Select Committee on Treasury Minutes of Evidence


Examination of Witnesses(Questions 39-59)

MR NICHOLAS MACPHERSON AND MR ADAM SHARPLES

WEDNESDAY 17 JULY 2002

Chairman

  39. Well, good morning, gentlemen, and welcome to our inquiry on the Spending Review. Can I add to the congratulations, Mr Macpherson, that my colleague Mr Cousins gave on your appointment.
  (Mr Macpherson) Thank you.

  40. Can you introduce yourselves for the record?
  (Mr Macpherson) I am Nicholas Macpherson. I am Managing Director in the Public Services Directorate of HM Treasury.

  (Mr Sharples) I am Adam Sharples and I am Director of Public Spending in the Treasury.

  41. First question: why did we only get six days' notice of a document of such magnitude, the 2002 Spending Review? We had witnesses in previously who thought that this was a ridiculously short timescale and it does not serve the interests of parliamentary scrutiny.
  (Mr Macpherson) Well, obviously the Spending Review has been going on for several months, but finding a precise day in a very crowded parliamentary timetable running up to the end of July always presents a bit of a challenge. I think it was only when various announcements, Prime Ministerial appearances before Liaison Committees, et cetera, had been finalised that we could come up with the date.

  42. So you really could not have sat down at Christmas and looked six months ahead? That is what you are saying?
  (Mr Macpherson) Well, we always knew it was—

  43. We deal with parliamentary timetables. Some of us have been involved in the Whips' Offices and we understand what the parliamentary timetable is, so we are actually gobsmacked when we hear you saying that you cannot find time in the parliamentary timetable.
  (Mr Macpherson) We always knew it was going to be in late June or July and I think that was in the market for several months. All I can do is recall previous announcements of Public Spending Reviews over the last 15 years and I think some of them were only given 24 hours' notice.

  44. So could we do a bit better then, Mr Macpherson? Do you think we could do things better?
  (Mr Macpherson) I think there is always scope for improving.

  Chairman: Forty-eight hours?

Mr Mudie

  45. But, Chairman, can we ask why the Prime Minister's attendance at the Liaison Committee should affect the Spending Review? It was a Chancellor's announcement. It rather suggests it is to do with headlines and where there is space in one week with no contending front page, which is an atrocious way to set the release of important financial statements.
  (Mr Macpherson) Well, I am not saying that—

  46. What was the relevance of the Prime Minister?
  (Mr Macpherson) I am not saying that the Prime Minister's appearance would in some way trump the announcement of the Spending Review.

  47. What is the relevance of it?
  (Mr Macpherson) Clearly in a very crowded timetable in late July with a lot of announcements necessary following on from the Spending Review, but also a lot of legislation which is passing through Parliament, it does make sense to line these up in a sensible way.

  48. But you mentioned the Prime Minister.
  (Mr Sharples) It is probably worth adding that the broad timetable for the Spending Review has been in the public domain for some time. We set out in the Pre-Budget Report how the Review was going to be handled and we repeated that in the Budget and Ministers have made clear at each stage that the Review would be completed in the summer obviously before the parliamentary recess, so the only question was precisely which day would be available for making the statement.

Chairman

  49. I do not think it is a surprise that your answers are totally underwhelming and maybe you can take something back as we are all busy in the parliamentary timetable. Okay. In the past, you have revised the plans set out in the Spending Reviews. Have possible funding top-ups been discussed with departments as part of the Spending Review 2002 round?
  (Mr Macpherson) Sorry, in what sense?

  50. Any top-ups with different departments. The Government sets three-year spending plans and it reviews them every two years. Should we regard the third year of the Spending Review 2002 as only provisional?
  (Mr Macpherson) No, these are three-year plans. What happened on this occasion is that, first, as announced in the Budget, extra resources were available. I think we added some £4 billion to the plans at Budget time, most of which went to Health, leaving something like £1.6 billion extra for other programmes, but since then there have been changes to our view of annual managed expenditure which has enabled further resources to be released for priority public services.

