Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80-99)


  Q80  Peter Viggers: Do you see it helpful to explore the possibility of having (I call it club rules) principles to which members subscribe?

Mr Brown: That of course would both be an opportunity for others who are not named in any of the lists that I have given you to demand that they have access, but it also may exclude some countries who might not meet these rules in terms of the wider groups I am talking about. I do not think it has ever been seen like that because the G7 or G8 has no permanent secretariat. It is simply one country year-to-year taking on the secretariat and doing the work and, as you know, it is Russia that is actually hosting the G8 next year. One of its strengths, to be honest, is its flexibility. I think the other thing that this Committee may note and may wish to comment on at a later date is that the only arena in which United States and Canadian ministers (NAFTA) meet European ministers for economic matters is by being part of the G7 or G8. There are political and military mechanisms for co-operation between Europe and America. The G7 and G8 of course include Japan as well but there is no other forum where on economic matters ministers from European countries meet ministers from American countries. There is the annual EU-USA meeting to discuss all kinds of things but if we are talking about ministers of Member States of the European Union and ministers of NAFTA on economic matters this is the one place where it happens. It is very useful but it does raise questions about whether there should be stronger arrangements between America and Europe.

  Q81  Peter Viggers: Russia has identified the broad theme of energy as being the area it wishes to pursue during its own Presidency. What expectations do you have coming out of that statement by Russia?

Mr Brown: We will have to wait and see the proposals they are putting forward. It is actually the theme of energy security that Russia has selected. We are looking forward to seeing the specific proposals that Russia puts forward. I think it continues the discussion that is taking place on climate change and, undoubtedly, that will be part of it but it is also in the context of high oil prices. I think that would be another issue. I think we need to do far more about greater knowledge of the oil markets, of oil reserves, about how oil markets work, about how OPEC itself can function in relation to the rest of the world economy, and if energy security is a means by which we open up some of these issues it is definitely to our advantage.

  Q82  Peter Viggers: What is your best estimate of the cost of the Gleneagles G8 Summit?

Mr Brown: The cost in terms of policing?

  Q83  Peter Viggers: Total cost including specifically policing?

Mr Brown: Well, as you know, we have set aside some money for the policing and security costs but there is no separate budget for the G8. The Foreign Office will finance some aspects of it, the Treasury will finance the G7 parts of it. There is no one budget for the G7, partly because it is a continuing responsibility of each department. Maybe this is the right time to call on Sir Gus O'Donnell who is going to be head of the domestic Civil Service and Cabinet Secretary to tell us whether that is the case. I do not think there is one itemised G8 budget.

Sir Gus O'Donnell: It will be spread around. Some of it will be borne by Scotland for example. It is in different parts all over the place.

Mr Brown: He will be looking to cut down on the administrative costs, I can assure you!

  Q84  Peter Viggers: Members of Parliament have questioned the security costs. I would have thought the Treasury would be able to give a best estimate of the total cost of the accumulated cost.

Mr Brown: We do know about the policing costs obviously but I think it is too early to be able to report what has been the final cost of policing because as you know, what happened with the rally and events in London meant that resources had to be moved around the country.

  Q85  Chairman: Sir Gus, you will be able to bring all this together in your new job in August, will you not?

Sir Gus O'Donnell: I will indeed. During these events I was attending COBRA to learn and observe what was happening with regard to terrorist elements.

Mr Brown: One of the advantages of his new job is he does not have to report back to this Committee! Chairman: We will get him in other ways, Chancellor!

  Q86  Mr Todd: You have been a critic in the past of the Stability and Growth Pact.

Mr Brown: Are you talking to Gus?

  Q87  Mr Todd: No, I am directing it to you, Chancellor. What is your appraisal of the changes that have been announced?

