Corporate report

HM Treasury single departmental plan, 2015 to 2020

Published 19 February 2016

This corporate report was withdrawn on 14 December 2017

This has been replaced by another version.

£0.2bn Total Departmental Expenditure Limit (DEL) in financial year 2015 to 2016

This includes £0.2 billion resource DEL and £0.0 billion capital DEL. Source: Spending Review and Autumn Statement 2015

Vision

HM Treasury is the government’s economic and finance ministry, maintaining control over public spending, setting the direction of the UK’s economic policy and working to achieve strong and sustainable economic growth, including through delivering the government’s long-term economic plan.

Objectives

1. Place the public finances on a sustainable footing

Lead minister: The Rt Hon Philip Hammond MP, Chancellor of the Exchequer

Lead official: Dave Ramsden, Director General, Chief Economic Adviser

What HM Treasury is doing

HM Treasury will continue to repair the public finances because without sound public finances there can be no economic security.

In 2010, the deficit was more than 10% of GDP, the highest level in the UK’s peacetime history. The government put in place its long-term economic plan and the deficit is now down by a half as a share of GDP, with national debt falling as a share of GDP.

But there is a lot more to do. At 5% of GDP, the deficit is too high. So the government will finish delivering its long-term economic plan. It will eliminate the deficit in a balanced way that will deliver strong public finances and lower taxes.

That is why, at the 2015 Spending Review, the government chose to prioritise its spending on national security and key public services while investing more for the long term in capital infrastructure. The 2015 Spending Review set out how £4 trillion of government money will be allocated over 5 years, so the government can lower taxes and invest in priorities like the NHS, defence and housing while the country lives within its means.

The government is also introducing a new mandatory National Living Wage. Together, this approach will shift the country from being a high tax, high welfare, low wage economy to a lower tax, lower welfare, higher wage economy.

Key policies include:

• eliminating the deficit this Parliament and running an overall surplus on public sector net borrowing by 2019 to 2020. The Charter for Budget Responsibility enshrines HM Treasury’s mandate to run surpluses in normal times
• reducing public sector net debt as a share of GDP in every year of this Parliament
• cutting income tax by increasing the tax-free Personal Allowance to £12,500 by the end of the Parliament
• increasing the 40% income tax threshold to £50,000 by the end of the Parliament
• introducing a new National Living Wage
• passing a new law so that once the Personal Allowance reaches £12,500 it will automatically rise in line with the National Minimum Wage
• not increasing VAT, National Insurance or Income Tax rates, as set out in the Tax Lock legislation
• taking the family home out of inheritance tax by increasing the effective Inheritance Tax threshold for married couples and civil partners to £1 million, with a new transferable main residence allowance of £175,000 per person, paid for by reducing tax relief on pension contributions for people earning more than £150,000
• supporting first-time buyers who want to work hard, save up for a deposit and buy their own home with a government bonus of up to £3,000
• using the Help to Buy: mortgage guarantee scheme to support households who cannot get a mortgage because of the very large deposits required by lenders following the financial crisis, but who can afford the mortgage repayments
• increasing NHS spending by £10 billion a year in real terms by 2021 for the NHS in England
• raising £5 billion a year by 2019 to 2020 by tackling tax avoidance and aggressive tax planning, evasion and non-compliance, and addressing imbalances in the tax system
• creating a fairer welfare system and reducing welfare spending by £12 billion
• capping overall welfare spending
• reducing immigration by cutting the benefits EU migrants get, to prevent the UK’s welfare system acting as a magnet and create a fairer system for people who work here and play by the rules
• bringing in a Single Tier Pension from April 2016
• ensuring consumers can access the new pensions freedoms in a way that best suits their needs
• continuing to sell the government’s stakes in bailed-out banks and building societies
• ending taxpayer funded six figure payoffs for the best paid public sector workers
• continuing to meet the target of allocating 0.7% of gross national income as official development assistance
• increasing defence spending every year and continue to meet NATO’s target to spend 2% of GDP on defence for the rest of the decade

How HM Treasury is doing

Public sector net borrowing (PSNB) as a percentage of GDP

Public sector net borrowing shows the gap between total spending and revenue raised by the public sector, relative to GDP. Over the last Parliament, the deficit on public sector net borrowing, excluding public sector banks, halved as a share of GDP. It fell from 10.2% in 2009 to 2010 to 4.7% by the end of 2014 to 2015.

