Nicholas Soames: To ask the Chancellor of the Exchequer if he will estimate the net gain accruing to the Exchequer through reduced costs of borrowing if (a) local authorities and (b) Department of Health trusts and foundation trusts were brought into the scope of the Government Banking Service. [185139]

Danny Alexander, Chief Secretary to the Treasury: All Government Departments and most public bodies bank with the Government Banking Service (GBS). The balances held at the GBS are utilised to reduce the Government's daily borrowing requirement which reduces its financing costs.

(a) The Treasury and GBS do not offer local authorities the ability to bank with the GBS. This is because they are not Exchequer bodies and once funded the Exchequer has no control over when funds are spent.

The local authority capital financing and investment frameworks are operated under the principle that local authorities, as democratically elected and autonomous bodies, are responsible and accountable for managing their own borrowing and cash investment decisions. The Department for Communities and Local Government (DCLG) provides high level guidance on local cash investment policy, in particular outlining the importance of security and liquidity over yield.

DCLG decide when local authorities should be funded and the timing of that funding is what impacts on the daily borrowing costs of the Exchequer. We therefore have not calculated possible savings to the Exchequer.

(b) Department of Health trusts and foundation trusts already have accounts at the Government Banking service. NHS trusts are public bodies, required under legal direction issued jointly by the Department of Health and the Treasury, to ensure that average cleared balances held outside of the Exchequer pyramid do not exceed £50,000. In the foundation trust sector, Department of Health are not prescriptive on banking issues and do not have the legal powers to direct on such matters. Foundation trusts have the freedom to decide locally how to deliver best value from their income and this may include the use of commercial accounts. But Department of Health fund foundation trusts via their GBS accounts.

The Department of Health has changed the policy by which the dividend on the investment in NHS Providers is calculated. From 2013-14 the average balance over the financial year held in commercial accounts, rather than the year-end balance, will contribute towards the calculation of the dividend charge. This provides an extra incentive for Providers to hold cash balances at GBS, rather than commercial accounts, throughout the year and prevent unnecessary movements between GBS and commercial accounts at year-end.

The Treasury provides an annual update to the public accounts committee on cash held outside the Exchequer/Government Banking Service. The most recent update published on 13 January 2014 showed that foundation trusts at June 2013 had £222 million outside the GBS. If this £222 million was held in the GBS a further saving of at least £1.1 million could be made each year.

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