HM Treasury Departmental Report

Rt Hon Gordon Brown MP, Chancellor of the Exchequer, presents the Departmental Report 2006

The Treasury, the United Kingdom’s economics and finance ministry, is responsible for formulating and implementing the Government’s financial and economic policy.

Its aim is to raise the rate of sustainable growth, and achieve rising prosperity and a better quality of life, with economic and employment opportunities for all.

In order to achieve this aim, the Treasury has eight objectives, set under the 2004 Spending Review (SR2004). These are listed below, and can be broadly categorised under four main headings:

Maintaining Stability at Home and Overseas

Objective I: Maintain a stable macroeconomic environment with low inflation and sound public finances in line with the Code for Fiscal Stability.
Objective V: Promote UK economic prospects by pursuing increased productivity and efficiency in the EU, international financial stability and increased global prosperity, especially protecting the most vulnerable.

Raising Trend Growth

Objective II: Increase the productivity of the economy and expend economic and employment opportunities for all (part I of Objective II).
Objective III: Promote efficient, stable and fair financial markets for their users and the economy.

Promoting Fairness and Opportunity for All

Objective II: Increase the productivity of the economy and expand economic and employment opportunities for all (part 2 of Objective II).
Objective IV: Promote a fair, efficient and integrated tax and benefit system with incentives to work, save and invest.
Objective VIII: Protect and improve the environment by using instruments that will deliver efficient and sustainable outcomes with evidence-based policies.

Delivering High Quality Public Services

Objective VI: Improve the quality and cost effectiveness of the public services.
Objective VII: Achieve world-class standards of financial management in the Government. Contributions to performance against these objectives are made from across the Treasury Group including UK Debt Management Office (DMO) mainly to Objectives I and VI, and the Office of Government and Commerce (OGC) to Objective VI.

Achievements in 2005-06

The Treasury has ten PSA targets that were set under SR2004. Two of these targets have a number of parts (target 8 and target 9). Currently the Treasury is on course to meet seven targets fully, two targets are not yet assessed as the data is not available and one target shows slippage on two of its four elements. The main achievements in the delivery of the Treasury’s objectives in 2005-06 have been as follows:

Maintaining Stability at Home and Overseas

The UK macroeconomic framework has continued to deliver domestic stability, and has ensured that volatility in the UK economy is at historically low levels and is now the lowest in the G7. UK Gross Domestic Product (GDP) has expanded for 55 consecutive quarters, illustrating the resilience of the UK economy.
Inflation has remained close to the target of two per cent and market expectations for the next ten years predict inflation will remain close to target in the future.
Public sector net debt is projected to remain below 40 per cent of GDP in every year of the economic cycle. Therefore, the Government meets its sustainable investment rule, while continuing to borrow to fund increases in long-term capital investments in public services. The current budget shows an average surplus as a percentage of GDP over the current economic cycle ensuring Government is meeting the golden rule.

The UK Presidency of the G8 led a package of measures to tackle poverty worldwide. These included:

Agreement by European Union (EU) Finance Ministers to reach the longstanding United Nations (UN) target to spend 0.7 per cent of national income on aid by 2015. This means by 2010, the aid from the EU will double from $40 billion a year to over $80 billion;
Endorsement of the Multilateral Debt Relief Initiative, which will lead to the cancellation of 100 per cent of outstanding obligations of Heavily Indebted Poor Countries (HIPC) to the International Monetary Fund (IMF), World Bank and African Development Bank. For non-HIPCs, the UK will finance its share of the 100 per cent multilateral debt service relief; and
The launch of the International Finance Facility for Immunisation.

Raising Trend Growth

The UK continues to make real progress on closing the productivity gap with its key competitors - the UK is the only member of the G7 not to have experienced and increase in its productivity gap with the US since 1997. The gap with France has halved over the same period, the gap has closed with Germany and the UK is leading Japan by around 11 percentage points.
During 2005-06, the Treasury has taken a number of steps to maintain the momentum on productivity, including launching a package of reforms on Budget 2006 to boost inward investment; further reforms to reduce the regulatory burden on business; further promotion of science, innovation and skills, and establishing a new International Business Advisory Council to advise Government on the challenges of globalisation.
At a UK regional level, progress on narrowing the gap in growth rates between the regions continues to be encouraging - partly due to strong employment growth in the north.
Against the current world backdrop, ensuring the right frameworks are in place to respond to financial crises and major operational disruption is vital, and the Treasury Group has continued to develop these as part of the tripartite authority with the Bank of England and the Financial Services Authority. Alongside this, the Treasury has maintained its focus on disrupting the financing of terrorism.

The UK presidencies of the EU and the G7 in 2005 enabled the Treasury to make substantial progress in a number of financial services issues, including:

The European Commission’s White Paper on Financial Services Policy 2005- 2010, which strongly reflects UK policy priorities of better regulation and enforcing / implementing legislation already agreed, and has a high level of support in the Council;
The declaration on future priorities for the EU-US financial markets dialogue, which reaffirmed both sides’ commitment to minimising the regulatory barriers and ensuring that transatlantic markets can work as efficiently as possible.

