Examination of Witnesses (Questions 380
WEDNESDAY 24 APRIL 2002
380. I will let other people draw their conclusions
from that exchange but to come on to the other issue of fairness
that people are concerned about, what people are saying is that
you were driven by the promises you made in 1997 and in 2001 in
your manifesto not to increase income tax rates and, therefore,
you had to change to another tax, employee NICs and employer NICs,
which they are arguing have damaging economic effects compared
with income tax. We have discussed the employment issue already
and I will not go back to that but I am not sure that your theory
stands up to much. Let us look at the issue of fairness now: I
understand how you tried to address the impact of employee NICs
on fairness by effectively abolishing the upper earnings limit
but there is stilland I notice you do not challenge that?
(Mr Brown) SorryI am about to answer your question.
The upper earnings limit remains. I announced the upper earnings
limit in the Budget itself.
381. I think that is the subject of another
(Mr Brown) Do you want me to run through the figures?
It has risen from £30,420 to £30,940. That is the upper
382. Chancellor, since you insist on raising
it, you will be aware very well of what the definition of the
upper earnings limit is, and I refer you to Tolley's National
Insurance Contributions which is the standard reference: "The
upper earnings limit. . . is the maximum amount of weekly earnings
in respect of which [employee]. . . contributions are payable."
It is clearly not the case that that is the maximum because you
pay them all the way up the scale, so the upper earnings limit
has been abolished
(Mr Brown) I think it says "payable for contributory
benefits" actually, if I can just clarify that.
383. Employee contributions.
(Mr Brown) Yes, for contributory benefits.
384. The definition of which, under Tolley's,
is employees, and I am very happy to take the time to argue that
Chairman: Could you wrap this up?
385. Let us go on to discuss this issue of fairness.
The way you have chosen to impose this tax increase to employee
NICs means that wealthy people who are not in employment will
get off making a contribution, and you will be aware that examples
were cited in the newspapers this weekend of Lord Sainsbury who
receives his income not in a way that will cost him in terms of
National Insurance contributions.
(Mr Brown) I think you mean that he does not take
a salary for being a Government minister, therefore he does not
pay National Insurance on something he does not take as a salary.
386. No. This is referring to his work at Sainsbury's
and I will read it to you: "He pays income tax on this money
but avoids having to pay National Insurance contributions because
he is not an employee of the company". Now, there are many
other examples of people who receive their income from sources
other than employment, and all of those people will avoid paying
this additional charge. Does that really make any sense?
(Mr Brown) We chose National Insurance, as you know;
we have excluded pensioners from making a payment because it did
not seem to me right that pensioners should pay more when they
were older towards the National Health Service if we could avoid
it, and therefore the National Insurance route seemed the right
route to take. In addition, through National Insurance employers
and employees pay some share towards it and, while you may disagree
that employers should not pay any contribution, I think, given
the nature of health care systems around the world where employers
in almost every system pay some contribution to health care costs,
it was right to do it in that way. As you also know, historically,
since the 1940s, in what has been a very complex system of National
Insurance from the Beveridge Report to the original implementation
of the National Health Service Act, there has always been a certain
element of National Insurance set aside for the National Health
387. But it is not fair, is it, that somebody
who is retired from work and has a large amount of investment
income is able to make no additional contribution whereas somebody
on low income in work will make a contribution?
(Mr Brown) You are acting as if there are no other
taxes levied on anybody. People
388. We are talking about the extra amount for
the National Health Service.
(Mr Brown) Yes, but people will pay their other taxes
in the normal way
389. Of course. Nobody is questioning that.
(Mr Brown)and, therefore, they will pay their
tax as before. The question, however, was what was the best way
of improving the resources available to the public services, and
the National Insurance system excludes pensioners but also includes
employers and employees.
390. In today's forecast by the European Commission,
they are predicting that unemployment will rise very slightly
in the current year by 0.2 per cent but interestingly, after the
National Insurance rise comes in, it will not rise further. In
fact, they are saying they are expecting a tighter labour market
in 2003. You have not specifically been asked about unemployment
so far. Does this correspond roughly with your assessment of a
(Mr Brown) We never make forecasts about what is going
to happen to unemployment and I am not going to start this practice
now, but I think the record is that the European Commission probably
predicted that unemployment would rise last year and it did not.
