Budget 2010 - Treasury Contents

Examination of Witnesses (Question Numbers 240-259)


30 MARCH 2010

  Q240  John Thurso: We have repeatedly had conversations like this at these hearings and pressed for information relating to efficiency to be published in one document. This conversation shows why that would be extremely helpful. When will the Treasury do that for us?

  Mr Darling: I have absolutely no objection in principle. I would hesitate to say that we are going to be able to do it before the end of this Parliament.

  Q241  John Thurso: That would be very unwise, I suspect.

  Mr Darling: But, yes, it is something that can easily be done.

  Q242  John Thurso: Is not the really efficiency gain with local government because you have just devolved it and you know that they have got to deliver it because you just will not give them their money?

  Mr Darling: I beg your pardon?

  Q243  John Thurso: With local government, is that not the cut you can bank because you have just devolved it? They have to do it, they have got no choice.

  Mr Darling: What, just because you say, "Here's your budget. Get on with it"?

  Q244  John Thurso: Exactly.

  Mr Darling: Well, local government is autonomous. All we do is to fix how much it is getting and it then has to proceed accordingly, and that is how it should be. Local government has to decide what its priorities are, like anybody else would.

  Q245  Mr Brady: Chancellor, you have told us that efficiency savings of £15-20 billion in the NHS by 2013-14 are plausible, but the year before that you are projecting efficiency savings in the NHS of £4.35 billion. How is it plausible to move from £4 billion to £20 billion in one year?

  Mr Darling: We have outlined the total that they need to find each year and each year they add to it, so it is going up, if you like, in instalments so that it reaches by the end of the period the £15 billion.

  Q246  Mr Brady: But it is a very big jump in one year, is it not, from £4 billion to £15-20 billion?

  Mr Hudson: There will be more progress by 2012-13 towards the overall £15-20 billion. The £4.3 billion savings are the NHS's component of what are loosely known as the `Smarter Government savings', so those focusing on operational efficiency. I expect that they will be further down the track on the wider savings also and, as we stressed earlier, recyclable into patient care where these are savings at the front line, they will be further down the track, so it is not such a big leap.

  Q247  Mr Brady: The £4.3 billion in 2012-13 is an underestimate?

  Mr Bowman: The £4.3 billion by 2012-13 is the figure that the NHS is contributing towards the £11 billion Smarter Government savings. On top of that, they will be making further progress towards the £15-20 billion overall savings which are in the Budget document.

  Q248  Mr Brady: Chancellor, just to come back to you and your initial response, we had some confusion with officials yesterday as to whether this £15-20 billion was an annual figure that would be achieved recurrently.

  Mr Darling: We get there over a period, but it is an annual figure.

  Q249  Mr Brady: So from 2013-14 you are expecting that £15-20 billion to be achieved each and every year?

  Mr Darling: That is right.

  Q250  Mr Brady: We have been talking about the public sector efficiency savings. Turning to your planned changes in tax relief for pension contributions, how can you possibly justify shifting a compliance cost of £1 billion on to business?

  Mr Darling: As you know my objective was to try and redress the imbalance, which I think had arisen, where so much tax relief was going to so few people at the top. We looked at various ways of doing it and the proposal that we have made at the moment is the one which we think is the best one that can work. We have consulted with people for just about a year now on it. I appreciate that, inevitably, in a scheme like this there are going to be some compliance costs, but unfortunately the alternative, which has been put forward by some people in the industry, as you probably know, which is to reduce the relief to a far, far wider field of people than we are proposing, is one that I am not prepared to accept.

  Q251  Mr Brady: You say "some compliance costs", but, just to put the £1 billion into context, judging by your own Red Book figures, the £1 billion would pay unemployment benefit for another 200,000 unemployed people, so it is pretty significant costs.

  Mr Darling: Except that the saving to us of changing the pensions tax relief is about £3.5 billion.

  Mr Bowman: And it is a one-off cost.

  Mr Darling: It is a one-off cost and the £3.5 billion is a continuing saving, so that is why we did it. If there were another way of achieving the same end, especially now with the top rate of tax going up to 50%, then I would have happily looked at it. However, the suggestion which was put to me as an alternative would mean that it would affect people right down the income scale to about £40,000, which I just do not want to do and I do not think anyone around this table, or I presume no-one around this table would want to do.

