Examination of Witnesses (Question Numbers
180-199)
RT HON
ALISTAIR DARLING
MP, MR DAVE
RAMSDEN, MR
MARK BOWMAN
AND MR
ANDREW HUDSON
30 MARCH 2010
Q180 Jim Cousins: Chancellor, if
Labour wins the election the Prime Minister has made it clear
that your job is secure for the next five years. Congratulations,
and I think you deserve it, but how many other workers will be
able to say the same?
Mr Darling: I was going to say
that I think all of us ought to be more bothered about other people's
jobs rather than anyone sitting round this table. To give you
an example, when I was Secretary of State for Work and Pensions
we took out about 30,000 jobs in middle management posts and most
of those people were able to get employment elsewhere, some elsewhere
in the public sector but some would have gone into the private
sector. One of the reasons that I think this process has to start
as recovery is established is that the big problem we have just
now is that private sector investment has been rather muted, for
obvious reasons. It will take time to come back and what you ideally
want to be doing is reducing the size of the public sector as
the private sector is starting to grow. If people just become
unemployed not only is it very bad for them, it is costly because
they are not paying tax and they are drawing benefit. This is
a process you need to manage carefully, which is why I part company
with those who want to wield the machete almost as a matter of
idealism. I think that is a stupid position to be in. This is
going to be difficult but it is doable, and that is what I think
collectively we need to turn our minds to.
Q181 John Mann: You are cutting debt
faster than any of the G20 countries other than Argentina. Is
there not a danger that you are going too fast and you will take
us back into recession?
Mr Darling: No, I do not, and
I do think in relation to borrowing halving the borrowing over
a four-year total is sensible and doable. Debt levels will rise
during the forecast period but they will then stabilise and start
to fall. Because of the size of our banking and financial sector
and the effect that the recession had on it, and because of the
fact that stamp duty is driven by the housing market and though
it is recovering it has been pretty flat in the last 18 months
or so, our borrowing has been higher than we want but I think
that was justified because if we had started cutting before that
it would have been difficult. I really do think we need to reduce
borrowing at a sensible rate and I think halving it over a four-year
period is a sensible way to go.
Q182 John Mann: Yesterday I asked
our four eminent independent economists if any of them could name
any of the eurozone economies that were better prepared and positioned
at the moment than we are for tackling the recession and they
could not name any. Considering this relative weakness of all
the eurozone economies, is there not a danger of a eurozone drag
down on our economy in the next year or two?
Mr Darling: I did say in the Budget
that I am very concerned that in Europe, unless governments start
to address some of the structural problems in the labour market
there, for example, if they do not address the present problems
with the same zeal as they were prepared to do 12 months ago,
there is a risk that we will see very low growth in the euro area
for a number of years. One of the things I am concerned about
is that even in the good times the growth in the euro area was
not as good as you might have expected, and that suggests to me
that we do not give up on this. Far from it; the European Union
has signed up to its 2020 growth document, but it needs to have
a better fate than the Lisbon Treaty has had so far, where everybody
says, "Yes, yes, we must make all these reforms, we must
make all these changes, but not quite yet". It is not enough
for Europe to rest on its laurels of being a very large economic
bloc. I have long believed, and all my experience of the last
two years tells me, that you cannot just sit back and leave these
things to chance. If reforms are necessary you make them wherever
it is necessary, and if it means Government taking a more active
part in trying to get growth then you do it.
Q183 John Mann: Individual congressional
districts in the United States have had higher repossessions during
the last year than the entirety of the United Kingdom. You have
prided yourself on the flexibility of the labour market. Is there
a danger of inflexibility in the housing market?
