Examination of Witnesses (Questions 420
TUESDAY 11 DECEMBER 2001
MP, MR ED
420. When you introduced the Working Families
Tax Credit as a consultative measure in the PBR you did give an
indication of the costs, why have you decided not to do it this
(Mr Brown) The consultation has just completed. We
have not been in a position to make final decisions and, therefore,
final estimates. The right time to do so as a result of the completion
of consultation, the absorption of all the detail of it is not
in a rush a few days after the consultation completes but, as
I have said in this document, in the Budget. I would think you
would approve of that.
421. Last year in your Pre-Budget Report you
put out some other proposals, mainly on transport measures, which
went out to consultation and there you also put the costs in.
Why is it that these other measures have costs attached to them
but not your Working and Child Tax Credits?
(Mr Brown) Because the consultation has just completed.
We have got to absorb what has been said and then we have got
to make our decisions. It is not as if it is not explained in
the Pre-Budget Report. We have explained that is what we are going
to do, make our decisions in the Budget.
422. Can I just read to you what Andrew Dilnot
said about this very issue. He said "It seems to me astonishing
that Parliament, or indeed the public, can be asked to take a
view as to whether these measures will effectively tackle poverty
and work incentives when we do not know what they will be. The
response that final levels need to be set in the Budget seem to
me entirely inaccurate". Have you any response to Andrew
(Mr Brown) I do not accept that. We have had a period
of consultation, the consultation has meant regional visits around
the country with ministers listening to what people have got to
say. We have had written representations from everybody, including
the Institute of Directors and the child lobby groups that are
very active in this field. I have met some of the groups who are
involved in this and we have said we will look at the representations
and then make our decisions. It seems by far the best way of moving
forward. I think you would be the first to complain if the consultation
had ended a few days ago and had we announced the decision without
looking at all the detail that has come in the consultation period.
423. No-one is suggesting that you should have
announced the decision, I am suggesting that you should announce
some indication of the likely costs, or even a range of those
costs, so that people can get a more accurate impact of the overall
effect of your fiscal measures that you have announced. You have
taken political credit for having announced this, indeed I think
it was leaked to the press before the PBR
(Mr Brown) I do not think so, no.
424. And we have not had the bill. We would
like to know roughly what the bill is.
(Mr Brown) That is a matter for discussion when we
put the figures forward in the Budget. You have got to complete
your consultation, and then absorb it and then make your decisions
and that surely is the right way of going about things.
425. In your Code For Fiscal Stability, which
I have got here in front of me.
(Mr Brown) Exactly.
426. It seems to me that any reasonable person
reading paragraphs 15 and 16 of this would conclude that you felt
there should be three months for consultation and that three month
gap would enable numbers to be published which would give some
estimate of the overall impact on fiscal policy. It seems to me,
as we had suspected, this Code For Fiscal Stability is not quite
what it was cracked up to be.
(Mr Brown) Quite the opposite. We say that where you
cannot publish the figures because your consultation is not yet
complete or whatever
427. It does not say that anywhere, Chancellor.
(Mr Brown) You note in the pre-Budget if there are
risks, and we have noted this in the paragraph that we have just
been talking about.
428. May I just read to you a passage in response
to that point. It says the "The PBR should be consultative
in nature and should include so far as is reasonably practicable
proposals for any significant changes in fiscal policy, ie a fiscal
stance". Do you not think it is reasonable to suppose an
announcement for several billion pounds of tax credits might alter
your fiscal stance?
(Mr Brown) It might be better if you had read the
whole thing out. ". . . where the fiscal impact of these
decisions and circumstances cannot be quantified with reasonable
accuracy by the day the projections are finalised, these in fact
should be noted as specific fiscal risk" which is what I
have told you we have done in the paragraph that we are talking
about. I think this is based on a misunderstanding. You are assuming
that the measures that we are talking about are going to be introduced
in April 2002, they are not going to be introduced until April
2003, they are months away from their introduction. Therefore,
to make the decision in the Budget seems to me entirely reasonable
particularly since the consultation only finished a few days ago.
429. I think the outer years of your forecast
will be something that the Monetary Policy Committee will want
to take an interest in in the light of the experience we have
(Mr Brown) That, of course, is a matter for the Monetary
Policy Committee because, as you know, they are independent.
430. Chancellor you referred to the IMF paper,
it is a pity we did not get it earlier, we only received it this
morning. It is a very important paper. I will quote from it regarding
the Child Trust Fund which says "The merits of introducing
the Child Trust Fund should also be closely scrutinised in the
light of the risk that it might displace savings and reduce the
attractiveness of Individual Saving Account." This theme
was echoed by IFS in their evidence to us where they are saying
what they would regard as a comfortable level of Minimum Income
Guarantee, whatever, you are establishing, this floor you are
establishing will provide a disincentive to the savings in the
long run. What answer do you have to those points?
(Mr Brown) I am going to ask Mr Balls to say something
about this. It is, of course, an issue on which we are asking
for further consultation but can I just point out to the Committee,
so that there is no discourtesy to the Committee, the IMF mission
only left the country last night. We were only given the report
yesterday evening and, therefore, we published it at the first
available opportunity. I could not have given it to the Committee
any earlier than I did. We published it within the spirit of openness
and transparency as quickly as it was available and I hope the
Committee will understand that.
(Mr Balls) Just to say, Chairman, we published a first
document on savings and the Savings Gateway a year ago. We published
a more detailed consultation document around the time of the Budget.
What we have now done is produce a further and more detailed set
of questions for consultation on the Child Trust Fund because
obviously, given it is something you can only introduce once and
then it needs to be in operation for a number of years, the design
has to be absolutely right. As for the Savings Gateway, there
are a number of difficult issues which need to be sorted out to
make sure it works properly and that we do not have any difficulties.
