Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 360 - 379)



  Q360  Mr Fallon: I am asking you about your Government.

  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 over-optimistic.

  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 complete.

  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 now.

  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 policy framework?

  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 this country.

  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.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2006
Prepared 25 January 2006