Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



  60. How will you know when you have passed it? If you are not careful, you might just go straight past this target, so you wake up in the morning and you say, "Oh, Lord, what am I going to do now? We will have to go down to the Treasury and explain that we have overspent drastically and we had better cut back." You do not want that to happen.
  (Mr Sharples) I think the key point here is that the setting of policy and the setting of targets on matters such as this is a matter for ministers. They will decide what targets to adopt and at what point to adopt them. What I can tell you as a Treasury official is that we will go through a process next year of setting plans for public spending on the health service which are consistent with the targets that ministers have agreed and which will deliver the Government's policies.

  61. The last question on this. Do you think that the health service target to match EU spend is the biggest rubber ruler in Whitehall or do you think there are any others lying around?
  (Mr Sharples) With respect, I think that is unfair. The policy on health spending has been absolutely clearly set out: we are delivering a rapid increase in health spending, raising it by a third in real terms over five years. There is a study under way looking at health spending over the next two decades. We have an interim report from that study and early next year we expect to get a final report and decisions on health spending in the longer term will be taken in the light of that report.

  Chairman: Mr Mudie, do you wish to chew that particular bone?

Mr Mudie

  62. Where do our present expenditure plans take us up to?
  (Mr Sharples) 2003-04.

  63. Does it not worry you, the fact that the Prime Minister has tied himself to a target the year after that? You must have some idea—I think you must be kidding us—because clearly you cannot let the Prime Minister make a pledge of arriving at a certain target, and then he discovers he only has a year to do it.
  (Mr Sharples) I do not think this is an issue, with respect. First of all, we are aware of factors that will affect public spending beyond 2003-04—that is why we have a 10 year plan for the health service, we have a 10 year transport plan—so clearly in some cases our view of public spending stretches out beyond 2003-4. It also seems to me entirely reasonable that ministers should set out ambitions beyond 2003-04. Indeed, many of our public service agreements' targets are for periods beyond 2003-04. What we have done through the three-year public spending planning system has, I think, laid a very firm foundation for planning the use of resources over the medium term (that is over the next three years) as a foundation for moving towards those longer term ambitions and targets.

  64. When do you get from the OECD the health data that will bring you more up to date than the figures of 1998. It seems to me that the figures of 1998 suggest we are 17 per cent behind on the unweighted index. When do we get more up to date figures? When do we anticipate that?
  (Mr Sharples) The OECD produce new figures each year drawing on data available from OECD member countries.

  65. When would we anticipate getting from the OECD the average spending unweighted for 2005? Is that the answer, that we will not get those until about 2010 on current practice, so we will not have to worry about the target?
  (Mr Sharples) Well . . .

  66. That is a fair question, is it not? If we do not have the data then it is an easy thing to say we will reach the target because the Prime Minister may have gone on to rule Europe or something by 2010 so we will not worry about the target.
  (Mr Sharples) I can perhaps say two things on this. One is it is a fact of life—unfortunate but still a fact of life—that international data on a comparable basis tends to be available with a bit of a time lag, and, unless something dramatic happens in the next few years, I would expect there to be something of a time lag in 2005. But the second thing I would say is that the European average has been reasonably stable, the European average for health spending. In fact it has been—perhaps rather surprisingly—on a gentle declining trend. In the mid-90s it was around about 8.2 per cent and it has come back to 7.9 per cent. Clearly at this stage it is difficult to tell whether that declining trend will continue but I think one can say with reasonable confidence that, half a percentage point either way, it is not going to change hugely as a result of new data.

  67. With that confidence, could you estimate what the amount will be in 2005? If you are saying, "We do not need this data, we have a fair idea," well, give the Committee your fair idea of what the Prime Minister's target is. Has he consulted the Treasury? Has the Treasury supplied him with a figure?
  (Mr Sharples) Obviously the Prime Minister and the Treasury discuss issues all the time.

  68. I have heard that line before.
  (Mr Sharples) To the first part of your question, can we give you a figure for what the European average will be in 2005—

  69. Your best estimate.
  (Mr Sharples)—our short answer is no. You or I could sit down and look at the trends over the last few years and project it forwards and that might suggest that the European average is coming down a little bit.

