Examination of Witnesses (Questions 320
TUESDAY 11 DECEMBER 2001
MP, MR ED
320. Chancellor, in the Budget earlier this
year the growth in the public spending was predicted at 4¼
per cent, and in the Pre-Budget Review it is down to 3 per cent.
Can you say what the factors are?
(Mr Brown) Are you referring to the year 2001-02?
321. No, I am talking about the year 2001. Budget
2001 gave growth in public spending this year as 4¼ per cent.
(Mr Brown) Which Table are you referring to?
322. In the Budget 2001 I am referring to Table
B6, page 174, and in the Pre-Budget Report to Table A9 on page
(Mr Brown) I do not think you will find that the outturn
for the year is much lower than the figure we gave at the time
of the Budget for the rise in public expenditure as a whole. I
think you will find that public expenditure is rising at quite
a fast rate this year, and is supporting monetary policy in a
way that I think is entirely beneficial. I do not think you will
find that we are slowing down growth of public expenditure this
year in the way that these figures suggest. If you are referring
to certain items of public investment where there has been an
underspend, I am quite happy to deal with that. I will write to
you to correct it if there has been a mis-impression given.
323. Next year the estimate is that growth in
public spending will be at its peak in 4¾ per cent. Are you
confident that can be achieved?
(Mr Brown) Yes, and one of the reasons why public
spending in the coming year will be at that level is that we carry
over (as we did not do previously) underspends in previous years
into the next year. If a department has calculated, on a particular
amount of spending, that by the end of the year it will have spent
a little less then it can carry over that expenditure to the next
year. We do not have what happened in previous years where at
the end of the financial year there was a terrible rush to spend
money just to get that money spent because it would be clawed
back by the Treasury. That led to long road delays during February
and March in previous years when people threw all their money
into road repairs, perhaps not the best road repairs they wanted
to make. We are trying to get a far more consistent approach to
public expenditure where you can carry through underspends from
one year and use that money in the next year.
324. Can we move on from current spending to
capital spending, where the Government's investment forecast is
down in the Pre-Budget Report to grow at 21½ per cent this
year, which is again lower than the Budget forecast in 2001 which
was 43½ per cent. Why is the planned increase in public sector
investment not being achieved?
(Mr Brown) I think the increase in public investment
is now happening, but it has been slower than we expected, partly
because for some departments there has been no tradition of big
public investment programmes over recent decades, and it takes
time to develop the means by which these investment programmes
move ahead. I think you will find in health, education, transport
and so on that these investment programmes are now moving ahead.
I think Mr Fallon in a meeting last week referred to an underspend
in the Health Service. I think we have been able to assure him,
and I will certainly write to him about this, that the figure
he mentioned for underspend rested on the confusion between the
Department of Health budget and the NHS budget.
325. What are the factors behind the confidence
now that this period of underspend is over? The underspend in
2000 of £6.25 billion was substantially larger than the underspend
in 1999. What are the factors that are now giving confidence that
that era of underspending is over?
(Mr Brown) I do not think we should be saying to departments,
"Whatever happens you must spend in March what you have not
spent in the 11 months before March". I think the better
system is where there is flexibility so that departments can maintain
a consistent level of spending; and if they have not managed to
complete a spending programme by the end of the financial year
they can carry it over. I am not as worried as some people are
about underspends being carried over into future years. I think
it is more important that the departments make the right investments
even if they make them after the end of March.
326. Do you feel that things are on course now
to increase public sector net investment to 1.8 per cent of GDP
by 2003-04 as previously forecast in the Spending Review 2000?
(Mr Brown) We are on course to raise it. It is not
to raise it by 1.8 per cent, it is to raise it from a net 0.7
per cent. 1.8 per cent is the total. Net investment increased
by one-third in real terms last year; there was a big rise last
year. In the year to date net investment is £3.3 billion
more than at the same stage last year. You can see the public
investment programme is moving ahead. Obviously we are going to
keep an eye on this because there are major investments in our
country that we want to see made, and we want to see them made
as efficiently and as quickly as possible.
