Examination of Witnesses (Questions 20-39)|
MP, SIR GUS
Q20 Peter Viggers: You did not increase
fuel prices and this was criticised by Greenpeace's spokesman,
among others, who said: "It just beggars belief. The day
before Tony Blair welcomes world leaders to Gleneagles to broker
a deal on climate change he shows himself incapable of taking
even the most modest and obvious step here at home". Would
you comment on that? How is your judgment one of not increasing
Mr Brown: Because
as a Government we have got to make the right judgment about the
balance between meeting the environmental standards that they
are talking about and respect for the interests, needs and worries
that the motoring public and the freight moving industries of
our country have and the challenges that they have got to meet,
and I think we have made the right judgment.
Q21 Peter Viggers: Do you see a contradiction
between all the rhetoric of the G8 about the need to combat climate
change and your postponing of the rise in petrol duty?
Mr Brown: I think
the fact of the matter is that motorists and freight companies
are facing the effects of a very large increase in the world oil
price. There is a variety of things we can do about it, and we
are trying to work with other countries. By the way, there has
got to be greater transparency in the oil market because one of
the problems is the lack of knowledge about supplies. The refining
capacity of the world has got to be looked at again because essentially
one of the problems at the moment is the limited amount of refining
capacity. The way that OPEC works is unsatisfactory and I do not
think in any other area of world economic activity does a cartel
exercise so much control and that is something that I think the
whole world should speak out about. There are a number of things
we can do but at this stage I do not think we have made anything
other than the right judgment not to raise fuel taxes.
Q22 Peter Viggers: Whilst the price
of energy is, of course, important in this country, it can be
as much as six times as important in less developed countries.
What response have you had to the G8's invitation for oil producing
countries to contribute to a new trust fund to support poor countries
facing commodity price shocks?
Mr Brown: That
is a very important question and I do appreciate you asking that.
First of all, as far as our invitation to the OPEC countries,
to those countries that are benefiting very substantially from
the rise in oil prices, that is something that we will pursue
through to the annual meetings in October. Remember the fund that
we are talking about is a contribution to the IMF debt relief
initiative. When the IMF is offering to wipe out the debts of
the poorest countries who owe something like ten billions to the
IMF, we would like a contribution made by countries who traditionally
have not contributed, either through the G8 or through other initiatives
that the World Bank and IMF have taken. I think I should also
draw your attention to the proposal from the World Bank that I
mentioned in my opening remarks. To help developing countries
we see the advantages of a dialogue between producers and consumers
and between developed and developing countries being something
that is a feature of the way we approach climate change issues
in the future. The new President of the World Bank, Mr Wolfowitz,
has offered to bring forward an initiative that will come at the
end of September for a new fund or a new facility of the World
Bank that would help developing countries seek alternative sources
of energy and help them look at more efficient means of using
existing fuel supplies. I think that is a very important initiative
which could bear significant results. Clearly it is in the interests
of poorer countries to have some help if they are moving to more
efficient uses of existing fuel or examining alternative sources
of energy. They will not have the resources themselves but some
stimulus provided by the international institutions, particularly
in the case by the World Bank, could be very, very useful. I think
your question about helping developing countries is an important
part of it.
Q23 Peter Viggers: So you would encourage
a further initiative like the one in 2001 when the World Bank
provided £155 million of additional assistance. You would
encourage it, but would you support it?
Mr Brown: I think
we would encourage the World Bank to do more but what Mr Wolfowitz
is looking at is not just immediate assistance, which did happen
in the past, but dealing with the causes of high costs for poorer
countries, their failure to develop alternative sources of energy,
their inability to do so through inadequate resources and the
search for more efficient use of existing fuels. If the international
community through the World Bank help with that, I think that
is a major advance in dealing with energy needs but also with
Q24 Peter Viggers: Thank you. Finally,
one question on the Extractive Industries Transparency Initiative.
Do you believe that having this in place on a voluntary basis
is satisfactory? Do you think it would encourage other countries
if companies operating within the United Kingdom had to operate
within a mandatory basis on this?
