ECOFIN
George Osborne Excerpts(12 years, 6 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
A meeting of the Economic and Financial Affairs Council will be held in Brussels on 15 May 2012. The following items are on the agenda to be discussed:
Revised Capital Requirement Rules (CRD IV)
Following discussion at the 2 May ECOFIN the Council will discuss the presidency’s compromise on the Commission’s proposal to replace the Capital Requirements Directive (Directives 2006/48/EC and 2006/49/EC, as amended by Directives 2009/111/EC and 2010/76/EU), with a regulation on prudential requirements and a directive on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, together known as “CRD IV”. The presidency aim to reach a general agreement on CRD IV at this ECOFIN to form Council’s negotiating position with the European Parliament and European Commission in Trialogues. The UK continues to support the implementation of Basel III and for member states to have sufficient flexibility to protect financial stability in their jurisdiction.
Negotiating Mandate for Savings Taxation Agreement with Third Countries
The presidency will ask Ministers to adopt a mandate for the Commission to negotiate amended savings taxation agreements with five third countries: Andorra, Monaco, San Marino, Lichtenstein and Switzerland. These agreements provide a framework for combating cross border tax evasion and the Government strongly support the proposed mandate.
2012 Ageing Report
Ministers will be asked to adopt conclusions on the 2012 Ageing Report which is due to be published later in May. The report updates the 50-year public finance projections presented in the 2009 Ageing Report and shows the impact of demographic change across the EU-27 and Norway up to 2060. The report shows the impacts on the UK. These are smaller than on many other European countries, and lower than that set out in the 2009 Ageing Report, reflecting policy changes made by the Government. The analysis is consistent with the demographic projections produced by the Office for Budget Responsibility.
Fast Start Climate Finance
Ministers will be asked to adopt conclusions on fast start climate finance that endorse the fast start finance (FSF) report. The report is published annually and sets out information regarding how the EU and its member states are meeting their FSF commitment to provide €7.2 billion over the period 2010-12. The conclusions will also set out a formative EU position on climate finance from 2013 to 2020.
Draft General Budget for 2013
The Commission will present its draft 2013 EU budget, which was issued on 25 April. The Commission proposes a growth in payments (on 2012 levels) of 6.8% or €8.82 billion, which would take total spending to €137.92 billion.
Alongside other member states, the UK has already strongly objected to this proposed increase in EU spending and will be pushing for a more realistic budget for 2013 that recognise the economic reality facing Europe.
Annual EIB Governors Meeting
The annual meeting of the European Investment Bank’s (EIB) board of governors will occur prior to the ECOFIN meeting.
Ministerial Dialogue with Candidate Countries
After the ECOFIN meeting the presidency will chair an informal meeting with Croatia and the five candidate countries (Iceland, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey) to discuss economic policy.
ECOFIN Breakfast
Eurogroup will meet on 14 May. Ministers will be debriefed on the Eurogroup discussions before the formal ECOFIN starts and are likely to discuss the economic situation. Ministers may also discuss the election of the next President of the European Bank for Reconstruction and Development (EBRD) ahead of the EBRD annual general meeting on the 18 May.
Oral Answers to Questions
George Osborne Excerpts(12 years, 7 months ago)
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John Stevenson (Carlisle) (Con)
3. What recent representations he has received on reducing the budget deficit.
The Chancellor of the Exchequer (Mr George Osborne)
Every significant business organisation and international body has welcomed this Government’s decisive action to deal with the record budget deficit that we inherited from our predecessors. Not only has that action brought low interest rates for families and firms, but it has made Britain a safer haven in what, as everyone can see today, remains a very volatile European debt storm.
John Stevenson
The Office for Budget Responsibility’s Budget report stated that the interest paid on our national debt will be about £43 billion this year, rising to about £60 billion by the end of this Parliament. That rise in interest payments is a direct consequence of the previous Government’s action, but what action is the Chancellor taking to ensure that this interest rate bill does not rise any further?
Mr Osborne
My hon. Friend is right to remind us all that the Government have to pay interest on the enormous debts that the Labour party racked up and the budget deficit it bequeathed us. The action we have taken means that we are paying £36 billion less in interest payments over this Parliament, which completely dwarfs any initiative ever put forward by the shadow Chancellor.
Lindsay Roy (Glenrothes) (Lab)
Why are the Government now forecasting that they will borrow £150 billion more than they envisaged a year ago? Has not cutting back too far, too fast completely backfired?
Mr Osborne
As a former teacher, the hon. Gentleman read that very well. He should also study the Institute for Fiscal Studies’ statement that if we had stuck to the plan left to us by the Labour party we would be borrowing £200 billion more than we are borrowing at the moment and, as I just said, paying £36 billion more in interest payments to creditors of the British Government.
Mark Menzies (Fylde) (Con)
24. In May 2010, the level of yield on UK Government 10-year gilts was the same as those of Italy and Spain. Now we are at record lows and they are at 7%, so what does that say about the credibility of the UK Government’s plan?
Mr Osborne
Again, my hon. Friend is absolutely right. We have very low interest rates in an environment in which many other European countries have much higher interest rates. That is a reflection of market confidence in the UK’s deficit reduction plan, and of course if we had pursued the path advocated by the Opposition—the same path that led us into this economic mess—we would be paying a higher interest rate, and there would be higher interest rates and families would have higher mortgage bills.
Chris Leslie (Nottingham East) (Lab/Co-op)
May I very gently and in the friendliest way possible suggest that the Chancellor should not be quite so arrogant about his record on public borrowing? In Washington this weekend, he said that
“we have sorted out our problems.”
That is what the Chancellor told us. We have high unemployment and slow to non-existent growth. When will he realise that public borrowing is £150 billion higher than he predicted in his spending review?
Mr Osborne
As today’s public finance numbers show, we have hit the deficit reduction target we set out in the autumn statement and in the Budget. I am glad that the hon. Gentleman brings up Washington and the IMF summit. Perhaps we will hear later from the shadow Chancellor, as we did not have a chance to yesterday, what he thinks about the fact that the previous Chancellor of the Exchequer completely disagrees with the position that he has taken on behalf of the Labour party.
Karen Lumley (Redditch) (Con)
4. What steps he is taking to increase the availability of credit to small businesses.
The Chancellor of the Exchequer (Mr George Osborne)
Lending to small businesses is a real concern at a time of stress in the financial markets. That is why the Government acted last month by launching the £20 billion national loan guarantee scheme. It is still in its first few weeks, but the signs are that businesses are getting cheaper loans, which will help support recovery.
Karen Lumley
Small businesses are obviously the key to the economic recovery. Will the Secretary of State reassure business people in Redditch that the Government will continue to look at funding for SMEs to ensure that finance reaches even the smallest companies?
Mr Osborne
I can certainly give my hon. Friend that assurance and say to businesses in her constituency and others that the national loan guarantee scheme is now available through most of the high street banks. We are also investing through something called the business finance partnership in non-bank financing of businesses. Some of that money will be for very small businesses, too, through peer-to-peer lending. As everyone accepts, I think, financial markets across the world, particularly in Europe, are stressed. That is why the Government have to step in and help, and that is what the £20 billion of guarantees that we are offering under the scheme will do.
Dr William McCrea (South Antrim) (DUP)
The Chancellor of the Exchequer must be aware of the pressures being exerted by banks on small and medium-sized businesses. What more can he and his Government do to get the banks to assist by making credit available rather than undermining many of those very good businesses?
Mr Osborne
The hon. Gentleman is right that small businesses face difficult financing conditions because of the stress in the financial markets and the fact that banks are not able to access funding in the way that they were four or five years ago. That is why we have taken the step of credit easing, which is not something that a Government would do in more normal economic times, and it is why we have the finance partnership and are expanding the enterprise finance guarantee. Those are all designed as Government interventions, using the good credit worthiness that we have earned for this country, to ensure that those lower interest rates can be passed on to small businesses.
Andrea Leadsom (South Northamptonshire) (Con)
Does my right hon. Friend agree with me that in a banking sector where only up to about 2% of bank balance sheets is invested in the real economy, what we really need is a revolution in competition in that sector? What is he doing to ensure that there will be more new entrants into the banking industry in future?
Mr Osborne
My hon. Friend makes an extremely good point, which is that the banking industry has become very consolidated in recent years, because of the various mergers and failures during the financial crisis. Our ambition as a Government is to increase competition on the high street, and we took an important step towards that with our decision to sell Northern Rock back into the private sector and to support Virgin Money as a new lender on the high street, but of course other divestments are due to take place, and the ambition in the Vickers report, which we are implementing, is to increase competition.
Mr Stephen Hepburn (Jarrow) (Lab)
With 50 businesses going bust every day, but still getting battered by the banks with high interest rates and charges, when is the Chancellor going to get a hold of the banks and get them to put some money into the country and into British business? After all, we are the ones who bailed them out.
Mr Osborne
I am glad the hon. Gentleman reminds us that the previous Government bailed out the banks with no conditions attached, and we are having to pick up the mess. We want to help small business lending by using the Government’s balance sheet and the low interest rates we have earned with a credible deficit plan. We intend to increase competition in the high street: we sent Northern Rock back into the private sector with Virgin Money, a decision that was welcomed in the north-east of England, but opposed by the shadow Chancellor. We are taking the steps necessary, but yes, we are dealing with one enormous mess left to us by Labour.
Nick Smith (Blaenau Gwent) (Lab)
5. What assessment he has made of the effect on pensioners of the proposed changes to age-related income tax allowances.
The Chancellor of the Exchequer (Mr George Osborne)
My hon. Friend asks whether we plan to re-establish the euro preparations unit in the Treasury, and the answer is no we do not.
Bob Blackman
I am delighted that we, unlike the Labour party, are committed not to join that foreign currency, which is failing at the present time. No doubt my right hon. Friend, before he became Chancellor, calculated the cost of the unit. How many police, doctors or nurses could we employ for the money that was wasted?
Mr Osborne
I only have the figures for the Treasury, but of course other Departments were also embarked on that Labour scheme. The Treasury spent £5 million on the civil servants required for the euro preparations unit, and that for example would pay for 17 nurses and five consultants. I guess, given that the Labour leader is committed to joining the euro, the unit would be re-established.
Kelvin Hopkins (Luton North) (Lab)
The Chancellor will have seen that the euro fell significantly deeper into crisis yesterday. Is the Treasury making contingency plans for the abandonment of the euro and the creation of national currencies?
Mr Osborne
As I have said previously in the House, the Treasury does make contingency plans for whatever the world economy and, indeed, the European economy throw at it, but I will not spell them out in detail.
Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)
13. How many families in (a) the UK and (b) Liverpool, Riverside constituency receiving child tax credits will be economically disadvantaged by the changes introduced in the Budget.
Jane Ellison (Battersea) (Con)
T1. If he will make a statement on his departmental responsibilities.
The Chancellor of the Exchequer (Mr George Osborne)
The core purpose of the Treasury is to ensure the stability of the economy, promote growth and employment, reform banking and manage the public finances so that Britain lives within her means.
Jane Ellison
What steps is my right hon. Friend taking to support successful small businesses that wish to take advantage of export opportunities?
Mr Osborne
We want to get small businesses exporting more, and UK small businesses have traditionally not exported as much as, for example, continental European small businesses. That is why UK Trade & Investment, under Lord Green, has set the specific ambition of doubling the number of small businesses helped by the Government. We want small businesses to be ambitious and look to overseas markets.
Ed Balls (Morley and Outwood) (Lab/Co-op)
The Chancellor has had a difficult few weeks since the Budget. To be told by his own side that he is an out-of-touch posh boy who does not know the price of milk must be particularly hard to take. I will ask him today not about the price of milk but—[Interruption.]
Ed Balls
Shall I start again at the beginning of the question? I am going to ask the Chancellor today not about the price of milk but about a price that he surely must have considered at Budget time. I will ask him a specific question. What is—[Interruption.] I am going to ask the Chancellor a specific question that he must have considered at Budget time. What is the price of a litre of unleaded petrol at the pumps today, and what was it on Budget day a year ago?
Mr Osborne
Of course, the price of petrol today is about £1.40 a litre. It was less a year ago, but the international oil price has gone up since—I think it is 10% higher than it was last year. That is why we have cancelled some of the fuel duty increases that the right hon. Gentleman voted for when he was in government, cut fuel duty and got rid of the fuel escalator that he supported in government.
Ed Balls
That is an answer that we will hang around the Chancellor’s neck for the next four months. He has admitted that the price of petrol is higher today than a year ago, when he decided it was too high for petrol duty to go up. Let me ask him a second question. His duty increase is due in August. If the price of petrol is still higher than the £1.33 a litre price of a year ago, will he commit now not to go ahead with the duty rise, or is the truth that he cut taxes for millionaires but does not understand about family budgets? Out of touch, out of friends and way, way out of his depth.
Mr Osborne
The right hon. Gentleman says it is my duty increase, but we are talking about his duty increase, which was set out in the March Budget before the last general election, which he voted for and helped to write.
Mr Osborne
The right hon. Gentleman says I am the Chancellor, and he is right. Since inheriting those fuel duty plans from him, I have cut fuel duty, cancelled the fuel duty increases that he voted for and got off the fuel duty escalator that he supported. That is what I have done to ensure that families are better able to cope with the economic mess he presided over when he was in the Treasury.
