Select Committee on Treasury Minutes of Evidence

Examination of Witnesses(Questions 260-279)



  260. Yes. The fact is that on one side of the border in the North East of England, the poorest region in mainland Britain with the worst educational achievement in the whole of Britain, people do not have their tuition fees paid for, they do not have personal care for the elderly, they do not have teachers who have special systems of pay and rewards whereas north of the border they do. Now how long are we going to go on with these great differences in fairness?
  (Mr Brown) This has been something which has been accepted by all political parties over the last 30 years since the Barnett Formula was introduced. Can I just emphasise the point that outside the Barnett Formula are a considerable, indeed a large number of expenditures that are based entirely on need. If you take the Working Families Tax Credit, £310 million is spent in the North East, that is £120 per person, whereas in Scotland it is £300 and it is only £98 per person, in Wales it is £109, so the North East benefits considerably as it will do when the Employment Credit comes in, the Working Families Tax Credit and all tax credits, the Child Tax Credit and the Employment Tax Credit. That is meeting the needs of the North East on the basis of a fair allocation.

  261. Chancellor, everybody gets those tax credits.
  (Mr Brown) No, no. Depending on need.

  262. Everybody in every part of Britain gets those tax credits if they are eligible. Now the point about this is in the Comprehensive Spending Review a great deal of additional money was made available for transport in London, over a billion pounds to transport in London. Now under the Barnett Formula there is a 10.23 dividend on that for expenditure in Scotland under the Barnett Formula comparisons. People in the North East neither get the extra tube lines nor do they get the benefits of the Formula spend.
  (Mr Brown) My point to you is, for example, if you look at the distribution of housing expenditure throughout the United Kingdom then those areas which have a high proportion of pre-war and post-war housing stock—and the North East is one of them—will get a considerable benefit from the housing expenditure. But what I was drawing your attention to is not all public expenditure is under Barnett. I do emphasise to you this point about the tax credits, that the North East gets proportionately more as a result of the condition of the North East than does London, Scotland or Wales.

  263. Only, Chancellor, because we have more people who are eligible because their incomes are low.
  (Mr Brown) That is exactly my point, that we are taking measures which are fair to people in the North East because we recognise there have been historic problems which have got to be addressed, including one of them, the low staying on rate, where I believe the educational maintenance allowances which we announced on Monday but will go nationwide have already proved themselves in pilots to be a successful means of persuading people to stay on at school. The North East has got the lowest staying on rate of any part of the United Kingdom. The educational maintenance allowances will be paid on the basis of need. The North East of England will benefit disproportionately as a result in my view.

Mr Fallon

  264. Coming back to the underspending, Chancellor, the underspending is not new this year, it has happened in previous years. You have explained this afternoon some of the reasons for it. When Mr Macpherson appeared before us at the time of the Budget he said—and I quote—"There are big sanctions which the Treasury can use". Have you used them?
  (Mr Brown) I think the Chief Secretary has been in discussion with the different departments about their departmental investment strategies and it is our intention to work with the departments to achieve that: better forms of procurement, better forms of ordering, better forms of moving forward the capital project.

  265. This is the third Spending Review. We have had underspending in various departments over the last four or five years. Have you actually penalised any department and, if so, which one?
  (Mr Brown) I am pointing out to you that while we want to move very swiftly ahead with our capital investment projects that underspending by the end of the year is not always the problem that you say it is. It is a means by which the departments can carry over the money into next year. They do not lose the money and everybody knows that the capital projects, while good in themselves, have in some cases slipped. It is our intention to move them forward as quickly as possible and that is why this work has been done between the different departments.

  266. So there is not an example of any department actually losing out because of its underspending or being penalised in any review?
  (Mr Brown) We have got to decide the allocations in every three year review and of course we have to be satisfied that reforms are being put in place to deal with problems as they arise. You will see as a result of the decisions which we have made in this review, the increase in inspection will cover, for example, housing, and therefore we will have a better means of assessing the results in terms of housing expenditures. Equally, of course, decisions about future capital investment on housing will be made on the basis of knowing what has been happening.