Mr Darling: There are two separate
issues here. On repossessions, again, they are running at about
the half rate that we saw in previous times and I think that is
testament to a number of things: a more sensible attitude to it
from lenders, the courts taking a more sensible view and also
individual support that we have put in place. In relation to housing,
what I would say is this: if we were having this hearing three
or four years ago everybody would have said the real problem was
spiralling house prices and people accept that unless we do something
to redress the imbalance between supply and demand it will get
worse. We have parked that issue for two years because, of course,
house prices fell, but it is going to come back. The problem still
in this country is that there are more people wanting houses than
there are houses, which will put pressure on them. That is one
of the reasons our housing market never collapsed in the way the
United States housing market collapsed. The argument we have been
having over the last few years has not gone away. We do need to
do more to address this imbalance. We do need more houses.
Q184 John Mann: Finally, you have
reached agreement with Lichtenstein, with Belize, with Dominica,
with Guyana as well. Do you intend as a priority to reach such
agreements with UK dependencies that have become tax havens for
tax dodgers?
Mr Darling: Yes. We asked Michael
Foot, who used to work at the Bank of England, to look at the
whole question of avoidance and evasion of tax, and he particularly
addressed the question of the British dependencies, but ideally
I would like to reach agreement with as many countries as possible
on this because, especially at a time like this but even in good
times, it is not fair if people are in this country enjoying the
fruits of public expenditure but are not prepared to make their
fair contribution to it. It does not matter whether they live
in Lichtenstein, a British dependency, Belize, wherever; everybody
ought to play by the rules.
Q185 Mr Love: Why is net trade not
making a larger contribution considering that the trade-weighted
exchange rate has declined by 25%?
Mr Darling: Just as we were talking
about in relation to Europe, 60% of our trade is with Europe and
Europe as a whole has seen fairly flat growth. If you take Germany,
where we do export to, Germany's GDP in the fourth quarter was
flat. Italy and Spain are markets of ours and they have difficulties,
as you know. Ireland is a big market of ours. I think it will
take time for this to come back. The depreciation of the pound
has certainly helped people, but we cannot blame everything on
the sluggishness of our export markets. There will be questions
as to just how much our exporters have been willing to take advantage
of the fall in the price of sterling to drop their prices to make
their products more acceptable. It seems to me that now is a very
good time for British exporters to get their foot in a door that
might hitherto have been closed because somebody else was in there.
Q186 Mr Love: You have just mentioned
Germany, that there was no growth in the last quarter, Italy is
back in a recession, Ireland's output has declined by 10%, yet
all of these countries are undertaking deficit reduction programmes.
Are you concerned about that, that they may tip into a double-dip
recession and that will prejudice our ability to trade our way
out of difficulty?
Mr Darling: I think we all have
to be vigilant about this. That was a question that John Mann
was asking, and there is no scientific answer to this. You just
have to exercise a judgment as to how much you can reduce your
borrowing and get your debt down as against if you do this prematurely
what is the risk to the economy. The circumstances in all the
countries you refer to differ for varying reasons. In relation
to Ireland, it had to do some pretty tough things because of the
nature of the Irish economy. Just today, as you know, they are
announcing new measures in relation to their banks. They have
to do what they think is appropriate and I think the Irish Government
is confident that if it can get through this it will get back
to a situation where things are improving, but their economy needs
rebalancing just as other economies need rebalancing. They were
very heavily dependent on construction, for example, with all
the building that was going on, and that is now fairly subdued.
Q187 Mr Love: You mentioned reform
and the Lisbon Agenda and that Europe needs to take this up, but,
of course, that is going to take quite some time to bring forward
results. Do you not think there may be a need for European-wide
action to ensure that we do not tip back into recession at the
European level and we ensure that our economies go forward rather
than the risks that are obviously current at the present time?
