Select Committee on Liaison Minutes of Evidence

Examination of Witness (Questions 220-239)


3 JULY 2008

  Q220  John McFall: I understand, Prime Minister, but let me take an example. You went to Saudi Arabia when they increased their output, but the next day the price of oil went up, so, to the ordinary person's perception, what is the score?

  Mr Brown: Well, what happened on that particular day was that the Nigerian oil production was interrupted by violence and I think they lost 10 per cent of their oil production, so you are dealing with difficult oil production prices around the world, in this case Nigeria, but it could be any other place where something is happening that has gone wrong. The real problem that we have got to deal with, and this is why the debate is bigger than simply about oil, is that in the foreseeable future demand will exceed supply unless we can take very big measures to deal both with our dependence on oil and with the efficient use of oil. That is why I say that we have got to deal with the nuclear issue, we have got to deal with the renewables issue and we have got to deal with, if you like, making the use of oil more efficient by the way we deal with the future production of cars as well as household consumption.

  Q221  John McFall: Chancellor[sic], I understand that, but underlying my question is the theme of fairness here. The ordinary person will think, "Well, what's fair about this?" If the market is there, it has got to work properly and it does not seem to me as if it is working properly.

  Mr Brown: But the oil market, if I may say so, does not work properly, first of all, because you have got an organisation called OPEC which actually tries to set the production limits on oil and it is one of the most sheltered markets in the world. It is a great irony that the two areas where we have got the greatest inflation, food and oil, are the two biggest protected markets in the world where we need demand and supply to work better.

  Q222  John McFall: Okay, Prime Minister, what I would say to that then is, if that is the case, let us try and do something about it and be seen to be doing something about it. That is the issue here. Talking of unfairness, both you and the Chancellor have stressed continued wage restraint on pay for both the public and the private sector, yet in the private sector in the past few weeks we have seen the Shell tanker drivers having a two-year settlement of 14 per cent, Babcock Engineering, for example, having 7.6 per cent for its 500 workers and Barclays Bank announcing a 5 per cent increase for its 55,000 employees as the first leg of a three-year RPI deal. What realistically can you do to ensure that wage restraint in the private sector is held back beyond making more speeches?

  Mr Brown: I just say that we have now signed three-year public sector pay deals with nearly 1.75 million public sector workers, the teachers at 2.45, 2.3, 2.3, the nurses at figures that are just around that, doctors at 2.2 per cent, workers in the Inland Revenue and workers in the Department of Work and Pensions, so we have nearly two million workers covered by three-year pay deals. If I may say so, I hope that Members of Parliament today will recognise that the settlements in the public sector for these key workers have been around 2.3, 2.4 and 2.5 when they vote on this year's pay in the House of Commons this afternoon. As far as private sector pay is concerned, just to answer your question, total earnings growth in the public sector and the private sector is roughly the same, it is about 3.8 per cent at the moment, and I think it is a very important thing to remember that in Britain historically we had a huge inflation problem because of two parts of it. One is that we allowed inflation too easily to creep back into the system, and the second is that we then had on top of that the wages spiral and that actually gave Britain the big inflation problem we had in the past. It is very much in the interests of everybody in the country that we avoid what is an internationally generated problem of inflation, everybody knows it comes from oil prices and food prices around the world, we avoid it becoming also a wages problem in the future and that is why we are taking the action that we are taking.

  Q223  John McFall: Chancellor[sic], I will come on to that inflation thing in a minute, but on this issue of the public sector, Brendan Barber has stated just recently that asking low-paid and average earners in the private or public sector jobs to make sacrifices when there is little sign of restraint from those at the top who continue to enjoy lavish bonuses, and he was talking about the City bonuses, and ONS statistics show that in 2005 it was £5 billion and last year, even though we have got this credit crunch, it was almost £14 billion, surely that breaches any test of fairness, and Brendan Barber has got a really serious point here to make?

  Mr Brown: Well, there has got to be restraint in the private sector as well—

  Q224  John McFall: There has got to be fairness.

  Mr Brown:—and there has got to be fairness at the top as well as at the low-paid end of the spectrum. We have in our public sector pay settlements, particularly the nurses and Health Service settlement, given more money to the low-paid, so they have a higher level of earnings. We have in the Army, for example, given the lowest-paid last year a 9 per cent pay rise, so we are trying, both with the minimum wage rising and with help to particular groups of low-paid workers, to do more and the Tax Credit was specifically introduced to help low-paid workers get a minimum income guarantee and not just a minimum wage guarantee, but you are right, that at the top of British business people have got to accept their responsibilities as well, that, in the interests of the country, we have got to keep inflation low.