(Source: Office for National Statistics and Office for Budget Responsibility)

Public sector net debt (PSND) as a percentage of GDP

Public sector net debt is a measure of how much the public sector owes, relative to GDP. The government’s fiscal mandate is supplemented by a target for PSND as a percentage of GDP to be falling in each year until 2019 to 2020. Public sector net debt continues to fall as a share of GDP across the forecast, reaching 71.3% of GDP by 2020 to 2021.

(Source: Office for Budget Responsibility. Forecast series (2015-16 to 2020-21) is from OBR November 2015 Economic and fiscal outlook and includes Housing Associations)

2. Ensure the stability of the macro-economic environment and financial system, enabling strong, sustainable and balanced growth

Lead minister: The Rt Hon Philip Hammond MP, Chancellor of the Exchequer

Lead official: Charles Roxburgh, Director General, Financial Services and Dave Ramsden, Director General, Chief Economic Adviser

What HM Treasury is doing

Over the last Parliament the country made huge progress in rescuing the economy. Now the task is to rebuild it.

HM Treasury will continue to take action to rebalance and strengthen the macro-economy for the future. This will ensure the economy remains resilient to the build-up of imbalances, both internal and external, and to risks to financial stability. HM Treasury will work to secure the stability of the UK financial sector for the benefit of the economy.

Since the financial crisis, HM Treasury has reformed the regulatory regime. It has established the Financial Policy Committee to oversee and respond to macro-prudential risks. It has also worked to end “too big to fail” by establishing a robust resolution regime, implementing structural reform and working with international partners to raise capital requirements for the most systemically important banks. In the year ahead, HM Treasury will continue to work with the Bank of England, Prudential Regulation Authority and Financial Conduct Authority to monitor and assess risks, prepare to address any as they emerge, and maintain a toolkit for managing them if they crystallise.

HM Treasury will continue to manage the macro-prudential framework, including the Bank of England’s Financial Policy Committee’s remit and tools. The department will deliver effective stewardship of the government’s interests in Royal Bank of Scotland and Lloyds, and work to exit ownership of these banks and the residual assets in Northern Rock and Bradford and Bingley.

The Funding for Lending Scheme (FLS) has played a central role in supporting the economic recovery and improving the credit conditions for households and businesses since its introduction in 2012. As the country moves from recovery to rebuild, the FLS will continue to support improvement in SME credit conditions before coming to a gradual close in 2018. At the same time, the government will continue to support credit unions and challenger banks to make financial services more accessible and inject new competition into the market to ensure good outcomes for consumers.

The government will also use its global influence to ensure that the international financial architecture remains robust and fit for purpose, and ensure that Britain continues to be a major player on the world stage. The government will work with the G20 to support strong, sustainable and balanced global growth. The government will continue to strengthen the UK’s global engagement in line with the UK’s National Security Strategy to create opportunities for British companies, promote UK prosperity and ensure the UK’s economic security.

HM Treasury will work across government to ensure the UK’s counter-terrorist financing policy remains effective to prevent abuse of the UK financial sector. This includes implementing and robustly enforcing financial sanctions. To ensure that financial sanctions are properly implemented and robustly enforced in the UK, and provide an efficient service to the private sector on financial sanctions issues, HM Treasury will establish the Office of Financial Sanctions Implementation by April 2016. HM Treasury will also publish its strategy to combat money laundering.

Key policies include:

• providing the independent Monetary Policy Committee of the Bank of England with a framework that ensures that monetary policy can play its role fully in an effective, accountable and credible manner
• ensuring the UK’s financial services industry is the best regulated in the world
• finishing the process of ring-fencing banks’ high street branches from their investment arms by 2019 at the latest
• keeping the bank levy in place and restricting established banks’ ability to pay less tax by offsetting their profits against past losses
• continuing to have the toughest regime of bonus deferral and claw back of any financial centre
• continuing the Funding for Lending scheme into 2018
• ensuring that new rules target unscrupulous behaviour in the financial services industry
• supporting the government’s renegotiation in Europe to get a better deal for Britain. The government wants to get new protections for Britain to ensure that those countries outside the euro cannot be discriminated against under EU rules – so the economy is kept secure– and to make Europe more competitive, so jobs are created and British families are made more financially secure
• continuing to push for discipline in European spending to ensure that Europe can respond to new priorities while living within its means. This follows the first real terms cut to the EU 7-year budget, secured by the Prime Minister in 2013
• protecting the integrity and stability of the UK financial system and support national security objectives through the effective and proportionate use of financial sanctions, anti-money laundering, counter-terrorism and proliferation finance measures
• review the international country-by-country tax reporting rules and press the case for making this information publicly available on a multilateral basis

How HM Treasury is doing

GDP – latest quarter growth on corresponding quarter of previous year

Change in GDP is the main indicator of economic growth. There are three different approaches to calculating GDP, these are explained by the ONS. At the Autumn Statement 2015 the OBR forecast the UK’s economy to grow by 2.4% in 2016.

