4 Other topics|
96. In 1999, the then Prime Minister pledged to eradicate
child poverty by 2020, setting an interim target of halving it
by 2010-11. The PBR points to "considerable progress in reducing
child poverty", observing that "between 1998-99 and
2007-08, 500,000 children were lifted out of relative poverty"
and that "had the Government done nothing other than simply
uprate the tax and benefit system, there might have been around
two million more children in poverty than there are today."
97. This optimism has, however, to be balanced against
a disappointing lack of progress towards the Government's ambitious
child poverty targets in recent years. HM Treasury's 2009 Annual
Report records "no progress" against the Child Poverty
PSA with the number of children in absolute poverty (1.7m) and
the number in relative poverty (2.9m) remaining constant between
2006-07 and 2007-08.
98. During our first oral evidence session, we asked
our second expert panel whether the PBRparticularly the
commitment to extend eligibility to Free School meals to primary
school pupils in working families with a household income below
£15,190would put the Government's child poverty commitment
back on track. Robert Chote replied that, with regard to the
key relative child poverty indicator:
Our best estimate is that the measures in the PBR
probably move the Government about 30,000 closer to the target
for 2010-11, so that is clearly making a relatively small difference
compared to the figure that was expected. It would mean that after
rounding child poverty might be expected to be 2.2 million rather
than 2.3 million.
He concluded that the PBR "nudges you in the
right direction but does not make a huge difference"
to child poverty.
99. When we asked Treasury officials about progress
towards child poverty targets, Mike Williams pointed to measures
announced "in and since Budget 2007, which are the ones that
have not yet fed through into the statistics as measured",
which the Treasury estimated would "raise around 550,000
children out of poverty".
He included in this figure, the impact of free school meals for
primary children as announced in the PBR which, the Treasury estimates
"will reduce child poverty by up to 50,000".
However, given that the Treasury's base figure for child poverty
in 1998-99 was 3.4m, even assuming this level of reduction is
realised in addition to the 500,000 reduction already achieved,
the Government would still be some 650,000 short of its 2010-11
target to halve the 1998-99 figure.
100. We have regularly scrutinised the Government's
progress towards its child poverty targets, and have warned of
the growing risk that it would fail to meet them. In our Report
on the Budget 2009,
we concluded that on current indicators the Government will fail
to meet its 2010-11 target by a significant margin, and we see
no reason now to alter this judgement.
101. We also highlighted at that
time the need to take into account a perverse consequence of the
use of a relative measure of child poverty in a period of recession,
namely that it might reduce the numbers of children deemed to
be in poverty even though an increasing number were suffering
actual hardship. With this perverse consequence in mind, the
Government needs, therefore, to state clearly the extent to which
any future reductions in relative child poverty are the result
of a lowering of average income.
102. We remain convinced of the continued importance
of the commitment to eradicate child poverty, notwithstanding
the limited progress that has been made to date, and the UK's
changing economic circumstances. We recommend that the Government
clearly sets out the steps it proposes to take to move nearer
to its 2010-11 target in the time available and to achieve the
eradication of child poverty by 2020.
Additional efficiency savings
103. The PBR and Putting the Frontline First:
smarter government, 
which was launched on 7 December, flesh out, to an extent, previous
Government commitments to achieve efficiency savings of £35bn
by the end of 2010-11 (the PBR reveals that only £8.5bn has
been realised to date) and to achieve further savings beyond the
2007 Comprehensive Spending Review period primarily through the
Public Value (PVP) and Operational Efficiency (OEP) Programmes.
104. The PVP was launched at Budget 2008 to identify
"smarter ways of operating and key policy reforms"
within major areas of spending. The PBR identifies £5bn a
year of additional savings under PVP by 2012-13, including savings
from reforming the criminal justice system and payments made to
public servants posted overseas.
105. The OEP was launched in July 2008 to learn from
"best practice in the private sector and spread best practice
in the public sector".
The Programme comprised five independent reviews each led by a
senior external advisor. Its final recommendations were published
alongside Budget 2009 in Operational Efficiency Programme:
The PBR identifies £12 billion additional savings under OEP£11bn
deliverable by 2012-13 through improving back office functions,
IT, collaborative procurement and property running costs (altogether
£8bn) and through more efficient waste collection and disposal,
streamlining arms length bodies and energy efficiency (altogether
106. Professor David Heald questioned the extent
to which previous programmes had delivered real and permanent
efficiency savings that both reduced costs and provided more efficient
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" [...] Essentially, the best people
to make the judgements about where efficiency savings can be made
are actually the people on the ground [
] I am very sceptical
about these top-down plans.
107. Similarly, the Institute of Fiscal Studies'
analysis of the PBR highlighted the fact that when the National
Audit Office conducted an audit half-way through the Gershon programme,
it concluded that 25% of the efficiency programme did not adequately
demonstrate true efficiencies, and another 50% was questionable.
