Examination of Witnesses(Questions 200-219)|
MP, MR ED
THURSDAY 18 JULY 2002
200. No. That was not the question.
(Mr Brown) Sorry, let me finish
201. That was not the question.
(Mr Brown) We will meet our rules over the economic
202. That was not the question. To what levels
would GDP growth have to fall this year and the next four years
before you had to increase borrowing or raise taxes?
(Mr Brown) Mr Ruffley, you should allow me to finish
203. You were not answering the question.
(Mr Brown) I was not allowed to finish the first sentence.
204. An answer would be nice.
(Mr Brown) What I said is we will meet our fiscal
rules over the economic cycle and the cautious case and the cautious
assumptions that we build in allow us to do so even when we are
in a position where we are away from thewell, even in a
position where thewell, what is the table that is in the
document? Mr Balls, if you want to take Mr Ruffley through that,
205. You prefer not to do it? I just want a
figure for the GDP growth numbers. To what levels would they fall?
(Mr Brown) So that members of the Committee understand
the position, we base our fiscal figures on both a cautious case
and cautious assumptions. The cautious assumptions are, for example,
that we do not assume falls in unemployment, we do not assume
privatisation revenues before they appear, we do not assume indirect
effects from, for example, investor save measures but merely the
direct effects. Our VAT revenues are based on a declining share
of VAT and GDP and these are all the cautious assumptions that
have been audited by the National Audit Office and we are the
first to bring in an independent office, so the key to our ability
to meet our fiscal rules starts with these cautious assumptions
that we laid down in 1997 and are auditedcontinuouslyby
the National Audit Office. These include, for example, the oil
price. As far as the cautious case is concerned, which is what
you are raising in addition to the cautious assumptions, that
goes back to the point that Mr Balls is drawing attention to in
206. If you can just give me the table, I want
to move on to other questions.
(Mr Brown) No. I think he should explain it to the
Committee because you have asked a question.
207. Mr Balls?
(Mr Balls) The economic cycle is measured by the output
gap and chart B4 in the Budget documentation, because obviously
the full fiscal arithmetic and the spending envelope was set at
the time of the Budget, shows the output gap which we forecast
to be a little over three quarters per cent of GDP this year,
and it shows the path by which we return to trend, and on that
basis we meet the fiscal rules with a margin of some billions.
What we then do is an estimate if the output gap is 1 per cent
of GDP worse than our forecast based on cautious assumptions,
and on that basis we still meet both of the two fiscal rules in
that more cautious case. Clearly in any one year the economic
forecast can change but what matters is the forecast we make over
the economic cycle, and the economic cycle is set out, as I say,
in chart B4.
208. Let us try something else. Tax revenues.
Andrew Dilnot has said, "If . . . we were to see an unexplained
deterioration in tax revenues that matched the unexplained improvement
in tax revenues [that we all know about] we saw in the first parliament
of the Labour Government, then I think there is more chance of
a problem. So I think there is more of a gamble than there was
in the first parliament, simply because the forecasts for the
economy on which the public finances are based are no longer [now
that is] systematically pessimistic, but they are much more central,
so if something goes wrong, the risks have become greater".
He is right, is he not? You have become "gambling Gordon"
in this Parliament?
(Mr Brown) Not at all. What Mr Dilnot was reported
as saying seems to be something quite different from what you
are saying he said
209. This is a transcript, Chancellor. Mr Balls
is happy to look at it if you will not.
(Mr Brown) The fact of the matter is, once you take
both the cautious case and the cautious assumptions together we
are not in danger of making the mistakes that the previous Conservative
government made, and the reason is this: that we do not assume
revenues that are not there. We have our revenue figures audited
properly by the National Audit Office for the things I have talked
about. Other governments previous to us assumed unemployment would
fall and took the social security savings from that and built
them into the figures and we do not do that, so on all these points
we have both the cautious assumptions and the cautious case. Can
I just add one other point on our current balance over the economic
cycle? We say we must be in balance: in fact, there is quite a
considerable surplus in the figures we have laid out before the
House, and I think it goes from three to seven to nine to seven
to nine, and these are the surplus figures on the current balance.
