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The press release issued by HM Treasury on 16 September 1997.

The Government’s approach to public sector pay next year will be firm and fair, the Chief Secretary Alistair Darling emphasised today. He set out the Government’s public sector pay policy in the publication of the annual evidence to the pay review bodies.

He commented:

“We made it clear in our manifesto that we were determined to put the public finances on a firm and sustainable footing and to do that we were committed to sticking to the existing spending totals for the first two years of this Parliament. That means that the pay review bodies must have regard to the affordability of any award, since public sector pay accounts for one third of public spending.

We are not going to repeat the mistakes of the past by conceding pay awards which would undermine Britain’s long-term economic prospects.By taking firm action now we
can build the conditions for long-term economic stability that we all want to see.

Our aim is to pursue a firm and fair approach to public sector pay, recognising the need to retain, recruit and motivate staff, within tough cash limits.”

The written evidence particularly asks the pay review bodies to take into account the following key points:

• pay costs need to be kept within existing spending plans
• review body groups have done well in relation to other
  public sector groups
• the new procedures for the inflation target and monetary policy give greater confidence about future price stability
• and proposes that pay recommendations for the coming year should be low, reflecting good inflation prospects, and consistent with the need for departments to maintain the delivery of services within their budgets.

It also stresses that the extra money allocated to education and health in the Budget was for front line services and not pay increases.

The full evidence is attached.

NOTES TO EDITORS

There is no public spending round this year. Pay costs will need to be contained within existing spending plans. There will be no access to the Reserve to fund spending on pay in excess of those plans.

ECONOMIC CONSIDERATIONS AND PUBLIC SECTOR PAY POLICY

This evidence presents the Government’s policy and expectations on public sector pay and the economic background to the work of the pay review bodies in framing their recommendations for the coming year.

Introduction

2.   The Government’s commitment to keep public spending within the existing departmental plans, will be a key consideration in determining pay in the coming year taking priority over other general pay and price indicators.

3.   The Government recognises that there are competing pressures for the available resources.  Nevertheless, it is necessary to establish the right balance between pay costs and public services for the pay settlements in 1998.

4.   In particular, the Government believes that Pay Review bodies must take account of the fact that Departments will have to be able to afford the pay increases while maintaining the delivery of services within their spending plans. Recommendations should be low for this reason and to reflect the good inflation prospects.

5.   In support of this position the pay review bodies are asked to note that:

• pay pressures generally remain subdued
• pay review body groups have done well in the past by comparison with the rest of the public sector both in recent years and over the longer term
• the inflation target, and the new monetary policy procedures, give greater confidence in future price stability.

Public sector pay

6.   The Government is committed to keep total public spending within the existing overall spending plans and to keep departmental programmes within the specific spending plans announced by the previous Government last November or, for health and education, the plans announced in the July 1997 Budget.  Pay costs will need to be contained within these plans without recourse to the Reserve.

7.   Public sector pay needs to be considered in that context. Specifically,  the Government intends:

• to take a firm and fair approach to public sector pay
• to resist unreasonable public sector pay demands, and
• to take account of the need to retain, recruit and motivate staff
• within the framework of tough cash limits.

8.   In total, the public sector pay bill is just under 90billion Pounds, equivalent to approximately 30 per cent of total public spending.  The breakdown of the total is as follows:

Public sector paybill (1996) broken down by pay settlement groups[1]

9.   For the pay review body groups, the total paybill is more than 30 billion Pounds, equal to a third of the total public sector pay bill. Pay settlements for these groups have significant consequences both directly on the relevant departmental spending plans and, by setting the tone for pay settlements, indirectly in public spending more widely.

Public spending

10.  The Government has embarked on comprehensive reviews of departmental spending plans aimed at the better distribution of available resources.  Meanwhile, and specifically for this year and next, the Government’s commitment is to keep to the overall spending plans announced by the previous Government in their last Budget in November 1996.

11.  This means that there will not be the usual annual public expenditure survey this year.  While Departments have flexibility to adjust the distribution of resources within their spending plans they must keep within the existing totals.

