Examination of Witnesses (Questions 251-259)
RT HON
GORDON BROWN,
MR JON
CUNLIFFE, MR
NICHOLAS MACPHERSON,
MR JONATHAN
STEPHENS, MR
MICHAEL ELLAM
AND MR
DAVE RAMSDEN
16 DECEMBER 2004
Q251 Chairman: Chancellor, welcome to
you and your colleagues this morning. Can you introduce them,
please, for the shorthand writer.
Mr Brown: Yes. It is Mr Ramsden,
Mr Macpherson, Mr Ellam, Mr Cunliffe and Mr Stephens. I think
they have been before the Committee in the course of the last
few days when you were doing the preliminary assessment of the
Pre-Budget Report and so we have people representing the tax budget,
spending and macroeconomic divisions.
Q252 Chairman: Thank you. Chancellor,
your Pre-Budget Report states quite proudly that UK GDP has now
grown for 49 consecutive quarters, a record-beating performance.
This will remind many people of Arsenal's fate when they went
49 games without defeat but then were defeated in the fiftieth
game and they are now 5 points adrift from the top of the league.
Is this going to happen to you?
Mr Brown: No, because we are confident
about the fiftieth quarter as well. I think you will be able to
see the results very soon. We are also confident about the position
moving forward, which is that with a low inflation environment
we are capable of growing over the course of the next year as
well.
Q253 Chairman: What steps are you taking
to ensure that the UK economy responds positively to the challenges
posed by growing globalisation of the world economy?
Mr Brown: The whole basis of the
Pre-Budget Report, as many of you will have been able to analyse,
is not simply to look at the economy as it is this year but to
look at all the changes that are taking place, particularly the
rise of Asia, but probably as important are the changing technological
pressures that are placed upon British industry and British services.
Clearly we have moved from a position where 10% of manufactured
exports were produced from the developing countries to a position
now where 25% of manufactured exports are produced from China,
India, the rest of Asia, and other developing economies. According
to all the independent estimates, it will rise over the next 20
years to 50% and that creates an enormous pressure on the advanced
industrial economies which have been producing most of the manufactured
goods of the world for nearly two centuries. It is therefore incumbent
upon us to upgrade, to move into the high value added areas, to
move into the technology-led processes and that is why there is
so much of an emphasis in this Pre-Budget Report on science and
skills and education, the fact that we are better equipped to
be in the vanguard of the new technologies for the future, and,
secondly, on enterprise, because so many of the new businesses
are going to be small businesses that are creating jobs. On trade,
I do point out in the Pre-Budget Report that only 1% of our exports
go to India, only 1% go to China and yet these are two of the
fastest growing economies in the world. The emphasis of the Pre-Budget
Report is that in order to face up to these long-term challenges
we have long-term choices that we have to make as well and that
is why there was so much extra investment in education and
skills, so much extra weight to our science framework and why
I announced a number of small measures for small businesses and
for trade.
Q254 Chairman: You recently emphasised
your personal commitment to doing more in 2005 to tackle the problem
of world poverty. In the PBR you placed this ahead of the UK's
agenda for its leadership of the G7 and EU next year. How much
support do you think there is still internationally for your proposals
and is there any sign of the US in particular taking a more active
role? When the Committee went to the United States last year and
we spoke to John Taylor at the Treasury we felt that in Capitol
Hill there was not much enthusiasm for your IMF proposals.
Mr Brown: I am pleased you have
raised this because this afternoon I am going to America to meet
the IMF, the World Bank, the United Nations, the American administration
and the Chairman of the Federal Reserve, Alan Greenspan. In the
course of the meetings over the next few days we will be looking
at the handover of the G8 and G7 presidencies from the Americans
to Britain, who will be chairing these meetings from the beginning
of next year, and we will be discussing not only the agenda for
growth in the world economy but also how much progress we can
make on 3 specific areas. The first is on debt relief itself because,
as many of you know, while 100% bilateral debt relief was offered,
we have still to deal with the issue of multilateral debt relief
and in some of the poorest countries 50% of the debts are owed
to the World Bank or the IMF or to the African Development Bank.
