Examination of Witnesses (Questions 400
- 419)
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
Q400 Mr Mudie: Chancellor, I am thinking
more of the incentives that help PEPs and ISAs be very attractive
and have a very great take-up. Those are the sort of financial
incentives that were put on the table which succeeded.
Mr Brown: If my figure is right,
about 15 million have taken up the new savings schemes. They are
very popular.
Q401 Mr Mudie: Can I just move you,
without, I hope, opening any controversy over public sector pensions,
to a less controversial aspect? Do you think it is equitable for
a Permanent Secretary to be paying 1.5% towards their pension
scheme and a nurse paying 6%? Why in these discussions has the
matter of the inequity of contributions from a well-paid civil
servant not been an issue? Do you know how much moving the 1.5%
that they pay to the average 6% that a local government worker
pays would bring in the Treasury?
Mr Brown: The local government
agreement, the regulation, was put to the House of Common last
Friday by the Deputy Prime Minister. As I say, the civil servants
issue is part of a framework agreement, which is now subject to
sector by sector negotiations, which includes the civil service
bloc, the health bloc and the education bloc, and I think that
was the point I made to Mr Fallon. There is a framework agreement,
but within that framework agreement there are sector by sector
negotiations that are taking place.
Q402 Mr Mudie: Has anyone passed
you a piece of paper saying how much money you would raise if
it went up to 6%?
Mr Brown: It would be very unfair
of me to pass the question to my colleagues. I am not prepared
to do so. Of course, if you put a parliamentary question down,
we will do our best to answer it. But the civil service negotiations
are within the framework agreement.
Q403 Mr Mudie: But can you defend
the inequity of a nurse paying 6% and a Permanent Secretary paying
1.5%?
Mr Brown: I think you will find
that in the negotiations that are taking place in relation to
nurses there is still a lot of work to be done.
Q404 Chairman: Chancellor, on the
Turner report, it is something that we as a Committee will maybe
turn our attention to briefly because what Turner is suggesting,
from what I can see, is a stakeholder product and it is a simplified
product with little advice at all. That really should have been
what a stakeholder product was about at the beginning. Certainly,
from my questioning of the FSA, it looked as if they were hesitant
in that particular area, and it does provide a challenge for private
providers, because it is costs and management fees that we have
got to get down here. It is something worth looking at.
Mr Brown: Can I just say on this
issue of information, we are working with the employers and the
pension industry at the moment so that people get timely, accurate
and tailored information to make informed choices about retirement
provision. I am told that over 4.5 million pension forecasts were
issued in 2004-05 and I am also told that from 2006 the web-based
retirement planner will be available so that people can use a
web-based system to check the value of their pension and therefore
make informed choices about what they should do in future. There
is a move to far greater information in this field and a greater
degree of transparency which I think will benefit the individual
saver making their decision. It may be something you want to investigate.
Q405 Chairman: Taking George's point,
there is a case for the Treasury looking at it here, because the
overwhelming conclusion from our report Restoring Confidence
in Long Term Savings was that the savings industry you could
largely describe as a middle class industry. There are a lot of
people we are not getting to, and I think that is a big political
and economic issue.
Mr Brown: Maybe I should answer
this point by saying that I have just got information from my
colleagues, not about the civil service percentage but about the
savings gateway. 22,000 accounts have been opened in pilot areas,
which is exactly the point that you are making, Chairman, that
there is a large number of people who have no tradition of saving.
Maybe better incentives are needed for them to do so. The incentives
would include the matching schemes that we have been trying to
develop for people who are, for example, on Working Tax Credit
so that they can see that they are getting proper value for money
for their savings, and the 22,000 accounts will give us a good
indication of whether these schemes could work with more incentives.
Q406 Mr Fallon: Chancellor, have
you read the Lyons review?
Mr Brown: I have read the Lyons
review, yes.
Q407 Mr Fallon: Do you recall in
his executive summary he said departments should implement their
relocation plans alongside efforts to align their pay with local
labour market conditions? "My review has demonstrated that
failure to make progress on locally flexible pay will limit the
efficiency gains from dispersal and could undermine the economic
benefits from receiving locations." When I asked Mr Cunliffe
yesterday for some examples of local pay he could not think of
any. Can you?
