Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 460-479)


13 DECEMBER 2006

  Q460  Kerry McCarthy: If I can return to child poverty, in terms of trying to meet this 2010 target there has been a fair amount of debate about whether, as Colin Breed said, a targeted approach is the best approach or whether more general increases across the board are the way forward. There is a campaign at the moment for the equalisation of child benefit. Is that something that you have been taking into account?

  Mr Brown: Equalisation by means?

  Q461  Kerry McCarthy: Yes. Maybe if I elaborate the question.

  Mr Brown: Please do.

  Q462  Kerry McCarthy: There are various campaign groups that are putting forward their views on how you could spend this £4.5 billion that they suggest you might need to spend to meet the child poverty target. One suggestion is equalising child benefit so that the second, third and fourth children in a family get the same as the first child, which obviously is not a targeted approach as such, although you could say that poor families tend to be larger families. Another suggestion has been that in order, perhaps, to reach those families that are lower down the poverty scale seasonal grants might be a good idea, and they would be very much targeted at the poorest families. Could you give us some idea of what you think of those two approaches?

  Mr Brown: I had a meeting with some of the pressure groups yesterday. There are a number of different proposals, and obviously it is right, particularly in the spending review period, to look at all the suggestions that are being made. One, of course, is about equalising the level of child benefit for the second and future children to that of the first child. That is a proposal that is particularly targeted at dealing with the poverty amongst large families in this country. A second proposal is what has come from a network of pressure groups, including Save the Children. It is that you have a seasonal grant, rather like the pensioners' winter allowance; you have a Christmas allowance. The issue there, if I may say so, is that if you look at a child's life over the course of a year, there are different pressure points. Christmas is certainly one of them, when children expect that you recognise Christmas by gifts, but birthdays are another, the summer holidays are another, when there are extra costs associated with children being out of school, and then there is the return to school in September when school uniforms and other forms of additional expenditure are likely to be incurred. So there is no one point in the year, it seems to me; there are many points in the year which are pressure points for families. I think that points to the general level of benefits being the issue rather than, particularly, Christmas or summer or a birthday, or whatever, being the issue to be dealt with. It then comes back to this issue about how best are we going to deal with the problem of children's poverty in future years. We all start from the proposition that every child should have the best possible start in life. That would normally, if it is possible, be in families where the breadwinner is actually in work rather than out of work, and we are trying our best to encourage more employment opportunities for heads of families. I think we have had some success, and we have got to do more in future years. To some extent, our support is now targeted on getting the things that, for example, a single parent needs, which is child care and training to get into a job. I think that will probably do quite a lot to help more people out of poverty in future years.

  Q463  Kerry McCarthy: If I can just push you a bit more on the question of grants as opposed to child benefit increases, I think if you look at the Save the Children proposal they would be suggesting £100 per child as a summer grant—

  Mr Brown: They want a summer grant as well?

  Q464  Kerry McCarthy: Yes. So if you had a two-child family it would be £200 at the beginning of the summer to cover the fact that, for example, if a child is on free school meals a parent has then got to feed them throughout the six-week summer holiday and you have things like school uniform costs, and maybe, even take them on holiday. Then a £200 winter grant, plus £100 for the household. So you are talking about £500 every year. If, instead of that, there was an equalisation of child benefit (I am not quite sure of the difference between the payments for the first child and the second, but I think it is about £5) that would bring in £250 to that family.

  Mr Brown: The difference is about £7.

  Q465  Kerry McCarthy: It would still bring in quite a bit less to the household than having grants. In terms of the costs to the Exchequer though, because it would be paid to all families with two children or more, equalising child benefit could be more expensive. You do not sound like you are that enthused by the idea of grants. Are there other mechanisms? Are we looking then at increases in the tax credits system to try to achieve that more targeted approach?

  Mr Brown: We are increasing the child tax credit in April from £62 to £64 for the first child. For a two-income household the combined child tax credit with child benefit on top of that will be something in the order of £100, and so we have raised benefits significantly. Obviously, it is right that in this period, when we are looking at the issues related to child poverty, we look at all the representations and I cannot give you any particular new answer today. What we did announce about child benefit and more support for children who are falling behind in schools we announced last week but we obviously will look at future measures for future announcements, whether it is in the Budget or in the spending review, and we keep all these things under review. Our aim is to use resources to best effect to deal with these problems of poverty, and there is also focus on helping children gain literacy and numeracy to enable them to benefit from their education. That is very big issue and that is why, for example, we give books to children and families where it is not normal or common to have lots of books in their homes and yet literacy is so important. At one, two and three we give books. At five we are now going to give books. At the age of 11 we are going to give children the choice of a book as they go to secondary school because we simply realise that we have to encourage reading and literacy in our children if they are going to benefit from their education.

  Q466  Kerry McCarthy: To what extent is child poverty a cross-cutting issue? I say that because I did an event with Save the Children recently and it was young people, 16 to 18-year olds, who were talking about the problems that they had getting into training and work. The biggest issue they came up with was transport because they lived in a rural part of south Wales. They wanted to study, they wanted to go work but there just were not the bus services because transport was seen as a completely separate issue from helping them go to college or work.