Robert Chote, Director of the Institute of Fiscal Studies, during
oral evidence questioned whether "the NAO in the future
going to be any more confident that a higher proportion than 25%
of these [proposed efficiency savings] are well-founded than otherwise".
He also drew our attention to the fact that the future efficiency
plans announced to date look "relatively modest"
compared with the £26bn efficiency savings claimed under
Gershon, and the £35bn efficiency savings targeted under
the current comprehensive spending review round, observing that
"in a sense, it is quite striking how much of the low hanging
fruit the Government thinks has already been picked".
108. John Whiting, Tax Policy Director, of the Chartered
Institute of Taxation and the Low Incomes Tax Reform Group, and
David Harker, Chief Executive of Citizens Advice, also drew attention
to the risk of measures championed as efficiency savings resulting,
in practice, in a lower standard of service. John Whiting told
Sitting here as a taxman, the main area that
concerns me, perhaps inevitably, is the potential cutbacks at
HM Revenue and Customs, and to a certain extent the Treasury [...]
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?
Whilst David Harker observed that:
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.
109. We pressed the Chancellor and senior officials
on the risks to delivery associated even with an ostensibly popular
efficiency savings measure such as the PBR commitment to reduce
consultancy and marketingin this case the risk being that
change programmes to introduce other efficiencies are not delivered
because departments lack the expertise required to deliver them
themselves. Andrew Hudson, Managing Director, Public Services
and Growth explained how the Government was seeking to mitigate
this particular risk:
What we want to do is grow our own capability
to drive these savings through. Where we are using consultants
we need to make sure there is skills transfer, something else
we are keen to do, and the benchmarking data helps here, is to
identify who in the public sector is already best in class and
invite them to spread their skills across services that need them
He did acknowledge, though, that "there is a
big challenge". 
We also pressed the Chancellor on the role that Ministers were
expected to play in pursuit of further departmental efficiency
savings. He replied that, even though Ministers might not be experts
on efficiency programmes "you have to have some political
commonsense at the end of the day" to judge the likely value
for money of different schemes.
110. In a recent previous report,
like the experts above we raised concerns about the measurement
of Gershon efficiency savings. We reiterate our previous recommendation
that, at a time when the public sector will be pressed to make
further savings, it is vital that any savings made are properly
recognised and quantified. We also stress again the importance
of establishing robust data collection processes at the start
of future efficiency programmes to assist evaluation.
111. Independent evaluation as well as the communication
of best practice will become even more important if, as suggested
by Robert Chote, efficiency savings will be harder to achieve
in future. We therefore call again on the Government, in the interests
of transparency and communicating best practice, to commit to
publishing all information relating to efficiency in one document.
112. Finally, we re-confirm our support for Ministerial
Champions of value for money within each department, but observe
again the need for appropriate training and guidance to help them
fulfil this role. We note the "big challenge" of building
an internal capability to deliver efficiency savings and major
change and seek a summary of the method to be employed in achieving
Asset and property sales
113. During our Pre-Budget Report oral evidence sessions,
we probed in particular one aspect of the Government's future
efficiency savings programmeits intention to deliver £16bn
from asset and property sales by 2013-14. The intent, set out
in most detail in its Operational Efficiency Programme: Asset
document, published on 7 December 2009 alongside Putting
the Frontline First: smarter government is to open
up dialogue with the private sector to explore alternative options
for the management, including partial or full sale where appropriate,
of a number of public sector businesses, including British Waterways,
NHS Professionals, Ordinance Survey and the Royal Mint. The PBR
states that a number of transactions, including for the tote
and Dartford Crossing, are already progressing.
114. We asked Professor Heald
for his views on the Government's asset portfolio. He replied
that "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." He cautioned though that
"if it is simply a matter of actually 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 downthat is undesirable [
] the idea that
one can achieve a great deal by a fire sale of assets is just
Robert Chote similarly stressed that "the key issue
is do you in the long-term believe that these things are more
effectively used in the public
sector than in the private sector. There is the additional issue
of is now the worst possible time to be trying to sell them?"
115. We pressed
the Chancellor on this, and received reassurance that "we
are not going to get into a situation where effectively people
think you have got a fire sale. We are not going to do that."
He confirmed, for example, that there was no commitment to sell
the tote if the Government did not feel that it was getting a
good return, observing that "I think we would be subjected
to justifiable criticism if we did that."
We welcome the Chancellor's assurance
that asset sales will not take place if the Government does not
expect a good return. The sales should anyway take place within
a strategy which defines the purpose of the retention of assets
and the value in achieving policy goals of any sale. We will monitor,
with other Committees, the extent to which the implementation
of the Government's asset portfolio plans observes this long-term
value for money principle.