  Q252  Mr Brady: I think, to be more precise, your projection is that the £900 million is a one-off cost and the £115 million will be an annual recurring cost, and obviously that could be higher. Have you not actually managed to alight on an incredibly complicated approach which is going to cause massive difficulties for businesses in running their pension schemes?

  Mr Darling: There is a cost whenever you put any complication into it, there is no doubt about that, but what I wanted to do was to end, what appears to me to be, an absurd situation where so much of the benefit was going to so few people. When you argue with people, including the profession, they say, "Yes, that is something of a problem", and then say, "Well, is there a better way of doing it?" Well, the only better way they could come up with is an alternative which would be easier to administer, but would start hitting people on, what I would call, pretty moderate incomes.

  Q253  Mr Brady: Edward Troup yesterday told me that the reason for not reducing the cap from £255,000 a year was that the senior teacher, the senior hospital nurse who gets a big promotion and the fire officer would be hit. Was that the accurate position?

  Mr Darling: Yes, it is. When you are making any changes like this you try and anticipate who might or might not be affected. As you know, legislation will be in this year's Finance Bill and we shall see how far we proceed with that. The principle for me is making sure that we end the situation with so much benefit going to a few people at the top. Of course, if there are other ways of doing it, then I will look at it, but not if the cost of that is affecting people who are earning pretty modest incomes.

  Q254  Mr Brady: How many teachers, nurses and fire officers are currently coming up against that £255,000-a-year cap?

  Mr Darling: I have not got a figure, but it will not be that many.

  Mr Bowman: The point here is that, in order to raise a similar amount of money from reducing the annual allowance, you would have to reduce the annual allowance very, very substantially, and it would obviously depend on the individual circumstances of the people involved.

  Q255  Mr Brady: So the reason is to raise money and it is not to change the distribution of the benefit?

  Mr Bowman: Well, the alternatives which have been put forward have been to raise a similar amount of money as the Government's proposal.

  Mr Darling: I make no bones about it, the reason that I made changes for people on top earnings is because we do need to bring in more tax to get the borrowing down, and certainly, until yesterday, I thought this was something where there was pretty much all-party agreement.

  Q256  Mr Brady: Are you not concerned, Chancellor, by taking the approach you have, that you are actually going to hasten the demise of company pension schemes altogether?

  Mr Darling: I do not think this proposal will do that because there are other factors around, as I think all of us are aware, which affected pension schemes, but actually this proposal affects a comparatively small number of people. I have heard it said that, if it affects the archetypal company director or boardroom, therefore, assume that it is affecting those less fortunate than themselves, but I do not necessarily think that is the inevitable conclusion.

  Q257  Mr Brady: You say it affects a very small number of people, and that is surely true, but it affects all the schemes that have to do the work, the preparation and introduce new systems and, therefore, is a disproportionate hit, cost and bureaucracy.

  Mr Darling: I accept that it does affect schemes, but I just find it difficult to justify a situation now when people are pulling in their belts up and down the country and most people are not in the fortunate position of earning very high wages, £150,000, over £130,000 or whatever. If you were sitting down and inventing a scheme today, you would not invent a scheme where so much of the benefit ends up going to so few people, and I think you and I could probably agree on that. The next step is a more difficult one and, okay, how do you fix it and how do you fix it in a way that is least onerous? Now, if there was a better way of doing it which someone came up with, of course I would have looked at it, but the problem, as Mark Bowman has just said, is that, in order to do it in the way that has been suggested, you start taking away tax relief from people way down the income scale, and that, I think, would be very, very difficult to justify.

  Q258  Mr Brady: But you expect to keep the £255,000 limit increasing to £265,000, I think, in place?

  Mr Darling: We have not made any proposal to change that.

  Q259  Nick Ainger: Chancellor, you said earlier that the private sector investment was muted in the past year. You have brought forward the proposal for an annual investment allowance doubling to £100,000 but, if you look on page 42 at the level of lending, the net lending to business by the Lloyds Group and RBS, they are very, very small figures, are they not?

  Mr Darling: Yes, the net lending figures are because what happened last year, and contrary to most people's expectations, is an awful lot of people repaid their loans, overdrafts and so on, so for everything the two banks were putting out, it was being eclipsed by what was coming back in. In gross terms they met their targets, but in net terms they did not. This year, for the sake of completeness, we still need to show the net figure because that is important, but in gross terms both those banks are obligated to lend over £90 billion with half of it, I think, going to SMEs.

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