Source · Select Committees · Public Accounts Committee
Recommendation 6
6
Deferred
NS&I lacks a suitable alternative to its discontinued Value Indicator performance metric.
Conclusion
To deliver its remit, NS&I must balance the interests of savers by offering a fair return, and the interests of the taxpayer by minimising finance costs. At the same time, it must also maintain an appropriate competitive position in the retail savings market. When questioned on how it minimises the cost of meeting its financing needs, NS&I told us it had several metrics to measure its performance, including its “efficiency ratio” which is the cost of NS&I managing the savings it holds. It told us that this was currently under “7p per £100 of investment”.9 NS&I explained that it also used a “Value Indicator” which compared the cost of borrowing through NS&I with the cost of selling gilts. NS&I told us that it measured, monitored and used the Value Indicator in all its decision making, but that the Treasury no longer held it accountable against this metric as the price of gilts is outside of NS&I’s control. The Treasury and NS&I have considered other metrics to replace the Value Indicator but have not yet identified a suitable alternative.10
Government Response Summary
The government agrees with the implicit recommendation to improve performance measurement. It commits to examining international best practice and assessing quantitative and qualitative measures by Spring 2025, and will write to the Committee upon conclusion of this analysis.
Government Response
Deferred
HM Government
Deferred
1.1 The government agrees with the Committee’s recommendation. Target implementation date: Spring 2025 1.2 To better improve performance measurement against the debt management objective, the government will look to examine international best practice and what it can apply from other countries. Alongside this, it plans to thoroughly assess any prospective quantitative and qualitative measures it could consider, and how it can systematically report performance further in the future. 1.3 Currently, the government closely monitors the UK’s debt portfolio and reports on it in the annual Debt Management Report (DMR), which was last published in March 2024. A detailed assessment of the costs and risks associated with debt issuance in 2024-25 (including yields and risk premia, demand from investors, and various risks – such as inflation and refinancing risk) is set out in Annex B of this publication. 1.4 The Debt Management Office (DMO) also reports on its performance against its objectives and operational targets in its Annual Report and Accounts, whilst National Savings & Investments (NS&I) report on performance against its Service Delivery Measures (SDMs) in its Annual Reports and Accounts. The Economic Secretary sets targets for SDMs, which are also published annually. 1.5 Making decisions on borrowing involves balancing a range of cost and risk considerations. The International Monetary Fund (IMF) Public Debt Management Network’s 2014 Revised Guidelines for Public Debt Management sets out the key features that are essential for optimal debt management, all of which are in the line with the UK’s approach. 1.6 Since the National Audit Office (NAO) published its report, the government has developed further its evidence base to assess performance after having welcomed its recommendations. The following analyses have been conducted and published: • Analysis conducted by the DMO on the value of issuing index-linked gilts over time, demonstrated that, for index-linked gilts that had matured since their introduction in 1981 but prior to August 2023, the government had generated direct savings of around £77 billion in total from the issuance of index-linked gilts if valued at maturity, or £158 billion in 2023 terms. • HM Treasury (HMT) furthered its analysis of the UK’s exposure to refinancing risk (published in the DMR annually), to account for the impacts of quantitative easing (QE). This demonstrated that the average effective maturity of the UK’s debt stock remains longer than peers even after accounting for QE (at 11 years), leaving it relatively more insulated from interest rate rises. 1.7 Regarding retail financing, HMT and NS&I routinely use the ‘Value Indicator’ (VI) in setting NS&I’s annual Net Financing target and rates on products, monitoring how it evolves throughout the year. Alongside this, in 2024-25 NS&I will utilise additional measures of cost effectiveness of raising finance to sit alongside the VI. More broadly, NS&I’s SDMs include an ‘efficient administration of funds ratio’ that measures the costs of managing each £100 of funds held. For 2023-24, NS&I is forecasting to achieve the SDM with a figure of 6.8p (beneath a target of 7.2p). 1.8 The challenges around providing a definitive metric to measure performance against a qualitative objective are recognised in the NAO’s report and across international issuers. For example, in the US, its quarterly refunding reports concentrates on financing needs and recommended issuance skews but does not attempt to quantify past performance – in a similar vein to the UK’s annual DMR. In France, the Agence France Trésor publishes an annual report, which contains qualitative analysis on its performance against the debt management objective over the past year – the form and content of the report is similar in nature to the UK DMO’s quarterly reviews. 1.9 Despite these challenges, the government recognises the need to continually review and improve on how it manages the costs and risks associated with debt management. It will therefore seek to continue improving its evidence base in the coming months, including through examining international best practice, and how it can systematically report performance further in the future (as set out fully above). 1.10 The government will write to the Committee when this analysis is concluded.