Alun Cairns (Vale of Glamorgan) (Con)
T2. I welcome the Financial Services Bill, which we debated yesterday. It is a significant step towards re-instilling confidence in the financial services industry, but does the Minister accept that regulators, including the current Financial Services Authority, have an obligation to work with other regulatory bodies that go beyond their competence to bring about negotiated settlements when the product is far more complicated than is covered by their jurisdiction, such as in the Arch Cru affair?
Elizabeth Truss (South West Norfolk) (Con)
T8. In 2005, Germany exempted businesses with fewer than 10 workers from unfair dismissal regulations and created flexible mini and midi-jobs. Since that date, youth unemployment in Germany has halved. What steps are the Government taking to improve flexibility and to get more young people into jobs?
Mr George Osborne
We need to reform the labour market, which is why, as my hon. Friend will know, we have this month extended the qualifying period for unfair dismissal cases from one to two years. That has been welcomed and will encourage people to take on new employees. We also have a call for evidence on compensated no-fault dismissal. I have no doubt that she will make a submission to that call for evidence.
Mr George Mudie (Leeds East) (Lab)
T5. In view of earlier answers on corporation tax, will the Chancellor tell the House how many FTSE 100 companies paid full corporation tax in the last available tax year? It would be understandable if he does not have the figure now, but will he place it in the Library of the House for hon. Members?
Mr Osborne
As the hon. Gentleman knows, because he is an experienced Member and sits on the Treasury Committee, there is a very important principle of taxpayer confidentiality, so I am not shown the individual tax returns of businesses or indeed individuals. We have recently published data on the average tax rate that people on the highest incomes were paying under the last Labour Government, and we can see that it was very much lower than Treasury Ministers were telling us.
Mr Mark Spencer (Sherwood) (Con)
T9. Can the Chancellor tell me how many of my constituents will benefit from the lifting of the personal tax threshold?
Albert Owen (Ynys Môn) (Lab)
T6. It has been reported in the papers that the Chancellor is prepared to meet with charities so that he can explain his tax hike and tell them how he can get it right in the future. For the sake of consistency, will he also meet with the purveyors of pasties, church leaders and caravan operators and manufacturers so that he can tell them how he will get it right in the future and they can tell him to drop these VAT hikes?
Mr George Osborne
What I find extraordinary is that we have a Labour MP supporting the idea that the very wealthiest people in this country pay no income tax. That is an extraordinary thing for a Labour MP to advocate. As I say, we have made reforms in the Budget to improve the tax system and to ensure that people at the very top of the income scale pay some income tax.
Mr Rob Wilson (Reading East) (Con)
T10. The Thatcher Governments unleashed a decade or more of enterprise in this country. Young entrepreneurs today are still key to a private sector-led recovery, but only 3% of 18 to 24-year-olds set up their own business. Will the Chancellor consider further support for the new enterprise allowance and other schemes to increase assistance to young entrepreneurs?
Mr Osborne
The new enterprise allowance has been introduced and already some 10,000 people are developing their own business ideas using the incentive of the allowance. As I set out in the Budget, we are considering the case for enterprise loans. The Government provide a loan for people going to university, but what about a loan for people who want to start their own business? We will come to the House with ideas on that subject later this year.
Geraint Davies (Swansea West) (Lab/Co-op)
Rather than giving £10 billion to the IMF for the European bail-out fund, would it not be better to invest that money in a growth strategy in places such as Swansea to generate jobs and growth, and avoid the situation of the Chief Secretary suddenly announcing a further 5% cut in departmental spending, allegedly for a rainy day?
Mr Osborne
The political opportunism and empty opposition of the Labour party was brutally exposed yesterday when the shadow Chancellor opposed the contribution to the IMF and the right hon. Member for Edinburgh South West (Mr Darling), a former Chancellor of the Exchequer and one of the few people to emerge with real credit from the last Government, completely contradicted him. Not only are the Opposition not taken seriously at home, they are not taken seriously abroad either.
George Freeman (Mid Norfolk) (Con)
Will the Chancellor join me in welcoming the announcement by GlaxoSmithKline of a £0.5 billion investment in advanced manufacturing in the north of England? Taken together with the £800 million investment by Tata in Wales and the IMF’s upgrade of our growth forecast by nearly 20%, does this not suggest that the Budget for business is working?
Mr Osborne
My hon. Friend is right to point to the GSK investment. The chief executive of GSK explicitly credited the falls in corporation tax and the patent box for that decision. We have also had the investment from Jaguar Land Rover in the west midlands, the great news of Nissan’s investment in Sunderland and steel-making has returned to Redcar.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
International connectivity is crucial to business in the north-east, and Newcastle international airport provides a vital link. Will the Government therefore support calls from regional airports for a congestion charge to be applied to air passenger duty to ensure the future viability not only of jobs and tourist income, but of international trade routes?
Ian Austin (Dudley North) (Lab)
Why does the Chancellor think his Budget is now widely seen as a complete and utter shambles?
Mr George Osborne
We cut business tax to make this country more competitive and to create jobs; we delivered an income tax cut for 24 million working people; we took 2 million low-paid people out of tax altogether; and, above all, we continue to clear up the economic mess left to us by the Labour party.
Mr John Redwood (Wokingham) (Con)
What will we get for the £64 billion extra spending this year compared with the last year under Labour?
Mr Osborne
The plans we set out for public expenditure were measured, but they involved reducing the deficit. That has been very important. The public finance figures, published today, show that we are on track to meet our deficit targets. At the same time, we have found resources for things such as extra nursery education for disadvantaged youngsters, the pupil premium and all sorts of other things that support our objectives of a fairer and more balanced economy. [Interruption.]
IMF
George Osborne Excerpts(12 years, 7 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
Let me update the House on this weekend’s G20 and International Monetary Fund spring meetings and the Government’s decision to make a loan of just under £10 billion, or $15 billion, to boost the IMF’s reserves.
As I have said to the House on many occasions, Britain has always been one of the IMF’s largest shareholders and biggest supporters. We helped to create the institution over 60 years ago, and our predecessors determined that countries would never again turn their backs on the world’s problems, but instead come together to solve them. In every single decade since the 1940s, the UK has been part of global agreements to increase the IMF’s resources. Why has every single post-war British Government done that? It is because they recognised what we again recognise today: that Britain, as a proud, open, trading nation, has a huge national interest in a strong IMF as a force for stability and free markets; and that Britain exerts its influence in the world partly through the institutions it helped to create, such as the IMF, where we remain one of the few countries to have our own seat on the board.
That was the case 60 years ago when the world recovered from the ravages of a global conflict borne out of depression and disastrous economic nationalism. It was the case when Latin America struggled in the ’80s and the Asian economies collapsed in the ’90s. It was the case at the London G20 summit, when Britain’s economy was at the centre of the storm. It remains the case today, as we cope with the biggest debt crisis of any of our lifetimes, and when the epicentre of the problem now lies on our doorstep in Europe and with some of our largest trading partners, including Ireland, the home of banks deeply connected to our own banking system.
We will not turn our back on the IMF, or turn our back on the world. That would be a betrayal of our country’s interest and our country’s identity, and incidentally, it would at the same time be a betrayal of my party’s history.
It is because of the decisive action this Government have taken to deal with our own debts that we can now be part of the solution and no longer part of the problem. Let us not forget that in 1976 under a Labour Government this country itself needed an IMF bail-out. If we had a Labour Government today, their Chancellor could very well be explaining to the House the heavy terms of a loan from the IMF, not a loan to it. Instead, we have taken action that means Britain is a safe haven in the storm—action that means interest payments are lower for families, businesses and the taxpayers who are funding the huge national debt that has been racked up in recent years.
However, in the modern, global economy, we simply cannot act alone. At the annual IMF meetings last autumn, there was a real sense that the world economy was staring over another precipice. The feeling at these spring meetings was that we had stepped back from the brink but that the risks remained. Markets are calmer, banks are finding funding and signs of confidence are emerging—figures last week in Britain showed unemployment falling and retail sales up, and last week the IMF revised up a little its global and UK growth forecasts—but, as the IMF rightly warns us all, the global economy remains very fragile. We see that in the Spanish bond spreads and the disappointment over the latest American jobs data.
In such uncertain times, we want the IMF to be able to cope with whatever is thrown at it—the worst-case scenario—instead of hoping for the best, which is why, for almost a year now, I have said that we would be willing to consider the case for additional resources for the IMF. I set out in January four conditions for British support. The first was that the IMF should only support countries, not currencies, and that is now clearly expressed in the communiqué issued this weekend. The second condition was that full IMF rigour and conditionality would apply to any future programmes. That too was agreed explicitly in Washington this weekend. Britain led the way in making it clear that that conditionality would not be restricted to a country’s fiscal policies but would also include structural reforms to increase growth.
The third condition was that we needed to see more resources from the eurozone for its own firewall—we had to see the colour of its money first. The IMF cannot be a substitute for action by the eurozone to stand behind its own currency. In December, the European Central Bank began its massive long-term liquidity operation, which we publicly called for and privately urged. Last month, the eurozone member states added €200 billion to their firewall, bringing the total to more than €700 billion. May I add that the Government have not added a single pound of British taxpayers’ money to those eurozone funds, having got us out of the commitments the last Labour Government sucked us into. Now, €700 billion is not as much as some wanted or what the IMF itself asked for, so, as I will explain, the size of additional IMF resources from non-eurozone countries is proportionate to the eurozone’s action.
The last condition I set was that other G20 countries had to make contributions—that Britain would not act alone. This weekend, we were very far from being alone. The eurozone provided an extra $200 billion to the IMF. France, which has the same shareholding as Britain, contributed $40 billion, and Germany, $55 billion. If it had just been the eurozone, Britain would not have contributed, but it was not: Japan contributed $60 billion; South Korea, $15 billion; Mexico and Singapore took part; and Australia, with a population one third our size and 10,000 miles from Europe, contributed $7 billion, with the support of all the main parties there.
European countries not in the eurozone have also committed loans—from Sweden and Denmark, to Switzerland and Norway, which are not even in the EU. Some have suggested that the BRIC counties did not contribute. That is not the case. India, Russia, and—yes—China have all made firm commitments to contribute resources and will set out the exact sums in the coming weeks. [Hon. Members: “How much?”] We will see in the next few weeks. The total of the expected commitments is set to be more than $430 billion.
It is true that America has not offered a loan, and mainly for that reason nor has Canada, but then America did not offer a bilateral loan at the London G20 summit. The reason the US Treasury Secretary gives is clear. The US, because it is the global reserve currency, has in the last few months offered dollar swap lines to the eurozone with outstanding balances peaking at more than $85 billion, which far exceeds any contribution anyone else has made. Its exposure is direct to the eurozone. What we and others have offered is something very different: a commitment to lend to the IMF should it need the resources.
In Britain’s case, that commitment is denominated in the IMF currency of special drawing rights and equates to just under £10 billion—about $15 billion. That is within the mandate authorised by the House of Commons and voted on twice in the past 18 months. As I set out to the Select Committee on the Treasury earlier this year, if I had felt that Britain should have contributed more, I would have asked Parliament for the authority to make a larger loan. However, $15 billion is in line with Britain’s quota share at the IMF—it is the same as previous loans we have made—and our loan is available only once the quota reform deal put together in 2010 is ratified by the required majorities of the countries that signed up to it. Our £10 billion is therefore proportionate to our shareholding and similar to our previous contributions.
Let me end by saying this. No one believes that a well-funded IMF on its own is the solution to the problems of the eurozone. Eurozone countries need to make painful adjustments to their public finances and external deficits. It is a difficult path that they have to walk, although the new Governments in the likes of Ireland, Portugal, Spain and Italy are walking it. However, that is the logic of the single currency that they are all committed to. That is why I am opposed to British membership of the euro, why I shut down the euro preparations unit in the Treasury and why under this Government Britain will never relinquish the pound.
However, opposition to our membership of the euro and the problems in the eurozone should not be a reason to turn our back on the IMF; if anything, they make the case for a stronger IMF. I know that when we offer our loan to the IMF, it is presented by some as British taxpayers simply handing over money to the euro—supposedly, money that we will never get back and which could have been used on public spending here at home—but just because it makes for an easy newspaper headline does not make it true. Lending to the IMF is a loan to the most credit-worthy institution in the world. It is a loan that comes with interest. The IMF has preferred creditor status: it gets paid back even when other creditors are not. It is true that, very occasionally, countries have defaulted on their obligations; but if eventually they want to regain access to international funding, they have to pay back debts to the fund, and in the end they all do. The IMF is designed to manage this. It lays down tough conditions, has large precautionary balances and sits on large gold reserves. That is why no country has ever lost money lending to the IMF in its 67-year history.
Let me be clear also that not a penny less will be spent on public services; nor will a penny more be levied in tax to fund our commitment to the IMF. Were the IMF to call for financing from the UK, we would exchange some of our foreign currency reserve for a claim on the IMF—in other words, we exchange a claim on one safe asset for another. That is why no one includes IMF loans in their calculations of Britain’s net debt or deficit, and nor do our sterling financing plans for the official reserves need to be changed. When it comes to lending to the IMF, therefore, I know of no other mechanism that is so clearly in the British and global interest, no other form of insurance against the world’s risks that has such potential benefits, and no other loan that can be provided with such low risks and which comes with interest.
