Examination of Witnesses (Questions 320-339)
RT HON
ALISTAIR DARLING,
MR DAVE
RAMSDEN, MR
MIKE WILLIAMS,
MR EDWARD
TROUP AND
MR SIMON
GALLAGHER
19 MARCH 2008
Q320 Mr Dunne: With respect, you
have considered it, you decided to defer it for a year and you
have not told us how you are going to treat it.
Mr Darling: We are still considering
how we deal with that. We have decided, as you say, that it is
not going to be implemented this year. What I would say to you
is that the PFI has enabled us to do a lot of building of schools
and hospitals and so on that we would not otherwise have been
able to do. What I want to do is to consider how we deal with
it because we do not want to get ourselves into a situation where
we reach decisions that no rational person would actually reach
because of a change that might be made. But that is something
which I am still reflecting upon.
Mr Ramsden: Could I just add—and
I hope this is helpful—that actually the ONS when they came
and discussed this issue with you said that it was rather more
complicated than that they had decided. They said that they would
have to look at what was decided by the accountancy guidance coming
out of FRAB on the standards that were going to be applied and
then they would have to see how those would be translated into
the national accounts framework, which is the one that ONS use
to produce their statistics. What we announced in the Budget and
as we discussed with you yesterday was that as a result of discussions
with departments it has become clear that the IFRS standards are
going to have to be applied a year later because some departments
are having particular problems, and also local authorities are
having problems with the new standards on PFI. So there is a lot
of detailed technical work that has to be run through first before
we are in a position to consider the implications, if any, for
the fiscal framework.
Q321 Mr Dunne: Just picking up on
your response to Mr Fallon on the issue of Northern Rock, which,
again, you have chosen not to include within the sustainable investment
rule.
Mr Darling: Because it would be
ridiculous to do so.
Q322 Mr Dunne: The US authorities
and JP Morgan took five days to sort out Bear Stearns; you took
over five months to sort out Northern Rock. Have you had the opportunity
to calculate what the impact on public debt would have been had
you taken the Lloyds TSB offer and provided a facility which has
many parallels to what happened in the US last weekend?
Mr Darling: Let me go to this.
There was no Lloyds TSB offer. When I have given evidence on two
or three occasions now I have made the position absolutely clear—there
was an inquiry made on a "what if?" basis but it was
never pursued. Indeed, you also covered in your excellent Treasury
Select Committee report the question of this and you said that
you came to the view that I think you would have doubts, even
if such an offer had been made, as to whether or not it would
have been wise and prudent to have done it. So I really have to
deal with that yet again. There was no offer made, as a number
of witnesses who have appeared before this Select Committee have
said. In relation to Northern Rock point generally, since you
and Mr Fallon keep repeating the point, the reason that we spent
the autumn looking to see whether or not we could find a private
sector buyer is because I believed then and I believe now that
Northern Rock's future ultimately must lie in the private sector.
That is why we worked to see whether or not we could find a solution
and because of current conditions it was not possible to do so.
That is why we took the decision and then eventually we took the
view that because of all the considerations it was best to take
Northern Rock into a period of temporary public ownership. I think
we were right to do all these things and we were right to do it
because of the particular time when these things took place. So
I do not accept the underlying premise of your proposition but
it follows, therefore, that, no, I have not made the calculation
that you are asking about. The other thing is that I think it
would be absolutely bonkers to take account of Northern Rock in
relation to the sustainable investment rule because, frankly,
it would mean you would have to slash large amounts of public
expenditure to accommodate what is a temporary arrangement, and
I cannot see the sense of that and I do not know if any sensible
commentator is arguing that we should.
Q323 Mr Dunne: Chancellor, the parallels
with Bear Stearns are now very, very close and I think your analysis
that you just gave to Mr Fallon is incorrect. You said that you
rested your argument very much on the share price of Bear Stearns
and my recollection—
Mr Darling: No, I did not.
Q324 Mr Dunne: I think the transcript
will show you did.
Mr Darling: I mentioned it as
one of the points; I did not rest my argument on it.
