Examination of Witnesses (Questions 380
- 399)
THURSDAY 8 DECEMBER 2005
RT HON
GORDON BROWN
MP, MR JON
CUNLIFFE, MR
MICHAEL ELLAM,
MR DAVE
RAMSDEN, MR
TONY ORHNIAL
AND MS
MRIDUL BRIVATI
Q380 Peter Viggers: You have taken
something like £40 billion out of the pensions industry,
of course.
Mr Brown: I do not accept that
figure at all. I do not think you have any evidence for that figure.
Q381 Peter Viggers: You are not proposing
to take to take some £6.5 billion from the oil industry?
Mr Brown: This is a completely
different figure, if I may say so. The Dividend Tax Credit that
you are referring to had a bias against investment. Your Government
reduced the Dividend Tax Credit right down to, I think, 10% and
we reduced it from 10% to zero. We actually provided compensation
for both companies and for all the organisations that were affected
by the change, and we reduced Corporation Tax from 33 pence to
30 pence as a result of the change we made. So companies actually
had higher profits after tax as a result of the change we made,
in which case they were able to fund their pension schemes.
Q382 Peter Viggers: It worries me
that it seems, certainly from questions yesterday, that the Treasury
may think that the £6.5 billion to be taken from the oil
industry is a kind of free shot. Do you think there is any relationship
between taxation on the one hand and petrol prices and investment
on the other hand?
Mr Brown: I am sorry if the Conservative
party are going to oppose this change. If you look at what has
happened to the oil price, and any sensible person must look at
the changes that have taken place over the last few years, when
we had the change in the regime in the last Parliament, the oil
price was expected by OPEC to be between $22 and $28 a barrel.
It had actually risen a bit higher than that. Since then we have
had a dramatic change in the oil price, and the oil price has
gone up to $70, then to $60, and it is around $55 at the moment.
Our assumption next year is in the order of $55. That is in the
line of almost all independent forecasters, that the price is
going to remain substantially higher. To some extent it is double
what the OPEC range was for most of the years of the 1990s and
early 21st century. In these situations you have to ask yourself
what is the right balance between what is owed to the consumer
and what is owed to the producer? If the oil companies have seen
a transfer of resources to them in the last three years of something
in the order—and this is the OPEC countries and the oil
companies—of $1.2 trillion, which is money that consumers
used to have that they are now paying in addition to the producers,
then you have to ask yourself what is the right balance between
consumption and production? Then you have to look, as you do that,
at what is likely to happen, as you rightly say, to investment.
We put in new exploration incentives for the development of the
smaller oil fields in the North Sea, just as we did when we made
the change previously. We increased the incentives for new investment
in the North Sea to make the fields that we are talking about,
the fields that we want to see developed, more attractive for
the oil companies to do so.
Q383 Peter Viggers: Reading the Pre-Budget
Report, a great deal is made out of the importance of productivity.
In the departmental annual report in July 2005 there was a claim
that the UK has risen four places to 11 in the World Economic
Forum's Global Competitiveness Report. In fact, if you read the
World Economic Forum's Global Competitiveness Report, productivity
competitiveness has actually declined from 7th ranking in 1997
to 13th in 2005. Do you think that the Government's burdens on
business has had anything to do with that decline in productivity?
Mr Brown: There are a lot of figures,
if I may say so, about productivity. I think during one period
of your Government we were something like 26th. The fact of the
matter is that we have passed Japan, and we have now passed Germany
in terms of our productivity, we are catching up with France,
and therefore I do not accept the premise of your question. We
are Becoming a more productive economy. There is no year of this
government in which productivity has been negative. That was what
happened under the previous Conservative Government. Under the
Labour Government productivity has been rising every year. The
latest estimate for productivity is that in this present cycle
it is higher than in the previous cycle.
Q384 Peter Viggers: It baffles me
that in these different areas you seem not to realise the consequence
of Treasury activity. I have been pondering this. I think the
condition is financial autism, and I fear it is irremediable.