  51. I am thinking of the report, the Treasury Economic Fiscal Strategy for 1998, page 26, where it says, "The reformed planning and control regime [includes] . . . firm three-year plans [which] will provide certainty and flexibility for long-term planning and management. Within these overall plans, the Government will set firm and realistic multi-year limits for departments' expenditure . . . [which] will cover a three-year period . . . in a new aggregate, Departmental Expenditure Limits". The IFS said, "If the Government finds that the increases in spending that it has planned up to the next election are not sufficient . . . it could make the decision to allocate more funds". So my question on top-up funds is with that in mind. Have you had any discussions with departments on possible top-up funds?
  (Mr Macpherson) Well, I think the plans are as set out in the Spending Review document. Obviously within the plans for each year there is a contingency reserve which can be allocated to departmental spending programmes in the light of events, but the plans are as set out. They are affordable. There is no presumption that we will change them on a later occasion.

  52. So really the question I am asking you is: have possible funding top-ups been discussed with departments? What you are saying to me is that they have not been discussed.
  (Mr Macpherson) The plans set out in the document reflect discussions with departments. Those are the agreed plans and they are set out.

  53. Yes, but when we talk about top-ups, that is really in addition to that, and that is really what I am getting at. Has there been any discussion on top-ups?
  (Mr Macpherson) No, the plans are as set out in the document.

  54. So there was no discussion?
  (Mr Macpherson) As I say, there is a reserve, there are other funds there—

  55. I understand that, but have there been active discussions in terms of top-ups with the departments? I am looking for a simple answer.
  (Mr Macpherson) No.

Mr Plaskitt

  56. Can I refer you to page 16 of the Report where you have got the breakdown of Departmental Expenditure Limits. If we take the Transport line, it says that the annual average growth, and that is obviously in the period of the Comprehensive Spending Review, is 12.1 per cent, but that does not really tell the whole story because if you look at it year on year, we see that in the first year of the plans there was a 39 per cent increase and then the year after that 5 per cent and then the year after that 4 per cent. What explains the huge surge in 2003-04 and why is it structured in that way?
  (Mr Sharples) This simply reflects the profile of spending in the 10-year transport plan which was announced at the time of the 2000 Spending Review. What these spending plans do is to fund the delivery of that 10-year plan. Essentially the profile of spending in the 10-year plan takes us up to a much higher level of capital investment and that comes through in 2003-04. After that things level off a little bit, though they continue rising a bit, but, if you like, we are going up to a new plateau and then it is sloping up slightly more gently.

  57. Can it cope with a 39 per cent increase in one year? Can it actually do all of that?
  (Mr Sharples) Well, one great advantage of having a ten-year transport plan is that these spending plans come as no surprise. It is what everybody is working to throughout the system in railways, on roads and in local public transport. The great advantage of setting out forward plans is that people have more chance to prepare, so there is much greater expectation that these spending plans will be delivered.

  58. And 39 per cent in one year is a massive surge.
  (Mr Sharples) Well, it reflects precisely the Government's commitment to addressing some of the historic backlog in the improvement of public infrastructure in this country. There are quite significant increases in investment plans throughout the public services, in education, in transport, in housing and in other areas, so yes, it is a big increase and yes, that is entirely deliberate. The Government wants to address some of the deficiencies of the infrastructure, but by setting things out well in advance, you allow people to make proper preparation.

  59. We have seen underspend on a year-by-year basis in the departments where the focus is increases within the order of 5 or 6 per cent and those have come back at the end of the year showing underspends. If you get underspend on that proportion of uplifted budget, what can happen when the uplift is 39 per cent?
  (Mr Sharples) Well, there have been some underspends, that is true, but they should be put very much in perspective. Within spending of central government departments, the underspends overall have been absolutely tiny, only £100 million out of £212.5 billion which was planned in DELs last year, a slightly bigger underspend, around about £1 billion or so, on capital DELs, but broadly the profile of investment is rising very much in line with the plans that we set.


 
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