  70. Mr Sharples, you suggested to us there was a stability in the EU health figures as a percentage of GDP. You suggested stability. Are you telling us that Her Majesty's Treasury cannot project and have not projected and do not have in their possession an estimate of what that figure will be in 2005 against that stability that you tell us you have? That would suggest a competence on a major scale. You either have the figure and you are not prepared to tell us, but you cannot say, on the one hand, that the figures are fairly stable and then that it is impossible for you to project an estimate. It is just not grown-up thinking.
  (Mr Sharples) The point I was making is that through the 1990s the European average has been within the range of about 7.8 per cent of GDP up to—

  71. Well, project that to 2005 now for us.
  (Mr Sharples) If I could finish—between the range of 7.8 per cent of GDP up to 8.2 per cent of GDP. It seems to have been reasonably stable within that range.

  72. So come on, then, project it forward. What is the Treasury's projection of the figure?
  (Mr Sharples) I cannot give a precise projection because that—

  73. Well, then can you do some work on it and send it to us?
  (Mr Sharples) If I could finish. I cannot give a precise projection because that will depend on decisions by the sovereign governments of the European Union member countries over the next three or four years.

  74. I am not asking you to give a precise figure; I am asking you to give your best estimate. If I was the Chancellor of the Exchequer and the Prime Minister had made this pledge, if I was to go back to the Treasury and say to Mr O'Donnell, "Bloody hell, what is this figure I am gong to have to reach?" would Mr O'Donnell say, "I don't know"? Would he not say, "Well, my best estimate would be this range"? That is what we are asking for.
  (Mr O'Donnell) I think you would have to say it is very uncertain, because a number of the countries do not make public spending numbers/estimates public forward for that period, so we would actually have to be guessing about what they would say about their public spending, what they would do in public spending decisions at a time when, as we know, the euro area is going to go through a period of probably below trend growth. As I said right at the start, the GDP forecasts which we would need for the bottom line of that are much more uncertain now than they would be, so you would get quite a big range, I fear.

  75. I just cannot understand why you say it is fairly stable, I ask you to take that stability and project it forward, and you will not. That leaves us with a situation where either we are going to be in a terrible mess with one financial year to get to that target when we discover it, or you are going to take refuge in the fact that you will not have that figure until the year 2010.
  (Mr O'Donnell) I think it is perfectly reasonable to say that the trend in the past has been stable, but looking forward it is rather difficult to know whether that would carry on.

  76. If I asked you or the Committee asked you, "We will forgive you if things go off but, on the basis of the trend up to now, if you projected it forward, can we have a figure from you?"
  (Mr O'Donnell) We could certainly extrapolate the past trend. The question is whether that is a good guide to the future or not.

  77. Could we have a figure from you? It would be very useful.
  (Mr O'Donnell) We could certainly extrapolate the past trend, but I would put round it all those caveats that—

  78. Will you write to us on it?
  (Mr O'Donnell) Certainly. But, I would stress, it will not be a Treasury estimate, it will just be an extrapolation of the past trend.

  Chairman: I think we have chewed this for a bit, but, for no more than a cameo appearance, Mr Laws would like to come back.

  Mr Laws: Thank you, Chairman. I am grateful for those answers from the Treasury officials, and particularly the fact they looked so embarrassed during delivering them.

  Chairman: I think that is a bit unfair.

Mr Laws

  79. No doubt when the policy is clear we will be informed. Can I ask you one thing on page 109 of the pre-Budget report about the 2002 spending review, under 6.31. The third bullet point says, "Consideration will be given to the need to plan beyond the three-year horizons of the firm DEL plans in specific areas, building on the Transport 10-year plan and the NHS plan." What precisely does that mean? Does that mean, Mr Sharples, that there could be any plan in those areas where you make long-term commitment, and it might be in health following the Wanless conclusions, or it might be in transport where you have the 10 year plan? Does it mean that you could actually have some budgets where the expenditure plans went beyond the conventional CSR period?
  (Mr Sharples) This is concerned mainly with capital spending where a number of projects need to be planned over quite a long time horizon. For example, a number of the capital projects undertaken by the Ministry of Defence involve thinking now about commitments which they will need to enter into over a five or ten year period. The thinking behind this is that in areas like that, where there are large scale capital projects, it may make sense to move towards some sort of indicative budget for such capital projects going beyond the three year period of the spending review. The precise form that such indicative budgets might take is something that we will need to work through in the course of the spending review.

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