Mr Darling: Yes, I am frustrated
at times at the lack of progress being made in Europe. I remember
when the Lisbon Treaty was signed there was a great fanfare of
trumpets and this was all going to make a big change. Ten years
on and it would be wrong to say there has been no change but in
places it has been sclerotic and I think that has held Europe
back. I am struck by the fact that 12 months ago—and it
is only 12 months ago—when we had the G20 meeting here in
London the sense of urgency, the sense of fear that if people
did not act literally countries would fall off the edge, drove
them to do things that it would have taken years to do otherwise,
but they did them within a matter of months and it has made a
difference; it has averted what could have been a catastrophic
descent into a depression. I think Europe needs to get the same
sense of urgency in the reforms it needs to be made for the financial
services industry as well as the labour market reforms and others
in relation to countries continuing to do what is necessary to
get their economies to grow. There has been a big debate going
on in Europe about the position with regard to various countries
in Europe, the surplus and deficit problem that needs to be sorted
out, and these problems will not go away. It is not a question
of blaming one country or another, it is just accepting that if
Europe is going to work and if it has any aspirations of being
a highly successful economic model it has to understand that you
cannot leave these things to chance. You do need governments which
are prepared to roll up their sleeves and if there are problems
to sort them out. I think that would be good for Britain and it
would be good for the rest of the world as well.
Q188 Mr Love: In your Budget statement
you announced that you were reducing the growth forecast for 2011-12
as a result of net exports not coming up because of the problem
at a European level. Looking at it now, do you think we can be
as confident as you are that Europe will continue to grow and
that the growth forecasts we have for 2011-12 can be sustained?
Mr Darling: Yes, I do. The Budget
is less than a week old and my judgment has not changed. The reason
I decided that I would bring the forecast down, and it is in line
with what the Bank said, as I said in my Budget speech last week
is because I am concerned that the position in Europe is not as
strong as I would like it to be. On the encouraging side, when
I speak to my counterparts in the European Union I think they
recognise that more needs to be done and I very much hope that
more will be done, especially as the eurozone in particular has
taken action to help Greece. Let us turn our attention to the
equally important problem of making sure that collectively we
do more to make sure we have got better growth in Europe. Europe
has got tremendous potential. That is why we support the concept
of the European Union and that is why we are an active partner
in it, but it is like everything else, there are times in any
organisation when you can get very frustrated. I think we need
to make faster progress than we are making.
Q189 Mr Fallon: Chancellor, yesterday
your officials hedged with us on the impact of the National Insurance
increase on jobs. Were you provided with an estimate of the impact
on jobs?
Mr Darling: Which we took into
account in our estimates of employment when these proposals were
first published. My initial proposal, you remember, was in December
2008.
Q190 Mr Fallon: Absolutely, but what
was the estimate of the impact on jobs?
Mr Darling: They are built into
the forecasts that we have placed before the House of Commons.
They are in both the Budget documentation of last year and this
year.
Q191 Mr Fallon: Can you give me the
figure?
Mr Darling: Yes. I will get Mr
Ramsden here to point out where you will find them. You will find
them in box C2 on page 198 in this year's Red Book.
Q192 Mr Fallon: But that does not
give the specific impact of the National Insurance increase. That
is what I asked you. You are being evasive.
Mr Darling: No. What we do is
we take into account everything that is happening in the economy,
not one particular thing. You ask a perfectly fair question and
I dare say a similar consideration was made when National Insurance
was put up in the early 1990s when the then Government had to
make sure it was able to collect its finances. I had a choice.
I could have put VAT up instead, because if you are looking at
raising the sums of money that were necessary to help get our
borrowing down that is the choice that you make. We said in this
Budget or the last Budget that we think the impact is manageable.
It will be limited because you have to take into account everything
else that is going on in the economy at the same time.
Q193 Mr Fallon: I understand that,
but what I am looking for is the figure because when I asked Mr
Ramsden, "So there is no estimate of the impact of the National
Insurance increase on jobs?", he said, "I did not say
that". Is there an estimate of the specific tax increase?
Is there an estimate of the impact on jobs or not?
Mr Darling: Because when we forecast
what is happening in jobs, employment/unemployment, we take into
account, as you would expect, everything that is happening.