At home, this Government have confronted head-on the debt problem that we inherited from the last Government; abroad, we support the international effort for global stability. We are guided by Britain’s national interest. Britain does not walk away from its problems; it confronts them. It does not turn its back on the world; it helps to lead the world. We will do everything abroad to support the IMF and everything at home to avoid a bail-out from the IMF. Keeping the UK safe is the overriding mission of this Government.
Ed Balls
Finally, Mr Speaker, as for the Chancellor’s claim that the UK has sorted out our problems, unlike the US, the UK is mired with the rest of the euro area in no growth, high unemployment and much more borrowing than was planned, so how out of touch can this deluded Chancellor get? He should have stuck to his guns this weekend. He capitulated. This agreement was bad for the euro area, bad for the IMF, bad for the British taxpayer and bad for the British national interest.
Mr Osborne
First, I congratulate the shadow Chancellor on running the London marathon yesterday and raising money for good causes, but his arguments are a bit like his marathon legs—wobbly and about to collapse. His response started so well. In the first 30 seconds, he said he supported increased resources for the IMF and supported Britain’s contribution to it, but spent the next 10 minutes telling us why he was against those things. He was in favour of the loan before he was against it. I have to say it smacks of the political opportunism and empty opposition that have been the hallmark of his shadow chancellorship.
People in Washington this weekend who know the shadow Chancellor, because he used to help represent Britain at the IMF, were completely astonished by his opposition to the IMF deal. They wondered whether he was the same person who was in the Treasury for all those years and who wrote all those speeches for the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) about the importance of the IMF and of the international architecture being part of global solutions. Is it the same shadow Chancellor who said in November that
“the Labour party supports an increase in the UK’s International Monetary Fund subscription”?
He was asked in an interview why he opposed the Government’s decision and he said:
“I support an increase in resources to the IMF”.
Then, the interviewer said:
“Sorry? I thought you didn’t.”
He said:
“No…I support an increase in resources for the IMF”.
One is led to the conclusion that only political opportunism is driving the shadow Chancellor to the position he takes.
The right hon. Gentleman asked just a couple of specific questions. I think I answered all of them in the statement, which he should have listened to before he asked his questions. The US Treasury Secretary went out of his way to welcome the deal, but pointed out that the US had not made a loan at the London G20 summit and did not do so again because of the swap lines. Since we talked about this in the autumn, the European Central Bank has provided $1 trillion of liquidity support and €200 billion extra to the firewall, but I completely agree that euro countries need to do more to ensure reforms in their own economies.
Is the right hon. Gentleman really saying that, when a request is made for the countries of the world to come together at the IMF to provide increased contributions, Britain should stand apart from it? He represents a Labour party that stands, or used to stand, for internationalism and for the institutions of the world coming together. Now he has led the party down a complete blind alleyway. He even voted against the highlight of the Labour Government—the deal done at the London G20 summit. This is what the shadow Chancellor has done to his party—left it in no man’s land, not taken seriously at home and not taken seriously abroad. If he were ever in charge, we would be getting a bail-out from the IMF, not giving it a loan.
Sir Peter Tapsell (Louth and Horncastle) (Con)
I had rather changed my mind about asking a question because of the extremely unappealing way in which the shadow Chancellor put his case; but in order to be consistent with everything that I said in October and November, I am bound to say now that I regard it as the prime duty of Germany to solve the European problem, and that I hope that this further support from the IMF will not weaken the pressure on the German Government to do exactly that.
Mr Osborne
Germany made a $55 billion dollar contribution to the IMF this weekend, which is a much greater contribution than the $15 billion that we are putting in, and it is the principal contributor to the various eurozone bail-out funds of which we are no longer part. However, I agree with the spirit of what my right hon. Friend is saying, which is that Germany needs to stand behind its currency. That is indeed a very important part of solving this problem.
Mr Alistair Darling (Edinburgh South West) (Lab)
I think it right for us to support the IMF, but is not something very wrong when it is having to pass the hat around because it is becoming increasingly concerned that the policies being pursued by the eurozone—and, within it, some of the most developed and well-off countries in the world—are making it more likely that those countries will have to draw on international help to sort themselves out? Would it not be far better if the eurozone countries accepted that until they clean up their banking system once and for all, and until they recognise that the austerity policies that they are imposing on the peripheral countries simply will not work—and there are very few people around now who think that they will work—there remains a greater risk that these funds will have to be called upon? It seems to me that, while it is all very well to have a rescue fund, it would be far better to deal with the root causes of the problem.
Mr Osborne
I welcome the right hon. Gentleman’s support for the decision to provide extra resources for the IMF. He was Chancellor of the Exchequer in 2009, when we last made a contribution to it, and, as I said a moment ago, I think that that was one of the highlights—if not the highlight—of the last Labour Government.
The eurozone countries on the periphery are being asked to walk an incredibly difficult path. That is the consequence of being in a monetary union in which it is impossible to devalue. However, it is clear that Ireland, which has had to make some incredibly difficult decisions and take some very tough fiscal measures, is becoming dramatically more competitive—its current account is back in surplus, and its exports are increasing—so it is possible to walk that path.
I certainly agree with the right hon. Gentleman that further action is required on the banking systems in Europe. A European directive which is currently being debated transponds the Basel agreement into European law, and we are keen for it not to be watered down so that it is not used to disguise problems in the European banking system.
Mr Andrew Tyrie (Chichester) (Con)
Is not the lesson of the 1930s that the leading economic powers must stick together and support the global financial and trading system, and is that not exactly what the IMF decision is doing now? What we need is a strong and independent IMF. With that in mind, will the Chancellor tell us what discussions he has had with non-eurozone IMF members to ensure that the IMF sees off any special pleading from the eurozone?
Mr Osborne
I welcome the support of my hon. Friend, who chairs the Treasury Committee, for our decision to make a loan to the IMF, along with many other countries.
This weekend, plenty of countries, including the UK, made very clear that a contribution to additional IMF resources must come with strict IMF conditionality. They made clear that there could be no special favours for eurozone countries that needed support, and that there was no question of creating some special eurozone fund for IMF resources. Any contribution from the IMF’s shareholders must go into general resources which could be used for eurozone countries or, indeed, for any other country that needed help.
It is worth remembering that there are 53 IMF programmes, three for eurozone countries and 50 for other countries in the world, and that two of the largest programmes are for Poland and Mexico, which are not members of the IMF.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
Does the Chancellor not accept that the credibility of the IMF itself is put in question if it continues to provide support for eurozone countries that are, and remain, insolvent?
Mr Osborne
No, I do not accept that. For the IMF to walk away from the enormous problems that we all know exist in the eurozone would be a betrayal of why we and other countries created the IMF: to be there to help countries, including groups of countries, that get themselves into trouble. The IMF also provides advice and conditionality along with its loans. Having set up an institution to deal with global economic problems, it would be bizarre if, when some of the largest economic problems the world has ever known arise, we were to say that the IMF is not going to help.
Stephen Williams (Bristol West) (LD)
The central unifying purpose of this coalition Government is to bring stability and credibility to the management of the United Kingdom’s economy and public finances. That, in turn, enables us to play a constructive role on the world stage. Does my right hon. Friend agree that, just as it is in the Swedish, Swiss, Australian, South Korean and Japanese national interest to give extra contributions to the IMF, it is in the British interest not just to help the eurozone, but to lend assistance wherever the IMF team’s assistance is required?
Mr Osborne
I agree with my hon. Friend. The coalition Government have taken very difficult decisions in order to make sure that our public finances are back under control, and we are seen by the world to be dealing with our debt crisis. After spring meetings in Washington at which countries not in the EU, including Australia, Japan, South Korea, Norway and Switzerland, all agreed to contribute to increased IMF resources, it would be truly bizarre if a British Chancellor were to come to the House today and announce that Britain is not contributing. [Interruption.] What did the shadow Chancellor say? [Interruption.] What? [Interruption.] What? The truth is that a Chancellor who came here and said he was not taking part when all those other countries, some of them on the other side of the world, were taking part, would have absolutely no credibility abroad.
Derek Twigg (Halton) (Lab)
Does the Chancellor believe that the eurozone is doing enough to help itself and its own countries? If he does not believe that, under what conditions would he support an IMF loan to any eurozone country?
Mr Osborne
I do not want to speculate about any future programmes that might, or might not, be required. What I want to do is make sure that the IMF is able to deal with whatever is thrown at it. That is massively in Britain’s national interest. We are talking about the source of 40% of the exports made by the businesses and factories of the constituencies we represent. For us to walk away from that at the moment would be bizarre. Does the eurozone need to do more? Yes, it does need to do more. For instance, as the former Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), said, it needs to sort out the problems in its banking system, and it needs to make sure that the programmes that countries have been asked to embark upon are deliverable, but that is not an excuse for Britain not to take part in a global effort to support the IMF.
Sir Malcolm Rifkind (Kensington) (Con)
I suspect that on this occasion Members on both sides of the House will have found the shadow Chancellor’s remarks to have been profoundly unconvincing. Does the Chancellor agree that the purpose of these funds is to assist in the restoration of the eurozone economy, the recovery of which is profoundly in our own interests? Does he also agree that the IMF must use all the powers at its disposal to ensure a rigorous application of its rules to those eurozone countries that are in trouble, in order to ensure that the mistakes that were made when the single currency was first formed are not repeated?
Mr Osborne
I completely agree with the former Foreign Secretary. The agreement at the weekend is about ensuring that the IMF is fully resourced to deal with whatever is thrown at it. Of course, if problems were to emerge and future programmes were to be required, there would be an enormous amount of scrutiny of what those programmes would consist of, what the conditions would be, and the like, but what we would not want at such a time, when the markets would no doubt be incredibly febrile and when confidence in Britain and other countries would be evaporating, is a question mark hanging over whether the IMF has got the money to solve the problem. That is why countries from around the world have decided to make this contribution.
Mr Dennis Skinner (Bolsover) (Lab)
Does not the Chancellor realise that he would have a much stronger case on loans to the IMF if he was not practising austerity here in Britain and calling on all families to pay for the bankers? Does not he recall that when the IMF was set up we had a Labour Government who introduced a national health service, built a welfare state, built education for all and left us with fewer than 500,000 people unemployed? That Government went for growth, and that is the kind of policy he should be going for here, instead of calling for austerity for everybody else.
Mr Osborne
What I say is that the hon. Gentleman is betraying the spirit of Ernest Bevin, Hugh Dalton, Clement Attlee and the members of that Government, who came together after the second world war to build new international institutions to make sure that, in future, the world would come together to sort out its economic problems, instead of walking away from other countries, which is what we would be doing if we followed the hon. Gentleman’s advice.
Mr Douglas Carswell (Clacton) (Con)
Last October, the Chancellor told this House that Britain would not be putting money into the bail-out fund, either directly or through the IMF. He said:
“the IMF contributing money to the eurozone bail-out fund? No. And Britain contributing money to the eurozone bail-out fund? No. That is Britain’s clear position.”—[Official Report, 27 October 2011; Vol. 534, c. 471.]
Has he changed his mind or was he playing with words?
Mr Osborne
I have not changed my mind at all. That is exactly what I said today; we are not contributing to the eurozone bail-out funds, including the European financial stabilisation mechanism, which was the thing that the previous Labour Government signed us up to. We are not part of those eurozone bail-out funds. We are not contributing money to the IMF that can be put into those bail-out funds—that is something we have also insisted on. And in the communiqué it is absolutely clear that the IMF is not allowed to create some special bail-out fund uniquely for the euro. This money goes into the general resources of the IMF to be used for countries, not for currencies.
Alison Seabeck (Plymouth, Moor View) (Lab)
Could the Chancellor please explain to the House and to his largely absent Lib Dem coalition partners—I say that for the record—why the amount chosen for the IMF is, by some extraordinary coincidence, just below the level required for a parliamentary vote? He has bandied around the words “political opportunism”, but is he not himself being a political opportunist?
Mr Osborne
I do not think that there is much political opportunism in having to take the difficult decision that Britain should contribute to IMF resources. I have taken that difficult decision, and I am happy to explain it to Parliament and to the public.
Mr John Redwood (Wokingham) (Con)
Given that I agree with the Chancellor that IMF money should not be used to bail out a currency, will he urge the IMF to make sure that loans are made available to European countries only when they are in a position to devalue or when they are withdrawing from the single currency? Otherwise, as with the sterling area, surely the responsibility rests with the governing authorities and the central bank of the euro to make the money, the loans, the subsidies available.
Mr Osborne
I do not agree with my right hon. Friend on this point, because if the IMF said it was never going to support a loan or undertake a programme with a eurozone country, it would, first, be walking away from one of the largest economic areas in the world. Secondly, all those eurozone countries would presumably then cease to be members of the IMF, because there would be no interest in it for them. So France, Germany and other countries would then withdraw from the IMF, and I do not think that that is what we want to see happen in the IMF. The IMF needs to support all countries that get into difficulty, provided the conditions are met and the rigour is applied to those programmes.
Kelvin Hopkins (Luton North) (Lab)
The IMF was designed for a world of separate national currencies with exchange controls and properly managed national economies. Is it not time to look again at re-creating that sensible world, because it actually worked, starting with the re-creation of national currencies in Europe?
Mr Osborne
The hon. Gentleman has, for all the time I have been in the House, consistently argued against British membership of the euro and consistently raised questions about the viability of the euro. I completely respect him for that, but to say that the IMF cannot get involved in the eurozone’s problems would be just a remarkable abnegation of the IMF’s commitment to deal with the world’s economic problems. The eurozone is at the centre of the world’s current economic problems because those involved have not been able to convince the markets that they can deal with their debts in the way that we have been able to. So I do not think it would be sensible for the IMF to just say, “There is a very important part of the world, which is at the epicentre of the world’s economic problems, but we are not going to get involved there.”