  Q225  John McFall: Yes, but we need not just words, but actions, Prime Minister, and it does not seem as if that is particularly happening at the moment. You talk about inflation. The Governor sent a letter to the Chancellor on 16 June in which he made the point eloquently that the inflation we are experiencing now is imported, and he mentioned that world agricultural prices have been up by 60 per cent, oil prices have been up by 80 per cent and wholesale gas prices have been up by 160 per cent in the past year. Given that is the case, do you not think that the Government must have the courage to be honest with the public and explain that, in the short term at least, take-home pay and living standards are going to be squeezed as a result of inflationary pressures in the global economy? If you are not up-front and honest in explaining that, then that message is not going to get across to people and indeed we will get back to the 1970s inflation when it ripped and we will not get the genie back in the bottle.

  Mr Brown: I understand the pressures that people face and I am very concerned about the impact that the petrol pump and the high petrol price has on people's ability to afford to meet their weekly costs. I am concerned when people go to the supermarket, because of the international rise in food prices, that people are being squeezed there as well and feeling the pinch, and I am concerned about gas and electricity bills. We are trying to take action in each of these areas to help hard-pressed consumers and one of the actions we have taken is in response to the controversy over the ten pence tax rate. We have extended the amount of money we are injecting in the economy so that 22 million people get the benefit of the £2.7 billion rise in money injected in the economy, and it is roughly about £120 for most people in the country, so that is one way we are trying to help people alleviate their bills. The task at the moment is to keep the economy moving forward. I believe the British economy is far more resilient than it was facing the last two oil shocks and facing some of the problems we had when there was a world downturn in the early 1990s, but our task in keeping the economy moving forward is to make sure that we retain and maintain the levels of public investment so that we can help the construction industry and to do something to help people who are hard-pressed homeowners, and you have seen the measures that we are taking to buy up some of the houses that are unsold in the market at the moment and the measure we are also taking to help people with their gas and electricity bills, and these are the things that we can do both in the short term and of course the action we are taking in the medium term to reduce the dependence of this country on what has been the fastest-rising product, and that is oil.

  John McFall: On the ten pence tax issue, I am very pleased to see that you have taken on board the wise counsel of the Treasury Select Committee's Report that came out at the weekend, so that is a good start. Terry, on poverty?

  Q226  Mr Rooney: I hope the wise counsel of the Work and Pensions Select Committee on child poverty is the same story. Prime Minister, you will be aware that, after some good progress in the last couple of years, the figures on child poverty have somewhat stalled, and there are some very welcome measures in this year's Budget, but part of this agenda has to be getting more people, particularly lone parents, into work. In the benefits system, you have income disregards ranging from £5 a week to £95 a week, depending on the individual benefit. Do you not think it is time to align some of these so that the disregards become incentives to try and work rather than barriers, as they often are?

  Mr Brown: You are absolutely right, one of the biggest challenges is getting lone parents with children better chances of getting jobs that will give them a decent standard of income. We have got about 300,000 lone parents back to work. I think when we came into power, the figure was about 45 per cent and I think it is over 55 per cent now, but we want to get towards 70 per cent of lone parents with young children getting the chance to work. We are changing the rules about the expectations we have of single parents to take a job so that, after a certain age when the child is at school or in nursery accommodation, we will give opportunities for training and then opportunities for work. You are right, that we have given disregards, but we have also given bonuses for people who go into work so, if in London you go into work as a lone parent, you will get a certain amount of extra money per week and in the rest of the country you get extra money as well, and we will look at what you say about bringing the disregards and the allowances together, but there are very substantial incentives now for lone parents either to work part-time or full-time, and I hope many more will take up that opportunity.

  Q227  Mr Rooney: The Treasury is leading reviews on both childcare and housing benefit and, I have to say, the analysis that they have done on the current issues is quite superb. When do you expect those to report and when do you expect action to be taken on what they come up with?

  Mr Brown: Well, we are looking at how we can improve the welfare system in many different ways at the moment. On housing benefit, we are looking at how we can make it easier for people to return to work when, in other circumstances, they may lose housing benefit, how we can make sure that their income is secure. On incapacity benefit, we are making proposals about how we can help people go back into work more quickly by giving them extra support to get either training or advice that will enable them to come off incapacity benefit and go into work, so in each of these areas incapacity benefit is very, very difficult because you are dealing with a whole range of problems. You are dealing with some people who are drug-dependent and some people who are alcohol-dependent, so we have got to look at special measures to deal with them. You are dealing with some people who, if they could get a particular type of job, could more easily come off incapacity benefit, so we have got to get the training to allow them to change career or to change the skill they have to get them jobs, but a lot of work is going into these pathways into work.

  Q228  Mr Rooney: A major issue in addressing and tackling poverty, not least in-work poverty, is the equal pay gap. It is almost 40 years since the equal pay legislation and we are still significantly away, particularly for those working part-time. The Equalities Bill, which was published last week, was, shall I say, fairly weak on taking action in the private sector. Can we expect to see that toughened up because, if we have truly got equal pay, that would eliminate most of the child poverty that we have?

