Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 280-299)

15 JULY 2004


  Q280 Mr Mudie: I noticed just in passing that you mentioned to Angela that these independent schools would come by local choice. I read the Education Department policy document last night, and—

  Mr Brown: You had a busy evening if you had to read all these things.

  Q281 Mr Mudie: This is what you force upon me! It comes by virtue of not local choice but a vote by the governors. The governors can change the whole basis of a local school by one vote. How does that—

  Mr Brown: But they cannot change because—

  Q282 Mr Mudie: How does that equate? No, they are changing it into one of these independent foundation schools specifically with the vote of the governors—and they say that proudly. How does that enable local choice to play a part?

  Mr Brown: Because I think what we are talking about is becoming a specialist school, deciding it wants to focus in on sport, science, music or enterprise—and that that is a decision that ought to be made locally. But what it is not doing is changing the selection process, nor is it paying for education. Therefore the basic principle of education being free to all is safeguarded.

  Q283 Mr Mudie: We have been told by our advisers that to meet your targets in child poverty, you need to up-rate future Child Tax Credit in line with earnings. Do you agree, and do the figures in the documents have that—

  Mr Brown: We have done that, obviously, and we are doing it for this parliament. No decision could be made until the next parliament, with an election manifesto or an election. If you look at how child poverty can be reduced, it is not simply raising the level of benefits—and this is what I was talking about last week in the Rowntree Foundation lecture. It is also about what is the balance between employment and unemployment in families where there are children. I gave a few examples last Thursday, I think it was, where I was suggesting that if we could get more people back into work, then we could be far faster in getting people out of child poverty. If the household income was rising, and for a single parent in work it could be nearly £100 a week, and £70 was the average, that single parent was better off in work. That is the quickest and most effective way of reducing the poverty of that family. Any discussion about how you meet a target on child poverty depends on family structures, on employment opportunities, on part-time as well as full-time work; and it depends also on the levels of benefit, so it is not just one factor.

  Q284 Mr Mudie: Absolutely, and I think that is what is so magnificent about the document; that you have the target, and you have got back to joined-up government in terms of delivering, which is necessary to reach that. Can you give an immediate indication, but could you also think about using the Treasury's influence to bring a similar approach to old-age pensioners? Despite the fact of the minimum income guarantee and pension credits, pensioner poverty needs a wider approach. You also mention ethnic poverty in this document. You touch on it in here, but is there not a case for having a similar joined-up approach to deal with poverty in the ethnic communities in the widest sense, because whatever poverty we have in here, ethnic communities on average are three or four times worse in every area.

  Mr Brown: First, pensioner poverty: we are doing more on that. All the measures taken together will make some of our previously poorest pensioners better off than they have ever been, particularly widows in their late seventies and eighties. The amount of money that is possible because of the pension credit as well as from the winter allowance and other measures—tackling fuel poverty—means that they are better off. We have taken very substantial numbers of that group of people who really were denied proper second pensions, proper industrial pensions, and had few savings, out of poverty and we will continue to do so. On the issues raised about ethnic minorities, perhaps I can send you more details on the new deal for ethnic minority groups, which is particularly focused in a number of areas, including a project in your city of Leeds, where we recognise the barriers. There was a Cabinet Office Strategy Unit report last year, but we recognised the barriers of getting in to work, and that is why we have created a new range of incentives for people in the areas where these projects are. That is why there are also more specialist advisers to help people overcome the problems they face. We are committed over this period to improving the help that is available within the mainstream employment programme to ethnic minority clients. We are doing a lot more, but obviously at local level you will want to look at the effectiveness of what is done, and come back to tell us. It is the Department of Work and Pensions work on ethnic minorities that holds the key, because the unemployment rates in the areas you are talking about are far higher than the unemployment rates in the general population.

  Q285 Mr Mudie: No, but I appeal to you not to give me an immediate answer, but to think more of it, because it is beyond Work and Pensions. Educational attainment is bad; the elderly are bad; health inequalities are bad—

  Mr Brown: That is right.

  Q286 Mr Mudie: And this can only be brought together by someone like yourself in the Treasury, and I would really like you to produce a document like this, with all the departments working together.

  Mr Brown: You appeal for us to take more responsibility. I will certainly talk to my colleagues about this, and perhaps we can come back to the Committee. I am conscious of the fact that in the neighbourhood renewal areas we are now able to report results where educational attainment of pupils is higher, unemployment is lower, and crime is down. The three major challenges are all being met together.

  Q287 Mr Plaskitt: Chancellor, in Warwickshire we have had some very decent settlements for social services from the Government for the last few years, which were well ahead of the rate of inflation. We have just been able to cope with the increased demand as a result of the good settlements we have had. From the CSR it looks as though next year we could expect another good settlement, with the increase rising at 5.6%, and that will be very welcome news; but it appears to fall off a cliff edge after that: the 2006-07 increase is 1.2%, and 2007-08 1.7%. Why is there such a sharp slowdown in the increased support for personal social services? The table is on page 100.

