Examination of Witnesses (Questions 80-99)
RT HON
GORDON BROWN
MP, SIR GUS
O'DONNELL, MR
JON CUNLIFFE,
MR NICK
MACPHERSON, MR
JONATHAN STEPHENS
AND MR
MICHAEL ELLAM19
JULY 2005
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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