Promoting Fairness and Opportunity for All

The labour market has performed strongly in recent years - particularly in those regions and groups which were previously considered to be most disadvantaged. Chapter Four of Budget 2006 sets out the direction for reform of labour market support and benefits policy that builds on this strong performance.
The Treasury remains committed to supporting the youngest and oldest members of society. The number of children living in poverty was reduced by 0.7 million between 1998-99 and 2004- 05, Budget 2006 announced a number of measures to help further families with children, including a commitment to uprate the child element of the Child Tax Credit at least in line with earnings until the end of the Parliament. Further measures have also been announced to help pensioners heat their homes and travel freely on off-peak buses. Between 1996-97 and 2004-05 over one million pensioner households were lifted out of relative low income poverty and 2.1 million pensioner households were lifted out of absolute low income poverty.
Continuing the Government’s commitment to promote sustainable development and the protection of the environment. Budget 2006 announced measures to support energy efficiency in all sectors of the economy - these included reforms to Vehicle Excise Duty to further incentivise consumers to buy cleaner greener cars.

Delivering High Quality Public Services

The Government will be conducting a second Comprehensive Spending Review (CSR) in 2007, assessing what further investments and reforms are needed to equip the UK to respond to the global challenges of the decade ahead. Budget 2006 announced early spending settlements for the Home Office, the Department for Work and Pensions, HM Revenue and Customs, HM Treasury Group and the Cabinet Office, which embed ongoing efficiency savings into their medium-term expenditure plans and lay the foundations for a CSR focused on meeting these global challenges.

The Treasury has made significant progress on the Financial Management change agenda, including:

The publication in July 2005 of the Corporate Governance Code for Central Government departments;
The completion of a programme of 45 reviews of the effectiveness of financial management in departments, and agreement in each case to action plans for improvement; and
A substantial increase in the numbers of departmental Finance Directors who are professionally qualified (60 per cent at the end of March 2006).
The Treasury continues to work with the Prime Minister’s Delivery Unit and the Office of Government Commerce to support departments in providing better and more efficient public services, including through releasing efficiency gains to the front-line. Budget 2006 announced that departments and local authorities had reported provisional annual efficiency gains totalling £6.4 billion by the end of December 2005. The Budget also announced 40,400 gross workforce reductions, including 7,150 reallocations to the frontline and 6,600 out of London and the south east.

Managing Ourselves

The Treasury, in common with the rest of Government, is focused on working more effectively and efficiently. In this context, a major corporate priority is increasing professionalism. Even as overall staffing levels have fallen, the number of professionally trained economists in the Treasury has risen from 60 to 140 in the past 25 years. Around 20 per cent of policy staff are professional economists, increasing to 30 per cent of all Senior Civil Service staff.

The Government Social Research Unit transferred from the Cabinet Office to the Treasury in March 2006, meaning that for the first time the professional units for the economics and social research are located together. The department is also implementing the civil service wide Professional Skills for Government agenda, to ensure it possesses the necessary skills and experience required by a high performing finance and economics ministry.

The Treasury’s aim is not only to deliver its objectives, but deliver them in the most efficient and effective manner, supported by the Treasury group’s efficiency plans, set in SR2004. Significant progress has been made towards achieving the efficiency targets for 2008, with £8 million having been saved by January 2006.

Current initiatives underway to review the Treasury’s workforce strategy and knowledge management aim to ensure the department can effectively harness more depth and breadth of experience within its workforce, and support that workforce by ensuring it has the right information systems in place to manage corporate knowledge.

In addition, the 2007 Comprehensive Spending Review settlement for the Treasury Group, announced in Budget 2006, will build further on the savings already achieved. The Treasury Group is already putting in place plans to implement this settlement - including undertaking a number of reviews of its policy activities and corporate overheads, the results of which will enable it to identify opportunities for efficiencies and rationalisation. The Treasury Group is also continuing to explore the potential to share corporate services across the group to provide further savings.

Challenges and Priorities for 2006-07

The Treasury has identified five key policy priorities for the next 12 months:

Maintaining sound public finances;
Maintaining stable tax revenues - both through effective delivery and through improved co-ordinated policy making;
Ensuring the tools and expertise are in place to drive a more effective and efficient allocation of public money;
Promoting domestic productivity in the context of international trade and competition, developing the existing productivity agenda yet further and linking it to key challenges from growing economies such as China and India; and
Addressing poverty domestically and internationally - ensuring that the G8 debt deal sticks and that the Government continues to deliver on its domestic commitments on child poverty.

To achieve these priorities, the Treasury will need to focus on professionalism in delivery and working flexibly, effectively and efficiently, including in collaboration with our key stakeholders.