Recommendations & Conclusions
11 items
2
Recommendation
Fifteenth Report - Managing government …
Accepted
We are concerned that the Treasury, DMO and NS&I will not have the necessary skills, experience, and institutional knowledge needed to overcome the challenges they face now, and in the years to come. The DMO and NS&I are both specialist organisations, with distinctly different skills sets and experience to those …
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We are concerned that the Treasury, DMO and NS&I will not have the necessary skills, experience, and institutional knowledge needed to overcome the challenges they face now, and in the years to come. The DMO and NS&I are both specialist organisations, with distinctly different skills sets and experience to those normally found in the Treasury. The Treasury faces challenges in maintaining the appropriate expertise in its debt management functions to be able to adequately scrutinise and challenge the work of the DMO and NS&I, which can be affected by staff turnover levels. The DMO is entering a period of transition with the current CEO due to retire at the end of June 2024 after being in post for over 20 years. This role has a long and steep learning curve and benefits from having deep, specialist knowledge which can only be developed over time. The Treasury has started the process of finding a replacement but needs to ensure a successor is willing to be in post long enough to develop this expertise. The DMO’s small executive team has other key members nearing retirement, highlighting the need for a clear succession plan. The Treasury asserts that NS&I has been upskilling and increasing the size of its workforce to reduce reliance on contractors and make it a better IT customer as it delivers its Rainbow Programme. NS&I currently outsources its entire back- office and customer-facing operations to a single service provider and the Rainbow Programme, which is already significantly delayed owing to a poorly executed procurement process, will see it move to a multiple service provider model. Recommendation 2: The Treasury should set out, as part of the Treasury Minute response, its overarching plan for building and retaining skills and experience, which should include, but not limited to, the following: • How NS&I is upskilling its workforce to deliver its Rainbow Programme; 6 Managing government borrowing • Details of the DMO’s succession planning, in particular an asse
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Government response AI summary
The government agreed, stating the recommendation is implemented. NS&I plans to upskill its workforce by insourcing IT and service integration skills and growing commercial expertise, while the DMO has a developed resourcing strategy including succession planning.
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HM Treasury
5
Recommendation
Fifteenth Report - Managing government …
Accepted
We are not convinced that the Treasury, DMO and NS&I have adequately captured the lessons learned during the financial crisis and pandemic to prepare them to deal with the challenges to come. Government borrowed vast amounts during both the financial crisis that began in 2007, and the COVID-19 pandemic. The …
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We are not convinced that the Treasury, DMO and NS&I have adequately captured the lessons learned during the financial crisis and pandemic to prepare them to deal with the challenges to come. Government borrowed vast amounts during both the financial crisis that began in 2007, and the COVID-19 pandemic. The DMO raised £486 billion during the pandemic, triple its original financing requirement for 2020–21. Borrowing such large amounts created significant challenges for Treasury, the DMO and NS&I and they assert that they have learned important lessons from these experiences. NS&I was unable to deliver its remit during the pandemic, raising £23.8 billion against a target of £35 billion, but it is seeking to address some of the underlying causes through Rainbow Programme which will provide more scalability and resilience through better digital processes. The DMO did deliver its financing remit with help from the Bank of England’s quantitative easing (QE) programme, which acted as a guaranteed buyer of government debt (albeit not directly). In the future, quantitative easing may not necessarily be available to support the DMO in raising such vast amounts of money for government. The DMO now needs to address some of the legacy issues created from the large-scale borrowing during the pandemic. This includes repaying the huge number of gilts in the years to come, peaking in 2024–25 with the DMO needing to repay £140 billion of gilts on behalf of government alongside raising large sums of money as part of the annual borrowing process. How the DMO responds to these challenges will aid future decision making during the next crisis. Recommendation 5: The Treasury, DMO and NS&I should set out, as part of the Treasury Minute response, the lessons they have identified and learned from the financial crisis and pandemic, including the process whereby these lessons are captured and the changes that have been made to the borrowing process because of these lessons. 8 Managing governme
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Government response AI summary
The government agreed, stating lessons from crises have improved preparedness, citing the Professionalising Crisis Management project and the development of crisis manuals. It noted the DMO's annual remit-setting acts as a lessons-learned process and NS&I's transformation programme is addressing operational lessons from the pandemic.