327. Chancellor, there has been a hullabaloo
about health in the past few weeks, and it is this issue to which
we wish to turn our attention. I am mindful of the answers the
Chief Secretary gave to us in questions last week on the Government's
target for health spending. Could you confirm that the Government
target for health spending as a proportion of GDP is equal to
the EU-15 unweighted average of 1998, namely 8 per cent?
(Mr Brown) Can I say, when you are talking about Government's
ambitions and policies and targets in these areas, that there
are two caveats which I think have to be understood. One is that
everybody here must be interested in outputs not just inputs.
When we have public service agreement targets with departments
they are about what we want to achieve in terms of reduction in
waiting times, numbers of doctors and numbers of nurses improving
the service and the treatment of cancer and all the other different
illnesses. All our targets are about outputs and not just about
inputs. I think that has got to be borne in mind, a very important
thing. Secondly, we set up Wanless precisely because we wanted
for a long period of time to find out what were the needs of the
British health service to meet British conditions over the next
20 years. Therefore, the Wanless Report is designed to report
to us on what are the exact needs of the British health service,
taking into account productivity improvements over the next few
years, and is looking at demographic, technological, people's
higher expectations about the level of service and about the quality
of service they want. Wanless will report to us, and that will
create the new context for the spending round, and indeed future
years' spending planningbecause we are looking at spending
over 20 years in relation to the health service and getting a
sustainable basis for a long period of time and that is what Wanless
is about. I think these two caveats are very important. As the
Prime Minister said in the House of Commons only two weeks ago,
to repeat what he said in a well known Frost television interview,
"It is our aim to get spending up to the European average".
That European average has always been calculated in every year
that this debate has taken place at around 7.9-8 per cent and
that is what we will achieve. The reason we will achieve it is
that we have raised spending from 6.9 per cent two or three years
ago to 7.2 per cent, now 7.4 per cent, and will rise again to
7.6 per cent, and then in 2003-04 7.7 per cent. So we are moving
towards that figure. That compares, if I may say so, with an average
of 6.2 per cent (not 7.7 per cent) under the previous Conservative
328. If that target of 8 per cent had applied
in 200203 how much greater in cash terms than the figure
in the PBR would the government's health spend be?
(Mr Brown) What the Prime Minister said in his interview
on the Frost programme was not that. He said that over a period
of years, and he mentioned the two spending rounds, five years,
he hoped to move up to the European average. He did not say that
he was going to reach that figure in 2002-03. What he said was,
"Over a period of five years, if we continue the growth rate
in public expenditure which was roughly 5 per cent on the health
service, each year for the next few years, depending on economic
success, we would by 2005 (the period he talked about) reach that
European average of 7.9-8." The figures prove that out. It
is 6.9, 7.2, 7.4, 7.6, 7.7 and then we have the future spending
round decisions which show that we will reach that figure. I may
add, it is the Wanless Report that will decide for future years
the level of resources that people think are required for the
British health service to meet British conditions; and we will
look at the Wanless Reportobviously it will be publishedand
we will have a debate about that. I think that will inform debates
not just for the next year or two but for debates about what is
needed for the next five, ten or 20 years.
329. In a memorandum to the Committee, the King's
criticised the use of the arithmetic mean of EU health spending
in this context, and pointed out that in their opinion it was
not sensible to give Luxembourg's health spending the same weight
(Mr Brown) The point about the unweighted
average is that it is what has been used since the Prime Minister
gave the interview at the beginning of 2000. It was always understood
after that that the figure that people were talking about was
7.9 to 8.0 per cent. If I just read out what the EU average spending
on health has been, it has been 7.8, 8.0, 8.1, 8.0, 8.1, 8.2,
7.9, 7.9 for the last ten years. So it has varied between around
7.9 to 8.0 and there has been very little difference over the
last few years. When people have been talking conventionally about
this over the last two years, that has been the figure that people
have had in their mind.
330. Chancellor, were you happy and enthusiastic
when you heard the Prime Minister on "Breakfast with Frost"
make that commitment to get spending up to the European average?
(Mr Brown) Not only are we enthusiastic about it,
but we are achieving it.
331. You have not yet.
(Mr Brown) I then went on, in the Budget in March,
to announce a huge rise in Health Service expenditure and, as
I say, when we came into power the average for the last 20 years
had been 6.2 per cent. It then went from 6.9 to 7.1, to 7.2, to
7.4 and it is going to be 7.7. So the measure of our enthusiasm
is that we are actually achieving it.