Mr Brown: I think the test will come over the next period of time but the three changes at an intellectual level are the right ones. The first is to recognise the importance of the cycle, which I think this Committee has commented on before. The second is to recognise that investment is something that can be taken into account separate from consumption, which is actually in the Maastricht Treaty but has not necessary been at the centre of the Stability and Growth Pact. The third is this issue of debt sustainability. What a country is in a position to do with low levels of debt as opposed to what a country is in a position to do with high levels of debt is something that the Stability and Growth Pact never fully took into account in the past. I suppose our hope is that we move towards interpretations that take more account of the cycle, more account of the "golden rule" of the levels of investment, and start from the position that sustainable investment is more possible if there are low levels of debt. We shall see how it evolves over the next period of time but these were the factors that were added, if you like, as being more important to the operation of the Growth and Stability Pact over the next few years.

  Q88  Mr Todd: The Governor and other central bankers appear to have been rather less guarded than that in their picture of the changes. Do you share any of those misgivings?

Mr Brown: I thought the European Central Bank had been quite positive about it. You mean the Governor of the Bank of England?

  Q89  Mr Todd: Yes, the Governor has quoted central bank colleagues in Europe as being "seriously concerned, and I think dismayed would be a better word". It does not sound quite such a guarded "let's wait and see how this works" view of the changes that have been made.

Mr Brown: It is true that—am I right Jon—half the countries of the original European Union are probably now in breach of the Stability Pact. It does raise questions about whether it is right at this time in the economic cycle for people to be asked to cut their investment or spending, but the new Stability and Growth Pact has only just been introduced and I think it is important—and it has been introduced in circumstances where, for example, Portugal has been found to have a 6% deficit—to see how this operates over the next few months before one comes to a judgment.

  Q90  Mr Todd: You have just returned from the ECOFIN meeting at which there would have been some discussion about that, particularly in its application to Italy and Portugal. What is your appraisal of how this appears to be working now?

Mr Brown: There were decisions made on both Portugal and Italy. On Italy they will report back later, is that right?

Mr Cunliffe: I think the decision on Italy is different to the decision that might have been taken under the old pact which is that there is an excessive deficit and it has been asked to correct it. Some attention has been given to the very high level of debt in Italy in reaching that but because the Italian economy is weak it has been given until the end of 2007 to correct that, whereas under the old pact it would have had to have made all of the adjustment much more quickly, which would have had a very adverse impact on the growth of the economy.

Mr Brown: That is the Stability and Growth Pact reformed. If it had been the old Stability and Growth Pact they would have had to correct it by 2006. Under the new Stability and Growth Pact—and we had to make a political decision on this because it is not fully in operation—they will now have until 2007. So let us see how that operates. I think the Portuguese Government is in a different position because it has a deficit of 6.2% and there is an excessive deficit report being launched with recommendations on Portugal which will come in the autumn. I doubt that a 6.2% deficit will be considered acceptable under any Stability and Growth Pact.

  Q91  Mr Todd: You have rightly emphasised the importance of long-term debt levels, a measure on which this country performs well in comparison to almost every other European country. Does that suggest that there should be a greater focus in collective economic policy-making in Europe on reducing long-term debt levels? What advice would you give to some of your European colleagues to achieve that?

Mr Brown: The thing about Europe is that there is a range of debt levels from almost zero to over 100%. Even within the euro countries like Belgium and Italy, they have deficits of around 100%. The Maastricht criteria was a 60% or below deficit. I think countries that wish to invest for the future must have debt at a sustainable level. The question is then how you move towards that. There is no doubt that in every country—America, Japan, Germany, France, all the major countries—the debt levels have increased quite substantially over the last few years as a result of the world downturn.

  Q92  Chairman: It was the Governor who appeared before a previous Committee on 24 March and expressed his dismay on the Stability and Growth Pact and said that finance ministers "had driven a coach and horses through the pact" so there was an opportunity for open discussion and he had been very clear with us and it was there all the time.

Mr Brown: But I think Mr Todd was giving the impression that the Governor was criticising the pact. You are saying the Governor was criticising the fact that countries were not meeting the pact. Chairman: That is right. He was fairly clear on this.

  Q93  Mr Mudie: Chancellor, time allows me to just pursue you on the Millennium Goals again. They were supposed to be completed in ten years' time in 2015. You have projected that it would take 100 years and even 145 years on the poverty one. Does this mean we have given up the ghost on the Millennium Goals target dates and, if so, have we taken the next step of setting new ones or are we just drifting?