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HM Treasury
1
Conclusion
Fifteenth Report - Managing government …
Accepted
On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury (the Treasury), the Debt Management Office (DMO), National Savings & Investments (NS&I) and the Office for Budget Responsibility (OBR) on the management of government borrowing.2
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On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury (the Treasury), the Debt Management Office (DMO), National Savings & Investments (NS&I) and the Office for Budget Responsibility (OBR) on the management of government borrowing.2
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Government response AI summary
The government agreed to an implied recommendation regarding performance reporting, stating it will examine international best practice, assess prospective quantitative and qualitative measures, and will write to the Committee once this analysis is concluded.
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HM Treasury
7
Recommendation
Fifteenth Report - Managing government …
Accepted
In light of the government’s debt management objective being high-level and the lack of measurable success criteria or indicators to assess whether the objective was being met, the NAO recommended that the Treasury should consider ways to align and extend how it measured progress against the objective.11 In response to …
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In light of the government’s debt management objective being high-level and the lack of measurable success criteria or indicators to assess whether the objective was being met, the NAO recommended that the Treasury should consider ways to align and extend how it measured progress against the objective.11 In response to the NAO’s recommendation, the Treasury told us that it had committed to looking at how equivalent organisations measure their borrowing performance and whether the existing metrics the Treasury use “have any gaps”. The Treasury told us that its aim was to have a “better overview of performance”.12 7 Qq 32, 36; C&AG’s Report, para 2.6 8 Q 35; C&AG Report, para 2.13 9 Q 34; C&AG’s Report para 3.24 10 Q 34; C&AG Report, para 2.17 11 C&AG’s Report, para 21 12 Q 36 10 Managing government borrowing Lack of information
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Government response AI summary
The government accepts the recommendation and commits to examining international best practice, assessing quantitative and qualitative measures, and systematically reporting performance by Spring 2025 to improve debt management objective measurement.
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HM Treasury
12
Conclusion
Fifteenth Report - Managing government …
Accepted
Government borrowed vast amounts during both the financial crisis and the COVID-19 pandemic. The Treasury, on behalf of government, required the DMO to raise £486 billion during the pandemic, triple the original remit for 2020–21, while NS&I had a record target of £35 billion, revised upwards from £6 billion. The …
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Government borrowed vast amounts during both the financial crisis and the COVID-19 pandemic. The Treasury, on behalf of government, required the DMO to raise £486 billion during the pandemic, triple the original remit for 2020–21, while NS&I had a record target of £35 billion, revised upwards from £6 billion. The DMO met its remit, raising £486 billion from gilt sales while NS&I raised £23.8 billion which was below its remit target but higher than its previous peak of £18.2 billion in 2014–15. The DMO successfully raised the amount requested by government at a time when the Bank of England was operating its quantitative easing (QE) programme. The Bank of England initiated the QE programme in 2009 with the aim of lowering interest rates, encouraging spending in the economy and meeting the Monetary Policy Committee’s (MPC’s) inflation target. To do this, the Bank of England, through a specially created subsidiary called the Asset Purchase Facility (APF), bought large volumes of government gilts, not directly from the DMO but rather from investors in the secondary market. The DMO sells gilts directly to its primary dealers, known as Gilt-Edged Market Makers (GEMMs), who hold these gilts before selling them in the secondary market. At its peak, at the end of December 2021, the Bank of England held £894 billion in government gilts.19
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Government response AI summary
The government states the recommendation is implemented, detailing how it has captured lessons learned from previous crises, established a Professionalising Crisis Management project, and committed to learning from the pandemic response. It also notes NS&I's transformation programme will improve systems scalability.
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HM Treasury
13
Conclusion
Fifteenth Report - Managing government …
Accepted
In November 2022, the Bank of England started to actively unwind its QE programme, a process also known as quantitative tightening, meaning for the first time it was selling gilts at the same time as the DMO. In the 12 months from September 2022, the Bank of England reduced the …
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In November 2022, the Bank of England started to actively unwind its QE programme, a process also known as quantitative tightening, meaning for the first time it was selling gilts at the same time as the DMO. In the 12 months from September 2022, the Bank of England reduced the number of UK government gilts held as part of the QE programme by £80 billion.20 In September 2023, the Bank of England announced a further £100 billion reduction in the 12 months to September 2024. This will take place alongside the DMO needing to sell £232.3 billion of gilts as part of its 2023–24 remit.21
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Government response AI summary
The government states the recommendation is implemented, detailing how it has captured lessons learned from previous crises, established a Professionalising Crisis Management project, and committed to learning from the pandemic response. It also notes NS&I's transformation programme will improve systems scalability.
