Examination of witnesses (Questions 300
TUESDAY 20 MARCH 2001
O'DONNELL and MR
300. Did you read, Chancellor, yesterday that
after four years of Labour Government 200 13-year-olds were sent
home from Holywells High School in Ipswich at 11.15 in the morning
because they were six teachers short. Did you read that?
(Mr Brown) I did read the newspapers this morning,
and I read them most days. I am not in a position obviously to
answer for what is happening in an individual school in an individual
education authority. I think the figures I have read out, about
the additional amount of educational expenditure that is available,
are ones that show we are putting more money into schools and
education generally. I think the determination of the Secretary
of State for Education to deal with what have been recruitment
problems that build up over a long period of time, partly through
the numbers of people not doing teacher training in previous years,
and the efforts he is making and the additional package he has
announced to encourage people and to recruit people is something
I think he would welcome.
301. If it takes one year to train a graduate
teacher, and you have been in power for four years, this is your
failure, is it not?
(Mr Brown) It takes a number of years to build up
the expectation that teaching is a career that more people want
to go into. It takes changes in both salary arrangements, and
in the recruitment of people to colleges, as well as changes in
the schools themselves. I think most people would agree the changes
that the Secretary of State for Education has brought in, starting
with primary schools and now moving to secondary schools, they
are showing results; but, as we have said on previous occasions,
a lot has been done but there is still a lot to do.
302. This billion pounds is not going into raising
teachers' salaries, is it?
(Mr Brown) The billion pounds is over three years,
and it is an addition to the rise in teachers' salaries that was
announced by the Public Sector Pay Review Body. There is additional
money in his recruitment package for people returning to education
immediatelymoney to help them do the refresher courses,
and back to teaching bonuses that are available for people if
they come back to teaching in the next period of time. Yes, there
is additional money to recruit people back into teaching in his
package that was announced on Monday of last week. I think, if
I am right, that the total recruitment package was worth £200
million over three years.
303. If you are so short of teachers are their
(Mr Brown) The Public Sector Pay Review Body made
recommendations which we have accepted. We did not phase in the
awards; we accepted the awards. Equally, over a period of time
the Secretary of State for Education has been trying to recruit
more people with the promise of higher salaries for head teachers
and also higher starting salaries. He is trying to address these
issues. I can only repeat, that the amount of money going into
education now compared with what it was under the previous government
is very substantial indeed. Education expenditure will rise from
£46 billion this year, to £49.8 billion next year, to
£58.1 billion by 2003-04. I had thought the complaint of
the Conservative Party was that we were spending too much on these
public services, not too little.
304. Can you recall when children were last
sent home from school at 11.15 in the morning?
(Mr Brown) These are matters that are relevant to
how local education authorities are dealing with problems that
305. It is their fault?
(Mr Brown) These are matters that local education
authorities are dealing with in relation to recruitment of staff
in their areas; and they are being helped by the measures that
the Secretary of State for Education is announcing.
306. Box B3, Chancellor, on page 177, deals
with the US economy. In the text of Box B3, which is extremely
illuminating, it says ". . . investors may be unwilling to
finance the current account deficit [of the United States, obviously],
leading to a sharp correction in the dollar". Do you think
the same thing could happen to the pound?
(Mr Brown) As you know, I never got into the position
of speculating about the future movements of sterling. In the
medium-term we believe the exchange rate will reflect the fundamentals
of the economy.
307. I asked that question really because there
is an element of speculation about the course of the dollar. It
seemed to be logical to
(Mr O'Donnell) Could I just add that for the US we
are talking here about a current account deficit of around 4.5
per cent. of GDP. In our forecast the current account deficit
for the UK only gets up to a peak of 2.5 per cent. It is quite
a lot lower.
308. Chancellor, you have referred in your reply
to the long-term economic fundamentals as determining the value
of currencies, and of course that must be right. Last year you
were of the view that the weakness of the euro relative to sterling
could not be justified by any reference to long-term economic
fundamentals. Is that still your view?
(Mr Brown) The exchange rate for sterling did adjust
in relation to the euro over the course of the last year. Yes,
it is still my view that over the medium-term that the exchange
rate will reflect the fundamentals.
309. Last year you said, and I am quoting from
your James Meade Memorial Lecture approximately a year ago, the
exchange rate cannot be justified by any view of long-term economic
fundamentals. That was the euro/sterling exchange rate.
(Mr Brown) Yes, but that, if I may say so, was when
the exchange rate was the equivalent of 3.40 at the old Deutsche
Mark/pound level. It is now something in the order of 3.10; so
it has come down quite a bit since the time we talked last year
so an adjustment has taken place.
310. Your view of that adjustment would be?
(Mr Brown) Just so you are clear, I am not speculating
about when an adjustment is completed, no.
