Examination of witnesses (Questions 242
TUESDAY 20 MARCH 2001
O'DONNELL and MR
242. Welcome, Chancellor. Would you like to
introduce your teamI think we know who they arejust
for the record.
(Mr Brown) Thank you very much, Chairman. On my right
Ed Balls, the Chief Economic Adviser to the Treasury; on my left
Gus O'Donnell, Managing Director of the Macroeconomic and International
Division; and Nick Macpherson, who deals with the issues related
to taxation and benefits.
243. Is there anything you would like to say
(Mr Brown) I thought, Chairman, I would like to draw
attention to the new figures that have been published this morning,
which may inform the Committee's proceedings. First of all, the
figures demonstrating the strength of the public finances; and,
secondly, the inflation figures, which show that RPIX inflation
in February was 1.9 per cent., and HICP inflation was 0.8 per
cent. which is the lowest in the European Union. The public finance
figures demonstrate that we are well within our two fiscal rules.
The current surplus in the year to February is now £24 billions;
that compares with £19 billions last year and less than £12
billions the year before. We remain on course to balance the current
budget over the economic cycle, even on the most cautious of cases.
Our second fiscal rule, which is the sustainable investment rule,
is that we keep debt at a prudent and sustainable level below
40 per cent. of national income. Today's figures show that the
ratio of net debt to GDP, which was at 44 per cent. in 1997, had
fallen to 36.1 per cent. this time last year; it is now at this
time, this year, 31.1 per cent. so we are on course to meet the
sustainable investment rule. In the year to date net borrowing
yielded a surplus of £4.6 billions higher than in the same
period last year, contributing to the large repayment of debt
that we are making. The figures also show that because we have
cut debt and cut unemployment, we are not only spending £10
billions a year more on education than on debt interest, we are
spending £30 billions more on the National Health Service
than debt and unemployment together. We have listened to the views
in recent weeks of the European Commission and the International
Monetary Fund on our fiscal plans; in particular their views on
our proposals to double net investment over the next three years.
Building on our position of strong public finances, it is right
that we proceed with our plans. The European Commission and the
IMF acknowledge the need for more investment in our public services.
The Maastricht Treaty explicitly recognises the scale of public
investment should be taken into account in any assessment of a
country's fiscal plans. Our investment plans are not only affordable,
but the last figures show that we have the lowest ratio of gross
debt to national income of any country in the European Union,
apart from Luxembourg. In three years' time we will be spending
an extra £12.5 billions a year on net investment across the
public sector; £3.5 billions of that on transport; £1.4
billion a year more on NHS capital; £1.6 billion a year more
on education and employment investment. Indeed, we need to press
ahead with our plans in a timely way without jeopardising value
for money; and that is why, to speed up investment, we require
each department to draw up their own individual departmental strategies;
and that is why, through their annual reports, departments will
have to explain the progress they are making in delivering their
investment strategies; how they link to the policy outcome in
targets for improved services outlined in the Public Service Agreements;
how existing assets are managed and disposed of when they are
not needed; how systems and procedures are being improved to deliver
better value for money. I believe that this extra investment is
crucial for the future of our country; and it is only by reversing
this historic trend of under-investment, that we saw in previous
decades in the nation's infrastructure, that we will succeed in
building a stronger economy and delivering opportunity for all.
Thank you, Chairman.
244. The figures you have announced on public
finance today, how do they compare with the ones you announced
in the Budget?
(Mr Brown) They are very much in line with what we
have announced in the Budget. We expect there to be an underspend
on capital investment, and we are taking steps to improve the
ways that departments manage the public investment programmes
that are their responsibility. As far as the overall effect on
our fiscal rules is concerned, we are well within our first fiscal
rule. The current balance is strong and, equally, as I said in
the Budget and I repeated today, debt is falling as a proportion
of GDP towards 30 per cent., and it is likely to remain at that
level in future years. Therefore, the net repayment of debt that
we envisaged in the Budget is going ahead.