Q325 Mr Dunne: The share price of
Bear Stearns on the Friday, I believe, was of the order of $27
and $2 was the price which JP Morgan agreed to pay on the Sunday,
so that was determined in negotiation with the authorities and
the board of Bear Stearns and was not determined by the market,
which was the argument you were trying to make.
Mr Darling: That was not the argument
I was trying to make. I understand perfectly what you are trying
to do and I just do not accept it. As I said to you, since you
have raised the matter, in relation to Northern Rock Lloyds TSB
did not make an offer; they made an inquiry over a weekend as
to would the government or the Bank be willing to make something
like £35 million available, and as you yourselves said—and
again I think you are a signatory to this report—what they
were asking for is apparently to give £30 billion to a healthy,
profitable bank to purchase what, at that time, was also a bank
that was a going concern. There were state aid considerations,
there were the considerations of whether or not you would do it,
whether it was the right thing to do; there were considerations
about whether or not you would have to ask around to see whether
other people were willing to do it at a lesser price—all
these considerations would have to be taken into account. As it
happened Lloyds TSB did not pursue their inquiry and by the beginning
of the week they had lost interest in it. Whether you like it
or not those are the facts of the matter and actually if you look
at the conclusions that you drew in your own report that rather
bears out what I am saying. The position in relation to America
was different, and I mentioned that the difference in the share
price was simply this: that at the time we are talking about,
the conversation with Lloyds TSB, to the outside world most people
were blissfully unaware of what was happening, and what you had
was Northern Rock at that time having reported pretty good profits—it
was trading quite happily. But the position with Bear Stearns
by the end of that last week was rather different.
Q326 Ms Keeble: I want to ask about
child poverty. First of all, can you give us some assurances about
the government's prospects of meeting the 2010 target for halving
child poverty?
Mr Darling: That is what we are
working towards. I think I said—if not at this Select Committee
I have certainly said in the House—that I feel very strongly
about our obligation to meet our 2020 target, which is to eradicate
child poverty, and our objective is to halve child poverty by
2010. What I tried to do last week was to make a substantial contribution
towards that. This is a difficult target but it is a target that
is well worth pursuing.
Q327 Ms Keeble: I understand that
and I think all of us would agree with that. I want to ask particularly
about changes on housing benefit and council tax in relation with
child benefit, which is, along with the increase in the child
tax credit element, the most expensive part of your package. Could
you confirm first of all that that only comes in in October 2009?
Mr Darling: Yes.
Q328 Ms Keeble: Secondly, the Budget
papers say that the working couple with one child would get up
to £17 a week. The Library did what they call a rough and
ready calculation based on the information that was provided and
they found that a couple with one child would get £7.46 a
week—there are certain assumptions under that. The Treasury
figures, working on slightly different income figures, estimated
it was £19.63 a week. That is quite a wide range.
Mr Darling: I would need to see
the House of Commons Library's calculation.
Q329 Ms Keeble: The Treasury figures
of £19.63 are obviously well above the "up to £17"
so I wondered how robust the figures are, when all the information
is going to be provided so that people can work out what it is,
and also an assurance that you are actually going to be able to
afford it and that it will be properly, fully funded and carried
through in October 2009?
Mr Darling: On the last point,
yes, it is affordable; and, yes, we will do it. I thought you
were going to ask a slightly different point, but I am not sure
that the Committee got the papers it asked for yesterday?
Q330 Ms Keeble: Yes, I did and I
have read them and that is what I am asking you about.
Mr Darling: One of them was in
relation to housing benefit and when we endeavoured to explain—which
I readily accept is a complex calculation, which is to show a
comparison between this year and next year in relation to the
same family, and it shows how that family will gain as a result
of the changes we have made. But the answer to your question is
yes, we can afford it; yes, we will see it through. What I cannot
comment on is the House of Commons Library calculation—rough
and ready or not, I have not seen it and I think we would need
to see the basis on which they were making that calculation. But
there is such a wide difference and the calculations have been
made of the best possible estimates we could make.
