This is the fourth report from the Treasury Committee (HCP 385, session 2010-11, ISBN 9780215554796), and looks at the Office for Budget Responsibility. The Office was established by the Chancellor of the Exchequer and given responsibility, as an independent body, for the Government's budget forecast. The Committee sets out a number of recommendations for the body to succeed in its' independent role, including: a) establishment of the OBR as an institution with its own legal personality; b) a requirement on the OBR to act transparently, objectively, and independently; c) a clear remit and set of core tasks; d) a requirement that the responsible select committee should have a veto over appointment or dismissal of the Chair; e) provision for a small group of non-executive directors to support the Budget Responsibility Committee; f) a requirement that government officials support the OBR when it is preparing forecasts; g) a requirement that the OBR has a right of access to the information it needs. The legislation establishing the OBR should not require future governments to use OBR forecasts. The Committee further states that a great deal will depend on matters which cannot be provided for directly in statute, in particular the calibre of the members of the Budgetary Responsibility Committee and of the non-executive directors. For the OBR to succeed, it is vital that it commands confidence across party boundaries and that the OBR's work should lead to greater public understanding of the purpose and limitations of the forecasting process, and realistic expectations of what it can deliver.
This report considers the OBR's forecasts published 29 November 2010. The scope is the same as C&AG's previous examination looking at the forecasts that the interim OBR undertook for the Budget on 22 June 2010. The scope of these assessments differs from requests by previous Chancellors which asked the C&AG to examine the reasonableness and caution underpinning projections of the public finances. The remit of this work does not include any review of the forecast itself or of specific underpinning assumptions.
Royal assent, 13 March 2014. An Act to authorise the use of resources for the years ending with 31 March 2008, 31 March 2009, 31 March 2010, 31 March 2011, 31 March 2012, 31 March 2013, 31 March 2014 and 31 March 2015; to authorise the issue of sums out of the Consolidated Fund for the years ending with 31 March 2013, 31 March 2014 and 31 March 2015; and to appropriate the supply authorised by this Act for the years ending with 31 March 2008, 31 March 2009, 31 March 2010, 31 March 2011, 31 March 2012, 31 March 2013 and 31 March 2014
This report examines the risks and rewards for private equity investors in government private finance projects. The Private Finance Initiative (PFI) model has been used by governments in some 700 projects over the last 20 years but defects, including failures to demonstrate the value for money case satisfactorily, the use of long inflexible contracts and the costly contracting process, and inefficient pricing of equity have made continuing with the current model unsustainable. The Treasury is currently reviewing the PFI model. It needs to improve flexibility in the way that private finance is used, establishing quicker and more efficient procurement procedures and achieving a better balance between investors' risks and their rewards. Private finance should only be used where it secures real value for money for the taxpayer, not because of definitional statistical incentives to get projects off the balance sheet (only some 20% of long term PFI liabilities are recorded as debt in the national accounts). Business cases must be an unbiased and transparent assessment of the best form of procurement for the particular project being undertaken, taking account of expected tax receipts from alternative options and not adjusting assumptions to bias the outcome of the assessment. The Treasury needs to collect data on investors' experiences and use this information to assess and challenge investors' returns. There needs to be greater transparency over the pricing of contracts, and inefficiencies which add to the cost of private deals, such as long procurement times, need to be addressed.
Malawi is one of the poorest countries in the world. The Department for International Development provided £312 million to Malawi between 2003-04 and 2007-08, rising to a planned £80 million for 2010-11. The Department has contributed to progress in Malawi's development in areas such as reducing hunger and substantially improving the capacity in the health system. And its programme complies with many internationally-agreed good practices. But the Department needs better measures to assess its contribution, and evidence of the value for money of its spending in Malawi is hard to find. Much of the Department's programme is routed through the Government of Malawi's systems. The Department funds governance and scrutiny processes, but these are not yet fit for purpose. The Department needs to do more to strengthen governance in Malawi if it is to continue support through Government systems.The report found that to improve the programmes it funds the Department is limited by weaknesses in the information it has on their implementation and results, and is not helped by a weak set of targets for its own performance. There are opportunities for the Department to drive improved value for money from the services it helps to fund in Malawi through quicker and more robust responding to emerging issues and results.The Department has also faced the challenge of disbursing steeply rising amounts of aid with fewer staff to oversee it, as a result of cuts in its administration budget set by the Treasury. The Department has cut staff numbers in Malawi, and the Committee questions whether current staffing is sufficient.
