§ The Chief Secretary to the Treasury (Mr. Paul Boateng)The Treasury has reviewed the normal recovery policy for services where fees and charges are set by central government. The Treasury has concluded that the cost of capital rate in fees and charges where the norm is full cost recovery (and in appropriate exceptions from the norm) should be reduced from 6 to 3.5 per cent. in real terms (keeping parity with the reduction in the discount rate for appraisal and evaluation of projects in central government and with the cost of capital in government resource accounts and budgets). For commercial services where there is or may be private sector competition, and a profit may be appropriate in the interests of fair competition, the required rate of return of at least 8 per cent. in real terms has been4WS replaced with an illustrative range starting with 5.5 per cent. Departments will need to make their own assessment of the appropriate rate of return for commercial services, but the rate is expected to fall in a range 5.5 per cent. to 15 per cent. in real terms (pre-tax), depending on factors such as the level of risk. In practice, the upper end of the range will rarely be used, as it is unusual for public sector bodies to engage in such high-risk activities.
The revised policy applies to central government departments, including agencies and Trading Funds, NHS Trusts and other NHS bodies and appropriate non-departmental public bodies. It will be used in determining fees and charges in the next Fees Order to be presented, or the equivalent point for commercial or other charges. Where a consequent change in fees and charges is required, it should be effective no later than 1 April 2004. This timetable should allow for consultation about the new fee levels where the legislation or customary procedure provides for consultation. However, the words "used in determining fees and charges" have been used advisedly. Capital is often a relatively small factor in total costs and the effect may be rather to moderate the increase to statutory fees arising from changes to other costs rather than to reduce fees. There may also be services which are intended to recover full costs, but have not been achieving this objective and may therefore continue to experience increased fees and charges; or commercial services where the price charged in a competitive market may already be consistent with the revised policy and therefore require no reduction. The purpose of the revised policy is to put the cost of, and return on, capital on to a more current basis, not to make reductions in fees and charges unless they flow naturally from the revised policy (or unless there are other good reasons for a reduction such as a fall in other costs).
As a consequence-of the revised policy on fees and charges, the financial objectives of Government Trading Funds (the required rates of return) will also be reviewed. They will be adjusted where necessary by laying a Treasury Minute under the Government Trading Funds Act 1973 before the House during the financial year 2003–04. Trading Funds undertake a wide range of charging activities—statutory, commercial, inter- departmental or a mix of those. The further financial objective will therefore need to be determined individually for each Fund.