TUESDAY 20 MARCH 2001
  
                               _________
  
                           Members present:
              Mr Giles Radice, in the Chair
              Mr Nigel Beard
              Mr Jim Cousins
              Mr Edward Davey
              Mr Michael Fallon
              Judy Mallaber
              Mr James Plaskitt
              Mr David Ruffley
              Sir Michael Spicer
  
                               _________
  
  
                 THE RT HON GORDON BROWN, a Member of the House, (Chancellor of the
           Exchequer), MR ED BALLS, Chief Economic Adviser, MR GUS O'DONNELL,
           Managing Director, Macroeconomic Policy and Prospects and
           International Finance, MR NICHOLAS MACPHERSON, Director,
           Welfare Reform, HM Treasury, examined.
  
                               Chairman
        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 and 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 cross 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 department 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 Michael 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. is the difference 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 1999-00.  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.
        260.     You are going a bit off piste here, Chancellor.
        (Mr Brown)  You have asked me, Mr Ruffley, to look at an historic -----
        261.     What we require is 1996-97, that is all, it is very simple.
        (Mr Brown)  Mr Ruffley, you have asked me to look at a Table that has
  perhaps 300 or 400 separate figures on it.
        262.     You are meant to be a clever chap.  You can read 1996-97, can
  you not?  Could you read it for the benefit of everyone in this room? It is
  35.2 per cent.
        (Mr Brown)  You can read what you like.  I will answer questions.
        263.     What is the answer to my question?
        (Mr Brown)  The answer to your question is that -----
        264.     1996-97.
        (Mr Brown)  The answer to your question is that this is an historical
  series.  I have already explained to you that we inherited a situation where
  the last Conservative Government was predicting that taxes would rise to
  38 per cent. of national income.
        265.     So you will not confirm that figure your own Red Book?  Could
  you subtract 37.7 per cent. from that 35.2 per cent. and tell us what the
  difference is?
        (Mr Brown)  I am not going to get into the business of this -----
        266.     It is 2.5 per cent.
        (Mr Brown)  ----- if you wish to put figures in this way.
        267.     It is a higher tax burden.
        (Mr Brown)  I have drawn attention to the fact that there are a variety
  of reasons why the tax burden changes over time.  One of the first is economic
  growth; the second is fiscal drag; the third is better collection of income
  taxes; and the fourth is historical decisions that are inherited by
  governments from previous governments; and the fifth are decisions that are
  made by these governments.  There are a lot of factors which contribute to the
  changes in the tax burden over time.  I think it is material to this Committee
  to draw attention to the fact that we inherited a situation where the last
  Conservative Government was expecting the tax burden to rise to 38 per cent.
        268.     Chancellor, are you denying the tax burden between 1996-97
  and 2000-01 has increased by 2.5 per cent?  Are you denying that?
        (Mr Brown)  I am happy to draw attention to the figures that are in the
  Red Book because the figures are accurate.  The figures are accurate because
  they reflect what has happened as a result of a series of different decisions.
        269.     Chancellor, you are denying the tax burden went up.  You will
  be denying next that you tried to save Geoffrey Robinson from the sack.
        (Mr Brown)  Mr Ruffley, if you want to reduce the tenor of this debate.
        270.     No, you are denying a basic fact in your own Red Book - you
  will deny anything.
        (Mr Brown)  I said that the facts in the Red Book are accurate, and I
  have said that every time I have come before this Committee.  The idea,
  Mr Chairman, I have given the impression that the facts in the Red Book are
  inaccurate is wrong.  The facts in the Red Book are accurate; but I am
  pointing out to you that, as far as the inherited situation was concerned, the
  tax burden was due to rise to 38 per cent.
  
                               Mr Davey
        271.     A quick supplementary to Mr Ruffley's.  The figures you read
  out of the tax burden as predicted by the last Conservative Chancellor, those
  figures which you said go up to 38 per cent., are they calculated on the same
  basis as the figures in the Red Book?
        (Mr Brown)  Yes.
        272.     On exactly the same basis?
        (Mr Brown)  Yes.
        273.     Thank you very much.  Chancellor, will you be spending more
  or less next year than previously planned?
        (Mr Brown)  I will be spending more over the next three years -----
        274.     No, next year.
        (Mr Brown)  I will be spending more over the next three years than we
  planned in the Spending Review in July 2000.
        275.     Next year, will you be spending more or less than previously
  planned?
        (Mr Brown)  Next year the figures will be 393.7, compared with 392.9.  I
  may say for the benefit of the Committee, what has actually happened over the
  course of the last year is something I hope the Committee will want to draw
  attention to.  We have substantially cut, above even the projections in the
  Comprehensive Spending Review, the amount of money that is being spent on debt
  interest, and we have cut the amount of money that is being spent on
  unemployment.  As a result of that, there are considerable savings, and the
  savings are being used to fund a rise in pensions; to fund a rise in
  children's benefits; and to fund the increased spending in health, education
  and in public services.  For the benefit of the Committee -----
        276.     Thank you, Chancellor, for your answer.  Can I ask you
  another question, please.
        (Mr Brown)  For the benefit of the Committee, should I not draw attention
  to these figures so that people do know.  393.7 rising to 417.8, rising to
  442.6 in 2003-04.
        277.     This saving and this underspend that you have just been
  helpfully telling the Committee about, are you fully reallocating this
  underspend, or are you paying off the debt with some of it?
        (Mr Brown)  We are paying off the debt as a result of very substantial
  savings from unemployment and debt interest.  Equally, we are spending more
  over the course of the next year.  If you would like the figures for health
  and education, I am very happy to give you them, to show the additional amount
  of money we are going to be spending on these areas.
        278.     Could I just ask you a particular question - you may have
  this figure.  What was the average spend by the Government on health in the
  last Parliament as a proportion of national income?  Do you have that figure?
        (Mr Brown)  I do have the figure.
        279.     You have the figure of the average spend by Government on
  health in the last Parliament?
        (Mr Brown)  If you will allow me to get to it.  What I can say is that
  the real annual growth rates in Health Service expenditure in the last
  Parliament was 2.6 per cent; in this Parliament it will be 4.9 per cent.  As
  a result of the Spending Review 2000 it will be 5.6 per cent.  In other words,
  it will be twice the rate of growth of the last Parliament, and twice the rate
  of growth of the Conservative years.
        280.     Thank you for those figures; they were not the figures I was
  actually asking for.
        (Mr Brown)  What figures would you like.  If you want the share of
  national income then the expenditure was 5.7 per cent. in 1996-97; and next
  year it will be 6.4 per cent. rising to 6.7 per cent.  In both cases, to be
  absolutely clear, there are substantial increases taking place in spending on
  health.  I was able to put additional expenditure into the National Health
  Service in the Budget so the spending figures for health in 2001-02 will now
  be 59.1 billion - and that compares with 40.8 billion the year we came into
  power; and in the year after that 2003-04 it will rise to 69 billion.
        281.     Chancellor, thank you for that.  The figures I asked you for
  were the average spend in the last Parliament as a proportion of national
  income.  The figure I have from the House of Commons Library is 5.5 per cent. 
  If you ask the House of Commons Library for the average spend by this
  Government in this Parliament as a proportion of national income it is less
  than that, it is 5.4 per cent.  The Health Service over this Parliament,
  compared to last Parliament, has had on average a smaller share of the
  national income.  Could you confirm that?
        (Mr Brown)  No, I do not accept that.  I have just given you the figures
  showing that the growth rate of health in the last Parliament was 2.6 per
  cent; the growth rate in this Parliament, even taking into account our first
  two years when we had to deal with problems of the deficit, is 4.9 per cent. 
  As a result of the Spending Review, it will be rising by 5.6 per cent.  As a
  share of national income, I think you would agree with me, when you have
  figures that show that the share of health in national income is rising from
  6.2 per cent. to 6.4 per cent. to 6.7 per cent., it is now quite wrong for you
  to deny that there is an increase in spending taking place both in cash terms,
  in real terms, as a share of national income and as a growth rate as compared
  with the previous Parliament.
        282.     Chancellor, you accuse me of doing something I was not trying
  to do.  What I was trying to ask you for was a figure of the average in the
  last Parliament and the average for this Parliament.  The figures I gave are
  from the House of Commons Library and they show that, on average, we are
  spending less than we did in the last Parliament.  Can I give you the figures,
  Chancellor.  For education in the last Parliament -----
        (Mr Brown)  You do not want to continue to talk about health?
        283.     My question is about education, Chancellor.
        (Mr Brown)  Can I just put into the record the figures on health.  In
  1996-97 - and this is the most generous to the previous Government, the last
  year - 5.7 per cent.  In 2000-01 the figure is 6.2 per cent. of national
  income.  2001-02 6.4 per cent. of national income.  2003-04 6.7 per cent. of
  national income.  I hope that the questioner will accept that is a rising
  trend of national income.
        284.     Now we can go on to education.  The average spent in each
  year as a proportion of national income on education in the last Parliament
  was 5 per cent; in this Parliament to the end of this financial year it is
  4.6 per cent.  How can you explain that on average in this Parliament we are
  spending a smaller share of national income on education?
        (Mr Brown)  The figures I have for expenditure are 5 per cent. in 
  2001-02, and 5.4 per cent. in 2003-04.  The reason that that is the case is
  because education expenditure (and I do hope you will look at the actual
  figures) is rising from the 36 billion we inherited to 46 billion in 2000-01,
  that is this year, and then rising again to 49.8 billion in 2001-02; and
  rising to 58.1 billion in 2003-4.  The growth rate for educational expenditure
  is 5.4 per cent. as a result of the Spending Review, compared with 1.6 per
  cent. in the last Parliament and 1.5 per cent. in the Conservative years.  You
  can produce as many figures as you like, Mr Davey, but you cannot deny the
  fact that educational expenditure is rising by something in the order of 4-5
  billion a year, and it is going to do that consistently for the next four
  years; and that is far higher than could ever have been achieved simply by a
  one pence change in Income Tax, but is twice as much as could be achieved by
  that.
        285.     Chancellor, the only reason I was drawing attention to the
  figures as a share of national income was because in your manifesto you said
  you would increase them and in the first three years of this Parliament it
  actually fell.
        (Mr Brown)  The figures I have got, Mr Davey, are 4.7 per cent., which we
  inherited, then rising to 4.9, then 5 to 5.4.
        286.     I would like to know which years you are quoting.
        (Mr Brown)  These are figures rising to 2003-04, 2001-02, 2000-2001, but
  starting in 1996-97.
        287.     Chancellor, you have read out your series, can I just read
  out my series.  I agree with you that in 1996-97 it was 4.7 per cent. of
  national income; it then went down to 4.6; it then went down to 4.5; and in
  1999-2000 it was 4.5.  In this year, and in the years that you have predicted
  for the future, is it increasing?  
        (Mr Brown)  Can I read out the figures for the future years?
        288.     No, you have already done that.
        (Mr Brown)  You accept my figures.
        289.     What you have done is cut expenditure in the first three
  years and then you are having a boom at the end.  Schools and colleges are
  being deprived of money for the first three years of your stewardship, and now
  you are giving them money.  I am afraid that the standards have fallen for the
  first three years and you have deprived the schools.
        (Mr Brown)  It seems to me that this member of the Committee is working
  on the assumption that it would have been right to do nothing about the
  deficit we inherited, and right to do nothing about the overall level of debt
  we inherited.  I do not apologise to the Committee for taking the action that
  was necessary to deal with both deficit and debt.  The result of that is that
  we have a solid foundation on which to build; and the solid foundation is
  shown by the figures that he did not read out, which is that educational
  expenditure will rise to 5 per cent. and then to 5.4 per cent. of national
  income.  The actual figures for expenditure are 2001 46 billion; rising to
  2001-02 49.8 billion; rising to 2003-04 58.1 billion.  That is a very
  substantial rise in educational expenditure over the next few years built on
  a solid platform from which we can actually have sustainable rises in
  educational expenditure.  I would like the Committee to note that, as far as
  my view is concerned, it would not have been possible to have these
  substantial rises in educational expenditure if we had not dealt with the
  problems of the deficit and debt in our first two years.
  
