Examination of Witnesses (Questions 380-399)
19 MARCH 2008 RT
HON ALISTAIR
DARLING, MR
DAVE RAMSDEN,
MR MIKE
WILLIAMS, MR
EDWARD TROUP
AND MR
SIMON GALLAGHER
Q380 Jim Cousins: This is a moment
in the economic life of the country when it is not fair or sensible
to act as though you think we are rolling out good policies on
into the distance in the longer term when in fact we have an immediate
situation in which there are a large number of low income, low
paid workers who are facing a fall in their real standards of
living. That is not right.
Mr Darling: We have introduced
the tax credit system which is helping millions of families in
this country. Where takeup is insufficient, particularly with
people without children, I would like to see us do more. In addition
to that, the minimum wage has been operating for a number of years
now. In addition to that, if you look at public sector pay, it
has increased quite substantially. If you look at the amount of
money that nurses have had, it is something like a 48% increase
in the last few years. I think we have been showing ourselves
as ready and able to increase the wages of many of the people
that you are quite rightly concerned about. That has been our
objective as a government. We have increased the amount of money
that people in the public sector are receiving by way of pay.
In addition to that we have been supporting families who have
gone into work. We have three million more people at work in the
economy than we did have ten years ago. As I said to you too,
there will also be cases where we need to do more and we need
to be helping people and I hope we will be able to do that.
Q381 Jim Cousins: In these proposals
in the Budget, there is absolutely nothing to address the situation
of people who cannot get mortgages under the present situation
or have real difficulty in sustaining the mortgages they have
because they are facing an increase in mortgage costs; and very
large numbers of low income, older home owners who do not have
mortgages but who are really stuck to know how they are going
to raise the money to keep their homes in decent nick. There are
no proposals in this Budget to deal with any of those issues.
Mr Darling: I would make the general
observation that the tax changes we have made over the years are
helping millions of people in this country, not least the reduction
in the basic rate of income tax. In relation to mortgages, you
raise a very important matter there. In the Budget there were
proposals to help people in shared ownership schemes. In relation
to the mortgage market generally, as we were saying right at the
start of this hearing, quite obviously what is happening in the
financial markets just now will have an effect on mortgages. Mortgages
are still available and people can get them but the banks and
building societies are likely to impose stricter conditions. The
days when you could get a 125% mortgage are probably gone. I think
lending on a sensible basis is probably the right thing to do.
One of the other things we are looking at following the Budget
is how we can help reopen some of the mortgage markets so we can
get more money coming into the system, which will make it easier
to get mortgages. The last thing I would say is in relation to
interest rates which of course have a direct read across into
mortgage rates. Interest rates have come down twice in the last
three months, in December and February, which does help mortgage
payers. As I said before, I hope that banks and building societies
will pass on those reductions to their borrowers.
Q382 Jim Cousins: Do you not accept
that we are going into a period when monetary policy may not be
able to help us, where interest rates will be coming down but
the actual interest rates which home owners will be paying will
be going up?
Mr Darling: If interest rates
come down, generally speaking, mortgage rates will come down with
them and that will help mortgage payers.
Q383 Jim Cousins: The end of the
fixed term rates?
Mr Darling: Of course it is the
case that people who take out fixed term rates, at the end of
those—that is always the case, no matter what the economic
conditions are—and if you take a two or three year fixed
term rate, when you come out of it, you then have to look and
see what further rate you can get. I am afraid that is the nature
of taking out a mortgage over a long period. The interest rates
will go up or down as the case may be. If you look at our interest
rates now they are historically at a much lower level than they
were. Both of us remember when interest rates would be regularly
up at 11, 12 or even 15% at some stages. The position is quite
different now. Looking to the medium term, as I said in the Budget,
we are looking to see what we can do in relation to the mortgage
market to try and get that operating as efficiently as possible
because that too would apply downward pressure on the costs of
getting mortgages and therefore the amount of money that people
actually pay.
Mr Ramsden: The average rate on
new mortgages was 5.9% in January. There was an increase in the
number of remortgages in January, so it was up to 40%. That suggests
that the mortgage market is still working. The rate of 5.9% is
still very low by historical standards. While we recognise the
issues that you raise, which is why we have set up this working
group to look at how to reopen the RMBS market, the position in
terms of the evidence is as the Chancellor is setting out.
Q384 Jim Cousins: With great respect,
there are large numbers of home owners on low incomes who are
fearful of where they stand now and how things are going to work
out for them over these next few months. It is no earthly use
talking to them about what Mrs Thatcher did in the 1980s or what
some working group might produce in 2010.
Mr Ramsden: On the facts, we said
that the working group would be reporting back to the Chancellor
in the summer and then there will be a final report by the PBR.
