Examination of Witnesses (Questions 300
THURSDAY 8 DECEMBER 2005
MP, MR JON
Q300 Mr Ruffley: Why does the Comptroller
& Auditor General say, "I recommend that the Treasury
presents a formal assessment of the views of external organisations
in terms of how they have influenced the Treasury's judgment at
the date in the economic cycle"? That is a new recommendation
because he does not think your current system is adequate. Is
that not true?
Mr Brown: No, I do not think so.
Q301 Mr Ruffley: Why does he say
Mr Brown: I do not think so, because
Q302 Mr Ruffley: Why does he say
Mr Brown: Because he actually
says, and I will just quote paragraph 73, "The Treasury's
method of using cyclical indicators to identify on-trend points
is a reasonable one".
Q303 Mr Ruffley: Why does he say,
"I recommend that the Treasury presents a formal assessment
of the views of external organisations . . ."? You are not
doing that to his satisfaction now, are you?
Mr Brown: Hold on, Mr Ruffley.
Q304 Mr Ruffley: Is that true?
Mr Brown: You can ask your question
Mr Ruffley: Have I read that out correctly?
Chairman: Hold on, hold on.
Q305 Mr Ruffley: Answering the question
would be a good idea.
Mr Brown: I thought it was a question
for the National Audit Office.
Chairman: Let us hold on. This is a question
and answer session. Let us put a question, let us get an answer,
let us be civilised and let us all get on. Let us continue the
practice that was established yesterday in the Chamber of the
House of Commons.
Q306 Mr Ruffley: I am asking about
the Comptroller & Auditor General's proposal. Do you accept
it or not?
Mr Brown: I do not accept the
proposal at this stage.
Q307 Mr Ruffley: You do not accept
Mr Brown: We have got to look
Q308 Mr Ruffley: Fine.
Mr Brown: Hold on. We have to
look at what he says.
Q309 Mr Ruffley: You do not want
Mr Brown: Hold on. The issue that
you are raising is whether the National Audit Office thinks it
was wrong to make the economic cycle from 1997.
Q310 Mr Ruffley: That is not my question.
Mr Brown: The only point to the
question can be that you think that there is some question mark
over whether the cycle started in 1997. What he actually says
is, and I think I have to have the permission of the Chairman
to read this out, "The Treasury's method of using cyclical
indicators to identify on-trend points is a reasonable one. The
indicators used by the Treasury are similar to those used by other
organisations which use this approach and are a reasonable choice.
Though there are many uncertainties there are reasonable grounds
to date the end of the previous economic cycle in 1997."
He was asked simply, "Is it reasonable to date the economic
cycle from 1997?". His answer is that it is reasonable. I
have put round the table, Chairman, the figures that show that
it is difficult to argue that there is a complete economic cycle
in years where the growth rate is 3.2, 3.4 and 3.1. You can hardly
suggest that this is a cycle that has gone through ups and downs
as if it has been on a real down and then gone high up. All the
growth rates in this period are 3.2, 3.4 and 3.1. That is not
an economic cycle and I do not think there should be any suggestion
now that the Treasury was in any way wrong in suggesting that
the economic cycle started in 1997.
Q311 Mr Ruffley: You have had your
say, Chancellor. The NAO report makes suggestions as to how you
can improve it because they actually call some of your assumptions
Mr Brown: I have just said, Mr
Ruffley, that I am prepared to look at it but I am not prepared
to make a judgment on it at the moment.
Q312 Mr Ruffley: I think you should
concede and move on because I want to ask one important question
about independence which goes to the heart of my questions. The
independent IFS has said that this change in the cycle is not
so much an economic cycle; it is more a stretched limo. I would
suggest that your denial of the proposal from the NAO makes this
not an economic cycle. It is a spin cycle you are involved in,
is it not?
Mr Brown: No, because, Chairman,
Q313 Mr Ruffley: It is a spin cycle,
is it not?