332. Yesterday I spoke to John Appleby, who
you may know is one of the economists at the King's Fund.
(Mr Brown) I do not know him.
333. He said that this target you have got of
the EU average is a bit of a silly way of targeting it because,
firstly, it includes the UK itself and we are obviously trying
to get up to the continental level, and, secondly, as the Chairman
said, it gives the same weight to Luxembourg as it does to a big
country like Germany. He was suggesting that a weighted average
was a more sensible way of looking at it.
(Mr Brown) If I may just intervene there, and you
can come back to me, perhaps that is why the Wanless recommendations
will be more important in the long-term. I think what he is really
saying is that you need a measure of Health Service inputs and
outputs that is appropriate to British needs for the longer term.
That is why we have set up the Wanless report. It is looking at
the demographic pressuresthat are quite different in Britain
to America or other parts of the worldon the British Health
Service, it is looking at the technological backlog in Britain,
which in many ways is higher than some other countries and we
have got to meet that, and it is also looking at the pressure
of expectations, which differ in some countries from other countries.
All these things have to be taken into account, and that is why
I would think that the King's Fund would welcome the fact that
we had a British review looking at British needs. This is the
first time that the Treasury, which has traditionally wanted to
stop spending in certain areasin the 1950s the one report
set up by the Treasury was designed to stop spendingwants
to spend on the Health Service. We want a rising share of national
income to health. We set up the Wanless review, the Wanless review
will report, and I think that will be British needs for British
334. I take your point but it was the Prime
Minister who set this target for you.
(Mr Brown) Exactly. We are meeting this target.
335. Mr Appleby did a supplementary note for
me (supplementary to the note that he did for the Committee)
(Mr Brown) I have not seen that.
336. He said that another way of looking at
the Government's target of spending 8 per cent of GDP on health
care in relation to the average for the European Union is to see
when Europe achieves a weighted average figure of 8 per cent on
the more sensible basis. Looking at his graph, he says that the
rest of the EUon that much more sensible definitionactually
achieved that average in 1987. In other words, you are setting
yourself a target for 2005 which the rest of Europe achieved in
(Mr Brown) There is going to be a large exchange of
information after this meeting because I have not seen this paper.
If the Committee would like to send it to us we will happily look
at it. I think you know perfectly well, Mr Laws, that during the
whole debate that took place from January 2000 about European
averages the figures that people were using for all that period
of time was around 7.9 to 8.0 per cent. It was mentioned during
the General Election campaign, it was raised immediately after
Mr Blair's interview on the Frost programme and it was always
understood in that light. Please feel free to send us that paper.
337. We will send you that note. Chancellor,
I have not been very successful so far with the various pamphlets
I have produced, none of which you have read. I wonder whether
you did have a chance to read Peter Mandelson's article in The
Guardian on 6 December.
(Mr Brown) It is not a pamphlet yet?
338. I know that you follow very closely his
pronouncements on economic policy, but Peter Mandelson is rather
sceptical of the approach that you and Wanless take in terms of
a publicly financed health system purely through taxation. He
basically believes, as you have probably read, that there should
be a stronger social insurance component. Do you think that there
is something in what Peter Mandelson says, or have you ruled out
a more social insurance based system completely?
(Mr Brown) Mr Mandelson spoke from the back benches
on the day of the Pre-Budget report and actually supported what
I had said.
339. That is not what he is saying here.
(Mr Brown) I have not read this article, but I am
going to have a lot of reading to do, with the Goldman Sachs weekly
digest and letters from the King's Fund on health. As far as social
insurance is concerned, I think we have to be clear what we are
talking about here. The social insurance systems that are operated
in France and Germany are actually quite different from each other.
In France the social insurance premium is something in the order
of £33 a week for the typical employeeso that is the
social insurance premium paid for health. On top of that the employer
pays something like £50 a week for the health care cover
of the people. On top of that, of course, the individual goes
to the doctor or a hospital, pays the bill and then claims it
back but only gets 70-80 per cent back, and then has to
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Appendix 4. Back