Examination of Witnesses (Question Numbers
29 MARCH 2010
Q140 Mr Love: How will that be effective?
60% of our imports go to the EU, the EU economy is struggling;
that is the best you can say. How will that affect that growth
in export figures?
Mr Ramsden: To the extent one
can draw conclusions about very recent data, Ireland is a major
trading partner of ours, 6.5% of goods and services go to Ireland,
and Ireland is going through a very, very big adjustment. We have
taken account of that in terms of our forecast for the near term
but the broader euro area, particularly the core economies which
we trade strongly with, will see a pick up in growth compared
with their current weakness. Also we are growing our exports very
significantly to new export markets, it is just that we have quite
a traditional pattern of trade at present. So just as it is the
reason why we revise down our growth forecast for 2011, I would
recognise it as a risk.
Q141 Mr Love: Is not the very problem
the one you have just highlighted about Ireland, where the priority
is on deficit reduction? If you look across Europe, this is becoming
much, much more of a theme and are we not in danger of threatening
the recovery of the euro zone and therefore threatening our export-led
Mr Ramsden: It is really important
that all economies have credible consolidation plans and see those
through, and that includes Ireland. I am just trying to find the
Q142 Mr Love: It is not only Ireland
which is going through deficit reductionthey may be the
most extreme example but it is not the only one which is going
through deficit reduction. Is there not an issue here at European
level, for us to at least discuss the issue of whether the timing
of deficit reduction is incredibly important?
Mr Ramsden: I would agree there
is a really important issue within Europe, as there is more generally
in terms of global patterns for rebalancing. That means that just
as economies like Ireland and the UK which have been hit with
very significant increases in their deficits have to consolidate,
so other countries which tend to spend less in terms of domestic
demand need to see the supply side reforms so their demand will
increase. This is not about asking Germany to spend more, but
as the OECD said on Friday, I think it is reasonable to say that
economies like Germany need to carry on the supply side reforms,
open up their product markets, that will make them a stronger
market for our exports, for example business services, and that
would be conducive to our trade pattern and trade future.
Q143 Mr Love: I wish you well with
that discussion. Can I come on to consumption because in your
figures produced in the Budget you are assuming consumption growth
of 2.5 to 3% in 2011-12. Are we not getting back to the bad old
days where growth is heavily dependent on consumption?
Mr Ramsden: We had this discussion
after the PBR and your report I thought was very valuable on this
issue. Consumption, as set out in Table B4 on page 162, is a very
big part of demand in the UK, just as it is in other economies;
I think in the UK it accounts for about 63% or so of GDP. It will
make a significant contribution once the recovery really gets
going next year. What we have done is to mark down our consumption
forecasts, both for next year and the year after, so the growth
contribution is now less than 2%. We think as part of the rebalancing
which we think will come from very supportive macro conditions
continuing, particularly on the monetary policy side from the
depreciation in the exchange rate, from an assumption that the
world economy will continue to recover, we have more of a contribution
from business investment and net trade. This is a judgment we
have made which we will have to keep revisiting, but one thing
which gives me some confidence in it is the fact we were expecting
the savings ratio to pick up significantly and it has done. We
think that will contribute to bearing down on consumption in the
short term, but as people get more confident about what is going
to happen to the labour market for exampleagain consistent
with our forecasts and our judgmentsthen the need for precautionary
saving will decline. Consumption can play a part in the recovery
but it is not a disproportionate part and indeed we have got rebalancing.
Q144 Mr Love: I do not want to pursue
the rebalancing, other than to say that other witnesses who have
come before us, particularly the Governor of the Bank of England,
is very hot on the need for rebalancing. The question I wanted
to ask was, the sceptics are saying in relation to these particular
set of figures that higher levels of consumption expenditure,
so the historical experience tells us, will suck in a greater
degree of imports. That is what has happened in the past, that
is the assumption even with the depreciation, yet your figures
do not show that. How do you respond to that criticism?
Mr Ramsden: The big years for
imports in the 1990s were 1996, 1997 and consumption grew by 3.9%
in 1996, 3.8% in 1997. We are assuming that consumption grows
by just under 3% and that is why our imports forecasts are not
as strong as they were in the mid years of the 1990s. I think
now we will see significant substitution away from imports. I
do think last year's figures were affected by some of the temporary
stimulus measures, such as the VAT cut and car scrappage, but
this is the kind of judgment we will have to keep under review,
as with all our forecast judgments, and you would expect me or
any economist to say this after what we have had to deal with
over the last few years. We have to recognise the fact that our
models do not give us cast iron answers on these kind of questions,
we have to reflect uncertainties and keep coming back to our judgments.
Q145 Nick Ainger: Can I ask one more
question, Chairman? I am sure Mr Hudson was in the room when Professor
Talbot raised the issue of the claimed efficiency savings within
the National Health Service. He referred to page 90, paragraph
6.14, where it says that the Budget confirms that the NHS will
deliver annual efficiency savings of £15 to £20 billion
by 2013-14. That is around 20% of the current annual budget. Is
that a cumulative figure or is that a saving which will be made
in 2013-14? The rest of the paragraph, the way I add it up, amounts
to savings which could be achievedit does not say over
what periodof £9.7 billion, but the final paragraph,
6.15, says, "As an interim step, £10 billion of value
for money and quality improvements will be delivered by 2012-13."
