Select Committee on Treasury Minutes of Evidence

Examination of Witnesses(Questions 340-345)



  340. Yes, you did. When you did the 2000 CSR announcement you also did not stick to those firm totals you announced that day. You actually added more money on, did you not?
  (Mr Brown) We were able to put more money into schools and into the Health Service which I think was universally welcomed.

  341. So on those two precedents this CSR that you have announced this month, it is quite likely on your past form—you have got a bit of previous on this, have you not?—that you will not stick to those fixed spending totals? You might within the lifetime of this Spending Review allocate more money so that the figure could be higher, could it not?
  (Mr Brown) We have got to beat our fiscal rules. We have got to meet the rules that I set down, which means that there has got to be a current balance and also debt has got to be at a sustainable level. The spending plans I have set down are affordable and they are affordable on the basis of the revenues which we have raised.

  342. But they could be increased? That is what you did in the last two CSRs.
  (Mr Brown) The spending plans could only be increased if it was affordable to do so.

  343. But you might do it?
  (Mr Brown) We would have to base that on the meeting of our fiscal rules. As I say to you, Mr Ruffley, and I said earlier to you, we have set down our plans to 2006 and they are based on the revenues that we have also set down that are likely to be raised as a result of the measures that we have taken. The key question on this is, can you meet your fiscal rules? We have been fortunate enough to have done so over the last few years. I believe that it is a test of this Government that we will continue to meet the fiscal rules that we have set down over the next few years.

Mr Laws

  344. Chancellor, on page 167 of the Spending Review document it shows real spending by department over the Spending Review period. That shows that in every year of the Spending Review in real terms defence spending would have been lower than it was last year in 2001-02. Does that mean that you have pulled a fast one in relation to the perception of the settlement and do you know if there is enough money in this Budget if we have to fight a war in Iraq?
  (Mr Brown) Again, I do think the Committee must look at how these things work in practice. Where the settlement is drawn on the Ministry of Defence, it is for the full spending round on the basis of the capability that they need to have, but where there is an exercise entered into, in other words where troops are sent to Afghanistan or alternatively to Sierra Leone, as happened, or to Kosovo or to Macedonia, then there will be money available from the reserve to meet the costs of this exercise that was not foreseen and was not previously planned. What we are setting out to 2006 is the spending plans to maintain and in some cases increase the capability of our armed forces with new equipment, with the proper staffing levels, with the investment in the supply services to them, and that is absolutely right to do, but we have also got to recognise that the spending figures will be affected by the contingencies that arise where you have got to finance the one-off or the decisions to have exercises in particular areas, and that is how defence spending has worked for quite a long period of time and it is a sensible way of doing it. We have got to have them capable of taking action where it is necessary, but equally where there is action we have got to be willing to make provision from the reserve.

  Mr Laws: I will take that as a yes.


  345. Chancellor, a last question. On the 1998 PSA targets and this issue of productivity, and I know it is very dear to you and indeed this Committee will be looking at the issue of productivity as we go round different parts of the United Kingdom, the target that was set down then was to put in place policies to narrow the productivity gap relative to other industrialised countries over the cycle, and the outturn is partially met. If it is partially met did it partially fail as well? What input has the fact that the Treasury only partially met this target had on departmental funding and performance?
  (Mr Brown) I think this is a very important question. Our productivity target is essentially one for the years to 2010. That is actually what we have said publicly. It would be wrong to fail the Department of Trade and Industry because their target is for the years to 2010. What we are doing in practical policies is setting in place a regime for monitoring fiscal stability, which is absolutely crucial to productivity, and then setting in place—and this is the DTI's version of the Enterprise Bill, as I say,—the best competitive environment and that is the reforms in the Competition Bill. We have tried to create an environment that is inducive to investment and that is why we have reduced corporation tax and capital gains tax and small business corporate taxation. Equally, however, we know that the reforms that are necessary to increase productivity in skills and education will take some time and that is why the investment is going into education. Infrastructure is important to this and so too is the encouragement of enterprise. One of the things that we did do in this Spending Review in addition to the extra funding for education (important for productivity) was the extra funding for science. The science budget is going up I think by 10 per cent in real terms, a very substantial additional investment in school, college and university science, because we believe that that is going to be a very big driver of productivity in the future. Yes, we have put in place a number of major reforms that are necessary if you are going to be able to have the stability and the competitive environment and the right environment for investment in place to get productivity and growth and to achieve our aims by 2010. Yes, in this review education is better funded, science is better funded, services to small business and therefore to enterprise are better funded. One thing I should emphasise is that enterprise, education and schools are better funded. No-one will say that what we did in 2001 or 2002 was going to yield a result in enterprise education for schools in 2003, but the measures are in place for the long term boost in productivity that we want to see.

  Chairman: Can I say, Chancellor, that as a Member of Parliament with a constituency adjacent to Glasgow, the Fresh Fruit Initiative has been working well and I would like to see it open out just as well into the fruit yielded this afternoon. Thanks very much for your attendance. We look forward to meeting you again in the autumn.

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