12.  For Health and Education, the totals include the additional allocations from the Reserve and from the proceeds of the windfall tax announced in the Budget in July 1997, but it is important to recognise the purpose of these additions is to spend more on services.  In commenting on the additional resources and the planning process now under way, the Secretary of State for Health stressed the need to make sure to get the maximum value for patients from the money that has been made available.  The Secretary of State for Education and Employment specifically said he expected the School Teachers’ Review Body to take into account the need for restraint in pay
settlements so that the additional money can make a real contribution to raising standards.

Pay settlements and earnings

13.  Settlements have, over the last year, remained very stable by most measures (see Chart).  Settlements data include the following:

• Industrial Relations Services (IRS) report that median whole economy pay settlements for the three months to end July 1997 was at 3 per cent for the 16th consecutive month.  Their annual figures for the 12 months to the end of July show the median increase in settlements for the whole economy was again at 3 per cent.  It has been at this level since October 1996.  The annual median increase in the public sector, which was at 2.9 per cent over April to June fell to 2.5 per cent in July.
• In addition to sustained low levels of settlements, the IRS evidence shows that the upper quartile of the  headline 3-month series for the whole economy has been at or below 3.5 per cent since October 1996.
• Incomes Data Services (IDS) reported in August that just under three in ten settlements from April onwards are  under 3 per cent, just over four in ten are between 3 per cent and 3.5 per cent with the remaining three in ten deals worth over 3.5 per cent.  Around one in five deals are concentrated at 3 per cent.  The top end of the range is heavily dominated by financial sector firms whereas the public sector dominates the bottom end.  Discounting the public sector, the IDS found that the level of private sector settlements was pretty similar in the second quarter of 1997 to that in the first quarter.  In September, IDS reported signs of a pick-up in the level of pay increases being awarded.  But of the new settlements they analysed, over half were for settlements worth under 3.5 per cent.
• Settlements data collected by the Office of Manpower Economics to inform some central pay negotiations show a median of 3.5 per cent for private sector non-manual total pay settlements for the year to 7 June 1997, unchanged from 3.5 per cent in the year to 7 February.
• The latest CBI Pay Databank shows continued stability in manufacturing pay awards which provisionally averaged 3.3 per cent in the three months ending June 1997, slightly up on the 3.2 per cent average for the first quarter ending March but down from 3.5 per cent for the three months ending June 1996.  Service sector pay awards averaged 3.6 per cent in the three months to end June, the same as in the three months to end March.

Average earnings

14.  Average earnings generally increase faster than pay settlements, reflecting the additional costs of other changes. But the same degree of stability is reflected in whole economy average earnings growth, which has been broadly stable for more than four years.  Average earnings growth fell back to 41/4 per cent in May 1997 from 4 3/4 per cent at the end of 1996.  Earnings growth in manufacturing has remained at 4 1/4 per cent-4 1/2 per cent since February 1997.  Average earnings growth remains low by historic standards.

Trends in the 1990s

15.  During the 1990s, pay settlements in the public sector have, with some temporary fluctuations, moved in line with private sector settlements.  Over the seven years to March 1997, IRS median settlements have averaged just over four per cent in both the private sector and the public sector.

16.  There is, however, some disparity between settlements within the public sector.  Senior staff in particular have benefited from settlements significantly above the rest of the public sector.  For the future, the Government’s objective is one of consistency and fairness across all public sector groups and at all levels.

Inflation

17.  The new monetary policy arrangements are expected to establish a new climate of low inflation.  Under the new arrangements the Bank of England has operational responsibility to set interest rates to meet the Government’s inflation target (defined as the 12-month increase in the RPI ex MIPS) of 2.5 per cent. This new monetary framework provides a long-term approach which is transparent, open and accountable.  As a result, long-term interest rates and inflation expectations have already fallen.

18.  The Bank of England’s central projection for underlying inflation 2 years ahead, published in its August inflation report,  is around 2 1/2 per cent. Their forecast has been reduced mainly because of the three 0.25 percentage point interest rate increases seen since June and the fiscal tightening announced in the budget.  The Bank’s short term profile for inflation is for “the twelve month rate to fall below 2 1/2 per cent over the next year or so, but then begin to rise as  growth in the economy picks up.”

