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Performance ofHM Treasury 2007-08

BRIEFING FOR THETREASURY SELECTCOMMITTEE

OCTOBER 2008

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The National Audit Office scrutinises public spending on behalf of

Parliament. The Comptroller and Auditor General, Tim Burr, is an Officer

of the House of Commons. He is the head of the National Audit Office

which employs some 850 staff. He and the National Audit Office are totally

independent of Government. He certifies the accounts of all Government

departments and a wide range of other public sector bodies; and he has

statutory authority to report to Parliament on the economy, efficiency and

effectiveness with which departments and other bodies have used their

resources. Our work leads to savings and other efficiency gains worth

many millions of pounds; at least £9 for every £1 spent running the Office.

Our vision is to help the nation spend wisely.

We promote the highest standards in financialmanagement and reporting, the proper conductof public business and beneficial change in theprovision of public services.

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Performance ofHM Treasury 2007-08

BRIEFING FOR THE TREASURY SELECT COMMITTEE

OCTOBER 2008

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This briefing has been prepared for the TreasurySelect Committee as an overview of the performanceof HM Treasury in the financial year 2007-08 andsubsequent months.


Contents

Summary 4

Part OneFinancial Review 8

Part TwoGovernance 17

Part ThreeThe Cabinet Office review ofHM Treasury’s capability 20

Part FourPerformance againstPSA targets 25

Appendix One 31

This review was conducted byChristine Robson, Diane French,David Lian and Emma Theedom underthe direction of Steven Corbishley.

For further information about theNational Audit Office please contact:

National Audit OfficePress Office157-197 Buckingham Palace RoadVictoriaLondonSW1W 9SP

Tel: 020 7798 7400Email: [email protected]

© National Audit Office 2008


4 Summary Performance of HM Treasury 2007-08

Summary

Aim and scope of this briefing

1 This briefing has been prepared for the Treasury Select Committee (the Committee)to provide an overview of the work and performance of HM Treasury in the financialyear 2007-08 and subsequent months. The briefing takes as its basis the Department’sAnnual Report 2008 (Cm 7408) and Resource Accounts 2007-08 (HC539), drawing uponthe work of the National Audit Office (NAO) together with relevant material from otherexternal and internal reviews of departmental performance.

2 This briefing focuses upon the Treasury’s internal management and its financialposition as a department in its own right. It does not cover the Treasury’s wider role inpromoting good practice and efficiencies throughout the central government sector.

3 The briefing has been shared with the Treasury to ensure that the evidencepresented is factually accurate, but the commentary and views expressed are the soleresponsibility of the NAO.

The Department’s role and priorities

4 The Treasury is the United Kingdom’s economics and finance ministry responsiblefor formulating and implementing the UK Government’s financial and economic policy.There are numerous Departments, Agencies, Offices and Non-Departmental PublicBodies that fall under the responsibility of the Treasury Ministers (see Figure 1).

5 However, for financial reporting purposes, the Treasury Group Resource Accountsconsolidate HM Treasury (Core Treasury), UK Debt Management Office (DMO) and theOffice of Government Commerce (OGC).

6 The “Core” Treasury is responsible for formulating and implementing the UKGovernment’s financial and economic policy. The Permanent Secretary and PrincipalAccounting Officer is Nick Macpherson, who is supported by the Board.

7 The DMO is an executive agency of the Treasury which specialises in delivery oftreasury management services and related policy advice. The DMO’s Chief Executive,Robert Stheeman, is an Additional Accounting Officer for the Treasury Group.

4


Performance of HM Treasury 2007-08 Summary 5

Figure 1Ministerial responsibilities

Treasury (Chancellor ofthe Exchequer) Rt HonAlistair Darling MP

Source: www.hm-treasury.gov.uk

Exchequer SecretaryAngela Eagle MP

Economic SecretaryKitty Usher MP

Financial Secretary RtHon Jane Kennedy MP

Chief Secretary Rt HonYvette Cooper MP

Royal Mint

Departmental Ministerfor HM Treasury Group

HM Revenueand Customs

DebtManagement Office

GovernmentActuary’s Department

National Savingsand Investment

Partnerships UK

OGC Buying Solutions

Minister withresponsibility of

Revenue ProtectionLiam Byrne MP

UK Border Agency

Valuation Office Agency

OGC


6 Summary Performance of HM Treasury 2007-08

8 The OGC is an office of the Treasury responsible for driving value for moneyimprovements in public procurement and estates management in central government.Nigel Smith is the OGC’s Chief Executive and is also an Additional Accounting Officer forthe Treasury Group.

9 In addition, there are several arms-length bodies, entities which are linked to theTreasury, but which operate under distinct framework agreements and legislation thatgoverns the involvement of the Treasury at a corporate governance level. These are theBank of England, the Royal Mint, OGCbuying.solutions, Partnerships UK, Pool Re andPool Re (Nuclear)1 and from February 2008, Northern Rock plc (see Figure 2).

Chancellor ofthe Exchequer

Figure 2HM Treasury Group and arms-length bodies as at 31 March 2008


OGC BuyingSolutions

GovernmentActuary’s Department

Office of GovernmentCommerce

Debt ManagementOffice

National Savings andInvestments

Northern Rock

ExchangeEqualisation Account

Bank of England

Pool Re and Pool Re(Nuclear)

Royal Mint

1 The Pool Re scheme has been set up by the insurance industry in co-operation with the UK government so thatinsurers can continue to cover losses resulting from damage caused by acts of terrorism to commercial property inGreat Britain.

Partnerships UK

HM Treasury


Performance of HM Treasury 2007-08 Summary 7

Key issues

10 Financial stability – the recent and ongoing instability in the financial marketshas affected the operations of the Treasury and also had an impact on their financialstatements for the financial year 2007-08. These include the Treasury’s acquisition ofNorthern Rock on 22 February 2008 (see Part 2: Governance) and the Special LiquidityScheme announced on 21 April 2008 where the Bank of England swapped UK TreasuryBills for high quality securities from banks, some of them mortgage-backed (see Part 1:Financial Review).

11 Group Shared Services (GSS) – in 2006-07, the Treasury decided to delivereconomies of scale through integrating and sharing core corporate services acrossthe Treasury Group members, helping to drive through both a professional serviceto support the department’s corporate agenda, and meet the Treasury’s 2007 CSRsettlement. Specifically, this has meant that the Information Services and Facilities;Human Resources; Internal Audit; and Finance and Procurement teams within the Officeof Government Commerce (OGC) and core Treasury were merged in 2006. The impactsof this decision can be seen in the Treasury’s 2007-08 Resource Accounts as the Groupcontinue to embed the programme (see Part 1: Financial Review).

12 Capability Review – in 2007, the Treasury underwent a Capability Review ledby the Cabinet Office, the aim of which was to assess the Department’s ability to meetcurrent and future challenges (see Part 3: HM Treasury’s capability).

13 Public Service Agreement (PSA) targets – the 2004 Spending Review (SR2004)period ended on 31 March 2008. The Comprehensive Spending Review (CSR2007)introduced a new framework for PSAs and Departmental Strategic Objectives (DSOs)(see Part 4: Performance against PSA targets).

