Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 300-311)

15 JULY 2004


  Q300 Chairman: You are aware that Tony Baldry, the Chairman of the International Development Committee has written to me, in my capacity as Chairman of the Treasury Committee, asking if we can do something jointly on this issue.

  Mr Brown: If I may say so, what might be done jointly is persuading the Conservative Party that it should match our commitment on overseas development aid, and perhaps persuading the Liberal Party—

  Q301 Chairman: Chancellor, this is a very non-political committee, and so—

  Mr Brown: I have found that!

  Chairman: We will forgive you for your omission. On to Jim Cousins for regional strategy.

  Q302 Mr Cousins: Chancellor, it almost takes your breath away: we go from community alarms in Warwickshire to the Vatican and the World Bank! There is a 10-year programme for science in the Comprehensive Spending Review: can I ask you to set out how this will be used to particularly benefit the parts of Britain which have the least strong scientific base?

  Mr Brown: The interesting thing about our science programme is that the concentration is on three areas: schools, colleges and universities, and business. Those areas that you represent will benefit because clearly not enough is being done in the schools in your area. You know that and I know that. There is more money going into the schools for science teaching and science teachers. Secondly colleges and universities that wish to expand their science activity—we had a programme of modernisation of the infrastructure, and now it is a question of getting the staffing level sorted out. Then local businesses should be able to benefit from the work that is done in universities, and the spin-offs that can come from Newcastle and all the other universities in your area. It is a science strategy that is national, but the beneficiaries will, in my view, be regions like yours where of course the level of R&D investment has been far too low for too long. If I am right, expenditure on R&D in the north-east per head is something like £50, whereas in other regions of the country, the richer regions, it is £500. That is the gap that has to be narrowed.

  Q303 Mr Cousins: Indeed: that is precisely the point of my question. Will this additional spending be tilted to compensate for that inequality that you have precisely just referred to?

  Mr Brown: The Government has asked the Regional Development Agency in your area and other areas—

  Q304 Mr Cousins: No, Chancellor, do forgive me. I appreciate you may be asking the Regional Development Agencies, but will there be an inbuilt factor that will direct itself at precisely that inequality that you have just now referred to?

  Mr Brown: The three Northern Regional Development Agencies are going to aim to enhance their current plans to support business innovation—that is what we are talking about—to over £100 million by 2010. Their aim is to strengthen university collaboration and technology transfer across the North. The Northern Way is, in a sense, giving priority to more investment in the North and there are funds provided for the Northern Way and for Regional Development Agencies in the spending settlement that raise the amounts—I cannot remember the exact figure—I think it is to two and a quarter billion by 2008.

  Q305 Mr Cousins: But at present the money for creating new enterprise through Business Links and the Small Business Service is allocated to regions in proportion to their existing stock of such enterprises. That is to say, it compounds and does not compensate for historic differences and disadvantages—

  Mr Brown: But the Regional Development—

  Q306 Mr Cousins: What I am asking you is will these new spending programmes compensate or not?

  Mr Brown: Where there is a gap which we have identified, and the gap is clearly a bigger gap in the North East than elsewhere, we are aiming to fill that gap by higher expenditure. I said the three emphases were on science teaching and the schools, then the colleges and universities, then business link-ups, and each of these areas, because the North has not done as well in the past as it might have done, are the areas that are ripe for expansion and more money will be available. That is what the whole 10-year science framework is about. I cannot tell you which university is going to get what money, but I can tell you that the emphasis, equally, on the Research and Development Tax Creditis not going to existing research, it is going to people who have projects for future research. It does not give money just because they have been doing it in the past, it is only if they come forward as a business with a project to do it in the future. If the North and the Northern companies can come up with the projects they will get the Tax Credit.

  Q307 Mr Cousins: Chancellor, this is precisely the difficulty. If you have a lower base for this kind of activity to start with and the distribution of the additional money is working on the basis of bidding systems, then inevitably the existing differences and disadvantages will be compounded.

  Mr Brown: Hold on, hold on. Take the RDAs first for a start. There is going to be a new funding formula for the RDAs—the Committee should take an interest in this—it is going to be published in April 2005. Take the Research and Development Tax Credit, you are wrong about that because that is based on new applications, it has got nothing to do with previous applications. Take the science programme generally, the emphasis is on the very areas where regions like yours have done least in the past and need to do more.

  Q308 Chairman: Nigel?

  Mr Brown: I am pushed for time.

  Chairman: A couple of minutes. I am looking after your interests here!

  Q309 Mr Beard: Chancellor, this is the first Spending Review cycle where the new system of resource accounting and budgeting has applied all the way through. What difference has it made to the 2004 review? Will you be doing any study to see—Would you like me to start again?

  Mr Brown: I have got the point. Are we going to be doing more studies?

  Q310 Mr Beard: No. What I was about to ask was what difference has this new system of resource accounting and budgeting made to the presenting Spending Review, having had it for a whole three years now, compared with the old cash system? Will you be doing any study to see how it is working?

  Mr Brown: I think it is fair to say there is a process here of trial and error and working through it that is being relatively successful now. It was difficult for departments to start with and it led to a number of issues with departments, but I think we have solved many of these. There is now better information about our asset base and about the assets we do have, so that has been a big benefit as well. On the benefits and challenges of resource accounting perhaps I could get a note prepared for you so it can inform the Committee's report[4]

  Mr Beard: Thank you very much.

  Q311 Chairman: Chancellor, just a last point on PFI earnings. There have been representations made to us that there was insufficient information made on this and in a number of cases the PFI earnings are not justified by the risk transfer or the private sector efficiencies. Do you have any information on that? I am not asking for a detailed answer.

  Mr Brown: We made changes in PFI, did we not? We said that IT projects were not great for PFI and we had to look at them; small projects were not great for PFI and we had to look at them. We have announced in this spending round £37 billion of PFI projects in total. There is a huge amount of projects moving forward. I will send you a note on that[5]

  Chairman: That is good. On time, Chancellor, we are releasing you to go to the House of Commons to answer questions from us in 10 minutes. Thank you for your appearance before us this morning.

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