Mr Brown: I think that is a bit
offensive as a term to use to people with the condition of autism,
and I would be very careful, if I were you, of using that term.
Q385 Angela Eagle: I was listening
to the tenor of Mr Ruffley's questions about independence and
not being able to trust the Treasury to do anything earlier, and
I wondered; it struck me that he seemed to have a view of the
world in which the Treasury are all in a conspiracy to mislead
the public and deceive Parliament. You have been one of the longest-serving
Chancellors this country has been lucky enough to have. Has it
been your experience that your Treasury colleagues are these venal
sorts of persons?
Mr Brown: I think people will
at some point historically—even the Conservative party—recognise
that we made the Bank of England independent and therefore devolved
control of monetary policy from the Treasury. We have led the
way in making competition policy independent of Government. I
have now announced that the Office of National Statistics will
be independent of Government and we will legislate to that effect.
There are many areas of industrial policy we have made independent
of Government. I believe that the mistake that was made previously
was that politicians put the short-term interests of themselves
before the long-term interests of the country. It is because we
believe that it is the long-term interests of the country that
come first that we actually made the Bank of England independent
and made all the other changes, including in competition policy,
and now in statistics policy. All the changes we have made were
changes that could have been made by Mr Ruffley when he was in
the Treasury in the last Conservative Government. None of these
changes were made. They resisted Bank of England independence,
indeed, voted against it in the House of Commons. There was no
independent auditing of assumptions, and that is one of the reasons
why fiscal policy went so wrong in the early 1990s, but I am not
prepared for a situation which I think would be damaging to the
country where somehow you handed over control of fiscal policy,
just like we were asked to do with the European Stability Pact,
to some independent body that is not responsible directly to Parliament.
It is the Government that is responsible to Parliament for fiscal
policy. That, I believe, is the test that we have got to meet
in relation to budgets and to public expenditure, where we answer
to the House of Commons, and I do not see much sense in passing
over the major decisions about fiscal policy to some other body
when the MPs are expected, through the Government's recommendation,
to make these decisions on behalf of the country. It is one of
the great principles of our parliamentary democracy that the House
of Lords cannot impose taxation on the people, only the House
of Commons, and that is why fiscal decisions, which are essentially
about tax and spending, have got to be made by Governments responsible
to the House of Commons.
Q386 Angela Eagle: Would you say
a bit about your new policies on deregulation which you announced,
probably at the CBI conference, but which feature quite heavily
in the announcement you made on Monday, and how you see those
as contributing to future efficiency gains?
Mr Brown: Whenever I go to America,
the issue for American businessmen is regulation. If you go to
Europe, the issue of European businesses is about regulation,
and in Britain it is clearly an issue that we have got to deal
with properly. That is why we have moved to this idea of risk-based
regulation. In the past, the theory was that you would inspect
every premise or inspect every procedure or require information
and filling in of forms and inspection of every process. That
is something that we can easily move away from. With a risk-based
approach what you do is you look at where there is a risk, where
there is evidence of a risk, and only in these circumstances do
you require the full level of information or the full level of
form filling or the full level of inspection. That, I think, allows
us to have a different approach to regulation for future years,
but I think this is a breakthrough that will influence Europe
and America as much as it will influence Britain, and I think
we are in the lead on risk-based regulation. I pay tribute to
Sir David Arculus and Philip Hampton, who have produced reports
on how we can make changes both in reducing the numbers of regulations
and at the same time in applying the risk-based approach, and
I think Britain is entering a period when we can actually make
some major changes in the regulatory system, with, I hope, a consensus
on this.