14 Public sector implementation of International Financial Reporting Standards(IFRS) – As announced in Budget 2007, in order to bring benefits in consistency andcomparability between financial reports in the global economy and to follow private sectorbest practice, the annual financial statements of government departments and otherpublic sector bodies will in future be prepared using International Financial ReportingStandards adapted as necessary for the public sector. Following consultation withdepartments and the Financial Reporting Advisory Board on the technical work needed toimplement this change, the Government now intends to move to IFRS from 2009-10 tominimise burdens and to ensure a smooth transition.

15 Whole of Government Accounts (WGA) – The 2008 Budget announced that WGAwill be published for the first time for 2009-10, a delay of one year, to enable WGA to bepublished on an IFRS basis.


8 Part One Performance of HM Treasury 2007-08

Part One

Financial Review

1.1 The Treasury’s Consolidated Resource Accounts report annually the Department’sfinancial performance and year end position. The Accounts, including the Statementof Parliamentary Supply which is the primary accountability statement, are subject toexternal audit by the Comptroller and Auditor General (C&AG).

Analysis of expenditure by request for resources

1.2 The Treasury Group has three distinct areas of expenditure, represented by the threeRequests for Resource (RfR) detailed in its Main Supply Estimate:

● Request for Resource 1: Raising the rate of sustainable growth and achieving risingprosperity and a better quality of life, with economic and employment opportunitiesfor all. The programme’s objectives are delivered by the “Core” Treasury andthe UK Debt Management Office. In 2007-08 net outturn was £231 million(2006-07 £208 million);

● Request for Resource 2: Cost effective management of the supply of coins andactions to protect the integrity of coinage. This request for resource is linked to theService Level Agreement with the Royal Mint for the procurement of UK circulatingcoin. In 2007-08 net outturn was £44 million (2006-07 £44 million);

● Request for Resource 3: Obtaining the best value for money for Government’scommercial relationships on a sustainable basis. This request for resource isdelivered through the Office of Government Commerce. In 2007-08 net outturn was£33 million (2006-07 £45 million).

1.3 The Treasury’s total resources outturn for 2007-08 was £307 million, an increase of£10 million from 2006-07. Figure 3 shows a comparison by request for resources.

1.4 The increase in net outturn on RfR1 is mainly as a result of increased administrationcosts of some £28 million, a £10 million rise in the cost of capital charge, offset by a£15 million credit arising from an upwards revaluation of 1 Horse Guards Road (seeparagraph 1.9). Cost of capital is a notional charge on all assets and liabilities (liabilitiesattract a negative charge) to represent the lost opportunity cost of the associate asset orliability. The rise in the cost of capital charge in 2007-08 is due to an increase to the netasset value of the Bank of England which is recognised on the Treasury’s balance sheetas an investment.


Performance of HM Treasury 2007-08 Part One 9

1.5 Despite an increase in the cost of capital charge in RfR2, the renegotiation of theService Level Agreement with the Royal Mint together with a reduction in demand forcoins meant that expenditure in 2007-08 was at a similar level to 2006-07.

1.6 The decrease in net outturn in RfR3 of some £12 million was largely due todecreases in administration costs offset by £10 million of exceptional expenditure relatedto staff exit costs incurred as part of the restructuring of Group Shared Services.

Financial performance and position 2007-08

1.7 Net operating costs have reduced by some £10 million, a 5.5 per cent reduction incosts from 2006-07 (Figure 4)

150

100

250

200

50

0

Source: HM Treasury Resource Accounts 2007-08

Figure 3Resource outturn by request for resources

£ millions

Outturn

RfR 1 RfR 2 RfR 3

2006-072007-08

Figure 4Operating Cost Statement

£’000s2007-08

£’000s2006-07

VariancePer cent

Staff costs 94,003 98,690 -4.7

Other Admin Costs 102,592 86,365 +18.7

Exceptional Admin Items (11,200) – +100

Admin Income (36,750) (25,752) +42.7

Programme Costs 149,559 144,368 +3.6

Exceptional Programme Costs 10,300 – +100

Programme Income (140,852) (126,219) +11.6

Expenditure outside of Supply 11,358 12,025 -5.5

Net Operating Costs 179,010 189,477 -5.5




1.8 In 2006-07, in response to the Gershon Efficiency Targets, the Treasury Groupconsolidated the corporate services functions into Group Shared Services. This has ledto a fall in staff costs of £4.7 million, and the Treasury expects that staff costs should fallagain in 2008-09. The reorganisation has also had one-off cost implications: exceptionalprogramme costs of £10.3 million are for staff exit costs associated with the reduction inhead count; and £3.8 million of costs arose in Exceptional Administrative Items due to thedisposal of Trevelyan House and Thistle Street, two former OGC properties.

1.9 Other Administration Costs rose by £16.2 million largely due to increased PrivateFinance Initiative (PFI) costs associated with the Treasury Group’s headquartersbuilding, 1 Horse Guards Road. This rise occurred because the service costs of thePFI contract are linked to the Retail Price Index which has risen rapidly in the last12 months. 1 Horse Guards Road also had a £15 million upwards revaluation disclosedin Exceptional Administrative Items. The revaluation was taken to the Operating CostStatement as it offsets a previous year’s downwards revaluation.

1.10 Programme income, which is surrendered to the Consolidated Fund whenreceived, includes £10.9 million of income from Northern Rock. Following the supportarrangements, Northern Rock has been paying a monthly extension fee and arrangementfee in respect of the guarantee arrangements and financial assistance the company hasreceived. The arrangement fee is dependent on the levels of new business written whilstthe support arrangements have been in place.

1.11 The Treasury discloses payments to Computershare Investor Services plc and theBank of England as Expenditure Outside the Supply Process. Computershare have acontract to manage the gilts register on behalf of the National Loans Fund and paymentsfrom the Bank of England are in exchange for managing the Exchange Equalisation Account.

1.12 Net assets have increased by £429.1 million, a 23.6 per cent increase on the2006-07 position (Figure 5). The increase in the valuation of Investments is largely dueto an upwards revaluation of the net assets of the Bank of England (see Investments).

1.13 The Treasury’s obligation to refinance the Bank of England’s loan to NorthernRock (see Northern Rock) has resulted in a provision and a corresponding asset of£19.3 billion, the expected value of the loan at the date of novation.

1.14 The significant increase in stock is a result of the renegotiation of the Service LevelAgreement (SLA) with the Royal Mint, the framework agreement used for the Treasury’sprocurement of all UK circulating coins. One result of the new SLA is that the Treasurynow recognises undistributed finished coins as stock on its balance sheet whereas,in previous years, this stock would have been recorded on the Royal Mint’s Accounts.This change brings these arrangements into line with the Royal Mint’s other industrystandard coin contracts.

1.15 The £2.5 million increase in provisions is for future staff exit costs associated withthe restructure of the Treasury’s Shared Services function. This is also included within theexceptional programme costs in the Operating Cost Statement.



Financial stability

1.16 The Treasury led the Government’s response to the current period of instability in thefinancial markets which began in 2007. The most high profile act has been the Treasury’sacquisition of Northern Rock, which at the time was the UK’s fifth largest mortgage lender.