So we have a proposal to unlock up to 100% debt relief from the
multilateral institutions. We have put forward our own suggestions
about how it might be done by action on IMF gold and by repatriating
to the donor countries, that is to Britain and other countries
that are donor countries to the World Bank, their share of the
World Bank debts on behalf of low income countries. The second
issue is the international finance facility. We need a mechanism
for financing the scale of investment that is necessary to meet
the Millennium development goals. I believe a report is coming
out from the United Nations in the next few weeks that will say
that the minimum is at least $50 billion extra, but to give everybody
a primary school education, for example, costs about $10 billion
a year and then there are the health initiatives that have to
be met by 2015. Our proposal is to use the decisions that have
been made by the richest countries to increase aid, to leverage
in additional funds from the international capital markets and
to frontload the aid as investment to meet the Millennium Development
goals. We have had support from about 50 countries for this proposal.
Of the G7, France and Italy have offered their support, many of
the Scandinavian and European Union members have indicated their
support, but obviously we have been working to discuss these matters
with our American, Japanese and other colleagues.
Q255 Chairman: In laying out your plans
for the UK leadership of the G7 and EU next year no mention is
made of any intention to pursue an agenda for change in the institutions
that are currently responsible for managing the international
economy. David Walton of Goldman Sachs said in his evidence to
the Committee that you need reforms in the sense that a lot of
what the G7 talks about are usually things well beyond its control,
such as oil prices and whether China should revalue, etcetera.
The Governor of the Bank in his evidence to us on 30 November
stated that he felt it would be an opportunity to start to talk
again about a set of issues that have not been talked about for
a long time, such as how the international monetary system operates.
Are you happy with the current arrangements for global economic
policy co-ordination? If not, what suggestions do you have for
that?
Mr Brown: It is because we believe
in the need for change that there has been this discussion in
the G7 during the course of this year of what is called the strategy
review, that is the review of the international institutions,
and that will continue into next year under our chairmanship.
As the British Government we have put forward proposals to increase
the independence of the surveillance work of the International
Monetary Fund and to bring some of the allocative procedures of
the IMF and the World Bank closer together. There is clearly a
need for quite different international arrangements than those
in 1945 and for there to be a reassessment of what the World Bank
and the IMF does. We think the IMF should have a stronger role
in surveillance but that it should be more independent in the
way it does it and that you should separate off the decisions
about surveillance where the views of independent experts are
to be welcomed from the allocative decisions that are made by
the IMF. We also believe that more should be done on codes and
standards where the international community lays down standards,
for example on transparency, which individual countries should
follow. I would have thought during the course of the next year,
as part of the review of the IMF and the World Bank, which will
lead into the discussions at the IMF and the World Bank themselves,
these items will be very much at the forefront of the agenda.
I think reform of the international institutions is indeed something
that will come out of our discussions over the next year.
Q256 Mr Plaskitt: Chancellor, in the
Pre-Budget Report you state that you have the aim of ensuring
a higher proportion of people in work than ever before by 2010
and yet we already have the highest participation rate in the
OECD. How are you going to drive it even further?
Mr Brown: I think the measures
that we put forward in the Pre-Budget Report can be seen to have
been designed to achieve that. It is true that we have got 75%
of the economically active in work and that compares with 70%
in America and 65% in Germany and France and therefore the 2 million
additional jobs that have come about over the last seven years
have been extremely welcome. If you look at our measures in the
Pre-Budget Report, first on incapacity benefit, there is a large
number of people who may not be able to go back to the jobs they
previously had but who want to work either part time or full time.
The emphasis should be on their capacity, not their incapacity.