Q387 Angela Eagle: Chancellor, you
are quoted as saying a key factor in raising business start-up
rates in the UK is getting women to start their own businesses,
and in fact on page 55 of the Pre-Budget Report, paragraph 371,
there is a section on women and enterprise, which talks about
ensuring that all regional development agencies have a strategy
for incorporating women-friendly business support into mainstream
provision. Would you have a look at the fact that most RDAs are
not geared up to understand what women-friendly business provision
is, that women generally pay 1% more on average for access to
finance than businesses that are not owned by women? They have
very many particular requirements when they are entering into
entrepreneurship training and support, including childcare. In
my own region, the North West Development Agency is reducing the
amount of money available for specialist women's provision from
£400,000 down to £100,000 a year, which risks the specialist
infrastructure which already exists. Could you have a look at
the fact that, although we have a very progressive national approach
to this, the way it is actually working out regionally because
of these biases that exist is actually putting at risk the progress
we have made so far?
Mr Brown: I think the numbers
of women and the proportions of new businesses started by women
is a huge issue that we want to give some priority to. Again,
if you look at America, which has a far faster rate of business
creation than almost any other advanced industrial economy, the
numbers of women, the proportion of women starting businesses
is in the order of 50%, not 10%, 20% or 30%, as it is in some
other countries. Whenever I have been at a business conference
to look at business creation in the States, the large numbers
of women who are there is something that is striking in comparison
with business conferences in other countries. In Britain we have
this Women's Enterprise Task Force, which is looking for the next
three years at how we can increase the rates of business creation
amongst women in the economy. There are key enterprise developments
in the North West, which you are referring to, where female entrepreneurship
rates have actually doubled in the last two years. So things are
moving, but there is a lot more to be done. I remember being at
one of the business conferences and one of the young, successful
businesswomen who were there said that before she started her
business, she had been uncertain about whether to join an accountancy
firm or start her own business, and she had asked one of the leading
entrepreneurs in Britain, who I will not name, whether she should
go to the accountancy firm or start her own business. He had advised
her to go to the accountancy firm and not start a business. The
accountancy firm went bankrupt and her business, which she had
actually then already decided to start, has been very successful.
Sometimes even the best of us when looking at entrepreneurship
are not giving the best advice to dynamic young female business
people who can actually make a huge difference.
Q388 Angela Eagle: Chancellor, I
could not agree more, and in fact, the impressive figures in the
North West have partially been delivered by an infrastructure
that I think is currently under threat because of the North West
Development Agency's lack of understanding about the specialist
nature of this support. I wonder whether you would consider whether
we actually still need a national women's enterprise programme
which can ensure that in this specialist but vital area we do
not have to go backwards before we can go forwards again.
Mr Brown: I am very happy to look
at what you are suggesting. My notes here say, when I asked about
this, that the rate of female entrepreneurship has doubled in
the North West in the last two years, and that is a great success,
but it builds on the success in the North East, where female entrepreneurship
doubled in the previous two years. So in both these regions things
are moving, and therefore anything that we can do to help that
forward rather than impede it is something that I would like to
look at. If you would like to ether have a meeting with me or
with Alan Johnson, the Trade & Industry secretary, we can
talk about these things.
Angela Eagle: Thank you very much.
Q389 Ms Keeble: Chancellor, the PBR
projections assume that current public spending will grow at 1.9%
a year from 2008-11. Is it reasonable to assume that that is the
overall envelope that will underpin the forthcoming Comprehensive
Spending Review?
Mr Brown: I think when you see
the first report on the Public Expenditure Review we will bring
out next year and when you see the final report of the Public
Spending Review the full figures will be announced. These have
been our working assumptions for a number of years, but these
are not necessarily the final figures.
Q390 Ms Keeble: Looking within that,
the IFS estimates are that, given its commitments on aid, NHS
and education, that public spending outside those areas would
have to go up no more than 0.8%. In fact, your own figures are
more robust than that because they show that if you take health-related
spending and education, between now and 2011 other areas of spending
actually reduce slightly as a percentage of GDP. How do you manage
to sustain public services and what sort of choices will you be
making within that very tight framework?