                              Mr Plaskitt
        290.     Chancellor, at the time of the pre-Budget Report 2000 you
  estimated total managed expenditure to come out at 371.6 billion.  You told
  us in the Budget that would in fact be 368.3, an undershoot of about
  3.3 billion.  What money was not spent, and what were the principal reasons
  for the undershoot on that?
        (Mr Brown)  The numbers result obviously, first of all, from the
  substantial cut in debt interest payments, and that has made it possible for
  us to reallocate resources to health and education; but it also comes from the
  substantial cut in the amount of money we are spending on unemployment
  benefits.  There have been two big changes that have diminished the pressure
  on one section of our budget.  They are actually set out on page 27, Table 2.3
  of the Budget Report.  They show that over the period we have saved about a
  billion on social security benefits, indeed, 2 billion in 2001-02; and on debt
  we have saved something over 4 billion.  These are big changes as a result of
  a reduction in the share of debt in national income.
        291.     There were no significant instances of spending departments
  failing to deliver on their programmes?
        (Mr Brown)  We had an issue that I raised right at the beginning of my
  opening remarks, where we are determined to push up the levels of public
  investment in those services that have been under-invested in over a long
  period of time.  That is why we have departmental investment strategies.  We
  have to do more, and we have to do better, and our aim is to raise the share
  of national income taken by public investment to 1.8 per cent.  We are making
  progress, but there is still more to do.
        292.     That is on the capital side rather than on the revenue side.
        (Mr Brown)  On the revenue side, if this were under the old system and
  there was nowhere near flexibility, one might be disappointed if there was
  money left at the end of the year; but this is money that can be carried over
  by the departments.  We are avoiding a end year rush to spend money perhaps
  not on the best projects, so the money is carried over.  The important thing,
  as I said to Mr Davey, is that expenditure on health, education, policing and
  transport, all the key public services which people rely on, is rising very
  substantially this year, next year and the year after.  Indeed, I might have
  made the point to Mr Davey that expenditure in real terms on education in the
  last year has risen by more than 10 per cent.
        293.     Is it fair to say that the money the Treasury is saving as a
  result of lower unemployment and lower debt interest payments is money
  released and made available for spending on health and education?  Are you
  simply transferring savings from that area to those services?
        (Mr Brown)  I have made the point in the Budget itself that, whereas in
  the years 1979-1997, of every additional pound spent 42p (and indeed in the
  early 1990s it was 50 per cent. of every additional pound) went to debt,
  unemployment or social security - it is now only 17 per cent; therefore that
  leaves 80 per cent. free for health and education.  Can I just emphasise one
  comparison:  the average for the years 1979-1997 was that more money was spent
  on debt and unemployment than on the National Health Service.  We are now able
  next year to spend 30 billion more on the National Health Service than the
  combined requirements for debt and unemployment.  We are now spending twice
  as much on the Health Service as we are on the bills for debt and
  unemployment.  It is that change in the composition of overall spending that
  is making it possible to answer the points that have been made to put more
  money into health and education.
        294.     Is the Treasury adding more to the spending on health and
  education, for example, than the amount simply released by the saving on lower
  debt interest payments and unemployment?
        (Mr Brown)  Overall, yes.
        295.     Is it a transfer from one saving account to another spending
  account?
        (Mr Brown)  Overall, yes, because as you know we plan public spending to
  rise by 3.7 per cent. a year over the next three years.  The substantial
  additions in Health Service spending of around 5 billion a year, and then the
  extra money on top of that, that was put in in the Budget, and the extra money
  on education I have just read out the figures for, are in excess of some of
  the savings we made on unemployment and debt.  There is a reallocation of
  money, but of course there is more money going to public spending as a whole.
        296.     As you say, average annual public spending is set to rise
  3.7 per cent. a year for a number of years through the next part of the
  Comprehensive Spending programme - that is considerably higher than the trend
  rate of growth in the economy.  Are you comfortable with that difference?
        (Mr Brown)  I think it is the right thing to do.  As you know, current
  spending is rising but public investment is rising even faster.  I think that
  is the necessary means by which we correct the long-term under-investment in
  Britain's infrastructure, in our hospitals, in our schools, in transport
  generally and even in policing and in other areas.  I believe it can be both
  justified in macroeconomic terms, because we meet all the fiscal rules that
  are required of us; but also it is an essential element of rebuilding the
  fabric of British society.
  
                               Mr Fallon
        297.     Chancellor, you will recall a couple of years ago that this
  Committee reprimanded you for triple counting.  Just to confirm we have got
  you off this habit - the education spending of a billion is over three years,
  that is right, is it not?
        (Mr Brown)  The educational expenditure is over three years as I have
  made absolutely clear in the Budget Statement.
        298.     It is also right, is it not, that the Secretary of State has
  written probably to you as well as me.  He wrote to me on 14 March,
  "Dear Michael,  As a result of the Budget there will be 100 million more per
  year for direct grants to schools, and 100 million more for capital funding". 
  That is right, is it not?
        (Mr Brown)  There is actually around 300 million more a year for
  eduction.  Some of the money is going to direct payments to the schools, and
  this is to increase the direct payment that was announced in the last Spending
  Review.  So some schools will get about 110,000.  Additional money will go
  to the recruitment of teachers.  You will have seen the measures announced by
  the Secretary of State for education.
        299.     The capital funding that the Secretary of State says will
  boost schools' capital, for example, for new classrooms - how does 2,000 get
  you a new classroom?
        (Mr Brown)  The capital funding allows some of the renovation work to be
  done.  Equally, he has announced a new programme of PFI credits, a new
  programme of increasing the amount of repair work and renovation done in
  schools.  I think it is now the case that nearly 20,000 schools have been
  repaired and renovated under the New Deal Programme, which is in addition to
  what you are talking about.
        300.     Did you read, Chancellor, yesterday that after four years of
  Labour Government 200 13 year-olds were sent home from Holywells High School
  in Ipswich at 11.15 in the morning because they were six teachers short.  Did
  you read that?
        (Mr Brown)  I did read the newspapers this morning, and I read them most
  days.  I am not in a position obviously to answer for what is happening in an
  individual school in an individual education authority.  I think the figures
  I have read out, about the additional amount of educational expenditure that
  is available, are ones that show we are putting more money into schools and
  education generally.  I think the determination of the Secretary of State for
  Education to deal with what have been recruitment problems that build up over
  a long period of time, partly through the numbers of people not doing teacher
  training in previous years, and the efforts he is making and the additional
  package he has announced to encourage people and to recruit people is
  something I think he would welcome.
        301.     If it takes one year to train a graduate teacher, you have
  been in power for four years, this is your failure, is it not?
        (Mr Brown)  It takes a number of years to build up the expectation that
  teaching is a career that more people want to go into.  It takes changes in
  both salary arrangements, and in the recruitment of people to colleges, as
  well as changes in the schools themselves.  I think most people would agree
  the changes that the Secretary of State for Education has brought in, starting
  with primary schools and now moving to secondary schools, they are showing
  results; but, as we have said on previous occasions, a lot has been done but
  there is still a lot to do.
        302.     This billion pounds is not going to raise teachers' salaries,
  is it?
        (Mr Brown)  The billion pounds is over three years, and it is an addition
  to the rise in teachers' salaries that was announced in the Public Sector Pay
  Review Body.  There is additional money in his recruitment package for people
  returning to education immediately - money to help them do the refresher
  courses, and back to teaching bonuses that are available for people if they
  come back to teaching in the next period of time.  Yes, there is additional
  money to recruit people back into teaching in his package that was announced
  on Monday of last week.  I think, if I am right, that the total recruitment
  package was worth 200 million over three years.
        303.     If you are so short of teachers are their salaries right?
        (Mr Brown)  The Public Sector Pay Review Body made recommendations which
  we have accepted.  We did not phase in the awards; we accepted the awards. 
  Equally, over a period of time the Secretary of State for Education has been
  trying to recruit more people with the promise of higher salaries for head
  teachers and also higher starting salaries.  He is trying to address these
  issues.  I can only repeat, that the amount of money going into education now
  compared with what it was under the previous government is very substantial
  indeed.  Education expenditure will rise from 46 billion this year, to 49.8
  billion next year, to 58.1 billion by 2003-04.  I had thought the complaint
  of the Conservative Party was that we were spending too much on these public
  services, not too little.
        304.     Can you recall when children were last sent home from school
  at 11.15 in the morning?
        (Mr Brown)  These are matters that are relevant to how local education
  authorities are dealing with problems that they have.
        305.     It is their fault?
        (Mr Brown)  These are matters that local education authorities are
  dealing with in relation to recruitment of staff in their areas; and they are
  being helped by the measures that the Secretary of State for Education is
  announcing.
  
