Examination of Witnesses (Questions 360
THURSDAY 8 DECEMBER 2005
MP, MR JON
Q360 Mr Fallon: I am asking you about
Mr Brown: I just point out that
to be 6% out is a very big problem.
Q361 Mr Fallon: Anybody can get it
wrong in one year, but why have you been over-optimistic for five
years running and why do you still describe your over-optimistic
projections as cautious if they are wrong?
Mr Brown: We have not been over-optimistic
by inclination. We have seen changes in the world economy that
we could not have anticipated at every time we set our budgets.
Q362 Mr Fallon: So it is somebody
else's fault, is it?
Mr Brown: Hold on, Mr Fallon.
In 1999-2001 we had an American recession, a stock market crash,
an IT bubble that burst. We, Britain, managed to come through
this without going into recession. America did, Japan did, France
and Germany did. We did not; we managed to grow in a way that
was stable and keep inflation low, but, of course, because of
what happened in these years there was an effect on our public
finances. Equally, this year, because the oil price has gone up,
because of what has happened to European demand, because of the
desire to slow down the housing market and the interest rate effect,
that has an effect on your public finances. However, I would say
that over the course of the last eight years not only have we
come out in surplus because of our caution; equally, compared
with previous governments, where the borrowing forecast on one
year, if I may say so, was out by 6%, which is the equivalent
of nearly £100 billion, we have been in a far better position
and will continue to be so. The reason we will be in a better
position is that we make cautious assumptions. Your Government
did not include unemployment as an assumption, your Government
did not include assumptions about privatisation proceeds that
were actually accurate, your Government did not include assumptions
about oil prices in the way that we independently audit all these
things, or about capital, or about share prices. All these things
are now independently audited and they form part of our figures
and we cannot affect them and that is why we are in a better position.
Q363 Mr Fallon: It is not logical
to say that assumption is cautious and it is over-optimistic.
It has to be one or the other.
Mr Brown: I think you were implying
that we were deliberately over-optimistic. We were not deliberately
Q364 Mr Fallon: You have been wrong
for the last five years. I want to move on to something else now,
which is the public sector pension agreement on 18 October reached
by the Secretary of State for Trade and Industry on the future
of public sector pensions, in particular the protection of those
who have existing pensions. Were you party to this agreement?
Mr Brown: The Government is party
to this agreement.
Q365 Mr Fallon: Is it subject to
decisions to be taken on Turner?
Mr Brown: There are decisions
that have to be made within this agreement that have not yet been
reached. There are separate sector-by-sector negotiations that
are still taking place.
Q366 Mr Fallon: So is this agreement
binding for the rest of this Parliament or this year? How long
is this agreement going to be for?
Mr Brown: I am just making the
point to you that the negotiations on this are not completed.
There are sector-by-sector negotiations taking place probably
even as we speak.
Q367 Mr Fallon: I understand that,
and they have to be signed off by the Chief Secretary, I think,
but the central principle established by this agreement, that
the pension provision of existing scheme members will be protected,
is not going to be reopened, is it?
Mr Brown: What has actually happened
Q368 Mr Fallon: Yes or no? Is it
going to be reopened?
Mr Brown: What has actually happened
in this agreement is that the Treasury set out to save £13
billion. We have saved £13 billion. There are now sector-by-sector
negotiations around a framework agreement that was signed by the
negotiators. These sector-by-sector negotiations are not yet complete
and I think you might be well advised to wait until these are
Q369 Mr Fallon: But can the agreement
that the pension provision of existing scheme members be protected
be reopened in the sector negotiations? Yes or no?
Mr Brown: I think it is possible
that all things will be looked at in the sector-by-sector negotiations.
Q370 Mr Fallon: You understand the
principle of equity here, that if you eventually decide on Turner
to increase the retirement age it would seem perverse to protect
that for public service workers at 60 for existing members?
Mr Brown: Remember that Turner
is a debate about the state pension age. The retirement age is
not exactly the same as the state pension age. The fact of the
matter is that the local authorities have agreed on 65 years in
the last few days, and I think that should be noted; there was
an agreement that the Trade and Industry Secretary had with the
Civil Service and respectively education and health and that is
now subject to sector-by-sector negotiations that are taking place.
Q371 Mr Fallon: So nobody who is
at the moment a teacher or a worker in the Health Service or in
the Civil Service should accept the Secretary of State for Industry's
word that their existing entitlement will be protected because
it could now be reopened?
Mr Brown: Hold on. That was the
framework agreement but the framework agreement is now part of
sector-by-sector negotiations, and I was advising you to wait
till all these negotiations came to an end.
Mr Fallon: I think you have just confirmed
that all this can now be reopened. Thank you.
Q372 Mr Love: Can I take you back
to the economic cycle again and I will try very hard not to raise
my voice during questions? At the time of the Budget you were
expecting the current economic cycle to end around the end of
2005 and you subsequently revised that to the end of 2008-09,
you mentioned earlier on, in answer to a question that was partly
to do with slowing growth figures. Are there other reasons why
you have revised those figures?
Mr Brown: Yes. If I could finish
my previous answer, the framework agreement that Mr Fallon talked
about, so that he is under no illusions, is an agreement made
by the Government with the respective organisations. It is now
subject to sector-by-sector negotiations. That is what I said.
Mr Fallon can interpret it in the wrong way. I am saying that
the framework agreement is what is agreed between the Government
and the different organisations which is now subject to sector-by-sector
negotiations within that framework agreement
Q373 Mr Fallon: You are just wriggling
Mr Brown: and he must not
misrepresent what I am saying. I come to the issue of the cycle
from 2005 onwards. What has happened as a result of the slower
growth this year is that the cycle is going to be longer.