Q331 Ms Keeble: The other thing is
that since this is only coming in in October 2009 the full year
effect will only be in 2010-11, so how can you count these figures
towards the achievement of the 2010 target? How do you include
those numbers in?
Mr Darling: The 2010 target makes
an allowance for that. From the moment they come, in October 2009
they will have an effect.
Q332 Ms Keeble: Yes, but that is
two months before the end of the year—
Mr Darling: October.
Q333 Ms Keeble: That is two months
before the target, is it not?
Mr Darling: The figures that we
gave in the Budget are our best estimate of how many people will
gain as a result of the changes that we are making to housing
benefit and also in relation to the child credit. But in relation
to the actual breakdown of figures, unless Mike Williams, who
may have seen these things, can add to it I do not think I can
say anything. But the housing benefit which comes in in 2010—the
measure is implemented before 2010.
Q334 Ms Keeble: October 2009. So
the full effects of tax year 2010-11.
Mr Darling: Yes, that is right.
Q335 Ms Keeble: And there will be
a muddle with the councils for the first two months whilst they
sort it out, I have no doubt.
Mr Darling: We will try and resolve
that but I would think that other people too would agree that
it is quite a sizeable step in the right direction.
Q336 Ms Keeble: Yes, indeed; I agree
with that. What I was going to say was that given there is still
going to be a gap that has to be filled, are you then considering
more measures towards the back end of next year, around about
October 2009 or into 2010? Would you be looking perhaps at something
like seasonal grants, or are you looking at other measures particularly
to support people who are entirely on benefit, given that these
advantages go to the working families?
Mr Darling: Obviously as and when
we have further proposals to make we will announce them, but probably
not today because it is only a week after the Budget. You will
see that on the day of the Budget we published a short paper which
outlines various measures that we wanted to take to tackle child
poverty. You raised a perfectly pertinent point in relation to
the administration of housing benefit, which particularly in London
is a big problem because you want people to go into work, you
want to be able to make the change calculations for in-work help
as quickly as you possibly can, but there are a number of measures
that we want to take in relation to that to help get more children
out of poverty. Some of what we can do does come down to cash—other
things come down to administration. The other key thing, of course,
is getting more and more people into work. But if you look at
the cumulative effect of what we have been doing over the last
few years, and measures last October, which will affect about
100,000 people and about 250,000 people as a result of measures
I announced last week, as well as last year's Budget, of course,
it does make, I hope, quite a substantial contribution to the
objective we both share.
Q337 Ms Keeble: I agree with that.
I have one further question, which is have you revised your target
of three million new homes to be built by 2020 in the light of
the reported closure of credit markets for speculative development;
and what impact will have that on affordable and social housing,
given that increasingly that is being provided as part of percentages
of private sector building?
Mr Darling: No, we have not. This
is a long term target and it really goes back to what I was saying
right at the start. Yes, there is short term uncertainty but we
are, I believe, well placed to get through that. But it is important
that in the Budget last week and in the future we remain very
focused on what we need to do over the longer term, which is to
get more houses. Of course, in the Budget too I also announced
the review into housing finance generally and there are other
measures that we are looking at to improve the financing of housing.
These were important even before the recent events and they are
extremely important now.
Q338 Mr Mudie: Chancellor, I thought
you were a bit unfair with my colleague, Mr Dunne.
Mr Darling: I do not think I could
ever do that!
Q339 Mr Mudie: I thought you were
a bit unfair because our view did contain reservations about how
the Bank of England had behaved with the TSB, and you can set
our minds at rest if you can put on record that a representative,
maybe even as high as the Governor, actually met the TSB to discuss
a possible offer because we can find no evidence other than the
Governor saying he "remembers a vague telephone call"
put through his officers, emanating from the FSA about "some
sort of bid". When I compare it with what the Fed got stuck
into last week and compare that with our Central Bank, I am certainly
of the opinion that it left a lot to be desired.
Mr Darling: I have no knowledge
that the Governor met anybody from Lloyds TSB. The best of my
knowledge is, as Callum McCarthy said to you, that that was that
a phone call was received, I think one weekend, asking speculatively
"what if?" and the speculative reply was given and that
was that.
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