19.  The average of the Treasury’s compilation of independent forecasters views on inflation (RPI ex MIPS) published in September is 2.5 per cent for 1997.

20.  Underlying inflation (RPI ex MIPS) rose to 3.0 per cent in July from 2.7 per cent in June, but fell back to 2.8 per cent in August.  The expectations are that it will be successfully contained by the inflation target and the new monetary policy procedures.  In the short term, headline inflation may run above the underlying rate, and has now risen to 3.5 per cent in August.  Nevertheless, in the circumstances, the government maintains that it cannot afford to let the headline rate influence this round of pay settlements when the prospects for the underlying rate are so good.

Pay review body groups

21.  In considering their recommendations, the pay review bodies should take a particularly rigorous approach to  the issue of affordability within existing plans.

22.  Retention and recruitment remain good.  There may be some specific shortages in some areas, but the particular difficulties are not necessarily pay-related.  Generally, the skill shortages that may currently be putting pressure on pay in some parts of the private sector do not seem to be affecting the public sector.  There are no indications that any general across-the-board action on pay is necessary on this account.

23.  The review bodies’ main policy recommendations for April 1997 were accepted but their  introduction was staged for all groups, for the second year running in most cases.  The 1997 recommendations averaged some 3.3 per cent.  This was considered high, and difficult to meet from existing plans without squeezing services.  The settlements were staged by paying 2 per cent from April 1997 and the balance from December 1997.

24.  Staging reduces the initial costs of a pay settlement, but thereafter the recommendations are paid in full.  This creates an increase in pay costs in the second year that must be taken into account in assessing available resources.

25.  When the staging has been completed in December, all groups will be receiving the full amounts recommended for the 1997 pay settlement, averaging 3.3 per cent.  Those groups whose settlement was staged in 1996 will also have similarly received the full increase recommended for that year, averaging some 4 per cent.

26.  For both years, these averages are high in relation to other public sector settlements.  In 1996 most other settlements ranged from below 3 per cent up to around 3 1/2 per cent.  In 1997, public sector settlements have generally been lower in the range 2 1/2 to 3 1/4 per cent.

27.  Similarly, over the longer term, pay settlements for the review body groups have tended to be at the top and of the range of public sector pay settlements.

Conclusion

28.  The Government asks the pay review bodies this year to make recommendations that recognise the need for pay settlements to be affordable within Departments’ existing spending plans, and to give this priority over other considerations.

29.  In addition, pay increases should be low next year so that Departments can afford to maintain the delivery of services.

30.  Recommendations should also reflect the particular circumstances of the remit groups, on a case-by-case basis, addressing specific issues as necessary.

HM TREASURY
September 1997

[1] The three separated segments on the right of the chart cover employees whose pay is determined by the Pay Review Bodies.  The NHS employees covered by RBs are doctors and dentists, nurses, and professions allied to medicine.  Other NHS employees are included in the “Other Public Sector” group.

The press release issued by HM Treasury on 11 September 1997.

The success of the Venture Capital Trust scheme was praised today by Geoffrey Robinson, Paymaster General, in a speech to a Venture Capital seminar in London. He stressed that the Government was keen to work together with VCTs to develop the scheme and make it even better.

He said:

“The Government has made it abundantly clear that it wishes to see an increase in productive investment in industry. I want to congratulate you all on the way you have responded to the Venture Capital Trust scheme. Eighteen VCTs have raised over 360 million Pounds in the first two years of the scheme. Over 50% of funds have been invested in industrial products and services, including some high-tech companies. Over 60% of funds have gone into early stage and expansion investments. This is a good start.

I am sure you will play your part in sharpening the focus of the scheme. We would like to see a concentration of your investment effort on the businesses that are going to help the economy grow. That means identifying sectors of the economy with exceptional growth potential and where small firms can move in and succeed more quickly than larger firms.