Read full response →
HM Treasury
14
Conclusion
Fifteenth Report - Managing government …
Accepted
We asked the DMO what risks quantitative tightening will create for government borrowing. The DMO told us that in 2023–24, the net supply of gilts was “at a historical high”, which was a challenge for the market in terms of absorbing the higher supply and establishing the “right price”.22 The …
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We asked the DMO what risks quantitative tightening will create for government borrowing. The DMO told us that in 2023–24, the net supply of gilts was “at a historical high”, which was a challenge for the market in terms of absorbing the higher supply and establishing the “right price”.22 The Treasury added that quantitative tightening increased the supply of gilts, which pushed down prices, so increasing yields and interest rates (there is an inverse relationship between gilt prices and yields).23 The DMO explained that the main challenge it faced was to make sure its operations continued as “effectively as possible”. It told us that this required on-going communication with the Bank of England “very explicitly” about co-ordinating gilt sales to ensure similar gilts were not being sold simultaneously.24 We asked whether there would be any direct competition between the DMO and the Bank of England when selling gilts. The DMO told us that it tried to avoid this, but it would be difficult to rule it out in the future depending on how much the Bank of England might choose to sell. The DMO added that it has first mover advantage because 19 C&AG’s Report, paras 2.5, 2.8, 2.13–14, 3.14 and 3.17 20 C&AG Report, para 3.18 21 HM Treasury, Autumn Statement 2023, November 2023 22 Q 47 23 Q 43 24 Q 47 Managing government borrowing 13 it designed its annual auction calendar first, before sharing and discussing with the Bank of England. The OBR told us that there had “not been a lot of disruption in terms of the volume and stability of the gilt markets” as a result of quantitative tightening.25
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Government response AI summary
The government claims the recommendation is already implemented, citing ongoing initiatives like the Professionalising Crisis Management project, the annual DMO remit setting process, and NS&I's transformation programme as existing efforts to improve preparedness and learn lessons from past crises.
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HM Treasury
20
Conclusion
Fifteenth Report - Managing government …
Accepted
NS&I told us it had now successfully completed all the procurement stages and secured all the suppliers for the Rainbow Programme, meaning it was moving into the delivery phase. Despite meeting this milestone, NS&I still described the Rainbow Programme as a “big, complex programme” with many moving parts and challenges. …
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NS&I told us it had now successfully completed all the procurement stages and secured all the suppliers for the Rainbow Programme, meaning it was moving into the delivery phase. Despite meeting this milestone, NS&I still described the Rainbow Programme as a “big, complex programme” with many moving parts and challenges. NS&I explained that the three successful suppliers had developed their plans in isolation, meaning there was currently only a “loose plan” for the Rainbow Programme. NS&I added that it was going through a process of creating an “integrated plan” with the three suppliers.36 We questioned NS&I on the revised timeline for the Rainbow Programme and whether there are contingency plans for any further delays. NS&I told us it expected the Rainbow 31 Qq 65, 68; C&AG’s Report para 2.14, Figure 7 32 Qq 68–69; C&AG’s Report para 3.25 33 Q 69 34 Qq 70, 88 35 Q 82; C&AG’s Report, para 3.25 36 Qq 85–86, 90 Managing government borrowing 15 Programme to be delivered in 2024–25, but should there be any further delays the Atos contract can be extended beyond the current extension by a further 12 months to April 2025.37 Skills, experience and institutional knowledge
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Government response AI summary
The government states it agrees with and has implemented the 'recommendation', even though the original item was a conclusion. It confirms NS&I is actively working with its suppliers to formulate an integrated transition plan, which will be shared with the Committee, and is seeking a …
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HM Treasury
21
Conclusion
Fifteenth Report - Managing government …
Accepted
Government borrowing is a complex process, requiring substantial experience and judgement.38 The DMO explained that it was set up as a “specialist organisation” with staff that have very specific skills which are “not normally found in the Treasury”. It added that the DMO is a “repository of specialist skills” available …