Unemployment has continued to fall. I think this is something
to do with the operation not just of the general economy but of
the welfare to work programme which is getting more people back
into work who might otherwise not have jobs, and I do think that
the changes we made in the Budget including making work pay with
the new employment tax credit are responsible for a large number
of people who might otherwise not work, particularly the over
50s, choosing that it is worthwhile to come back into the labour
391. In the same report, the European Commission
is predicting UK growth of 2 per cent which is 0.3 higher than
their previous report a few months ago. Do you feel this reflects
a general pattern of expectation that the current financial year
is going to be stronger than previously anticipated?
(Mr Brown) Yes. I think what is happening is that
the European Union had a lower forecast than us at the time of
the Pre-Budget Report. Their forecast has risen from November
to April from 1.7 to 2: equally they are now predicting that 2003
will see 3 per cent growth, so they are coming quite close to
our own forecast. The independent average is moving up all the
time as well and that is a reflection of the world position where
the American economy is looking stronger than it used to, world
trade may recover more quickly than people expect, and therefore
I think that the optimism of our forecasts at the end of last
year are being borne out by independent and other forecasters
coming towards us.
392. Chancellor, you referred to a claim earlier
that you had not broken any election promises. I do not know if
you watched a programme during the election called "Powerhouse"
where I appeared with Mrs Hewitt on 29 May and she said, and I
do remember it vividly because I was sitting beside her, "We
have no plans at all to raise that ceiling to the National Insurance
contribution. It is not going to happen". Did you watch that?
(Mr Brown) I did not although I gather it is my brother
that edits the programme!
393. He has not edited out that quote!
(Mr Brown) Mrs Hewitt has subsequently, I think, given
a whole series of interviews saying that she holds to the election
manifesto that we put forward.
394. She did not on that occasion.
(Mr Brown) She holds to the election manifesto put
forward. She said that in an interview only a few days ago.
395. Let us take your own words last week. You
said, "Save for this one per cent contribution, the ceiling
remains in place". How can it remain in place if you have
added one per cent?
(Mr Brown) Because the ceiling is there for the 10
per cent that people pay and I have just given you the figures
for the new ceiling as a result of the changes that you do during
the course of every year. It is rising from £30,420 to £30,940
and I gave that figure in my Budget statement so that it was absolutely
clear what we were doing.
396. But you also said, "save for this
one per cent contribution". How can you have a ceiling if
there is then one per cent on top of it? How can you describe
that as a ceiling? That is sophistry, is it not?
(Mr Brown) You have to go back to the Wanless Report
and the decisions we had to make about the right levels of public
spending for future years. When we received this information about
what was necessary for the Health Service and public services
for future years we had to make a decision on what was the fairest
way of doing this. Actually, the Beveridge Report said that, when
you were looking at health careI think it was the Beveridge
Report; it was in the 1940syou spread the contributions
expected as widely as possible, and it seemed to me when looking
at this issue that it was right that employers made some contribution,
but not the whole contribution obviously because it is only a
part of the contribution; it was right that we asked something
from the self-employed as well because they benefit from the Health
Service; and it was right that we had something from the employees.
It would seem to me in this instance, when we were raising money
for the public service and particularly for the Health Service,
that the one per cent should go right up the income scale but,
as far as National Insurance for the 10 per cent is concerned,
the ceiling is as I read it out to youjust over £30,000.
397. I am not challenging the policy but your
pretence that nothing has changed. The ceiling is in place and
you put one per cent on top of the ceiling.
(Mr Brown) The one per cent is right across the board
because that is a fair way of making provision for public services
for future years.
398. So it is on top of the ceiling?
(Mr Brown) The ceiling does remain for the ten per
cent and I think everybody now understands that pretty clearly.
399. Chancellor, are you aware of figures I
have just received from the Inland Revenue showing that when you
started you had 2,080,000 people paying top rate tax and that
taking your Budget into account next year, 2003-4, for the first
time ever in this country, you will have 3,070,000 paying top
rate taxan increase of 50 per cent in five years. Are you
aware of those figures?
(Mr Brown) These are estimates, of course, because
we do not know how the economy is going to perform. The reason
why people are earning more and are, therefore, within the top
rate bracket is as a result of the success of the economy. They
are earning more and, therefore, they are falling within that
bracket. I think you will find that we have not frozen the allowance
for the top rate; we have frozen the personal allowance for a
year but that has a very small effect indeed on the numbers of