Recommendations & Conclusions
5 items
3
Conclusion
Fifteenth Report - Managing government …
Acknowledged
The Treasury and the DMO lack the information needed to better identify unlawful activity and understand the risks posed by overseas investors, potentially reducing the value for money from future gilt sales. In May 2023, the Competition and Markets Authority (CMA) provisionally found that, between 2009 and 2013, five major …
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The Treasury and the DMO lack the information needed to better identify unlawful activity and understand the risks posed by overseas investors, potentially reducing the value for money from future gilt sales. In May 2023, the Competition and Markets Authority (CMA) provisionally found that, between 2009 and 2013, five major banks unlawfully shared competitively sensitive information, potentially impacting the DMO’s gilt auctions. Collusion is illegal and while it is not the DMO’s responsibility to police the behaviours of auction participants, it needs to put measures in place so it can monitor and minimise harmful behaviour, including the collection of information that could help unearth unlawful activity in a timely manner. The current measures, such as blind bids, might not be sufficient given the alleged unlawful activity took place nearly 15 years ago and was not identified at the time, with the DMO apparently unaware some of its auctions may have been manipulated. Similarly, the Treasury and the DMO hold limited information on the ultimate owners of UK debt held by overseas investors, which makes up around 25% of UK debt – the second highest in the G7. There is a lack of consensus on the potential risk this creates. For example, the Office for Budget Responsibility (OBR) see overseas holders of UK gilts as more sensitive to market movements compared to domestic investors as they prioritise higher returns over longer-term investments. Meanwhile, the DMO considers foreign investors to be an important part of its diverse investor base. Recommendation 3A: The Treasury, together with the DMO, should write to us, within two months of the conclusion of the CMA’s investigation, outlining what steps they will take to address the information gaps around identifying potentially unlawful activity, including: • The changes the Treasury will make to its gilt selling process in response to the CMA’s investigation; • Undertaking a formal review of the DMO’s gilt selling proce
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Government response AI summary
The government agreed but stated it currently lacks visibility of underlying gilt owners. It committed to reviewing sovereign bond ownership data from other countries to learn from their approaches, rather than detailing immediate steps to address information gaps or change gilt selling processes.
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HM Treasury
4
Recommendation
Fifteenth Report - Managing government …
Acknowledged
We are concerned that significant problems with NS&I’s procurement of its Rainbow Programme could leave limited flexibility or room for further delays. During the COVID-19 pandemic, the Treasury required NS&I to raise £35 billion from retail savers – more than three times the previous year’s requirement. While unable to deliver …
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We are concerned that significant problems with NS&I’s procurement of its Rainbow Programme could leave limited flexibility or room for further delays. During the COVID-19 pandemic, the Treasury required NS&I to raise £35 billion from retail savers – more than three times the previous year’s requirement. While unable to deliver this, NS&I managed to raise a record £23.8 billion. One of the challenges NS&I faced during the pandemic was its inability to scale up its customer facing operations owing to its reliance on a single service provider, Atos. NS&I is undertaking a modernisation programme, which it calls its Rainbow Managing government borrowing 7 Programme, to move away from Atos to a multi-provider model. This project is already significantly delayed owing to bidders for one of the contracts submitting proposals that did not meet NS&I’s requirements. The Atos contract, due to expire in 2024, has been extended to March 2025 as a result. Following a lesson-learned exercise, NS&I redesigned the procurement process for this contract and eventually secured a successful bid in December 2023. NS&I aim to complete the Rainbow Programme in 2024–25 but this remains a complex project since the three winning bidders developed their plans in isolation, and they now need to be integrated. NS&I asserts that it can extend the Atos contract for an additional 12 months, which may not be enough contingency should NS&I experience further delays. Recommendation 4: NS&I should set out, as part of its Treasury Minute response, the following: • A list of the key project milestone between now and the Rainbow Programme launch date (thereafter NS&I should provide 6 monthly progress updates against these milestones); • The expected costs of extending the Atos contract beyond March 2025 and the contingency plans should Atos not wish to extend contract; and • Details on how it will avoid further delays to Rainbow Programme.