Northern Rock

1.17 The Government’s decision to take Northern Rock into temporary public ownershipon 22 February 2008 had a significant impact on the Treasury’s Resource Accounts.The principal impacts are as follows:

● Investments – the equity investment in Northern Rock was acquired on22 February 2008 at zero cost to the Treasury because no payment has yetbeen made to the previous shareholders. The Treasury, therefore, recognised theinvestment as zero in the balance sheet. The Northern Rock CompensationOrder (12 March 2008) makes provision for the appointment of an independentvaluer for the shares, so this equity valuation may change in the future.On 8 September 2008, following a competitive process, the Treasury appointedAndrew Caldwell, Valuations Partner at BDO Stoy Hayward, as independent valuerto assess any compensation that may be payable to those affected by the transferof Northern Rock to the Treasury;

Figure 5Balance Sheet

£’000s2007-08

£’000s2006-07

Fixed Assets 116,701 110,450

Investments 2,322,309 1,889,136

Loan to Northern Rock 19,300,000 –

Debtors 110,086 102,649

Stock 8,045 200

Cash 3,504 8,558

Creditors (295,987) (277,931)

Provisions (18,062) (15,546)

Provision for loan toNorthern Rock

(19,300,000) –

Net Assets 2,246,596 1,817,516

Taxpayer’s Equity 2,246,596 1,817,516




● Provision to refinance the loan – on 28 August 2008, the Treasury replaced theBank of England loan to Northern Rock with direct funding of some £18.8 billion.The loan, which stood at some £21 billion on 31 March 2008, was estimated to be£19.3 billion at the date of novation when the 2007-08 Accounts were prepared. Inthe 2008 Budget, and again in a statement on 31 March 2008, the Chancellor madean obligation to refinance the loan. As this obligation came before the Treasury’saccounting year end of 31 March, it was recognised in the Accounts as a Provision(a liability on the balance sheet) and as an Investment (an asset on the balancesheet). The asset element represents the Treasury’s rights to the loan as an asset i.e.the right to be repaid the money;

● Income and expenditure – Northern Rock paid the Treasury £10.9 million in feesin exchange for the support arrangements. The Treasury also incurred £11.6 millionin associated consultancy costs, but recovered these from Northern Rock, theFinancial Services Authority and the Bank of England;

● Disclosures – the Accounts featured enhanced disclosures relating to NorthernRock. The various guarantees and indemnities that the Treasury issued as part ofits support of Northern Rock are disclosed as contingent liabilities as the liability willonly be triggered if certain events occur (see Figure 6);

Figure 6HM Treasury’s financial stability contingent liabilities as at 31 March 2008

Contingent liability disclosed Potential financial impactfor the Treasury

HM Treasury announced guarantee arrangements in respect of retailand uncollateralized wholesale deposits in Northern Rock together withcertain other wholesale obligations.

Unquantified

HM Treasury has indemnified the Bank of England against any deficit itshould face as a result of its arrangements with Northern Rock.

Unquantified

HM Treasury has confirmed to the FSA that it will take appropriate stepsto ensure that Northern Rock will continue to operate above the minimumregulatory capital requirements.

Unquantified

HM Treasury has provided guarantee arrangements for Northern Rock’snew and existing Directors for the period that the company has been intemporary public ownership, indemnifying them against loss and liabilityincurred in pursuit of their duties.

Unquantified

In accordance with the Banking (Special Provisions) Act 2008, aCompensation Scheme was established by the Northern Rock plcCompensation Scheme Order 2008.

Unquantified (as any amountsdue to shareholders would bea matter for the valuer)




● Post Balance Sheet Events – the Accounts disclose events associated withNorthern Rock that may have an impact on the Treasury in the future. These includethe European Commission’s investigation, under the EC Treaty’s rules on state aid,into the support the UK Government has provided to Northern Rock. Also disclosedis the application for judicial review made by former Northern Rock shareholders; and

● On 5 August, in accordance with Managing Public Money, the Chancellor wrote tothe Chair of the Public Accounts Committee and the Chair of the Treasury SelectCommittee to inform them of the Government’s plans to strengthen Northern Rock’scapital position. This will be provided by converting some of the existing loan intoequity. The precise amount and timing is yet to be determined and is dependent onexternal factors, such as the European Commission’s ruling on its investigation intothe UK Government’s support of Northern Rock, but is estimated by the companyto be up to £3 billion.

Special liquidity scheme

1.18 During 2008, markets for many securities have been closed and banks had ontheir balance sheets an ‘overhang’ of these assets, which they cannot sell or pledgeas security to raise funds. The financial position of banks has been stretched bythis overhang so they have been reluctant to make new loans, even to each other.In April 2008, the Bank of England announced the Special Liquidity Scheme. Underthe Scheme, banks can, for a period, swap illiquid assets of sufficiently high quality2 forTreasury Bills. Responsibility for losses on their loans, however, stays with the banks.The take-up so far has seen more than £100 billion of assets swapped.

1.19 The Treasury has indemnified the Bank of England should they incur losses afterany surplus is deducted. This is disclosed in the 2007-08 Resource Accounts as a PostBalance Sheet Event. To keep the risk with the private sector, banks will need, at alltimes, to provide the Bank of England with assets of significantly greater value than theTreasury Bills they have received. If the value of those assets were to fall, the banks wouldneed to provide more assets, or return some of the Treasury Bills. And if their assetspledged as security were to be down-rated, the banks would need to replace them withalternative highly-rated assets.

2 Banks are able to swap a range of high-quality assets, including AAA-rated securities backed by UK and Europeanresidential mortgages.



Investments

1.20 For a variety of historic reasons and to facilitate delivering its aims and objectives,the Treasury holds the following investments (see Figure 7).

1.21 The investments in the Bank of England, the Royal Mint and Northern Rock havethe most significant effect upon the Treasury’s Accounts. The investment in the Bank ofEngland is based upon a calculation of net assets which fluctuate as the Bank’s assetsand liabilities are revaluated. The large size of the investment in the context of the restof the balance sheet (excluding the Northern Rock investment which was newlyrecognised in 2008, the Bank of England investment represents 90 per cent of totalassets) means that a relatively small change in the valuation has significant implicationsfor the Treasury’s Accounts.

1.22 The Bank of England pays a dividend (£81 million in 2007-08) equal to fifty per centof net profits. The Royal Mint also paid a dividend in 2007-08 of £3,940k, the first sinceits return to profitability in 2006-07.

NAO work

1.23 HM Treasury’s Resource Accounts for the year ended 31 March 2008 received anunqualified audit opinion from the Comptroller and Auditor General.

1.24 Our recent value for money audit reports (see Figure 8) have highlighted thechallenges faced by the Treasury focusing on efficiency, measurement againstPublic Service Agreements, and the effectiveness of departments’ management offinancial resources.