  Mr Brown: I think school transport is an issue but also, obviously, is travel to college, which I think is probably what you are talking about in the case of these young people.

  Q467  Kerry McCarthy: Yes, to things like apprenticeship schemes.

  Mr Brown: Education maintenance allowances are now available for people over 16, not just for school but in some cases for college courses. We are trying to make it possible for people from low paid families to benefit from education and encourage them to stay on. I think the Welsh Assembly has done particular things in relation to public transport that may be of help here. I will write you a note on that.

  Q468  Kerry McCarthy: If I can move on to planning, the Barker review, if it is implemented, will make a huge difference in terms of regeneration and being able to move forward inner city development. There is some suggestion in there that is talking about the transaction costs associated with planning delays and the burdens on business and developers that result. You flag up in the Pre-Budget Report one of Barker's suggestions, which is that firms may be able to pay for additional resources to speed up applications. I know that certainly in my constituency, which includes a major part of Bristol city centre, there have been really significant delays of several years in trying to get major applications through and it is because of a shortage of planning staff. The fact that you have flagged up that specific proposal in the Pre-Budget Report makes me think that you might look more favourably on that than other things. How do you make sure that that does not mean that people are buying their way into getting a favourable outcome from the planning process?

  Mr Brown: You are right to say that there is a number of proposals in the Barker report, but we are in a period of consultation, so I think the best thing is to listen to your views, the Committee's views and other people's views on this before we make any final decisions. It is a cross-departmental review, obviously, because it affects the Treasury, the Department of Communities, the Transport Department and all sorts of different people, so I think it is important that we listen to people's views and if the Committee wishes to express a view on this we are interested to listen to that.

  Q469  Mr Love: Can I take you back, Chancellor, to a question the Chairman asked? I was slightly surprised by your up-beat assessment of the possibilities of an agreement on world trade talks. That seems to reflect Tony Blair's view but I am sure that the US Treasury Secretary would probably also share that view. If you look at the United States at the present time, we have an unpopular and beleaguered President with less than two years to go and a newly elected Congress that appears not to be as favourable to international trade agreements as the previous Congress. Are you not somewhat worried that protectionist sentiment is beginning to grow and how do we stop that growing to keep the world economy on the move?

  Mr Brown: I think protectionist sentiment is growing and I think that is all the more reason to strive harder to get a world trade deal. I think in Europe itself you have seen, despite the fact that there is a single market, countries acting to either protect their own industries or to prevent cross-border mergers, takeovers and acquisitions, and I think that is putting the single market under huge pressure. In just about every major European country there are protectionist sentiments growing. In America we have also seen that people believe that in some cases they can protect or shelter their industries from foreign competition, and we need to point out to people that this is self-defeating because in the long run you are going to have to face up to that competition, and indeed you may do more damage to your economy by protecting and sheltering it than by taking the steps that prepare you for the future. We have got to win the argument, therefore, that it would be a mistake to allow the trade talks to completely lapse. The spillover from that would not just be in agriculture without tariff reductions and subsidy reductions; it would also mean that on almost every world issue on trade when the World Trade Organisation tried to act it would find it more difficult to do so. It is incumbent upon us and an imperative that we try our best in these remaining few months to try and get these trade talks going. As long as the United States has fast-track authority and as long as the negotiations are being pushed forward by Pascal Lamy I think we should try our best to support him. When I look at the detail I think that there is not such a huge difference between what Europe and America are offering at the moment and what they would need to offer to get these trade talks moving forward.

  Q470  Mr Love: So is what we are talking about just keeping the trade talks going at the present time in the hope that protectionist sentiment will not grow, or is it trying to reverse protectionist sentiment, and do you think that we are in a position where there could be a concluded agreement?

  Mr Brown: The biggest blow to protectionism would be that the world was capable of signing a trade deal which was basically people opening up trade in all the different continents, and, obviously, because it is the Doha Development Round, helping in particular the developing countries. We have also a duty to try and persuade people that the modern equation is free markets, free trade, flexibility, plus investment in education and in science and infrastructure in fairness to people who have got to equip themselves for the future, but the modern equation that will not work in reaction to there being free trade is to simply become protectionist when things start to go wrong. We have got a big persuasion job to do, partly with our electorates and certainly in every country of the world where protectionist sentiment is growing, to show people that the way to deal with these problems, which is essentially the result of the global restructuring that is taking place because of the entry of China and India into the world economy, is not to shelter yourself and try and postpone the inevitable but actually face up to it by moving up a gear in your economy by investing in education, infrastructure and helping people equip themselves and their companies and their communities for the future.

  Q471  Mr Love: Can I move on to efficiency targets in administrative savings that were announced in the PBR? You suggested a 3% efficiency target across the whole lot, and yet Professor Colin Talbot told us in one of our previous hearings that under the Gershon review the Cabinet Office only saved something like 0.4% whereas the Department for Work and Pensions saved 5.8% per year over the three-year period. How confident are you that the 3% across the board can be delivered by all departments?