  267. So far no poorly performing department has been penalised?
  (Mr Brown) I was asked about this, again, at Treasury questions today. The Prime Minister agreed a reorganisation of the Department of Agriculture immediately after the last election because it was felt that it ought to be more a Department of Rural Affairs, that it ought not to be exclusively concerned with farming issues and there were changes which had to be made there. Equally the system of performance pay applies to Permanent Secretaries and the system of ministerial change, you might put it like that, applies to politicians.

Mr Mudie

  268. If we can go back to where we started, targets. Your officials told us yesterday that they had regular meetings, at least once a quarter, with departments to discuss their targets. Now you in your first response to them seemed to be defensive about the Treasury's part in these targets, they are really the departments' targets. Also you seemed to suggest that any opposition to targets was because you did not like targets. Now, one of our witnesses yesterday said that they were deeply flawed. I would have thought it is almost unanimous in the Committee after what we have gone through that there are flaws in them, intellectually flawed in numbers, the relationships, but we are intrigued with the starting point. Your officials have meetings with the departments once a quarter, what is the Treasury's part in these targets? Why are they not meeting with the Prime Minister's Policy Unit or Results Unit or whatever else he has got at Downing Street; why is it the Treasury?
  (Mr Brown) I think it is important that the department which writes the cheques and provides the other departments through tax revenues with the money has a role in monitoring whether performance is improving or not. As far as targets are concerned, I think, equally, there is a debate about the future of targets and how they are applied. There have been three different types of target. There has been an input target where you could say, "Let's have x number of people working in this area." There is a process target of how you get to where you want to be. But the main thing people want to focus on for the longer term is output and what is achieved as a result of your efforts. Certainly over the last few years we have been developing a system that is far more rational in the way that it sets the targets and, as I understand it—

  269. I thought your answer was better until you got that note. I do not know who has passed you the note, but it went off.
  (Mr Brown) The note, interestingly enough—and it is always very helpful to have these notes passed to you, is the House of Commons Treasury Select Committee, Third report of Session 2000-01 and it is about visits to overseas Treasury Ministries and it says: ". . . we are aware that the UK Treasury is one of the world leaders in implementing reforms such as resource accounting and budgeting, the private finance initiative and Public Service Agreements"[5], so you did support us and say at that stage that we were one of the world leaders.

  Chairman: We are a new Committee, Chancellor!

Mr Mudie

  270. We are not supporting you. We are trying to find out the relationship. I thought you were very direct and up-front. It is an answer we did not get from your officials yesterday. The reason you are at the table is you write the cheques. Those were your words and I think that is first-class.
  (Mr Brown) I do not mean I write them personally!

  271. We were at pains to find out is if you write the cheques and if a department under-performs whether you write a smaller cheque? We see no relationship between the targets and spending reviews and we would like to know the mechanics.
  (Mr Brown) I think you are always deciding in a spending review when you are planning three years ahead whether you feel the money is best used in one direction or in another direction. So in a sense the experience of what you see in previous years, in consultation with the department, leads you to certain conclusions about what your priorities are. When I was asked, however, about sanctions, just as where there are failing services and organisations we have put in sanctions and penalties, I think it is true to say that there is now performance-related pay for permanent secretaries and whereas the ministers are not on performance-related pay, there are clear sanctions in relation to them as well.

  272. Take one of your targets, the eradication of child poverty by 2020, one of the witnesses we had yesterday said that his figures were that instead of taking a million and a half youngsters out of poverty you had only taken half a million and that as we are moving towards 2020 this early trajectory is too low. Do you dispute that? That is the first thing and, secondly, if you do not dispute it what steps are we taking to get back on course?
  (Mr Brown) In terms of absolute numbers and absolute poverty there are more than a million people less in poverty.

  273. These are children.
  (Mr Brown) I am talking about children. In terms of the relative definitions that are used, obviously the measures we brought in in the last Budget, and indeed in the Budget before that, are the means by which we will get more children out of poverty. So we believe we will meet what is the PSA target which is to reduce child poverty by a quarter by 2004.

