Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 340-359)


13 DECEMBER 2006

  Q340  John Thurso: Another example is aviation. I think we all agree that we want to see the environmental costs of aviation properly paid. The APD charged on passengers is relatively limited. Why not charge something on aircraft which encourages people to have more fuel-efficient aircraft and which would capture all the freight aircraft which currently pay nothing whatsoever?

  Mr Brown: This is a big issue which has to be dealt with internationally and, in the absence of an international agreement, you have got to do what you can domestically. What we have decided to do, like many other countries, and I was just talking to the Korean Minister the other day who has just introduced air passenger duties, it does not obviously pay for the full cost to the environment of the effect of flying and it still means that air travel is taxed less than cars by a very substantial amount, but you have to balance off the needs of the consumer and the industry with the need to make advances in the environmental areas that we are talking about. I do think this will spur greater fuel efficiency on the part of the airlines and, as I said earlier, I have had some talks with the airlines about some of the things that they could do actually to reduce the usage of fuel and the waste of fuel that often happens as a result of some of the decisions that are made. Again I just come back to this, that you cannot judge the effectiveness of a policy for reducing emissions simply by one of the instruments that is available to you to use and, whether it is in cars where of course the rise in the price of oil itself has had a more powerful effect over recent years than any tax change, you have to look at the range of measures that is available to you and I think people will come to a balanced view of this environmental agenda.

  Q341  Chairman: Chancellor, you mentioned about talking to the aviation industry. They have been talking to me in the last day or two and they are concerned about the APD in terms of the notice period which is required, they say, of 12 months to synchronise the changes in the industry's selling system. BA in particular, they say to me that hundreds of thousands of passengers have already booked, and paid for, travel at the present APD rate for travel that is going to take place after 1 February and they will be unable to collect the payment of the difference between the current and the new APD rate. For them, as a company, they say that is going to cost about £11 million and for the industry it is going to cost £100 million. Is there not a case here for negotiation between the industry and your officials to look at a solution, for example, to implement the 1 February deadline as planned for the bookings made on, or after, 1 February or to get an accommodation between the industry and HMRC that recognises the value of APD already collected with bookings already made at the existing APD rate and for that to be reflected in the monthly APD returns to HMRC?

  Mr Brown: When fuel duty changes on cars, it changes immediately. This is a lead-in that takes you through to February and I do think you will be looking at a period of time which allows the airlines to adjust. I may say that, when the airlines charge surcharges for fuel, they charge it on existing tickets as well as new tickets, and holiday operators have often done that as well. I think that the whole issue of the air passenger duty tax has to be seen in the context that this is a departures tax, it is not a bookings tax, it is not a ticket tax. It is a departures tax and actually, if a passenger does not turn up who has paid the departures tax, the airlines get it back, but it is a departures tax.

  Q342  Chairman: Chancellor, I understand that, but I am just focusing on the issue of bookings which have already been made for travel after 1 February at the current APD rate. I think there is an opportunity for negotiation between the industry and your officials here.

  Mr Brown: Well, there have been discussions with the industry.

  Q343  Chairman: Yes, but they have not got very far.

  Mr Brown: I do not recognise the figures that you are giving me actually, but there have been discussions between ourselves and the industry and obviously these continue. I think the airlines and the Treasury met earlier this week, but I do repeat to you that the change that they face, when it took place in car duty, it took place at midnight on the same day, whereas they have a run-in period until February, but this is a departures tax, it is not a purchase tax.

  Q344  Chairman: I will write to you then, Chancellor, because I think there is a case here for them. Do you expect airlines then to pay that before it is authorised by the House of Commons and, if so, do you have the legal sanction to do that?

  Mr Brown: I believe we do.

  Q345  Angela Eagle: Chancellor, what do you think are the main strategic choices facing the UK over the next 10 years? You were talking about the future and your PBR statement was heavy with a strategic approach, so do you want to outline the most important ones that you see facing the country?

  Mr Brown: The issue for Britain is that people be properly equipped for the challenge of a global economy and for the jobs, that people will not only have the jobs in the future, but they will also have the skills for the jobs. The Committee might be interested to know actually that the employment figures have just been published in the last few minutes and they have just been handed to me. Unemployment is actually down 7,000 and the claimant count is down 5,700. Employment is up 41,000 over the previous three months and it is up 216,000 on the previous years. Vacancies are at 600,000 also in the economy and there are more people in work as a proportion of the population in Britain than in other major economies. I hope that this is some good news for Christmas about the increase in employment in our economy over the last few months, but what we have got to do for future years is make sure that people have the skills that are necessary and that is why the Leitch Report is so important. We have to give people the opportunity as adults to retrain, we have to give young people who are out of work at the moment the opportunities for them to get jobs, we have got to give obviously people at school the discipline and the standards at schools which will enable them to be qualified for the jobs that are available. We will not compete on low-paid, low-cost production if we are competing with wage rates in China that are a 20th of ours. We will be able to compete on the basis of having the highest skills on offer and that means that, just as China and India are producing more graduates every year, we have got to produce more skilled people every year as well, so this is one of the major challenges I see us having to face as an economy in the years to come. We have done very well over the last 10 years because there are two and a half million more jobs, unemployment is substantially down and less than for most of our major competitors and that is confirmed today in these figures, but at the same time we have got to give people the skills that are necessary for the jobs of the future and this is, if you like, the premier challenge that the British economy faces.

