Examination of Witnesses(Questions 240-259)|
MP, MR ED
THURSDAY 18 JULY 2002
240. So it has nothing to do with the trend
rate of growth?
(Mr Brown) You see, I have always referred to "boom
bust" together and meaning what I talk about "stop go".
241. It is a meaning of sense perhaps. I am
just trying to extract some meaning here.
(Mr Brown) Not at all. Mr Tyrie, the one thing you
cannot deny about British economic policy over 40 years, including
your governments as well as Labour governments over 40 years,
is that there was a history of stop go and there were very violent
economic cycles not repeated in many of the other countries with
which we want to compare ourselves. If you want to deny that was
the reality of British economic
Mr Tyrie: Of course not. I am just asking
for definitions. I do not think there is any sort of denial.
Mr Ruffley: There is only denial going
on from that side of the table.
(Mr Brown) I talk about boom and bust together, and
it is the combination of the two that has been the problem for
242. We have a definition of "bust".
Are you prepared to give me a definition of "boom"?
(Mr Brown) I said when inflation went into double
figures, and therefore was unsustainable growth.
Mr Tyrie: Well, I expect you will have
put an end to "boom and bust" on those definitions.
243. When you finished your spending statement
on Monday, we had seen an increase since you became Chancellor
in 1997 in public spending from about £317 billion a year
to £511 billion, which is a pretty large rise by anybody's
standardseven by Liberal Democrats' standards!
(Mr Brown) We may have to disagree early on in this
questioning because I think I was being asked for more by the
Liberal Democrats, even in the first few minutes after the statement!
244. When you got back home that evening, over
a quiet celebratory drink or just before bed, did you have any
last minute concerns about whether this big spending plan to improve
public services is going to work? What, in your mind, are the
risks that you will put in this extra money and will not get a
very significant tangible improvement?
(Mr Brown) There are two questions here: one is whether
it is sustainable in terms of the public financesin other
words, revenues and expenditures coming together, and I believe
this is what we have been taking about earlier on.
245. Yes. We have dealt with that.
(Mr Brown) It is sustainable, and I do believeand
I hope I have not misunderstood what I have received as information
about the witnesses to the Committeethat people were saying
it was sustainable in the fiscal sense. On the question of the
results, I do believe that in the last few years we have shown
that public expenditures on, for example, primary education have
yielded very substantial results and I do believe in, for example,
the new areas where we have expended quite a deal of money, we
have achieved results that have surpassed even some people's expectations
about what could be achieved. So I believe experience has taught
us that the areas where expenditure is clearly targeted, where
we know what we want to achieve, and where we have efficiency,
that we can get value for money and we can achieve results.
246. Are you worried, Chancellor, that public
sector pay will gobble up too much of this money or that some
of the various departments involved which you cannot control directly
(although you do to a certain extent) will not force through the
reform agenda that you believe should go in tandem with investment?
Are those two elements elements of risk to delivery?
(Mr Brown) The measures we have put in place, which
are by agreement with the departments, are designed to ensure
that the reform is put in and the reform gets results. I know
it is controversial and it has been commented on in the last few
days, but the system of inspection that we are bringing in is
a better guarantee for the public that standards will be met or
at least if standards are not met people will be able to see what
needs to be done and why it needs to be done. I hope that there
will be consensus between all the parties on the need for this
statutory inspection to be put in place in all the different areas
where it has been reformed and where new measures have been announced.
As far as pay is concerned, I said on Monday that just as private
sector pay had to be linked to performance so, too, have those
people looking at local authority or at the public sector in terms
of pay have got to be responsible.
247. Do you see any signs at the moment that
public sector pay is rising unacceptably rapidly?
(Mr Brown) The evidence of average earnings growth
in this latest figures is 3.8 per cent in the private sector and
3.8 per cent in the public sector. There was a period of months
where private sector growth was slower than public sector growth,
but mainly in the period from 1997 public sector growth has been
slower than private sector growth.