This is, of course, only one element in a much wider picture. The Government is committed to the development of a dynamic and successful  economy. But if it is to play its part effectively it needs to be open to ideas from the private sector and particular from those who are at the cutting edge of entrepreneurship and enterprise finance. We have established an Enterprise and Growth Unit in the Treasury, not least to act as a channel for such ideas and to ensure that the Treasury itself is part of the productive partnership we want to develop between the public and private sectors.”

The press release issued by HM Treasury on 11 September 1997.

Chancellor Gordon Brown today launched an advisory group to examine the practical implications of EMU, for business, which will arise whether or not the UK joins the single currency.

Meeting representatives of the UK business community and other interested parties, including the TUC and the Consumers’ Association, at No 11 Downing Street, the Chancellor proposed setting up working parties to look at particular issues and
for these then to report back to the main group.

The Chancellor said:

“The  single currency will have far reaching practical implications for British business whether or not the United Kingdom joins. It is vital that firms are prepared for those implications. A better prepared business sector will be more competitive in the changing economic landscape of Europe.

“The Advisory Group will provide a two way channel of communication between the  Government, large and small firms, employees’ representatives and other interested
bodies. It will allow organisations to discuss how best to meet the challenges and opportunities that the single currency will bring whether or not we join and  identify
areas where the Government might help.

“Working parties examining areas of specific concern will allow us to examine these implications in detail.

“It will allow the Government to represent British interests effectively in the continuing discussions in Brussels about the practical arrangements for EMU.”

Working parties will be set up to consider detailed practical questions, such as:

Preparation lead times for firms : what are the major practical changes that firms would face and how long would it take them to adapt ?

Introduction of euro banknotes and coins: what are the ideal dates for introducing  new notes and coins ?

How does this fit with the legal rules governing the introduction of the euro ?

What timing would suit countries joining later ?

Information technology : what changes are needed and when?

Euro usage if the UK is outside the single currency : outside the financial markets, which business sectors would use the euro and to what extent ?

Pricing arrangements : how would consumer interests be protected without placing unnecessary burdens on business?

Relations with public authorities : how would public authorities – eg tax authorities –  deal with the change?

Business legislation and related issues : does business legislation need changing and are  guidelines needed ?

Information for business and consumers : do businesses and consumers need more information and who should provide it ?

The working parties will begin their work within the next couple of weeks. They will report back to the main advisory group before its next meeting – provisionally scheduled for December. Progress in the working parties and Advisory Group will be made public.

The press release issued by HM Treasury on 11 September 1997.

Some of Britain’s major companies have committed themselves totaking part in the New Deal for the young and long term unemployed, Chancellor Gordon Brown told the Churches’ Enquiry Into Unemployment and the Future of Work today.

Welcoming the companies’ commitment, Gordon Brown said:

” Two months ago I met business representatives to launch  the New Deal for the young and long term unemployed.Today I can report encouraging progress :

•   Allied Domecq expect to offer at least 1000 opportunities
•   Tesco guarantee to interview all New deal applicants for work in their stores
•   Ford will substantially increase training places for unskilled young people
•   Nat West small business advisers will promote the New Deal to clients aiming   to increase their workforce.

” Other companies coming up with ways to support the New Deal include BAA, Radisson Hotel group, Lloyds-TSB, Rover, Dixons, Marks & Spencer, Sainsburys, Unipart, Amersham International, Northern Foods, Grand Metropolitan, GEC, Rover, Jaguar, Peugeot, the Prudential and Tarmac.

” Such progress so soon reflects the commitment of business to tackling the problems of unemployment in Britain as part of the Government’s welfare to work programme. “

The Chancellor also set out progress in developing coaching and mentoring schemes,  opportunities for self employment and the role of churches in the New Deal. He continued :

” David Blunkett and I will shortly set out to recruit up to 50,000 coaches and outside independent mentors to encourage the young in the workplace. All  will be
volunteers, some professionals, others who have already successfully   moved from welfare to work.

” For many young people, self-employment offers another route from welfare to work. We are looking at ways to  help and support them take the first steps towards
running their own business, with training and support from those who have already succeeded.