                              Mr Cousins
        306.     Box B3, Chancellor, on page 177, deals with the US economy. 
  In the text of Box B3, which is extremely illuminating, it says "... investors
  may be unwilling to finance the current account deficit [of the United States,
  obviously], leading to a sharp correction in the dollar".  Do you think the
  same thing could happen to the pound?
        (Mr Brown)  As you know, I never got into the position of speculating
  about the future movements of sterling.  In the medium-term we believe the
  exchange rate will reflect the fundamentals of the economy.
        307.     I asked that question really because there is an element of
  speculation about the course of the dollar.  It seemed to be logical 
  to -----
        (Mr O'Donnell) Could I just add that for the US we are talking here about
  a current account deficit of around 4.5 per cent. of GDP.  In our forecast the
  current account deficit for the UK only gets up to a peak of 2.5 per cent. 
  It is quite a lot lower.
        308.     Chancellor, you have referred in your reply to the long-term
  economic fundamentals as determining the value of currencies, and of course
  that must be right.  Last year you were of the view that the weakness of the
  euro relative to sterling could not be justified by any reference to long-term
  economic fundamentals.  Is that still your view?
        (Mr Brown)  The exchange rate for sterling did adjust in relation to the
  euro over the course of the last year.  Yes, it is still my view that over the
  medium-term that the exchange rate will reflect the fundamentals.
        309.     Last year you said, and I am quoting from your James Meade
  Memorial Lecture approximately a year go, the exchange rate cannot be
  justified by any view of long-term economic fundamentals.  That was the
  euro/sterling exchange rate.
        (Mr Brown)  Yes, but that, if I may say so, was when the exchange rate
  was the equivalent of 3.40 at the old Deutsche Mark/pound level.  It is now
  something in the order of 3.10; so it has come down quite a bit since the time
  we talked last year so an adjustment has taken place.
        310.     Your view of that adjustment would be?
        (Mr Brown)  Just so you are clear, I am not speculating about when an
  adjustment is completed, no.
        311.     Indeed, but if I could just summarise - last year you were of
  the view when the exchange rate was at a benchmark figure of 3.40 Deutsche
  Marks to the pound that that could not be justified by any view of long-term
  economic fundamentals.  It is now approximately 3.10 and you are not
  confirming your view as expressed last year?
        (Mr Brown)  What I am saying is that in the medium-term it will move to
  reflect the fundamentals of the economy; but I am not getting into a day-to-
  day speculation about what the right rate should be.
        312.     I do understand.  In Mr O'Donnell's very helpful and
  interesting - incidentally, I am using the term "helpful and interesting" in
  a certain naive sense of it being helpful and interesting, I am not making
  some broad point in order to destroy Mr O'Donnell's career!  I am simply
  meaning that he came to the Committee and he was helpful and he was
  interesting.
        (Mr Brown)  I hope you will say the same as we leave!
        313.     So far so reasonably good!  He said that the first response
  mechanism to a reduction in consumer demand, and that is not an exact quote
  but the gist of what Mr O'Donnell was saying, would be on monetary policy
  rather than fiscal policy; because the reaction times are faster on monetary
  policy.  Do you agree that there is scope for the MPC to reduce interest
  rates, if it decided to do so, given the fiscal stance in the Budget?
        (Mr Brown)  That is, of course, a matter for the MPC.  There is no point
  in me making the Bank of England independent and trying to pre-judge or
  presume what decisions it makes in the next few days.  The Bank of England
  reduced interest rates in February.  It has taken, therefore, a proactive
  stand in relation to the economy.  Equally, the fiscal tightening that has
  been locked in, in the Budget, is I think something that they would approve
  of.
        314.     You do not feel that the Budget in any way inhibits the
  decision of the MPC, should it wish to do so, to reduce interest rates?
        (Mr Brown)  No, I do not believe that that is the case.  We have locked
  in the fiscal tightening of the last Budget and the pre-Budget Report.  We are
  pursuing a policy for sound public finances.  I believe that the difference
  in America, Europe and elsewhere between what is happening now and what
  happened in the late 80s and early 90s is that, generally speaking, we have
  economies pursuing low inflation policies with sound fiscal positions.  I
  think the figures I read out at the start of this discussion from today's
  publication shows that the fiscal position is strong.
  
                               Mr Beard
        315.     Chancellor, the latest Budget forecast of the GDP growth is
  the same as in the pre-Budget Review.  Why is it the view that the events in
  America are not having an effect on prospects?
        (Mr Brown)  We looked at that very carefully, and there is absolutely no
  doubt that any reduction in growth in the United States' economy will have an
  eventual impact on Europe and on Britain, particularly with our larger share
  of trade with the United States of America.  We looked at the position of the
  economy as a whole, and when Mr O'Donnell and his team drew up their budget
  forecast they could see that the reduction in trade would be matched by the
  improvement in consumer spending and consumer demand in the United Kingdom;
  and, therefore, there seemed no reason to depart from the forecast that we
  made of 2-2  per cent. for this year.
        316.     What is the basis for assuming an increase in the growth of
  domestic demand compared with the pre-Budget Review?
        (Mr Brown)  I think if you look at the position last year, and if you
  also look at the strength of the domestic economy, if you look at people's
  purchasing power, if you look also at the changes we have made in the Budget
  and in the pre-Budget Report you can point to that.  It is a situation of
  sustainable growth.  I believe, when you see side-by-side with the growth
  figures the inflation figures, that we have got inflation under control.
        317.     Is not the disparity or imbalance between the domestic
  prospects and the international prospects for growth in trade a worrying
  factor?
        (Mr Brown)  I believe myself that while the American economy is obviously
  growing less fast than last year and that has an impact on Europe as a whole,
  there is still substantial growth in the European economy.  Our exports to
  Europe, despite the exchange rate difficulties we faced, have been growing;
  and we are able to benefit from Europe becoming more of an engine of growth
  in the world economy as well as America has been in previous years.  I think
  the disappointing factor in the world economy is that Japan continues to fail
  to grow; and that America has had a necessary slowing as a result of a very
  high level of growth last year.  We are still, while being vigilant,
  cautiously optimistic about the future of growth rates around the world.
        318.     Are you not concerned about the higher level of balance of
  payments deficit?
        (Mr Brown)  That is obviously a factor that one takes into account.  If
  you bear in mind what Mr O'Donnell said about the share of GDP taken account
  of by the deficit, it does not rise to the levels we have got in the United
  States.
        319.     The Budget is envisaging a rise in the real household
  disposable income in the coming year of between 4-4 per cent.  Is there not
  a danger of stimulating a boom from that rise?
        (Mr Brown)  The difference between the position now and the position in
  the late 80s is that we have clear fiscal rules that are being met.  There
  were no rules that were being observed at that time.  We have inflation under
  control, and it will meet its target; and we have a mechanism by which the
  target will be met through Bank of England independence.  We have not taken
  reckless decisions in the Budget.  We have pursued a balanced approach, where
  we have balanced the needs of public investment and taxation but within a
  context where we are achieving stability.  I do not believe that we are in the
  position that the country was in in the late 80s and early 90s.
        320.     The outbreak of foot and mouth disease has come along as an
  unpredicted factor.  What effect is that likely to have on GDP growth and on
  inflation if it persists for some months?
        (Mr Brown)  While obviously this is very serious both for farmers
  themselves who are affected and for the rural economy, and it has got
  implications for the British economy, that is why we have immediately made
  available the agri-monetary compensation of 150 million or so; made
  arrangements for the advance payment of that where possible to the farming 
  community; made changes in the advance payments we can make in the big
  restructuring scheme as well so that livestock generally is dealt with by
  better measures; and of course we are making available statutory compensation
  which already runs to something in the order of 115 million.  Because of the
  strength of the public finances, obviously we are in a position to meet these
  additional requirements.  As far as the effect on the British economy as a
  whole is concerned, I think we have to bear this in context:  that agriculture
  is 1 per cent. of the economy, and employment is less than 2 per cent. of the
  economy.  It is very serious indeed for the farming community and the rural
  communities, and it has implications for the economy, but I think we have to
  get it in proper context as far as management of the economy is concerned.
        321.     Would you say the same about the knock-on effects, for
  instance, on the tourist industry?
        (Mr Brown)  There are substantial issues that have been dealt with by the
  Working Party that is being chaired by the Minister for the Environment, where
  we are looking at the effects on the rural economy, on tourism and on other
  aspects of the rural economy; and these are obviously very serious matters
  that are being dealt with.  I believe there is to be a report from this
  Committee very soon.  Clearly, as you would expect, the Treasury are in
  contact and working in consultation with this group.
        322.     These payments in compensation, will they be given from
  reserves or from the Ministry of Agriculture?
        (Mr Brown)  The additional money for agri-monetary compensation came from
  the reserve.  Obviously we have got to look at other matters as they develop.
  
