Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 300 - 319)



  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 it then?

  Mr Brown: I do not think so, because—

  Q302  Mr Ruffley: Why does he say it then?

  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 the proposal?

  Mr Brown: We have got to look at—

  Q308  Mr Ruffley: Fine.

  Mr Brown: Hold on. We have to look at what he says.

  Q309  Mr Ruffley: You do not want more independence?

  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 to do?

  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 the question.

  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—

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Prepared 25 January 2006