Mark Field (Cities of London and Westminster) (Con)
I entirely support the Chancellor’s contention that the interests of the City of London and the UK’s financial services industry are best served by unequivocal backing for the IMF at this time. Will he now pledge that by the time of the Whitsun recess he will have come to this House to make a statement on the Government’s strategic policy towards our relationship with the eurozone?
Mr Osborne
I thank my hon. Friend for his support, which is very welcome. As the representative in this Parliament of Europe’s largest financial centre, he completely understands our huge national interest in a stable world economy and in institutions that can try to bring stability to that world. I will give thought to his suggestion of a statement on the broader eurozone problems and will come back to him.
Stewart Hosie (Dundee East) (SNP)
I thank the Chancellor for his statement and for allowing me early sight of it, and I agree with his welcome for the European Central Bank’s commencement of the long-term liquidity operation. There are concerns about the size of the firewall and, still, about the scale of support being offered by the ECB, but notwithstanding that and irrespective of the final balance of support to the euro from the ECB and to individual countries from the IMF, will he continue to agree that the best hope we all have for an export-led recovery is a strong, stable and growing eurozone economy with no threat to that currency?
Mr Osborne
I find myself in agreement with the hon. Gentleman who speaks for the Scottish National party. One of the consequences of what has happened over the past year or two in the eurozone is that countries that want to join the eurozone now need to ante-up a huge sum of money into the bail-out fund. No doubt that is something he will be explaining to Scottish voters as we discuss whether Scotland should ditch the pound and join the euro.
Angie Bray (Ealing Central and Acton) (Con)
I support the Chancellor’s decision to make this additional loan to the IMF because of the important work that the IMF does in stabilising the economy across the world, not just in the EU. Can he reassure my constituents in Ealing and Acton that the loan will be repaid with interest?
Mr Osborne
Yes, I can. IMF loans are repaid and they always have been in the past. No country has lost money giving resources to the IMF and such loans are repaid with interest. Indeed, if I can find the quotation—[Interruption.] It is worth waiting for, because it is from the shadow Chancellor. When the shadow Chancellor was in the Treasury, he said that IMF lending to
“countries is invariably repaid with interest.”
That is what he said in 2003. I can give my hon. Friend the assurance that loans to the IMF are made to the most creditworthy institution in the world and are repaid.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Last summer, the Financial Secretary, I think, said that alongside a quota increase, contributions under the new agreement to borrow would be reduced. Can the Chancellor tell the House whether they have been?
Mr Osborne
The 2010 quota agreement has not come into effect because it has not been ratified by all the countries. Our bilateral loan will be made only once that quota deal has been ratified. I have listened to the hon. Gentleman for the 11 years for which I have been a Member of Parliament and I cannot believe that he really supports the decision being pursued by the shadow Chancellor. The hon. Gentleman knows from his time at the Treasury and from his broader experience that Britain has a vital interest in economic multilateralism and the institutions that support a more stable economy.
John Hemming (Birmingham, Yardley) (LD)
Does the Chancellor find it odd, as I do, that the Opposition were happy to commit the British taxpayer to the eurozone bail-out but will betray British workers who depend on exports for their jobs by not supporting the IMF?
Mr Osborne
To be fair, probably most Labour MPs, in their quieter moments, support the IMF and think it is perfectly sensible that, when other countries add their resources, Britain should do so. The most remarkable thing is that the shadow Chancellor led the Labour party into voting against the implementation of the London G20 deal. Because of the change of Government, we introduced the statutory instrument that gave effect to the London G20 deal, yet the shadow Chancellor led the Opposition against it.
Chris Bryant (Rhondda) (Lab)
Notwithstanding the mandate the Chancellor already has, would not our voters expect a separate vote on this loan in this House, so that all Members can take a view? The Leader of the House, who is sitting next to the Chancellor, is shaking his head; he knows perfectly well that he is going to prorogue Parliament a full week early. Members have plenty of time to stay here and vote on the matter. Is it not more important that we vote?
Mr Osborne
There have been two votes in this Parliament, in the past 18 months, on precisely the question of how much headroom the House of Commons gives the Chancellor of the day to make loans to the IMF. There have already been two votes.
Mr David Ruffley (Bury St Edmunds) (Con)
The Economist has rightly observed that the eurozone’s big problem is not a dearth of resources to the IMF, but the institutionalised paralysis of eurozone countries. Can the Chancellor tell the House what discussions he had at the spring meetings about the need for practical steps to break that paralysis?
Mr Osborne
My hon. Friend is completely right that providing additional resources to the IMF will not solve the eurozone’s problems, I said that in my statement. It is about making sure that the IMF is prepared for whatever is coming down the track—prepared for the worst, rather than just hoping for the best, and of course we do all hope that things improve. My hon. Friend is also right that the eurozone countries need to work more closely together in terms of the fiscal integration of their policies. That is one of the reasons why I did not want Britain to join the euro and would never want Britain to join the euro. The logic of a single currency is that devaluation is not possible and different inflation rates cannot be manufactured in different countries. The end result is the transfer of large sums of money from German taxpayers to Spanish taxpayers. That is their decision by being part of the currency; our decision is to make sure that the world is ready in case that does not come about.
Keith Vaz (Leicester East) (Lab)
One of the communiqués following the summit referred to the need to pursue solutions for malnutrition and food insecurity, as well as fragile states. I support the loan for those purposes, but how can we be sure that the money will end up supporting countries such as Yemen, which has just been through a presidential election and desperately needs support from the IMF and the World Bank?
Mr Osborne
The right hon. Gentleman is quite right to draw attention to the fact that, although we have been talking a lot about the eurozone, the IMF does a great deal of important work in low-income countries. As I said, there are 53 programmes, of which only three—albeit they are very large ones—are in the eurozone. At the IMF I specifically intervened to ask that the IMF’s windfall profits from recent gold sales be used to reduce the interest costs for low-income countries that undertake IMF programmes, to make sure that they have access to the increase in resources we are talking about today.
Mr Peter Bone (Wellingborough) (Con)
The only way for Spain, Italy, Portugal and Greece to become competitive and get their economies growing again is through a return to national currencies. Does not the Chancellor agree that it is a bonkers policy to pour billions and billions of UK taxpayers’ money into supporting the failed euro?
Mr Osborne
We are not pouring money into some eurozone bail-out fund. We are providing a loan to the International Monetary Fund. I hear what my hon. Friend says about the decision, but every single previous Government have been part of increases in IMF resources—in 1983 and in 1990, under Lady Thatcher’s Government, we contributed to increases in IMF resources. He says that these countries are lost causes, but in Portugal, where very difficult decisions have been taken, exports are up by 7% and the current account deficit has been reduced; Ireland has gone into a current account surplus and Spanish exports are up. Of course they are having to make the adjustments in a brutal way, by real cuts in wages rather than a currency devaluation, but that is the consequence of being in a single currency. The Governments in those countries, with, in most cases, the support of the public now, are taking those difficult decisions. It is interesting that even in Greece, which is probably the most traumatically affected of those countries, there is a clear and overwhelming public majority for Greece staying in the euro.
Mike Gapes (Ilford South) (Lab/Co-op)
The Chancellor claimed that the additional contribution that this country is making is proportionate to our shareholding. Can he explain why we are paying $15 billion, whereas France is paying $40 billion, Germany $55 billion and Japan $60 billion, and South Korea, with a smaller population and a smaller economy than ours, is paying the same as we are?
Mr Osborne
I am not sure if that is a request for more money to the IMF. As I made clear in the statement, the non-euro countries felt it was appropriate that the euro countries made a proportionately bigger contribution. That is why France, for example, has given $40 billion. In the past, because Britain has exactly the same quota shareholding as France, we would have given the same. We have not. Our $15 billion is almost exactly the same as the $15 billion loan made at the London G20 summit. I think it is proportionate to the eurozone effort. I cannot believe that the hon. Gentleman, as a former Chair of the Foreign Affairs Committee, really supports the shadow Chancellor’s position of opposing Britain being part of a global deal to increase IMF resources.
Mr John Baron (Basildon and Billericay) (Con)
I am sure the Chancellor will agree that until the core cause of the crisis is solved or at least approached—that being a lack of competitiveness—additional borrowing in a crisis caused by excessive borrowing already is simply reinforcing failure. Is the Chancellor at all concerned that for the 50 nations that he mentioned, devaluation was always an option—an option that has always been available to IMF rescue packages, but is not available to countries inside the eurozone?
Mr Osborne
My hon. Friend is right that countries in the eurozone do not have the option of devaluation if they want to remain in the eurozone. That is the logic of the single currency. That is why the Foreign Secretary, when he was leader of our party, said that it was
“a burning building with no exits”.
In that situation the question for Britain, rather than for members of the eurozone, is what do we do? What we can do is make sure that the global institutions that try to protect the world from instability, that try to provide shock absorbers for what happens in different countries, including in the eurozone, are well resourced to deal with whatever is thrown at them. I say to my hon. Friend and to Members across the House that it is possible to be very, very Eurosceptic and at the same time to be a believer in the international institutions that Britain helped to create 60 years ago.
Mr Kevin Barron (Rother Valley) (Lab)
Given the answer that the Chancellor gave to the right hon. Member for Wokingham (Mr Redwood), could he tell us exactly what was agreed this weekend that says that the IMF should give loans only to countries and not currencies?
Mr Osborne
The communiqué that was issued by the Finance Ministers and the European Central Bank governors said explicitly, with reference to the $430 billion that was provided by the countries at the meeting:
“These resources will be available for the whole membership of the IMF, and not earmarked for any particular region.”
Mark Pritchard (The Wrekin) (Con)
But is not the IMF in danger of sleight of hand? On the one hand the IMF claims not to bail out currencies, yet on the other hand it offers bilateral loans to countries in the eurozone that are failing because of the eurozone currency. Is that not an indirect loan from the IMF?
Mr Osborne
I would say, first, that the reason why these countries have the problems that they do is often because of their domestic difficulties. Portugal has been fundamentally uncompetitive for a decade. Ireland had a massive banking system that collapsed. Italy and Spain have not done enough to keep up with the competitiveness of Germany. They are addressing domestic problems. That is made more difficult because they cannot devalue their currency, but that is not the origin of their problems.
Mr Frank Roy (Motherwell and Wishaw) (Lab)
What happened to the reforms that were supposed to be linked to any extra funding for the IMF?
Mr Osborne
In 2010, there was an agreement to change the quota of the IMF to give the new emerging economies of the world, such as China, India and the like, a greater say at the IMF. The quota was reallocated to reflect the new economic weights in the world. That deal has not yet been ratified, but we as a country have ratified that deal. We are one of the countries that have ratified it. There remain some countries that have not. Our loan is available only when the quota deal has been ratified by the required majority of those countries.
Dr Julian Lewis (New Forest East) (Con)
When one’s friends are trapped in a burning building, is not the kindest thing to do to lead them in the direction of the exits in an orderly way, rather than give them billions to stay exactly where they are?
Mr Osborne
I would say that it is to make sure that the fire brigade has enough water to deal with the problem.
Barry Gardiner (Brent North) (Lab)
The IMF should be plan B; plan A should be the European Central Bank. Does the Chancellor not accept that until the ECB properly backs the euro, the only people who will welcome more money coming in through the IMF are the traders who are making much money by picking off the peripheral countries around Europe as they go from one to the other?
Mr Osborne
Since December, the ECB has provided €1 trillion in its long-term repo operation, so it has provided a lot of support, most of which has been used by some of the eurozone banks to stop them falling over. The ECB has taken action, but the Prime Minister, myself and other members of the Government have in public, as well as in private—but in public—over the last six months, urged the ECB to do more; urged that greater fiscal transfers take place. On many of those things the ECB has made a lot of progress since the autumn. There is a much bigger eurozone firewall. As I say, the ECB, which was not in the game at all last autumn, has now provided €1 trillion of liquidity, so it has made those contributions, and therefore the rest of the world, as well as the UK, thought it appropriate that we should make sure that the IMF is well resourced.
Joseph Johnson (Orpington) (Con)
My right hon. Friend rightly says that a well funded IMF and a bigger eurozone bail-out fund cannot be the whole solution to the eurozone crisis. Does he believe now that the overriding priority must be steps towards debt mutualisation and the structural reforms to address the underlying competitiveness issues that are at the heart of the crisis?
Mr Osborne
I absolutely believe that eurozone countries need structural reforms. This country needs structural reforms. The things that we have proposed to Parliament on welfare, education, planning and the like, are all part of reforms to make our country more competitive. We have not been talking about our economy here, but we came into government with the highest budget deficit of the lot and some real competitiveness problems. On mutualised debt, over a year ago, I said that I thought that the logic led the eurozone towards euro bonds. I have put that on the record, but ultimately that is a decision for the eurozone.
Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
The Chancellor is now in a position to tell us whether he intends to honour his commitment of 0.7% gross national income for overseas aid by 2013. When can we expect the legislation, which I understand is now sitting on the desk of the Secretary of State for International Development?
Mr Speaker
Order. I am sure that the Chancellor will relate the answer to the IMF, to which I feel sure the right hon. Gentleman was seeking indirectly, and without saying so, to relate the matter.
