28 May 2004
Chancellor Gordon Brown might still need to raise taxes to avoid breaking his 'golden rule' on public spending over the current economic cycle, despite a temporary boost to Whitehall's finances in the wake of rising oil prices.
Leading figures at the Institute for Fiscal Studies continue to express concerns over the rate of Whitehall spending – and that of the wider public sector – because, they claim, the Treasury is perhaps banking too heavily on rising tax revenues.
Brown's golden rule requires that public sector spending be met entirely out of tax receipts over the course of an economic cycle.
The latest financial figures, published by the Office for National Statistics on May 21, show that the chancellor's prediction of rising tax receipts to fund spending boosts in key sectors materialised during April.
Total tax revenues for April were £34.5bn, compared with £33.2bn for the same month in 2003, setting the Treasury on course to meet its target of tax receipts for the new financial year – questioned by many commentators.
However, much of the increase came from VAT and other tax revenues from oil price hikes, amid concerns over global supplies.
Christine Frayne, senior research economist at the IFS, said it was too early in the new financial year to extrapolate trends across the public sector, but warned that the chancellor should exercise caution.
'Concerns about the ability of the public finances to comply with the golden rule over the next economic cycle without further tax increases or further reductions in the planned growth in public spending remain. While the recent increases in oil prices will boost revenues, this is expected to be a largely temporary rather than a permanent increase,' she said.
The government continued to spend more than it received in April, with total 'outgoings' in excess of £35.2bn, leaving total net borrowing at £1.4bn.
Moreover, the public sector current budget was in deficit by £0.9bn – some £1.3bn higher than in April 2003, which showed a surplus of £0.4bn.
Whitehall sources said the 'tight' financial conditions surrounding Brown's spending plans would place extra pressure on departmental managers to identify 'genuinely achievable' savings to free resources for frontline services.
PA Consulting wins contract for ID card scheme
Home Secretary David Blunkett has announced the private sector partner that will develop the government's controversial identity card scheme.
Blunkett revealed on May 24 that the PA Consulting Group would help determine the best way of designing and implementing the initiative.
PA has previously worked with the Ministry of Defence on 'technology transfer' projects and was a partner in the £200m contract to upgrade the Welsh Assembly's civil service IT structures. It will work on the design, feasibility testing, business case and procurement elements of the programme to introduce the cards, which will, among other things, identify people entitled to claim benefits and those who qualify for NHS care.
Approaches were made to a number of companies who have agreements with the Office of Government Commerce to provide management and business consultancy across Whitehall.
The project, framed in the draft Identity Cards Bill published last month, could be introduced as early as 2007. But it has come under fire from human rights groups and libertarians, and support for Blunkett's proposals is reported to have split the Cabinet.
However, Whitehall mandarins have backed the plan. Sources at the Department for Work and Pensions told Public Finance that managers now see the cards as an effective solution to rising fraud levels.
Blunkett said: 'This is an ambitious, long-term project, which will be introduced incrementally over a number of years. We are determined to get it right, and bringing in expertise from outside government at this early stage will help us do that.'
Slowdown reported in replies to queries
The speed with which Whitehall departments responded to questions from MPs and peers slowed over the course of 2003, but some key departments improved against strict targets.
Statistics released by Cabinet Office minister Douglas Alexander on May 20 show that where comparable data exists, 26 out of 55 departments and government agencies were slower to respond than they had been throughout 2002.
Five bodies showed no change against targets set for replying to correspondence, while 24 improved during the year.
The UK visas office failed to deal with a huge rise in correspondence. Enquiries rose by more than 6,000 during 2003. It set a target response time of 15 days, but response rates fell from 98% to 86% over the year.
Other poor performers included the Prison Service, the UK Passport Office and the Ministry of Defence, although the latter also dealt with a rise in enquiries, many relating to the government's role in the Iraq conflict.
But some key departments fared better. The Department of Health improved its response rate (against a target of 20 days) from 29% in 2002 to 54% last year.