Select Committee on Treasury Minutes of Evidence

Examination of witnesses (Questions 242 - 259)




  242. Welcome, Chancellor. Would you like to introduce your team—I think we know who they are—just for the record.
  (Mr Brown) Thank you very much, Chairman. On my right Ed Balls, the Chief Economic Adviser to the Treasury; on my left Gus O'Donnell, Managing Director of the Macroeconomic and International Division; and Nick Macpherson, who deals with the issues related to taxation and benefits.

  243. Is there anything you would like to say to us?
  (Mr Brown) I thought, Chairman, I would like to draw attention to the new figures that have been published this morning, which may inform the Committee's proceedings. First of all, the figures demonstrating the strength of the public finances; and, secondly, the inflation figures, which show that RPIX inflation in February was 1.9 per cent., and HICP inflation was 0.8 per cent. which is the lowest in the European Union. The public finance figures demonstrate that we are well within our two fiscal rules. The current surplus in the year to February is now £24 billions; that compares with £19 billions last year and less than £12 billions the year before. We remain on course to balance the current budget over the economic cycle, even on the most cautious of cases. Our second fiscal rule, which is the sustainable investment rule, is that we keep debt at a prudent and sustainable level below 40 per cent. of national income. Today's figures show that the ratio of net debt to GDP, which was at 44 per cent. in 1997, had fallen to 36.1 per cent. this time last year; it is now at this time, this year, 31.1 per cent. so we are on course to meet the sustainable investment rule. In the year to date net borrowing yielded a surplus of £4.6 billions higher than in the same period last year, contributing to the large repayment of debt that we are making. The figures also show that because we have cut debt and cut unemployment, we are not only spending £10 billions a year more on education than on debt interest, we are spending £30 billions more on the National Health Service than debt and unemployment together. We have listened to the views in recent weeks of the European Commission and the International Monetary Fund on our fiscal plans; in particular their views on our proposals to double net investment over the next three years. Building on our position of strong public finances, it is right that we proceed with our plans. The European Commission and the IMF acknowledge the need for more investment in our public services. The Maastricht Treaty explicitly recognises the scale of public investment should be taken into account in any assessment of a country's fiscal plans. Our investment plans are not only affordable, but the last figures show that we have the lowest ratio of gross debt to national income of any country in the European Union, apart from Luxembourg. In three years' time we will be spending an extra £12.5 billions a year on net investment across the public sector; £3.5 billions of that on transport; £1.4 billion a year more on NHS capital; £1.6 billion a year more on education and employment investment. Indeed, we need to press ahead with our plans in a timely way without jeopardising value for money; and that is why, to speed up investment, we require each department to draw up their own individual departmental strategies; and that is why, through their annual reports, departments will have to explain the progress they are making in delivering their investment strategies; how they link to the policy outcome in targets for improved services outlined in the Public Service Agreements; how existing assets are managed and disposed of when they are not needed; how systems and procedures are being improved to deliver better value for money. I believe that this extra investment is crucial for the future of our country; and it is only by reversing this historic trend of under-investment, that we saw in previous decades in the nation's infrastructure, that we will succeed in building a stronger economy and delivering opportunity for all. Thank you, Chairman.

  244. The figures you have announced on public finance today, how do they compare with the ones you announced in the Budget?
  (Mr Brown) They are very much in line with what we have announced in the Budget. We expect there to be an underspend on capital investment, and we are taking steps to improve the ways that departments manage the public investment programmes that are their responsibility. As far as the overall effect on our fiscal rules is concerned, we are well within our first fiscal rule. The current balance is strong and, equally, as I said in the Budget and I repeated today, debt is falling as a proportion of GDP towards 30 per cent., and it is likely to remain at that level in future years. Therefore, the net repayment of debt that we envisaged in the Budget is going ahead.

Mr Fallon

  245. Chancellor, Mr Dilnot of the Institute for Fiscal Studies came before this Committee a week ago and drew attention to Table C23 in the Red Book, which showed the tax burden, net taxes and social security contributions (which I think is your favourite definition even including your tax credits) at 35.2 per cent. in the last Conservative year; and you yourself estimate in Table C9 that this year just finishing it will be 37.7. Mr Dilnot pointed out that that was an increase of 2.5 per cent., or roughly £25 billion in four years. Is he right?
  (Mr Brown) Mr Dilnot is entitled to his views.