Figure 7Investments

Entity Balancesheet value at31 March 2008

£’000

Valuation method

Northern Rock Refinancing of Loan 19,300,000 Estimated value at date of novation

Bank of England 2,293,000 Net asset value based on published accounts

Partnerships UK Loan Stock 15,594 Public dividend stock held at nominal value

Partnerships UK Shares 7,865 Net asset value based on published accounts

Royal Mint 5,500 Public dividend stock held at nominal value

OGCbuying.solutions PublicDividend Capital

350 Public dividend stock held at nominal value

Northern Rock Shares – At cost (pending independent valuation)




Figure 8Relevant Value for Money studies published since 1 January 2007

Title HC Number Date Theme Key findings

The EfficiencyProgramme: Asecond review ofprogress

HC 156 I & II

2006-2007

8 February 2007 Improvingefficiencymeasures

Halfway into the three-year efficiency programme, governmentdepartments have reported £13.3 billion in annual efficiencysavings, 62 per cent of the £21.5 billion target. But departments’progress towards achieving their individual targets varies,indicating that some departments still have a lot more to deliverthan others.

Progress ranges from the Home Office and the Department forWork and Pensions reporting the achievement of more than90 per cent of their efficiency targets by September 2006 to theDepartment for Education and Skills reporting only 28 per centof its target.

The ShareholderExecutive andPublic SectorBusinesses

HC 255

2006-2007

28 February 2007 Government’sperformanceas ownerof publicbusinesses

The Shareholder Executive has improved government’sperformance as owner of public businesses and is alreadyproducing some real financial gains for the public sector.But increasing the Executive’s powers, such as expanding itsremit to cover all public sector businesses and giving it greaterindependence, could enhance its future effectiveness.

Fourth ValidationCompendiumReport

HC 22 (I & II)

2007-2008

19 December 2007 Measurementofachievementagainst PublicServiceAgreements.

Government departments have improved the quality of the datasystems used to report progress against their Public ServiceAgreements. But we found that, although half of the datasystems needed no further work, over a third, though broadlyappropriate, needed strengthening and some 15 per cent werenot fit for purpose or not fully established.

The Treasury’s own performance is set out in Part 4.

Managingfinancialresources todeliver betterpublic services

HC 240

2007-2008

20 February 2008 Effectivenessof financialresourcesmanagement

With Treasury guidance and support, Departments areproducing better information about their financial performance.However, at the time of our report, six departments, accountingfor over £45 billion (eight per cent) of total central governmentexpenditure, did not have a professionally qualified FinanceDirector on their main Board, despite the Treasury requirementthat they do so by December 2006. Only 40 per cent ofdepartments invariably provide decision-makers with a fullanalysis of the financial implications of policy proposals.Financial management matters are not automatically included inthe performance assessment criteria of Permanent Secretariesand other Senior Civil Servants. And, not a single PermanentSecretary holds a professional finance qualification.

Source: www.nao.org.uk



1.25 The NAO is planning to publish a value for money report in 2009 that examines theactions taken by the Treasury in respect of its support of Northern Rock and whether theyhave protected taxpayers’ interests.

1.26 On 29 September 2008, the Chancellor announced the transfer of Bradford andBingley plc into public ownership and on 8 October 2008, he announced a series ofmeasures aimed at strengthening UK banks and stabilising financial markets. We willcontinue to monitor developments and consider with the Treasury the accountingimplications of these events on the Treasury’s Accounts.

HM Treasury’s performance against efficiency targets

1.27 The Treasury’s efficiency targets were set as part of the public sector wide changeprogramme that have their origin in the 2004 Gershon Independent Review of efficiencywhich was a key part of the 2004 Spending Review. For all of Government, the targetwas set at £21.48 billion of annual savings by 2008 and the reallocation and reduction incivil service headcount. In December 2007, the Treasury announced that £23.18 billion ofcross-Government efficiency savings were achieved.

1.28 HM Treasury were initially set an efficiency target of £17.7 million of sustainableannual savings by 2008, but this target was subsequently raised to £18.7 million ofsustainable annual savings. To achieve this, the Treasury set targets for each of theconstituent elements of the Treasury Group. On 31 March 2008, the Treasury reported£25.5 million of savings, £22.7 million of which were cash releasing (Figure 9).

Figure 9Performance against efficiency targets(in £ millions)

2007-08Target

2007-08Results

Of whichcashable

Core Treasury 10.9 14.6 14.6

OGC 3.5 3.5 2.0

OGCbs 1.8 2.2 1.1

DMO 1.0 1.0 1.0

GSS 1.5 4.2 4.0

Total 18.7 25.5 22.7

Source: HM Treasury Annual Report 2008

NOTE1 For efficiency targets, Treasury Group is split into: Core

Treasury, the Office of Government Commerce (OGC),OGCbuying.solutions (OGCbs) and Group SharedServices (GSS).


Performance of HM Treasury 2007-08 Part Two 17

Part Two

Governance

2.1 The Treasury Board takes strategic decisions on matters pertaining to the TreasuryGroup (Figure 10). During 2007-08, the Board had twelve members, nine executiveand three non-executive members and met formally ten times (for further details ofmembership see HM Treasury Annual Report 2008). The Board undergoes an annualself-assessment.

2.2 All the bodies listed overleaf received unqualified audit opinions in their most recentAccounts (2007 or 2007-08). PwC’s audit certificate for Northern Rock plc contained amatter of emphasis paragraph drawing the users’ attention to the issue of going concern.PwC’s independent review of Northern Rock’s interim condensed financial results for thesix months ending 30 June 2008 was also unqualified, but with an emphasis of matterparagraph focusing on going concern.

2.3 The Board is supported by the Group Executive Committee which acted as a formalprogramme board for the department’s 2007 CSR programme. There are also foursub-committees:

● The Group Operations Committee which is accountable for operational issues;

● The Group Finance Committee which monitors monthly financial information andadvises the Board on major decisions including resource allocation;

● The Group Resource Audit Committee supports the Permanent Secretary and theTreasury Additional Accounting Officers in their responsibilities for managing risk,internal control and governance; and

● The Exchequer Funds Audit Committee which supports the Accounting Officersin their responsibilities relating to the following financial statements also producedby the Treasury of the DMO: the Debt Management Account, Public Works LoanBoard, Commissioners for the Reduction of the National Debt, the ExchangeEqualisation Account, the National Loans Fund, the Consolidated Fund and theContingencies Fund.

2.4 On 6 August 2008, the Treasury announced the appointment to the Board ofthree new non-executive directors to replace the outgoing non-executive members:Dame Deirdre Hutton CBE, Sir Callum McCarthy and Michael O’Higgins.