Mr Brown: No, I think as a result of the decisions made in the last few months that that timescale that I mentioned in the UNICEF speech should be narrowed. The question is how much it is going to be narrowed and how quickly we can move to a far better position. As I say, there are three goals. The first one is on education. I think we were suggesting today that a fast-track initiative is ready and should be adopted to support the World Bank initiative to make quick progress on primary education. There is no technological, scientific or other reason why we cannot get children into primary education. That is the first thing. The second one is on infant and maternal mortality. That depends on a whole series of factors including wealth as well as medical science, but again, I think we could make rapid progress on that.

  Q94  Mr Mudie: But that answer and those details confirm that we have not set any fresh dates because we are now still projecting—

Mr Brown: 2015 is the date. We still must try to get to that date. That is for Sub-Saharan Africa and that is for the three goals for 2015. I think we may be able to revise these figures as a result of the agreement that was reached at Gleneagles but countries must deliver the money that they promised.

  Q95  Mr Mudie: When you came before us two or three years ago we pressed you on the Millennium Goals, and nobody seems to have taken them seriously, and that seems to be reflected in the figures you mentioned in the UNICEF speech.

Mr Brown: Except there is a summit on these goals in September.

  Q96  Mr Mudie: No, in this document here as set out, are you saying to the Committee that we are still taking 2015 as the date? To keep credibility do we have a back-up date? Are we starting to talk about this being unrealistic and setting a new date? Because the figures, as you have pointed out, drift and nobody is accountable to doing them by a date?

Mr Brown: But the whole purpose of the focus on Africa and developing countries at Gleneagles and subsequently at the UN Special Summit is so that we do not drift. It is to bring the Millennium Development Goals back on to the agenda in a way we can assess what we must to do deliver them. Part of the Africa Commission report is what it would take and the cost of delivering the goals. The money is now in place in a better way than previously. It may not be as much as people wanted but it is a significant step forward. The question is whether that money is provided. In practice where it goes to and whether the initiatives that have been set in place—like the fast-track initiative on education—can be got up and running quickly enough to deliver by 2015, that is what the UN Special Summit in September is supposed to discuss. I think we have got to review the position and perhaps the Committee might ask us to send a note to them after the Millennium Summit and after the IMF and World Bank meetings which will be looking at these things, on where we are. I would not be happy if we have to admit that here is no chance of meeting these goals. At the moment on the current rates of progress we would not. With the new resources there is a chance. The question is whether these new resources are going to go to the right things over the next few years.

  Q97  Mr Fallon: One of the very big investment projects facing this country is the London Olympics in 2012. The candidate file says that the budget has been prepared in a prudent manner and there is a reserve of $105 million. Do we imply from that that you expect the Olympics to break even or make an operating profit?

Mr Brown: I did not hear the first point about $105 million.

  Q98  Mr Fallon: The candidate file for the London Olympic bid says that its budget has been prepared in a prudent manner and the resource had a contingency reserve of $105 million. Do we imply from that that you expect the London Olympics to break even or even generate a profit?

Mr Brown: What I expect is that the funding that we have set aside and the mechanisms that we have set aside for raising the funding will yield the results that we said in the detailed submission we made to the International Olympic Committee. The Government and the Mayor have agreed a package of £2.375 billion. That is made up of £1.5 billion from the Lottery, £625 million from the Council Tax and £250 million available from the London Development Agency, so the funding that has been put in place and the package was said by the International Olympic Committee: "the budgeting process is very detailed and meticulous. Assumptions are well-supported and they are achievable." That is the basis on which we are funding the Olympics.

  Q99  Mr Fallon: That is what is going in but do you expect the Olympics to lose money or to break even or to make a profit?

Mr Brown: We expect to be able to fund our commitments to ensure that the Olympics are successful in 2012. That is what we want to do. That is our objective. You are saying is our objective to make a profit or to make a loss. Our objective is to fund the Olympics properly for 2012. I am setting out to you what the major elements of that package are which have already been agreed and are being put in place in the way I have suggested—from the Lottery, Council Tax and LDA.

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