Could we have an explanation of that particular paragraph because
it does seem these are incredible efficiency savings and why are
they not being achieved today in some form?
Mr Hudson: It is certainly an
ambitious programme but there is a lot of work going on within
the NHS already to deliver this by 2013-14, and there is a press
notice from the Department of Health which went out on Budget
day which gives some more detail of the approach and how the figures
fit together. Some of the items are operational type efficiencies,
some are more to do with savings at the front line which will
be recycled for the benefit of patient care.
Q146 Nick Ainger: I am correct that
on the current expenditure on the NHS, these savings will amount
to between 15 and 20% of the total spend?
Mr Hudson: In broad terms, yes.
Q147 Nick Ainger: That is certainly
ambitious, is it absolutely realistic?
Mr Hudson: To quote the Secretary
of State, we have already challenged the NHS to deliver efficiency
savings of £15 to £20 billion by 2013-14.
Chair: This is what is perplexing us.
Q148 Jim Cousins: I really think
we need to clarify what we mean here. Are we talking about a programme
of efficiency savings which accumulate by the year mentioned in
the Budget to £15 and £20 billion?
Mr Hudson: Yes.
Q149 Jim Cousins: Or do we mean annual
savings of £15 to £20 billion compared with the current
Mr Hudson: It means by 2013-14
there will be £15 to £20 billion available, so far as
it is within the patient care budget, releasing that amount of
money to help continue progress in improving services on top of
the real terms protection of 95% of the NHS which the Government
Q150 Nick Ainger: So I am clear,
in terms of public expenditure therefore, because it will remain
within the NHS, this is not a contribution to reducing the budget
Mr Hudson: That is absolutely
right. What the Government has said is that there will be protection
for 95% of the health budget going up in line with inflationthat
is 95% of funding which directly supports patient care will rise
in line with inflation in 2011-12 and 2012-13that is the
commitment in the PBR underlined in the Budget. In order to deal
with the pressures on the health service, again to quote the Secretary
of State, "by making tough efficiency savings, this will
mean we can continue to increase real terms resources available
for patient care year by year".
Q151 Chair: So you are going to have
efficiency savings of 15 to 20% of the whole budget, and you are
going to protect front line services, and you are going to have
even extra investment in certain areas?
Mr Hudson: What this is saying
is that the examples, which are in the press release and also
in the Budget document, will enable the NHS to meet the rising
pressures by improving staff productivity, by best practice in
care planning for people with long term conditions, by more effective
commissioning, and then we get into the more operational stuff
going on to savings in management.
Q152 Mr Fallon: Does that assume
therefore any further freeze on pay?
Mr Hudson: Where there are not
three year deals in place, the approach to pay is as set out,
to look to hold pay to a limit of 1% in 2011-12 and 2012-13.
Q153 Jim Cousins: Of the £15
to £20 billion annualised savings, how much of that is what
you call "recycled" back into spending and how much
remains as an actual spending reduction?
Mr Hudson: The vast majority will
Q154 Jim Cousins: How much of that
£15 to £20 billion annualised is recycled?
Mr Hudson: What I can say is that
of the cost cutting savings, of the £4.35 billion, that are
part of the Government's wider commitment of the £11 billion
savings which were announced at the PBR and broken down into more
detail at the Budget, of that £4.35 billion, which is part
of the £15 to £20 billion overall ask, there will be
that which is within the 95% that relates to patient care which
will be recycled into patient care, savings which relate to administrative
matters, will be part of reducing the deficit.
Q155 Chair: We will take this up
with the Chancellor tomorrow but before we go could I quote to
you from the press release from the Department of Health, Budget
2010. It says, "We have already challenged the NHS to deliver
efficiency savings of £15 to £20 billion by 2013-14"
and that appears to be a cumulative figure according to the press
release. But if we go to Budget 2010, page 90, paragraph 6.14,
in red it says, "Budget 2010 confirms that the NHS will deliver
annual efficiency savings of £15 to £20 billion by 2013-14".
So is it cumulative or is it annual?
Mr Hudson: As the Budget document
says, the plan is that the NHS will deliver annual efficiency
savings of £15 to £20 billion by 2013-14, so that with
the funding that the Government has announced protected
Q156 Chair: The point I am getting
atforget the rhetoricjust look at that press release
from the Department of Health. Is it a cumulative figure or is
it an annual figure?
Mr Hudson: The press release is
intended to be consistent with the Budget document. I am sorry,
the press release is consistent with the Budget document.
Q157 Chair: The press release?
Mr Hudson: The press release is
on the same basis as the Budget document.
Q158 Chair: So it is an annual one?
Mr Hudson: It is an annual one.
Q159 Chair: So why did it not say
that in the press release from the Department of Health?
Mr Hudson: There is no difference
between us on this.