” The churches’ leadership represents an important  contribution to helping the most disadvantaged. I want us to work together to achieve more, to promote awareness
and debate.

“Each Church and church member can be an ambassador for the New Deal in their own area. You know at first hand the problems in the communities you represent, and you know local employers.

“Talk to them. Ask them how many unemployed they are planning to take on under the New Deal. Challenge them to make use of under-used training facilities.

“Talk to the young unemployed. Help them to raise their  sights, motivate them and help to unlock the potential which each has and which must be fulfilled.

“Most of all, help us to remove the fatalism and cynicism which abounds. Replace it with your energy and inspiration.

 “Together we can achieve what your Report aspires to: to challenge defeatism and complacency in the interests of the most disadvantaged in the community. “

The press release issued by HM Treasury on 30 October 1997.

Now is the time for business to start preparing for a single currency, said Chief Secretary, Alistair Darling this evening.

Speaking to Scottish businessmen in Edinburgh, Mr Darling emphasised the Government’s commitment to working with business:

“We are the first British Government to declare for the principle of monetary union and now is the time for practical preparation.”

In the week in which Chancellor Gordon Brown announced the appointment of  Lord Simon as the Treasury Minister responsible for business preparation for monetary union, Mr Darling urged business to  work with Government so as to give Britain a genuine choice about joining a single currency in the future.

“We will be working with business so that we are prepared for monetary union should we decide to join in the next Parliament.  We have started that work now. And you need to play your part.”

Concluding, Mr Darling said,

“We are determined that the country should now begin to prepare so that, should we meet the economic tests, we can be in a position to decide whether to join a successful single currency early in the next Parliament.  That is why Government and business must prepare intensively during the next five years”.

The press release issued by HM Treasury on 30 October 1997.

Financial Secretary Dawn Primarolo today called on charities to offer their ideas, from the largest and most radical to the smallest and most detailed, to the current Government review into the way they are taxed.

Speaking to the Charities Aid Foundation (CAF) annual conference in London, Ms Primarolo encouraged delegates to make their voices heard before 1 December and influence their future.

“This review is a unique opportunity for Government and charities to work together and take a fresh look at the way charities are taxed. Instigated by the Government in response to complexities with the existing system, the review aims to find a clearer and simpler path to fair tax treatment.

“All suggestions are welcome, not only the creative and radical, but also smaller scale suggestions aimed at making the existing system work better. The responses we have had already range from letters from pensioners who work in their local charity shop concerning VAT zero rating, to detailed discussions and analysis of taxation from charity pressure groups.

“The review will enable charities to influence their own future to produce a more coherent and consistent tax system. I urge all charities to make their voices heard.”

The press release issued by HM Treasury on 28 October 1997.

The Bank of England Bill establishes a new framework which will promote economic stability and give a long-term focus to monetary policy the Chief Secretary, Alistair Darling said today on publication of the Bill.

The main provisions of the Bill are the establishment of the Monetary Policy Committee and the transfer of banking supervision to the Financial Services Authority (FSA).

On the monetary policy provisions, Mr Darling said:

“The Bill introduces important changes to the Bank to ensure that it can act effectively and efficiently in its new role, and to promote a stronger financial system. Its publication marks another milestone in our determination to modernise Britain’s economy and create a modern Bank that can meet the new challenges of the 21st century.

“The new framework will promote economic stability and will give a long-term focus to monetary policy in support of the Government’s objectives for growth and employment.

“Low inflation means greater certainty for investors and savers, reduced costs and improved competitiveness.

“In the long run, price stability is the main contribution monetary policy can make to achieving sustained high growth and employment.”

Mr Darling also said transparency and accountability were important features of the new framework. He said:

“The new framework maximises openness and transparency and ensures that the Bank is fully accountable and that its conduct of monetary policy meets the economic needs of the nation.

“The Bank will conduct policy in an open and transparent manner and will be accountable to Parliament especially through enhanced scrutiny by the Treasury Select Committee.”