CPI inflation

The rate of inflation shows the speed at which the prices of goods and services bought by households rises or falls. CPI inflation was on average 0.0% for 2015. Low inflation has been largely due to falling food and energy prices. (1)

Business investment as a share of GDP

Business investment as a share of GDP indicates the level of internal balance – whether the economy invests in developing productive capacity. On average, this was 9.5% of GDP in 2014. (2)

(1. Source: HMT pocket databank) (2. Source: ONS Business Investment Q3 2015 Revised Results)

3. Increase employment and productivity, and ensure strong growth and competitiveness across all regions of the UK through a comprehensive package of structural reforms

Lead minister: The Rt Hon Philip Hammond MP, Chancellor of the Exchequer

Lead official: Charles Roxburgh, Director General, Financial Services

What HM Treasury is doing

HM Treasury will work across government to create the conditions for continued improvements in the UK’s economic potential, at home and abroad, and to boost UK competitiveness – including through low taxes that support investment and job creation.

Increasing productivity is the key economic challenge today and the route to raising living standards for everyone in the UK. That is why the government has published Fixing the foundations: Creating a more prosperous nation, a fifteen point plan to create the conditions for productivity growth in the UK. This plan outlines the steps the government is taking to encourage further investment in the drivers of productivity growth, including science, education, skills and infrastructure. It also sets out the ways the government is promoting a dynamic economy through reforming planning laws, increasing access to finance, and boosting competition.

As the lead department for financial services, HM Treasury will work to improve outcomes for consumers, ensure high standards of conduct and promote industry growth and competitiveness. The government recognises the importance of the financial services sector to the UK economy in its own right, and that it acts as a crucial enabler to the rest of the economy. HM Treasury will be working to ensure that EU actions and rules create the foundation for a well-regulated, efficient, stable, and competitive financial services industry in the UK and across the EU, as well as safeguarding Britain as a global centre of excellence in finance.

HM Treasury will support a truly national recovery, delivering a ‘devolution revolution’ that balances economic growth across all regions of the UK. By building a Northern Powerhouse, the government will enable the individual cities and towns of the North of England to pool their strengths and maximise their potential. The government is investing in science and technology, transport, digital innovation, culture, and tourism across the regions. The government also knows that money spent closer to the people is often spent more wisely. The ‘devolution revolution’ and establishment of elected mayors will allow key powers to be transferred to local leaders.

HM Treasury will continue to deliver on the government’s commitment to the devolution of unprecedented powers to Scotland, Wales and Northern Ireland. This includes a funding floor for the Welsh government, implementing the Smith Commission report on further devolution to the Scottish Parliament, and support for the Northern Ireland executive with the range of new funding and financial flexibility which formed part of the Stormont House and ‘Fresh Start’ agreements.

Key policies include:

