Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 280 - 299)



  280. Thank you for those figures; they were not the figures I was actually asking for.
  (Mr Brown) What figures would you like? If you want the share of national income then the expenditure was 5.7 per cent. in 1996-97; and next year it will be 6.4 per cent. rising to 6.7 per cent. In both cases, to be absolutely clear, there are substantial increases taking place in spending on health. I was able to put additional expenditure into the National Health Service in the Budget so the spending figures for health in 2001-02 will now be £59.1 billion—and that compares with £40.8 billion the year we came into power; and in the year after that 2003-04 it will rise to £69 billion.

  281. Chancellor, thank you for that. The figures I asked you for were the average spend in the last Parliament as a proportion of national income. The figure I have from the House of Commons Library is 5.5 per cent. If you ask the House of Commons Library for the average spend by this Government in this Parliament as a proportion of national income it is less than that, it is 5.4 per cent. The Health Service over this Parliament, compared to last Parliament, has had on average a smaller share of the national income. Could you confirm that?
  (Mr Brown) No, I do not accept that. I have just given you the figures showing that the growth rate of health in the last Parliament was 2.6 per cent; the growth rate in this Parliament, even taking into account our first two years when we had to deal with problems of the deficit, is 4.9 per cent. As a result of the Spending Review, it will be rising by 5.6 per cent. As a share of national income, I think you would agree with me, when you have figures that show that the share of health in national income is rising from 6.2 per cent. to 6.4 per cent. to 6.7 per cent., it is now quite wrong for you to deny that there is an increase in spending taking place both in cash terms, in real terms, as a share of national income and as a growth rate as compared with the previous Parliament.

  282. Chancellor, you accuse me of doing something I was not trying to do. What I was trying to ask you for was a figure of the average in the last Parliament and the average for this Parliament. The figures I gave are from the House of Commons Library and they show that, on average, we are spending less than we did in the last Parliament. Can I give you the figures, Chancellor. For education in the last Parliament—
  (Mr Brown) You do not want to continue to talk about health?

  283. My question is about education, Chancellor.
  (Mr Brown) Can I just put into the record the figures on health. In 1996-97—and this is the most generous to the previous Government, the last year—5.7 per cent. In 2000-01 the figure is 6.2 per cent. of national income. 2001-02 6.4 per cent. of national income. 2003-04 6.7 per cent. of national income. I hope that the questioner will accept that is a rising trend of national income.

  284. Now we can go on to education. The average spent in each year as a proportion of national income on education in the last Parliament was 5 per cent; in this Parliament to the end of this financial year it is 4.6 per cent. How can you explain that on average in this Parliament we are spending a smaller share of national income on education?
  (Mr Brown) The figures I have for expenditure are 5 per cent. in 2001-02, and 5.4 per cent. in 2003-04. The reason that that is the case is because education expenditure (and I do hope you will look at the actual figures) is rising from the £36 billion we inherited to £46 billion in 2000-01, that is this year, and then rising again to £49.8 billion in 2001-02; and rising to £58.1 billion in 2003-04. The growth rate for educational expenditure is 5.4 per cent. as a result of the Spending Review, compared with 1.6 per cent. in the last Parliament and 1.5 per cent. in the Conservative years. You can produce as many figures as you like, Mr Davey, but you cannot deny the fact that educational expenditure is rising by something in the order of £4-5 billion a year, and it is going to do that consistently for the next four years; and that is far higher than could ever have been achieved simply by a one penny change in Income Tax, but is twice as much as could be achieved by that.

  285. Chancellor, the only reason I was drawing attention to the figures as a share of national income was because in your manifesto you said you would increase them and in the first three years of this Parliament it actually fell.
  (Mr Brown) The figures I have got, Mr Davey, are 4.7 per cent., which we inherited, then rising to 4.9, then 5 to 5.4.

  286. I would like to know which years you are quoting.
  (Mr Brown) These are figures rising to 2003-04, 2001-02, 2000-01, but starting in 1996-97.

  287. Chancellor, you have read out your series, can I just read out my series. I agree with you that in 1996-97 it was 4.7 per cent. of national income; it then went down to 4.6; it then went down to 4.5; and in 1999-2000 it was 4.5. In this year, and in the years that you have predicted for the future, is it increasing?
  (Mr Brown) Can I read out the figures for the future years?

  288. No, you have already done that.
  (Mr Brown) You accept my figures.

  289. What you have done is cut expenditure in the first three years and then you are having a boom at the end. Schools and colleges are being deprived of money for the first three years of your stewardship, and now you are giving them money. I am afraid that the standards have fallen for the first three years and you have deprived the schools.
  (Mr Brown) It seems to me that this member of the Committee is working on the assumption that it would have been right to do nothing about the deficit we inherited, and right to do nothing about the overall level of debt we inherited. I do not apologise to the Committee for taking the action that was necessary to deal with both deficit and debt. The result of that is that we have a solid foundation on which to build; and the solid foundation is shown by the figures that he did not read out, which is that educational expenditure will rise to 5 per cent. and then to 5.4 per cent. of national income. The actual figures for expenditure are 2001 £46 billion; rising to 2001-02 £49.8 billion; rising to 2003-04 £58.1 billion. That is a very substantial rise in educational expenditure over the next few years built on a solid platform from which we can actually have sustainable rises in educational expenditure. I would like the Committee to note that, as far as my view is concerned, it would not have been possible to have these substantial rises in educational expenditure if we had not dealt with the problems of the deficit and debt in our first two years.

