» Wednesday, June 17, 2009

Public Spending

Put repeatedly the Prime Minister had incorrectly said at PMQs that capital spending would increase until the Olympics in 2012 and that the Red Book made clear that capital spending would actually halve, the PMS said that the figures in the Red Book did not take into account the 16 billion of asset sales projected in three years from 2011/12, which was also mentioned in the Red Book, page 127, paragraph 6.45, when it said that “following the recommendations of the operational efficiency programme advisors, new incentives and mechanisms would be put in place to realise up to 16 billion of property and other asset sales in the three years from 2011/12, freeing up additional resources on top of capital budgets to fund investment priorities”. The figures the journalist referred to were figures for net investment and therefore they netted off asset sales. So for example, if we sold off 10 billion worth of assets and then spent that money on building 10 billion worth of new schools, then that did not count as an increase in net investment, even though it was clear the 10 billion of extra assets were available for the public to use.

The investment in the Olympics happened in the run up to the Olympics, which was what the Prime Minister had been referring to in PMQs. Capital spending was increasing and some of that was reflecting the increase in capital investments in the run up to the Olympics.

The fundamental point was that you had to take into account the proceeds of asset sales as well. We published a very detailed report at the time of the Budget based on the conclusions of a number of independent reviewers, which set out that on the basis of those reports we believed that there was 16 billion of asset sales potentially available over that period, which the Red Book stated freed up additional resources on top of capital budget to fund investment priorities.

Put that the 16 billion would go nowhere near helping the fall in the projected net capital, the PMS said that the effect on the annual figures would depend on the profile of the asset sales at the time. We were not setting the capital-spending envelope at this point; these were projections. A time would come when it was right to set the envelope for current spending and capital spending, and that would need to take into account a more considered view of asset sales and other factors at the time.

Asked if that meant that the money raised from asset sales would be used to fund additional capital expenditure, the PMS referred people to the Red Book, page 127 where it said that “we would put in place plans to realise up to 16 billion of property and other asset sales in the three years from 2011/12, freeing up additional resources on top of capital budgets to fund investment priorities”. We were not going to set budgets at this point for that period because of the reasons that the Prime Minister and the Chancellor had been making clear.

Asked if the PMS stood by what the Prime Minister said about capital expenditure increasing in the years running up to the 2012 Olympics, the PMS said that the Prime Minister said what he said and the figures were set out in the Red Book; it was clear that expenditure in relation to the Olympics increased in the years prior to 2012.

Asked if the 16 billion worth of assets had already been earmarked, the PMS said that there was a very detailed report on the Treasury’s website, which was on the basis of independent reviewers. There was a review of Government assets by the Chairman of Standard Life and a review of the 360 billion Government property portfolio by Lord Carter where he set out the scope for finding additional sales freeing up resources for new capital spending. The Treasury would need to look at this carefully in the run up to the next spending review but today we were not setting out the detailed plans beyond 2010/2011. There was a huge amount of uncertainty in the global and British economy and therefore, as the Prime Minister and Chancellor had been saying, it would not be the right time to set out our detailed spending plans. We did not yet know our projections for social security payments, but we needed to act now in order to shorten the length and depth of the recession so that the eventual cost of social security and the eventual debt interest would be lower than it otherwise would have been.

Asked what would happen if the value of the assets dropped below 16 billion, the PMS said that that was a hypothetical question; there was a detailed report on the Treasury website by people who had a lot of expertise and experience in these matters, which set out the scope for asset sales of up to 16 billion.

Put that if you subtracted the figure of debt interest and social security benefit real current spending would be down by three per cent, the PMS said that was not right because we had not yet set out our projections for debt interest and social security benefit beyond 2011.

Put that the Prime Minister had said in PMQs that after the Olympics capital expenditure would be less and asset sales would make up for the difference, the PMS said that he was not sure that they were the Prime Minister’s exact words.

Put that the figures did not make sense, the PMS said that it depended on the profile of the asset sales. At the moment we had not set our spending envelope for the period beyond 2010/2011. It was not simply a case of looking at the figures for public sector net investment in the Red Book because those figures netted off asset sales. Nearer the time the Treasury would be able to give a more detailed and considered view of the profile of the asset sales amongst other considerations, and at that point it would set the spending envelope.

Asked if the 16 billion worth of asset sales (four per cent of the Government’s property portfolio) was unused, the PMS said that on the basis of the size of the Government’s property portfolio ( 370 billion), 16 billion could be a conservative estimate, but that was the figure the recognised experts had come to. There was always better scope for use of Government assets.

original source.

Briefing took place at 16:45 | Search for related news

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