Examination of Witnesses (Questions 280-299)
RT HON
GORDON BROWN,
MR JON
CUNLIFFE, MR
NICHOLAS MACPHERSON,
MR JONATHAN
STEPHENS, MR
MICHAEL ELLAM
AND MR
DAVE RAMSDEN
16 DECEMBER 2004
Q280 Mr Walter: I want to look forward
a little. You have just stated that the fiscal rules that you
introduced in 1997 have worked fairly well so far, but do you
think there is any reason to review them as the end of this cycle
approaches? The suggestion is that rather than having a precise
point to target you should be looking at ranges as one looks into
the future.
Mr Brown: I do not think, given
these effects on fiscal policy decisions about taxation and spending,
the idea of ranges commends itself to me. That is something that
academic economists can debate. We are continuously looking at
how we can improve the fiscal framework. You have to balance off
the need for continuity so that people understand that you have
a discipline framework that is being held to with the desire for
change. If you take the inflation target, we held to the 2.5%
even though it was not the internationally comparable measure
of inflation for the first years, the target of the previous
Government, because we wanted continuity. There was a case, with
a new fiscal framework having come in, for sticking with it so
that you can give people a certain framework and one that is stable
over time. We are happy to look at suggestions that people have
for change and we do so all the time and that is something that
is part of the whole debate. When we had the debate about the
euro we had one full paper in our euro documentation about what
a fiscal framework might look like if we joined the euro and therefore
we had a debate about what were the respective roles, for example,
of an independent fiscal committee like the Monetary Policy Committee
and the House of Commons (because the House of Lords should not
have a role in this) and the Government and we decided that in
all circumstances the important role of the House of Commons in
deciding on issues on tax and spending had to be upheld and you
could not contract that out to some independent committee, whether
it was a European committee or a British committee. Fiscal policy
historically has been where Parliament have insisted, and rightly
so, that if people are to be subjected to decisions on tax and
spending these decisions have to be made by the people who elect
them.
Q281 Mr Fallon: Chancellor, I want to
turn to your problem with tax receipts. Can you tell us what current
receipts were in 2001-02?
Mr Brown: Are you talking about
the total receipts?
Q282 Mr Fallon: Yes, current receipts.
Mr Brown: I must say, I do not
remember in my head the figures for 2001-02, but I am sure we
can help you. Our figures in the Pre-Budget Report on current
and capital receipts start in 2003-04.
Q283 Mr Fallon: Would you take it from
me that in 2001-02 it was £388 billion?
Mr Brown: Current receipts?
Q284 Mr Fallon: Yes. It was £388
billion.
Mr Brown: I will get someone to
check that.
Q285 Mr Fallon: If you cannot remember
that, can you remember what you forecast it at?
Mr Brown: I do not know.
Q286 Mr Fallon: You forecast it at £398
billion, so you were £10 billion out. Do you remember that?
Mr Brown: If I think of 2001,
it was at a time when the world economy was turning down very
substantially and I think you will find that the American deficit
started to move towards 6% and the Japanese deficit started to
move towards 7% and we kept our deficit around 3%. I think every
economy was affected by the crash in the Stock Exchange and then
by the IT collapse and then by the stalling of world trade. I
do not really think you are dealing with something that was so
out of the ordinary.
Q287 Mr Fallon: Do you recall what the
outturn of current receipts was for 2002-03?
Mr Brown: We are in exactly the
same position. We are in a world downturn where corporate profitability
is being hit and I suspect that what has happened is that corporate
tax revenues have fallen.
Q288 Mr Fallon: Despite the world downturn
having started, in that year receipts were at £393 billion
but you forecast them to be £407 billion, so you were £14
billion out that year.
Mr Brown: If you look at other
countries round the world, America, France, Germany, you would
find—
Q289 Mr Fallon: They were as bad as you,
were they?
Mr Brown: No. I think you would
find that the difference between what they projected and what
they got was very substantially bigger.
Q290 Mr Fallon: What about last year?
Do you recall what the outturn was last year?
Mr Brown: I have got the figures
for last year.
Q291 Mr Fallon: It was £418 billion.
Do you recall what you forecast it at? It was £428 billion,
so you were £9.6 billion out. What was the excuse for last
year?
