Examination of Witnesses (Questions 40-59)
RT HON
GORDON BROWN
MP, SIR GUS
O'DONNELL, MR
JON CUNLIFFE,
MR NICK
MACPHERSON, MR
JONATHAN STEPHENS
AND MR
MICHAEL ELLAM19
JULY 2005
Q40 Damian Green: Before you presumably—
Mr Brown: They
will work to their own timescales. The first report of this new
Spending Review will be next year and that will look at the long-term
trends and challenges. The final allocations for spending a year
in advance of the 2008 start date of the round, which will take
you to 2011, will be 2007. If I may say so, there is a long-termism
built into our whole approach. We have got to look at the long-term
trends. People have to have a degree of certainty moving forward
about what the nation is doing. Personally, I believe that it
is possible to have a shared consensus, perhaps even across all
political parties, about what is the right thing to do for Britain
to be equipped for the future needs of the country in education,
in transport, in infrastructure generally. I think part of the
debate of this new spending round is whether we can reach that
sort of consensus about whether it is right for an advanced industrial
economy like ours facing massive competition in a global economy,
particularly from low cost producers where we are going to be
increasingly dependent on our educational skills and on our creative
talents, and therefore science and technology, and what it is
right for us to invest in our future. Perhaps we may never get
to that consensus but I think we should seek that.
Q41 Damian Green: If I can move on
to agricultural subsidies. In your UNICEF lecture recently you
talked about the "hypocrisy of developed country protectionism".
With the CAP in mind, where are we? Is the Government actually
tabling detailed reform proposals and are you using the Presidency
to advance this? Are we in any sense in negotiation about CAP
reform?
Mr Brown: We have
said first of all that we hope the World Trade talks will come
to a more ambitious settlement about agricultural protectionism
and the removal of some of the protectionist measures. For example,
in our own election manifesto we said that we would see export
subsidies phased out by 2010, ie within five years, and that would
be our proposal. To that extent, our proposal is already on the
table. I think you should wait for further submissions from the
Secretary for Defra on this very matter. There is no doubt we
have already put one proposal on the table but it may be that
we will be able to discuss more during our Presidency.
Q42 Damian Green: Do you think it
is possible to have any kind of meaningful CAP reform without
reopening the subject of the levels of agricultural spending that
have been agreed up to 2013?
Mr Brown: I think
you have got to say that the 2002 deal—this is controversial
in itself—was expressly without prejudice to future financing
arrangements, so it was subject to an agreement about the future
financing of the European Union, and that is where we are at the
moment.
Q43 Damian Green: I am not sure that
takes us a tremendous amount further forward.
Mr Brown: You must
look at the Communiqué on that deal when the 2002 deal
was talked about. I do not have the actual wording here, I may
be able to pass it to the Committee, but it was said to be expressly
without prejudice to future financing arrangements.
Q44 Damian Green: We are probably
no further forward then. Do you think there would be any justification
for the British rebate if we achieved a decent CAP reform?
Mr Brown: I think
you have got to go back to the statements the Prime Minister has
made both to the House of Commons and to the European Council
on this. We have got a budget of the European Union where even
in 2013 more than 40% of that budget is going to subsidise a part
of the economy which is only 2% of the economy and employs less
than 4% of the workforce. That is a situation that is part of
the debate, and bound to be part of the debate, about the future
of the European Union. As far as the conditions that we will lay
down, I think I refer you back to the statements that he made.
Q45 Damian Green: Finally, it is
clear that all of this will be academic without some equivalent
move by the Americans who are at least as guilty as the EU in
terms of over-subsidising this particular sector. President Bush
has offered to drop his subsidy scheme in exchange for the EU
dropping the CAP. Do you think this is a real opportunity or do
you think it is just rhetoric around the issues?
Mr Brown: This
is a very important question. This is going to be at the heart
of the debate moving forward to the WTO talks in December. Agricultural
subsidies are around $300 billion. They dwarf the amount of official
aid that is provided, five times the amount of official aid, so
what is gained in aid is lost particularly to developing country
producers by the extent to which we subsidise our own producers
to compete against them. If I understand it right, what President
Bush was talking about was export subsidies and I think he was
offering to abolish US export subsidies. I think he was suggesting
that a timetable should be agreed for the abolition of them. That
is where the European Union and the Americans will be discussing
things over the next few months. It may be the case that an agreement
was not reached at Gleneagles, not because there was no will to
do so but because it was understood that all of these things will
come together in December in Hong Kong. I would not say that there
is no will on the part of the European Union to reach such an
agreement, I think there are many forces within the European Union
who want that sort of agreement, but I think there is a general
sense that this agreement will come—if it comes—in
December at the WTO talks. I think President Bush's offer and
the European Union change in its position over the last few months
on this issue give us hope that some agreement can be reached
on the basis that you are talking about, but I think it is essentially
about export subsidies.