245. Chancellor, Mr Dilnot of the Institute
for Fiscal Studies came before this Committee a week ago and drew
attention to Table C23 in the Red Book, which showed the tax burden,
net taxes and social security contributions (which I think is
your favourite definition even including your tax credits) at
35.2 per cent. in the last Conservative year; and you yourself
estimate in Table C9 that this year just finishing it will be
37.7. Mr Dilnot pointed out that that was an increase of 2.5 per
cent., or roughly £25 billion in four years. Is he right?
(Mr Brown) Mr Dilnot is entitled to his views.
246. Is it a view or a fact?
(Mr Brown) He is entitled to his own view. In actual
fact the figures we inherited, on historical sequence, for the
year to come would have taxation at 38 per cent. In fact, taxation
in the year to come will be 37.5 per cent. I could refer you to
the statements that were made in the Budgets before 1997 that
confirm that the tax burden was due to rise to 38 per cent.
247. The tax burden has risen by £25 billion,
that is a fact, is it not?
(Mr Brown) No, the position is that, when we came
into power (I have said this to the Committee before and I do
not think it needs to be repeated at great length but let me just
re-emphasise) as a result of the 1996 Budget and I could quote
what was said by the Chancellor at the time, he said then that
the tax burden was expected to rise in 2001-02 to 38 per cent.
In actual fact it will be 37.5 per cent. according to the projections
in the Budget. The last Conservative Government, which you have
referred to, was on a rising trend of taxation as a share of national
income to rise to 38 per cent.
248. What is official now at the end of your
fourth year is that the tax burden is £25 billion higher,
is it not? Whatever the previous plans were, the tax burden is
£25 billion higher in fact than it was four years ago?
(Mr Brown) What I am explaining to you, and perhaps
for the benefit of the Committee I should give more information
therefore, is that because of the decisions that had been taken
by the previous Conservative Government, but also because of the
projections that they were making about the rising share of tax
burden to national income, the projection for 2001-02 was 38 per
cent. Ours is 37.5 per cent. and I think the Committee must note
that. Of course, one of the reasons was the projections that they
were making as a result, for example, of removing profit-related
pay, the tax exemption that existed for that, and they had other
calculations that were resting on the escalators that existed
in relation to fuel and in tobaccoand, of course, as far
as the fuel escalator is concerned, we have removed that.
249. I am surprised to find you still denying
that the official tax burden has risen by 25 billion. Do you recall
telling Newsnight on 20 January 1997, "I must repeat,
there are no public expenditure commitments that require us to
raise taxes"? Do you recall that?
(Mr Brown) We froze public expenditure, as you know,
for the first two years, and we did not make public expenditure
commitments for the first two years and it was generally accepted,
even by my Conservative opponent, that the Conservatives would
not, he said, have kept to the spending plans, but we did.
250. Chancellor, on Table C9 of the Red Book,
the tax burden measured by net taxes plus social security contributions
is 37.7 per cent in 2000-01, is it not?
(Mr Brown) I have got Table C10.
251. Page 194. 2000-01 net taxes and social
security contributions, the figure is 37.7 per cent.
(Mr Brown) That is roughly what the last Conservative
Government predicted for this year.
252. That is your figure?
(Mr Brown) 37.5 per cent. The difference is between
37.5 and 38 per cent.
253. Could you then turn to Table C23 in your
own Red Book Budget 2001.
(Mr Brown) It is really an historical series.
254. That is correct. 1996-97 net taxes and
social security contributions is 35.2 per cent. is it not, Chancellor?
(Mr Brown) This is Table?
255. Markedly slow today!
(Mr Brown) I am not markedly slow at all; I am getting
to the different tables. This goes right across the page.
256. It is your record; you should know your
way around it.
(Mr Brown) This is the Table that starts with 1978-79,
is that right, and goes up to 38.9 per cent. under the last Conservative
257. I am not asking, Chancellor, about 1996
or 1997, the year you inherited.
(Mr Brown) Mr Ruffley, I am just finding the Table.
If I may point out to other people who do not have the benefit
of this, there are nine columns in this Table, stretching from
1970 to 1999-2000. The figures start for the tax as a share of
national income at 1979 and the rise, as you may know
258. With respect, Chancellor, 1996-97 is 35.2?
(Mr Brown) They rise, as you know, to 38.9 per cent.
259. No, that year is 35.2.
(Mr Brown)in 1982-83 and then they are at 35
per cent. in 1996-97.