                          Sir Michael Spicer
        323.     Chancellor, just in passing, now your boss has indicated that
  he would like to go off and make some money are you going to make an open play
  for his job?
        (Mr Brown)  I do not quite follow?  I am beginning now to get the hang of
  it, but I think that was rather similar to a question you put to me the last
  time I was here.  I can only give the same answer, that I am happy doing the
  job I am doing.
        324.     Did you anticipate last year with your pre-Budget Report the
  downturn in the American economy?
        (Mr Brown)  About November there was a great deal of talk obviously about
  the orders that businesses in America were putting in for the first few months
  of 2001.  I would put it to you this way:  the way we are managing macro-
  economic policy is that, on the fiscal side we are cautious.  With the Bank
  of England responsible for monetary policy and meeting the inflation target,
  we have also that additional built-in element of caution.  We are putting
  ourselves in a position where we cannot anticipate all the ups and downs
  either of the British economic cycle or the world economic cycle, but we are
  putting ourselves in a position where we are better placed to deal with these
  difficulties when they arise.
        325.     Was that a yes or a no?
        (Mr Brown)  Yes, we knew that the American economy had a risk of slowing;
  but obviously it is taken into account in the Budget forecast as a result of
  what we have seen for the first few weeks of the new year in the United States
  of America.
        326.     While on the American economy, if Mr Greenspan does decide to
  bring interest rates down by, say, 0.5 per cent. later on today, would it be
  true to say there is not similar scope here, because of what you said earlier
  on in answer to Mr Cousins; that because of high spending, consumer spending
  and low savings, the scope of reducing interest rates, even if the Americans
  reduce theirs, is not so great?
        (Mr Brown)  If I may say so, Sir Michael, that is the opposite of what I
  said.  I said we have locked in the fiscal tightening that had been achieved
  over recent years.  We have a fiscal position as tight or tighter in future
  years as in the previous Budget; and we have put the public finances in a
  position where we can withstand difficulties as they arise.  As far as the
  Bank of England is concerned, I believe that they will find themselves
  satisfied with our fiscal stance.
        327.     I was not on this particular occasion talking about fiscal
  stance.  You did say that consumer spending was high and rising.  You said
  that in response to a question which Mr Beard asked you.  Commensurately you
  would accept that savings are falling at the moment - certainly your published
  documents say that.  Presumably there is less scope here than there would be
  in America for reducing interest rates?
        (Mr Brown)  I am sorry, I do not accept that either.  You must remember
  that interest rates were cut in Britain in February.  You are speaking as if
  there has been no cut in interest rates.  There was a cut in February.  I will
  ask Mr Balls to read out the figures for consumer spending which paint a
  different picture from what you are suggesting.
        (Mr Balls)  Consumer spending in Table B3 slows from 3  per cent. last
  year to 3/3 per cent. this year, and then 2-3 next year.  The savings ratio
  rises from last year to this year, this year to next year, and next year to
  the year after.  Our economic forecast has always been based upon a slowing
  of consumer spending to trend and so have the Bank's decisions over the last
  year.  We are forecasting that happening over the next year as we were doing
  last year.
        328.     Then I really do not understand your answer to Mr Beard. 
  When he asked about the American economy downturn and the effect on your
  forecast, you said something to the effect that that was going to be made up
  by consumer spending?
        (Mr Brown)  Yes, I am sorry, the growth of consumer spending was slowing
  in the course of the next year, from what it had been in the previous year,
  but not slowing as fast.
        329.     I will come back to that.  Did you anticipate in your
  forecast last year the very sharp downturn in the British Stock Market?
        (Mr Brown)  I will ask Mr O'Donnell to say something about that.  We make
  a number of calculations in these forecasts.  I do not know which forecast you
  are referring to.  Are you referring to the November forecast?
        330.     I am referring to the November one, yes.
        (Mr O'Donnell) Because we do not believe that it is possible to forecast
  short term movements in the Stock Market, otherwise we would be very rich, we
  use the NAO audited assumption which is that the equity market will move up
  in line with money GDP over the medium term.  That is the forecasting
  convention we have been using for a number of years and that is audited by the
  NAO.
        331.     In view of two responses that I have now had, one on the
  American economy, which you partially anticipated but did not entirely and you
  think is made up by consumer spending, in the light of what has been said
  about the Stock Market and anticipated in the forecasts I really cannot find
  how it is possible for you to argue that your pre-Budget forecasts should be
  precisely the same - is it not extraordinary? - as your Budget forecast.
        (Mr Brown)  It is a range.  It is between two and a quarter and two and
  three-quarter per cent.  I am not suggesting that there is absolute precision
  to the last 0.01 per cent, but it is two and a quarter to two and three-
  quarter per cent.  I think you will find, Sir Michael, that that is very much
  in line with what other people believe is likely to happen to the British
  economy over the course of the year.  I do not think you will find that we are
  out of line with some of the independent forecasters that you might examine.
        332.     But do you not, Chancellor, find it extraordinary that even
  the range has not been altered in view of these quite considerable changes in
  affairs which have occurred since your November forecast?
        (Mr Brown)  No, I do not, for the reasons that I have described to you. 
  Of course, so that nobody is in any doubt, we are vigilant.  We look at what
  is happening in the rest of the world.  It is clear that the growth rate of
  the major industrialised countries, which was four per cent last year, is two
  per cent this year, so there has been quite a major change in that position. 
  Equally, the major economy with which we trade, the rest of Europe, is
  experiencing growth this year of above three per cent, and so if 50 per cent
  of our exports and imports are with the European market we are still in a
  position to go as a result of trade.
        333.     But you have said to us today that you have been rather
  precise in why you think that the forecasts have been changed.  You said that
  the downturn in the American economy is made up by the decline in consumer
  expenditure.  That is a pretty precise answer.  It indicates that you really
  feel that you are holding very precisely to these parameters for growth.
        (Mr Brown)  I would say that we had to take into account that the growth
  rate of the world economy, but particularly because of what was happening in
  America, would be less this year than had previously been expected, but we
  also took into account first of all that the European economy continues to
  grow, and secondly that we detected that the slowing in consumer demand in the
  United Kingdom economy, for whom the growth rate is going to be less this year
  than last year, will not be as fast as we previously thought.  I am not
  suggesting - and nobody is when they are dealing with forecasts - a degree of
  precision that gets you to the last 0.1 per cent, but the 2.25 to 2.75 I
  believe is a fair reflection not only of what I have said about the forces at
  work in the United Kingdom economy but also it reflects what other people are
  saying as well.  Perhaps the Committee may wish to look at the independent
  forecasts that are available.
        (Mr Balls)  If you look on table B.2 you will see that the average
  independent forecast for this year is 2.6 per cent, so it is not precisely in
  the middle of our range of 2.25 to 2.75 but it is not far off.  If you look
  at independent forecasters since last year I would say that in the mind
  independent forecasters last year were expecting consumption in the United
  Kingdom to slow and the world economy to slow this year.  What has happened
  for all forecasters, including us, is that the consumption is slowing in the
  United Kingdom but at a slightly slower pace, and the world economy is slowing
  but at a slightly faster pace and those two things together mean that we along
  with other independent forecasters have similar forecasts this year to what
  we were expecting last year.
        334.     One thing you have already acknowledged that you could not
  have anticipated is the effect of foot and mouth.  Do you have any forecast
  change that you can give us today as to the likely effect in terms of falling
  demand, for instance, in the tourist industry as well as for agriculture,
  which some people are anticipating to be anything up to 10 billion?
        (Mr Brown)  We do refer to this in the Red Book and I will draw your
  attention to page 165.  We did note the impact of foot and mouth.  I did give
  you the aggregate figures without in any way diminishing the importance of
  individual farms and the importance of agriculture as a whole to the rural and
  national economy.  At one per cent of the whole economy that is the way that
  you can measure the effects of agriculture on the whole economy.  As far as
  tourism is concerned, it is a major industry but of course the figures also
  show that a very substantial amount of the tourist industry is city based as
  well as rural based, so it is not the whole of the tourist industry that is
  affected.  I think the message is going out from the various tourist boards
  that tourism should continue and should not be affected in the way that some
  people suggest by people cancelling their bookings.
        335.     But a number of estimates indicate that the effect on growth
  will be one per cent less, in other words that your figures of two and a
  quarter to two and three-quarters will come down to perhaps one and a half?
        (Mr Brown)  I do not accept the very big numbers that were mentioned in
  one Sunday newspaper and I do not think that they have been proven to be
  accurate figures for the impact on the economy.  Of course, if this problem
  continues over a long period of time it has got major effects on agriculture
  and therefore on the rest of the economy, but we have committed ourselves not
  only to the statutory scheme but to additional money for the agricultural
  industries and of course if there has to be the reduction in the sheep herd
  as a result of eliminating and eradicating the disease, then we pay for
  compensation and for removal and disposal and we are aware of the figures that
  we have to meet in that area.
        336.     When you say you do not accept the figures that have been
  provided by some newspapers, what are your reasons for not accepting them,
  particularly on tourism which is a very large sector of the British economy?
        (Mr Brown)  Because we take the view that the more we can do to continue
  with the existing pattern of the tourist trade and the less disruption that
  takes place, the better for the economy.  I think you will find as a result
  of the working party that the Minister for the Environment is chairing that
  they will be taking measures to encourage people to continue with their plans
  for tourism and not disrupt them, and I think that all of us in this Committee
  would want to encourage that.
        337.     Chancellor, is not the truth that the Government plan to cut
  and run to the electorate before the full truth of the impeding economic
  downturn becomes apparent?
        (Mr Brown)  I had thought that this Committee was one where objectivity
  and the search after truth dominated.  I do not think I should be drawn into
  discussions about elections.  As far as the economy is concerned, the economy
  is pursuing a stable course.  The fundamentals are sound.  None of the
  questioning today has suggested that the fundamentals are anything other than
  sound in terms of flow inflation, strong public finances, and the sustainable
  growth in the economy is something I have pointed to throughout this
  proceeding.
        338.     The only comment I would make on that is that on a number of
  occasions I have asked why it was that changes have not been made to your
  forecasts on the basis of considerable changes which have been introduced into
  your autumn forecasts.  I certainly do not think I have been given answers as
  to why you have not made any changes and therefore I must assume that they are
  over-optimistic and they are hiding something for the future.
        (Mr Brown)  I think you are doing a disservice to the Treasury
  forecasters who have looked very carefully at these issues and who,
  incidentally, were proven right about the way they saw the economy moving in
  1998 and 1999.  I think that yes, there is a slowing of growth from last year,
  but it is roughly at trend, two and a quarter to two and three-quarter per
  cent, this year and it is in a context where there is low inflation, as
  everybody accepts, as well as strong public finances and, while being
  vigilant, it is a picture that I thought the Committee might welcome.
        (Mr O'Donnell) Can I just add that at the Budget hearing last year we
  were forecasting for the year 2000 three per cent growth plus or minus a
  quarter per cent, and the ONS figures tell us that the year 2000 growth was
  three per cent.
        (Mr Brown)  So he was not only right for 1998 and 1999; he was right for
  2000 as well.  That is the point he is making.
        Sir Michael Spicer:        Let us hope he is right for 2001 as
  well.
  