18 Part Two Performance of HM Treasury 2007-08

Arms-length bodies

2.5 Governance arrangements with the majority of the Treasury’s investments aredesigned to ensure the body operates at an arms length from the Department. For mostof the entities involved, the Treasury will have input into the appointment or selection of keymanagement within the organisation and will usually set key targets. The individual entity will

Figure 10HM Treasury Group and arms-length bodies

Name Type of Body 2007-08Auditor

Financial indicator

HM Treasury (consolidated to include theOffice of Government Commerce and theDebt Management Office)

Ministerial Department C&AG Gross expenditure2007-08 £345.3 million

Government Actuary’s Department Non-ministerial Department C&AG Gross expenditure£10.8 million

Office for National Statistics (ONS has beensubsumed into the UK Statistics Authorityfrom 1 April 2008 and is now part of theCabinet Office)

Executive office of theUK Statistics Authority

C&AG Office for National Statistics grossexpenditure for year to 31 March 2008£219 million

The Royal Mint A Trading Fund and anExecutive Agency of HMT

C&AG Profit for year to 31 March 2008£7.2 million

National Savings & Investment A state owned savings bank,a government departmentand an Executive Agency ofHM Treasury

C&AG Gross liabilities of product account as at31 March 2008 was £84,800 million

Debt Management Account An Executive agency of HMTreasury

C&AG Gross assets£95,400 million

Exchange Equalisation Accounts Holds reserves of gold,foreign currency assets andInternational Monetary FundSpecial Drawing Rights

C&AG Gross assets 31 March 2008£32,400 million

The Bank of England State owned bank - CentralBank of the UK

KPMG Net assets as at 29 February 2008£2,300 million

Northern Rock State owned Bank PwC Loss for the year to 31 December 2007£199 million

OGCbuying.solutions A trading fund and anExecutive Agency of OGC

C&AG Surplus for the year to 31 March 2008£5.2 million

Partnerships UK A public limited company,public private partnership

PwC Loss for year to 31 March 2008£1.1 million

Pool Re and Pool Re (Nuclear) Mutual Insurer PwC Pool Re: profit for the year to31 December 2006 £358.7 millionPool Re (Nuclear): profit for the year to31 December 2006 £2.7 million

Source: www.hm-treasury.gov.uk and bodies’ websites


Performance of HM Treasury 2007-08 Part Two 19

usually have sufficient autonomy to run the day-to-day business of the organisation beyondthis. The notable exception is Northern Rock where the Treasury has more numerous andspecific powers that limit the autonomy of Northern Rock’s management team.

2.6 The Bank of England is led by the Court of Directors and a Committee ofNon-executive Directors. The Court members are Crown appointed on a recommendationfrom the Prime Minister as advised by the Chancellor. The Treasury’s role in the Bank’sresponsibilities are limited and clearly defined and are mainly relating to Monetary Policywhere the Treasury sets the target only and financial stability where, together with theFinancial Services Authority, the Treasury and the Bank form the Tripartite Authorities.The Tripartite Authorities are responsible for financial stability in the UK.

2.7 Similar powers of appointment can be found in the arrangements with Pool Re andPool Re (Nuclear), where the Treasury has responsibility for appointing one Director to theBoard of each organisation. The Treasury is both shareholder and customer for the RoyalMint. The shareholder responsibilities are delegated to the Shareholder Executive, withthe Exchequer Secretary setting performance and financial targets for the Mint.

2.8 When Northern Rock was taken into temporary public ownership on22 February 2008, a Framework Document was agreed between the company and theTreasury that sets out the shareholder relationship. As shareholder, the Treasury:

● appoints the Chairman of the Northern Rock Board and two Non-ExecutiveDirectors in consultation with the Chairman;

● approves its consent for the appointment of other members of the Northern RockBoard proposed to be appointed by the Northern Rock Nominations Committeeand agrees the terms on which the Directors are appointed and incentivised;

● determines the high level objectives that the business plan is designed to achieveand agrees the plan with the Northern Rock Board;

● must agree any subsequent updates to the business plan;

● reviews with the Northern Rock Board from time to time the Company’sstrategic options;

● requires that the Northern Rock Board is accountable to it for delivering the agreedbusiness plan;

● gives the Northern Rock Board the freedom to take the actions necessary to deliverthe business plan;

● monitors the Company’s performance to satisfy itself that the business plan is ontrack; and

● must give its consent for certain significant actions.


20 Part Three Performance of HM Treasury 2007-08

Part Three

The Cabinet Office review ofHM Treasury’s capability

Capability Review Findings

3.1 In autumn 2007, HM Treasury underwent a Capability Review as part of aGovernment wide initiative led by the Cabinet Office. The aim of the Review was toassess the Department’s ability to meet current and future challenges, and identify keyareas where the Department needs to improve.

Delivery challenges

3.2 Overall, the Treasury had performed well against its current delivery challenges.The Review found that:

● the Department was on track to achieve seven of its ten PSA targets and has madegood progress since 2004 against the remaining three;

● the Treasury Group had achieved, and in some cases was on course to exceed, itsGershon efficiency saving, relocation and headcount reduction targets; and

● the Department had overseen a period of sustained economic growth and deliveredsome key structural changes to improve delivery.

Future delivery challenges

3.3 The Review highlighted the recent disruption and instability in global financialmarkets as a challenge HM Treasury will have to manage in the near future. The Treasuryfaces the immediate concern of maintaining confidence in the financial markets, andneeds to be able to identify potential risks and have the resilience to cope with them.

3.4 The Treasury are also responsible for driving continuous improvement in publicservices. Alongside this the HM Treasury needs to mitigate fiscal risks by maintaining taxsustainability, monitoring economic performance working in partnership with the Bank ofEngland to ensure national economic stability.

3.5 HM Treasury must also utilise its position at the centre of government to enable otherdepartments to deliver. The Cabinet Office and HM Treasury will need, increasingly, to workeffectively together to ensure that, through effective control of finances and transformationsof the Civil Service, departments are able to perform with greater value for money.


Performance of HM Treasury 2007-08 Part Three 21

3.6 The Department is also facing a challenging 5 per cent reduction in its ownbudget in real terms each year from 2007-08 to 2010-11. This will be achieved throughreorganisation of its estate and headcount savings.

Assessment of capability for future delivery

3.7 The Treasury’s capability was assessed against ten key headings under thecategories of Leadership, Delivery and Strategy (L, D and S in Figure 11). The reviewfound the Department to be ‘strong’ or ‘well placed’ in four out of the ten headings, andthat it had significant weaknesses in the remaining six. (Figure 11)

Key issues identified by the Review

Key areas for action

3.8 HM Treasury has many strengths and a clear vision for the future, based on itsfindings, nevertheless, the Capability Review identified four key areas for action, to ensurecapable delivery in the future.

● To work more effectively to change the culture behaviours and diversity ofthe Department and secure skills needed to meet future challenges. TheDepartment needs to develop a much clearer approach to recruitment and retentionin order to improve diversity and experience of staff. Treasury also needs to addressconcerns regarding a need for greater inclusiveness and humility in its dealings withothers, and also tackle the perceptions about fair career progression.

Source: Capability Review of HM Treasury, December 2007

Figure 11HM Treasury’s Capability Review

Urgent Development Area

Strong

Serious Concerns

Well Placed Development Area

Build Capacity

Management performance

Base choices on evidence

Set Direction

Focus Outcomes

Plan, resource and prioritise

Ignite passionand drive

Build common purpose

Develop clear roles, responsibilitiesand delivery models

Take responsibility for leadingdelivery and change

S3 S2

L1

S1

D1

L2L3

D2

D3

L4



Figure 12Key issues identified by the Cabinet Office’s Capability Review

Criteria Positive performance Areas for improvement

Leadership ● The Department’s senior leadershipteam has a clear understanding of itsfuture challenges and a strong visionfor the future.

● The Department attracts high-calibre,talented and motivated people whodemonstrate pride and excellence intheir work.

