Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 1 - 19)

THURSDAY 8 FEBRUARY 2001

MR CHRIS DAYKIN CB, MR ANDREW YOUNG AND MR ANDREW BEER


Chairman

  1. Good morning, Mr Daykin. Could you introduce your colleagues?
  (Mr Daykin) On my right is Mr Andrew Young, who is the Deputy Government Actuary on the social security and pensions policy side and, on my left, is Mr Andrew Beer, principal establishment and finance officer.

  2. Could I begin with a very general question? To what extent does the Treasury take a practical interest in your work? They are the overseeing department, I think that is the best way of putting it but, for instance, do they get involved in the question of whether it might be profitable for you to be privatised?
  (Mr Daykin) Yes. The Treasury is concerned mainly with our structural issues and financing, the reporting of our affairs to Parliament and with the monitoring of our efficiency, so an issue such as whether the department should continue in its present form or whether it should be privatised would certainly be an issue for consideration by the Treasury.

  3. Are you aware of them having made such an assessment recently?
  (Mr Daykin) A major assessment of that particular proposition was made just over ten years ago, just before I became the Government Actuary.

  4. By the Treasury?
  (Mr Daykin) The Treasury requested that a review be carried out, and a review was carried out, and the conclusion was reached that it would not be desirable to privatise the Government Actuary's Department as such but that it should be made more open to competition. At that point we were put on to a full repayment regime which means that every department who uses our services has to pay hard money for those services, and we are also subject to competition in the sense that all our clients are entitled, if they wish, to seek their actuarial advice from elsewhere.

  5. Do you remember what the specific overwhelming argument against privatisation was?
  (Mr Daykin) There were a number of arguments, partly on the grounds of confidentiality and the need for certain sectors of the government to have a ready source of actuarial advice of its own without having to go to firms that could be in some way conflicted. Secondly, the issue of value for money and the decision that the Government Actuary's Department provided extremely good value for money to the government and, thirdly, the fact that having a specialist unit involved in doing this enables one to have people who are trained and equipped to provide services to government in the areas where it particularly needs those services which do not in all cases correspond directly to the sort of work which might be done by most actuaries in the private sector.

  6. Does it prevent you or make it more difficult for you to compete in certain sectors, for instance, overseas, by being an adjunct of government here?
  (Mr Daykin) We have always been able to do work overseas and, in some ways, the fact that we are the Government Actuary's Department of the UK is a selling point overseas because governments in other legislatures are quite interested in the idea of using our services rather than a firm that is operating for profit because they see us as specialists in the area of social security, pensions policy and financial services regulation and, at the same time, we are not seeking to make a profit and we do not have a conflict of interest. In that way, therefore, it is a unique selling point and we have done more and more work overseas as time has gone on, but it is still quite a small proportion of our total activity.

  7. What sort of proportion?
  (Mr Daykin) About 15 per cent.

  8. And you do not find it difficult to run a Chinese walls system? The confidentiality point is not at risk with your overseas work?
  (Mr Daykin) There has not been very often a confidentiality problem with overseas work in relation to working for other governments because they are not usually in direct conflict with the United Kingdom government. We have a potential conflict occasionally if we advise an international body such as the World Trade Organisation, for example, which we have advised on occasions where there may also be a UK government interest in negotiations that are taking place and there may be people in the Government Actuary's Department advising the UK government on those issues.

  9. Finally on the subject of overseas, do you see the proportion of work you do overseas increasing or being able to be increased in the future?
  (Mr Daykin) I think we do, yes. That is one of the areas that has been identified as suitable for further expansion where we have unique selling points and where the experience that is gained from doing work overseas can be very beneficial both for the staff and also for our clients in the UK in terms of the better understanding we gain of worldwide activities.

  10. So are you being very proactive in marketing yourselves?
  (Mr Daykin) Yes, we have been quite proactive in two principal areas so far. Firstly in the area of social security work and, secondly, in the area of advising insurance regulators and pension regulators.