                               Mr Fallon
        339.     Chancellor, turning now to taxation measures for the Budget,
  almost all the representations we have had complain about the growing
  complication of the tax system.  We have 22 rates of company car tax, we have
  different rules for mini ISAs and maxi ISAs.  There are families who have got
  children's tax credit, child benefit, baby bonuses to come, all the clawbacks
  and take-ups.  Are you going to go down in history as Complexity Brown?  Why
  are you not interested in simplifying the tax system?
        (Mr Brown)  First of all, as far as these tax representations are
  concerned I would have thought that from the vehicle sector, which you
  mentioned, people should be pleased that we have reduced the hundred different
  rates for lorry licences to seven and they are environmentally driven.  As far
  as the car licence sector is concerned, we are giving the benefit to people
  because of environmental concerns, and I would have thought that this
  Committee, and indeed the public, would want to welcome that.  As far as the
  tax credit system is concerned, which you are drawing attention to about the
  children's tax credit, I believe that this is a fundamental reform that has
  been long overdue in the country to integrate tax and benefits where we are
  going over time, as we are already doing in many instances, to eliminate a
  situation where people are paying tax on the one hand while receiving social
  security benefits on the other hand.  Instead of two separate transactions
  done by two different authorities we are now in a position to look forward in
  some of these areas to there being only one transaction.  I think it is
  important to recognise that it is not complexity that is going to be the
  result of this.  It is going to be a far more co-ordinated, cohesive and
  integrated approach.  Perhaps I may draw your attention to the fact that the
  first Government that recommended the tax credit system was the Conservative
  Government with a White Paper of 1972, and all the arguments that they have
  used there for the tax credit system being simpler, being integrated, ending
  an unsatisfactory relationship between social security and the tax system,
  eliminating the old form of means testing and moving to a situation where
  people had one calculation which they made of their tax and benefits, apply
  to what we are now doing.  I have also looked at the previous Conservative
  Government on tax and benefits, and Norman Fowler, who was Minister for Social
  Security, says this is exactly what he had wanted to do in 1986 but was
  prevented by the Chancellor of the day from integrating tax and benefits in
  his review of the social security system.  We are doing what has been achieved
  in some areas such as America in integrating tax and benefits through the
  earned income tax credit as well.  Far from it being more complex, the result
  of this integration of tax and benefits will be that instead of people having
  to have two transactions to get what they are entitled to, in most cases this
  will become over time only one.
        340.     But the criticism is not of the credits in principle; it is
  with the reliefs, the clawbacks, the takers.  Arthur Andersen told us:  "The
  problem with so many of these reliefs is that they are complicated to claim
  and difficult to administer."  Help the Aged said that it is a massively
  complex system, endless form-filling for pensioners.  Why are you sending
  pensioners a 43-page form that asks whether they are pregnant or on strike?
        (Mr Brown)  You know that that form, which I think existed under the last
  Government, is being dealt with.  Equally, on pensions I would have thought
  that the most difficult situation for pensioners is the alternative policy
  that I have seen presented over these last few weeks, where there is a
  guaranteed winter allowance and a guaranteed free licence for the over-75s and
  a guaranteed Christmas bonus to be backed up by the rise in the basic pension. 
  The new proposal that I have seen from your Party is to have a choice between
  the two.  Mr Darling at Social Security says that would mean 3,000 additional
  civil servants simply to administer that.  Far from our proposals increasing
  complexity and the proposals of the other side reducing them, I think it is
  recognised that when you have to have 3,000 additional civil servants simply
  to administer one separate policy of the Opposition, that is where complexity
  arises.  As far as pensions and the pensioner credit system that will operate
  as an integrated tax and benefit system over time as well are concerned, I
  believe that over time that will come to be accepted as well.
        341.     Why do you think it is that 670,000 pensioners out of two
  million eligible have failed to claim the minimum income guarantee?  Do they
  not find it too complicated?
        (Mr Brown)  The reason that many people have been unable to benefit from
  the minimum income guarantee until now is because of the capital rules that
  we inherited from the previous Government, that where people had a limited
  amount of savings they were deprived of the opportunity of getting the minimum
  income guarantee.  We have now changed these capital rules and over next year
  and the year after these rules are being modified in such a way that more
  people, even with modest savings, will be able to get the minimum income
  guarantee.  The fault was in the old capital rules.  As far as the claiming
  of these benefits is concerned, when the Social Security Department ran a
  take-up campaign, they had, I think I am right in saying, half a million
  people interested in taking up this benefit.  One of the problems was the
  capital rule and that is now being changed.
        342.     But a third of those we were told were eligible to claim have
  failed to do so.  That is the position.
        (Mr Brown)  I am not sure that that is the position, but obviously you
  can consult the Social Security Department about these exact figures.  What
  I do know is that when campaigns have been organised for take-up there has
  been a very big reply.  Of two million pensioners who have been written to,
  and of course the two million pensioners that we mention have been written to,
  we could not know whether their savings or other attributes of their income
  met the circumstances that would entitle them to this benefit, but 846,000 did
  reply, which shows that there is an interest in taking up this benefit, and
  846,000 is a very high figure compared with about two million in total who get
  the minimum income guarantee at the moment.
        343.     Why are Help the Aged complaining about the massively complex
  system and endless form filling?
        (Mr Brown)  Inevitably when you make a change in a system people take
  time to adjust to it.  I think that is true of any change that has taken
  place, whether it is the working families tax credit or whether it is, under
  previous governments, things like decimalisation to everything else.  It takes
  time for people to adjust to these changes.  If you agree, as you say you do,
  with the principle of a credit system, in other words the principle of
  integrating tax and benefits, then the teething troubles in introducing that
  system are, if regrettable, worthwhile so that we can get the end result that
  you say yourself you seek.  I am pleased to know that there is now all-party
  support for the tax credit system that we are introducing.
        344.     You have told us this morning that you have had to modify the
  pensioners' credit with the various capital rules.
        (Mr Brown)  Sorry; on this modification the minimum income guarantee is
  what we are talking about initially and the capital rules that were depriving
  people of the chance to claim the minimum income guarantee have been changes,
  yes.  As far as the pension credit is concerned, that will be introduced in
  2003 and that will be available for pensioners who have income, including
  income from savings, of less than 200 if they are a couple and less than 135
  if they are a single person, and so the majority of pensioners will qualify
  for this, or the majority will.
        345.     The working families tax credit, which people complain is
  very complex, you are changing that as well, are you not?
        (Mr Brown)  The working families tax credit will become the children's
  integrated credit and an employment credit over time.  Again, that is to deal
  with some of the issues that you yourself and others of your colleagues have
  raised, that we want the money by 2003 that is available in children's
  benefits to be paid to the main carer, and that is what will happen in 2003.
        346.     It does not sound to me as if it is simplifying it.  I will
  leave it there.
        (Mr Brown)  It seems to me, Mr Fallon, that if people support the
  principle of tax credits, and the principle has now been introduced of course
  in the United States of America for many years as an earned income tax credit. 
  France is now looking at the introduction of a tax credit.  Other European
  countries are now looking at it.  It was the spirit of what was advocated in
  1972, what Mr Fowler wanted to do in 1986.  If we support the principle of tax
  credits then obviously we have to deal with the hurdles that exist when you
  are moving from one system to another, but in the long run an integration of
  tax and benefits will be a fairer way of dealing with many of the problems
  that particularly low income households face but generally households of
  middle and more incomes also face.
  
                              Mr Ruffley
        347.     Chancellor, have you read the highly damaging allegations in
  today's Daily Mail about the conduct of investigations into Geoffrey Robinson
  and of the Minister?  I ask that question because part of the hearing today
  covers the Treasury remit and machinery of government questions inside the
  Treasury.
        (Mr Brown)  Mr Chairman, I am going to deal with serious issues today. 
  I am happy to answer all the questions about the Budget and indeed about your
  previous report and your investigations into other issues like Equitable Life,
  but the Treasury has already issued a statement about this completely
  misleading report in the Daily Mail and I propose to say nothing more than
  that.
        Chairman:   Not all of us believe that the Daily Mail is necessarily a
  fountain of truth.
  
                              Mr Ruffley
        348.     There are remarks in reported speech by Sir Terence Burns who
  makes some highly damaging allegations.  You are not prepared to answer those
  today?
        (Mr Brown)  There are not statements made by Sir Terence Burns.  If there
  are statements made by Sir Terence Burns, who is now Lord Burns, perhaps you
  will draw my attention to them.
        349.     Yes, I will, if I may.  Do you remember a telephone call you
  made from New York on 5 December 1997 to Sir Terence Burns?
        (Mr Brown)  That is nothing to do with statements made by Sir Terence
  Burns, or Lord Burns, and I am not prepared to diminish this -----
        350.     You cannot remember a telephone call -----
        (Mr Brown)  Mr Chairman, I am not prepared to diminish this hearing on
  the Budget by getting into arguments about gossip.
        Chairman:   We do not have to follow what the Daily Mail says.
        Mr Ruffley: There are actually quotes, Mr Chairman, and I thought the
  Treasury remit included in this hearing --- it is written down by the Clerk
  about the Treasury remit and how the Department operates.
        Chairman:   That has got nothing to do with the allegations in the Daily
  Mail.
        Mr Ruffley: But the way in which the Chancellor has managed
  ministerial responsibility -----
        Mr Beard:   This is a meeting about the Budget.
        Chairman:   We can look at the remit and then if you can ask questions
  directly on the remit, that is fine, but -----
        Mr Ruffley: I will if I may.
        Chairman:   Well, get on with it then.
  
                              Mr Ruffley
        351.     You had a discussion on 5 December 1997 with Sir Terence
  Burns where you asked him to approve a statement where he approves the
  registering of interests by Geoffrey Robinson; is that correct?
        (Mr Brown)  There are no quotations from Lord Burns among -----
        352.     Is that correct?
        (Mr Brown)  I said, if you could point to quotations from Lord Burns that
  the Daily Mail had attributed to him correctly, -----
        353.     Yes.
        (Mr Brown)  But you have not done that, Mr Ruffley.
        354.     I will do that now, Chancellor.  In a conversation he said,
  "I refuse to be involved -----"
        (Mr Brown)  Mr Chairman, can I say first of all -----
        Mr Ruffley: Did he say that to you, Chancellor, in that conversation?
        Chairman:   There are not any -----
  
                              Mr Ruffley
        355.     The quotation is, "I refuse to be involved ...".
        (Mr Brown)  Mr Chairman, I was invited along to this Committee to discuss
  the Budget and related matters.  This is nothing to do with -----
        356.     Are you denying Sir Terence Burns, as he then was, -----
        (Mr Brown)  This is nothing to do with this.  I issued a statement saying
  that this is fictional nonsense.  You have been unable to point to quotations
  from Lord Burns that are attributed to him directly because there was none ---
  --
        357.     It is directly attributed to him.
        (Mr Brown)  ----- because there was none in the article.
        358.     Saying, "I refuse to become involved -----"
        (Mr Brown)  I am not in a position to answer based on non-quotations from
  Lord Burns.
        Mr Beard:   This is nothing to do with the Budget.
        Judy Mallaber: Chairman, this is not about the Budget.
        Mr Ruffley: I think the record will show that he is not prepared to
  answer that question.  There is a quote about this given by Sir Terence Burns
  on 5 December 1997.
  
                               Chairman
        359.     Let us get on to the remit.  We have produced a report and
  that was what I thought you were about to cover.  You are actually just
  dealing with a scurrilous article in the Daily Mail.
        (Mr Brown)  Mr Chairman, I have already issued a statement on this this
  morning - in fact, the Treasury has issued a statement - saying that these
  matters are fictional nonsense.  I am prepared and happy to deal with the very
  serious issues arising from the Budget and the management of the economy.  I
  am not prepared without prior notice to go into issues relating to gossip and
  relating to fiction that I have no knowledge of -----
        Mr Ruffley: Did you order an independent inquiry into Geoffrey
  Robinson?
  
                               Chairman
        360.     He has just said he is not going to answer them.
        (Mr Brown)  ----- that I have no knowledge of and are not based on actual
  quotations from Lord Burns at all, as is becoming clear as Mr Ruffley reads
  this out.
  
                              Mr Ruffley
        361.     "I refuse to be involved ..." in relation to that
  conversation on the 5 December 1997.  That is the quotation.
        (Mr Brown)  I think, Mr Chairman, that Mr Ruffley is bringing the whole
  of the Select Committee system, where we are examining the Budget, -----
        Mr Ruffley: You would say that, would you not?
        Chairman:   It is clearly the run-up to the election.  The Daily Mail is
  very interested in muck-raking about the election.  Unfortunately one member
  of the Committee is prepared to act as the Daily Mail's -----
        Mr Ruffley: I am quoting Sir Terence Burns.
  
                             Judy Mallaber
        362.     Chairman, can we return to the Budget?
        (Mr Brown)  These are not quotations from Lord Burns as you very well
  know.
        Mr Beard:   This is out of order in a session on the Budget.
        Chairman:   The majority feeling is that this is out of order.  The
  Chancellor has made it quite clear he is not answering your question, so give
  way to further questions.
        Mr Ruffley: I have no further questions.
        Chairman:   That was not a particularly useful use of time, I did not
  think.
  
                               Mr Davey
        363.     Mr Macpherson, you are Director of Welfare Reform in the
  Treasury.
        (Mr Macpherson)            Yes.
        Mr Davey:   Is the Treasury more involved in welfare reform nowadays than
  it used to be?
        Chairman:   That seems to me, if I can draw a distinction between these
  two questions, a perfectly valid question to ask on the remit and it is part
  and parcel of what we are doing.
  