• delivering on the UK’s Productivity Plan
• aiming to achieve full employment, with the highest employment rate in the G7
• bringing in tax-free childcare to support parents back into work
• cutting corporation tax to 19% in 2017, and further to 18% in 2020, whilst taking action, internationally and through a Diverted Profits Tax, to ensure all taxpayers pay the tax that is due
• abolishing jobs tax and employers’ NICs for young apprentices under 25 from April 2016, as well as increasing the Employment Allowance from £1,000 to £3,000 – benefitting up to 500,000 employers
• ensuring the UK has the most competitive tax system in the G20 to incentivise investment and growth
• provide the certainty and stability that businesses need through a new business tax roadmap by April 2016
• setting a new, significantly higher, permanent level for the Annual Investment Allowance
• reviewing business rates so that they properly reflect the structure of the UK’s modern economy, including through legislation to provide clearer billing, better information sharing and a more efficient appeal system
• establishing the Office for Tax Simplification on a permanent basis and expanding its role and capacity
• ensuring the effective implementation of new international tax rules in the UK
• establishing a Shale Wealth fund from up to 10% of shale gas tax revenues. This could be worth up to £1 billion to the north and other communities hosting shale gas developments over the next 25 years
• supporting the creative industries, including through introducing tax reliefs for children’s television and orchestras
• allowing farmers to smooth their profits for tax purposes over five years (rather than the current two)
• safeguarding Britain as a global centre of excellence in finance
• promoting the competitiveness of the UK financial services industry and making sure that the UK remains a highly attractive location for internationally active financial services companies
• ensuring EU actions and rules create the foundation for a well regulated, efficient, stable, and competitive financial services industry in the UK and across the EU
• making the UK the clear global leader in FinTech
• creating a more effective system of financial advice and publicly funded financial guidance to ensure that all consumers have access to good quality, affordable advice when they need it
• continuing to support the credit union movement in making financial services more accessible
• helping challenger banks to inject new competition into the market
• delivering on our National Infrastructure Plan
• investing over £100 billion in the UK’s infrastructure over this Parliament
• creating a Roads Fund by ring fencing Vehicle Excise Duty to create a high and secure level of funding for roads
• introducing an Apprenticeship Levy to fill the gap in high quality vocational training
• delivering the science-capital commitment, investing £6.9 billion in the UK’s research infrastructure up to 2021
• reforming the planning system to support delivery of 400,000 affordable homes
• delivering more bespoke Growth Deals with local councils
• devolving far-reaching powers over economic development, transport and social care to large cities
• building a Northern Powerhouse and back elected metro mayors
• legislating to devolve powers and budgets to Greater Manchester, leading to the creation of a directly elected mayor
• devolving further powers over skills spending and planning to the Mayor of London
• retaining the Barnett Formula as the basis of fair and transparent funding settlements for the Scottish government, Welsh government, and Northern Ireland executive
• providing the Scottish Parliament with one of the most extensive packages of tax and spending powers of any devolved legislature in the world
• introducing a ‘funding floor’ in the level of Welsh relative funding and support the devolution of income tax powers to the Welsh Assembly
• standing ready to complete the devolution of corporation tax powers to the Northern Ireland Assembly, should the N.I. Executive fulfil its commitments on finance, welfare reform and efficiencies in the Stormont House and ‘Fresh Start’ agreements
• ensuring that the principle of English consent can be applied to financial matters such as how spending is distributed within England and to taxation, when the equivalent decisions have been devolved

UK employment rate

This shows the headline measure of progress towards full employment. The UK employment rate (for 16 to 64 year-olds) is at a record high of 74.0%, and we currently have the third highest employment rate (15-64) in the G7 (72.7%) after Germany (74.0%) and Japan (73.6%).

(Source: OECD statistics)

Delivering efficiently in HMT

What HMT is doing

As a department HM Treasury is committed to reducing its operating costs over the Parliament, whilst continuing to improve the efficiency and effectiveness of its services by:

• focussing on the department’s core functions, and continuing to improve processes
• driving improved efficiencies and financial management across government through the Financial Management Reform programme and the creation of the Government Internal Audit Agency
• setting up UK Government Investments Limited, bringing together the Shareholder Executive and UK Financial Investments to increase operational flexibility in the delivery of the government’s asset sale programme
• reducing running costs through back office contract renegotiations, for example, telephony contracts, and by seeking additional income from the use of its building

How HMT is working collaboratively across government

HM Treasury will work collaboratively with Cabinet Office and other government departments to deliver transformational change in key areas, including:

• developing digital solutions that meet common standards set by the Government Digital Service and utilise cross-government platforms such as GOV.UK Verify, GOV.UK Pay or GOV.UK Notify as part of departmental digital services wherever this demonstrates the best value for money solution for government
• continuing to make savings related to HM Treasury’s estate. Since 2010 HM Treasury has made significant savings relating to the estate. This includes halving the net cost of the main building through renting out space to other departments as part of a Whitehall wide strategy seeking best overall value for money for the Exchequer. HM Treasury will continue to rent out the building to these departments and will seek to improve efficient use of the building through renting out parts of it for commercial use outside of office hours
• delivering savings in the department’s commercial relationships including through spend on common goods and services, delivered in partnership with Crown Commercial Services. Continuing to build the department’s commercial capability and working with Crown Commercial Services to deliver the government’s commitment to 33% of spend with SMEs by 2020
• working in partnership with: the Cabinet Office to deliver arm’s length body (ALB) plans; Infrastructure and Projects Authority on major projects programmes and prioritisation; and reducing losses through fraud and error alongside developing a debt management strategy