Q194 Mr Fallon: But when you decide
whether to put the National Insurance up by £6 billion or
£7 billion or £10 billion, there must be some evidence
that you have of the actual likely impact on jobs.
Mr Darling: Yes, but I take into
account everything that we are doing and, as you know, we publish
our forecasts in relation to employment. There is also an element
of judgment. It is not just that; it is a question of fairness.
I looked at whether to put VAT up, which I know some people might
want to do, or was it better to spread the burden, making sure
that people who were earning £20,000 or less were not affected,
and my judgment was that this was the better way of doing it.
Of course, I am aware in relation to any tax that you have to
look at its implications, but I also have to take into account
what is happening in the wider economy. Taking all these things
into account, which drives our forecasts, I think my judgment
on that is right. Equally, for the sake of completeness, there
is not a chancellor in the world who would not want to be reducing
taxes if they could, particularly for people on moderate incomes,
but you really do need to be sure you have got the money to do
that before you make the announcement, and I had some difficulty
with that proposal.
Q195 Mr Fallon: But when you say
the impact on jobs was manageable you mean it was negative?
Mr Darling: The reason that unemployment
was rising this year was because of the recession. Remember the
National Insurance increase does not come in for another 12 months
when we expect the economy to be growing, and I hope we will then
see jobs increase.
Q196 Mr Fallon: You promised this
Committee back in December that you would give us more information
on the public spending total, the two constituent totals that
make up total managed expenditure, that is the total for annual
managed expenditure and the total for departmental limits, and
you said you would consider how you would give us more information,
but you have not given us any more information.
Mr Darling: What I said at the
Select Committee was that I wanted to reflect on what further
information could be given, and the view I have come to is that
it is far better to do these things at the time of a spending
review, and I will tell you why. You could, if you like, be publishing
estimates on a monthly or weekly basis, but to do so would be
misleading because the figures change so much. If you take unemployment,
for example, a year ago we thought there would be about a million
more people who were unemployed than there were, therefore the
amount of money we would be spending on unemployment benefit would
have been far greater and that would have an impact on how much
you might spend in the future. Equally, in relation to debt interest
we thought the numbers would be higher than they have proved to
be. I think it is far better, in terms of people drawing conclusions
about whether you can and cannot afford what you are doing, to
publish these numbers in the context of a spending review when
you can see what you are getting in and see what you are prepared
to spend. I know that others will have a different view from that
but I think that is a better way of proceeding.
Q197 Mr Fallon: It is more convenient
for the Government, is it not, to hide the depth of the cuts you
are planning in spending or the likely impact on benefit and pensions?
Mr Darling: No, I think it is
better to publish the numbers you are working with rather than
what the forecast happens to be on any particular day. The Select
Committee hearing I think was in January of this year when we
last discussed this. If I had been giving you then an estimate
of what I thought we would spend on unemployment benefit it would
have been higher than what I think today. These numbers are going
to be published. They are of great academic interest but they
do not tell you what the Government is proposing to spend or the
judgment it makes when it decides to fix its spending total. In
relation to how much we can spend, and we have been touching on
this this morning, I do not think there can be anyone in the land
who is not aware that there will have to be some pretty difficult
decisions taken. I do not think anyone is pretending that somehow
it is not going to matter and there is nothing to worry about.
It will be difficult, but that is the judgment I have reached
and that is where it is.
Q198 Mr Fallon: Does not your failure
to publish the total on the benefits side show that you are not
ruling out stopping automatic increases in future for various
benefits or pensions?
Mr Darling: It is nothing of the
sort.
Q199 Mr Fallon: So are you ruling
that out or not?
Mr Darling: We have made absolutely
no proposal on that at all. Indeed, you may recall with the negative
RPI figures last year that I went to some length to make sure
that people on benefits did not lose out. I do think that when
we come to make these difficult decisions we have to be very conscious
of the fact that there are some people in this country living
on pretty modest means and I think it would be wrong to penalise
them.
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