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
Mr Brown: They want a summer grant
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
Mr Brown: The difference is about
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
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
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
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
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
Mr Brown: I can also give Mr Mudie
the figures for schools now17,500 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
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.