This snapshot taken on 07/04/2010, shows web content selected for preservation by The National Archives. External links, forms and search boxes may not work in archived websites.
Spending Review
The following notes set out the technical details of how the PSA for HM Treasury published in '2000 Spending Review: Public Service Agreements 2001-2004' (CM 4808) will be measured.
All targets cover the UK unless otherwise specified. Some targets are measured 'over the economic cycle'. These are assessed as follows:
The economic cycle is defined as the period between two dates when the economy is judged to have been on-trend, or at potential. A full economic cycle includes both a period in which output is above potential, and a period in which it is below potential.
The Treasury's methodology for assessing on-trend points is set out in 'Fiscal policy: public finances and the cycle' HM Treasury, March 1999. The output gap is the difference between the actual level of output and its potential level. Measuring performance ?over the economic cycle? therefore requires comparing the average values of the indicators over the identified cycle with the average over the previous cycle.
Given the closeness to trend throughout 1997 to 1999, possible measurement errors and the prospect of future data revisions, it is difficult to conclude for certain whether the economy has completed a full, albeit short and shallow, economic cycle between the first half of 1997 and mid-1999. For the purposes of the 2000 Pre-Budget Report and the assessment of the performance against the fiscal rules, the provisional judgement remains unchanged from Budget 2000 that a cycle may have been completed by mid-1999 when the current cycle is assumed to begin. Further information can be found in Chapter 2, paragraphs 2.44 to 2.46 of the 2000 Pre-Budget Report.
The document below is available in Adobe Acrobat Portable Document Format (PDF). If you do not have Adobe Acrobat installed on your computer you can download the software free of charge from the Adobe website. For alternative ways to read PDF documents and further information on website accessibility visit the HM Treasury accessibility page.
The following graph depicts the assessed economic cycles from 1986 to 2000
Many of the targets use National Statistics and latest figures can be found on the National Statistics web site. Useful links on the home page include 'Latest Economic Indicators', 'Latest Figures', 'What's New' and 'Bookshelf'.
Target 1: By 2004, to raise the trend rate of growth from the current estimate of 2.5%.
The trend rate of growth is the rate at which the potential output of the economy can grow without putting upward or downward pressure on inflation. Potential output cannot be measured directly. Trend growth is the annual average increase in GDP between points when the economy is estimated to have been at potential or on-trend. Further definitions and how trend growth is calculated are set out in HM Treasury publications 'Fiscal policy: public finances and the cycle', March 1999 and 'Trend Growth: Prospects and implications for policy', November 1999.
Estimates of the trend rate of growth are published by HM Treasury in Pre-Budget Reports and Financial Statement and Budget reports. The current estimate of 2.5% for the recent past was first published in the November 2000 Pre-Budget Report, and an explicit rate of 2.5% was first adopted as the neutral assumption for trend growth over the medium term in the November 1999 Pre-Budget Report. Under current arrangements any change to the trend growth assumption which underpins the fiscal projections would be required to be audited by the National Audit Office.
Target 2: RPIX inflation to be kept at 2.5% as specified in the Bank of England's remit.
RPIX monthly outturn = the retail prices index excluding mortgage interest payments compared to the same month in the previous year. It is a National Statistic. The latest Bank of England remit, issued on 25 May 2000 states that the operational target for monetary policy is an underlying inflation rate of 2.5%. The inflation target is 2.5% at all times.
Target 3: Over the economic cycle, maintain: public sector net debt below 40% of GDP; and the current budget in balance or surplus.
Public sector net debt measures the public sector's gross debt to the private sector and abroad less short-term financial assets such as bank deposits and foreign exchange reserves.
The surplus on the current budget is defined in the National Accounts as net saving (the difference between current receipts and current spending, including depreciation) plus receipts of capital taxes (i.e. inheritance tax). This definition is based on the European System of Accounts 1995 (ESA95). The public sector current balance measure used for this target is based on this ESA95 definition, but excludes windfall tax and associated spending, and is expressed in terms of an average over the economic cycle.
Further details are available on the National Statistics web site.
Figures for net debt and the current surplus are published monthly in a press notice by the Office for National Statistics. Details of the current surplus excluding windfall tax and associated spending are published by HM Treasury in Pre-Budget Reports and Financial Statement and Budget reports.
Target 4: Achieve an improvement in value for money in public services year by year.
Improvements in value for money in public services will be assessed through a scorecard of measures - to be compiled by June 2001 - which will track progress in centrally funded services. The scorecard will include measures which relate service outcomes (quality) to cost. The precise measures to be included are being compiled but value for money measures in departments, Public Service Agreements (PSAs) and Service Delivery Agreement (SDAs) provide a starting point. At least 50% of public services will be covered in the first release of the scorecard, this will be expanded as more information becomes available. The work to compile the scorecard will be completed by June 2001 which will set out the 2000-01 baseline against which future improvements will be reported. The measure will be reported annually. A link to the details of the measure will be provided in this Technical Note when available including information on how the measures in the scorecard are measured and validated.
Work is also ongoing by the Office for National Statistics to produce an index of cost-effectiveness in public services which it may be possible to use as a measure of improvement in value for money. It is intended that the index will use measures of quality-adjusted output of public services, cost weighted to produce a measure covering at least half of public services output.