  Mr Brown: Some of the cases that now arise on equal pay are actually public sector cases that we are having to deal with which have built up over a long period of time, and a lot of the issue is about how different types of work are valued as equivalent and equal and a great deal of work has got to be done on that, but, I agree, we should continue to monitor what is happening in the private sector as well.

  Q229  Mr Rooney: Just finally from me, it is now 60 years since the first legislation enacting Beveridge. There has been a plethora of rules and regulations that make it an extremely complex system. Do you not think it is time for a 2008 Beveridge, for a new welfare commission to look at exactly what we want from the welfare system, what we want it to do, the rights and responsibilities agenda and how government interacts with the State?

  Mr Brown: I applaud the work of your Committee and the reports that you make. Basically, the problem about unemployment, particularly, has changed over these years. The biggest barrier to full employment in our country now is not the lack of jobs, it is the lack of skills. It is that young people and others do not have the skills that we need for the particular jobs that we are undertaking. There are six million workers in this country who are classified as unskilled. A large number of these unskilled jobs will not be needed in ten years from now and we have got to persuade those people who do not have the skills to get the skills that are necessary for the jobs that are available, and that is one of the big changes that I think has got to be brought about. When you talk about rights and responsibilities, I would say that the responsibility on the part of the unemployed person is not only to seek work, but to make sure that they seek a skill which will enable them to get a job, and we have a right, therefore, to require people to undergo the skills training that is necessary for them to get a job in return for them receiving support from the State when they are unemployed, and that, I think, will be one of the biggest changes in the welfare system. In all other situations, people have looked at unemployment as a lack of jobs for people to go to, but now, I am afraid, one of the issues we have got to deal with is the lack of skills that people have for the jobs that are available. There are still 600,000 vacancies at least in this economy at the moment and we need people with the skills to take them up.

  Q230  Mr Rooney: But again there are perverse barriers and disincentives in the benefits system to people actually trying to improve their employability.

  Mr Brown: That is right, and your Committee has looked at this, and we have always got to look at what are the barriers that are preventing people getting back into work or what are the disincentives in the system. Housing benefit has been a big issue. The costs of travel to work, the costs of training itself, the costs of childcare, these are big issues for people who are making big decisions about what work they do and whether they are going to travel further than the immediate vicinity to get a job that is available.

  Q231  Mr Yeo: Prime Minister, picking up on your earlier answer to the Chair of the Transport Committee, is it the case that you are proud of the fact that, during your ten years as Chancellor, the rate of duty on petrol and diesel fell in real terms?

  Mr Brown: We have got to look at the situation on the ground. For the first few years it rose very substantially and then we had to look at the overall cost of energy itself and, where oil prices are very high themselves, they exercise an effect on demand, so it is the overall price that people pay for the good, not simply the tax rate, that makes the difference.

  Q232  Mr Yeo: But, during that decade, our understanding of climate change and the urgency and the scale of the threat that it poses grew substantially. Oil prices were substantially below the levels they have reached in the last 18 months and emissions from road transport were also rising, so was it a sensible policy to reduce the rate of tax on fuel in real terms?

  Mr Brown: I think you have got to look at all the factors that the Chairman of the Transport Committee was raising when she gave me the initial statement about what she wanted to see happen. You have got to look at the overall economic environment, you have got to look at what is the overall price of energy itself as well as look at the tax rate, and that is what we had to do, particularly after 2000.

  Q233  Mr Yeo: During the decade you were at the Treasury, we had a benign international economic background, we had an expanding British economy and we had a period of relatively modest oil prices. If you were afraid even to maintain in real terms the level of tax on fuel against that background, do we have to assume, now that there is a more difficult economic prospect and much higher oil prices, that there is no chance at all that you are going to use the tax system to encourage consumers to make greener choices?

  Mr Brown: I think I should put this in its perspective. During these last ten years, we introduced the Climate Change Levy on business and we also reformed vehicle excise duty substantially, and I applaud the articles that you have written on this in the last day or two, so it was not simply fuel duty on petrol and on diesel. There were an enormous number of reforms that we have made to take account of the climate change issues both in relation to transport and in relation to the environment as a whole, and I think the reform of environmental taxes over these last ten years has been significant. We led the way in the Climate Change Levy, we have led the way in emissions trading, we are leading the way in trying to create a carbon market in this country, a carbon market that can serve the rest of the world, and, as you yourself have acknowledged, our VED reforms are to reward the least-polluting cars and to tax more the most-polluting cars.

  Q234  Mr Yeo: Just on the Climate Change Levy, you made a speech to the United Nations Ambassador two years ago in which you referred to the fact that the proceeds from the Climate Change Levy are hypothecated to reduce business taxes and to fund low-carbon technology. If you accept that hypothecation was a good idea in relation to the Climate Change Levy, why does Britain continue to resist the EU's suggestion that the auction proceeds from the sale of permits under the EU Emissions Trading System cannot be hypothecated in the same way perhaps for example, to fund research into carbon capture and storage?