The pathway to work pilots, which is a technical name for suggesting
how we have given people additional advice, help with rehabilitation
and a financial incentive (£40 a week in some cases, £2,000
a year for the first year back at work) have yielded very substantial
results in the first pilots that have been done. In the first
limited pilots 5,500 people went back into work. We are now extending
that to areas covering 900,000 incapacity claimants, that is 30
areas with the highest number of claimants in the country. The
£40 a week will be on offer to people and help with rehabilitation
and the same financial offer is going to be available to single
parents. I think I am right in saying that a quarter of a million
single parents are going to be covered by this new offer in that
if they are able to go back to work or able to work for the first
time we will provide the bridging finance to assure them that
they are going to be definitively better off in work and that
is going to be worth £40 a week to them as well as a first
year allowance for going back to work. We accept that that has
got to be combined with childcare, training and advice and the
personal advisers of the New Deal are there, but all the evidence
is that you actually save money by getting people who are on social
security benefits back into work even with these generous incentives
to help people do so. These are two examples of how inactivity
can be turned into activity and why it is possible to imagine
that, even with the high figure of 75%, it will rise over the
next few years.
Q257 Mr Plaskitt: What sort of jobs are
people going to take up who move off incapacity benefit? Whereabouts
in the labour market are they going to make their entry?
Mr Brown: There are 600,000 vacancies
in Britain at the moment. I think the interesting thing about
the picture of vacancies is that there are vacancies in every
region of the country. In the late Eighties when we had a temporary
boom the vacancies were concentrated in the south-east and London.
Today the vacancies are in all parts of the country. We have to
make it possible for people to take up the vacancies on offer.
In some cases people will need skills and in other cases there
is a limited amount of training necessary. With the adult skills
initiatives we took in the Budget a lot of the training that people
can get for the longer term can be done once they are in work
by them being involved in the national employer training programme.
I have been talking to a number of retail companies over the last
few days because some of them have been in to see me about how
they see the economy over the course of the next year and many
of them are still recruiting, but some are finding it quite difficult
to recruit and certainly there are jobs available. For people
who are coming off incapacity benefit sometimes it is part-time
work, but the retail sector, for example, is catering for that.
The retail sector is also catering for the over-50s. One of the
employers was telling me how he was hiring people over 70. There
is hope for us all in the future! There are jobs available at
the moment and this is the opportunity, when jobs are available,
for people to be encouraged to take them up.
Q258 Mr Plaskitt: You have often spoken
about the need to increase the overall skill capacity in the economy.
What about increasing the skill capacity at the higher level by,
for example, looking at the graduate level of employment where
there is also considerable employer demand? That is not going
to be filled by people coming off incapacity benefit. How are
we going to increase participation at that skill level in the
economy?
Mr Brown: You may have noticed
the formation of the National Council for Graduate Entrepreneurship.
That is our attempt to help graduates to start their own businesses
and become self-employed and that is being formed in the new year
and I think it will give a boost to people leaving university
and make them think of careers in business where they themselves
are self-employed or starting a business. As far as employer recruitment
of graduates is concerned, I think you will find a very large
number of the work permits that are issued for people coming into
this country at the moment are for graduates.
Q259 Mr Plaskitt: You said in a document
issued alongside the Pre-Budget Report that you anticipated migrants
coming into the workforce to be more likely to be qualified to
degree level than the native born. Do you envisage plugging a
gap in high skills in the economy by inward migration rather than
by spreading skills in the native workforce?
Mr Brown: No. In the long run
and in the medium term we plan that more skilled people will be
trained in Britain to take jobs that are available in Britain
and that is why there has been a very big expansion in further
and higher education over the last few years, that is why it is
important that the school staying on rate rises and international
maintenance allowances have been introduced, and that is why organisations
like Learning Direct, that have got half a million people doing
computer and other courses to get higher skills, are very important
to what we are doing. In the long term it is an up-skilling of
the British economy that is going to be necessary if we are going
to meet what your Chairman was describing as the global challenges
of the future. There are people with very good skills and if they
are given a work permit and able to come into this country they
can be of benefit to businesses in this country. The Chairman
of the Federal Reserve Board says that ½% of additional growth
every year comes from people coming into America. I think we have
got to acknowledge that it has helped our growth rate as well,
not at that level, of course, but the numbers of people getting
work permits who are pretty skilled has risen. Then there is a
provision that we have been talking about for some months now
about how we can help people who study at British universities
stay on and work in Britain for a short period.
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