Select Committee on Treasury Minutes of Evidence


Examination of Witnesses(Questions 240-259)

RT HON GORDON BROWN MP, MR ED BALLS, MR NICHOLAS MACPHERSON AND MR ADAM SHARPLES

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 British policy.

Mr Tyrie

  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. Thank you.

Mr Laws

  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 standards—even 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 finances—in 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 believe—and I hope I have not misunderstood what I have received as information about the witnesses to the Committee—that 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 areas—reform, inflation and growth—you 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 public services?
  (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. [4]

  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.

Chairman

  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 improvements—that 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 services—you mentioned world-class public services—in the next few years against this background of low productivity and new entrants into the public sector?
  (Mr Brown) Every individual department—and again this will no doubt be picked up when the departmental reports come out—is 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 the moment.

Mr Cousins

  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 think—whoever was in power—they 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 well.

  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


 
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