That is why we have decided to have a range of pilots which will
come in next year in a limited way which we can examine in detail
before moving to a wider scheme. It is because we value the importance
of consultation that we have taken this careful and staged approach.
431. You are conscious of this charge of disincentive
(Mr Balls) That is exactly the kind of issue which
we are looking at in the second round of consultation on the Child
432. Chancellor, will the new exemptions from
Stamp Duty in deprived areas not simply be pocketed rather than
passed on to reduce the cost of buying a home?
(Mr Brown) It is an attempt to get greater economic
activity in areas which have traditionally had far less activity
in the housing market and the business sales market related to
property. We will have to see the effects of it over a period
of time. I think it will make a difference, it will encourage
people to develop in these areas, but we will have to review the
evidence after a period of time.
433. Given that houses under £60,000 do
not pay Stamp Duty at the moment, do you have any estimate of
the proportion of houses in these disadvantaged areas which will
be affected by the scheme?
(Mr Brown) I think it will be quite a
high proportion but we will send you a note on that.
434. Thank you.
(Mr Brown) Obviously you are dealing with a large
number of small areas which are eligible for this but I do want
to emphasise that first of all this is a measure not just related
to houses, it is related to commercial properties. We are going
to produce further measures on this in the Budget because they
will have to be legislated in the Finance Bill. The measures in
relation to Stamp Duty are only one of a number of measures to
try and resurrect activity in some of those areas which have had
high unemployment and too little activity for too long. It is
based on the principle that it is economic activity that holds
the key to the future of these areas. We have, for example, reduced
VAT on conversions in some of these areas from business premises
to flats and everything else. We have also got higher allowances
for cleaning up areas that have been derelict and we are trying
to work through the local agencies which are trying to regenerate
these areas. The Community Investment Tax Credit is another part
of this where we are helping with a tax credit to encourage new
enterprise in these areas. There is going to be a New Community
Venture Capital Fund which I think will be coming at about £40
million which charities as well as business companies and Government
are contributing to, so it is part of a package of measures designed
to regenerate some of the areas in our country which for too long
have been neglected.
435. Declaring an interest as an MP whose constituency
is generously prosperous but has deprived areas, do you agree
that as a general objective of public policy in this type of area
that we ought to be targeting it down to ward level rather than
(Mr Brown) I think there is a balance to be struck,
obviously, between the simplicity of doing large areas and the
need for targeting because in some cities such as London, they
are side by side with very deprived areas and very prosperous
areas so we have to get the balance right. We have tried to do
that in the way that we have formulated the Stamp Duty exemption
but obviously we will review this over a period of time.
436. Moving on to the Savings Gateway, we discussed
it with Mr Holgate last week and there was a little bit of uncertainty,
one of the questions was whether it would offer a pound for pound
matching for any saving, Mr Holgate said, well, he was not sure
that had actually been decided. He was asked then whether he was
reigning in the Secretary of State and he said he would not do
that. Can you clarify, Chancellor, will there be a pound for pound
(Mr Brown) The consultation is continuing on that,
we have not made final decisions.
437. Are you worried that the Savings Gateway
may lead to unscrupulous lenders targeting, for example, to access
the 100 per cent return and, if so, what measures can you take
to avoid this?
(Mr Brown) This is an issue we will have to take account
of when we are making our final decisions but perhaps Mr Holgate
will want to add to his answer.
(Mr Holgate) Yes. There are several features of the
scheme which, I think, will mitigate the risk. But I would not
pretend, given how unscrupulous loan sharks are, that anything
will avoid them entirely. The first point is that people will
only be expected to save small monthly amounts of up to £25
so there will be quite a lot of shoe leather costs in undermining
that. Second, there is a lock in of the matching funds to maturity
of the fund, which means there will be at least 40 months before
the saver realises any gains, so again there is quite a lot of
working capital that will be tied up. There is also, of course,
going to be education and information to be provided through the
Savings Gateway which will reinforce the point that savings should
be a regular and sustainable habit. This draws on evidence from
the US IDA programmes which show the effectiveness of financial
education. Then we are also planning to build in flexibility to
the Savings Gateway so that savers can take payment holidays without
the loss of potential matching which will reduce, again, the incentives
for them to have to borrow in order to maintain a regular flow
of payments into the Gateway. Finally, as I did say last week,
obviously this is something that we will be hoping to learn more
about from the pilots. I think you can see there are a number
of attributes there which make it more difficult to undermine
than it might otherwise have been.
438. Thank you for that amplification. A final
question: do you feel, Chancellor, that it is realistic to expect
the Savings Gateway to actually change individuals' savings behaviour
and develop a regular savings habit beyond the £1,000 limit
given the way that really many of our constituents are struggling
to make ends meet at all? Can we reasonably hope that this is
going to happen?
(Mr Brown) The evidence that I think is useful in
this, as Mr Holgate said, is from the United States where there
has been the testing of these matched savings schemes in pilots
for Individual Development Accounts. They have helped lower income
individuals save. I think the latest findings show if you can
combine the financial incentives that we are talking about with
education about the merits and the benefits of savings with institutional
support through the creation of savings accounts that are targeted
at lower income groups then you can overcome the obstacles to
saving that are clearly a problem and something that we as a Government
ought to be doing some more about. That is why the evidence from
the United States and the common sense approach says if you can
combine the incentives with other measures that encourage savings
then you might be able to make a difference, and we believe we
439. Chancellor, you have helpfully promised
a number of Members notes this morning, can you ensure that your
officials send them either to myself or to the Clerk so that all
the Members benefit from that.
(Mr Brown) Yes. They will be addressed properly and
8 See Ev 65. Back