Q374 Mr Love: Earlier on this year
at a press conference in August the Governor said, "I am
not even sure whether it makes sense to think about a cycle as
if it is a well-defined phenomenon". He suggested further
on in the press conference that we ought to be looking forward
to the current account balance as a better way of measuring things.
Have you considered any alternatives that might improve the fiscal
Mr Brown: We have given the National
Audit Office the power to assess retrospectively the start date
and end date of the cycle. We continue to look at the independent
auditing fiscal assumptions. These are things that we continue
to review. As you know, we have just made the Office of National
Statistics independent and will have legislation before the House
of commons to that effect so that from all points we are looking
at improvements where they can be made in our fiscal and monetary
framework, but I do say to this committee that we are the Government
that was the first to have independent auditing of any fiscal
assumptions. We were the Government that had the independent monetary
framework that is agreed with the Bank of England, and we are
the first Government to have the independent auditing at the beginning
and end of the cycle, as we are doing now.
Q375 Mr Love: One of our advisers
at a meeting yesterday contrasted the technical merits against
the political effects of changes in length of the cycle. Are you
in any way worried that there might be some damage done to credibility,
knowing how much you place on credibility as an important virtue?
Are you worried at all that changes in the economic cycle might
cast doubt on the credibility?
Mr Brown: I do not believe so.
I believe you have got to do the right thing. I have just passed
the evidence to the committee about the starting date of the cycle.
I do not think any serious commentator, looking at the evidence
I have given to the committee about the growth rates in 1997,
1998 and 1999 would be in any doubt that it is reasonable to say,
as the National Audit Office says, that the cycle started in 1997.
We go by the evidence that is available to us, and it is clear
also that if growth is lower this year the end date of the cycle
is likely to be longer away. Again, the idea that this is somehow
anything other than an examination of the objective data seems
to me to be perverse.
Q376 Mr Love: Can I take you on to
skills? The Pre-Budget Report confirms that the UK does not have
a world-class skills base. I am not sure that is news to anyone.
Both the Leitch Review and economic experts when we interviewed
them put the skills gap as the major hurdle to improved productivity
growth. In the light of the Adult Learning Inspectorate's report
yesterday on skills for life and the Leitch Review, how critical
is a major step forward in skills to the future of the economy?
Mr Brown: The figures published
in the Leitch report on Monday showed that 84% of adults had some
skills, but of course, these are essentially basic skills. 16%
of adults have no basic skills. That is something that we must
do something about, and that is why the National Employer Training
Programme is designed to get employees up to NVQ2, but equally,
people are going to need higher level skills, and therefore all
our measures that we are looking at for the future of employee
training and for colleges, universities and higher education,
are measures that I think people will want to fund properly so
that either our colleges of education or employer training of
the workforce are designed for the 21st century skills needs of
Q377 Mr Love: As you indicate, the
Leitch review talks both abut the higher end and the bottom end.
Would you agree with me that the real need and the focus of any
skills review has to primarily be at the bottom end of the market
rather than the top end?
Mr Brown: I think the public support
for acquiring the basic skills has got to be a priority because
if people have no skills whatsoever, they are unlikely to get
jobs, or if they get jobs, they are unlikely to be able to sustain
them. If they cannot get new skills, they are unlikely to be able
to be continuously employable in a very fast-changing economy.
I said on Monday that people went through their life these days
and had seven different jobs on average. Many people have many
more jobs than that, but what is true is that, as you move from
one job to another, you often need to acquire new skills. We have
got to be there as a Government, helping people acquire these
skills. To help people acquire these skills means investment.
That is why the New Deal is so important, that is why the National
Employer Training Programme is so important, and that is why we
put more money behind the National Employer Training Programme
on Monday, so that people get these skills. This is a challenge
that every country faces round the world, to get those least skilled
workers into jobs where often they will need higher skills, and
employers themselves, partly because of the free rider problem,
because they might train people who would then move to other firms,
they need a partnership between themselves, the Government and
the employee to be able to do it.
Q378 Mr Love: Earlier on this year
the OECD commented on trying to incentivise people to undertake
skills training, and while they recognised that people with intermediate
skills could earn significantly more, they were somewhat worried
about the impact of the taxation system, and particularly tax
credits, on that incentive structure. Do you think that the taxation
system acts in any way to disincentivise people from undertaking
skills training and have you done any research in this area?
Mr Brown: If there were any evidence
that it did, we would look at the tax credit system but I think
the greater evidence that is available is that, for example, there
are 250,000 single parents now who have returned to work. Many
of them have needed to get training to get the skills that are
necessary. They could not have returned to work without the help
that is available through the tax credit system and the childcare
help and often the training help that is also available for many
of them. So, far from the tax credit system discouraging people
from work or from getting the skills for work, it is actually
helping many of these people get back to work. Britain had 45%
single parent employment in 1997. It now has 55-56% single parent
employment. Our target is 70%, and that is not an unreasonable
target given what is happening in other countries like France
or Scandinavia or America, where single parent employment is between
70-80%. So the tax credit system can actually help people get
both skills and into work.
Q379 Peter Viggers: The Turner Commission
of course was set up to point out solutions to a problem that
you helped to create. How would you compare the expectation of
pensions of 30- and 40-year-olds with the present condition of
today's pensioners? Do you think the 30- and 40-year-olds can
look forward to the same level of retirement pension income that
present ones can?
Mr Brown: Most people are looking
forward to higher income. The debate about the Turner report is
actually the debate about that, about what level of retirement
income people can expect, whether they are in their 20s, 30s,
40s or 50s, and what level of income they desire to have when
they retire. But that is a debate that has got to continue as
a result of the publication of the Turner report and I hope that
all MPs will join this debate. I know the Pensions Secretary wishes
to see a widespread consultation nationwide on these issues, but
I think it would be a debate that should now happen.