Mr Osborne
We are going to honour that 0.7%. That is in the aid budget. It is in the budget of the Department for International Development. We can talk about the merits of legislation, but we do not need a piece of legislation. The proof is whether the money is being provided, and this Government are providing the money. I for one am proud that we will be the first Government in British history to hit the 0.7% of international aid.
David Mowat (Warrington South) (Con)
The Chancellor has confirmed to the House that interest on this loan is payable in full. For the avoidance of doubt, will he confirm that the rate of interest that is payable is higher than the rate at which we will have to borrow?
Mr Osborne
The rate of interest would be set at the time the IMF called upon the loan, if it were to do so. It is only a contingent loan that will be available if the IMF needs it. The mechanism for setting the rate of interest for the IMF is well known. As I have said, countries do not lose money when they lend to the IMF—that is certainly Britain’s experience and that of other countries. Thanks to the actions the Government have taken, we are borrowing money at what is pretty much the lowest rate that anyone doing my job has ever borrowed money.
Steve McCabe (Birmingham, Selly Oak) (Lab)
If the rich EU countries that created the euro will not accept the risks associated with it, what is the moral case for saying that Britain and a host of other poorer countries should bail it out?
Mr Osborne
As I have explained, we are providing resources to the IMF. It was the previous Government, of whom the hon. Gentleman was a member, who committed the British taxpayer to the eurozone bail-out funds, which we had to get this country out of. I will take comments from my colleagues on the problems with the euro, but it is a bit rich coming from loyal Labour Members who supported Labour’s official policy of taking Britain into the euro.
Mr Julian Brazier (Canterbury) (Con)
I support my right hon. Friend’s commitment to that great institution, the IMF, and share his concern about what is happening to our largest export partner, but may I urge him to use the powerful position we have in the IMF, which is underpinned by this latest money, to ensure that there is a realistic examination of whether it is possible to save the southern European members without devaluation?
Mr Osborne
I welcome my hon. Friend’s support for this decision. IMF programmes should be very rigorous and there should be plenty of conditionality. As I have said, it is possible to undertake very difficult internal devaluations, as opposed to external devaluations—that is a consequence of remaining in a currency zone—and the IMF will help those countries through that.
Robert Flello (Stoke-on-Trent South) (Lab)
If in the weeks ahead the IMF announces, to everyone’s utter astonishment, that it wants to use some of that general fund for the eurozone bail-out pot, will the Chancellor bring the matter back to the House and allow us to vote on it?
Mr Osborne
I can be very clear that the British Government would not allow the loan we are talking about—the loan from Britain—to be used for the eurozone bail-out fund. It is for specific countries, not currencies, as set out in the communiqué.
Penny Mordaunt (Portsmouth North) (Con)
What my constituents want to know is whether their money will be safe. Is the Chancellor aware of any instance of a country that has lent money to the IMF not being repaid in full?
Mr Osborne
No, there are no such instances. Every single country that has lent money to the IMF has got its money back.
Mr Ian Davidson (Glasgow South West) (Lab/Co-op)
First, will the Chancellor withdraw the outrageous slur that all Labour Back Benchers were in favour of Britain joining the euro? Secondly, surely his distinction between currencies and countries is mere sophistry. The reality is that this is about bailing out countries whose difficulties have been caused, or at least exacerbated, by being in the euro. When does he expect to have to bail out the eurozone again? When will the eurozone’s next request for money come?
Mr Osborne
I talked about loyal Labour Back Benchers and would never apply such an outrageous slur to the hon. Gentleman, whereas it is certainly applicable to the hon. Member for Birmingham, Selly Oak (Steve McCabe). The distinction is not sophistry, because an IMF contribution, were there ever to be one, to a eurozone bail-out fund, would basically put that money into a eurozone pot and then the eurozone would decide how it was spent. If there is a country programme for a specific country in the eurozone, the IMF team would turn up, wherever it happens to be, impose its own conditions and do its own analysis, and that is fundamentally different. The logic of the hon. Gentleman’s question is that the IMF would never help a eurozone country, which would lead to the eurozone countries leaving the IMF, and we would then be fundamentally undermining one of the most important institutions the world has seen in the past 60 years.
Mr David Nuttall (Bury North) (Con)
Is it not the case that every time the IMF provides any assistance to a eurozone country, it simply demonstrates the complete failure of the European Central Bank to do its job properly?
Mr Osborne
The European Central Bank is of course a very important part of the equation, but one of the problems facing Ireland, Portugal and, indeed, Greece was that they were also shut out of international debt markets, and when countries are shut out of international debt markets they usually—almost always—turn to the IMF for assistance, so it would be very odd if the IMF were not there to help them.
Mr Jim Cunningham (Coventry South) (Lab)
I am glad that the Chancellor has realised—it has taken him four years to do so—that there was a world economic crisis which started outside this country. Yes, Labour in government in the past has supported the IMF, and we still do, as we know that we have to do something to help Europe, but, following what my hon. Friend the Member for Bolsover (Mr Skinner) said, I must ask why are the British people paying for it through one of the most punitive Budgets ever levied? On the one hand they understand that we have to help Europe, but on the other we have one of the most punitive Budgets that has ever been levied on the British people.
Mr Osborne
I have never denied that there was an international economic crisis; what I said was that those problems were not visited upon Britain from abroad. Britain was at the epicentre of the crisis, with the biggest bank bail-outs, the most indebted households, the most over-leveraged banks and one of the largest deficits going into the crisis. That is what I complain about, and I complain in particular about the man who was responsible for most of those economic policies giving us lectures on them afterwards. I welcome the fact that the hon. Member for Coventry South (Mr Cunningham) supports the IMF and an increase in its resources, but the money does not come out of the public spending cuts that we have had to make in order to deal with that mess; it comes out of our foreign exchange reserves. We are exchanging one asset for another, and as I have said, every country that has lent money to the IMF has got its money back.
Jason McCartney (Colne Valley) (Con)
Happy St George’s day, Mr Speaker.
I very much welcome the fact that the loan will be returned with interest, but does my right hon. Friend hope, as I do, that those interest payments are not returned at the expense of countries such as Greece racking up yet more debt?
Mr Osborne
IMF loans are made with conditions, and one condition is interest, although there is a specific programme to help very low-income countries to cope with the interest costs. It is very important, as part of any IMF analysis, that we undertake proper debt analysis, and the IMF has been pretty instrumental in driving through the private sector creditor write-offs that have happened in Greece in order to improve debt sustainability, something which—I do not think it is any secret—many eurozone countries were not particularly in favour of. The IMF can therefore take action to improve debt sustainability.
Fiona O’Donnell (East Lothian) (Lab)
The Chancellor has told the House that this is not about a eurozone bail-out, but back in September he also told us that we would not contribute again to the IMF bailing out the eurozone. If that is the case, why are eurozone countries contributing proportionately more?
Mr Osborne
I said very clearly in my statement that the principal reason the world economy is unstable is the problems in the eurozone, and, as all the questions have demonstrated, there is of course a connection between those problems and the need to have a well resourced IMF, but, as I said last autumn, we are not prepared to see IMF resource going into eurozone bail-out funds. It needs to be for individual countries and for individual country programmes, and that is a view which not just I or Britain happens to have, but which Japan, South Korea, Australia and European countries that are not in the European Union, such as Norway and Switzerland, share. Ask yourself the question, Mr Speaker, and the House can ask itself, too: why have all those other countries thought it is in their interests to help to deal with a problem that is actually on Britain’s doorstep as well?
Matthew Hancock (West Suffolk) (Con)
What would the Chancellor say to the exporters of west Suffolk about the purpose of the loan, when they need expanding markets in Europe and across the world?
Mr Osborne
The exporters of west Suffolk, like people in every other part of the country, have an enormous interest in there being greater stability in the eurozone and in the world economy. What has been so damaging in the past six months has been the flight of confidence from those countries, and its impact on exporters in Britain and elsewhere in the world. We want confidence to return. As I said in the statement, there was a sense in the spring meetings that things were a little better than before Christmas. However, the risks are real and they remain.
Grahame M. Morris (Easington) (Lab)
In his statement, the Chancellor told the House that the £10 billion contribution to the IMF would not affect spending by UK Departments. Why, therefore, is the Chief Secretary reported to be asking Departments to identify £16 billion more in savings to pay for “unforeseen” events? Is that for a eurozone bail-out contingency fund?
Mr Osborne
No it is not, and there is no connection between the two matters. An IMF loan comes out of our foreign exchange reserves. That has been the case under Labour Governments, Conservative Governments and this coalition Government. It is a contingent loan that will be drawn upon if the IMF needs resources. We swap our foreign exchange asset for the IMF loan. The Chief Secretary said what he did today because we are trying to get a grip on the public finances. To do that, we have to ensure that Departments can deal with their own contingencies, as and when they arrive.
Mr Stewart Jackson (Peterborough) (Con)
We all know that what we are discussing is state-sponsored money laundering to prop up the failed and doomed European project called the euro. The deal does not come without a heavy human cost. In southern Europe, it means the imposition of a net tightening of 3% per year, yet there is no monetary stimulus to offset that, no demand for growth in the rest of Europe and no demand for structural reforms. Why is the Chancellor throwing the good money of UK taxpayers after bad for this economic madness?
Mr Osborne
This money comes out of Britain’s foreign exchange reserves and is swapped for an IMF loan. It is therefore not money that we would otherwise spend on public services or use to cut taxes. My hon. Friend is being a little unfair to the countries that are having to undertake difficult structural reforms. For example, Spain has recently passed significant reforms to its labour laws to make its employment market more flexible and Italy has made difficult pension reforms. People will remember the scenes in Italy when those reforms were announced a few months ago. Britain is also having to make difficult reforms and take difficult decisions to make our economy more competitive and to deal with the problems in our public finances.
Nadhim Zahawi (Stratford-on-Avon) (Con)
The Australian Government made their decision with the backing of the Opposition. Will the Chancellor confirm that his decision will not be affected by the shadow Chancellor’s flip-flopping?
Mr Osborne
There is not much danger of my being influenced by the shadow Chancellor’s flip-flopping. My hon. Friend draws to our attention the interesting point that the Australian Liberal party, which is hardly the most Europhile party in the world, understands that Australia has obligations to the international community and to the IMF. Given that Australia is prepared to make a contribution, it would be quite odd if Britain was not.
Chris Heaton-Harris (Daventry) (Con)
May I congratulate the shadow Chancellor on his epic exploits yesterday? I note that he kept on message by going neither too far, nor too fast.
I voted for the loan and believe that it would have been bizarre had the Chancellor not offered a loan of the level agreed to by Parliament. Will my right hon. Friend guarantee that he will come back to this place and ask for Parliament’s assent should more funds be asked for?
Mr Osborne
I can do that on the simple grounds that I would not be able to make a loan beyond the agreed headroom without a vote in Parliament. Perhaps by then the shadow Chancellor will have flip-flopped again and will support it. [Interruption.] I shall be very generous and congratulate the shadow Chancellor on completing the marathon and raising all that money. I advise him not to wear flip-flops when he runs.
Mrs Anne Main (St Albans) (Con)
May I ask for clarification of the terms of the loan? The Chancellor referred in his statement to $15 billion and under £10 million, but the currency being utilised is special drawing rights at £1 to the special drawing right. Should the currency fluctuate and push the loan over £10 billion, will the Chancellor come back to Parliament and give us a vote on it?
Mr Osborne
The parliamentary authorisation is expressed in special drawing rights, and on the exchange rate at the moment the loan is just less than £9 billion.
Richard Harrington (Watford) (Con)
I realise that mind reading is not among my right hon. Friend the Chancellor’s talents, but does he think that as the shadow Chancellor did his gallant marathon yesterday, he suddenly had a Saul-on-the-road-to-Damascus moment and thought, “Ah, the organisation that I have supported for so long, the IMF, now has enough money, so I don’t agree with increasing its resources”, or does my right hon. Friend think, as I do, that the shadow Chancellor’s act is one of blatant, naked political opportunism that should be condemned?
Mr Osborne
I do think it is an act of political opportunism. As I have said, there was complete astonishment at the IMF when I said that the Opposition would probably oppose what I was doing. The people there all know the shadow Chancellor, because he negotiated on behalf of the Treasury as Britain’s representative at the IMF, so they find his decision very difficult to understand.
Mr Mark Spencer (Sherwood) (Con)
Although I support the funding of the IMF, will the Chancellor confirm that it simply emphasises the importance of maintaining UK financial credibility for UK interest rates and jobs in small businesses?
Mr Osborne
I thank my hon. Friend for his support. He is absolutely right, and while I was sitting in the IMF meeting on Friday and on Saturday morning, my mind wandered to thinking about what would have happened if I had turned up and said that we were abandoning our fiscal consolidation plan. I came to the conclusion that we would have been the subject of the meeting’s discussion rather than the problems in the eurozone.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
Will my right hon. Friend confirm that not a single penny is being added to either our national debt or our deficit as a result of this action?
Mr Osborne
Yes, I can confirm for my hon. Friend’s constituents in Suffolk and for people around the country that an IMF loan does not add to the debt or the deficit. We have to ask ourselves why, when people analyse the British economy, they do not add an IMF loan to the debt or deficit. It is because they understand that it is a loan that is paid back with interest and an asset that is exchanged for some of our foreign exchange reserves, not a call on public spending.