  246. Is it a view or a fact?
  (Mr Brown) He is entitled to his own view. In actual fact the figures we inherited, on historical sequence, for the year to come would have taxation at 38 per cent. In fact, taxation in the year to come will be 37.5 per cent. I could refer you to the statements that were made in the Budgets before 1997 that confirm that the tax burden was due to rise to 38 per cent.

  247. The tax burden has risen by £25 billion, that is a fact, is it not?
  (Mr Brown) No, the position is that, when we came into power (I have said this to the Committee before and I do not think it needs to be repeated at great length but let me just re-emphasise) as a result of the 1996 Budget and I could quote what was said by the Chancellor at the time, he said then that the tax burden was expected to rise in 2001-02 to 38 per cent. In actual fact it will be 37.5 per cent. according to the projections in the Budget. The last Conservative Government, which you have referred to, was on a rising trend of taxation as a share of national income to rise to 38 per cent.

  248. What is official now at the end of your fourth year is that the tax burden is £25 billion higher, is it not? Whatever the previous plans were, the tax burden is £25 billion higher in fact than it was four years ago?
  (Mr Brown) What I am explaining to you, and perhaps for the benefit of the Committee I should give more information therefore, is that because of the decisions that had been taken by the previous Conservative Government, but also because of the projections that they were making about the rising share of tax burden to national income, the projection for 2001-02 was 38 per cent. Ours is 37.5 per cent. and I think the Committee must note that. Of course, one of the reasons was the projections that they were making as a result, for example, of removing profit-related pay, the tax exemption that existed for that, and they had other calculations that were resting on the escalators that existed in relation to fuel and in tobacco—and, of course, as far as the fuel escalator is concerned, we have removed that.

  249. I am surprised to find you still denying that the official tax burden has risen by 25 billion. Do you recall telling Newsnight on 20 January 1997, "I must repeat, there are no public expenditure commitments that require us to raise taxes"? Do you recall that?
  (Mr Brown) We froze public expenditure, as you know, for the first two years, and we did not make public expenditure commitments for the first two years and it was generally accepted, even by my Conservative opponent, that the Conservatives would not, he said, have kept to the spending plans, but we did.

Mr Ruffley

  250. Chancellor, on Table C9 of the Red Book, the tax burden measured by net taxes plus social security contributions is 37.7 per cent in 2000-01, is it not?
  (Mr Brown) I have got Table C10.

  251. Page 194. 2000-01 net taxes and social security contributions, the figure is 37.7 per cent.
  (Mr Brown) That is roughly what the last Conservative Government predicted for this year.

  252. That is your figure?
  (Mr Brown) 37.5 per cent. The difference is between 37.5 and 38 per cent.

  253. Could you then turn to Table C23 in your own Red Book Budget 2001.
  (Mr Brown) It is really an historical series.

  254. That is correct. 1996-97 net taxes and social security contributions is 35.2 per cent. is it not, Chancellor?
  (Mr Brown) This is Table—?

  255. Markedly slow today!
  (Mr Brown) I am not markedly slow at all; I am getting to the different tables. This goes right across the page.

  256. It is your record; you should know your way around it.
  (Mr Brown) This is the Table that starts with 1978-79, is that right, and goes up to 38.9 per cent. under the last Conservative Government?

  257. I am not asking, Chancellor, about 1996 or 1997, the year you inherited.
  (Mr Brown) Mr Ruffley, I am just finding the Table. If I may point out to other people who do not have the benefit of this, there are nine columns in this Table, stretching from 1970 to 1999-2000. The figures start for the tax as a share of national income at 1979 and the rise, as you may know—

  258. With respect, Chancellor, 1996-97 is 35.2?
  (Mr Brown) They rise, as you know, to 38.9 per cent.—

  259. No, that year is 35.2.
  (Mr Brown)—in 1982-83 and then they are at 35 per cent. in 1996-97.

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