  Mr Brown: I have just been given the table. The first thing I would say is the point I made earlier. Whereas the rate of growth of both annually managed expenditure and departmental expenditure is lower in the later year, we are expecting the savings that have been built in to our calculations to mean that front-line spending in these areas will remain as high. If a local authority or a public organisation can achieve the efficiency savings that we are talking about, then for example a 1% or 2% growth rate could be converted into a 4% growth rate in frontline resources, and in expenditure on frontline services. I do say, although I cannot comment individually on what is happening in Warwickshire, that the settlement which we have given we believe allows for 20,000 more old people to be supported to live at home—not all of them in Warwickshire—but in England; 100,000 older people will benefit from this very important alarm technology, which we have been looking at in the Treasury. It is very effective and enables older people to stay longer in their homes. They know that if they press this alarm—and the alarm is automatic in certain cases when there has been something happening—they can get care services to them very, very quickly. We are assuming 1,000 extra care places for older people as well. The other point I should mention is that we are trying to continue the reduction in what are called delayed discharges from hospital. It is already down 60% since 2001, but we believe we can do better.

  Q288 Mr Plaskitt: That is quite a good example. I work very closely with our social services team, and we have managed to get delayed discharges down to virtually zero. There are many departments around the country, and mine is one of them in Warwickshire, that have been working really hard to get efficiency savings out of personal social services, and I think we have done an awful lot. However, it is still the case that even with a good settlement of around 5% real growth, because of demographic pressures and increasing demand for these services, it is a struggle to keep pace. I am just concerned that if the growth rate in funding drops from 5.6% real growth to just 1%, below the rate of growth of the economy, continuing to deliver the services that are already up will be a bit of a challenge, is it not?

  Mr Brown: I would just emphasise that the actual settlement is 10.3 billion, up from 8.6 billion. In real terms, the figures are as you say, but cash-wise it is substantial, and with the additional efficiency we are assuming it means more money to the front line. I gather a study has been done about supply and demand for care home places, and it is suggested that demand was at 460,000 this year, and bed capacity at 470,000. I am not suggesting that is a final study of these issues because they are very major areas indeed, but there are studies suggesting that demand and supply are more in balance than people have imagined.

  Q289 Mr Plaskitt: Once again, there are big regional differences in that because of age distributions.

  Mr Brown: Absolutely, and where an area has a large number of people in retirement coming up to the older ages in retirement, then the pressure on the social services will be there. Increasingly, people are wanting to, and are able to with the smart technology and support services, stay in their own homes, and therefore not in local authority or other residential accommodation.

  Q290 Mr Plaskitt: Again, you seem to be emphasising that in a sense it is asset sales and efficiencies that have to make up the difference to try and compensate for the reduction in the real growth rate of support. Is that right?

  Mr Brown: I think there was a misunderstanding right from the beginning about asset sales. What is written in to these figures is a cash sum. It is a real terms increase. With the greater efficiencies that we expect to be achieved, then the rise in frontline expenditure would be as high as in previous rounds, if not higher. In regard to the asset sale issue, whatever local authorities are assuming at the moment, we are not assuming any more until we have finished our work on this, but our objective would be to get to £30 billion of sales—and I will report further in the Pre-Budget Report about how we think we can get there.

  Q291 Mr Fallon: Chancellor, this is your 4th attempt to plan public expenditure properly. After the last attempt in 2002, the pension service, which is an executive agency of the DWP, set up a network of 29 pension centres. Less than two years after they were set up, the DWP has now announced that it is scrapping a third of them, and 316 staff at the Breckfield Centre in Liverpool on Merseyside are being fired just 18 months after the centre was set up. Are you going to apologise to them?

  Mr Brown: We want to help them get further jobs. I am not going to get into the business of talking in detail about a centre that I have neither visited nor which is my direct responsibility but under the Department of Work and Pensions. The reason that things are changing and have got to change is because of the advance of new technology and our ability in the last period of time to spend 2.8 billion in the case of the DWP in modern IT infrastructure. Surely, you would agree with me that having spent that money on infrastructure and developed a new means of delivering services, it would be right therefore to make the changes in the employment patterns? In Liverpool, more jobs are being created now in different parts of the city, as a result of the economic development of the city; and Liverpool is advancing in a way it was not five or ten years ago. Now that we are in a position to make this new technology work properly, then it is right to make these staff changes.

  Q292 Mr Fallon: You are trying to wriggle away from your own responsibility. New technology did not start in 2002.

  Mr Brown: No, but—

  Q293 Mr Fallon: It was under your previous planning period that all these centres were set up. Now, just under two years later, a third of them are being scrapped, and 316 people are losing their jobs. That cannot be good planning, can it?