Q46 Mr Mudie: Chancellor, in your
very good annual lecture to UNICEF you said that empowerment can
be achieved through health, education and economic development.
What practical steps were taken at Gleneagles to expedite economic
development? What did you have in mind?
Mr Brown: I think
the ability to finance new infrastructure, the help for private
sector development in countries in Africa, the micro credit initiatives
that form part of that, the World Bank initiatives on these very
issues just before Gleneagles, they are all very much part of
this idea. It may be helpful in the short term to provide support
for health and education but if we cannot help these economies
develop into prosperous economies in the future, all we are doing
is providing temporary aid while a serious situation remains,
so what we must do is help those countries—and I think I
used the word "empower" those countries—to move
to prosperity by investing in infrastructure, by encouraging a
vigorous private sector, and by means of micro credit, helping
small companies and agricultural co-operatives. I saw quite a
few examples of very successful ones when I was in some of the
countries in Africa which I think the Chairman is going to visit
as well over the next few months.
Q47 Mr Mudie: Considering that the
Millennium Goals were supposed to be implemented by 2015 and you
in the same speech pointed out that education will be 2129, child
deaths 2115 and poverty 2150 (and these are areas where we have
concrete ideas of how to ease it), what confidence can we have
in you and your colleagues to deliver economic development?
Mr Brown: That
speech was made in advance of the finalisation of the—
Q48 Mr Mudie: Yes, but most of the
aid will go specifically for the first item. You mentioned the
private sector. Are there any signs that the private sector is
taking economic development in Africa seriously?
Mr Brown: I think
there is a huge amount of additional investment now ready to move
into some of the countries that we are talking about. What has
happened over the last few years, we must not forgot that more
countries have become democracies, more countries have got greater
economic stability, more countries have got low inflation, more
countries have sorted out some of their fiscal problems, more
countries having got debt relief and are in a position to move
forward, so the position is a lot better than it was five or ten
years ago. There are significant exceptions like Zimbabwe but,
generally speaking, for developing countries the situation is
better. The question then is how do people build on that. You
only need to visit one of the countries to know that infrastructure
investment is absolutely crucial. If there is no investment in
transport or in telecommunications, then the idea that these countries
can trade even with each other, far less than with the rest of
the world, the idea that trade is going to be possible or easy,
even if you got rid of all the tariffs, is really a delusion.
There must be a degree of investment in the transport systems,
the roads, the railways and the infrastructure. The cost of a
phone call from Africa to America is five times the cost of a
phone call from a developed country to Africa, simply because
the telecommunications infrastructure is not highly developed
and therefore the costs have not come down, and that is another
issue that is going to be dealt with. These infrastructure developments
are absolutely crucial as is the encouragement of private investors
to work in Africa. I was in Mozambique and they have got a huge
resource in everything from coal, to timber, to tobacco, to sugar.
What they need is the means by which they can get the best out
of that resource, including processing some of the timber and
so on in their own country, and therefore infrastructure investment
and help with private investment is going to be very important.
Q49 Mr Mudie: That was a long answer—
Mr Brown: I am
sorry about that.
Q50 Mr Mudie: No, it was very informative,
but the most interesting part and key part was when I asked you
what indication there was, and your answer said private sector
investment is ready to move in, so it has not moved in. How do
you know it is ready to move in, because all the things you have
spoken about depend on it coming? You are conceding that it has
not come in and you are saying it is ready to come in. Is that
no more than a phrase?
Mr Brown: In the
modern world it is undoubtedly the case—and you just need
to look round the global economy whether it is developing or developed
countries—that investment will move to those countries that
are in a position to show that they have, firstly and fundamentally,
a stable economic environment. It is simply not possible to imagine
investment in countries where there is conflict or where there
is a history of economic as well as political instability. There
is no doubt that very big advances have been made over the last
few years. Partly in recognition of this, countries have got their
inflation down, they have shown themselves to be more stable,
and obviously with the advantage of debt relief they have got
their fiscal position in a better position, as well as their monetary
position, and that is a base on which they can build. There were
a number of private sector forums related to the Africa initiative
and the evidence from talking to businesses is that they want
to play their part in the development of the economies that we
are talking about and are indeed ready to invest, but they will
invest on the basis of the economic foundation being a stable
economic environment, so with countries which are prepared to
show that they are going to make the investments in transport
and telecommunications and infrastructure, that is conducive to
investment as well.
Q51 Mr Mudie: Are you and you colleagues
taking any initiatives to bring them together with governments
and countries in Africa which are ready now for their investment?
Are there any initiatives on the table or being prepared?