Bank payroll tax
116. The Government announced the introduction of
a temporary bank payroll tax in the 2009 Pre-Budget Report. The
tax would apply where bank (and building society) employees were
awarded discretionary bonuses, in whatever form, above £25,000
in the period from the Pre-Budget Report to 5 April 2010 and would
entail that banks paying such bonuses would pay an additional
bank payroll tax of 50% on the excess bonus over £25,000.
The tax would not be deductible in computing the taxable profits
of affected companies.
117. John Whiting explained how the tax would work.
He claimed that the total tax rate on qualifying bonuses could
be around 104%: "If a bank decides to give a bonus of 100,
and I will leave you to put as many noughts after that as you
wish, to a recipient then the bank is potentially paying 50, the
individual has 40 in income tax, has 1 in National Insurance and,
of course, the employer has another 12.8 in National Insurance,
so one way of looking at it is there is a net flow of 104 give
or take to the Treasury for that bonus".
118. Treasury Officials explained the rationale behind
the tax. Mr Edward Troup, Director of Business and Indirect Taxes,
suggested that the tax had two primary objectives, namely to encourage
banks to divert resources away from bonus payments and towards
building up their capital base as well as to act as a catalyst
for changing the bonus culture within the banking sector.
The Chancellor confirmed this, telling us that "The reason
we have introduced this measureand it is not a great revenue
raiser; it does not bring in that muchis to send a clear
signal that we need to change behaviour".
The Chancellor was then even more explicit, telling us that what
he was trying to do was "encourage these bonuses either not
to be paid or at lesser rates".
He went on to say that the tax was not about altering the structure
of bonuses, but about affecting "the quantum of bonuses".
119. Interestingly, despite stating that one of the
objectives of the measure was to raise capital levels, Treasury
Officials said that they had not done any explicit or implicit
calculations as to how much capital levels would be raised.
The Chancellor reiterated Mr Troup's point that the Treasury had
not conducted any analysis as to how much capital levels would
be raised by, but said that he believed "the lion's share
of capital will come from conventional capital raising measures".
120. There has been much commentary about how some
banks may seek to circumvent the new tax and we quizzed Treasury
officials about whether the effect of the bank payroll tax would
simply be to make banks defer bonus payments until April 2010.
Mr Troup acknowledged that there was a risk of deferral, explaining
that the tax would not prevent a banker waiving their 2009 bonus
and trusting his employer to reflect the fact he had not been
paid a bonus for 2009 in later years.
However, he went on to explain that, whilst the stated end date
for the tax was 5 April 2010, if there was any evidence that banks
were "simply deferring 2009 bonuses beyond that date then
a necessary extension of the levy will be made for the 2009 bonuses".
He concluded that, in addition, the draft legislation contained
anti-avoidance provisions which would prevent artificial deferral
by way of loans.
121. We note that the Pre-Budget Report says "the
one-off bank payroll tax will apply until 5 April 2010 but the
Government will consider extending the period of the charge so
that that the tax remains in place until the relevant provisions
of the Financial Services Bill come into force".
Mr Troup told us:
We do see this measure as fitting into the whole
jigsaw of measures which are part of the whole reform of culture
and better regulation and a greater degree of responsibility in
remuneration practices in the financial sector. The Financial
Services Bill will become law during 2010 and effectively it provides
a useful end stop following which bonus payments will be better
regulated within the FSA framework.
122. The Treasury has estimated that the new bank
payroll tax will raise approximately £550m. Mr Mark Bowman,
Director, Budget and Tax, HM Treasury, explained that this was
a net figure which took into account the reduction in income tax
and NIC receipts received by the Treasury in response to the anticipated
lower payment of bonuses.
We sought clarification from the Chancellor and Treasury officials
as to whether revenue raised by the Treasury might have been greater
if the tax had not been introduced and the Government received
income tax and NIC receipts from a larger bonus pool. In response,
the Chancellor reiterated that the key objective of the policy
measure was to encourage bonuses not to be paid or paid at lesser
123. There has been some confusion about how many
people will be affected by the tax and exactly to whom the tax
will apply. Treasury officials sought to clarify the situation,
with Edward Troup explaining that the Treasury believed that the
tax "would apply to somewhere between 20,000 and 30,000 individuals"
and that the policy would apply to "banks and banking groups
and financial trading companies within banking groups". He
argued that most people would "have a good sense of whether
that [the tax] applies to them or not", but acknowledged
that banking was "a complex industry" and that therefore
it was inevitable that there would be some cases at the margin
where clarification and guidance would need to be sought.
124. The Government considers that the purpose
of the tax on bank bonuses is to change behaviour so that banks
increase their capital, rather than providing large discretionary
payments to employees. We urge the Treasury Committee in the next
Parliament to assess how effective it has been in this, and to
examine the effectiveness of any regime introduced by the Financial
Services Bill, in terms both of its success in altering bank
behaviour, and of its effect on the competitiveness of the UK
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