Select Committee on Treasury Minutes of Evidence



Examination of witnesses (Questions 400 - 419)

TUESDAY 20 MARCH 2001

THE RT HON GORDON BROWN, MR ED BALLS, MR GUS O'DONNELL and MR NICHOLAS MACPHERSON

  400. I would certainly accept that, Chancellor. What I am trying to understand is, when you are making your prudent and careful long term provisions for the future, where in these sums that you have told Parliament you have provided for transport we will find it. You have said it is in the DEL. You have said that it is up to the Deputy Prime Minister to allocate that. You must in negotiations with DETR have given some indication to the Deputy Prime Minister about what he would be able to spend next year on London Underground. Do you give those sorts of indications to him?
  (Mr Brown) We do have an understanding but these figures are market sensitive and I think you have already said that you respect the fact that they are.

  401. That is why I am not pushing.
  (Mr Brown) You are asking the question: is the money available to move ahead with the investment that is necessary? The answer is yes.

  402. What you have said is that it is in the DEL for the DETR. Previously when the PPP was announced, and you confirmed this to this Committee, there was going to be no extra funding from the Treasury. There is only one conclusion from that and that is that other transport schemes will be cut back in order to fund the money that you will have to agree in these negotiations. Is that right?
  (Mr Brown) No. The Treasury is making provision for these things. It is understood in our discussions with the Deputy Prime Minister what level of funding can be made available, that the Departmental Expenditure Limit will contain resources for that. Of course there are other means by which resources are provided but these matters are, as far as the overall figures are concerned, market sensitive. If you do say to me that you respect that, then I hope that you will respect that.

  403. I am, but I am trying to understand the workings of the Treasury. You have said there are other means by which these resources are provided. What other means are they, other than the DEL? Where is it going to come from?
  (Mr Brown) I think you can look at the different means by which the overall Budget is made up, the overall spending figures.

  404. Can you be rather more precise on this? The money is either allocated within the Departmental Expenditure Limit or it is in the annually managed expenditure or it is in some other contingency.
  (Mr Brown) Exactly.

  405. So it is somewhere in those?
  (Mr Brown) Exactly, but again, Mr Davey, you say you respect the fact that these matters are market sensitive, but now you are virtually carrying out a negotiation on behalf of one of the partners.

  406. I wish I were carrying out such a negotiation because I would not start from here. We have had newspaper reports, and I am not asking you to confirm or deny them,—
  (Mr Brown) You do not need to put the question to me then.

  407. I will come to that, Chancellor. Just be patient for a second. We have had newspaper reports over the weekend suggesting that an extra £600 million is going to be put by the Treasury into London Underground, possibly rising up to £700 million, even £900 million, over the next few years, looking at a total bill of four billion pounds that was not currently expected to be provided by central government coffers because, when the PPP was originally announced to Parliament, it was said that there would not be any extra money coming from central government. Therefore it is a rather large amount of money and I am not asking you to deny or confirm the sum. What I am asking you to give a clear indication of is where is this large sum within your public expenditure plans that you have published? Surely you cannot hide four billion pounds over the next few years within your Red Book?
  (Mr Brown) First of all, you are not asking me to confirm or deny figures, and I think you are respecting that they are market sensitive. Secondly, there has always been an understanding—you are completely wrong—that there is a public sector contribution to this. The third thing I need say is that the whole purpose of the private finance initiative in relation to the London Underground is that, given that we are spending as a country something in the order of £12 billion to £15 billion on re-vamping the Underground, that is roughly speaking six times as much as was spent on the Jubilee Line, over the next few years, it would be far better for the country if we could get a better arrangement than was the one that transpired when the Jubilee Line was built when there were massive cost overruns, there were huge delays, and the public sector (that is you and I and everybody else) ended up paying far more than we ought to have paid under these circumstances. It is the search for a better relationship between the public and private sector that has been at the heart of these negotiations, but of course you would not expect me to give figures that would be market sensitive.

  408. Are you still happy that the PPP scheme, currently under final negotiations, will represent good value for money for the taxpayer?
  (Mr Brown) There is a comparator that has got to be met. Yes, I believe that the proposals that we have put forward are good value for the taxpayer.

  409. There is a possibility that the safety and maintenance requirements that are clearly needed in such an operation as the London Underground might be retained in the public sector. Would the Treasury support that?
  (Mr Brown) Safety is a matter that has been dealt with by the Department of Transport. There is no risk contemplated to safety by the arrangements proposed.