Mr Brown: We have initially a
review on the efficiency and value for money issues that can be
addressed in the Comprehensive Spending Review. That review includes
a zero-based review of our asset base, what the Government owns
and what the Government may decide to sell off. We have a target
of £30 billion of asset sales by 2010. That is something
that we will be looking at as to whether we can increase that.
So there are a lot of decisions still to be made on the road to
the final decisions about the Spending Review and I would not
presume the figures that you are suggesting.
Q391 Ms Keeble: But the zero-based
approach, if you assume big blocks of spending, which are in a
sense demand-led, certainly pensions would be and that is one
of the biggest areas, and also age-related health spending, that
leaves you with quite tight areas for looking at your zero-based
budgeting. I would ask again, what kind of priorities are you
going to be looking at?
Mr Brown: I think you are presuming
the conclusions of the first part of our review, which is the
study we are doing about both government assets and the zero-based
review to see things that Government might do less of in the future.
So the first stage of the review will be published next summer,
and I think you might be in a better position to look at what
resources may be available to be allocated to the other services
then. I do not think you would expect me to come along to the
Committee today and announce our spending plans for 2008. After
all, we have a review that is taking place in 2006-07 and then
a set of decisions to make between 2007 and 2008, and then we
will make our final decisions.
Q392 Ms Keeble: You have talked today
also about capital spending, and obviously the very substantial
capital spending on schools and hospitals is very welcome. However,
there are two areas, one which the OECD says we have under-performed
on, which is transport, and the other, which the Barker review
picks up on, which is housing. Both of those are potentially enormous
areas for capital spending. How, again, do you fit that into a
very tight spending round?
Mr Brown: Make no mistake about
it, and I think it should be clear to the Committee, public investment
is going to increase. We are committed to the increase of public
investment. Our second fiscal rule can be met continuously with
an increase in public investment. I have given you figures showing
that public investment, which was £5 billion in 1997, and
was £18 billion in 2004-05, £26 billion in 2005-06,
will rise about £30 billion in future years, and that is
a major increase in public investment that is still to take place
in this country. The reason we want to make that investment, as
I think right across the country, in constituency after constituency,
people recognise, is that there is a great deal of work to be
done in transport and infrastructure: we have work to be done
for the Olympics and for sport, we have economic regeneration
that we wish to take place in areas where change is itself taking
place, and we have to complete our programme of investment in
hospitals and schools. So we are in a position fiscally and in
a position because this is the right thing to do to increase the
levels of public investment in the economy. I would not like the
Committee to go away with the misunderstanding that we are not
doing that. We are increasing public investment in the economy,
because it is absolutely necessary for the health of constituencies
and regions in this country that we do not make the mistake of
past years, which is to neglect investment in the long-term infrastructure
and services of this country for the future.
Q393 Ms Keeble: Given that it is
likely to be a tight spending round, and I think all the figures
have set that out very clearly, what then happens to public services
which people have obviously grown accustomed to if you have some
external pressure, for example, a slowdown in growth or some policy
commitment that would require the proceeds of growth to be shared
with tax cuts as well as with public spending?
Mr Brown: Let me put it this way:
we plan to renovate 12,000 more primary and secondary schools.
That is a programme that we have set in motion. That is a programme
that will continue and that is possible within the strict fiscal
discipline that I have set. We will be prudent and we will be
cautious and we will maintain that fiscal discipline that has
been a hallmark of this Government over the last few years. We
have met our fiscal rules and continue to meet our fiscal rules.
It is because our second rule is designed to borrow for investment
as long as you have a sustainable debt ratio that we are able
to increase public investment in the economy in future years.