  Mr Brown: I am pleased you are standing up for the needs of these 316 people and we will help them get jobs if the existing jobs—

  Q294 Mr Fallon: Is this an example of good public spending planning?

  Mr Brown: Hold on. If the existing jobs are no longer needed, then you move and encourage people to get new jobs. But can I just tell you that if you make the new technological investment and if you are then able to make the decision to go ahead with the different levels of staffing to provide a better or the same service, that is surely the right thing to do. In the late nineties the investment in new technology was not being made at the rate it should have been made because we did not have the money to do so; but subsequently we made, as I said, nearly three billion of new investment in the system to deliver benefits and credits, and having made that investment it is the right thing to do to then draw the conclusions from that that you need in some cases less staff. You need more people on the front line in other cases. You need probably a merging of some of the centres so that the new technology can allow people to process benefits in a bigger centre than disperse right across the region. These are all changes that, surely, once the new technology is in, you should go ahead and make? I do not think you should get yourself, Mr Fallon, in the position of being a Luddite in these matters.

  Q295 Mr Fallon: I think you should have thought about this in December 2002 when you set all these centres up.

  Mr Brown: Mr Fallon, we were setting up a new pension credit. It was successfully delivered to hundreds of thousands, indeed millions, of pensioners in this country—I was not going to delay the implementation of the pension credit while we waited for the new technology to be available because I wanted the pensioners to get the money as quickly as possible. Equally, once the new technology is in place, let us go ahead and make the changes.

  Q296 Mr Fallon: So you are not going to apologise to them!

  Mr Brown: What I want to do is to help these people in Liverpool and York, which are the two pension centres, to find jobs. Indeed, there are jobs in Liverpool because there are vacancies today in Liverpool and in York. As far as Yorkshire is concerned, I was able also to say that one of our central government departments is going to relocate some of its work to York, and therefore there are jobs about to be created in York from a central government relocation. In the case of York there will be more jobs as a result of government relocation.

  Q297 Chairman: Chancellor, on international development, I welcome the very substantial increase in the overseas aid budget, and in particular the target of 0.7% of GNI for 2013; but do you think that is soon enough in order for the UK to play its part in helping to meet the Millennium Development goals in 2015?

  Mr Brown: The Millennium Development Goals are absolutely critical. They will not be met unless we have a new form of financing for international development. I am absolutely sure about that. We in Britain can make a major contribution, and we can do as we announced—increase the amount of aid that is going to the poorest countries. Remember that our aid is no longer tied; it gets to the poorest countries and the poorest people. We are doing more on health and on education, and we are putting more money into those in this review. If we are going to meet the Millennium Development Goals, as I said last week, we are going to have to develop a more innovative way of binding governments together to finance the vastly increased amount of expenditure that will be necessary to get primary education to every child, and to get the reductions in infant and maternal mortality that we want to see.

  Q298 Chairman: One vehicle for that is obviously your proposal for an international finance facility.

  Mr Brown: Yes.

  Q299 Chairman: But when the Committee was in America just a few weeks ago, we had the opportunity to speak to John Taylor, the US Treasury Under-Secretary, and he did not seem too keen on that. When we spoke to Jim Wolfensohn of the World Bank, he linked the 0.7% GNI target with opportunity to do more with your international financing facility, because it would be a symbolic measure adopted by your government. What progress is there for your IFF?

  Mr Brown: Considerable progress. I was in Rome last Friday at the Vatican, and I met a whole group of people at a conference organised by the church. It was attended by representatives from every continent of the world to discuss the finance facility. There is an increasing recognition that even if we went to 0.7% tomorrow, the scale of extra funds that we could provide on our own would be something in the order of 2-3 billion. The amount of money needed in total is in the order of at least 50 billion extra above the aid that is now given. It is only by countries coming together that we can make the difference. Some countries have difficulties with their budgetary process, and they say that, for example, Congress could not vote for 30 years ahead; it can only vote by its constitution for a year or two years ahead. We have explained how we think that in the different political systems of the world that can be sorted out without actually affecting the AAA rating of the international finance facility; so we have solutions for all these issues. It will come down in the end, not to the technicalities of this, because they can all be met and the problems overcome; it will come down to whether there is political will to solve these problems. Political will depends on the relationships between governments and people, and not just governments wanting to do things or not wanting to do things and whether popular opinion wants to make changes. I believe that the Jubilee Debt Campaign proved that even governments that initially were reluctant to make changes were prepared in the end to do so. Equally, we have about 50 countries that have now supported the international finance facility. We have a paper coming to the World Bank and IMF meeting in September. Jim Wolfensohn, whom I admire very much, asked a question which has essentially been answered by us this week, that we are setting a timetable for 0.7; but that is only one means by which you can get to this 50 billion extra. We will have this discussion in September and October at the annual meetings of the IMF and World Bank. I have the good fortune to chair the International Monetary Fund Finance Committee, which will discuss this very thing probably in the first week of October.

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