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Government borrowing is a complex process, requiring substantial experience and judgement.38 The DMO explained that it was set up as a “specialist organisation” with staff that have very specific skills which are “not normally found in the Treasury”. It added that the DMO is a “repository of specialist skills” available for the Treasury to use.39 The Treasury told us that its Debt and Reserves Management team (DRM) acted as the “gatekeeper” for both the DMO and NS&I. It explained that the DRM worked with the DMO and NS&I to discuss and agree their remits at the start of the year, particularly the DMO in terms of how best to structure what gilts it needs to sell, when, and over what length of time. It also explained that the DRM was responsible for stress-testing and challenging any analysis the DMO and NS&I provided when developing their remits, as well as monitoring their performance both during and at the end of the year.40 The NAO report identified that the Treasury faced challenges around maintaining expertise in its debt management functions, which can be affected by staff turnover levels.41
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Government response AI summary
The government states it agrees with and has implemented the 'recommendation', despite the original item being a conclusion. It details plans for NS&I to upskill staff and grow expertise, the DMO's resourcing strategy, and several HM Treasury initiatives to improve staff retention and address skill …
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HM Treasury
22
Conclusion
Fifteenth Report - Managing government …
Accepted
The DMO is entering a period of transition, with the current Chief Executive Officer (CEO) due to retire at the end of June 2024 after being in post for over 20 years. We noted that an advert had been placed for the role, and asked the Treasury what the timeframe …
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The DMO is entering a period of transition, with the current Chief Executive Officer (CEO) due to retire at the end of June 2024 after being in post for over 20 years. We noted that an advert had been placed for the role, and asked the Treasury what the timeframe was for appointing a successor. The Treasury told us it had started the process of finding a successor with the aim of having them in post with enough time to allow for a “sensible transition”.42 We asked the DMO what the minimum term should be for the new CEO to ensure they understand the role and create confidence in the market. The DMO told us that the new CEO should ideally be in post for “long periods” because the learning curve for the role is steep. It explained that this was because the DMO is a specialist agency and it takes time to develop the “specialisms, skills and experience” that it relies on when making important judgements, such as understanding how government policy making works and developing key relationships.43 We asked the DMO what impact the CEO leaving will have on its small executive team, which has other key members nearing retirement. The DMO explained that the CEO leaving now will mean that the rest of the executive team will be around a little longer to help pass on “institutional memory” and “foster talent and growth” further down the organisation.44
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Government response AI summary
The government states the recommendation is implemented, highlighting ongoing plans by NS&I to upskill, the DMO's developed resourcing strategy, and HM Treasury's recent pay uplift for staff to address retention and skills shortages.
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HM Treasury
23
Recommendation
Fifteenth Report - Managing government …
Accepted
We asked NS&I whether it was working collaboratively with other parts of government to overcome some of the issues being faced on its Rainbow Programme. NS&I told us that it was receiving support from the Cabinet Office on “various complex transactions”. The Treasury added that it was “upskilling” and increasing …
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We asked NS&I whether it was working collaboratively with other parts of government to overcome some of the issues being faced on its Rainbow Programme. NS&I told us that it was receiving support from the Cabinet Office on “various complex transactions”. The Treasury added that it was “upskilling” and increasing the size of the NS&I workforce “quite considerably”. The Treasury explained that it aimed to reduce NS&I’s reliance on 37 Q 86 38 C&AG’s Report, para 3.22 39 Q 81 40 Q 78; C&AG’s Report, para 2.3 41 C&AG’s Report, para 3.22 42 Qq 29, 31; HM Treasury and UK Debt Management Office, News story – Chief Executive Officer of the DMO to retire next year, 28 September 2023 43 Q 30 44 Q 92 16 Managing government borrowing consultants and the increased costs and short-termism this creates, but also to ensure that NS&I is a “much better IT customer” as it moves from a single to a multiple provider operating model under the Rainbow Programme.45 45 Qq 90–91 Managing government borrowing 17
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Government response AI summary
The government claims the recommendation is already implemented, detailing NS&I's plans to upskill and insource IT skills, the DMO's resourcing strategy, and HMT's recent grade de-merger to address skills shortages and retention.
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HM Treasury