The decisions about the level of spending for services, in other
words, the current expenditure on services, are decisions that
we will make in the Spending Review, and we will make them within
our fiscal rules, and we will make them by exercising the tough
fiscal discipline that I am determined to continue for this economy,
but that has not precluded us increasing our investment in our
infrastructure and social and economic fabric, and that investment
will continue. The disagreement will be over the next few years
between those of us who have two fiscal rules, where we wish to
achieve a balance of current expenditure and have a sustainable
debt level, and those who want to add a third fiscal rule, which
would be an annual requirement, as I understand it, that growth
in the economy has to be higher than the growth rate of public
expenditure. I was just pointing out on Monday that if that rule
were applied this year, that would mean a £12 billion cut
in public expenditure, and it would require next year a £17
billion cut in public expenditure, and that would mean that we
would not be able to afford the investment in public services
that is taking place. Whatever you call it, sharing the proceeds
of growth or whatever you call it, in terms of the fiscal rule,
an annual rule, which is very similar to the European Stability
Pact, by the way, that prevents you actually being able to invest
in your public services, particularly in a year like this, is,
in my view, damaging for our infrastructure but it is also damaging
for the quality of public services in the economy and can be damaging
for the economy itself.
Q394 Ms Keeble: Turning to the Turner
report, your Pre-Budget Report noted that the proposals cost about
£14 billion in 2020 compared with your own plans. I want
to ask you specifically about the citizen's pension proposals.
Can you say, given the pressures already on age-related spending
and around pension spending, what is your view specifically around
the proposals for the citizen's pension and the affordability
of that?
Mr Brown: That is an issue that
we have not got to discuss as a result of the recommendations
of the Turner report, and I am not going to do anything other
than encourage that discussion on the citizen's pension and on
women's pensions in particular to continue. I know and I understand
that for many years women have had a difficult time where they
have not been able to build up contributions or they have had
interrupted periods of earnings. It has deprived them of getting
the full pension that large numbers of women, as you know—and
the figure are very big indeed—do not have, but obviously,
every proposal has to be looked at in terms of its affordability,
and I think I would be failing in my duty as the Chancellor if
I did not point out that there are financial implications of that,
implications for our fiscal position of the costs of some of the
measures that are included in the report.
Q395 Ms Keeble: Can I just say that
in addition the issue of pensioner poverty, particularly for women
pensioners, as a result of the way the State Pension operates
currently, there is also the issue of financial independence for
women pensioners, so that, as I understand it, with the citizen's
pension, both partners in a married couple would have a pension
entitlement. Would you accept that that is an important part of
the proposal?
Mr Brown: The proposal, if I remember
it correctly, is for a women's pension after the age of 75, and
therefore it is not strictly the equality that some people have
said is the issue. We have approached this as a Government in
the last few years as an issue of removing the poverty that many
widows in particular have had to endure, and where there has been
no proper provision for their own pension and where their husband
or their partner has not built up sufficient industrial and private
pension entitlements and where they have very few savings, that
very big group of women and widows in particular have been forced
into poverty as a result of there being no other provision. We
have tried to solve this problem for this generation of pensioners.
Two-thirds of the people who get the pension credit are women.
I think it has taken a large number of women pensioners who might
otherwise have been in poverty out of poverty and I believe it
has helped reward the small savings that large numbers of these
women have by maximising their income as a result of taking into
account their savings as well. So for this generation of women
pensioners, particularly widows in their 70s and their 80s, the
Pension Credit has been a means by which they have got additional
income. What the Turner report is about is a debate about the
next generation and the generation after that, and I think we
have to look at all these proposals and see whether (a) this is
the right way forward and (b) whether they are affordable.
Q396 Ms Keeble: I would certainly
accept the shift from wallet to purse, which has been very welcome,
particularly through the operations of the various Tax Credits,
Pension Credits the various other tax credits. Would you accept
however, Chancellor, that the improvement in women's income has
been achieved primarily through means testing and that there are
issues there about women having to comply with some quite rigid
reporting requirements which have perhaps not always been universally
welcomed?