Mr Brown: Because we are talking
about a recovery from a world downturn.
Q292 Mr Fallon: So it was not the recession,
it was the recovery that you got wrong?
Mr Brown: No. I dispute this,
Mr Fallon.
Q293 Mr Fallon: You dispute whether this
figure is wrong or you dispute the reasons?
Mr Brown: What happens during
a world downturn is that the world changes, the position of companies
in particular but also individuals change. I will produce for
the Committee what has happened in every other country. If you
have a 50% fall in the Stock Exchange and at the same time 30%
of your IT industry has run into huge problems as a result of
the end of the IT boom and if you have world trade stalling it
is bound to have an effect. I would say that our record on forecasting
receipts has been better since 1997 than the situation before
1997 and the situation as forecast by other institutions and by
other countries and I do not think I need apologise for that at
all.
Q294 Mr Fallon: This year you are now
forecasting the outturn at £451 billion in the Pre-Budget
Report whereas originally you forecast it at £454 billion,
so you are £3.7 billion out this year. So for the last four
years you have out by £10 billion, £14 billion, £9
billion and £3.7 billion. Is that not right? You have been
wrong 4 years in a row.
Mr Brown: I do not accept, given
everything that has happened to the world economy, that you can
expect that every single figure one year to the next is absolutely
accurate. What I think you can expect is that where the situation
changes it is reflected early in the statistics that we produce.
In the Pre-Budget Report what you see is an explanation for what
has happened to the receipts over the last year, an explanation
which I think this Committee would find interesting and an explanation
which actually shows that we have been more or less accurate on
income tax and national insurance and capital gains tax and we
have been more or less accurate because the consumer spending
has been as we expected it to be on VAT receipts. On corporate
tax receipts what has happened is that in the oil sector there
is a delayed effect from the rise in the oil price in the revenues
coming through to the Government, but we expect that during the
next few months and it will be proven when the oil receipts come
through to the Government. As far as the rest of the corporate
sector is concerned, in the industrial sector it has been as we
expected but in the financial sector there has been a shortfall
which has now been looked at and I think your Committee has had
an examination of this during the course of the last few days.
What we have is a system of fiscal discipline that locates any
issue early, is able to report it and is able to examine what
is at the root of it. I personally think that our record in forecasting
receipts, as in forecasting the economy, bears comparison with
any other country over the last few years and with any other independent
forecaster. We produce in meeting the fiscal rules and
in the End of year fiscal report, because there is far
more transparency about these issues than ever there was before,
a comparison between the forecasting record of the US Congressional
Budget Office and the UK Treasury. I would have thought that the
economy is going down entirely the wrong road if it feels that
there was some deliberate manipulation of statistics or,
alternatively, in a world downturn things are not going to change.
The question is whether you can identify and report these changes
early, as we have done.
Q295 Mr Fallon: You have been boasting
earlier this morning about the cautious assumptions you have been
making.
Mr Brown: Absolutely.
Q296 Mr Fallon: It does seem rather regrettable
that four years in a row you have made mistakes in forecasting
tax receipts. If you were running a business you would have been
fired by now.
Mr Brown: Not at all. Before the
end of this meeting I will tell you what happened to the forecasts
that your Government made.
Q297 Chairman: I think we should keep
off the politics.
Mr Brown: I am never going to
be too political. I think in other situations you were talking
about £30-£40-£50 billion out in 1992.
Q298 Mr Fallon: Let us turn specifically
to corporation tax receipts where you seem to be most wrong.
Mr Brown: Can you suggest in which
other area you think we are wrong?
Q299 Mr Fallon: I am coming to other
areas. Let us start with non-North Sea corporation tax receipts.
Originally you said these would grow by 20% this year. Now in
the PBR you admit they are only going to grow by 14%. How did
you get that so wrong?
Mr Brown: When people are coming
out of a downturn, as in the late Eighties, the mid-Nineties and
at other times, the rise in receipts has been over 20%. In 1986-87
it was 38.8%, in 1987-88 it was 33.4% and then in 1994-95 it was
30%. If you look particularly at America, the bounce back when
there has been a downturn in corporation tax receipts in these
years is usually very high indeed.
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