George Eustice (Camborne and Redruth) (Con)
I support the Chancellor’s decision, because Britain should play its part in supporting the IMF and helping to stabilise the world economy. I particularly welcome what he said about supporting countries rather than currencies, but what advice should the IMF give to a country that applies for support but whose problems are largely caused by an unsustainably high exchange rate?
Mr Osborne
I thank my hon. Friend for his support, which is very welcome. The problems of the countries that we are talking about lie in their lack of competitiveness, or in the case of Ireland in its banking system. The problems that they are trying to deal with have been exacerbated by the fact that they are part of a currency union and cannot devalue, although without getting into a lengthy debate I have to say that exit from the single currency would also bring them a whole set of problems. We are very clear that an IMF programme would come with robust conditions, real analysis of debt sustainability and real recommendations on structural reforms to make those economies more competitive.
Conor Burns (Bournemouth West) (Con)
Does my hon. Friend remember the warnings that many gave prior to the creation of the euro that without large regional subventions, the project would fail? Although he is correct in asserting that “I told you so” is not a policy, it is, sadly, increasingly a fact. He has acknowledged that Germany is doing more, but does he agree that it needs to do still more before eurozone countries have recourse to the IMF?
Mr Osborne
I certainly agree that Germany and other countries need to live with the consequences of the euro, and the German taxpayer is now having to provide many hundreds of billions of euros to various funds.
My hon. Friend is right that many Conservative Members warned of the consequences of Britain joining the euro. I remember helping the then Leader of the Opposition write a speech that he delivered at Fontainebleau, which was immediately parodied by the then Government, led by Tony Blair, and the then Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), as deeply irresponsible. The then Conservative leader spelled out in that speech a lot of the consequences that have come to pass.
Christopher Pincher (Tamworth) (Con)
Harold Wilson famously said that a week is a long time in politics, so does my right hon. Friend agree, having seen the shadow Chancellor’s performance—he first supported decent funding for the IMF and then quickly appeared to criticise it—that it now appears that Labour’s Treasury team’s dictum is that a minute is a long time in politics?
Mr George Osborne
Unfortunately, the shadow Chancellor has not, in the 18 months that he has been doing that job, set out any kind of consistent and principle-based opposition to the Government. It is all over the place, and has ended up with the Labour party voting against an increase in IMF resources. If we asked people for one of the achievements of the three-year Brown Government, they would probably say, “The London G20 summit was about the only one,” and that was all about increasing IMF resources. The position that the shadow Chancellor has led the Labour into is a remarkable one.
James Morris (Halesowen and Rowley Regis) (Con)
My constituents have legitimate concerns whenever large amounts of money are placed in international institutions. Will the Chancellor therefore confirm that the money Britain has loaned to the IMF can be used globally and not necessarily in the eurozone, and that the IMF will use its normal, stringent mechanisms for ensuring that the money is spent wisely?
Mr Osborne
I can tell my hon. Friend that his west midlands constituents will not have to pay any more taxes for the loan and will see no cuts in public services as a result of it. The money comes out of the foreign exchange reserves—the foreign currencies that Britain holds and always has held. I would also say to the people of the west midlands and elsewhere that the money is available for all countries in the world that get themselves into difficulties. They have to meet certain conditions—very tough conditions—before they get access to the money, but if the world did not have a global institution such as the IMF, we would be in a much worse place. All the manufacturers and exporters in the west midlands understand that problems in the world economy and our export markets come back to bite us very quickly indeed.
Guy Opperman (Hexham) (Con)
Businesses in the north-east want a secure, worldwide support system for the global economy and welcome this decision on the IMF, but the man in the street in Newcastle and Hexham wants to know whether we have ever failed to get our money back from the IMF.
Mr Osborne
No we have not failed to get our money back from the IMF. Britain was one of the creators of the IMF, because we understood after the 1930s that if countries just walk away from problems in the world economy, the problem is very much worse. In the north-east, we have manufacturers such as Nissan in Sunderland. Nissan is making a big new investment in the UK. It is doing so, in the end, because it has faith that the world economy will be a more stable place, one of the reasons being that we have strong institutions such as the IMF.
Charlie Elphicke (Dover) (Con)
Had other IMF quota members followed the advice of the shadow Chancellor and effectively walked on by, leaving European countries to fend for themselves, what would have been the effect on the UK economy in terms of jobs and money, and what would have been the effect on the economies of developing countries?
Mr Osborne
If the world were unable to provide the IMF with the resources it needed, people would see that the world was not able to act as a whole to deal with world problems. By the way, I happen to believe that there is no prospect that the shadow Chancellor would have taken a different decision from the one I have taken if he were doing my job. He takes the position he does simply because he is sitting on the Opposition Benches.
Bob Stewart (Beckenham) (Con)
I will repeat almost exactly what my right hon. Friend just said. Can he envisage any Chancellor of any party not making a decision such as the one he made this weekend for contingency funding to help out the IMF?
Mr Osborne
I do not think that any Chancellor since the creation of the IMF would have taken a different decision. In the end, all parties—at least, until today—have recognised that the IMF is an incredibly important institution for the stability of the global economy. If was created under a Labour Government, and it would be pretty remarkable if a Labour Chancellor were to try to pull the plug on Britain’s participation in it.
Robert Halfon (Harlow) (Con)
Will my right hon. Friend assure my constituents that there will be no impact on the increased spending on our schools and hospitals that the coalition Government are providing, and no impact on cutting taxes for more than 40,000 Harlow residents through raising the income tax threshold?
Mr Osborne
I can absolutely assure the people of Harlow that we will deliver a big increase in their personal tax-free allowance, continue with real increases in the health service, support their schools and, above all, get their economy moving after the disastrous mess that the previous Labour Government put us in.
Madam Deputy Speaker (Dawn Primarolo)
I thank the Chancellor and the 58 Members who were able to participate in this important statement.
Informal ECOFIN
George Osborne Excerpts(12 years, 7 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
The informal Economic and Financial Affairs Council (ECOFIN) was held in Copenhagen on 30-31 March 2012. Ministers discussed the following items:
Co-operation between the euro area and EU as a whole
During the working lunch, Ministers discussed how euro area member states and EU-27 could improve co-operation with each other.
De-brief from Eurogroup and economic outlook
The chair of the Economic and Financial Committee (EFC), de-briefed Ministers on issues discussed at the Eurogroup including agreement on the euro area firewall. I intervened to make it clear that the UK would want to take a decision on IMF resources alongside other G20 members. The presidency then invited EU institutions to give presentations: Andrea Enria, Chairman of the European Banking Authority, updated Ministers on the bank recapitalisation exercise; and Ollie Rehn, Commissioner for Economic and Monetary Affairs, gave a summary of the economic outlook. The presidency summarised the discussion, noting that the financial markets were calmer and the economic outlook was better, but that member states would need to continue with fiscal consolidation and growth-enhancing reforms.
Multi-annual financial framework (MFF)
The Commission presented their proposal for the next MFF, for the years 2014-2020. I rejected the Commission’s proposal. A large increase in the MFF could not be justified to Parliament and the British public at a time of fiscal consolidation. I also made it clear that the abatement was not for discussion and that the UK did not support any new EU taxes to fund the EU budget. The presidency summarised by noting that a number of member states had insisted that the MFF proposal must be lower and would set out this position in a letter to the chair of the General Affairs Council.
Financial Transaction Tax (FTT)
During a restricted session before dinner, the presidency asked Ministers for a political steer on the FTT proposal. I intervened to say that the UK did not support the Commission proposal for an EU FTT, as it would drive business to other financial centres outside the EU. The UK believes that the financial sector should make a fair contribution and that this is currently achieved in the UK through our bank levy. The presidency concluded that work would continue to proceed on the Commission proposal, but noted that several member states expressed dissatisfaction with the proposal and agreed that consideration should also be given to alternatives.
EU crisis management framework
The presidency introduced the work on an EU crisis management framework and invited several institutions to present, including: Yves Mersch, co-Chair of the Financial Stability Board regional group for Europe; Christian Clausen, President of the European Banking Federation and President and Group CEO of Nordea Bank; and Klaas Knot, President of the Dutch Central Bank. Commissioner Barnier, outlined the work that the Commission had undertaken so far, and was hopeful that further dialogue devoted to the “bail-in” tool would be completed within the next four weeks. The UK intervened to welcome the imminent publication of the EU crisis management framework. The UK also raised its scepticism of resolution funds and stated that the first line of defence for financial institutions in times of financial stress should be higher capital requirements, and the second should be a crisis management framework with “bail-in” tools. The presidency concluded by noting the complexity of the issues and the need for proposals to be tabled soon.
Credit rating agencies directive and regulation (CRA3)
The presidency asked Ministers for political guidance on two outstanding issues on CRA3: rotation (whether there should be a limit on the period of time that an issuer can engage a particular credit rating agency) and the endorsement regime (whether the regime for allowing the use of third-country ratings in the EU, initially set out CRA1 and CRA2 and updated in CRA3, should be reopened). The Commission suggested that rotation would enhance competition between CRAs, and that the endorsement regime was already agreed upon in CRA1 and 2 and therefore should not be reopened. Alongside other member states, the UK intervened to disagree with the rotation proposal and to note that the third-country equivalence regime had caused unnecessary disruption in the past. The presidency noted the concerns that had been raised on rotation and on third-country ratings, and that the rules would not be reopened, but they would look carefully at how the rules were interpreted in practice.
Preparation for IMF spring meeting and G20 Finance Ministers meeting. 19-21 April 2012
The presidency gave a brief summary of the issues for discussion and outline of the upcoming meetings in Washington.
Any Other Business: extraordinary ECOFIN
The presidency anticipated that there would be an extraordinary ECOFIN early in May, to discuss the capital requirements directive 4.
Financial Statement
George Osborne Excerpts(12 years, 8 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
This Budget rewards work. Britain is going to earn its way in the world. There is no other road to recovery. This Budget supports working families and helps those looking for work. It unashamedly backs business, and it is on the side of aspiration—of those who want to do better for themselves and for their families.
This Budget reaffirms our unwavering commitment to deal with Britain’s record debts, but because we have already taken difficult decisions this can also be a reforming Budget that seeks to repair the disastrous model of economic growth that created those debts—a model that saw manufacturing almost halved as a share of our national economy, while the national debt doubled.
This is how Britain will earn its way in the world: with far-reaching tax reform, with a simpler tax system where ordinary taxpayers understand what they are being asked to pay; with a tax system that is more competitive for business than any other major economy in the world; with a tax system where millions of the lowest paid are lifted out of tax altogether, while the tax revenues we get from the wealthiest increase.
Reforming tax is only part of the story. We will earn our way in the world by saying to all business, large and small, “We will provide you with modern infrastructure, new growth-friendly planning rules and employment laws and the kinds of schools, universities and colleges our future work force need. In return, you, British business, will have the self-confidence to invest, expand, hire, innovate and be the best.” We earn our way in the world if we stop being afraid to identify Britain’s strengths and reinforce them instead, backing industries such as aerospace, energy, pharmaceuticals, creative media and science—a deliberate strategy to create a more balanced national economy where financial services are strong, but are not the only string to our bow.
Stability comes first, and the report from the Office for Budget Responsibility reminds us today of the risks to stability. Despite the welcome action by the European Central Bank, the impact of the sovereign debt crisis on the European economy has been significant. Italy, the Netherlands, Belgium and others are now in recession, and Germany’s economy shrank in the last quarter. In today’s report, the OBR is sharply revising down its forecast for euro area growth this year by 0.8% to minus 0.3%. Its forecast for world economic growth is also revised down over the next two years, by 0.2% and 0.3% respectively.
Of course, Britain is not immune from those developments in our largest export markets, and the OBR says today that
“the situation in the euro area remains a major risk to our forecast”.
Another risk that it identifies is a
“further spike in oil prices”,
and there is no doubt that the high oil price, driven both by real demand and the Iranian situation, is of great concern across the world. It means that the OBR’s overall assessment of the outlook for, and risks to, the British economy is “broadly unchanged” since last November’s report.
Despite those head winds, there are some more positive signs. The OBR expects the British economy
“to avoid a technical recession with positive growth in the first quarter”
of this year. The British economy has, in its words,
“carried a little more momentum into the new year than previously anticipated”.
Indeed, the Office for Budget Responsibility is slightly revising up its growth forecasts for the UK this year to 0.8%. It then forecasts 2% next year—[Interruption.]
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I know that the House has to breathe, but we want to hear from the Chancellor of the Exchequer, and we cannot do that with too much noise on either side.
Mr Osborne
The OBR forecasts 2% next year, 2.7% in 2014, and 3% in both 2015 and 2016. Its forecast unemployment rate is the same as it was last autumn. It expects it to peak this year at 8.7%, before falling each year to 6.3% by the end of the forecast period, but it has revised down its estimate of the claimant count, which it now expects to be around 100,000 lower in each of the next four years than it previously forecast, peaking at 1.67 million this year, rather than the 1.8 million it forecast in November. It forecasts 1 million more jobs in the economy over five years.
Inflation is expected to fall throughout the period, from 2.8% this year to 1.9% next year, and then 2% by the end of the forecast period. I am today writing to the Governor of the Bank of England to reaffirm the consumer prices index inflation target of 2%. The Government’s credible and responsible fiscal policy allows the independent central Bank to pursue an activist monetary policy consistent with targeting low inflation. I confirm that the asset purchase facility will remain in place for the coming year.
