Examination of Witnesses(Questions 39-59)|
WEDNESDAY 17 JULY 2002
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
(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
Chairman: Forty-eight hours?
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
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.
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
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.
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
(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
(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.