                               Mr Davey
        364.     Good.  Mr Macpherson: is the Treasury more involved with
  welfare reform than it used to be?
        (Mr Macpherson)            The Government is committed to bringing the tax and
  benefit systems closer together.  It also is committed to raising employment. 
  It is inevitable that, given those objectives, the Treasury plays a bigger
  role at the current time in these areas.
        365.     When we did our inquiry on the workings of Her Majesty's
  Treasury under the Chancellor's stewardship we took evidence from Sir Michael
  Partridge, the former Permanent Secretary at the DSS, and he made similar
  comments to you, that the Treasury is more involved, but he did say: 
  "Particularly in the last five years the Chancellor tends to cook up ideas and
  the DSS is either told at the last minute or not told at all.  There is no
  chance to work it through like a proper policy and say, 'Will this really
  work?  Is it feasible?  Is it practicable?  What is the best way to do it?' 
  It gets rushed in and things get done and they do not work."  That is a former
  Permanent Secretary of the DSS.  Do you recognise that approach?
        (Mr Macpherson)            No, I am afraid I do not recognise it.  I think
  actually the unique nature of working over the last few years is that the
  Treasury has worked more closely with other departments than it ever has
  before.  A very good example of that is the Taylor review which the Chancellor
  set up in 1997, consulting his colleagues, where Martin Taylor ran this task
  force and Treasury officials, DFEE officials, DSS officials and Inland Revenue
  officials all worked very closely together, they produced a report, this
  enabled a far better broader perspective to be brought to the problem which
  cut across departments.  You are working here on the tax system which is the
  preserve of the Inland Revenue, and the benefit system which is the
  responsibility of the DSS.
        366.     Can you think of no example then where the Treasury has taken
  initiative within the welfare remit without informing the DSS and has just
  gone ahead with it?
        (Mr Macpherson)            All I can speak about is from my experience where I
  work extremely closely with DSS and DFEE colleagues.
        367.     In the area of pension reform, for example, there has been no
  Treasury-driven initiative?
        (Mr Macpherson)            The Chancellor was responsible for working with the
  Secretary of State very closely.  I do not know if the Chancellor wishes to
  say anything -----
        368.     I was coming to him.
        (Mr Macpherson)            The pensions system is one of the biggest areas of
  public spending.  There is a big tax aspect to pensions as well.  For example,
  the Chancellor announced in the Budget an increase in the personal allowances
  for pensioners over the Budget period.  I have worked in the Treasury since
  the early eighties.  I have worked on the Fowler review of the state earnings
  related pension scheme and we worked very closely then with the DSS because
  these are big issues.  Nigel Lawson - I do not know if I am outside my remit
  in terms of talking about what happened under previous governments -----
        369.     Oh, go on.
        (Mr Macpherson)            But Nigel Lawson and Norman Fowler worked very closely
  together.  If you read Norman Fowler's book, he did have some questions about
  the extent to which Nigel Lawson would actually discuss tax issues with him. 
  This is something which has always been the case.  These are big areas, huge
  areas of expenditure.  I do not have in front of me how much we spend on the
  state pension scheme but we are talking 50 billion.  It would be astonishing
  if the Treasury did not get involved in that.  It would equally be astonishing
  if I did not work very closely with my opposite numbers in the DSS.  It would
  equally be astonishing if the Chancellor of the Exchequer did not spend a lot
  of time talking to the Secretary of State, which indeed -----
        370.     My point was that he might not be doing that sufficiently. 
  Can I ask the Chancellor to comment on whether he has read the Committee's
  report on Her Majesty's Treasury, and when the Government expects to reply to
  that report?
        (Mr Brown)  I would have been happier if, when you were doing your work
  on the Treasury, you had asked me to give evidence on it.  You did not seem
  to think it was worthwhile before you had your report to ask one of the
  Ministers to give evidence on how they thought the Treasury was performing. 
  As far as the individual points about the report are concerned, let me just
  say that despite the suggestion in the report that there has been a degree of
  centralisation around the Treasury, the fact that we have made the Bank of
  England independent and we have set up the Financial Services Authority, we
  have set up three-year spending reviews and not one-year spending reviews, we
  are signing public service agreements which give flexibility not only to
  departments but also to local authorities, we are setting up a new regime with
  regional development agencies where they have flexibility as well, the public
  sector pay is devolved to the departments, suggest that the Treasury has been
  devolving responsibilities rather than centralising them.
        371.     That is helpful but you did not actually answer the question.
  The question was, when are you going to reply in full to the report?
        (Mr Brown)  We will reply in the normal course of events.
        372.     Do you think we could have a reply before the election?
        (Mr Brown)  You will have a reply as quickly as possible.  I would have
  thought it would come quite soon, yes.
        373.     In paragraph 21, which is a summary of conclusions, (e):  "We
  are concerned that the Treasury as an institution has recently begun to exert
  too much influence over policy areas which are properly the business of other
  departments.  This is not necessarily in the best interests of the Treasury
  or the Government as a whole."  Do you reject that?
        (Mr Brown)  I have just explained, and that is why I was answering the
  question.  The Treasury is exercising less influence in many areas.  We do not
  control monetary policy.  The Financial Services Authority has been set up to
  deal with all the issues of financial regulation when we come to these in a
  minute.  Public sector pay was traditionally an area where the Treasury
  exercised such control that people complained about that.  The departments
  make their own decisions in relation to the pay review bodies, in relation to
  teaching, in relation to nurses' salaries.  All these are matters where
  devolution has taken place and I believe that you have got to balance the need
  to have an integrated approach on pensions and social security and work
  related benefits, where we have been active, with the very big measures of
  devolution that started the first few days that I was in the Treasury when we
  made the Bank of England independent.
        374.     The criticism, we have heard from some of the witnesses, is
  that through the public service agreements the Treasury is micro-managing the
  other departments and getting very much involved in the minutiae of the work
  of other departments.  Would you reject that?
        (Mr Brown)  Yes, I reject that, because it is the opposite that is true. 
  Instead of the old days where every iota of public spending representations
  was gone over in great detail by the Treasury, we have a three-year spending
  plan, we have the targets that have got to be met, and within meeting these
  targets there is a great deal more flexibility than existed before for the
  departments, including end year flexibility in relation to spending.  The old
  public spending system that we inherited was essentially not dissimilar from
  that created by Lord Plowden in the early sixties.  It was one year, it was
  ad hoc, it was incremental, it was based on failure to distinguish between
  investment and consumption, there was very little relationship between the
  private and public sectors in terms of investment programmes, and it was input
  driven rather than output driven.  As a result of the changes that we have
  tried to make over time it is three-year and therefore long term, it is not
  incremental; in other words when these spending reviews take place they look
  at the different things that departments are trying to achieve and not just
  at whether you have an incremental basis for awarding additional money.  It
  is driven by a distinction between investment and consumption.  It is driven
  also by a desire to bring private finance in where possible and there is a
  degree of cross-departmentalism that was missing under previous spending
  plans, for example, in Sure Start, the provision of services for the young,
  or work amongst drugs or services for the elderly, all the departments that
  have an interest in these matters are brought together.  In all these areas
  we have made big changes.  These changes give the departments more
  flexibility, not less, in a whole series of different areas.  I just point to
  this, which is totally unmentioned in your report, the measures of devolution
  that took place as a result of the first decisions we made when we came into
  the Treasury, which included making the Bank of England independent, creating
  a new Financial Services Authority and then, latterly, devolving public sector
  pay to the departments themselves.
        375.     Moving on to separate points in our report, Chancellor,
  paragraph 57, we say:  "Parliament lacks the resources necessary to hold the
  Treasury fully to account".  Would you be prepared to debate with the
  Committee, particularly in your formal reply before or after the election, and
  try to assist us in that and provide more resources to Parliament to hold your
  department to account?
        (Mr Brown)  I do not quite know what you are suggesting.  Perhaps you can
  tell me what you are imagining.
        376.     You referred to a Liaison Committee report and indeed a
  report by other Select Committees where we believe there should be officers
  of the House set up to enable Select Committees and individual MPs to have
  rather more information and rather more scrutiny of the accounts and spending
  plans.  That would require more resources.  I do not know whether you as the
  Chancellor would be keen to see that.
        (Mr Brown)  That is a matter for Parliament itself.  If Parliament
  decides, as it has in the past, that it wants to reform the Select Committee
  system and it wants to reform the way the Public Accounts Committee works,
  that is a matter for Parliament.  If Parliament wishes to vote additional
  resources for that to happen that is again a matter for Parliament.
        377.     What I asked you was for you to express a view on it.
        (Mr Brown)  I support parliamentary scrutiny.  I support the maximum
  parliamentary debate possible on these issues.  This is a matter for which you
  should not criticise the Treasury.  It is a matter where you ought to be
  looking at how you could improve or make suggestions for improving
  parliamentary procedures.  It is a matter in the end for Parliament itself.
        378.     With respect, Chancellor, the Liaison Committee, which is an
  all-party committee, has produced a report and put that forward.  I am asking
  you whether you would look at those reform proposals seriously to assist this
  Committee and other Committees to do their scrutiny job, which you said you
  supported, more effectively.
        (Mr Brown)  Of course I am happy to look at it.  I just stress to you
  that if Parliament wants a greater role in these matters it is a matter for
  Parliament to look at it in detail.
        Mr Davey:   We have and we are looking for your response, Chancellor.
  
                          Sir Michael Spicer
        379.     Can I just be quite clear, having chaired that Sub-Committee,
  exactly what you are saying, Chancellor?  Would you support something similar
  to the Congressional Budgetary Office that they have in the United States to
  look at Treasury matters?
        (Mr Brown)  I did not realise that you had recommended that.  Is it your
  recommendation?
        380.     It is one of the indications, yes. 
        (Mr Brown)  We would have to look at that.
        381.     What we have said is that there is a range of options that
  one could have.
        (Mr Brown)  Which one are you suggesting then?
        382.     I am asking you what your view would be about Parliament
  having something similar to that operation in the United States.
        (Mr Brown)  As I said, Sir Michael, I find it quite surprising that you
  have had an investigation into the role of the Treasury and you did not think
  of inviting a Minister to give evidence, but that is a matter for you,
  obviously.  As far as your recommendations are concerned, we will reply to
  your recommendations but I think you have misunderstood some of the changes
  that are taking place in the Treasury.  Perhaps if you had had a Minister
  before you as you undertook your work you might have seen that we have
  devolved a very substantial amount of our work, and rightly so, including the
  independence of the Bank of England which I believe you support.
        383.     In that case presumably there is a case for you giving an
  answer to this report as quickly as possible.
        (Mr Brown)  Obviously the priority over the last few weeks has been the
  completion of the Budget and we will look at these matters and deal with them
  as quickly as possible.
        384.     Within the next week or so?
        (Mr Brown)  I do not know about the next week, Sir Michael, but as soon
  as practicable.  We reinforce the view that I have put to you that there are
  substantial numbers of things in this report that appear to be wrongly based
  because you have not asked us in advance before you have made your
  recommendations.
        385.     That is a matter of judgment and view.  So far as
  parliamentary accountability is concerned you would, from what I have just
  heard you saying, approve of recommendations in principle which would
  strengthen parliamentary accountability of the Treasury?
        (Mr Brown)  In general terms yes, but obviously you have now got a range
  of proposals rather than simply one and we would have to look at them in
  detail and give you our views if that was the right thing to do.
  