Employment is growing, and inflation is coming down; so too is the deficit. When this Government came to office, the budget deficit stood at over 11%. The state was borrowing one in four of every single pound it spent. Today, I can report that the deficit is falling and is forecast to reach 7.6% next year. The share of national income taken by the state will have fallen from almost 48% when we took office to 43% next year. We must stick to the course, so there will be no deficit-funded giveaways today, but because we have taken difficult decisions we do not need to tighten further. Over the five-year period, this is a fiscally neutral Budget. This is achieved through a modest reduction in both taxation and spending.
Let me turn to those fiscal forecasts. The whole House will be pleased to know that these have improved a little from the forecasts that I presented in November. Borrowing this year is set to come in at £126 billion—£1 billion lower than I forecast in the autumn, and over £30 billion a year lower than its peak in the year before we came to office. Borrowing will then fall to £120 billion next year, if one excludes the transfer of Royal Mail pension assets. It will fall to £98 billion in 2013-14, then £75 billion, and then £52 billion, reaching £21 billion by 2016-17. So, in total, borrowing is £11 billion less than I last forecast, in the autumn, and this will be used to pay down debt.
In my first Budget, I set the Government the fiscal mandate of achieving a cyclically adjusted current balance by the end of the five-year horizon, and the OBR confirmed today that we are on course to achieve that mandate and to have eliminated the structural current deficit by 2016-17. It also confirmed that we are on course to reach our target for debt to be falling as a percentage of national income by the end of the Parliament in 2015-16. Public sector net debt is now set to peak at 76.3% in 2014-15, almost 2% lower than previously forecast, before falling the following year. With a balanced structural current budget and falling debt, our deficit reduction plan is on course, and we will not waiver from it. To do so would risk a sudden loss of confidence and a sharp rise in interest rates, and we will not risk that. Instead, we reinforce today our commitment to fiscal responsibility, not just this year, but in the years ahead.
The transfer of the £28 billion of assets from the Royal Mail pension fund to the Exchequer will free it from its crippling pension debts, ensure the pensions of hard-working staff are paid and help to bring in new, private sector investment. Some would have been tempted to spend the windfall. I do not propose to spend it; instead, I have used it to pay off debt.
We will also maintain our control on welfare spending. The passing of the Welfare Reform Act two weeks ago was an historic moment, and I pay tribute to my right hon. Friend the Work and Pensions Secretary, and to all my coalition colleagues for supporting him against determined opposition from those who defend unlimited welfare. But even with the Act, the welfare budget is set to rise to consume one third of all public spending. If nothing is done to curb welfare bills further, the full weight of the spending restraint will fall on departmental budgets. The next spending review will have to confront this, so I am today publishing analysis that shows that if in the next spending review we maintain the same rate of reductions in departmental spending as we have in this review, we would need to make savings in welfare of £10 billion by 2016.
We will also address the rising costs of an ageing population and the burden this places on future generations. We will publish a White Paper on social care. I have also said we would consider proposals to manage future increases in the state pension age, beyond the increases already announced. I can confirm today that there will be an automatic review of the state pension age to ensure it keeps pace with increases in longevity. Details of how this will operate will be published alongside the OBR’s long-term fiscal sustainability report this summer.
One area where Government spending is expected to be lower than planned is, as the Prime Minister just indicated, Afghanistan. We were reminded again yesterday of the sacrifice so many of our servicemen and women have made. As the Prime Minister made clear with the US President last week, UK forces will cease combat operations by the end of 2014. As a consequence, I can tell the House that the cost of operations—which are funded by the Government’s special reserve and are entirely separate from the Defence budget—is expected to be a total of £2.4 billion lower than planned over the remainder of the Parliament. Let me be clear today: the full cost of operations will continue to be met from the reserve, and our brave armed forces will get the equipment they need to complete the job.
But I can ensure that some of the benefit of the lower cost is felt by those who fight so hard and give so much for our nation’s security. We will fund an extra £100 million of improvements in the accommodation of our armed forces and their families. I will also double the families’ welfare grant, which is used to provide additional support to families left behind when people deploy. We have already doubled the operational allowance. Today, I am doubling the rate of council tax: the thousands serving our country in operations overseas will receive 100% relief on an average council tax bill.
Our commitment to reduce the deficit is keeping interest rates low. In this Budget, we take measures to ensure that the benefits of those low market interest rates are felt across the economy. They are certainly benefiting the taxpayer. Thanks to the reduction in the deficit and our low interest rates, this Government are saving a total of £36 billion in debt interest payments compared with their predecessor. This year is the 400th anniversary of the creation of the Treasury Board and the modern Treasury. There have been times recently when the Treasury has been borrowing money more cheaply than at any previous time in that 400-year history—few countries in Europe could say that at the moment. That reflects the confidence that investors have in Britain’s ability to pay its way.
I now want to test whether we can extend these benefits further into the future and diversify our portfolio. The longest gilt we currently offer to the market is 50 years. The Debt Management Office will consult on the case for issuing gilts with maturities longer than 50 years and the case for a “perpetual” gilt with no fixed redemption date— something that Britain last felt able to do six decades ago. We are also taking the opportunity to rebuild Britain’s reserves, which had fallen to historically low levels. I can confirm that our gold holdings have risen in value to £11 billion. Sadly, that does not include the 400 or so tonnes of gold sold a decade ago for £2 billion, which would now be worth six times that, at over £13 billion.
Working families are already being helped by historic low mortgage rates. The NewBuy scheme that we introduced last week uses the Government’s balance sheet to help those who cannot afford the larger deposits that some mortgage companies are now demanding. It comes alongside a new, reinvigorated right to buy, and to ensure that there are new homes to buy we are today expanding the get Britain building fund that provides up-front finance to construction firms.
We are also passing on our low interest rates to small businesses, through the national loan guarantee scheme, which started operation yesterday. Barclays, Lloyds, RBS, Santander and the new business bank, Aldermore, are all involved, and £20 billion of guarantees, in total, will be available. In the autumn statement, I also allocated £1 billion to invest in funds that lend directly to the mid-cap business that are the backbone of our economy. This is an alternative source of finance to the banks. The response has exceeded our expectations; 24 funds have submitted proposals. I am today shortlisting seven of them and, such has been the quality of the bids, I have also decided to increase the size of the finance partnership by 20%. I am also today expanding the enterprise finance guarantee.
Stability and credibility, the low interest rates they bring, and passing those low rates to families and businesses are necessary for growth, but alone they are not sufficient. As a nation, we have to make a choice. This country became seduced by large deficits and the illusion of cheap finance. Do we watch as the Brazils, Chinas and Indias of this world power ahead of us in the global economy or do we have the national resolve to say, “No, we will not be left behind. We want to be out in front”? That is this Government’s resolve.
Under this Government, Britain has moved into the top 10 of the most competitive places in the world in which to do business—but we have to do more, and here is how. First, on exports, over the last decade our share of world exports shrank as Germany’s grew. We sold more to Ireland than we did to Brazil, Russia, India and China put together. That was the road to Britain’s economic irrelevance, and we want to double our nation’s exports to £1 trillion this decade. So we are expanding UK Export Finance and setting out new plans to help smaller firms in new markets. Exports abroad must be accompanied by investment at home. Britain has a reputation as a remarkably open and welcoming place for investment. We must never allow protectionist rhetoric to creep into our political system.
Instead, we are actively seeking investment from overseas pension and sovereign wealth funds, and working to develop London as a new offshore market for the Chinese currency. We also want investment from British pension funds in British infrastructure, and we are now working with a dozen of the large pension schemes specifically on that. We are the first British Government to set out in a national infrastructure plan the projects we are going to prioritise in the coming decade: the roads, railways, clean energy and water, and broadband networks that we all need and that we have identified.
I believe that this country must confront the lack of airport capacity in the south-east of England. We cannot cut ourselves off from the fastest growing cities in the world, and my right hon. Friend the Transport Secretary will set out Government thinking later this summer. We want to look at the opportunities for increasing the role of private investment in the road network, learning lessons from the water industry. I confirm today that Network Rail will extend the northern hub, adding to the electrification of the trans-Pennine rail route by upgrading the Hope Valley line between Manchester and Sheffield and improving the Manchester to Preston and Blackpool and the Manchester to Bradford lines. For years transport investment in the north of England was neglected. Not under this Government.
We are working with our great cities to devolve decision-making powers and we are striking a ground-breaking deal this week with Manchester to support £1.2 billion in growth-enhancing infrastructure in that city. We will support £150 million of tax increment financing to help local authorities to promote development, and we will provide an extra £270 million to the Growing Places fund. In all this we are working with local areas to support their ideas for growing the private sector in parts of the country where the state has taken a larger and larger share of the economy.
The Mayor of London is a very effective champion for the city he runs so well. We will work with him on plans this summer to go on investing in London transport, lengthening commuter trains, extending the underground and exploring new river crossings in east London. So from the allocation made to the Mayor through the Growing Places fund, he will be creating a new £70 million development fund to attract new business and new jobs. The Mayor has persuaded me of the opportunities that the new Royal Docks enterprise zone offers our largest city if we offer enhanced capital allowances there, so we will.
Twenty-four enterprise zones are now going ahead across England. Chinese investment is pouring into the zone in Liverpool. The Marches zone in the west midlands is already expanding. I want other parts of the United Kingdom to benefit from these policies. My right hon. Friend the Chief Secretary can confirm today that we will offer enhanced capital allowances for businesses starting up in the new Scottish enterprise areas in Dundee, Irvine and Nigg, and there will be a new Welsh enterprise zone in Deeside, and we look forward to the first enterprise zone in Northern Ireland.
I want to see investment in our world-leading energy sector, including renewables. We have launched the Green investment bank, which will be open for business next month. We have introduced a carbon price floor into our tax system to encourage investment and we have set the rate today. Combined heat and power plants will not be liable to carbon price support rates on fuels used for heat.
Renewable energy will play a crucial part in Britain’s energy mix, but I will always be alert to the costs that we are asking families and businesses to bear. Environmentally sustainable has to be fiscally sustainable as well. The carbon reduction commitment was established by the previous Government. It is cumbersome and bureaucratic and imposes unnecessary costs on business, so we will seek major savings in the administrative cost of the commitment for business. If those cannot be found, I will bring forward proposals this autumn to replace the revenues with an alternative environmental tax.
Gas is cheap, has much less carbon than coal and will be the largest single source of electricity in the coming years, so my right hon. Friend the Energy Secretary will set out our new gas generation strategy in the autumn to secure investment. I want to ensure that we extract the greatest possible amount of oil and gas from our reserves in the North sea. We are today introducing a major package of tax changes to achieve this. We will end the uncertainty over decommissioning tax relief that has hung over the industry for years by entering into a contractual approach. We are also introducing new allowances, including a £3 billion new field allowance for large and deep fields to open up West of Shetland, the last area of the basin left to be developed—a huge boost for investment in the North sea.
We should not be shy about identifying our successful industries and reinforcing them. Around one fifth of the world’s top 100 medicines originate from UK research, so we are backing our life sciences sector by creating the Francis Crick institute at St Pancras and cutting taxes on patents to make this one of the most attractive places in the world to invent new medicines. We have protected the science budget. Now we are committing £100 million of support, alongside the private sector, for investment in major new university research facilities. With the world’s second largest aerospace industry, we will also establish a UK centre for aerodynamics to open next year, which will encourage innovation in aircraft design and commercialise new ideas.
Today we set Britain this industrial ambition—that we turn Britain into Europe’s technology centre. We will start with digital content. The film tax credit, protected in our spending review, helped to generate over £1 billion of film production investment in the UK last year alone. Today I am announcing our intention to introduce similar schemes for the video games, animation and high-end TV production industries. Not only will this help to stop premium British TV programmes like “Birdsong” being made abroad, but it will attract top international investors like Disney and HBO to make more of their premium shows in the UK. It will support our brilliant video games and animation industries too, because it is the determined policy of this Government that we keep Wallace and Gromit exactly where they are.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I should have thought that Members on the Government Benches would want to hear more from the Chancellor, because the country does.
Mr Osborne
To be Europe’s technology centre we need to have the best technology infrastructure. Two years ago Britain had some of the slowest broadband speeds in Europe. Today our plans will deliver some of the fastest, with 90% of the population having access to superfast broadband, and improved mobile phone coverage for rural areas and along key roads across the UK. But we should not be complacent by saying it is enough to be the best in Europe when countries such as Korea and Singapore do even better, so today we are funding ultra-fast broadband and wi-fi in 10 of the UK’s largest cities—Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, Manchester, Newcastle and London. My hon. Friend the Member for Brighton, Kemptown (Simon Kirby) asked me to help small cities too, no doubt with his own city in mind. I agree; £50 million will be available for smaller cities too. The fastest digital speeds in the world available in our cities, with the most connected countryside in Europe and the most creative digital content anywhere—that is what a modern industrial policy looks like.
My right hon. Friend the Business Secretary and I have asked Michael Heseltine to review by the autumn how Government spending Departments and other public bodies can work better with the private sector on economic development. From Liverpool to Canary Wharf, Michael knows how it is done. Of course, these projects succeeded because they were not killed off by the planning system. No one can earn their future if they cannot get planning permission. Global businesses have diverted specific investments that would have created hundreds of jobs in some of the most deprived communities in Britain to countries such as Germany and the Netherlands, because they cannot get planning permission here. That is unacceptable.