● The Department is working to improvethe skills, expertise and overallprofessionalism of its workforce.

● The Board and Executive ManagementGroup (EMG) have underestimated thedrive, stamina and commitment neededto change the culture, behaviours anddiversity of the Department and to securethe skills needed for the future.

● The Department is not driving changewith sufficient passion and pace.

Strategy ● The Department has strongpolicy, analytical and forecastingcapability, which informs theGovernment’s financial and economicpolicies effectively.

● HMT has played a leading role indeveloping a new framework formanaging the Government’s priorities.

● The Department is inconsistent in itsapproach to stakeholder engagementand building common purpose to achievebetter outcomes.

Delivery ● Improvements are being made tobusiness planning and performancemanagement across theTreasury Group.

● The Department has successfullystrengthened financial managementcapabilities in-house andacross government.

● There is more to do to improve theinternal operating framework to ensureeffective delivery.

● The Department needs to clarify rolesand responsibilities to support deliveryacross government.

Source: Capability Review of HM Treasury, December 2007

● Engage and communicate more effectively with stakeholders and othergovernment departments to build common purpose. Building on the strengthsof the Treasury’s internal communications and press office, the Department needsto take a clearer and more formal approach to communicating with the stakeholdersand management. Using the strengths of its internal communications system andpress office, the Department also needs to develop a more modern and openapproach to public relations.

● Clarify the Department’s role at the centre of government to improveperformance management and support delivery across the Civil Service.The Review advised that the Department needs to be clearer about how it willuse its position in central government and the new PSA framework to improveother government departments’ delivery. Treasury needs to ensure that adequateprocesses and systems are in place and well managed to improve the consistencyof other areas within the Department.


Performance of HM Treasury 2007-08 Part Three 23

● Focus on the role of leadership in driving change with pace in a newoperational framework. The Department need to clarify the roles of the Board andthe Executive Management Group, and communicate them better to staff to givethem greater understanding of the Department’s leadership.

Department’s response to the Review

3.9 The Department responded to the findings of the review by setting out that it would:

● Set targets relating to developing their culture and skills resources to be reviewedin three, six and twelve months, to ensure the diversity of the workforce reflects thesociety it serves;

● Within six months, implement a coordinated stakeholder strategy across theDepartment, and conduct annual surveys of stakeholder opinion, committing itselfto address any issues raised in the surveys;

● The Department already has work underway to clarify the respective roles of HMTwhich will be continuously reviewed over the next twelve months; and

● Implementing several programmes to manage change in the Department moreeffectively, and to improve senior leadership.

3.10 Following the publication of the capability review, the Treasury established a programmeto bring together all corporate change work in the department under five key themes:

● Workforce, skills and culture. Ensuring that the Treasury has the people, skills andexperience it needs to deliver its Vision for 2011 and its Strategic Objectives andthat our people both reflect the society we serve and exemplify the Treasury values.

● External relations and stakeholders. Achieving a Treasury which is respected byits stakeholders, whose staff demonstrate the Treasury values in their dealings withall external stakeholders, supported by a more strategic, proactive approach tostakeholder engagement.

● Our role at the centre. Achieving strong and coordinated centre of government,with the Treasury and Cabinet Office working collaboratively on their sharedresponsibilities, strengthening the way that the centre performance managesother government departments, develops strategy and builds capacity acrossgovernment, to support better delivery and minimise burdens on both the centreand other government departments.



● Leadership, strategy and corporate governance. Ensuring that the Treasury issupported by leaders who exemplify the Treasury values, and provide the highestquality policy and corporate leadership, reinforced through a fit-for-purpose andrespected corporate governance framework that provides the right strategicdirection for and management of the Department.

● Business processes and systems. Ensuring that the Department has the bestpossible infrastructure to enable the Treasury to manage itself well and supportTreasury staff in doing their jobs efficiently, effectively and sustainably.

The programme will run for three years alongside the Department’s delivery objectives for2008-09 to 2010-11.

3.11 The Department has been through two stock takes with the Cabinet Office onits progress against the capability review recommendations, most recently a 6-monthstock take in July 2008. This found that there was “much to commend the Treasury in itsapproach to tackling the issues arising from its Capability Review”.

NAO work

3.12 The NAO is planning to publish a value for money report in early 2009 thatfocuses on how departments generally are responding to the challenge of capabilityreviews. It will consider how departments are implementing their action plans, the helpdepartments are able to secure from the Cabinet Office and other organisations at thecentre of government, and the impact of changes on departments’ capability to meetdelivery challenges.


Performance of HM Treasury 2007-08 Part Four 25

Part Four

Performance against PSA Targets

HM Treasury’s aim

4.1 PSAs were introduced by the Government as part of the 1998 ComprehensiveSpending Review, setting ambitious goals for key service improvements across the wholeof government; they represent an agreement between the Government and the public.

4.2 Under the 2004 Spending Review (SR2004), which ran from the period 2005-06to 2007-08, HM Treasury’s stated aim was to raise the rate of sustainable growthand achieve rising prosperity and better quality of life with economic and employmentopportunities for all. To support this aim, the Treasury had ten PSAs for the 2004Spending Review, a number of which were owned jointly with other departments.

Performance against PSAs in 2007-08

4.3. The Department reports on its progress against its PSA targets in the Annual Report2008. Figure 13 overleaf compares the Treasury’s reported performance for 2008 to itsreported performance for 2007.

Data Quality

4.4. Good quality data are crucial if performance measures and targets are to beused effectively to improve public sector delivery and accountability. Good data helpDepartments to: improve programme management and performance; assess whetherthey need to revise policies and programmes; allocate resources and make other policydecisions; and report reliably to the public and Parliament on their achievements.

4.5 The Treasury had two main roles in relation to data quality:

● Delivering and reporting against PSAs where HMT is the lead; and

● Agreeing all the PSAs as part of Spending Reviews and therefore having someoverall responsibility for data quality.


26 Part Four Performance of HM Treasury 2007-08

Delivering and reporting against Treasury Objectives

4.6 During the period November 2005 to March 2006, the NAO carried out a fullscale examination of the data systems for the Treasury’s SR2004 PSAs and this wasupdated in June 2007 (Fourth Validation Compendium Report, HC 22 2007-08).Overall, we found that the Treasury were maintaining an effective set of data systems.Our recommendations were to keep technical notes up to date and to improveDepartmental reporting. The ratings for each data system are listed in Figure 14.

Data Quality in Spending Reviews

4.7 As noted in the Compendium Report, the Treasury had the role of developing andagreeing the PSAs under SR04. At the end of SR04 we found that only 50 per cent ofthe data systems used to measure performance against PSAs were fully fit for purpose.Over a third, though broadly appropriate, needed strengthening and some 15 per centwere not fit for purpose or not fully established.