Mr Brown: When
the President of the World Bank Mr Wolfowitz went to Africa, he
announced a new initiative on private sector lending. There is
the Dillon-Martin Commission that published its report a year
or two ago which was adamant about the importance of private sector
lending and therefore the incentives that were available for that
to happen in countries in Africa. There is an enormous amount
of work going on—and I have been talking to people in the
last few days—on micro credit which is going to be very
important to help small businesses develop.
Q52 Mr Mudie: What needs to be agreed
at Hong Kong for you to regard the trade talks as a success? Did
anything happen at Gleneagles that took practical steps to encourage
that success?
Mr Brown: I think
the Communiqué showed a determination to reach an agreement.
I think people recognised that that agreement was going to be
part of the final discussions at the trade talks in December,
so I would not read the lack of a timetable for the removal of
export subsidies at this stage as being due to an unwillingness
to reach an agreement. I think it was just understood that this
agreement could come when everybody got together to attend the
Doha round at Hong Kong in December. The G8 called on all WTO
members "to work with renewed energy to end the Doha negotiations
by 2006" and it recognised the importance of a successful
outcome. They stated their commitment to eliminate all forms of
export subsidies by a credible end date and substantially reduce
trade distorting domestic support, so the principles were laid
down. They also said, and I think this is important, that they
recognised that if you opened up trade, poor countries faced particular
problems, and they needed themselves the flexibility to decide
and plan and sequence their own trade reform, which I think is
a shift in the position of the international community to recognise
that these programmes should be country-owned.
Q53 Mr Todd: Can I turn to the EU
Presidency and the tasks that you have got ahead of you. You would
probably recognise the phrase "certainly their unemployment
is lower than ours but if you take the big elements in society—health
policy, the fight against poverty, spending involving the future—you
notice that we are much, much better-placed than the English."
To what extent do you think there is a consensus on the need for
economic reform in Europe?
Mr Brown: I think
you are quoting from President Chirac last week when he said that
child poverty was higher in Britain than in France, and that is
why one of our central objectives as a Government is to tackle
child poverty. I had a meeting yesterday with the French Finance
Minister, Mr Breton, and I think there is a growing recognition
in all parts of Europe that we have got to face up to the challenge
of global economic change. The assumption of the European Union
for 30 years was that national economic integration would be superseded
by European economic integration. In other words, instead of having
national companies, you would have European companies, instead
of national flows of capital, European flows of capital, instead
of national brands, European brands, and all the policies of the
European Union that then flowed from that were based on that assumption
of economic integration at a European level followed by political
and cultural integration. However, what has actually happened
is that events have overtaken that model because instead of having
European flows of capital replacing national flows of capital
you have now got global flows of capital, global brands, global
companies. The minute you recognise that is the case, what Europe
has got to do to be successful moves it from being the policies
of a trade bloc of Europe to the policies of competing in a global
economy, and you will need different policies to compete in a
global economy than the policies you needed for the era of the
trade bloc. In the trade bloc era you could afford to look inwards,
break down the barriers within the European Union, and almost
forget about the world outside you. In the global era, what matters
is whether you are outward looking, whether you can build a trading
relationship with the rest of the world, and whether you respond
to the challenges to your competitiveness from what is happening
particularly in Asia but also from high productivity rates in
America. I think people are beginning to see that that is the
context within which Europe has no choice but to change. I think
the issue now is not whether Europe is going to change to meet
these challenges but how quickly. That is what the debate is about.
Q54 Mr Todd: But there are at least
two elements of that. One is a cultural change. In institutional
terms, Europe has been founded on the principles you have just
laid out of inward-looking integration and protectionism and then
the development of a set of policy tools which will bring about
what you seek. We have got six months or less to make some progress
towards those goals. How do you think we are going to achieve
them?
Mr Brown: Tony
Blair has announced that the summit that is normally held in October
will be a discussion and dialogue about the future of Europe particularly
related to the social dimension. We have got a meeting of the
European finance ministers in Manchester in September and the
theme is how Europe will adjust and equip itself in the global
economy. The debate over these next few months is exactly around
these issues we are talking about today—how Europe can equip
itself for the future, what changes it needs to make, why the
old model is no longer relevant for a new situation, how you are
going to respond to a situation where 50% of manufacturing exports
are now going to come from developing countries where Europe,
traditionally the home (with America) of the majority of the world's
manufacturing is actually going to have to respond to that Asian
challenge by moving up a gear, by becoming more focused on science
and technology, more aware that creative skills are going to be
the determinant of your prosperity, and what then we are going
to do about the policies that are necessary to succeed in this
global era. I think that is where the debate is going to move.
The question I think we have got to ask is if it is the case that
these are the changes that have got to be made, the issue is how
quickly we can make them.