  Mr Brown: Well, we are actually trying to do that research already and, as you know, on environmental research we have set up the Environmental Technologies Institute as well as seeking to win the support of other countries for what is a very big investment in carbon capture and storage. As far as the Climate Change Levy was concerned, we looked at this with business, we looked at this together and we decided that the Climate Change Levy could move business towards more environmentally friendly behaviour and, therefore, in return for that, we could reduce their National Insurance, but also of course we could put proceeds to the Carbon Trust, which is doing an enormous amount of very good work in reducing carbon emissions. I think you have got to look at these issues individually. I think the general principle of hypothecation would carry some difficulties, but I think there are specific instances where, for example, when you are looking with business at a particular issue, you can do it.

  Q235  Mr Yeo: With your vast and perhaps unique experience at the Treasury, would you agree that a green tax, if it is properly defined, is one which is introduced to change behaviour rather than primarily to raise revenue?

  Mr Brown: Absolutely, we are trying to change behaviour, but you have got to bear in mind, as the Chairman of the Transport Committee said quoting the Chancellor, that one reason for taxation, perhaps the only reason for taxation, is to fund your public services, and you are trying to make sure that you are able, in the public services you undertake, also to undertake environmentally sensitive work.

  Q236  Mr Yeo: You commissioned Lord Stern to look at the economics of climate change. Do you share his view that early action to tackle climate change is going to be cheaper and far more cost-effective than action in ten or possibly even in five years' time?

  Mr Brown: Well, I think all of us in this Committee do. I think both of us do and that is why we commissioned Stern. We have tried to take action quickly on some of the recommendations of Stern, but, you know, one of Stern's main proposals is that you have got to build a global consensus so that what is done in one country is not offset by action by another country that actually harms the environment, so the process leading to Copenhagen is going to be very important. We have got to bring in all the emitters into this dialogue and then, as I said in answer to Malcolm Bruce, I think you have also got to find a means by which you can help finance the environmentally friendly behaviour that we want to see undertaken by developing countries in emerging markets who will find it cheaper to build coal-fired power stations everywhere or to use other high-carbon sources and who have got to be persuaded by incentives and money that is available to build alternative energy in their own countries.

  Q237  Mr Yeo: Do you think that Britain's role in helping to build that consensus, which, you say, is necessary, is going to be helped if we are seen to be a country where a coal-fired power station is built before we have viable carbon capture and storage, where we are increasing runway capacity for domestic flights instead of investing in railways, as France has done and Spain is doing, if we are a country where standards of energy efficiency in buildings remain far behind some other EU countries? Do you not think the fact that our domestic record is decidedly patchy is going to reduce our influence in the international negotiations?

  Mr Brown: I disagree with you entirely. We are investing substantially in the railways and that is why there are more people using the railways now than at any time for many years, and the number of passengers using public transport is growing substantially. We are investing in the carbon-free home and we have announced that we will build carbon-free homes and we will give fiscal incentives to do so. Also, I think you must have seen last week's paper by John Hutton on renewables. We are investing heavily in alternative sources of energy and one of the things we are trying to do is persuade other countries to form a global energy technologies institute so that the work that we are doing, and are about to do, in our Energy Technologies Institute to look for alternative sources of energy can be mirrored by what happens in other countries. I think you have got to accept, despite the criticisms you make, that we are a world leader in looking for alternative sources of energy, nuclear, renewables, we are a world leader in some of the sources of alternative energy and we are a world leader, and want to be an even bigger world leader, in the research for alternative sources for the future. As for public transport, I do not think any government has invested more in both railways and buses and alternatives to the car in public transport than this Government.

  Q238  Mr Yeo: Do you agree that climate change is the most urgent problem now facing mankind?

  Mr Brown: I think it is one of the great challenges of our time. We have at the moment, as a world, to come to terms with the fundamental changes that are taking place in our economy and in the shift of economic power that is happening and to make sure that people are not impoverished by that, and we have at the same time, and many of the solutions are similar, to reduce our dependence on fossil fuels so that we can have a sustainable environment. I would say that the challenge of global change at the moment is not only to have free and open markets and the flexibility that is necessary, but to make it both inclusive and sustainable.

  Q239  John McFall: On that point, Chancellor[sic], and the green taxes, the existing air passenger duty regime has an exemption for passengers on transfer flights within the UK, but, under the proposals for the new `per plane' duty, that exemption will be removed. What that means at a stroke, Chancellor[sic], is that UK passengers—sorry, Prime Minister. It is after ten years when he was Chancellor!

  Mr Brown: He has asked me these questions for ten years as Chairman of the Treasury Committee!

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