  11. What sort of form does your marketing take?
  (Mr Daykin) We are active members of the International Social Security Association and the International Association of Insurance Supervisors and a new network which has been established of pension regulators. We attend frequently at their meetings and speak at them. We then get the opportunity to meet up with counterparts in other countries who are in all of these organisations and are able to offer them suggestions that the Government Actuary's Department might provide them with services: we then usually follow that up with letters sending them our brochure and encouraging them to take advantage of the services which we offer.

  12. Would your present status as a government agency prevent you from setting up a fully-fledged agency abroad or office?
  (Mr Daykin) I do not think there would be any justification for that at this stage because this work overseas is very widespread; it is not in a particular location but is really across the whole world and a bit here and a bit there, and at the moment we try to do as much of the work as we can from the UK. Inevitably some people have to spend some time travelling but most of the work is done from London because we are trying to juggle a whole lot of different priorities for different clients—both UK and international. In this case we have now got a unit which is specifically concentrating on overseas work so they can do that without more conflicts, with UK clients feeling that they are not getting a full service.

  13. And you will try and get the percentage up from, say, 15 to about 20/25?
  (Mr Daykin) Yes. I think we would aim to get it to 20 and maybe, eventually, to 25 per cent.

Mr Beard

  14. What was your role in relation to the problems currently affecting Equitable Life?
  (Mr Daykin) I think it would probably not be proper for me to speak specifically on Equitable Life because of client confidentiality issues but, in relation generally to work that we do for the supervision of the insurance industry, we have for many years—probably for nearly 40 years now—been the actuarial advisers to the regulators who were involved in the prudential regulation of the industry. We have not played any significant role in relation to marketing regulation but in relation to prudential regulation we have provided assistance to, successively, the Department of Trade & Industry, the Treasury and the Financial Services Authority specifically on individual companies, reviewing their financial status and providing them with a confidential report on each company each year and, also, advising on matters of general regulatory policy.

  15. In your annual analysis of Equitable Life's financial position, did it give any indication of the problems that are now facing the firm?
  (Mr Daykin) I am afraid I am not really able to answer on the specifics of Equitable because that would be a matter of client confidentiality between the Government Actuary's Department and its respective client.

  16. Is that accurate? You are aiding the regulation of the Equitable Life; this is a matter of public debate and concern; and we are inquiring into it. That seems to me to be a proper basis for the question and I would be obliged if you would answer it.
  (Mr Daykin) I understand that but, as with other actuaries who give professional advice, we are bound by our professional code of conduct and that requires confidentiality on all matters between the professional and their client. Of course, it is open to the client if they wish to disclose information—subject in this case, of course, to other regulatory and statutory constraints. As far as the professional giving the advice is concerned, however, it is a professional confidentiality requirement, and if I were to breach that then I would be potentially subject to losing my membership of the actuarial profession.

Mr Cousins

  17. In what sense are you a client of Equitable Life?
  (Mr Daykin) No, the client was the Department of Trade & Industry, or the Treasury, or the Financial Services Authority.

Mr Beard

  18. Why does that require confidentiality? They are all public bodies.
  (Mr Daykin) All the information and advice which we will have given successively to those bodies is the responsibility of those bodies rather than ours.

Mr Cousins

  19. I am sorry but I am absolutely mystified by this. Are you telling us that you can tell this Committee or any other Parliamentary Committee nothing about the advice you gave to the previous insurance regulators or the present one at all—nothing—and that is client confidentiality?
  (Mr Daykin) I can tell you things about the generic advice we have given which is in the public domain, but not the specific advice on a particular company.

  Mr Beard: Chairman, could we have your advice? The Committee is set up with the authority that it has; is this a reasonable response to our request for information?

  Chairman: Mr Daykin, you are just another agency of the Treasury, really. We are looking at a whole range of agencies and we have not yet come to a position like this where some sort of professional coverage has been used to give a blanket "No" on all specific questions, so I think we must try and probe on this. You obviously are not in a position to break your professional code, if that is what you are claiming, but you are a government body accountable to Parliament, like everybody else, and I think we must try to get the sort of answers we are trying to get and it is for you to judge whether your professional protection is adequate or not.


 
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