Q55 Mr Todd: We have concentrated
quite a lot on the rather bloated and easy target of CAP on which
broadly there is a consensus in this country. Is there not a wider
debate about what the EU should fund and where its goals should
be and how it distributes its budget? On what principles do you
think that debate should be founded? I think we all accept that
vast spending on agricultural subsidies is both inappropriate
and foolish. What do you think they should be spending money on?
Mr Brown: I think
you are right, there are two issues here. One is what should the
countries of the European Union be investing in, and whether it
is right that so much investment is going towards protecting or
sheltering or subsidising sectors that employ very small numbers
of people now and are responsible for a small share of the output,
and whether the investments in science and skills and infrastructure
that are essential for a strong competitive base in the future
are your priorities. However, that leads to a second question
as to whether these investments should be made at a European level
or through subsidiarity at a national level and I think that is
part of the debate about the budget. We have already said that
although we think investment in science and research and education
and training are the right things to do for European countries,
that there is no case for additional competences in these areas
being given to the European Union, to the Commission itself, unless
there is very good reason because of mobility of labour across
the European Union and having to encourage that, or because of
cross-border gains through co-operation, such as in science and
technology.
Q56 Mr Todd: But there is even a
basis for questioning some of the competences that are already
in place in some of those areas. 15 years ago in business I participated
in various EU programmes which I must admit I could not see an
enormous intellectual basis for.
Mr Brown: You can
always return the money!
Q57 Mr Todd: I am long gone from
there! However, I would have thought there is a basis for strong
scepticism as to whether anything more than enabling capabilities
in R&D are appropriately carried out at a European institutional
level as opposed to a national government level.
Mr Brown: I would
dispute that in this sense: where Europe can co-operate together
and where the advantages of cross-border co-operation are real—such
as in some of the science projects that the European Union has
entered into together, such as in cross-border transport and infrastructure
projects or even, as we found a few minutes ago when discussing
the European initiative on international aid and debt—proved
not just the case for the European Union but the leadership of
the European Union across the world, so I would not dismiss this
level of co-operation across borders as being irrelevant in the
modern world. I think the more it can be done on the environment,
for example, or on energy issues, or on science issues, the better,
but there is a question about how the payment of that should be
organised.
Q58 Kerry McCarthy: If we can move
on to terrorist financing. You say in today's ministerial statements
that a group of financial experts has developed a programme of
reforms to ensure that we identify and isolate terrorist funds
on a global basis and you are going to ask that group to report
to the meeting that you have mentioned of finance ministers in
Manchester in September. Can you give any indication of what sort
of measures they are looking at and what they will be presenting
there?
Mr Brown: Some
of the measures which people promised to freeze terrorist assets
have not been as successful as they should be. What we are looking
at is whether we need better mechanisms both in national states
and across the European Union so that we are in a position to
identify and then to freeze assets. The examination of terrorist
financing is almost the modern equivalent of the work that was
done on code-breaking during the Second World War because it is
at a very sophisticated level of asset tracking. I remember seeing
the work that was done to trace the assets of the 11 September
bombers in the United States and they were eventually traced back
to one set of bank accounts. If that information had been known
in advance it could have had a profound effect on the way people
looked at what happened then. This more sophisticated method is
sometimes forensic accounting to track terrorist assets. We have
got to learn from what each country is doing and there has got
to be greater international co-operation in the exchange of information.
However, what we are really worried about now is if you can get
25 members of the European Union to act and to do the same things
to track terrorist assets, outside the European Union you have
got countries that are allowing themselves to become havens for
the laundering of money, then you are only as strong as your weakest
link, and therefore we want to provide funds to help those countries
which have done very little to get the capacity to do what we
can do in the United Kingdom and other countries. These are the
measures we are looking at.
Q59 Kerry McCarthy: That slightly
pre-empts my next question. You talk about this offer of help
and improved technical assistance. That is obviously conditional
upon countries choosing to take up that offer of assistance. What
ideas do you have for those countries that are not playing the
game?
Mr Brown: Some
of them have implemented legislation but have not got the resources
to do the surveillance work and to do the tracking of assets.
I think we in Britain will be helping 13 countries in this area
but the European Union is making an offer to a far wider range
of countries. So it may be sometimes helping them write the laws,
it may be providing the financial systems, and it may be providing,
if you like, the detective work and support that is necessary
to do this. When we signed the Presidency Plan for Action on Terrorist
Finance we had five points to it. I will just remind you of them:
promoting efforts in other countries to freeze terrorist assets
effectively; making it compulsory for wire transfers of money
to be accompanied by information about the identity of the sender;
updating the EU money-laundering rules to meet international standards
(this is following the work of the Financial Action Task Force
internationally); completing the European Commission-sponsored
review of the structures of tackling terrorist finance (and that
review will report in December and will lead us into the Austrian
Presidency); and a Code of Conduct to prevent the use of charities
by terrorists, which is an important issue as well.
| 