Mr Darling: I agree with what
you are saying. The point I was making was that interest rates
and therefore mortgage rates in this country are a lot lower than
they were in the past. Surely one of the central objectives of
government is to make sure that we keep them as low as possible,
which is why I attach so much importance to stability, because
that is the best way of making sure that inflation is kept down
and therefore it has a downward pressure on interest rates and
therefore mortgage rates. You may disagree with this but I think
that is one of the best ways you can help mortgage payers, to
develop conditions to keep interest rates as low as possible.
That seems to me to be a very sensible way of protecting the interests
of people who pay. In addition to that, a stable economy means
that we maintain high levels of employment and we have one of
the lowest levels of unemployment we have seen for 30 years. You
said you did not want to go back to the past but the problem we
have had in the past is, when people were fearful they would lose
their jobs, they could not keep up their mortgages and then you
got the repossessions. That is something that we need to try to
avoid. That is why stability is so important. That is one of the
best things you can do to help home owners.
Q385 Mr Todd: The data that your
officials sent us about the question on this subject conceded
that for families in very modest circumstances they might face
losses of perhaps £2 per week as a result of the measures
in this Budget and that is certainly my analysis of those who
see me in my constituency. That is mainly from the removal of
the 10p rate. Do you concede that fact? I am particularly thinking
of those in early retirement, below 65.
Mr Darling: There is a particular
group of people, mainly women between the age of 60 and 65, who
would have been paying the 10p rate who, if you look at where
their incomes have come from in the last ten years, better off
than they were. Yes, it would affect them. The winter fuel payment
will for example to some extent make a contribution towards that.
It pays money into the household. If you look at the household
income of some of the people concerned, as they will benefit as
a whole because of the reduction to the 20p. The previous Chancellor's
objective in reducing the basic rate of income tax was to try
and simplify the system, to have two rates of tax. I do not think
we should lose sight of the fact that the reduction to 20p will
benefit very substantial numbers of people.
Q386 Mr Todd: There are people in
modest circumstances who are losers.
Mr Darling: We have tried to help
wherever we can through the tax credit. I have mentioned the winter
fuel payment and for a lot of people their incomes will have gone
up.
Q387 Mr Todd: Can I turn to the way
in which public expenditure is going to be managed? The efficiency
programme, as we know it, has already prompted some suggestions
of savings within departments. I just want to throw a couple at
you to see what you make of the ideas that are there and how they
fit with your model of expenditure management. The MoD has suggested
the accelerated withdrawal of the Jaguar reconnaissance aircraft
from service. Defra has suggested the transfer of full or partial
costs to industry of various services and charging for various
services where there are clear benefits to the individual recipient
of that service. Those efficiency savings in some sense? What
do you think of those sorts of proposals?
Mr Darling: It is obviously for
my colleagues, the Secretaries of State to these departments,
to decide what is best.
Q388 Mr Todd: There is an overall
goal?
Mr Darling: Take MoD procurement.
I think all of us would agree that we could be more efficient
in the way we procure equipment. In relation to drugs for example,
the drugs bill has been quite substantially reduced as a result
of reforms that were being made. We have saved something like
£300 million a year. Let me give you another example of personal
experience when I was Secretary of State for Social Security and
then Work and Pensions. It is an example I think of both efficiency
and culture. Basically, ten years ago, the system was not terribly
efficient. The buildings in which benefits were administered were
frankly a disgrace and it was basically a system to pay out money.
It was not there to help people get into work. The DWP today through
Jobcentre Plus is much more efficient. There are fewer people
administering the system. It has a far better outcome so I think
those are examples of where you can make a contribution.
Q389 Mr Todd: What I am highlighting
is a definitional problem which is that what might in some cases
be described as efficiency savings and might be seen as service
cuts in terms of quality of service provided and, in one or two
of these cases, one is talking about a straightforward transfer
of cost to another party, a third party.
Mr Darling: If they can do it
more efficiently, there might be an argument for it. I am talking
in the abstract because—
Q390 Mr Todd: I appreciate you are
not an expert on the individual items but the rebranding of this
as a value for money programme suggests perhaps a lesser focus
on the idea of driving down unit costs of exactly the same transaction
and more on simply discretionary cuts in spending, which may well
be as you say perfectly justified and may well be the right thing
to do.
Mr Darling: I think you have to
look at each one of these things on its merits. I was told when
I was Secretary of State for Social Security that what I wanted
to do in Jobcentre Plus was just cuts. I was told that it was
quite wrong that we should move people out from behind screens
in what were old labour exchanges and put them into far more pleasant
premises.
Q391 Mr Todd: You were right to stick
to it.
