Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 300 - 319)



  300. Could I have an answer to the point I raised?
  (Mr Brown) Yes. The major guarantees of course given by Government, as you know, are the London Underground, the Channel Tunnel Rail Link, Railtrack in Administration and Network Rail. Our reporting of these I think is more transparent than all other countries that I know of and have looked at and, therefore, our reporting standards in the UK are way ahead of those used by other countries. If we can give you a note on this I am happy to do so.[1]

  301. Rather than just wait for a note, Chancellor, I would like to get some impression, some feel for what you think the scale of these liabilities might be. Do you think they are five billion pounds, ten billion pounds, 20 billion pounds, 40 billion pounds? I noted for example, if you turn to your section on the Private Finance Initiative, PFI, page 229, and if you combine that with the forecast you have of further PFI projects that are likely to come that we are talking here about £44 billion of off balance sheet finance. This is effectively, much of it, public finance, it is finance conducted by the private sector but a contingent liability, and, underwritten by the Government which does not yet appear in any accounts. I wondered what proportion of that you thought would be prudent to write in as a contingent liability?
  (Mr Brown) I do not believe that we are operating a policy that is different from that operated by previous governments.

  302. Maybe we got it wrong, Chancellor, but I am asking you about yours.
  (Mr Brown) The question is are we doing something that is unusual or doing something that is a break with tradition. I do not believe that what we are doing is a break with the tradition of previous governments in this regard. As I said, the major guarantees which people will know about are the London Underground, and of course we are setting in place very tough arrangements as regards the role of the private sector in this; the Channel Tunnel Rail Link where deeds of guarantee and the obligations of London & Continental Railways given by Government are available for all to see; Railtrack in Administration and of course we hope that Railtrack will be out of administration soon and we have seen proposals put forward and responded to in that effect. These are the major liabilities. Departmental accounts will in each case detail their own liabilities and contingent liabilities. Departmental contingent liabilities, including guarantees above £100,000, are listed annually in supplementary statements to the Consolidated Fund and the National Audit Fund accounts. So what we do is quite in keeping with what has been done as a practice by previous governments and is completely consistent. Can I say, also, that we publish onward looking, forward looking estimates of the effect on the public accounts and I think we publish estimates right up to 2030.

  303. Could you refer me to the page for that, Chancellor?
  (Mr Balls) Annex A, page 145, which was an innovation of this Government which on the basis of cautious assumptions sets out the fiscal position up to 2032 and shows on the basis of cautious assumptions over the next 30 years we meet our fiscal rules.

  304. I have not yet found the annex you are referring to.
  (Mr Balls) Page 145.
  (Mr Brown) It is called A, Illustrative Long Term Fiscal Projections.

  305. Oh, yes, I have read that. You have got the list roughly right, Chancellor, but you have not put a number on it. What we really want to know and I think what the public want to know is by how much is tax or borrowing going to have to rise in future years as a consequence of the emergence of some of these contingent liabilities which the taxpayer will eventually have to pay for? Clearly you cannot give an exact number but you have not written in anything at all. You are smiling now, of course I would not expect you to come forward with an exact number but I would expect you to have some feel for what should be written in. Because in the absence of any indication at all the public will be right to conclude that these accounts are not a fair representation of the liabilities of the Government, that they understate the amount by which tax and borrowing will have to rise, is that not correct?
  (Mr Brown) Yes. I just read out what the European Commission and Council said about how we dealt with the problems of pensions and they praised us for having a better system of dealing with that than other countries. As far as the individual industries that I have talked about, companies that I have talked about, public sector reporting is subject to the same standards as the private sector and there is close independent scrutiny of what we do in all these areas by a number of bodies, including the National Audit Office, Public Accounts Committee and I think you know yourself, having been an advisor to a previous government, that we are doing exactly what previous governments have done and doing it in a consistent way. I do believe that we are operating in every way according to the rules. You are assuming that a contingent liability becomes automatically a liability, that is not the case.

