Examination of Witnesses (Questions 220-239)
22 MARCH 2005
RT HON
GORDON BROWN
MP, MR JON
CUNLIFFE, MR
MIKE ELLAM,
MR DAVE
RAMSDEN, MS
SARAH MULLEN
AND MR
JOHN KINGMAN
Q220 Norman Lamb: But surely given that
it actually gives you an extra £3.4 billion to play with
in terms of meeting the golden rule is actually something that
we ought to be pursuing and ought to be questioning?
Mr Brown: We would meet the golden
rule irrespective of that adjustment and, if I may say so—
Q221 Norman Lamb: You have not done so
with respect to Network Rail. Those two adjustments probably take
away the—
Mr Brown: I am sorry, but you
misunderstand us. The Office for National Statistics adjusts upwards
and downwards on a relatively frequent number of occasions and
there will be downward adjustments as much as there are upward
adjustments. If you are telling me that the only two adjustments
that have been made in this cycle are both upwards, you are entirely
wrong and I would suggest that the Committee, before they impugn
the integrity of the Office for National Statistics, look at the
facts.
Q222 Norman Lamb: No, we are asking questions
quite properly and it would be good if you could release all the
papers that relate to this.
Mr Brown: We will release everything
that is required under the Freedom of Information Act.
Q223 Norman Lamb: You also talk quite
rightly of the importance of independence, so just to follow the
question that Michael Fallon asked, would it not, therefore, be
sensible to make it a properly independent body rather than an
executive agency of the Treasury?
Mr Brown: It is an independent
body.
Q224 Norman Lamb: But it is an executive
agency of the Treasury.
Mr Brown: Nobody has suggested
in this debate, apart from Mr Fallon and perhaps yourself, that
the independence of the Office for National Statistics has been
compromised. In fact I had quoted—just mentioned by Mr Beard—the
statement by Mr Len Cook that his independence had not been undermined.
We strengthened the independence of the Office of National Statistics
and of course we are anxious that it remains an independent body.
Q225 Norman Lamb: But it is an executive
agency of the Treasury.
Mr Brown: If I may say so, either
to suggest that because there are conversations between an independent
body and the Treasury or because it is funded from public funds
that its independence is inevitably compromised is very unfortunate
and a totally fallacious statement to make.
Q226 Norman Lamb: So it remains an executive
agency of the Treasury?
Mr Brown: It remains independent
and will continue to be independent. It is the independent Office
for National Statistics and again I think it is an unfortunate
allegation that somehow it is not independent.
Q227 Norman Lamb: The key assumptions
underlying your fiscal projections are audited by the National
Audit Office under a three-year rolling review process. Although
it was due, you asked the NAO not to audit your assumption for
trend growth. Why did you decide to depart from the normal arrangements
and defer this audit?
Mr Brown: I will ask Mike Ellam
to deal with that, but as far as trend growth is concerned, you
know that trend growth has been upgraded from 2.5% to 2.75%, but
what we use for public spending forecasts is 2.5%, so even though
trend growth is assumed to be 2.75%, for public finance forecasts
we use a far more cautious assumption which I hope people will
see is a measure of my caution in these matters.
Q228 Norman Lamb: But why depart from
normal practice?
Mr Brown: Well, I think there
was another decision about the 2007-08 period, that the trend
rate of growth should be downgraded because of demographic changes.
I think we have not departed from that.
Q229 Norman Lamb: But that you departed
from normal practice is the point I am making. Why is that?
Mr Cunliffe: If I may answer,
I do not think it is a departure from normal practice. There has
been at least one other occasion on which an audit has been rescheduled
simply because of when the information which you need for the
audit is best available. I should say that the trend rate of growth
has been audited. The 2.75% assumption, which is our central rate,
and maybe knock it down by 0.25%, has been audited. What has not
been audited is our decision to reduce the trend rate further
from 2.75% to 2.5% in 2007-08 which is a decision we took two
years ago on demographic grounds mainly to do with changes in
the size of the workforce, so what the NAO will be auditing will,
therefore, be our decision to reduce it from its current rate
going further down. We thought with an on-trend point coming,
we think, around the end of 2005 or the beginning of 2006 that
it makes sense for the audit to take place so that actually the
National Audit Office has two on-trend points and can look at
our methodology. It is purely a technical issue, but that is the
way it has been done.