Mr Darling: I was right to stick
to it. In relation to a piece of military equipment a decision
does have to be taken from time to time. Do we actually need it
or if we have a given amount of money do we buy that or do we
buy something else?
Q392 Mr Todd: You are leaving as
the guardians of this process the individual departments who are
scarcely the most objective sources of advice on what is an appropriate
provision of a service, one might think. Is there going to be
an objective test at a corporate level in government to decide
whether these are reasonable savings or reductions in cost that
can be accepted as part of the overall corporate target? What
I am trying to get across to you is that there is an overall corporate
goal here. To simply say that the Department will make their minds
up and that the NAO will look at this at some point—
Mr Darling: The process is iterative
to some extent. You cannot leave everything entirely to a department
any more than you can leave everything to the Treasury because
unless the department owns the decision, in my experience, not
a lot will happen. Whilst the Treasury knows many things, it may
not be able to form a view as to whether one particular helicopter
is better than another. It may have a view on it. It may point
out that other countries can do things apparently cheaper and
have a discussion about it but in the spending settlement of last
year every single department was required to be more efficient
because departments themselves have to make very often a better
decision to say, "Okay, we do not need to do this or we can
do that in a more efficient way."
Q393 Mr Todd: Is there a challenge
in this process?
Mr Darling: There is, because
all the settlements assume quite a substantial saving. The challenge
is, if you do not do it, at some stage you will run out of money.
Q394 Mr Todd: The challenge to the
detail of those savings, as to whether they are reasonable?
Mr Darling: Yes, but not at every
single level because departments can make their own decisions
in terms of how they organise their staff and so on. In some of
the bigger decisions especially, departments will say, "Hold
on, if you are asking us to do this, this will cause all sorts
of difficulties." A collective view has to be formed as to
what the right thing is to do.
Q395 Chairman: We come to this deeply
sceptical having looked at some of these efficiency gains. If
you get Gazelle helicopters withdrawn with flying hours and they
are clapped out, how is that an efficiency gain? We have quite
a number of examples of that but we will return to that issue.
Mr Darling: That is absolutely
fine. The point I was making to Mark Todd was that inevitably,
if you take military equipment for example, the MoD will have
a very strong view on it just as the service chiefs will and that
is something we need to listen to; but equally, it is right that
the Treasury, with one of its prime duties to make sure that money
is well spent, improves things like procurement where frankly,
as a country, our record could be a lot better.
Q396 Chairman: We have seen ways
of counting efficiency gains which stretch us to the limit.
Mr Darling: I would be happy to
return to the subject.
Q397 Mr Dunne: I have a couple of
questions about the capital gains tax reform proposals. Given
that they were introduced without prior consultation, you then
went away to rethink them. You delayed the announcement of the
rethink. Would it not have been more appropriate either to put
back the effective date or to have had some form of transitional
period before the new arrangements came in, given the impact they
have had on business decision-making?
Mr Darling: No, I do not think
so. The same argument applies to the non-domiciled people. Some
people said, "Look, put the thing off" but a lot more
were saying, "Whatever you do, we would like to know what
the position is." When you think about it, if you have somebody
in business who wants to make plans, if we had said we would not
make our mind up until March 2009 I do not think that would have
been desirable. I am not saying this is a universally held view
but most people believe, if you cannot decide what to do, you
should just get on and implement it. You had a second point on
capital gains tax?
Q398 Mr Dunne: I have other questions.
By contrast, you have decided to defer the income shifting arrangements
for a whole year to undertake further consultation. The point
I was making is that businessmen have to make decisions and it
may take more than the few weeks that were available to them to
implement those.
Mr Darling: Yes, but on income
shifting you may recall it started off with the decision of the
Arctic case in October. Having looked at it, I think it
is important that we get it right. That is the view that has been
broadly welcomed by most people.
Q399 Mr Dunne: You listened to representations
from businessmen and introduced the entrepreneurs' relief in response
to those and yet you chose to ignore the representations made
by the life insurance industry who had a particular problem with
products that they had arranged which they have estimated may
result in some £35 billion worth of business being lost.
Why did you decide not to make ----?
Mr Darling: I did not ignore it.
As I said in the House in January—the point has been made
in many discussions since that time—whatever solution they
came up with, whilst it might have sorted one particular category
of life policies, it would have in some cases an adverse effect
on others. We also found that whilst there was some group of companies
saying, "You must do something in relation to this particular
problem", there were other groups saying, "If you do
that, that will adversely affect the products we are selling elsewhere."
When I looked at the amount of sales that were affected and at
what was happening in the market generally, I do not think the
position was quite as clear-cut. The real clincher is that what
we were being asked to do could have run the risk of perhaps—and
I only say perhaps—sorting one problem only to discover
we opened up another problem. I think it is best to try and avoid
doing that.
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