of 2006.[227] We recommend that, in its response to this Report, the Government confirm that progress in relation to the Treasury's PSA 6 target for regional growth will be measured in relation to the economic cycle which the Government expects to have concluded in 2007. We further recommend that, in reporting on the ending of that cycle, the Government includes an analysis of the economic cycle in each region of England as well as for the United Kingdom as a whole.

Child poverty

92. In early December 2007 we published a Report on the 2007 Comprehensive Spending Review in which we considered in detail the role and performance of the Treasury in relation to the Government's target to halve child poverty by 2010-11 and eliminate it by 2020-21.[228] We stated that we remained to be convinced that the division of departmental responsibilities relating to child poverty—with the Treasury having formal lead responsibility for meeting the target while a coordinating Child Poverty Unit was located within the Department for Children, Schools and Families—would not accentuate the possible tension between the 2010-11 target and the final target to eradicate child poverty.[229] We expressed concern that the Government might have drawn back from a whole-hearted commitment to meeting the 2010-11 target. We called for the Government to initiate a debate on the possible trade-off between the 2010-11 and 2021-21 targets or to "rededicate itself to meeting the 2010-11 target, making clear at the earliest opportunity available both that the necessary resources are available within the Comprehensive Spending Review settlement and that the Government is committed to deploying those resources".[230]

93. Later that month, the Treasury published its Autumn Performance Report which formally acknowledged for the first time that there had been "slippage" in relation to the 2010-11 target. This slippage was the result of the increase in the number of children in households with relative low-income by 100,000 between 2004-05 and 2005-06. That document also stated that, "in the light of this, the Government has redoubled efforts to meet the 2010 target".[231] We asked the Financial Secretary to the Treasury about the significance of the statement in the Autumn Performance Report. Her answer appeared to indicate that the phrase was a reference to measures already taken or announced, including within the 2007 Pre-Budget Report, rather than a comment that presaged further action.[232]

94. The success of the Government's strategy to reduce child poverty depends in part on the effectiveness of measures to encourage into work parents of children in poverty. This in turn depends upon financial support available for childcare. The Financial Secretary told the Sub-Committee that she was exploring reasons behind the relatively low take-up of the childcare element of tax credit and the regional differences in that take-up.[233] We recommend that the Government, in its response to this Report, set out its provisional analysis of the work currently being undertaken to analyse the reasons for low take-up of the childcare element of tax credit and the reasons for regional differences in take up.

The Treasury's new Departmental Strategic Objectives

95. From 1 April 2008, the Treasury's existing PSA targets will be succeeded not only by the two PSA targets for which it has lead responsibility and by the seven other PSA targets for which it is a delivery partner, but also by new Departmental Strategic Objectives, which are intended to encapsulate the "mainstream, core functions of the department" and which were published in December 2007.[234] We initially considered the value of these new Objectives on a cross-government basis in June 2007, when we also recommended that departments consult relevant select committees about their proposed Departmental Strategic Objectives.[235]

96. The Treasury consulted us on two occasions between late June 2007 and late September about its draft Departmental Strategic Objectives and the accompanying outcome indicators. The Chairman of the Committee replied on each occasion, and we published the entire correspondence in early December.[236] Mr Macpherson welcomed the comments that the Chairman provided.[237] In his response to a draft of the document, the Chairman had noted the absence of an outcome indicator relating to the aim of "supporting … stable … financial markets", and the final document responded by the inclusion of such an indicator. The Treasury is now committed to measuring its performance in this area through "assessments of UK financial stability and risk management against international comparisons".[238] We welcome the consultation that the Treasury has initiated with this Committee in relation to its Departmental Strategic Objectives for the period from 1 April 2008 to 31 March 2011, which we trust will serve as a precedent for the continued future development of the performance management framework. We welcome the inclusion of a performance indicator for the Treasury's work on supporting stable financial markets. We recommend that the Government, in its response to this Report, set out the timetable for the commissioning of a first assessment of UK financial stability and risk management against international comparisons. We further recommend that all such assessments be commissioned from an organisation outside Government, such as the International Monetary Fund, and be published.

97. During the consultation process, and in taking evidence on the 2007 Comprehensive Spending Review and Pre-Budget Report, we explored the significance of the decision to move the objective of meeting the fiscal rules from a PSA target to part of one of the Treasury's Departmental Strategic Objectives. We were assured that this switch did not represent an attempt to reduce the importance of the fiscal rules.[239] A related issue is the interpretation of the sustainable investment rule in the new economic cycle. We have previously pointed out that the rule as formulated only made it clear that the Government was seeking to maintain net public sector debt below 40% of GDP in each and every year of the economic cycle that began in 1997, and called for clarification of the rule in the new economic cycle.[240] In the relevant Departmental Strategic Objective for the period from 2008-09 to 2010-11, the rule is formulated as the maintenance of public sector net debt below 40% of GDP "over the economic cycle".[241] We recommend that the Government clarify, in its response to this Report, whether it is committed to maintaining net public sector debt below 40% of GDP in each and every year of the economic cycle that is expected to have begun in 2007.

204 HC (2006-07) 518, pp 13, 21-22 Back

205 See paragraphs 52-57 relating to financial management in Government and paragraphs 62-67 relating to OGC and procurement savings. Back

206 HC (2006-07) 518, para 2.21, p 31 Back

207 Ev 83, Cm 7256, p 20 Back

208 HC (2006-07) 518, para 2.48, p 34; Ev 84 Back

209 Qq 241-242 Back

210 Ev 84 Back

211 Qq 236-240 Back

212 Ev 84-85 Back

213 HC (2006-07) 518, para 2.21, p 31 Back

214 Cm 7256, p 22 Back

215 Q 243 Back