Target 5. Improve UK competitiveness by narrowing the productivity gap with US, France, Germany, and Japan over the economic cycle. Joint target with DTI.
The productivity gap is calculated by reference to output per worker and output per hour. To close the productivity gap, it is necessary to achieve higher productivity growth over the period in question than the comparator countries.
Output per worker is calculated as GDP divided by total employment.
The methodology for calculating output per hour is set out in Economic Trends 530 'International Comparisons of Productivity and Wage' by Harley and Owen. Estimates of output per hour are less timely for international comparisons, and will come out with a delay for some countries, in particular Japan.
Productivity relative to other countries will be compared considering the factors that affect the transparency of the comparisons, such as differences in the economic cycles of the comparator countries.
The comparative baseline productivity figures are:
| GDP per worker | GDP per hour worked | |
| United Kingdom | 100 | 100 |
| United States | 145 | 125 |
| France | 118 | 121 |
| Germany | 111 | 118 |
| Japan | 99 | 93 |
Target 6: Increase employment over the economic cycle. Target contributes to Welfare to Work PSA.
This target applies to Great Britain. Employment policy is devolved for Northern Ireland.
The target will be measured using seasonally adjusted International Labour Office (ILO) employment levels (the number of people aged 16 and over in employment) in Great Britain. A full explanation of how employment is measured can be found on the National Statistics website
The target will be monitored quarterly by reference to the Labour Force Survey (LFS) quarterly data, a national statistic, using the Spring 2001 figure as a baseline (expected to be published in July 2001). Latest information is available on the National Statistics website. An assessment of progress over the economic cycle will be made in quarterly reports. Trends in the population of working age will be taken into account by reference to the employment rate.
Target 7: Make substantial progress towards eradicating child poverty by reducing the number of children in poverty by at least a quarter by 2004. Joint target with DSS
This target will be monitored by reference to the number of children in low income households by 2004. Low income households are defined as households with income below 60% of median as reported in the annual Households Below Average Income (HBAI) Statistics published by the DSS (available on the DSS web site). HBAI Statistics cover Great Britain. Progress will be reported against the 1998/99 baseline figures and methodology. The baseline is 4.2 million children in low income households after housing costs and 3.1 million before housing costs.
The definition outlined above is one of a suite of indicators used when looking at low incomes. HBAI also looks at the number of children in low income households in both absolute and persistent terms.
Reducing the number of children in low income households by 2004 is just one of the targets the Government has set to ensure it is on track to eradicate child poverty within 20 years. Further targets, including worklessness, quality of housing, education and health are set out in the Government Report 'Opportunity for All - one year on, making a difference'.
Target 8. Increase the number of countries participating in the global economy on the basis of a system of internationally agreed and monitored codes and standards.
The IMF assesses member countries compliance with internationally agreed codes and standards through production of Reports on the Observance of Codes and Standards (ROSCs) and as part of joint IMF / World Bank Financial Sector Assessment Programmes (FSAPs). As of October 2000, 70 ROSC modules in respect of assessments conducted in a mix of 16 different industrial, emerging market and developing countries had been finalised and published. Further information is available on the International Monetary Fund web site
Target 9: Relief of unsustainable debt by 2004 for all heavily-indebted poor countries (HIPC) committed to poverty reduction, building on the internationally agreed target that three quarters of eligible HIPCs reach decision point by the end of 2000. Joint target with DFID
The Heavily Indebted Poor Countries Initiative (HIPC) was launched in 1996, but significantly enhanced in 1999. Countries that are sufficiently indebted, poor, and borrow from the IMF and World Bank on the most concessional terms are potentially eligible for debt relief. A country needs first to reach what is known as a Decision Point where interim debt relief begins to flow (11 have by 25 October 2000) and then reach a Completion Point at which point debt relief is irrevocable (1 country has reached this stage).
To reach Decision Point a country must prepare an Interim-Poverty Reduction Strategy Paper (PRSP), to get to Completion Point they need to have a full PRSP. These documents are drawn up the country, with the participation of civil society, in order to show how debt relief and other resources will be targeted on reducing poverty. The country must also be on track with its IMF programme for which there will be a range of conditions, for example on macroeconomic stability.
The UK stops collecting any debt when a country reaches Decision Point. The debt is owed principally to ECGD, and a smaller amount to DfID who have taken over the loans to HIPC Governments of CDC plc.
Target 10. By 2002-03, deliver £1 billion of savings in Government procurement through the Office of Government Commerce.
This target covers commercial expenditure in civil central Departments, Agencies and Non Departmental Public Bodies in England. Measurement will take place over the financial year. Savings are defined as value for money gains and will be measured through individual Departments negotiating an improved deal with a supplier; aggregating demand across Departments to exert greater leverage on suppliers; reducing process or transaction costs; improving project and contract and asset management. The target is cumulative i.e. the sum of value for money gains during 2000/01 to 2002/03 should total £1bn. Detailed methodological guidance has been issued to Departments by the Office of Government Commerce. It is called 'Value for Money Measurement' and is available on the Office of Government Commerce website
If you have any queries about these notes please contact Julie Davis at HM Treasury.
Back to top