                             Judy Mallaber
        386.     Chancellor, I would quite like to return to the details of
  the Budget, although it has been an interesting diversion.
        (Mr Brown)  I thought I was here to talk about the Budget actually.
        387.     You have already answered a number of my points that I was
  going to ask on tax credits but I do have a couple of other questions.  Mr
  Macpherson told us that 3.3 million have already claimed the children's tax
  credit.  That leaves 700,000 eligible families who have not.  Do you regard
  that as a good take-up rate or are you concerned about it and what are you
  going to do to catch those other 700,000 families?
        (Mr Brown)  We do not have all the detailed information about family
  finances.  Our estimate is in the order of four million.  The take-up campaign
  has been successful in getting quite a lot of people applying where they
  previously have not done so.  There is a history in Britain of people applying
  anyway for these things at the last minute, so I expect there to be more
  applications as we start the financial year.  Generally speaking we are
  introducing a new benefit.  It does take time for people to understand this
  tax credit and how it works because it is not simply a benefit; it is a tax
  credit and therefore over time I believe that there will be a greater take-up.
        388.     A number of MPs like myself have made suggestions about how
  to make the arrangements for other tax credits, particularly the working
  families tax credit and the children's tax credit, more flexible.  Are you
  able to confirm what I thought was Mr Macpherson's extremely helpful statement
  that you are shortly going to be looking very concretely at how to do this and
  how to make it easier to claim those benefits?
        (Mr Brown)  Yes indeed.  I think the integration of tax and benefits,
  once it is understood that a tax credit system works in such a way that you
  could receive money as well as pay money, there will be a greater public
  understanding there of it as we move forward.  As far as the working families
  tax credit is concerned, we are making it easier for people to claim it.  For
  example, where there is a new birth in the family and where the numbers of
  employees become one instead of two, we are making it easier for people to
  claim that benefit.
        389.     What about the eligibility for child care tax credit, for
  example, proposals that were maybe too limited in the range of child care
  arrangements that were eligible?
        (Mr Brown)  The numbers of people claiming child care tax credit from the
  original scheme under the last government have risen from something of the
  order of 40,000 to 50,000 to 125,000, so there has been a substantial increase
  in take-up, but obviously, as we said in the Budget documents, we are
  consulting on the precise definition of child care, particularly this issue
  of whether, if the child is being cared for in your own home, that could
  classify as child care for the purposes of the credit.
        390.     I am very conscious, previously being on the Employment
  Select Committee, of the detail of the evaluation that has gone on with New
  Deal.  What priority are you giving to evaluation and independent evaluation
  of how the tax credit systems are working both in terms of their take-up and
  of their impact?
        (Mr Brown)  As we introduce it we have been listening to what people have
  said.  There has been 30 per cent or more increase in the take-up of working
  families tax credit compared with family credit.  I think that is a
  significant figure.  We are listening to what people are saying and to what
  employers are saying as well, because obviously it is a new system for them. 
  I believe there are substantial benefits for employers in this system but we
  have got to help them make that work.  We will listen to what people say.  We
  have a group of people who are specialists in issues relating to children
  which meets regularly, as we do in relation to issues affecting women, so
  again we will listen to the representations that are made.
        391.     What mechanisms do you have for detailed evaluation and is
  any of that going to be conducted independently of Treasury?
        (Mr Brown)  There are studies being done but perhaps Mr Macpherson could
  say a few words about it.
        (Mr Macpherson)            As I said the other day, the Inland Revenue have
  commissioned a really quite far-ranging programme of evaluation using
  independent experts.  Inevitably it takes time for the results to come on
  stream because you have to analyse precisely what is going on.  That requires
  surveys and so on.  The Government I think is committed to publishing
  independent results.
        392.     Moving on to broad maternity arrangements, what do you think
  the net effect of those reforms is going to be on participation in the labour
  market, and in particular, as part of that, do you think it is going to assist
  where we have areas of labour shortage and has any evaluation been done on
  this?
        (Mr Brown)  I do not know about the independent evaluation and perhaps Mr
  Macpherson could mention that.  I can give you my view.
        (Mr Macpherson)            On the evaluation there has been a lot of work around
  the consultation process which has tended to confirm that the better the
  maternity pay arrangements the more likely it is that women will remain in
  contact with the labour market and therefore labour market activity will be
  higher than if you did not have these arrangements.
        (Mr Brown)  I would agree with that.  We are now seeing through the
  participation rates, particularly for lone parents, that the numbers of people
  taking up job offers is rising.  Since 1997 the numbers have risen from 42 per
  cent to nearly 50 per cent.  We anticipate these figures rising quite
  substantially in the years to come.  In fact, we have set an objective of 70
  per cent but that is over a long period of time.  I believe the combination
  of the working families tax credit and the helpful child care that is
  available is making it possible for people to have real choices.  You will
  know, having been on the Employment Committee, that the new programme, New
  Deal for Lone Parents, and the choices are coming in in April on a nationwide
  basis, and the experience of the original pilot suggests that there will be
  quite a marked take-up in job opportunities.
        393.     Would you accept that there is an argument for either
  tapering the small employer's relief or extending the limit for that so that
  you can scotch the suggestion that the new arrangements will actually deter
  firms from taking that link?
        (Mr Brown)  We are happy to look at these things as we see the effects of
  the introduction of the measure.  I would say that for a small or medium sized
  firm trying to attract new employees for the working families tax credit to
  be related to the wage packet, in other words the money that people receive
  at the end of the week or month, is an additional incentive that they can
  offer employees as they start work.
  
                               Mr Davey
        394.     Chancellor, how much Treasury financial support, cash from
  central government, will there be next year, 2001/2002, for the London
  Underground?
        (Mr Brown)  We are in discussions at the moment through the Department of
  Trade and industry's negotiations with the new London authority.
        395.     Trade and Industry?
        (Mr Brown)  It is DETR, sorry, who are in discussions at the moment.  It
  would be wrong to give figures that are part of our discussions.
        396.     How much was previously planned before these discussions?
        (Mr Brown)  What I can say is that the figures that we have set aside are
  not going to change and have not changed.
        397.     The figures you have set aside have not changed and are not
  going to change.  Can you show me where these figures are?
        (Mr Brown)  These are market sensitive figures.  We are in negotiation
  that involves private companies at the end of the line.
        398.     You publish for the Budget for public spending in some
  detail, as you remind us, so somewhere in this vast number of statistics
  presumably you have made some arrangements.  Is it a contingency fund?  Where
  would I find it if I were looking through the Budget Book?  You are interested
  in parliamentary scrutiny.  Where would I find it?
        (Mr Brown)  If you are interested in getting the best arrangement for the
  taxpayer at the end of the day you will respect the fact that these are market
  sensitive issues.  But of course the funding for the DETR is in the
  departmental expenditure limit.
        399.     So somewhere in the departmental expenditure limit for the
  DETR you have made some provision, some money that is not yet allocated, that
  you have not identified yet, which will go to London Underground for next
  year.  Is that right?
        (Mr Brown)  The allocations are in the end a matter for the DETR
  themselves.  I know that this Committee has normally in the past respected
  issues where there is market sensitivity.  I think you would understand
  yourself that when you are in negotiation these matters need to be recognised
  to be market sensitive.
        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 and 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.
  
                               Mr Beard
        420.     Chancellor, you have just mentioned the Myners Report.  How
  much do you think the implementation of the Myners recommendations is going
  to affect productivity growth and economic performance?
        (Mr Brown)  The Myners Report has now been published.  We have said we
  support its main recommendations. There is obviously a period in which there
  is going to be consultation on some of these detailed proposals that he has
  put forward.  We have said that we would consider legislation if necessary,
  but obviously many of the changes can be introduced by the companies, the
  institutions, the organisations themselves and we look forward to that
  happening.  I think the debate that is now taking place in the media and
  elsewhere shows the importance of some of the measures that he has put
  forward.
        421.     Do you expect them to have a significant impact on
  productivity when they are implemented?
        (Mr Brown)  I do believe that the role of the big institutions and an
  enhanced role in the economy could lead to greater productivity, yes.
        422.     If legislation may be necessary, for instance, to deal with
  the Minimum Funding Requirement, when may the legislation happen?
        (Mr Brown)  The legislation in the areas where we are committed to
  legislation will obviously happen as soon as possible.  I would like to see
  some of the other changes that he has recommended coming in by voluntary
  agreement.
  
                               Mr Fallon
        423.     Chancellor, we also took evidence on double taxation relief
  which was in last year's Budget and attracted a barrage of criticism from a
  number of British companies, including Vodafone who said you had got it
  completely wrong.  You then had to change it during the Finance Bill last
  year.  Now in this year's Budget you had further regulations, and the period
  of consultation expired yesterday I think, and your Mr Gibbs told us that this
  was a "final safety back check".  Given that you made a complete horlicks of
  double taxation relief, have you got it right now?
        (Mr Brown)  It was a change on double taxation relief that has been made
  actually in relation to moving from offshore holdings in this matter to
  dealing with it on-shore and I think that is an improvement.  As far as the
  Vodafone case you are referring to, that was not essentially double taxation
  relief, that was about the use of controlled foreign companies, CFCs.  That
  was a change that we recommended that I think most people have accepted is
  necessary.
        424.     If you have got it right now, your own Red Book shows on page
  150 that you are gaining five million next year, five million the year after
  and then losing 15 million in the third year.  What is all that about?
        (Mr Brown)  We never said that the purpose of these changes was simply
  revenue.  The purpose of these changes was to create a better system for
  multinational companies operating in the United Kingdom.  We are discussing
  the improvement of the system continuously with them.  When you look at
  changes as far as revenue is concerned, the whole problem of controlled
  foreign companies, and to some extent of DTR, is the protection of revenue
  that might otherwise have been lost if we did not take action and I think you
  have omitted that when you read out these figures.
        425.     But if you are trying to protect revenue, why have you got a
  net loss of five million over three years?
        (Mr Brown)  Because the danger was, particularly with the CFCs, that if
  the practices that had been devised by accountants continued there would be
  a massive loss of revenue over a period of time.  So the measures we took were
  to protect revenue.  I think people who have worked in the Treasury know that
  a lot of the measures we have to take in Budgets are measures to stop a
  loophole developing that leads to avoidance and, therefore, to the loss of
  revenue.  These are measures to protect revenue that might otherwise be lost.
        426.     I understand that but if they are to protect revenue why is
  the net loss five million?
        (Mr Brown)  Because we are looking at an improved system for dealing with
  the treatment of what are essentially the big international companies in the
  United Kingdom.  The purpose of the measure was not just to either protect
  revenue or, indeed, to increase revenue; the purpose of the measure was to
  create a more modern system for multinational companies operating in the
  United Kingdom.  That is why we are discussing with them, for example, the
  treatment of intellectual property.  We need a more modern system of taxation
  to deal with this issue of intellectual property.  We are also discussing with
  them, and there are detailed documents, the treatment of capital gains when
  there are the sales of subsidiaries.  Again, that is a modern issue that has
  got to be dealt with properly so that we can have a more attractive system and
  make us the best environment for international companies to operate in
  throughout the world.  So the change is, yes, to protect revenue but, yes,
  also to create a more modern system for international companies to operate in.
        427.     You keep calling it modernisation but there is a net loss of
  five million over three years.
        (Mr Brown)  But if you are modernising the tax system, for example,
  giving a tax relief for intellectual property, which is one of the things that
  we are proposing, then you will not get additional revenue from doing that. 
  You are prepared to sacrifice revenue to get a more modern system of taxation. 
  This is what the companies want and this is what we think is the right thing
  for Britain to be the best environment for international companies to locate
  in.
  