Mr Brown: That
is something you would have to look at if the voluntary initiative
failed. The evidence is that the voluntary initiative is succeeding.
I have met some of the oil companies in the last few days and
they have embraced this initiative. It is part of the transparency
that we are talking about which is going to become the most important
feature of the way that the international community looks at how
it can help developing countries. If it can work for extractive
industries I think the next stage would not be to make a voluntary
initiative mandatory, the next stage would be to see whether we
could operate it in other areas where commercial activity has
been subject to criticism for either corrupt practices or for
the lack of transparency.
Q25 Susan Kramer: Just to quickly
turn to the new information that we got today. The change in the
start date of the economic cycle and the delay in the Comprehensive
Spending Review, do you think there will be a perception that
the Government is marking its own exam papers? Do you think there
is an argument for an independent body to carry out these kinds
Mr Brown: No, I
do not think that should be the conclusion at all. Clearly a ten
year Comprehensive Spending Review starting from a zero base and
reports that will come next year and the year after are exercises
not in hiding information from the public but in greater transparency.
The first thing is that people are going to know more about it
and there is going to be a wider debate about long-term challenges
and trends in public spending. I do not think people will feel
that this is a Government excluding information from them; it
is a Government being prepared to discuss things with the public.
On the cycle, I said at the end of my statement that I am going
to ask the NAO to audit the end date of the previous cycle, so
instead of a situation where we have 11 indicators examined by
the NAO, which includes the trend growth rate, there will be a
twelfth and that is the end date of that economic cycle. That
is a step forward in the transparency that you are asking about.
When we came into power in 1997we have got to put this
in its historical perspectivethere was no independent auditing
of any aspect of government fiscal projections or government economic
forecasts or individual aspects of economic forecasts, so the
Government could choose whatever employment or unemployment figure
it sought to base its social security projections on, it could
choose whatever figure three years ahead its privatisation proceeds
might be and it could choose a percentage for rises in consumer
spending that VAT revenues would reach. All of these things are
now properly audited and, in fact, we do so not just in a reasonable
way but in a very cautious way. In addition, we have asked the
NAO to audit the trend growth rate of the economy and we will
be going back to the NAO very soon to ask them to do this again.
It was the NAO that looked at the demographic features in 2007-08
and gave us their judgment on matters like that. They said that
what we were doing was reasonable and cautious. It is quite wrong
to suggest that there is not a degree of both transparency and
independent auditing at the moment. Take the economic cycle: I
just ask you to look at the evidence. The evidence is four years
of growth above 3%. On the surface that suggests that we did not
go through a complete economic cycle. On four years of growth
above the trend rate of growth it is very difficult for people
to suggest that in some way having received these new figures,
having been asked by this Committee to come to them even before
a Pre-Budget Report with any evidence that things are up-to-date,
it is very difficult looking at the evidence to contest that.
In fact, it is to the credit of Mr Weale at the NIESR and the
IFS that they always thought that the cycle started in 1997 and
not in 1999. We are putting the date of the end of the previous
cycle, implicitly the beginning of the next cycle, to the NAO
to audit now and if they do not think that what we are suggesting
is reasonable or cautious then they will undoubtedly say so. Your
point about the Government being judge and jury is dealt with
by us asking the NAO from today to audit the end of the previous
cycle. I think people will welcome that advance. Instead of 11
indicators being audited there is a twelfth now which I think
the Committee, given what it has previously said, should welcome.
Q26 Susan Kramer: Just to turn to
the issue of debt relief, can you confirm for us, because I think
there has been a lot of confusion here, that the G8 commitment
to increase aid to 50 billion includes, or is it completely separate
from, the numbers for debt relief?
Mr Brown: It includes
the numbers for debt relief.
Q27 Susan Kramer: So the number for
debt relief is within the 50 billion?
Mr Brown: It has
always been the case that aid
Q28 Susan Kramer: I just want to
Mr Brown: The reason
it is included is always the figures that are published for aid
include debt relief. When Britain publishes its ODA figures they
do not exclude debt relief, they include debt relief. That has
always been the understanding.
Q29 Susan Kramer: That was the fear
rather than the hope, I think.