Mr Brown: There are a number of
pay agreements that have been signed actually, and some of them
have given greater priority to higher wage rates or higher percentage
settlements in the South East and the group of counties just outside
the South East, recognising the costs of living in London and
the South East. So I do not think it is true to say that there
is not greater flexibility in pay arrangements between, if you
like, the South East and the regions. There is, but this is an
issue that is a continuing source of discussion. If I am right,
there have been a number of agreements that have reflected differences
in rates of growth of pay in the South East and in the wider perimeter
as against the regions.
Q408 Mr Fallon: How many Civil Service
departments now have flexible local pay scales?
Mr Brown: I would have to write
to the Committee on that[2]
but I think it is true to say that the Government's policy is
to encourage greater flexibility in regional and local pay arrangements.
It is also true to say that there are some agreements that I know
about, but I could not give you the quantity of the agreements,
that actually have moved into a changed relationship between the
South East and the rest of the country.
Q409 Mr Fallon: You announced this
in budget 2003. You said, "Measures will be implemented to
ensure that public sector pay systems include a stronger regional
and local dimension."
Mr Brown: I am just saying that
that is what—
Q410 Mr Fallon: Has anything happened?
Mr Brown: Yes, of course. That
is what has been done. I am referring to South East and wider
South East agreements that reflect a higher rate of pay recognising
the cost of living in the South East. Lyons, of course, has proposed
that we relocate over 20,000 civil service jobs outside London.
I was able to inform the Committee on Monday that more than 2,000
in this period since the last budget had been announced. Wales
is one area, Taunton and the South West is another, Yorkshire
is another and Scotland is another. So I think there are areas
where the Lyons proposals are moving forward quite quickly.
Q411 Kerry McCarthy: We have touched
very briefly on investment in transport infrastructure. Do you
accept that so far it has not been a particularly high priority
as opposed to investing in schools and hospitals? Do you think
that has held back Britain's economic performance and is it continuing
to do so?
Mr Brown: Transport investment
is doubling. It is only possible to double investment in transport,
as to improve your investment in hospitals and schools, if you
are prepared to put the resources into doing it. We have made
some quite difficult decisions, like the National Insurance rise
to pay for the National Health Service increases in both capital
and current investment, and governments have to bear in mind that
they have got to get the right balance. We will continue to increase
public investment consistent with our sustainable investment rule.
I think that is what the country would like us to do. Transport
investment is doubling. Of course we want to do more and of course
there are major road projects, as well as rail projects, on the
stock that we have to look at.
Q412 Kerry McCarthy: On the question
of demand management in terms of transport, obviously, there is
only so much you can do in terms of investing in the infrastructure,
as you say, because there are other priorities. In terms of using
fiscal measures to manage demand, how far are you prepared to
go along that?
Mr Brown: When you talk about
the old Keynesian demand management, I think we have moved a long
way beyond that. Our fiscal rules are designed to—
Q413 Kerry McCarthy: Sorry. I meant
demand management in the context of transport.
Mr Brown: Our general policy is
to promote the stability of the economy, which is the essential
element for increasing jobs and improving public services. On
transport, I think the Secretary of State for Transport will be
able to tell you of the large number of road projects that have
been possible because of the 10-year Transport Plan, but equally
of course, because of the rising population in this country, because
of the particular pressures in some areas as a result of increased
economic development, in a sense, because of the problems of success,
we have had higher growth in the economy than many people would
have expected over all since 1977 and because we have a rising
population and more jobs in the economy, these pressures on infrastructure
will grow. That is one of the reasons we have put forward this
proposal for the Planning Gain Supplement, which is something
that has to be discussed in the consultation period, so that developers
are contributing at least something more to the infrastructure
needs of the local authority areas which are developing new housing
projects. Most people round the country would say that it would
be fair for that contribution to be increased.
Q414 Kerry McCarthy: There is talk
at the G8 of an air ticket levy, for example, and things like
the fuel duty escalator as well. What role do you see for those
sorts of fiscal measures? My perception of the air ticket levy
is that it is designed primarily to raise funds for international
aid rather than being anything to do with managing demand.