Mr Brown: Chairman, if the growth
rate of the economy is lower this year than we expected, and this
is the whole point of the initial questioning of this Committee,
then it is clear that we are going to be slower in ending the
economic cycle because to end the economic cycle the growth has
got to be raised to the point of trend growth to end the output
gap. It is absolutely clear that if growth is lower this year
it will take longer to end the economic cycle, so I do not think
this Committee can have it both ways. You cannot acknowledge that
there was lower growth in the economy this year and say the cycle
is going to end at exactly the same time.
Q314 Mr Ruffley: You know there is
a lot of uncertainty about the size of the output gap going forward.
I want to ask one question, which again I think you will want
to answer, Chancellor, which is the whole question about independence
of statistics. A lot of independent commentators have said that
we should have a fiscal policy committee, something akin to the
non-partisan Congressional Budget Office, that can actually look
at fiscal projections and come to an independent view, not overriding
the Treasury but an independent view. The Liberal Democrats have
suggested this would be a good idea through their spokesman, Mr
Cable. My party has suggested we should have an independent committee
so that the whole world can look separately and independently
at what your Treasury is up to. I think the implication is that
we do not have any fudge and fiddle. Why do you not accept that
entirely reasonable, cross-party, non-partisan decision to have
an independent fiscal committee?
Mr Brown: Because there is not
the agreement that you suggest and because it would be the wrong
thing to do.
Q315 Mr Ruffley: Why the wrong thing
Mr Brown: Because what we have
done since 1997 is that we have given the National Audit Office
the power to verify the assumptions that we make. These are assumptions
that were never verified before 1997 under your Government, even
when you were in the Treasury, Mr Ruffley. These were assumptions
about the levels of unemployment, about oil prices, about share
prices, about VAT and the effect of the ratio of consumer spending
in raising levels of VAT.
Q316 Mr Ruffley: They did not audit
the projections. You are talking about the assumptions; they are
different things, are they not, Chancellor? I was talking about
what the CBO do.
Mr Brown: Chairman, I am coming
exactly to that point. The independent auditing is done off the
assumptions. It is also now done retrospectively on the beginning
and the end of an economic cycle. The question of an advance projection
about either the end of the cycle or the beginning of another
cycle raises questions about fiscal policy that can only be answered
by democratic votes in the House of Commons. Just as you cannot
hand over to the European Union the power to determine your fiscal
policy under the Stability Pact, it would be completely wrong,
and I do not think any party in the end would go with this, to
hand over control of fiscal policy to an independent organisation
that is not the House of Commons and not the Government reporting
to the House of Commons.
Q317 Mr Ruffley: You are spinning
again. I am not saying hand it over. I am saying do what the Americans
do and they do it perfectly well. Chancellor, you are running
scared from independence. I do not know why you are so afraid
of independent scrutiny.
Mr Brown: The system in America,
Chairman, is quite different from the system he proposes and maybe
Mr Cunliffe, who has studied it, could just say what the system
in America is.
Mr Cunliffe: The two main differences
are that the Congress has responsibility for fiscal policy, which
is very different from the parliamentary responsibilities here,
and the other point I would make is that the US does not run an
ostensible fiscal framework at all, and they do not run a cyclically
adjusted system in which the cycle has any input
Q318 Mr Ruffley: You are not answering
Mr Cunliffe: as set out
in the end of year fiscal report. Our fiscal forecasting record
compares very well. It is slightly better than the Congressional
Budget Office, I would say.
Mr Brown: Chairman, I think your
Committee should look at this. It would be to give up the power
of the House of Commons to decide the fiscal policy of this Government
if you handed over the responsibility for fiscal projections and
therefore the responsibility to tell the Government what to do
on fiscal policy
Q319 Mr Ruffley: We are talking about
checking the policy. Do not be ridiculous.
Mr Brown: in exactly the
same way that we have handed over monetary policy to the Bank
of England. It is right to hand over monetary policy but in the
end the whole history of parliamentary democracy in this country