Mr Brown: I think
it would be a major departure if the ODA figures were published
without including the amounts that are paid in debt relief, that
has been the traditional practice. Jon, could you say something
Mr Cunliffe: This
is the definition used by the Development Assistance Committee
of the OECD, so it is the standard definition that includes debt
relief within ODA.
Q30 Susan Kramer: You spoke very
eloquently and I am sure we would all support the importance of
transparency, but if I could pick up a little bit on conditionality.
Chancellor, do I understand you correctly or am I wrong that for
every dollar of debt cancelled, in effect there will be a reduction
in the IDA flow to that particular country? It would then be in
a position to apply for new IDA grants but conditionality would
apply to those grants. Is that not the sort of concern that people
have, that in effect conditionality would come in through the
back door because of that process?
Mr Brown: There
are three different forms of debt relief: bilateral debt relief,
IMF debt relief and World Bank debt relief and African Development
Bank. You are specifically talking about this third
Q31 Susan Kramer: African Development
Mr Brown: There
were two separate proposals, one was for servicing the debt and
one was for a write-off of debt. Eventually the world community
chose to write-off their debt and then to compensate the countries
through IDA allocations. Perhaps Jon can say more about the detail
of how that is going to work. It is being discussed in detail
in Washington at the moment.
Mr Cunliffe: For
the HIPC countries who receive debt relief, they receive that
Q32 Susan Kramer: These are the initial
Mr Cunliffe: The
18 and then it will go to the 38. They receive that debt relief
without conditionality, it is irreversible, it reduces the debt
on their balance sheets and they then have the certainty going
forward that the debt service payments they would have had to
have made to IDA and to the African Development Fund will no longer
need to be made. So they get that certainty at the point of debt
relief. In order to ensure that IDA and the African Development
Fund were not then operating with less finances than they would
otherwise have because these flows from these developing countries
would no longer be coming back, the G8 countries agreed to replace
dollar for dollar the lost flows. Those flows would then be allocated
to the poorest countries through the normal IDA mechanism, which
is a performance based lending mechanism. IDA's grants are loans.
The debt relief given to the poor countries is irreversible and
it is not subject to any additional conditionality.
Mr Brown: This
is true moving forward as well. It is not a commitment simply
to top up for the next two or three years, it is a commitment
to provide the additionality right through. The second thing is
that the UK's contributions affect not just the 38 countries but
up to 70 countries where we are unilaterally providing our share
of servicing of the world debt. That is additional to what is
happening. I should just say, thirdly, that while there is a debate
about the technical details of this, and it has still got to be
concluded, generally speaking the proposals that we agreed have
been welcomed by the HIPC countries.
Q33 Susan Kramer: Could you just
give us an update on what has happened to the UK's proposals to
part fund the debt write-off by revaluing IMF gold reserves? Is
that off the table now or is that potentially back on the table?
Mr Brown: That
proposal was never off the table. What happened was the IMF was
able to give us information that they had additional funds that
they could release for wiping out the debt of the poorest countries
that did not require there to be gold sales. In other words, the
IMF has a series of accounts, they had additional funds that were
available and on top of that there was an agreement that the individual
shareholders of the IMF would provide additional resources and,
as Peter asked, the oil producing countries giving some donations
or help or grants as well. At the moment the funding of the IMF
debt relief is possible without gold sales but if it were to be
the case that it could not be done unless there were gold sales
we would certainly put it back on the agenda.
Q34 Susan Kramer: Certainly the public
at large is very concerned, obviously, about where additional
money that is freed up by debt relief goes. What kinds of assurances
and structures do you see in place to make sure it goes to education,
health, the other kinds of key projects?