248. To sum up, Chancellor, in these three areasreform,
inflation and growthyou are pretty confident and what you
are saying to us is that in three or four years' time you have
a very high level of confidence that the Government will have
delivered a quite significant, massive, tangible improvement in
(Mr Brown) I would not be complacent at all. It is
a huge challenge. I am confident that we have put in place a sustainable
fiscal position to deliver improvement in public services and
therefore the additional spending you mention, the numbers you
mention, can be afforded. I am confident also that new systems
of scrutiny, inspection and audit will allow us to have proper
accountability of how the money is spent. The departments themselves
are making the reforms. I believe that they are on the right track
and I think each departmental committee will be looking at how
these departments are performing.
249. Can I ask you a final question on this
point on a small area of spending. You will understand that now
expenditure is increasing so rapidly, people are going to be looking
very carefully at every item of expenditure to see whether it
is justified. Do you personally believe that it is justified that
the taxpayer should be subsidising an element of the proposed
improved pay package for Members of Parliament in term of pensions?
(Mr Brown) I do not know if you have looked at the
Answer in detail. The Treasury was asked by the House of Commons
after a vote to provide funds to move from one-fiftieth to one-
fortieth on the final salary scheme, and we refused to do so.
250. You are still going to be putting in subsidies
if this pension scheme for MPs goes through. There is still going
to be a contribution from the taxpayer in the early years.
(Mr Brown) I am happy to write to the Committee on
that but on that essential proposal which would be have been a
costlier proposal we refused it. 
251. I am asking, Chancellor, whether personally
you are happy that taxpayers' money is going to be going into
subsidising part of the improvement in MPs' pensions?
(Mr Brown) This has been a set of negotiations which
arose, first of all, from a vote by the House of Commons. Then
it was referred to the Salaries Review Board. The Salaries Review
Board have now reported saying that the changes they will be making
in the pension scheme will have to be taken into account when
they make their next recommendation about salaries
252. Chancellor, is the answer yes or no? You
are evading the issue, I fear.
(Mr Brown) I would not be happy if excessive amounts
of public funds were put into the pension settlement.
253. Are you happy that
(Mr Brown) We will have to see what happens when the
Salaries Review Board reports on these matters.
254. Chancellor, on the issue of productivity
we have had a number of papers, one from the CBI in particular
which stated that it was disappointed that the last four years
of productivity have not been up to your expectations. In fact,
they mention that between 1995 and the year 2000 productivity
in the private sector was 25 per cent and productivity in the
public sector was 17 per cent. To what extent, based on their
figures, do you consider that the Spending Review will have to
finance the inefficiency of the public sector?
(Mr Brown) I think what we have got to recognise is
that there are two parts of this process. First of all, when you
are expanding either as a company or as a service often your employment
is expanding ahead of your productivity. What happened in America
in the 1990s was that employment expanded in the first few years,
there was less productivity gain at that point as new employees
were absorbed, and the next stage was the big productivity boost
that came in the American economy. Obviously there are other factors
at work in each different economy, but I do believe that the employment
gains we have had should be noted and as employment increases
in the private sector and the public sector, my own view is that
we have put in place a number of the measures (there are more
to go)stability, a competitive environment, an education
and skills policies and infrastructural improvementsthat
are necessary for productivity to expand in the future but, of
course, we wish to see higher productivity and I believe there
are still measures that have got to implemented to achieve higher
levels of productivity.
255. I ask that question against the background
you have given a huge boost to the public sector. The CBI estimated
we could be talking here about another half million workers as
a result of that. You yourself said that when workers are taken
on, to begin with, productivity is low and that productivity comes
later on. Are you confident therefore that you can deliver the
public servicesyou mentioned world-class public servicesin
the next few years against this background of low productivity
and new entrants into the public sector?