  274. One of the difficulties—and you have just showed it verbally—is that anybody looking at the public service agreements and the targets does not know where they are. A lot of the children we are seeking to take out of poverty by 2020 on my estates will have children themselves in poverty by the time you are finishing your target. Why is there not produced, if you are part author of this and it comes out of the Spending Review, a position statement of where we are?
  (Mr Brown) The position on child poverty is we do recognise your point and it is a very important point. To have just a wholly long-term target that is unrelated to whether you can see performance in the short and medium term would be susceptible to the criticisms you have got. That is why we have got this target for 2004 to reduce child poverty by a quarter.

  275. But we cannot agree where we are and it is 2002.
  (Mr Brown) The Department of Work and Pensions has produced a report on the definitions of poverty and the things that they would like to take into account when measuring poverty. There is an income measure of poverty that is relative, an annual report is produced by what is now the Department of Work and Pensions. The last one was called Opportunity For All and that was published last autumn.

  276. This is a joint target between you and Work and Pensions. Why is, for example, the DFES not involved, Sure Start, the Children's Fund? A practical example might be a youngster with hearing difficulties who is not picked up because there are no psychologists available in the schools (and there is a very great shortage of them). That youngster will have the greatest difficulty staying the course educationally. Instead of a battle against child poverty, it is many departments all contributing. There does not seem to be an acceptance within the Treasury that they should pool everything together, that there should be transparency on the resources put in and who is contributing on the outcomes and how each is contributing. We have confined this in the public service agreements to two departments—yourself putting the money in and I presume tax credits, because that was the answer we got yesterday. Is that our joined-up government? Mr Macpherson shakes his head. If it is no why is this not demonstrated in the document?
  (Mr Brown) We are really dealing with two parts of the issue of child poverty. One is purely income and that is why it is the Department of Work and Pensions and the Treasury because, as was said yesterday, it is the combination of social security benefits and tax credits that we believe are the means by which large numbers of children will be lifted out of poverty. We do accept that the numbers of adults with children in work matters to this and we do accept that how well our programme for helping single parents get into work or get training and everything else matters too, so these income measures are the Department of Work and Pensions and the Treasury, but there are wider issues of poverty that you focused on rightly. Before this Spending Review was completed, there was an inter-departmental review of children's services and we looked at Sure Start, we looked at the case for children's centres, we looked at how the Children's Fund was going to perform. We looked particularly at the needs of vulnerable young people in their teens because that is an issue that has been raised by many people and the improvement of children's services is absolutely essential to this review. There is now an integrated budget for children dealing with service provision for children which will allow us to increase childcare places by a quarter of a million, maintain the expected increase to Sure Start to 300,000, and create a network over time of children's centres round the country. These are all important to the battle against deprivation amongst children.

  277. But does that mean in a future public sector agreement that you will make some changes and bring together the figures and the performance?
  (Mr Brown) Yes in the sense that we will retain the income measure because we will be judged by that as well as all the other things, but we do plan to improve children's services and, for example, for children in care we recognise we have got to do a lot more as well, and I think you would agree with us.

  Chairman: Public sector agreements, Michael Fallon and David Ruffley.

Mr Fallon

  278. You have got a creditibility problem with some of these targets, have you not? If you look at your own document Chancellor, I do not know if you have read your own introduction you say: "Most targets have been rolled forward in line with adjustments, where necessary, to reflect experience. In some cases separate targets have been combined under a new headline target. Some of the existing targets have not been included. A small number of headline targets will not be carried forward when they have already been superseded by new targets or events." This is Alice in Wonderland stuff.
  (Mr Brown) That is surely exactly what a government should do. One, it should learn by experience. Two, where a target is met it is no longer a target. Three, where we can eliminate process targets and focus on the outputs and indeed where we can move from input targets to output targets, we should do so. You would be surprised if everything remained completely unchanged, either as a result of experience or as the result of our efforts. For example, we say we want to increase literacy amongst children at the age of 11 from 60 per cent to 75 per cent. Once we have achieved that do we say "that is it" or do we have a new target to do better?

  279. You are only taking targets you have met. There are targets you have not met. You said you would remove 30,000 failed asylum seekers a year, you removed only 11,000 last year so you scrapped the target.
  (Mr Brown) The Home Office has actually increased the number of people who are removed as a result of the failure of their asylum appeal but that is a matter obviously the Home Office Committee will want to look at.

5   Third Report from the Committee, Session 2000-01: HM Treasury, HC 73. Back

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