So if you are asking what we have done to ensure that we are in
a position to meet our public spending figures over the years
to 2006, first of all, we work on the cautious case, as described
by Mr Ballsand I refer you again to that table: secondly,
on the cautious assumptions; and, thirdly, the margin for prudence,
as I said on Monday, includes the surpluses that we are able to
estimate for the current balance.
210. So you will give a clear and unambiguous
promise that you will not have to raise taxes to cover this Spending
(Mr Brown) What I
211. Middle Britain, which is sick and tired
of your addiction to taxes, really want to have this question
answered: you are going to promise us now that you will not have
to raise taxes to cover this Spending Review?
(Mr Brown) Mr Ruffley, it has just been pointed out
to me that you were not at the meeting where Mr Dilnot made all
212. I was having lunch with the Queen, as a
matter of fact, which was explained by the Committee, so do get
your facts right before you make cheap political points, Chancellor.
(Mr Brown) I thought the meeting took place at 10.00
in the morning.
213. I had to go to my constituency.
(Mr Brown) As far as the public spending figures,
we have set down in the Budgetand, of course, I came before
this Committee after the Budget and we had a similar sort of discussion
Mr Ruffley: Come clean. Tax increases.
Chairman: Chancellor, just feel confident
and go ahead.
(Mr Brown) Is this going to be a discussion, or are
you going to be heckling from your position?
214. Chancellor, can you briefly answer?
(Mr Brown) We set down in the Budget, and I came before
the Committee on this, our figures for both revenues and expenditure
until 2006. These were figures that showed, with the National
Insurance changes we were bringing about, the freezing of the
personal allowances for one year; how our revenues would be raised
until 2006; and, equally, we showed what the overall public spending
figures were, and we showed how we could meet through the revenues
the expenditures on the cautious case, with these cautious assumptions
and with the margins that I had just given
215. You are promising Middle England you will
not raise their taxes?
(Mr Brown) What I am saying is
216. You are not giving that promise?
(Mr Brown) Mr Ruffley, you know perfectly well
217. You are not giving that promise.
(Mr Brown) You know perfectly well
Mr Ruffley: You are not giving that promise.
That is fine.
Chairman: Let us move on.
Mr Ruffley: No promise given. Thank you.
(Mr Brown) I must finish this answer, Chairman. We
have set down our figures for both revenues and expenditure; we
have shown how our public spending programme will be costed; we
have shown the figures for public expenditure until 2006. In fact,
in the case of the Health Service we have shown how our expenditures
on health care can be costed till 2008, and I believe that is
more than any previous governments have done to show how, over
the long term, the programme is costed for the future.
218. There are two difficulties with that answer.
One is you add to your spending programmes each Budgetindeed,
each pre Budget report you make additions inside the three or
the two years. The other is that the last Spending Review you
said was fully sustainable on the Budget decisions you had taken,
the 2000 Spending Review, but then you had this big NHS black
hole and put up National Insurance. Why should we believe you
(Mr Brown) What we did at the time of the 2000 Review
was set up the Wanless Review which reported in November last
year and recommended that, if we were to have proper planning
and health care expenditure right through till 2008in fact
right through until 2020we should put more money into the
Health Service, based on demographic, technological and other
trends, and this was a review that had taken place over a very
long period of time. I would hope that we could build all-party
consensus around the need to finance our Health Service properly
for the futureif we cannot that is unfortunatebut
all these figures were laid before the House at the time of the
Budget and were the result of a review that started in 2000.
219. So there is nothing in this year's spending
review, this extra £90 billion, that is not fully provided
for by your existing Budget?
(Mr Brown) Our figures for public spending until 2006
are set down. Equally, the revenues we can expect based on the
assumptions I have talked about are set down also until 2006,
and I think we have had a debate in this Committee about these