                              Mr Cousins
        428.     Chancellor, I wonder if I could ask you, in the Budget there
  is a very helpful proposal to raise the VAT threshold on small business but
  overall have you made any calculation both in terms of tax and the regulation
  that goes with tax of the impact of the Budget on small business?
        (Mr Brown)  The small company taxation as a whole has been cut from 23
  pence to 20 pence and there is a new ten pence rate for small company taxes. 
  Therefore, over a period of time the tax burden on small companies has been
  reduced by something of the order of 20/25 per cent.  The additional measures
  that we are introducing in this Budget are essentially helping even smaller
  companies that are not registered for corporate tax, they are often just
  registered for income tax.  There is a proposal to raise the VAT threshold
  initially and then to deal with a more simpler system with the VAT
  requirements of companies with turnovers of less than half a million pounds. 
  I believe that this could make it a lot easier for companies to operate.  It
  is itself a measure of deregulation.  We are consulting with the companies now
  on introducing it and we will be able to report back later on the progress we
  make on that.
        429.     Do you have any idea when you will be able to report?
        (Mr Brown)  I do not know if we have got a timetable for that but these
  discussions are taking place now.  I can write to the Committee and tell you.
        430.     Can I just point out that I am going to ask the Chancellor a
  question about life assurance, which is in the proposals for the Finance Act,
  and then go on and ask a question about Equitable Life.  I am drawing the
  attention of colleagues on the Committee to that, if it might be helpful to
  do so.  The suggestion is, according to an Inland Revenue Budget Notice, that
  there will be legislation in the Finance Bill to simplify the tax treatment
  of shares and life assurance products and to require insurance companies to
  give details of life policy gains to their policy holders.  That clearly must
  be a helpful thing, that policy holders are going to be kept informed of the
  gains in the life policies that they have.
        (Mr Brown)  Yes.
        431.     But do you not think that perhaps other information as well
  should be disclosed, for example about the policies on reserving and things
  like free asset ratios?
        (Mr Brown)  I think you are absolutely right to draw attention to these
  very important issues that sometimes we do not have time to discuss in detail. 
  It is true that we have taken a number of initiatives.  There are proposals
  on greater transparency and we have had the introduction of these better
  standards, CAT standards, that I think are a means by which we can protect
  people with policies.  Can I just bring the Committee up to date.  The FSA has
  obviously told this Committee itself that it is going to carry out a review
  of with-profits business.  It has a report into an issue that you may want to
  raise about Equitable Life.  We are commissioning an independent review of
  capital and information flows regarding personal investment products.  That
  is a broader scope than the FSA review.  The FSA review will concentrate on
  the amount of discretion management should have over with-profit funds and
  about greater transparency in how they work.  We are going to look with an
  independent review at capital and information flows regarding personal
  investment products as a whole.  I hope that the Committee will welcome that
  as a sign that we are taking seriously these issues in the modern context in
  which they arise, and that is the protection of consumers.
        Mr Cousins: Thank you very much, Chancellor, for that information. 
  Turning now to Equitable Life itself, and I am conscious of the time and I am
  also conscious of the fact that the Committee is engaged in a number of
  excursions already and I do not want to launch into another one, and I also
  think there is a distinction to be made between scrutiny and knockabout.
        Chairman:   Which has perhaps not always been observed this morning.
        Mr Cousins: That is for you to say, Chairman, I make no comment on
  that.
        Mr Plaskitt:   You just have done.
  
                              Mr Cousins
        432.     The Committee finds itself in a genuine dilemma here which
  Sir Howard Davies has described as being "new constitutional waters".  You
  have previously reproved the Committee, in my view correctly, for not inviting
  ministers to comment on the report on the Treasury.  Coming to Equitable Life,
  there is a genuine dilemma for the Committee.  The FSA is conducting an
  inquiry into its own record on regulation with the Treasury's record on
  regulation up to the point where the FSA took over as background.  Mr Roberts
  and Mr Allen, who were originally at the DTI, then went to the Treasury and
  are now at the FSA and throughout were responsible for the regulation of
  insurance companies.  Mr Roberts has absolutely explicitly and directly 
  refused to answer questions from the Committee about what happened prior to
  him moving to the FSA on 1 January 1999.  Sir Howard Davies intervened to say
  that in his view the Committee could not put questions to Mr Roberts about
  that and described this as being "uncharted constitutional waters".  I do not
  intend to press you on this point this morning but could I at least invite you
  to consider the situation in which the Committee finds itself which is a
  difficult one.  We must be in a position to make some enquiry into the
  regulation and its effectiveness prior to the FSA assuming responsibility on
  1 January 1999 and yet Mr Roberts, who was responsible for it in a practical
  sense, is refusing to answer the Committee's questions because he regards that
  as being part of advice to ministers which he cannot disclose to the
  Committee.  I do not intend to pursue the substance of this this morning but
  you will readily see the dilemma that the Committee finds itself in.  If you
  could see a way in which you could assist the Committee to find a way through
  that dilemma I think we would all be grateful.
        (Mr Brown)  Can I thank you for the way you have put this question
  because we are dealing with quite a detailed issue here and it goes back a
  number of years.  The Treasury was responsible for the prudential regulation
  of insurance companies from 5 January 1998 to 31 December.  Then it went to
  the FSA under contract to the Treasury and now, of course, to the FSA under
  the Financial Services and Markets Act.  The inquiry that the FSA is
  conducting is into the events surrounding the problems that Equitable Life
  have had.  I can just report to the Committee - and this may help Sir Michael
  in the issues that he raised with the Economic Secretary when she came to the
  Committee on 1 March - the Economic Secretary has replied to Sir Michael
  today, I do not know if he has got the letter yet, saying that "the FSA Report
  will, according to the information that we have, set out the background and
  events leading up to the point at which responsibility for prudential
  insurance passed to the FSA".  So that issue is not ignored in the report that
  is being conducted.  I have also said to you that the Treasury is going to
  look in future with an independent review at capital and information flows
  regarding personal investment products.  That is a more general issue, not
  precisely about individual companies.  There is no suggestion that the issues
  that have been raised are going to be left without any further investigation.
        433.     I do understand that and I do think that is helpful,
  particularly, if I may say so, the last point.  However, if it wishes to
  enquire into the effectiveness of regulation of Equitable Life, which is an
  issue of genuine public interest, before the period of the FSA's takeover, the
  Committee has effectively been prevented from asking those questions by Mr
  Roberts.  I fully understand Mr Roberts' position, I am not in any way
  criticising him, but there is a dilemma for the Committee.
        (Mr Brown)  Can I put it another way.  We must await, and I think it
  would be to the Committee's benefit also to await, the report of the FSA and
  then we can draw conclusions once we have seen what that report has said. 
  What I want to point out to you this morning, which I think deals with at
  least part of your point, is that the FSA Report will set out the background
  and events leading up to the point at which the Treasury and then the DTI
  passed over its regulatory responsibilities to the FSA.
        434.     And you would at that point ----
        (Mr Brown)  I think it is then for the Committee, having seen the report,
  to consider what action is next appropriate.  I just say on a more general
  issue that we are looking at some of the general points, as are the FSA, that
  arise from this instance.
  
                          Sir Michael Spicer
        435.     Two quick unrelated points.  Chancellor, have you had any
  second thoughts about IR35 in view of the disastrous effect it is having on
  small contractors, particularly in the computing industry?
        (Mr Brown)  The IR35 proposals were subject to a considerable amount of
  consultation and then they were amended in the light of the representations
  that were made.  I see no case for making a complete shift in the policy of
  the Government.  We will, of course, continue to listen to what people say. 
  We did analyse the effects that were likely to follow and it is not our
  evidence that there have been large scale movements out of the country and I
  do not believe that to be the existing position.
        436.     The other question, if I might, is just to ask you whether
  you will lend your weight to publication by Customs and Excise of the Rocques
  Report into the management of vast losses of revenue which seem to be apparent
  there now?  Particularly in the Sub-Committee we have been pressing very hard
  on Customs to publish their report, and so has Mr Rocques himself.  I just
  hope that ministers will put their weight behind it as well.
        (Mr Brown)  I think you should know the background.  The Chairman of
  Customs and Excise has already made a full disclosure of the revenue losses
  in the trust statement to the 1999-2000 accounts.  As far as the Rocques
  Report is concerned, ministers are considering this report.  No decision has
  yet been made on publication but I hear what you have to say on that.  Let us
  be absolutely clear, so that the Committee does know, this is dealing with
  losses of excise duties in the years 1994, 1995, 1996, 1997 and 1998 that
  amounted to the figures that were set out by the National Audit Office.  So
  we are dealing with a period that started quite a long time before we were in
  Government.
        437.     That may or may not be relevant, but the fact is there are
  management practices within Customs which the Committee has been quite
  critical of and which relate to what we understand to be some of the Rocques
  Report recommendations and the quicker these reach the light of day the better
  for the future I would have thought.
        (Mr Brown)  Appropriate action has already been taken by Customs to deal
  with the lack of controls.  Obviously I hear what your proposal is.  Ministers
  are considering the report at the moment but the actual findings, in fact, of
  the report as far as the losses are concerned are contained in the reports
  that have been made by the Chairman of Customs and Excise and by the National
  Audit Office.
        438.     I do not want to pursue this at this time of day but
  "appropriate action" are words that have been given to us by Customs and
  Excise on many occasions and we have found that the action has not been quite
  as appropriate as they have said.  I hope that this report will reach the
  light of day very soon.
        (Mr Brown)  Just so that the background is fully understood, when these
  losses were reported to the National Audit Office and to the Paymaster
  General, she immediately commissioned an independent inquiry into the matter
  and it is that independent inquiry we are now looking at.
        439.     Again, I do not want to pursue this but it was indicated that
  the report would be published very early in the new year and it has been about
  for some time now.  I repeat, I hope that you will give your weight to
  publishing this as soon as possible.
        (Mr Brown)  Ministers are considering the report at the moment.
        Chairman:   Thank you very much, Chancellor.