This report examines the progress on repaying taxpayer support and maintenance of financial stability following action taken in the 2007 crisis in the financial markets. Action included nationalisation, the purchase of a large number of shares in RBS and Lloyds, establishing sector-wide schemes to guarantee banks' debt-funding and protect their assets, and indemnifying the Bank of England against losses for providing temporary liquidity. The level of explicit support has gone down from nearly £1 trillion to £512 billion, and estimates of the size of the implicit subsidy vary - from as high as £100 billion to just below £10 billion in 2009 alone. The explicit subsidy includes the fees paid by banks for their use of the Credit Guarantee Scheme which, to date, have been at least £1 billion less than the benefit received by the banks. These subsidies enable private gains to be made at the expense of public risk, and some of these gains have been used to pay bonuses to staff and dividends to shareholders, rather than enhancing the financial sustainability of the sector. This causes the Committee and the wider public much concern. For the taxpayer to obtain value for money from exiting from the support depends heavily on a successful sale of the shares in RBS and Lloyds. The government shareholding is far greater than in previous share sales and will require extraordinarily careful handling to protect the taxpayers' interest. Regulatory and political uncertainty over the banking sector will remain until the Government has responded to the recommendations from the Independent Commission on Banking.
The Government needs strong budgetary systems to be able to control and manage public spending and to provide high quality public services that offer value for money to the taxpayer. The 2010 Spending Review set a four-year spending total for each department and focused on reducing public spending and delivering the coalition Government's programme. The Treasury managed the Spending Review by collating bids from departments and challenging submissions. The process built on the experience of previous CSRs and was better managed, however concerns remain. Departments and the Treasury failed to take a longer term view on spending, making cuts in those budgets that were easiest to cut. For instance, whilst Treasury improved assessment processes to be able to rank capital projects, the overall level of capital investment was cut. Resource expenditure as a whole will increase in nominal terms, albeit at a much slower rate. There were gaps in data which made it difficult to compare options or benchmark spending proposals. There were no incentives for departments to collaborate on cross-government issues. There was no evidence of clear thinking on how one decision to save money in one budget area might lead to an increase in expenditure elsewhere. Decisions on where to spend or cut rest with Ministers and cannot be divorced from the political process. But these decisions need to be informed by rational analysis. Officials must do more to provide Ministers with reliable and comparable information to help them weigh up the effect of different spending options
The 2008 credit crisis had an enormous impact on the Government's public infrastructure programme. Severe restrictions on bank lending at that time meant no sizeable Private Finance Initiative (PFI) contracts could be let. This affected the viability of a large number of infrastructure projects, including school and road building schemes, with a total investment value of over £13 billion. The Treasury's response was to make project finance available by lending public money on the same terms as the banks. However the Treasury did not put pressure on government-supported banks to either make lending available or reduce the extent of increased financing costs. Overall, bank financing costs increased by 20-33 per cent compared to bank charges before the credit crisis. This added £1 billion to the contract price, payable over 30 years, for the 35 projects financed in 2009. Other alternatives to the high cost bank finance were not properly explored during the credit crisis. Greater use of Treasury loans, or direct grant funding, could have put pressure on banks to lower their charges. Neither did the Treasury adequately explore how lower cost finance sources such as life insurance and pension funds could be encouraged to invest more in PFI projects. The Treasury also could have made more use of funding from the European Investment Bank. The appropriate mix of financing sources for future project contracts, including public and private finance, is an issue that needs serious reconsideration.
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