311. Indeed, but if I could just summariselast
year you were of the view when the exchange rate was at a benchmark
figure of 3.40 Deutsche Marks to the pound that that could not
be justified by any view of long-term economic fundamentals. It
is now approximately 3.10 and you are not confirming your view
as expressed last year?
(Mr Brown) What I am saying is that in the medium-term
it will move to reflect the fundamentals of the economy; but I
am not getting into a day-to-day speculation about what the right
rate should be.
312. I do understand. In Mr O'Donnell's very
helpful and interestingincidentally, I am using the term
"helpful and interesting" in a certain naive sense of
it being helpful and interesting, I am not making some broad point
in order to destroy Mr O'Donnell's career! I am simply meaning
that he came to the Committee and he was helpful and he was interesting.
(Mr Brown) I hope you will say the same as we leave!
313. So far so reasonably good! He said that
the first response mechanism to a reduction in consumer demand,
and that is not an exact quote but the gist of what Mr O'Donnell
was saying, would be on monetary policy rather than fiscal policy;
because the reaction times are faster on monetary policy. Do you
agree that there is scope for the MPC to reduce interest rates,
if it decided to do so, given the fiscal stance in the Budget?
(Mr Brown) That is, of course, a matter for the MPC.
There is no point in me making the Bank of England independent
and trying to pre-judge or presume what decisions it makes in
the next few days. The Bank of England reduced interest rates
in February. It has taken, therefore, a proactive stand in relation
to the economy. Equally, the fiscal tightening that has been locked
in, in the Budget, is I think something that they would approve
314. You do not feel that the Budget in any
way inhibits the decision of the MPC, should it wish to do so,
to reduce interest rates?
(Mr Brown) No, I do not believe that that is the case.
We have locked in the fiscal tightening of the last Budget and
the pre-Budget Report. We are pursuing a policy for sound public
finances. I believe that the difference in America, Europe and
elsewhere between what is happening now and what happened in the
late 80s and early 90s is that, generally speaking, we have economies
pursuing low inflation policies with sound fiscal positions. I
think the figures I read out at the start of this discussion from
today's publication shows that the fiscal position is strong.
315. Chancellor, the latest Budget forecast
of the GDP growth is the same as in the pre-Budget Report. Why
is it the view that the events in America are not having an effect
(Mr Brown) We looked at that very carefully, and there
is absolutely no doubt that any reduction in growth in the United
States' economy will have an eventual impact on Europe and on
Britain, particularly with our larger share of trade with the
United States of America. We looked at the position of the economy
as a whole, and when Mr O'Donnell and his team drew up their Budget
forecast they could see that the reduction in trade would be matched
by the improvement in consumer spending and consumer demand in
the United Kingdom; and, therefore, there seemed no reason to
depart from the forecast that we made of 2 -2.75 per cent. for
316. What is the basis for assuming an increase
in the growth of domestic demand compared with the pre-Budget
(Mr Brown) I think if you look at the position last
year, and if you also look at the strength of the domestic economy,
if you look at people's purchasing power, if you look also at
the changes we have made in the Budget and in the pre-Budget Report
you can point to that. It is a situation of sustainable growth.
I believe, when you see side-by-side with the growth figures the
inflation figures, that we have got inflation under control.
317. Is not the disparity or imbalance between
the domestic prospects and the international prospects for growth
in trade a worrying factor?
(Mr Brown) I believe myself that while the American
economy is obviously growing less fast than last year and that
has an impact on Europe as a whole, there is still substantial
growth in the European economy. Our exports to Europe, despite
the exchange rate difficulties we faced, have been growing; and
we are able to benefit from Europe becoming more of an engine
of growth in the world economy as well as America has been in
previous years. I think the disappointing factor in the world
economy is that Japan continues to fail to grow; and that America
has had a necessary slowing as a result of a very high level of
growth last year. We are still, while being vigilant, cautiously
optimistic about the future of growth rates around the world.
318. Are you not concerned about the higher
level of balance of payments deficit?
(Mr Brown) That is obviously a factor that one takes
into account. If you bear in mind what Mr O'Donnell said about
the share of GDP taken account of by the deficit, it does not
rise to the levels we have got in the United States.
319. The Budget is envisaging a rise in the
real household disposable income in the coming year of between
4.25-4.5 per cent. Is there not a danger of stimulating a boom
from that rise?
(Mr Brown) The difference between the position now
and the position in the late 80s is that we have clear fiscal
rules that are being met. There were no rules that were being
observed at that time. We have inflation under control, and it
will meet its target; and we have a mechanism by which the target
will be met through Bank of England independence. We have not
taken reckless decisions in the Budget. We have pursued a balanced
approach, where we have balanced the needs of public investment
and taxation but within a context where we are achieving stability.
I do not believe that we are in the position that the country
was in in the late 80s and early 90s.