  Q346  Angela Eagle: The Leitch Report does suggest quite a major shake-up in the way that the system works and it demonstrates that, although there has been a good improvement in those with high-level skills over the past period up from 21% to 29% and a fall in those with low skills down from 22% to 13%, there is still an enormous amount of work to do. Leitch suggests a major shake-up of our training structures, particularly emphasising the role that employers can have in training their existing employees. They have not been fantastically good at that in the past. Why do you think that the Leitch Report recommendations will make this step change that we need?

  Mr Brown: Well, there are considerably more adults with skills in the workforce now than there were 10 years ago and there are more adults who have gained the basic literacy and numeracy qualifications now. We have introduced a programme, Train to Gain, which is the employer national training programme. As I understand it, there are now 90,000 people on this programme which was nothing a few years ago, started with a few pilots and it is now nationwide with 90,000. That will rise to 300,000 by 2010, so you are going to have large numbers of people every year going through it and getting the literacy and numeracy qualifications that they need and I think that is a major improvement, but we have got to do better. We have got to do better at the adult skills level and we have got to do better at getting young people, with apprenticeships and with other college qualifications, the skills that are necessary for the future. Digby Jones has agreed to become an envoy to talk to small, medium and large businesses about their responsibilities in this matter. We will have to persuade individuals that they themselves have got to take responsibility for getting the qualifications that they need for the future and the Government will continue to play its role also in terms of funding a great deal of this training, both apprenticeship training and adult training.

  Q347  Angela Eagle: The Leitch Report talks about a very large increase in the number of apprenticeships. Is there any planning on the amount of apprenticeships that that will lead to? It is over a quarter of a million now, but do you have a view of how many more we need and do you have a strategy for ensuring that women get appropriate opportunities in apprenticeships in non-traditional jobs since they are currently, despite the very large increase in apprenticeships, still confined to low-paid, female-type occupations?

  Mr Brown: On apprenticeships, I think 10 years ago there were about 75,000 apprenticeships and now there are about 250,000 in England alone. We believe that by 2020 we will need 500,000. I think the interesting thing is, despite the popular understanding of this, half the new apprentices, half the 250,000 today are in manufacturing, technology and construction. There has been a very big rise in the number of apprentices in construction and actually in manufacturing in recent years and we are going to have to continue ensuring, for example, that the construction industry has the properly skilled people. What is good also is that girls and women are undertaking apprenticeships and, although I do not have a breakdown about the balance between men and women for future years, I think you will see a rise in the number of girls taking apprenticeships in future years.

  Q348  Angela Eagle: On the choice between tax cuts and further investment, you have taken a pretty clear choice in the PBR that, in order to face the next 10 years, we need more public investment in these strategic areas. There are other choices about tax cuts instead, so why do you think you have made the right choice?

  Mr Brown: Because if we do not gear ourselves up as an economy by investing in education for future years, then the world-class standards we need to be able to compete with our neighbours and with China and India will not be available to us. Now, in any Budget the Chancellor will make a decision between tax cuts, spending increases and the levels of borrowing in the economy. It is not simply a choice between tax and spending, it is a choice between tax, spending and stability. In future Budgets, I will make these choices whether to have tax cuts, whether to invest more in public services and what to do in relation to borrowing and the stability of the economy. At this stage in the Pre-Budget Report, I felt it was very important that we sent out a signal that Britain at least, of all the major economies, is going to take seriously the need for the new investment that has to happen in education if we are going to be successful. Therefore, I gave figures for educational investment of £10 billion by 2010-11. Now, compare that with £600 million in 1997. This has been a 14-fold increase, if I am right, or a 15-fold increase in education simply to meet the requirements of a modern era, so any school that is more than 15 years old is likely to qualify under Building Schools for the Future for new investment. That means a very substantial proportion of secondary schools and primary schools will be inside this programme and that means that pupils going to schools in future years will have the best facilities, the computers and the amenities available to them. Building Schools for the Future, which I am properly financing in the biggest programme of educational investment this country has ever seen, will mean that pupils will go to schools with proper facilities, not just for the basic studies, but for personalised learning, for a range of facilities in the curriculum available to them, for good, nutritious meals and for sports facilities in the schools, and that shows our commitment to invest in the schools for the future and I do not think any other country is making the same sort of investment that we are making in education for future years.