Mr Plaskitt

  290. Chancellor, at the time of the pre-Budget Report 2000 you estimated total managed expenditure to come out at £371.6 billion. You told us in the Budget that would in fact be £368.3, an undershoot of about £3.3 billion. What money was not spent, and what were the principal reasons for the undershoot on that?
  (Mr Brown) The numbers result obviously, first of all, from the substantial cut in debt interest payments, and that has made it possible for us to reallocate resources to health and education; but it also comes from the substantial cut in the amount of money we are spending on unemployment benefits. There have been two big changes that have diminished the pressure on one section of our budget. They are actually set out on page 27, Table 2.3 of the Budget Report. They show that over the period we have saved about a billion pounds on social security benefits, indeed, £2 billion in 2001-02; and on debt we have saved something over £4 billion. These are big changes as a result of a reduction in the share of debt in national income.

  291. There were no significant instances of spending departments failing to deliver on their programmes?
  (Mr Brown) We had an issue that I raised right at the beginning of my opening remarks, where we are determined to push up the levels of public investment in those services that have been under-invested in over a long period of time. That is why we have Departmental Investment Strategies. We have to do more, and we have to do better, and our aim is to raise the share of national income taken by public investment to 1.8 per cent. We are making progress, but there is still more to do.

  292. That is on the capital side rather than on the revenue side.
  (Mr Brown) On the revenue side, if this were under the old system and there was now end year flexibility, one might be disappointed if there was money left at the end of the year; but this is money that can be carried over by the departments. We are avoiding a end year rush to spend money perhaps not on the best projects, so the money is carried over. The important thing, as I said to Mr Davey, is that expenditure on health, education, policing and transport, all the key public services which people rely on, is rising very substantially this year, next year and the year after. Indeed, I might have made the point to Mr Davey that expenditure in real terms on education in the last year has risen by more than 10 per cent.

  293. Is it fair to say that the money the Treasury is saving as a result of lower unemployment and lower debt interest payments is money released and made available for spending on health and education? Are you simply transferring savings from that area to those services?
  (Mr Brown) I have made the point in the Budget itself that, whereas in the years 1979-1997, of every additional pound spent 42p (and indeed in the early 1990s it was 50 per cent. of every additional pound) went to debt, unemployment or social security; it is now only 17 per cent; therefore that leaves 80 per cent. free for health and education. Can I just emphasise one comparison: the average for the years 1979-97 was that more money was spent on debt and unemployment than on the National Health Service. We are now able next year to spend £30 billion more on the National Health Service than the combined requirements for debt and unemployment. We are now spending twice as much on the Health Service as we are on the bills for debt and unemployment. It is that change in the composition of overall spending that is making it possible to answer the points that have been made to put more money into health and education.

  294. Is the Treasury adding more to the spending on health and education, for example, than the amount simply released by the saving on lower debt interest payments and unemployment?
  (Mr Brown) Overall, yes.

  295. Is it a transfer from one saving account to another spending account?
  (Mr Brown) Overall, yes, because as you know we plan public spending to rise by 3.7 per cent. a year over the next three years. The substantial additions in Health Service spending of around £5 billion a year, and then the extra money on top of that, that was put in in the Budget, and the extra money on education I have just read out the figures for, are in excess of some of the savings we made on unemployment and debt. There is a reallocation of money, but of course there is more money going to public spending as a whole.

  296. As you say, average annual public spending is set to rise 3.7 per cent. a year for a number of years through the next part of the Comprehensive Spending programme—that is considerably higher than the trend rate of growth in the economy. Are you comfortable with that difference?
  (Mr Brown) I think it is the right thing to do. As you know, current spending is rising but public investment is rising even faster. I think that is the necessary means by which we correct the long-term under-investment in Britain's infrastructure, in our hospitals, in our schools, in transport generally and even in policing and in other areas. I believe it can be both justified in macroeconomic terms, because we meet all the fiscal rules that are required of us; but also it is an essential element of rebuilding the fabric of British society.

Mr Fallon

  297. Chancellor, you will recall a couple of years ago that this Committee reprimanded you for triple counting. Just to confirm we have got you off this habit—the education spending of a billion is over three years, that is right, is it not?
  (Mr Brown) The educational expenditure is over three years as I have made absolutely clear in the Budget Statement.

  298. It is also right, is it not, that the Secretary of State has written probably to you as well as me. He wrote to me on 14 March, "Dear Michael, As a result of the Budget there will be £100 million more per year for direct grants to schools, and £100 million more for capital funding". That is right, is it not?
  (Mr Brown) There is actually around £300 million more a year for eduction. Some of the money is going to direct payments to the schools, and this is to increase the direct payment that was announced in the last Spending Review. So some schools will get about £110,000. Additional money will go to the recruitment of teachers. You will have seen the measures announced by the Secretary of State for education.

  299. The capital funding that the Secretary of State says will boost schools' capital, for example, for new classrooms—how does £2,000 get you a new classroom?
  (Mr Brown) The capital funding allows some of the renovation work to be done. Equally, he has announced a new programme of PFI credits, a new programme of increasing the amount of repair work and renovation done in schools. I think it is now the case that nearly 20,000 schools have been repaired and renovated under the New Deal Programme, which is in addition to what you are talking about.

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