On the transfer of banking supervision, the Chief Secretary said:

“This is the first stage of a complete overhaul and modernisation of the supervision and regulation of the financial services sector. It will mean more effective and efficient regulation of financial services.

“The changing market of the 1990s and beyond makes it essential to bring regulation of banking, securities and insurance under one roof. This move will modernise our regulatory structure – creating a new regulator that will command the respect of markets here and throughout the world.”

The press release issued by HM Treasury on 28 October 1997.

The Bill, which establishes the Bank of England Monetary Policy Committee and transfers banking supervision from the Bank of England to the Financial Services Authority was published today.

The Bank of England Bill, gives effect to the policy changes announced by the Chancellor, Gordon Brown on 6 May when he announced a new framework for monetary policy and 20 May when the transfer of banking supervision was announced.

The main provisions are:

• setting out the monetary policy objectives of the Bank: to maintain price stability and, subject to that, to support the Government’s economic policy, including its objectives for growth and employment;
• establishing the Monetary Policy Committee, which will have responsibility within the Bank for formulating monetary policy. The Committee will comprise the Governor, his two deputies and six other members. Two of those members will be the Bank officials responsible for monetary policy analysis and monetary policy operations respectively. The remaining four will be appointed by the Chancellor for their knowledge and experience;
• giving the Bank statutory operational responsibility for  monetary policy. The Treasury will still have reserve powers, in extreme economic circumstances, to direct the Bank with respect to monetary policy, if they are satisfied that this is required in the public interest;
• transferring to the Financial Services Authority the Bank’s functions in relation to the supervision of banks;
• setting in place a new accountability framework for the Bank, based on:
• • statutory duties of the Bank’s Court of Directors, and specific responsibilities for the non-executive Directors;
  • requirements for the Bank’s accounts; and
  • laying the Bank’s annual report before Parliament.
• greater transparency in the Bank’s operations:
• • the Monetary Policy Committee will publish its actions, minutes of its meetings and a quarterly report; and
  • the Court of Directors will review the Monetary Policy Committee’s procedures and make an annual report.
• placing on a statutory basis arrangements for banks, building societies and overseas institutions to place deposits with the Bank in order to fund its operations.

The Government’s intention is that the overall costs to financial institutions in aggregate, under the new arrangements, will be no greater than under the current arrangements, and preferably lower. The Financial Services Authority issued today a consultation document on its fee structure for banking supervision. The Treasury will be issuing soon a consultation document on the statutory cash ratio deposit scheme.

The Bill was given its First Reading in the House of Commons today.

The press release issued by HM Treasury on 28 October 1997.

New Financial Regulator to be called Financial Services Authority

The new financial regulator will be called the Financial Services Authority, Chancellor Gordon Brown announced today at the launch of the new organisation.

The new regulator will take over responsibility for banking supervision from the Bank of England, financial services regulation from the Self-Regulatory Organisations (SROs) and insurance.

Announcing the new name, the Chancellor said:

“The name encompasses what the new regulator is all about. It is clear, straightforward and easy to understand which is exactly the way we want to see the new regulator viewed.

“The Financial Services Authority will bring the regulatory structure closer into line with today’s increasingly integrated financial markets. It will bring more effective and more efficient supervision, giving both firms and customers more confidence in the system.

“It will improve the competitiveness of the financial services sector and create a regulatory regime to meet the challenges of the 21st century.”

The Chancellor announced that statutory objectives would be set as part of the accountability framework for the new regulator. The Chancellor said:

“One of my aims in setting up the new regulator is to improve the arrangements for accountability to Ministers and to Parliament. I believe that statutory objectives can play an important role in achieving this.

“The objectives we set will give the new regulator a clear sense of its priorities. And will provide a benchmark against which the performance of the regulator can be measured. They will form the basis of the regulator’s annual report to me”

The Memorandum of Understanding between HM Treasury, the Bank of England and the Financial Services Authority was also published today. This sets out the framework of cooperation between the three institutions.

Work is currently underway on drafting the legislation to bring the new regulator into being. The draft Bill will form the basis of consultation in the summer of 1998.