Figure 13Summary of HM Treasury’s reported progress against SR2004 PSAs

Target June 2008 Progress June 2007 Progress

PSA1: Trend rate growth On course On course

PSA2: Inflation Met-ongoing Met-ongoing

PSA3: Sound public finances On course On course

PSA4: Productivity growth (partnered withDepartment of Trade and Industry)

On course On course

PSA5: Employment (partnered with Department forWork and Pensions)

On course On course

PSA6: Regional Growth (partnered with Office ofthe Deputy Prime Minister and the Department ofTrade and Industry)

Slippage On course

PSA7: Child poverty (partnered with Department forWork and Pensions)

Slippage Not assessed

PSA8(i): Global Economy On course On course

PSA8(ii)a: HIPCs (partnered with Department forInternational Development)

On course On course

PSA8(ii)b: MDGs (partnered with Department forInternational Development)

Met Slippage in parts

PSA8(iii): Lisbon goals Slippage Slippage

PSA9(i): Improved public services Slippage On course

PSA9(ii): Efficiency Ahead On course

PSA10: Procurement Savings Met early On course

Source: HM Treasury Annual Report 2008 and HM Treasury Annual Report and Accounts 2006-07 (HC518)



Figure 14Data systems

1 Demonstrate by 2008 progress on the Government’s long-termobjective of raising the trend rate of growth over the economic cycleat least meeting the Budget 2004 projection.

Fit for purpose

2 Inflation to be kept at the target as specified in the remit sent by theChancellor of the Exchequer to the Governor of the Bank of England(currently 2% CPI).

Fit for purpose

3 Over the economic cycle, maintain: public sector net debt below40% of GDP; and the current budget in balance or in surplus.

Fit for purpose

4 Demonstrate further progress by 2008 on the Government’s longterm objective of raising the rate of UK productivity growth over theeconomic cycle, improving competitiveness and narrowing the gapwith our major industrial competitors.

Fit for purpose

5 As part of the wider objective of full employment in every region, overthe three years to spring 2008, and taking account of the economiccycle, demonstrate progress on increasing the employment rate.(Joint with the Department for Work and Pensions.)

Fit for purpose

6 Make sustainable improvements in the economic performanceof all English regions by 2008, and over the long term reduce thepersistent gap in growth rates between the regions, demonstratingprogress by 2006. (Joint with the Department for Communities andLocal Government and the Department of Trade and Industry.)

Broadly appropriate,but disclosureneeds strengthening

7 Halve the number of children in relative low-income householdsbetween 1998-99 and 2010-11, on the way to eradicating childpoverty by 2020. (Joint with the Department for Work and Pensions.)

Fit for purpose

8(i) Promote increased global prosperity and social justice by:

● Working to increase the number of countries successfullyparticipating in the global economy on the basis of a system ofinternationally agreed and monitored codes and standards.


8(ii) ● Ensuring that 90% of all eligible Heavily Indebted Poor Countries(HIPC) committed to poverty reduction that have reachedDecision Point by end 2005, receive irrevocable debt relief byend 2008 and that international partners are working effectivelywith poor countries to make progress towards the UN2015Millennium Development Goals. (Joint with the Department forInternational Development.)

Fit for purpose

8(iii) ● Working with our European Union partners to achieve structuralreform in Europe demonstrating progress toward the LisbonGoals by 2008.

Fit for purpose

9(i) Improve public services by working with departments to helpthem meet:

● their PSA targets consistently with the fiscal rules (joint with theCabinet Office); and


9(ii) ● efficiency targets amounting to £20 billion a year by 2007-08,consistently with the fiscal rules.


10 Deliver a further £3 billion of savings by 2007-08 in central governmentcivil procurement through improvements in the success rate ofprogrammes and projects and through other commercial initiatives.

Fit for purpose

Source: National Audit Office analysis June 2007



4.8 The Treasury did implement changes to the development of new PSAs underthe 2007 Comprehensive Spending Review. For example, in developing CSR2007submissions the Treasury required departments to map delivery strategies and explainhow levers, risk management and incentive structures throughout the delivery chainsupport achievement of the PSA outcome. The Treasury arranged for initial plans andproposals to be challenged by a panel of internal and external stakeholders, increasingthe range of expertise brought to bear on the pursuit of outcomes and making it morelikely that plans are effective and well thought through. The most significant change inpursuit of data quality was the requirement for a named Data Quality Officer for eachindicator with ultimate responsibility for data systems quality.

CSR 2007 PSAs

4.9 2007-08 was the final year of the Government’s 2004 Spending Review (SR04)period. The 2007 CSR covers departmental allocations for 2008-09, 2009-10 and2010-11. SR04 included over one hundred PSAs with Treasury being responsible for thedelivery of ten of these, a number jointly with other government departments. For CSR07,the number of PSAs across Government was streamlined, focusing on the highest priorityoutcomes. This has resulted in a reduced set of 30 PSAs.

4.10 The new PSAs are specifically ‘cross-governmental’ in nature. Each PSA has a‘lead’ department, which is responsible for driving and coordinating delivery, with anumber of departments named as ‘delivery partners’. Treasury will only be leading onone of the new 2007 CSR PSAs, PSA9 (Figure 15), which aims to reduce Child Poverty.Treasury group will be a partner department in delivering a further six PSAs.



Figure 15HM Treasury PSAs

PSA Lead Department

PSA1 Raise the productivity of the UK economy Department for Business, Enterpriseand Regulatory Reform

PSA6 Deliver the conditions for business success in the UK Department for Business, Enterpriseand Regulatory Reform

PSA7 Improve the economic performance of all English regionsand reduce the gap in economic growth rates between regions

Department for Business, Enterpriseand Regulatory Reform

PSA8 Maximise employment opportunity for all Department for Work and Pensions

PSA9 Halve the number of children in poverty by 2010-11,on the way to eradicating child poverty by 2020

HM Treasury

PSA27 Lead the global effort to avoid dangerous climate change Department for the Environment,Food and Rural Affairs

PSA29 Reduce poverty in poorer countries through quickerprogress towards the Millennium Development Goals

Department for InternationalDevelopment


Figure 16PSA 9: Halve the number of children in poverty by 2010-11, on the way toeradicating child poverty by 2020.

This target is measured by:

● The number of children in absolute low-income households;

● The number of children in relative low-income households; and

● The number of children in relative low-income households and in material deprivation.

Each of these indicators is measured using data provided by DWP; the data system was previously ratedby the NAO as ‘Fit for Purpose’.

Source: www.hm-treasury.gov.uk and Fourth Validation Compendium Report, HC22 2007-08



Departmental Strategic Objectives

4.11 The Treasury has set itself two internal Departmental Strategic Objectives (DSOs) forthe CRS2007 period. Delivery against these DSOs will enable the Department to fulfil itscommitments to the new PSAs. They are:

● DSO 1: Maintaining Sound Public Finances; and

● DSO 2: Ensuring high and sustainable levels of economic growth, well-being andproperity for all.

4.12 Figure 17 shows a comparison of HM Treasury’s deliverables SR2004 to CSR2007.Appendix One shows SR2004 Treasury Group PSAs and objectives and maps these tothe Treasury Group’s CSR2007 strategic objectives.

Figure 17Comparison of HM Treasury’s deliverables SR2004 to CSR2007

SR2004 CSR2007

● Treasury group was responsible for 10 out of over100 government wide PSA’s.

● Treasury group had 8 of its own objectives around which thePSA’s fitted.

● Treasury group will lead on PSA 9.

● Treasury group is the partnerorganisation for a furthersix government PSA’s.

