Select Committee on Treasury Minutes of Evidence


Examination of Witnesses(Questions 60-79)

MR NICHOLAS MACPHERSON AND MR ADAM SHARPLES

WEDNESDAY 17 JULY 2002

  60. Can I take you to the DEFRA line, 2.7 per cent average, but it too has a 15 per cent increase in the first year, then a reduction and then a slight increase the year after. What is behind that profile? It is surprising it actually has a cut in the middle.
  (Mr Sharples) There is a bit of a hump in year one. I am not absolutely sure what that relates to, but it is almost certainly a one-off factor which is boosting the budget in that year and disguising the underlying trends.

  61. I have been trying to find out what it is. If you turn to chapter 16 on page 111 we get some more detail on the DEFRA budget, but I do need you to explain to me what it says in the box because it says, "This Spending Review delivers an additional £421 million in 2005-06 compared with 2002-03 . . .This includes", it says in the bullet point, "investment totalling over £500 million . . . on sustainable food and farming". How do you get £500 million out of the £421 million increase?
  (Mr Sharples) Well, the £500 million is total spending over the three years, so that is a cumulative figure and, as it explains, that includes funding rising to £200 million in the third year to implement the core recommendations of the Currie Commission.

  62. In the third year?
  (Mr Sharples) That is right, rising to £200 million in 2005-06.

  63. Basically what I am trying to get at is do we know because it looks to me as though one of the big items which has been added to DEFRA is delivering on the Currie Report, so would I be right in inferring that because of the surges in 2003-04, most of the implementations of Currie are in the first year?
  (Mr Sharples) No, the implementation of Currie builds up, as explained in that box, with £200 million being spent in the third year.

  64. Currie has got about 45 recommendations that it wants to see implemented and the Government says it is going to do them. When I look at the Public Service Agreement to try to find out whether there are price checks on the different recommendations in the Currie Report, I can find one line on it on page 27 and it says, "Objective 4 for this Department is to promote sustainable, diverse, modern and adaptable farming with domestic and international actions". Is that it? Is that the Public Service Agreement on Currie?
  (Mr Sharples) Well, there are other targets within the DEFRA PSA to which the efforts on sustainable farming will contribute, such as the environmental targets within that PSA, but you are quite right to highlight that particular target as the key one that this is directed to.

  65. So are there any price-tags attached to any of the specific recommendations in the Currie Report? Do they exist somewhere?
  (Mr Sharples) Well, clearly costings have been done and they have been taken account of in setting these plans.

  66. So they are not part of the PSA?
  (Mr Sharples) Well, detailed breakdowns are not published at this stage. It is for the departments to finalise their internal division of their total budgets once they see the overall settlements and full details are then published in the departmental reports that the departments publish next spring.
  (Mr Macpherson) I should imagine that the Secretary of State for DEFRA will be setting out her detailed proposals consistent with these plans in the near future.

Mr Laws

  67. Mr Sharples, would you describe the spending settlement on defence as being a good one or even an excellent one?
  (Mr Macpherson) Yes, I would certainly describe it as a good settlement.

  68. I was asking Mr Sharples actually.
  (Mr Sharples) The settlement provides for steady real growth in the defence programme, and this is for the first time that spending plans have provided for steady real growth in defence spending, so in that sense it is a settlement which demonstrates the commitment of the Government in ensuring that the armed forces are properly funded and that growing insecurities across the world are being addressed through our defence effort.

  69. So you would agree with the press release which was put out which has a line from Geoff Hoon saying, "This is an excellent settlement for defence"?
  (Mr Sharples) I would agree with that entirely, yes.

  70. The Treasury would be happy with that characteristic?
  (Mr Sharples) Indeed.

  71. Can I just ask you to have a look at the table on page 167 of the Spending Review document which shows the Departmental Expenditure Limits in real terms between last year and the period going to the end of the Spending Review. What they appear to show is that the amount we spent in real terms on defence last year is greater than the amount that we are going to spend in any of the years in this entire Spending Review.
  (Mr Macpherson) I think it is important here to bear in mind how we approach defence spending. Clearly plans have been set out for the next three years, but in any one year there are reserve claims associated with, for example, fighting wars, deploying troops in various areas, be it in Sierra Leone or Afghanistan or Kosovo, and those requirements are always financed through the reserve, so if you actually strip out reserve claims and I think also a special technical resource- accounting issue associated with a £Ö billion provision in the defence budget, you actually would get a figure a lot lower than 30.7.

  72. How big is the allocation from the reserve to defence in 2001-02?
  (Mr Macpherson) I think it is around £1 billion.

  73. That is a reliable figure or order of magnitude?
  (Mr Macpherson) That is a reliable figure and, as I say, on top of that there is in excess of £Ö billion provision in the resource budget.

  74. But it would be reasonable to say that in all the years of this Spending Review up to 2005-06, we will be spending less on defence than we were in the last financial year?
  (Mr Macpherson) I think that depends totally on the international environment.

  75. Well, on the basis of your budgeted figures obviously.
  (Mr Macpherson) Clearly if you deploy troops in, to use the term, theatre, that costs additional money. There is no question of that. So a lot will depend over the next few years on the international environment.

  76. So if we had, for example, a war in Afghanistan or Iraq, then we might see these figures moved up, but without such a conflict, it would be the case that we spent more last year on defence in real terms than in the Spending Review?
  (Mr Macpherson) There is no doubt that if you deploy troops across a wide front in significant numbers, then that adds to the cost of the defence budget.

  77. Can I just ask about the departmental expenditure finance quite briefly. There has been quite a lot of publicity over the last two days since the Spending Review was announced of big underspend in the Education Department and there is a story today in the press that the Secretary of State for Education is very upset about this and finds it embarrassing because it seems that even though she has been allocated more money, she has not actually been able to spend the money the Department already had. Can you confirm whether or not those reports of the order of magnitude of the underspend are correct and are you satisfied with that situation?
  (Mr Macpherson) First, I think it is worth putting the issue of underspend in perspective. The aggregate underspend in the year just finished for the Departmental Expenditure Limits as a whole was 0.05 per cent, I think less than £100 million, which is a very, very small number. Now, clearly within that there are variations between departments. There is also the issue of a quite large amount of end-year flexibility which departments can draw down and, interestingly, last year the draw-down of end-year flexibility very much matched the emerging underspends which suggests that, as far as EYF is concerned, we are very much reaching a steady state.

  78. What is the size of the underspend in education particularly?
  (Mr Macpherson) Well, I would like to come on to education because I see that Adam has the figures in front of him and he will tell you about it.
  (Mr Sharples) The figures are published in the Outturn White Paper which we publish each July and the total underspend on education was around about £1.2 billion and that was spread across a range of different education activities. One thing which I think has been rather misleading in the coverage is the suggestion that somehow there is a failure to get money through to schools. On the whole, this is not an underspend on the schools budget; that flows through in a straightforward way to local authorities and to schools, sums of money going through directly, but in some areas of that Department's activities, there have been underspends.

  79. Do you know which areas?
  (Mr Sharples) It is spread, I think, fairly evenly across a range of programmes concerning some of the early years programmes, some of the learning skills councils programmes.


 
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