  Q349  Angela Eagle: Do you worry, Chancellor, about the continuing persistence of pockets of poverty in our communities, particularly in some geographical areas, and what do you think the Government should be doing to try to deal with that?

  Mr Brown: Well, I am glad that there is now an all-party interest in tackling poverty, but that means that people will have to face up to the responsibilities that that brings. When we came into power, I think it is true that the payment received for a first child was about £28 a week and that is now £64 a week from April, but the evidence of course is that you would need to do more in future years to help these children out of poverty. Now, one way we can do that is by getting more people into work. We have two and a half million more people into work, the rate of single parent employment has gone up from 43% to 56/57/58%, it probably is now, single parent unemployment has gone below one million for the first time for years, we are getting incapacity benefit claimants back into work and we are getting many people who have been long-term unemployed back into work. One of the ways we can deal with poverty in the areas that you are talking about is not just to help children themselves through education and through the children's benefits that we provide, but also through getting people into work and that is a very important part of the strategy, moving forward. In the first few years, the New Deal enabled us to get a large number of people back into work. The new group of people that we have got to deal with are often people that need personal mentoring and coaching, they need childcare if they are single parents, they need better training facilities for literacy and everything else and we are going to have to make the New Deal capable of giving people these skills for the future as well as what has been achieved very well by the New Deal in the past.

  Q350  Mr Newmark: Chancellor, since it is Christmas, I would like to be in with a couple of positive comments on your Pre-Budget Report speech. I have to declare an interest here, that I am actually also a member of the Science and Technology Select Committee and, as a member, I welcomed your renewed commitment to work with the industry to promote stem cell research and carbon capture as these are both areas in which British expertise and innovation already leads the world. Unfortunately, the rest of your speech reminded me of the new Will Ferrell film, Stranger Than Fiction, and I really do want to probe you a little bit more than the heroic attempt of my Chairman here on the air passenger duty. Could you please clarify once again why you decided to move air passenger duty up in February and not at the beginning of the new financial year in April because this is what is usually done? Associated with that, can you tell me how many families will be affected by this and how much additional revenue do you anticipate you will raise?

  Mr Brown: The figures for revenue are clear, and we have given the figures. It is just over £1 billion a year for air passenger duty and that would work out, if I am right, at about £80-90 million per month, so that is clear. There has been no sort of normal procedure. Air passenger duty, its rates have been moved only once or twice since it came in. For vehicles generally, as you know, the date of the Budget statement is usually the time at which rates are moved up. In this case, for air passenger duty, there is a three-month period until 1 February 2007 and I am very surprised about this discussion now because, on the day of the Pre-Budget Report, all parties in the House of Commons supported the rise in air passenger duty.

  Q351  Mr Newmark: I am asking a question not of whether it should be raised, but it is the timing issue.

  Mr Brown: Hold on, you have to put it in its context: all parties in the House of Commons—

  Q352  Mr Newmark: But you are answering a different question, Chancellor.

  Mr Brown: Some of the parties were asking me to raise air passenger duty by far more. I was criticised—

  Q353  Mr Newmark: I am not talking about the amount; I am talking about the timing. Let us deal with the timing issue.

  Mr Brown: Fine, so we agree that air passenger duty should be raised. That is the common view of the Committee?

  Q354  Mr Newmark: That is a common view.

  Mr Brown: Then the question is at what point it should be raised and, as I say, on car duty for petrol, it is raised on the day—

  Q355  Mr Newmark: That is because people can hoard, so they go out and they buy petrol. Passenger duty is something different. Families have already bought their tickets, so it is a retrospective tax on those who have bought tickets on top.

  Mr Brown: No. I just said there is no general rule that taxes go up on April 1 and I just made that point to you when you introduced—

  Q356  Mr Newmark: But is it not really a tax? I would be really curious to know, did you discuss this with your Treasury officials beforehand and what was the decision made?

  Mr Brown: Mr Chairman, I discuss everything with my Treasury officials.

  Q357  Mr Newmark: But did your officials advise you to put it up in February rather than April?

  Mr Brown: We are agreed on the decision that we made.

  Q358  Mr Newmark: But I am just curious. Was this a decision which you made, Chancellor, or were you advised to begin it in the new financial year?

  Mr Brown: All decisions that are made in the Treasury are made by the Chancellor with advice from officials.

  Q359  Mr Newmark: Well, I only say this because I read in today's paper, Chancellor, that you overruled your officials who advised you to begin it at the beginning of the financial year.

  Mr Brown: I do not think that is the case. I think you will find that—

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