Mr Brown: The air ticket levy,
if I may tell the Committee, is something we have already got.
It is the passenger tax that is paid on airline tickets. We have
no proposals to change that. What other countries are considering
doing is introducing that, directly contributing from that to
the overseas development budget. We would agree to make a contribution
directly from the existing air passenger duty, and therefore other
countries would be doing as we do, and that is to make some contribution
from what we raise from that to international development. But
we would do it from the existing amount that we do raise. I think
that, as far as fuel duty is concerned, we have the right policy
now. We inherited an escalator, we dropped the escalator and we
have the right policy to look at these decisions year to year.
Q415 Peter Viggers: The thinking
behind my allegedly offensive remark earlier is that I really
do believe that there is a disconnect between the intellectually
satisfying world of the Treasury and the real commercial world
of businessmen working late into the evening to complete their
VAT and tax returns. Have small businesses gained anything from
your continual adjustments for the last three years to the tax
breaks available to small business?
Mr Brown: You talked about VAT.
The VAT simplification scheme that we have put forward is to the
benefit of particularly small businesses because, instead of having
to submit calculations for each item where VAT is charged, you
can have a flat rate overall VAT allocation based on a proportion
of your revenue, and that avoids all the difficult form filling.
I think a lot of accountancy firms have not found it terribly
attractive to them because part of their work is to do this for
small businesses, but if I was a small business, I would see huge
advantages in avoiding the amount of form filling that is necessary.
If I may say so, about the Pre-Budget Report, the Federation of
Small Businesses have kindly said they welcome the small business
measures—this is after the PBR—and the simplification
that they will offer, especially the corresponding increase in
the level of capital allowances that can be claimed by small businesses.
The Institute of Directors has welcomed our proposals as well.
I understand we sometimes have to take difficult decisions but
the VAT annual accounting scheme on top of the VAT simplification
scheme is an attempt to help small businesses deal with that necessary
return on VAT, without them having to fill in additional paper
work.
Q416 Peter Viggers: Three years ago,
you introduced a zero rate of Corporation Tax for small business.
You were warned at the time this cause difficulty. You have now
scrapped it, and the capital allowances you just referred to will
result in a benefit to small businesses of £45 million over
three years.
Mr Brown: If I may say so, the
Institute of Directors has just issued a statement saying the
replacement of the zero rate by increased capital allowances for
small businesses was welcome and this will reduce differences
in the taxation of small businesses and how they are organised.
Q417 Peter Viggers: Cancelling the
introduction you made three years ago of the zero rate Corporation
Tax will cost small businesses £885 million. It is actually
£930 million over three years.
Mr Brown: I do not accept that.
We have cut the rate of small business taxation from 23 pence
to 19 pence since we have been in government. Even with your criticisms
of some of our other policies, you should give us some recognition
for the fact that we have actually cut the rate of taxation for
small businesses from 23 pence to 19 pence, by 4 pence. Actually,
when we came into government it was 24 pence, and it was just
an announcement that we cut to 23 pence, so in a sense we have
cut it by 5 pence.
Q418 Peter Viggers: In the Pre-Budget
Report it says "Tackling tax motivated incorporation +10,
+390 +530 million over three years". Why should not small
businesses regard this as an increase in taxation?
Mr Brown: Most small businesses
will understand that where there is tax avoidance, people have
been artificially creating a small business simply for the purposes
of avoiding tax, it is our duty to take action in that regard,
and I think, even with your other criticisms of government policy
on this issue, you would support us for taking action. But in
the end, what we have done is increase the capital allowances
for small businesses. We have introduced at some cost also the
VAT annual accounting scheme. That cost £55 million in 2007-08,
so in addition the 4p cut in Corporation Tax, we have the VAT
annual accounting scheme and we have the capital allowances improved.
Q419 Mr Ruffley: Just a quick point
of clarification, Chancellor. I am quoting from a DTI supplement
to a DTI press release known as P/205/321 18 October, and it is
quite important, if I may just—
Mr Brown: It sounds like a question
for the Trade and Industry Committee, if I may say so.
2 See supplementary memorandum dated 16 January
2006. Back
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