  410. That was not what I asked. Would you be happy for safety and maintenance arrangements to be kept in the public sector?
  (Mr Brown) There is no risk to safety in the arrangements that we have proposed. It is a matter for negotiation as to how the eventual relationship between the private and the public sector is agreed.

  411. Has the Treasury had any involvement at all with these negotiations?
  (Mr Brown) I have not personally been involved in the negotiations, but obviously there are Treasury officials who are aware of what is going on. If we are to properly manage public finances you would expect that to be the case, would you not?

  412. Have you have meetings with the Deputy Prime Minister or the Prime Minister on these negotiations?
  (Mr Brown) I have had meetings with the Deputy Prime Minister and the Prime Minister many times.

  413. Have you discussed these negotiations at these meetings?
  (Mr Brown) Many times. You do not expect me to go into confidential discussions I have had with the Deputy Prime Minister.

  414. No, I am not asking you to tell us the content of the discussions, I am asking you to confirm that you have had them.
  (Mr Brown) If you are saying that London Underground is a matter that the Government is interested in, the answer is yes.

  415. When do you expect there to be a deal?
  (Mr Brown) That is a matter for the people who are involved in the negotiations.

Mr Plaskitt

  416. Chancellor, what is your view of the productivity performance of the economy over the last four years?
  (Mr Brown) That there are improvements and we have got a great deal still to do. We have embarked upon a course where the long-term benefits in my view will come, but we have got to continue to work at these issues. That is why the measures in the Budget included the competition policy changes that were announced by the Department of Trade and Industry including, of course, over time the setting up of an independent Competition Commission. That is why we did more for research and development and for innovation, that is why we tried to improve the situation in the tax reliefs as far as businesses are concerned and that is why on infrastructure and skills and on the renovation of inner city areas that are in need of improvement we are taking important changes forward as well.

  417. We have seen over a million new jobs created over the last four years and we have, I think, an historically high participation rate now. What has the impact of that been upon productivity? Has it been helpful or unhelpful?
  (Mr Brown) It is said that when you add an employee or add a group of employees that these are not the employees who give you the greatest boost to productivity as they start. It takes time for them to make their contribution to the growth of the firm. I rather think that Britain is in the situation that America was in in the mid-1990s. We saw in America at that time a big boost to employment and we are seeing in Britain a big boost to employment. It took time before the productivity gains came through to full effect but, of course, in America they are estimating that productivity growth in the economy is something in the order of four per cent. We are seeing employment gains, we are seeing some productivity gains. The latest whole economy productivity figure is 2.6 per cent on the year to quarter three 2000, so we are starting to see some of the gains, but of course we know we have got a long way to go because there are sectors of the British economy that need to be more productive and the economy as a whole needs to be more productive if we are going to secure prosperity at the level that people want it.

  418. Are you therefore expecting productivity growth to pick up because there is a lag, as illustrated in the US economy, or do you still think that there are further interventions or measures Government has to take and not rely on the figures just coming right in the way they did in America?
  (Mr Brown) There is no complacency, it is a continuing challenge. To improve the productivity rate and the growth rate in productivity of an economy normally takes time, it takes a number of different measures. We have set up a Cabinet Committee that looks at all issues relating to productivity and therefore it can look at issues that are not simply issues that would normally be referred to in a Budget about taxation and about investment incentives and everything else. It is looking at the work permit system, it is looking at the system that governs planning laws so that we can make changes where necessary, so that we can improve the way applications are treated from new businesses because a lot of our planning law is based on ideas that came from the 1940s. We are looking at the whole issue of skills and how we can make the economy more productive. There is a range of measures but those measures include many of the Budget measures that I believe will make a contribution to productivity growth in the future.

  419. Have you got a target in mind of where you would like to see productivity growth get to?
  (Mr Brown) Over the next ten years we want to see a faster productivity growth than other countries because we have got a long way to go to catch up with some of them. Equally, of course, we want to see improvements happening if we are going to be the most competitive of countries in the European Union and elsewhere. So there are labour market reforms, there is the Myners Report obviously on capital market reforms and with the competition policy changes there are product market reforms. So there is a big agenda of change taking place that I hope will yield greater results as we move forward.


 
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