Mr Brown: I have to say that we
have tried to enable people to make their applications by telephone
rather than having to fill in forms themselves. We have tried
to limit the amount of information that people have to give. We
have tried to find a better system of taking into account people's
savings, so that while it is an income test, it is not a test
that covers everything that people have as assets. We have also
tried, in a situation where we calculate that pension credit for
a year, to calculate that for more than a year, for a period of
years, so that people do not have to fill in information each
year. So we have tried to change the system but, at the end of
the day, what we have been trying to do is to help that generation
of pensioners who should have been better provided for, who do
not have occupational pensions of their own, whose husbands or
partners did not accumulate large amounts of savings or occupational
pension, and we have been able to focus support on widows in a
way that has not been done before because we have had the Pension
Credit. In this debate that goes ahead, I think people should
acknowledge that there are hundreds of thousands of widows who
have benefited from the system, and it is precisely because we
have been able to focus resources to these widows that we have
been able to take that large number of people out of poverty.
Q397 Mr Mudie: Going back to the
Turner report, one of the five principles, indeed, the first principle
you put down, is that it must promote personal responsibility.
The main proposals for the 21st century are to continue with State
Pension as one of the pillars. The second pillar is a government
stakeholder scheme, low-cost investments, with an 8% investment.
The principle of both from Turner seems to be to leave it to Government.
"We will give you a State Pension and secondly, pay 8% and
that will finish your involvement." How does that promote
personal responsibility?
Mr Brown: I think the main recommendation
of Turner is actually the encouragement of private savings. He
has this proposal about auto-enrolment. Over the next few years
people need more information, they need more encouragement to
enable them to build up their own savings for retirement, and
of course, people have a range of different savings that they
prepare for their retirement. The main one will of course be their
own pension. What I would like to do is to look in detail at the
Turner proposals that encourage both employees and employers to
make provision for their pensions and look at what different decades
have put aside for their pensions so that they are satisfied that
by the time they do retire they have proper provision. Most people
will make their own decision about what proportion of their pre-retirement
income they will need in retirement, and they will take into account
whether they own their house in full or still have a mortgage,
they will take into account the other savings, sometimes shares,
that they have, as well as taking into account what savings they
have. The main recommendation of Turner is actually to encourage
that individual saving, and I want to help him implement recommendations
that would help people save more themselves during the course
of their working lives. But the state and governments will always
have responsibility to ensure that there is a proper framework
for pensions savings, and we have to look at his recommendations,
including the cost of them, before there is a final decision,
but that is a debate that is going to continue in the country.
Q398 Mr Mudie: I accept that, but
Turner actually seems to feel he has satisfied the debate and
the problem by saying to people, as you have just confirmed, there
will be a State Pension plus 8% and that will be sufficient. What
you are talking about is making people more responsible and willing
to actually participate in their portfolio. But that is not what
Turner is suggesting. Turner is suggesting a stakeholder pension
which will be either run by the Government or an agreed stakeholder
provider, with no input from the individual either in terms of
choosing their investments or choosing the level of their investments.
Mr Brown: To be fair to Lord Turner,
his national savings scheme is designed to encourage more individual
saving by people preparing for their retirement, to encourage
people to start saving at a far earlier age to give people the
incentives to do so, and create a framework within which that
can happen. One of the issues is that people have proper information
about what their pension entitlements are going to be, and one
of the problems, I think, for people in their 20s, 30s and 40s
is that they feel at the moment they do not have the full information
on which they can base their decisions, and we need to disseminate
more information, either through the pension provider or through
better systems of doing so, so that people can then make a decision
about how they save more toward their retirement. I think Lord
Turner's report is an encouragement which I welcome for people
to look at what individual saving they are doing themselves.
Q399 Mr Mudie: Is the Treasury giving
any consideration to incentives that would match people's increased
contributions to a private pension scheme a" la Turner?
Mr Brown: We have a number of
pilots looking at how people can save more in which we are giving
in some cases £1 for £1, in other cases 50 pence for
£1. This is in low-income communities where saving has been
difficult, and we are trying to make it worthwhile for people
to save more, or to save at all, which is something that has not
been happening. We are hampered by having large numbers of people
who do not even have bank accounts still in this country, but
the experiments or the pilots that we are doing have been relatively
successful in encouraging more people to save.
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