The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
“The Treasury acts as both the finance ministry and economic ministry. But it appears to neglect its role as finance ministry. Its own accounts are impenetrable and this committee keeps seeing instances of poor decision making by departments, which the Treasury could and should have prevented.
"High staff turnover threatens the Treasury’s ability to respond to crises and manage public spending effectively. While staff turnover fell in 2011-12, it is still very high. Furthermore, the Treasury remains committed to cutting its headcount by a third and there are still very few women at senior levels.
"The support provided to banks in the last crisis helped prevent the banking system from collapse. We are pleased that the Treasury has successfully withdrawn nearly all of the taxpayer guarantees to banks. But the taxpayer still owns some £66 billion of shares in RBS and Lloyds, a sum which is yet to be recovered.
"The Treasury has not convinced us it understands either the risks it has taken on by indemnifying the Bank of England against losses on Quantitative Easing or the expected economic benefits. Some £375 billion has so far been injected into the economy as an ‘experiment’ but the Department could not explain to us what the effect has been on the whole economy or on different parts of society.
"The Treasury’s attempts to stimulate economic growth through new lending have, so far, not been successful. The National Loans Guarantee Scheme achieved just 15 per cent of its intended take-up and has now been superseded by a more generous Bank of England scheme. The Treasury needs to be clear what it wants this Bank of England scheme to achieve, and how it intends to monitor it.
"These measures are characterized by a lack of goals and intended outcomes, with no means of monitoring progress. Throughout, the Treasury seems to be embarking on a series of expensive experiments, indemnified with taxpayers’ money.”
Margaret Hodge was speaking as the Committee published its 27th Report of this Session which, on the basis of evidence from HM Treasury, examined its role and activities, including taxpayer support to the banks.
HM Treasury is the nation’s ministry of finance and economics. From taking evidence on the Treasury’s Annual Report and Accounts for 2011-12, we are pleased to recognise improvements by the Treasury, including reducing its exposure to bank guarantee schemes and making a start on reducing its high rate of staff turnover.
However, we found the detail of the accounts to be impenetrable, which is of particular concern when the Treasury should be a leading proponent of clarity in financial reporting.
The Treasury’s role includes the oversight of economic growth and of the “big ticket” items of public spending that affect the whole nation. It should be able to monitor public spending effectively, so that it can ensure that lessons are properly learnt from past mistakes to improve the efficiency and effectiveness of present and future spending.
To carry out this role, the Treasury needs sufficient capacity and skills. We have already raised concerns about its ability to respond to a future banking crisis, and we are also concerned about the Treasury’s high staff turnover and commitment to further staff reductions. These threaten the Treasury’s ability to effectively control the risks it is managing on behalf of the taxpayer.
The largest component of the Treasury’s 2011-12 accounts is still the government’s support to banks. The C&AG’s Report highlighted that this support has continued to reduce, and the majority of the guarantees have now been successfully removed. However, some £119 billion of cash support remains outstanding, of which £66 billion was spent buying shares in RBS and Lloyds and is yet to be recovered. The market value of these shares had, by 31 March 2012, fallen by £34 billion.
The Treasury’s economics role means it needs to monitor the economic risks and performance of the economy. The difficult economic context has led to the introduction of lending schemes, and to the Treasury indemnifying the Bank of England against losses on Quantitative Easing.
The lending schemes have failed to significantly increase lending, and the Treasury told us that its latest attempt, the National Loans Guarantee Scheme, had effectively been superseded by the, apparently more generous, Funding for Lending Scheme operated by the Bank of England.
The Treasury has limited understanding of its role in these measures. It has not set out its goals and intended outcomes, and it has limited management information to help it monitor progress, giving the impression of a series of expensive experiments indemnified with taxpayer’s money.