Mr Brown: If I may say so, the
information Mr Cunliffe has given is that there is no benefit
to us in meeting the golden rule in the next cycle on this at
all because the assumption would be that if we put it back to
the NAO, it might be the case that they would say that the trend
rate of growth is not, as we suggested, 2.5% in 2007-08, but higher
than that, so this is of no benefit to the Government in meeting
the fiscal rule in the next cycle at all, so your point, if anything,
is one in our favour.
Q230 Norman Lamb: But does not the fact
that the Comptroller and Auditor General have to be invited by
you to audit Budget assumptions or anything else, even though
it is supposed to be subject to a three-yearly review, undermine
the credibility of the process?
Mr Brown: No.
Q231 Norman Lamb: We put it to you before
that should they not be able to audit what they want to audit?
Mr Brown: Well, it depends about
what you see in the future as the right balance between an independent
fiscal authority and Parliament itself, and if you wish to transfer
responsibilities for fiscal policy to an independent authority—
Q232 Norman Lamb: No, not responsibility,
but the right to audit, which you give them on your chosen areas.
Mr Brown: If I may say so, it
is getting the balance right between the independence that is
given to the National Audit Office and our responsibilities to
Parliament itself. Now, the difference between monetary policy
and fiscal policy is that any decision on taxation and spending
is, in my view, rightfully made by Parliament itself. This is
our issue in relation to the Stability and Growth Pact, that we
do not believe that the Stability and Growth Pact should be fiscal
federalism, but it should be intergovernmental and it is equally
our answer to you in relation to the National Audit Office, that
getting the balance right between the independence of the National
Audit Office and our responsibilities to Parliament is what I
am anxious to achieve. Now, I hesitate to suggest what the National
Audit Office would say about liberal fiscal policy if it were
put to them, but the question, in my view, in the long run is:
what are the legitimate responsibilities of Parliament in relation
to tax and spending? I think most members of this Committee—
Q233 Norman Lamb: I am not suggesting
any shift of responsibilities, just the right to audit what you
are doing.
Mr Brown: I think most members
of this Committee would want to uphold the duty of the Chancellor
and the Government and the Treasury, therefore, to report to Parliament
on these matters.
Q234 Norman Lamb: We are not suggesting
any changes there.
Mr Brown: Well, if you do not
want there to be an independent fiscal authority, then there are
going to be limits as to the amount of independence that the National
Audit Office is offered in this regard.
Q235 Norman Lamb: Can I move on to the
issue of reform of fiscal rules. Your response to our report on
the PBR tells us that the Government of course keeps the fiscal
framework under review to ensure that it remains at the forefront
of international best practice. Under that ongoing review process,
what aspects of the fiscal framework are you focusing on most
closely as candidates for future improvement?
Mr Brown: We look at these things
all the time—
Q236 Norman Lamb: But what are you looking
at at the moment?
Mr Brown:— and we continue
to look at all aspects of these things.
Q237 Norman Lamb: Yes, but is there anything
that is the focus of your attention?
Mr Brown: If I had a proposal,
I would have brought it to the House of Commons in the Budget.
We did discuss all these things, as you know, in relation to membership
of the euro and we did look at the framework for fiscal reporting
that there would have to be to the House of Commons and, therefore,
the fiscal framework that would operate in relation to the euro,
but we decided that it was not the right time to make a recommendation
about the euro, so there was a lot of thinking done at that particular
point in time, but I have no proposals to make to you because,
if I had, I would have made them in the Budget last week.
Q238 Norman Lamb: The IMF has said that,
"Given that the golden rule is a symmetric current balance,
or better, over the cycle and that shocks are inevitable, the
Government would need to target a large current surplus if it
wanted the probability of meeting the rule to be large".
They make the point that, in other words, attempting to drive
the risk of breaching the rule close to zero, it is very costly
from macroeconomic and inter-generational perspectives. Do you
reject that?
Mr Brown: Yes, because you are
assuming that we are not meeting the rule. We are meeting the
rule and—
Q239 Norman Lamb: Looking to the next
cycle—
Mr Brown: I think Mr Fallon did
say at the beginning of his intervention that we were meeting
our fiscal rule. The International Monetary Fund—
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