(Mr Brown) Every individual departmentand again
this will no doubt be picked up when the departmental reports
come outis looking at how they can get efficiency and greater
value for money and therefore the use of skills they have for
higher productivity growth. One problem with the public sector
that I think we should be aware of is how you estimate or how
you quantify productivity gains. Thus you can have reports that
say, "We have tried to quantify this but we have not got
no ability to estimate so far what has been the improvement in
the quality of life as a result of this." It is quite important
that we recognise that measures of public sector productivity
are not in the most advanced stage and in some cases in quite
an infant stage and that we will try to do better in finding measures
for estimating productivity in the public sector in the future.
We are not at a stage, and I do not think any government in Europe
or America is, for having the best measures of productivity at
256. Can I bring you back to this question of
public sector pay. My Liberal colleague here was tempting you
to be rather tough about pay in the public sector, it would seem
to me, and you seem to be going along with it. You would not want
to be known as "Grudging Gordon" by the dinner ladies
of Britain, would you?
(Mr Brown) If you are talking about dinner ladies
of Britain, the measures that we have put in as a Government,
both to have pay rises that local authorities are negotiating
that are above inflation and the Working Families' Tax Credit
with the new Employment Tax Credit on the way, means that many,
many people are better off. I do hold to what I said that there
is an overall amount of money available for public services. We
have set these figures to 2006. If the money to be used in public
sector pay was not available to recruit new workers to improve
the service that would be a loss to the country as a whole.
257. That is fair enough. I would like to make
clear that Bob Crowe did not buy my dinner today, but you do recognise
that there is a need for increases in public sector pay to recruit,
skill and retain public sector workers?
(Mr Brown) I want to see everyone rewarded fairly
for the work they do but, equally, we have got to understand that
our process of setting down figures for what is available to the
public services and setting that down to 2006, in other words
for each year to 2006, shows exactly the limits of the offer that
is made available. There is a choice at the end of the day between
the money that goes on pay and the money that can go to employ
more people and improve the facilities or services. That is a
choice that each local authority and each service is making.
258. Yesterday we had some discussion with Mr
Macpherson about this very disappointing outturn in capital spending
in some key departments last year, particularly in Education,
the Home Office and Trade and Industry. There are some very key
programmes with very significant underspend on capital. These
are areas where you are planning to spend enormous sums of additional
money in the next three years. Now, have you got some way of improving
capital spending there?
(Mr Brown) Yes. There are public service departmental
investment strategies which are being produced. This is, and has
been, an undeveloped area for public sector activity over the
years. Public sector capital projects have never had the attention
in the past that I thinkwhoever was in powerthey
deserved. Obviously there is a complicated factor now with the
growth of PFIs and getting the right deals, where the transfer
of risk or the managerial improvement is achieved. If you take
education, where there has been an underspend I think you can
see in place, whichever part of the country you look at, quite
ambitious plans now for school building, school repair, college
and further education establishments being expanded. The capital
programme is getting into place. If there is some slippage, the
answer would not be just to spend every bit of money before the
end of the year, the answer under our three year spending regime,
with end year flexibility, is to make sure the project is done
259. You have mentioned various parts of Britain
there. There is a very strong emphasis in the Spending Review
on variations between regions and tackling inequalities which
affect certain parts of the country. I just wonder, Chancellor,
when can people in the North East from my region expect to have
as much spent on health and education as the people of Scotland?
(Mr Brown) We do wish public spending to be based
on need. There is the historic Barnett Formula but equally I do
point out that for areas which have low levels of employment over
a period of time and high levels of work place poverty and low
incomes, the New Deal, the Working Families Tax Credit, the Employment
Credit, the Children's Tax Credit are putting very substantial
additional sums into the region and that is as a result of us
wanting to do better by those people who have either low pay or
those people who have lower incomes. That is nothing to do with
the Barnett Formula, it is entirely to do with the needs in employment
and the needs in pay and the needs in family income.
4 Ev. 46. Back