Deficit plans challenging, MPs say

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Published: Wednesday 7th January 2015 by The News Editor

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The Government’s plans to cut the deficit further are “very challenging” and the scale of the task should “not be underestimated”, a powerful committee of MPs has warned.

The Commons Public Accounts Committee (PAC) said making further cuts in areas of government spending that were not protected would be “very testing”.

In its report on the whole of Government accounts (WGA), the committee criticised the Treasury for failing to provide sufficient oversight on some areas of public-sector pay and said ministers and officials should provide an assessment of how much money was lost to fraud and error across government.

The MPs also said “off payroll” arrangements, where individuals have their salary paid to a company to avoid income tax, were still used “too often” in the public sector, with the National Audit Office (NAO) identifying 2,214 new arrangements in 2013-14.

The cross-party committee called for the WGA to be used to set out the impact measures to balance the books were having on government finances to help give MPs a better idea of how the policies were working.

The MPs said: “The Government has currently delivered only half of its planned measures to balance public-sector income and expenditure (fiscal consolidation measures).

“The experience in the delivery of consolidation measures to date, where for example the planned increases in tax revenues have not been realised, also show that the Government will face a significant challenge in delivering the next phase of the consolidation.”

The report continued: “The challenge in delivering further fiscal consolidation measures during the next parliament should not be underestimated.

“Under present policies some £250 billion out of over £700 billion public expenditure is protected from spending cuts and tax receipts continue to be well below forecasts.

“This leaves the challenge of identifying and delivering further expenditure cuts as very testing.

“As well as the uncertainty around the levels of tax revenues, the challenge of delivering further savings in public-sector spending is likely to be greater than that experienced so far given the large areas of expenditure that are protected.

“The Government also has existing commitments to meet long-term obligations such as the costs of nuclear decommissioning, where costs continue to increase at a massive rate, and the ability to recover student loans, where estimates of write-offs also continue to grow fast.”

The committee said the Treasury had “not demonstrated sufficient oversight” in ensuring that all parts of the public sector were complying with pay restraint policies.

George Osborne’s department had been “slow in identifying and addressing seemingly excessive pay awards” in the education sector, for roles including university vice chancellors and so-called “super heads”.

The committee’s Labour chairwoman, Margaret Hodge, said the WGA does not currently offer Parliament “real visibility over the delivery and impact of the Government’s deficit reduction plans”.

But the Treasury accused her of making criticisms “not based on the evidence presented and … entirely outside the remit and expertise of the committee”.

Mrs Hodge said: “The Government has made progress in reducing the deficit but the challenges in meeting current and future targets for eliminating the deficit look very challenging.

“The Treasury plans that, by the end of the current Parliament, some £126 billion of consolidation measures will be achieved from a combination of spending cuts – some £100 billion – and increased tax revenues – around £26 billion.

“However, tax revenues have not been increasing as expected and although the spending cuts are being delivered, officials are less clear where the savings have been made.

“The Treasury plans to save some £20 billion from welfare savings, £20 billion from reducing the public-sector workforce, £6 billion from pay restraint and £5 billion from increasing pension contributions from public-sector workers over the spending review period. But the make-up of the remaining savings is not clear.”

Mrs Hodge said “off payroll” arrangements across central government “still occur too often and have yet to be tackled throughout the wider public sector”.

She said: “In 2013-14, there were some 2,214 new ‘off-payroll’ arrangements within central government and, in 27% of cases, departments did not insert clauses into contracts allowing them to seek assurances on individuals’ tax obligations.”

An assessment of total money lost through fraud and error across government is due to be included in the 2014-15 WGA, as requested by the committee.

The Treasury estimated that in 2 013-14 there was some £2 billion of fraud and error in tax credits administered by HMRC, £3.3 billion for benefits and pensions administered by the Department for Work and Pensions and £42 million relating to funds administered by other government departments.

The audited WGA for 2012-13 was published in June last year, combining the financial activities of some 3,800 organisations across the public sector.

It reported n et expenditure for the year of some £179 billion, down from £185 billion the previous year. Net liabilities had risen from £1.3 trillion to £1.6 trillion by March 31 2013.

A Treasury spokeswoman said: “The chair of the PAC’s comments on progress and future policies to reduce the deficit are not based on the evidence presented and are entirely outside the remit and expertise of the committee.

“The OBR has confirmed that this Government is on course to halve the deficit this year.

“The level of transparency under this Government has been unprecedented with the creation of the OBR to independently forecast and report on the public finances.”

Published: Wednesday 7th January 2015 by The News Editor

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