● Treasury group hastwo broad objectives with14 constituent parts.

● Delivery against the TreasuryGroup’s DSOs will enable it to fulfilits commitments to the PSA’s forwhich it is a partner organisation.

Source: HM Treasury Annual Report 2008


Performance of HM Treasury 2007-08 Appendix One 31

Appendix One

SR2004 PSAs CSR2007 DSOs CSR2007 PSAs

PSA 1. Demonstrate by 2008progress on the Government’slong-term objective of raisingthe trend rate of growth over theeconomic cycle by at least meetingthe Budget 2004 projection.

Objective I: Maintain a stablemacroeconomic environment withlow inflation and sound publicfinances in accordance with theCode for Fiscal Stability.

PSA 2. Inflation to be kept at thetarget as specified in the remit sentby the Chancellor of the Exchequer tothe Governor of the Bank of England(currently two per cent as measuredby the 12-month increase in theConsumer Prices Index).

PSA 3. Over the economiccycle, maintain:

● public sector net debt below40 per cent of GDP; and

● the current budget in balanceor surplus.

DSO 2a) Supporting low inflationInflation to be kept at the target asspecified in the remit sent by theChancellor of the Exchequer to theGovernor of the Bank of England(currently two per cent as measuredby the 12-month increase in theConsumer Prices Index).

DSO 1a) Meeting the fiscal rules

Over the economic cycle, maintain:

(i) The current budget in balance orsurplus – the golden rule;

and

(ii) Public sector net debt below 40per cent of GDP – the sustainableinvestment rule.


32 Appendix One Performance of HM Treasury 2007-08


Objective II: Increase theproductivity of the economy andexpand economic and employmentopportunities for all.

PSA 4. Demonstrate further progressby 2008 on the Government’slong term objective of raising therate of UK productivity growthover the economic cycle,improving competitiveness andnarrowing the gap with our majorindustrial competitors.

PSA 5. As part of the wider objectiveof full employment in every regionover the three years to spring2008 and taking account of theeconomic cycle demonstrate progresson increasing the employment rate.

PSA 6. Make sustainableimprovements in the economicperformance of all English regions by2008, and over the long term reducethe persistent gap in growth ratesbetween the regions, demonstratingprogress by 2006.

DSO 2f. ) Raising productivitywith sustainable improvementsin the economic performanceof all English regions includingnarrowing the gap in growthrates between the best and worstperforming regions.

DSO 2c.) Improving the incentivesand means to work; supportingchildren and pensioners; andhelping people plan and save forthe future

Increase in the employment rate ofthe working age population;

DSO 2f. ) Raising productivitywith sustainable improvementsin the economic performanceof all English regions includingnarrowing the gap in growthrates between the best and worstperforming regions.

PSA1 Raise the productivity of theUK economy

PSA7 Improve the economicperformance of all English regions andreduce the gap in economic growthrates between regions.

PSA8 Maximise employmentopportunity for all.




Objective III: Promote efficient,stable and fair financial markets,for their users and the economy.

DSO 2e). Supporting fair, stable andEfficient financial markets

DSO 2c.) Improving the incentivesand means to work; supportingchildren and pensioners; andhelping people plan and save forthe future

Increase in the employment rate ofthe working age population; and

Number of children in relative low-income households (less than 60% ofmedian income before housing costs).

PSA8 Maximise employmentopportunity for all

PSA9 Halve the number of childrenin poverty by 2010-11, on the way toeradicating child poverty by 2020.

Objective IV: Promote a fair efficientand integrated tax and benefitsystem with incentives to worksave and invest.

PSA 7. Halve the number of childrenin relative low-income householdsbetween 1998-99 and 2010-11, onthe way to eradicating child povertyby 2020. Joint with the Departmentfor Work and Pensions.

(The Government will also set a targetas part of the next Spending Reviewto halve by 2010-11 the numbers ofchildren suffering a combination ofmaterial deprivation and relative lowincome. The target will be met if thereis an equivalent proportional reductionto that required on relative low incomebetween 2004-05 and 2010-11.)

DSO 2b.) Promoting the efficiencyand Fairness of the tax system.


34 Appendix One Performance of HM Treasury 2007-08


Objective V: Promote UK economicprospects by pursuing increasedproductivity and efficiency in theEU, international financial stabilityand increased global prosperity,especially protecting themost vulnerable.

PSA 8. Promote increased globalprosperity and social justice by:

● working to increase the numberof countries successfullyparticipating in the globaleconomy on the basis of a systemof internationally agreed andmonitored codes and standards;

● ensuring that 90 per cent of alleligible Heavily Indebted PoorCountries committed to povertyreduction that have reachedDecision Point by the end2005, receive irrevocable debtrelief by the end 2008 and thatinternational partners are workingeffectively with poor countriesto make progress towards theUnited Nations 2015 MillenniumDevelopment Goals.

Joint with the Department forInternational Development

● working with our European Unionpartners to achieve structuralreform in Europe, demonstratingprogress towards the LisbonGoals by 2008.

DSO 2h). Pursuing increasedproductivity and efficiency in theEU, international financial stabilityand increased global prosperity

A stable, efficient and representativeinternational financial system wellequipped to promote prosperity, andto prevent and respond to crises;progress towards the MillenniumDevelopment goals (as set out in theGovernment’s International PovertyReduction PSA); and

A more outward looking, flexible andcompetitive European Union thatenables Member States to maximiseopportunity, prosperity and fairness.

PSA29 Reduce poverty inpoorer countries through quickerprogress towards the MillenniumDevelopment Goals.




Objective VI: Improve the qualityand the cost-effectiveness ofpublic services.

PSA 9. Improve public services byworking with departments to helpthem meet their:

● PSA targets, joint with theCabinet Office; and

● efficiency targets amounting to£20 billion a year by 2007-08,consistently with the fiscal rules.

PSA 10. Deliver a further £3 billionsaving by 2007-08 in centralgovernment civil procurement,through improvements in the successrate of programmes and projects andthrough other commercial initiatives.

DSO 2d.) Improving the qualityand value for money of publicservices Progress in delivering onPSA commitments.

DSO 1d) Professionalizingand modernising the financeand procurement functionsin government

Efficiency: Savings from take up ofcollaborative opportunities and otherprocurement activity.

Effectiveness: improvements in thedelivery performance of government’sProcurement capability and capacity.

Objective VII: Achieve world-classstandards of financial managementin government.

DSO 1c) Managing public spending

Differences between:

(i) Treasury compiled forecasts ofPublic Sector Current Expenditure(PSCE) and Public Sector NetInvestment (PSNI) at Budget; and

(ii) actual outturns as at the End ofYear Fiscal Report.

Objective VIII: Protect andimprove the environment byusing instruments that will deliverefficient and sustainable outcomesthrough evidence-based policies.

DSO 2g). Protecting theenvironment in an economicallyefficient and sustainable way.

DSO 1e) Managing governmentcash, debt and reserves efficientlyand effectively

All operational activities carried outwithout major error; and appropriatelimits and monitoring systems tocontrol financial risks are in place.

DSO 1b) Ensuring that the taxyield is sustainable and risks aremanaged over the economic cycle.


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