Mr Brown: What
has been remarkable in recent weeks is the statements that have
been made by the individual countries that are going to be the
recipients of debt relief. When I was in Tanzania, President Mkapa
made a statement about the money going directly to education and
to health. When I went to Mozambique, we signed an agreement with
Mozambique and they said that the money would go to education,
health and the infrastructure needs of the country. There is no
doubt that one by one the individual countries are announcing
themselves where that debt relief will actually be spent. This
increased emphasis on transparency means it is very difficult
for these countries now to get away with buying presidential planes
or having new buildings or siphoning off the money for military
expenditure. There is a new spotlight, a new searchlight, partly
from the NGOs and the churches and the faith groups, partly from
the civil societies in their own countries on where this money
is going. I think the announcements that have been made by the
individual countries give us reason to hope that the surveillance
that we are talking about, which ought to be stepped up over the
next few years, will allow the international community to know
where that money has gone. The pressure will be on the developing
countries themselves to show that the money has gone to education
Q35 Susan Kramer: Lastly, you said
that the UK itself would focus on the needs of 70 countries and
expand beyond the 38. What prospects do you see of a broader range
of countries, the broader group essentially, to bring that full
70 into the picture? What sort of timetable?
Mr Brown: You are
absolutely right, it is a very important issue. The world community
moves in stages and it does take time to move from one proposal
to another. This is definitely going to be on the table as a British
proposal to other countries. Canada has already indicated that
they would do likewise, so that is progress. I think the more
people see that the HIPC countries are one group of countries,
that it would be unfair, for example, for money to go to HIPC
countries but not to be available to countries which have got
relatively lower debts but still got major needs, is a very important
issue for us. We are determined to highlight the problems of these
additional 30 countries in the next period.
Q36 Chairman: Chancellor, I looked
at Zambia's debt last year and of their total debt I think private
debt was 9%. What measures would you take to ensure that there
is no unilateral ratcheting up of this private debt and we do
not get into the situation that you are describing whereby the
money that is going for aid here has been well used but there
is a bolthole where all that good could come to nothing?
Mr Brown: The aim
of debt relief is not that countries can never borrow again. We
must be clear about this. It is important that countries can clear
their historic debts so that they have got economic stability,
they are in a fiscal position that is sound. It is not an attempt
to prevent them ever borrowing any money again, it is an attempt
to get rid of unpayable debts and to put these countries into
a position where anything they do is sustainable. On the private
sector debts, Jon, do you want to say anything?
Mr Cunliffe: I
think all of these countries will have an ongoing relationship
with the World Bank, with the African Development Bank, the bilateral
donors, possibly with the IMF, and there are tests about debt
sustainability, how much they can bear. In that ongoing relationship
the donors will actually make it clear that for some countries
it will not be possible, it is ill-advised for them simply to
replace the debt that has been written off from the IMF and the
World Bank with private sector debt. For those countries where
there is a debt sustainability issue, I think in their agreement
with the World Bank and the African Development Bank there will
be some agreements about the amount of extra debt they can take
on and where they can take it on because for some countries, having
made them sustainable by writing off all their debts, it would
not be sensible for them simply to use that headroom immediately.
Transparency is part of that.
Q37 Chairman: That could be a bolthole
if the World Bank and the African Union do not get it right.
Mr Cunliffe: Debt
sustainability going forward is a key part of the framework.
Q38 Damian Green: Can I ask a question
about the spending announcement. You have already got long-term
reviews going on in some of the big expensive areas, on pensions,
on transport and on skills training, so is the new review going
to review the existing reviews or is it going to take them, or
are they going to be scrapped? How do they fit in?
Mr Brown: The new
review is to bring together a spending announcement for 2008-11,
so you have got to take into account what has been said by the
existing reviews and you have got to look at other long-term trends.
I mentioned this whole issue of investment in our infrastructure
and I think it is a common call between all of us that we under-invested
as a nation under both governments for 30 or 40 years. We have
transport needs, we have education needs, we have health needs
and general infrastructure needs as well. The question for us
is whether the figure that we decided on ten years ago, that you
increase public investment from 0.8% to 2.2 %, is now the right
figure or should be less or might have to be more. I think we
will have to look at what is happening around the world, at the
effect of competition on the British economy and what is affordable.
If you like, a review on transport and a review on skills will
come together in an assessment of what is the right level of investment
for the economy looking forward to the next ten years.
Q39 Damian Green: Will they still
be published separately?
Mr Brown: They
will be published separately.