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Government response AI summary
The government agreed, stating NS&I is working to formulate an integrated transition plan with key project milestones for its Rainbow Programme, which will be shared with the Committee when finalised. Expected costs for extending the Atos contract would be agreed upon extension, and contingency plans …
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HM Treasury
17
Conclusion
Fifteenth Report - Managing government …
Acknowledged
We asked the Treasury about the impact of the announcement of the government’s September 2022 Growth Plan (or “mini-budget”) on the cost of government borrowing. The Treasury explained that in the aftermath of the mini-budget, it required the DMO to raise an additional £72 billion. It added that markets were …
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We asked the Treasury about the impact of the announcement of the government’s September 2022 Growth Plan (or “mini-budget”) on the cost of government borrowing. The Treasury explained that in the aftermath of the mini-budget, it required the DMO to raise an additional £72 billion. It added that markets were “under a period of stress” and yields were higher in the UK compared to other countries.29 We asked the Treasury if there was more that could be done to ensure that ministerial announcements that might cause concern in the markets do not negatively impact markets and public finances in the future. The Treasury told us that “it is widely deemed to be the case” that very large fiscal events should not go ahead without being accompanied by an OBR forecast to put them into context, except in extreme circumstances. The Treasury added that it had updated its memorandum of understanding with the OBR to ensure that, in the event of any update to the DMO’s remit, the OBR would provide assurance over the government’s cash needs, known as the net cash requirement, even outside of regular fiscal events such as a Budget.30 25 Qq 15, 48 26 Qq 9, 11, 45; C&AG’s Report, para 3.14 27 C&AG’s Report, para 2.7, Figure 11 28 Qq 49, 51, 53 29 Qq 55–56 30 Q 57 14 Managing government borrowing NS&I’s Rainbow Programme
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Government response AI summary
The government acknowledges the committee's findings regarding the mini-budget's market impact, stating it is committed to learning lessons from previous crisis episodes and has established projects to enhance preparedness for future financial stability events.
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HM Treasury
18
Conclusion
Fifteenth Report - Managing government …
Acknowledged
In 2020–21, during the pandemic, the Treasury required NS&I to raise £35 billion from retail savers, which was nearly a sixfold increase in its original remit for that year. Since 2003–04, NS&I has only raised more than £15 billion on one occasion, which was in 2014–15 when it raised £18.2 …
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In 2020–21, during the pandemic, the Treasury required NS&I to raise £35 billion from retail savers, which was nearly a sixfold increase in its original remit for that year. Since 2003–04, NS&I has only raised more than £15 billion on one occasion, which was in 2014–15 when it raised £18.2 billion. To deliver its remit, NS&I told us it must balance the interests of savers by offering a fair return, the interests of the taxpayer by minimising finance costs, whilst also maintaining stability of the wider financial market place. NS&I was unable to meet its £35 billion remit, instead raising £23.8 billion – which was nonetheless a record amount. We asked NS&I what it would do differently in the event of a future crisis. NS&I told us that it had learned “many valuable lessons” from the pandemic, some of which will be resolved as part of its Rainbow Programme.31 NS&I currently outsources its entire back-office and customer-facing operations to a single service provider called Atos. Under the Rainbow Programme NS&I will instead outsource to multiple providers. NS&I explained that one of the key lessons from the pandemic that the Rainbow Programme will resolve was to provide “far more scalability and resilience”.32 It added that during the pandemic it received large inflows of deposits from savers, which created “pinch points” as the old, single provider model was dependent on “people, paper and physical locations”.33 NS&I explained that the new model will provide greater ‘scalability’ through better use of digital processes such as mobile apps with much more “functionality and flexibility”.34
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Government response AI summary
The government acknowledges the committee's observations on NS&I's pandemic performance, stating it is learning lessons from crisis episodes and NS&I’s transformation programme will deliver the necessary systems scalability and robustness.
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HM Treasury
19
Conclusion
Fifteenth Report - Managing government …
Acknowledged
However, the Rainbow Programme is already behind schedule. NS&I’s contract with Atos was due to expire in 2024, but delays to the Rainbow Programme resulted in NS&I extending the contract until April 2025. We asked NS&I about the reasons for this delay. In response, NS&I explained that one particular procurement …
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However, the Rainbow Programme is already behind schedule. NS&I’s contract with Atos was due to expire in 2024, but delays to the Rainbow Programme resulted in NS&I extending the contract until April 2025. We asked NS&I about the reasons for this delay. In response, NS&I explained that one particular procurement process, which related to finding a company to provide the “digital experience” component of the Rainbow Programme (one element of the multiple provider model) was the main cause of the delay. It added that while the procurement process generated “good competition” with multiple bidders of the “right type of quality”, all the bids submitted were “non-compliant” and did not meet NS&I’s requirements. NS&I described this as “highly unusual” and that it had carried out a lessons learned exercise to understand why this happened. NS&I told us it had subsequently changed the procurement process, including giving bidders more flexibility around the project’s security requirements.35
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Government response AI summary
The government acknowledges the committee's findings on the Rainbow Programme delays, stating it is working with new providers to formulate an integrated transition plan and improve governance, which it will share with the Committee upon completion.
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HM Treasury