  Mr Brown: That is what we talked about before they reached this agreement with us, that this is what they will actually do. We are talking about the next stage. The Gershon report will take us through to 2007-08. The next stage is setting these cash efficiency targets, then the administrative savings, which will release substantial resources that will enable us to make our commitments to the front-line services that continue to need to expand. Although the departments will find it challenging I think it is the right thing to do.

  Q472  Mr Love: Some people are suggesting that "challenging" is the appropriate word since the overall increase in productivity in the economy is 2.4% at the present time. Are all departments confident that they can reach what is a fairly challenging target, because if you add into that the administrative savings of 5% you are talking significant figures?

  Mr Brown: But that is exactly how modern organisations should be coping with the challenges of the future. New technology makes it possible to reduce administrative costs and to replace jobs that are no longer essential by giving you resources at the front line where you need them most, and it is right to challenge all the departments to do so, so yes, it is better to have a tougher target in the next round than we had in the previous round in terms of both efficiency and administrative savings, but I am confident that that is the right thing for both the British public services and for the British economy. The results of that, of course, will be something that will be beneficial to all of us because they will enable us to do the best we can by education, health and the other front-line services.

  Q473  Chairman: Chancellor, I am looking at table B12 on page 232. Revisions to the national accounts data, by the way, in there suggest that economic growth has been stronger in recent years than previously thought. However, looking at this table, tax receipts have still been below forecast in these years, and I am looking at VAT and non-North Sea corporation tax, which have been down in both years, 2005-06 and 2006-07. Does that suggest that tax receipts are less responsive to output growth than previously thought?

  Mr Brown: I think if you look at the figures you are talking about -0.3 and -0.7 for non-North Sea corporation tax and that is a relatively small figure in relation to the overall increase that has taken place in revenues. If you look at VAT, to some extent I answered your question earlier. When we have been dealing with this very big attack on the VAT system I do not think we should underestimate the potential loss of revenues if we cannot reach agreements that will deal with missing trader fraud. We have had a long negotiation with France in particular on this issue and to have brought it to a conclusion last night, where we got an agreement to attack VAT fraud, means that we are in a better position looking forward. I am hopeful that the revenues that will result from that, by eliminating this loss of money in the VAT returns, is going to be something that will be beneficial in future years.

  Q474  Chairman: But there has been a view, even in the USA, that if you have increased growth you get less tax receipts in this globalised world; that is all. Is there a trend there?

  Mr Brown: I do not have the exact figure here but I think that corporation tax revenues are up something like 10% or 12% this year. I think you are talking about quite a big rise in corporation tax receipts rather than a fall in them over the course of the year, and I think in VAT you are talking about this particular issue that we are dealing with, and where fraud takes place you have to deal with it, just as where there is avoidance you also have to deal with it, as we had to do in this Pre-Budget Report.

  Q475  Chairman: Chancellor, we spoke to the Governor of the Bank of England and others about the migration statistics and—

  Mr Brown: Maybe I should just give you the figures. For non-North Sea corporation tax in 2004-05 £30 billion income, 2005-06 £34.8 billion, 2006-07 £39.9 billion, and it is a 14.8% rise percentage in the annual growth from the rapid growth of the economy. By the way, the non-North Sea corporation tax shift, the £0.3 billion you are talking about, particularly the £0.7 billion in 2006-07, just so the Committee is aware, is mainly due to private decisions that have been made by insurance companies to switch from equities to bonds and so profits are less linked in our calculations to share prices, so I think that specific corporation tax issue can be explained. I hope that information is helpful.

  Q476  Chairman: Mr Mudie is telling me that that it is as good as we get, Chancellor, but do not worry about that.

  Mr Brown: I can also give Mr Mudie the figures for schools now—17,500 primary schools are part of the programme.

  Q477  Chairman: He wants some blood!

  Mr Brown: You will have them in writing in the next few days.

  Q478  Chairman: Can I turn to the migration statistics, Chancellor? I mentioned that the Governor of the Bank of England and others expressed concern to us about that and I think the best he could conclude was "cloudy". Are you confident in the assumptions of migration that have been made and, if you are not, what are you going to do about it?

  Mr Brown: I think the issue for us is the numbers of people in employment. It is clear that there has been a labour force growth in the country. Some of it is due to migration, some of it is due to more people who were inactive coming into work, some of it is due to just changes in the way people are living their lives as families, but there has been a labour force growth and that is what the issue is as far as the economy and the growth period of the economy in future years is concerned.

  Q479  Chairman: I will quote to you the Governor's remarks to us. He was talking about the flights between the UK and Poland, 516,000 in 2003. Almost all of them were to Gatwick, Heathrow and Manchester, and over the following two years that went up from 516,000 to 1.8 million and almost all of that increase was airports other than Heathrow, Gatwick and Manchester, so we have gone from a figure of 11,000 in 2003 to more than a million flights two years later and the international passengers surveys are only handed out at Heathrow, Gatwick and Manchester. They have missed a huge amount of people, so there is something wrong there with the migration statistics, Chancellor. It is to see how we can fix that.

  Mr Brown: The ONS are looking at these estimates at the moment and I think they will publish a report soon. It has just been pointed out to me that the trend growth figures are not taking account of the accession countries as things stand.

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