  306. I am asking you to give a feel for what I should take account of.
  (Mr Brown) Equally, just to repeat the answer that I gave to Mr Plaskitt, because it is relevant here, the margin that we have won for ourselves by cutting debt very substantially, far below the 44 per cent that we inherited, to 31 to 32 per cent allows us to say that we can deal with eventualities as they arise. We have cut debt by something in the order of a third. We paid off £37 billion of debt last year and therefore we are in a position to deal with difficulties as they arise but I do emphasise that we are not operating a policy which is in any way different from that pursued by a previous government.

  307. One last question, Chancellor. You did say at the beginning of that answer that you thought that your practice and accounting practices here were consistent with private sector practice. In the light of the Enron scandal, do you not think that with a huge off balance sheet finance taking place there, that is exactly what the Government should avoid? Do you not think that what people are going to conclude is that this looks a bit like Enron economics?
  (Mr Brown) Perhaps I should add, the best of public sector reporting and consistent with the best of private sector reporting.

  Chairman: On tax receipts and expenditure, David Ruffley.

Mr Ruffley

  308. Chancellor, is the tax burden higher this year than the tax burden you inherited in 1997?
  (Mr Brown) The tax burden is falling this year and it is falling in the coming year. I am very happy to read out the figures to you. I am just going to get them for you.

  309. Can you read the whole sequence? Next year, the year after, the year after that. I will do it for you. In this year, 2002-03, it is 36.7 per cent, it rises to 37.6 per cent in 2003-04, the year after that it goes up to 38.1 per cent, the year after that it goes up to 38.3 per cent, so the tax burden is rising, is it not?
  (Mr Brown) The figures are as read out but you will see in these figures that the tax burden actually falls this year and falls in the coming year and then rises as a result of something that I announced in the House of Commons last week that I think everybody knows about. There is no secret about that, that is a rise in taxation to pay for the development of our public services and to pay for our health services.

  310. It goes up next year, it goes up the year after that and it goes up the year after that and this year that we are in compared with 1996-97 it is higher, is it not?
  (Mr Brown) Can I just read out the figures so everybody knows. 2000-01 37.7, falling 2001-02—that is the year just finished—to 37, falling again this year to next year 36.7, rising for the reason that everybody knows, a rise in National Insurance which I announced to the House of Commons just last week by one per cent to 37.6, and I may say that all these figures up to 2003-04 are lower than the estimate for taxation that we inherited from the previous Conservative Government which was 37.9 per cent by the end of the five year period when they left office.

  311. You inherited a tax burden of 35 per cent.
  (Mr Brown) We have managed the public finances and the tax revenues prudently.

  312. You inherited a tax burden of 35 per cent, did you not?
  (Mr Brown) Sorry?

  313. You inherited a tax burden of 35 per cent?
  (Mr Brown) We inherited figures—

  314. That is Table C23.
  (Mr Brown) The figures that we inherited were a tax burden which was going to rise from 35.8 to 36.2.

  315. Chancellor, I find it extraordinary that you cannot even read things out from your own Red Book.
  (Mr Brown) You asked me what were the figures.

  316. It is extraordinary.
  (Mr Brown) You asked me, Mr Ruffley, and let me finish this answer. Mr Ruffley asked me to say what was the tax burden we inherited.

  317. Thirty five.
  (Mr Brown) The figures that were in the last Budget before we came to office were a tax burden rising from 35.8 under the Conservatives, if they had continued in office, to 36.2, 36.5, 37.0, 37.5 to 37.9, higher than any figure in the tax burden that I published up to 2003-04. So the Conservative tax burden was higher than what we have done.

  318. Can I read your own figures and those who are interested can look at it on page 237. The actual outturn in the year that Kenneth Clarke left office was 35 per cent.
  (Mr Brown) They published figures for the next five years.

  319. Can I move on and ask you of the tax increases you have introduced since coming into office, what proportion of those have been your policy changes?
  (Mr Brown) It is impossible to do that because of the changes in the behaviour of the economy, the changes in the labour market, the changes in the international events. What people do know is that the decision we announced last week to raise extra funds for the National Health Service and the public services will mean that National Insurance will rise by one per cent for both employers and employees and that is a decision to raise money for the public services.

1   See Appendix 8. Back

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