Next week my right hon. Friend the Communities Secretary and the Minister of State, Department for Communities and Local Government, my right hon. Friend the Member for Tunbridge Wells (Greg Clark), the Minister with responsibility for planning, will publish the results of our overhaul of planning regulation. We are replacing 1,000 pages of guidance with just 50 pages. We are introducing a presumption in favour of sustainable development, while protecting our most precious environments. The new policy comes into effect when the national planning policy framework is published next Tuesday. This is the biggest reduction in business red tape ever undertaken.
As a country, we also want to make the most of the Olympic and Paralympic games. Some of the biggest events will be on a Sunday. When millions of visitors come to Britain to see them, we do not want to hang up a “Closed for Business” sign, so we will introduce legislation limited to relaxing the Sunday trading laws for eight Sundays only, starting on 22 July.
Earning our way in the world means giving young people the skills to compete. In time, the school reforms being introduced by my right hon. Friend the Education Secretary will do more to improve the long-term economic performance of our country than any Budget measure ever will. But we have got to help the young adults who have already been let down by the schools system. We are offering a record number of apprenticeships and our youth contract comes into force next month. I can tell the House that we are also exploring the idea of enterprise loans. Young people get a loan to go to university or college; now we want to help them get a loan to start their own business.
We are also looking to see whether we can make public sector pay more responsive to local pay rates. As we have just heard, that is something the last Government introduced in the Courts Service. London weighting already exists across the public sector. Indeed, the Opposition have proposed the interesting idea of regional benefit rates. So we should see what we can do to make our public services more responsive and help our private sector to grow and create jobs in all parts of the country. We have asked the independent pay review bodies to look at this issue. Today we are publishing the evidence the Treasury is submitting to them, and some Departments will have the option of moving to more local pay for those civil servants whose pay freezes end this year.
New infrastructure and investment and ambitious reforms of planning, education and welfare to help businesses create jobs will all help Britain to earn its way in the world, but we also need a tax system that supports work. Two hundred years ago Adam Smith set out the four principles of good taxation, and they remain good principles today: taxes should be simple, predictable, support work and be fair. The rich should pay the most and the poor the least. The tax system this Government inherited from our predecessor has drifted far from these principles. We have already addressed some of the problem. We have established an Office of Tax Simplification to drive out complexity. Companies are moving to Britain, not away. We stopped the jobs tax. We have taken 1 million low-paid people out of tax altogether. But now we need further reform. We need to give Britain a modern tax system fit for the modern world.
The first goal is a far simpler tax system that businesses can easily navigate and where ordinary taxpayers understand what they are being asked to pay, so we will radically change the administration of tax for our smallest firms. Last year I asked the Office of Tax Simplification for recommendations. It has proposed that we tax small firms on the basis of the cash that passes through their businesses, rather than asking them to spend a huge amount of time doing calculations designed for big businesses. I agree, so we will consult on this new cash basis for calculating tax for firms with a turnover of up to £77,000, double what the Office of Tax Simplification proposed. This will make filling in tax returns dramatically simpler for up to 3 million firms.
We are also pressing forward with our ambition to integrate the operation of income tax and national insurance, which I announced at last year’s Budget, so that we do not ask businesses to run two different payroll tax administrations. A detailed consultation on how we will do this will be published next month.
We will also address some of the loopholes and anomalies in our VAT system. For example, at present soft drinks and sports drinks are charged VAT, but sports nutrition drinks are not. Hot takeaway food on the high streets has been charged VAT for more than 20 years, but some new hot takeaway products in supermarkets are not. Some companies are using the VAT rules that exempt the rental of land to avoid the tax that their competitors are paying. We are publishing our plans today to remove loopholes and anomalies, but we will keep the broad exemptions on food, children’s clothes, printed books and newspapers.
We should also simplify the age-related allowances, which the Office of Tax Simplification recently highlighted as a particularly complicated feature of the tax system. The National Audit Office points out that many pensioners do not understand them. These allowances require around 150,000 pensioners to fill in self-assessment forms, and as we have real increases in the personal allowances, their value is already being eroded.
So over time we will simplify the tax system for pensioners by doing away with the complexity of the additional age-related allowances for anyone reaching the age of 65 on or after 6 April 2013, and I will freeze the cash value of the allowance for existing pensioners until it aligns with the personal allowance. This will protect the existing level of allowance pensioners have while introducing a new single personal allowance for all. It is a major simplification, it saves money, and no pensioner will lose in cash terms.
Under this Government, pensioners next month will receive the largest ever cash increase in the basic state pension of £5.30 a week. Now we want to simplify the basic state pension and its interaction with the second state pension. I pay tribute to the work my hon. Friend the Pensions Minister has done on this. Such is the complexity of this means-tested system that only someone like our Pensions Minister can work out exactly what someone is entitled to and what they need to save, so I can confirm that we will introduce a new single-tier pension for future pensioners, set above the means test. This is currently estimated at around £140. It will be based on contributions and will cost no more than the current system in any year. We will bring forward further details later this spring. It will be a single, generous, basic state pension for those who have worked hard and saved hard all their lives, and a further major simplification of our tax and benefit system.
In the information age people should know what taxes they are paying and what their money is being spent on. My hon. Friend the Member for Ipswich (Ben Gummer) recently proposed to this House that we send taxpayers an annual statement showing them just that. I think this is an excellent idea and intend to put it into practice. HMRC contacts roughly half of taxpayers each year. From 2014, these 20 million taxpayers will at the same time receive a new personal tax statement. This will tell people how much income tax and national insurance they have paid, their average tax rates and how this contributes to public spending—in other words, how much, proportionately, of their tax bill goes to fund the healthcare, education, or welfare bills and how much is spent on servicing interest payments on the national debt. People will know what they are paying and what they are paying it for. A tax system that is simple and transparent: that is our first goal.
Our second goal is a tax system that is more competitive for business than any other major economy in the world. Our predecessors wanted to increase taxes on small businesses. Instead, we have cut the tax rate on small companies to 20%. Our predecessors wanted to increase national insurance on jobs, and we have cut it. Our new controlled foreign company rules will be legislated for in the coming Finance Bill and will stop global firms leaving Britain, as they were, and encourage them to start coming here.
This Government also support research and development here in Britain instead of abroad. We have already increased the generosity of the R and D tax credit for smaller firms. I confirm that from next year we will also introduce an above-the-line R and D tax credit that business organisations such as the Engineering Employers Federation, the Institute of Directors and the CBI have campaigned hard for. We will help new start-up businesses to recruit and retain talent by more than doubling the enterprise management incentive scheme grant limit to £250,000 and easing the rules so that academics in our universities can turn great ideas into great companies. The Treasury will review for this autumn what more we can do to encourage employee ownership.
All these tax reductions will help to win business for Britain, but the headline rate of corporation tax remains the most visible sign of how competitive our country is. We have already cut the rate from 28% to 26%. This April it is due to fall again to 25%. I can tell the House today that we will have a further cut of 1%, to be implemented right away.
From next month, Britain will have a corporation tax rate of just 24%, and we will continue with the two further cuts planned next year and the year after, so that by 2014 Britain will have a 22% rate of corporation tax. That is the biggest sustained reduction in business tax rates for a generation—a headline rate that is not just lower than our competitors, but dramatically lower: 18% lower than the US, 16% lower than Japan, 12% below France and 8% below Germany. That is an advertisement for investment and jobs in Britain, and it is a rate that puts our country within sight of a 20% rate of business tax that would align basic rate income tax, the small companies rate and the corporation tax rate.
I am also increasing the rate of the bank levy to 0.105% from next January, so that the additional corporation tax cuts do not benefit the banks, and so that our levy will in addition raise the £2.5 billion a year that we said it would.
That brings me to the main duties. Let me start with alcohol duty. The Government will shortly be publishing their alcohol strategy to address the growing problem of alcohol abuse, and the many billions of pounds it costs our NHS and criminal justice system, but today I have no further changes to make to the duty rates set out by my predecessor.
Turning to tobacco duty, smoking remains the biggest cause of preventable illness and premature death in the UK. There is clear evidence that increasing the cost of tobacco encourages smokers to quit and discourages young people from taking it up. So duty on all tobacco products will rise by 5% above inflation. That is 37p on a packet of cigarettes, and this will take effect at 6pm tonight.
One area where I am today making substantial changes is gambling duties. The VAT treatment of gaming machines is being repeatedly challenged by operators in the courts, so I will introduce a new machine games duty, with a standard rate of 20%, and a lower rate for low stakes and prize machines of 5%, of net takings. The current duty regime for remote gambling introduced by the last Government was levied on a “place of supply” basis. This allowed overseas operators largely to avoid it, and much of the industry has, as a result, moved offshore. Ninety per cent of online gambling consumed by our citizens is now supplied from outside the UK, and the remaining UK operations are under pressure to leave. This is clearly not fair—and not a sensible way to support jobs in Britain. So we intend to introduce a tax regime based on the place of consumption—where the customer is based, not the company—and, from this April, we will also introduce double taxation relief for remote gambling. These changes will create a more level playing field, and protect jobs here.
I turn now to fuel and vehicle excise duties. High oil prices have put real pressure on household budgets and on businesses. That is why we took action in last year’s Budget to cut fuel duty so that it is 6p lower than our predecessors planned. We have also scrapped the last Government’s fuel duty escalator of annual above-inflation rises, regardless of the oil price, and we are today confirming the fair fuel stabiliser. Above-inflation rises will return only if the oil price falls below £45 on a sustained basis—currently equivalent to about $75. These measures mean that this Government have eased the burden on motorists by £4.5 billion at a time when money is very short. I do not propose to make any further changes to the fuel duty plans already set out.
I am increasing vehicle excise duty by inflation only. To encourage fuel efficient fleets, we will extend the 100% first-year capital allowance for low-emission business cars, reduce the CO2 threshold for the main capital allowance rates and increase the percentage list price of company cars subject to tax. I can also announce that I am again freezing vehicle excise duty for road hauliers.
I now turn to personal and property taxation. My goal is a tax system where the lowest paid are lifted out of tax altogether, while the tax revenues that we get from the richest increase. Most wealthy people pay their taxes, and without them we could not begin to afford the public services upon which this country depends, but under the last Government it was the boast of some high earners that, with the help of their accountants, they were paying less in tax than their cleaners.
I regard tax evasion and, indeed, aggressive tax avoidance as morally repugnant. We have increased both the resources and the number of staff working on evasion and avoidance at HMRC. Taken together, the anti-avoidance measures in this year’s Finance Bill will increase tax revenue over the next five years by around £1 billion, and protect a further £10 billion that could have been lost. This week we have signed a further agreement with the Swiss to stop UK residents evading tax.
We have done all these things, but today we do even more. On coming to office, I asked Graham Aaronson QC to establish whether a general anti-avoidance rule could work in the UK tax system. He recommended that such a rule would improve our ability to tackle tax avoidance without damaging the competitiveness of the UK as a place to do business. We agree, so we will introduce one. We will consult on the details of the new rule and legislate for it in next year’s Finance Bill.
A major source of abuse, and one that rouses the anger of many of our citizens, is the way in which some people avoid the stamp duty that the rest of the population pays, including by using companies to buy expensive residential property. I have given plenty of public warnings that this abuse should stop, and now we are taking action. I am increasing the stamp duty land tax charge applied to residential properties over £2 million that are bought into a corporate envelope. The charge will be 15%, and it will take effect today.
We will also consult on the introduction of a large annual charge on those £2 million residential properties that are already contained in corporate envelopes, and, to ensure that wealthy non-residents are also caught by these changes, we will be introducing capital gains tax on residential property held in overseas envelopes. We are also announcing legislation today to close down the subsales relief rules as a route of avoidance.
Let me make this absolutely clear to people. If you buy a property in Britain that is used for residential purposes, we will expect stamp duty to be paid. This is the clear intention of Parliament, and I will not hesitate to move swiftly, without notice and retrospectively if inappropriate ways around these new rules are found. People have been warned. It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more. From midnight tonight, we will introduce a new stamp duty land tax rate of 7% on properties worth more than £2 million.
I also intend to deal with the unlimited use of income tax reliefs. Let us be clear: most rich people pay a lot of tax. It is also right that we have tax reliefs that promote investment, support charitable giving and reflect genuine business loss. But it cannot be right that some people make unlimited use of these reliefs year after year. Everyone in this country, and particularly those with the highest incomes, should contribute a fair share to the Exchequer. Some reliefs, such as the enterprise investment scheme and pensions relief, are already capped, and I do not intend to make any significant changes to pensions relief in this Budget. But, to make sure that those on the highest income contribute a fair share, I am introducing a new cap on those reliefs that are currently uncapped.
From next year, anyone seeking to claim more than £50,000 of these reliefs in any one year will have a cap set at 25% of their income. We have capped benefits. Now it is right to cap tax reliefs too.
That brings me to the rates of income tax and the additional rate of 50p. This tax rate is the highest in the G20; it is higher not just than the tax rate of America, but also of major European countries like France, Italy and Germany. It is widely acknowledged by business organisations and international observers as harming the British economy. Like the previous Chancellor who introduced it, I have always said that it was temporary. But I also said, three years ago, that I would not be prepared to reduce it while we were asking the whole public sector to accept a pay freeze, and I will stick to those pledges.
A 50p tax rate, with all the damage it does to Britain’s competitiveness, can only be justified if it raises significant sums of money. In last year’s Budget, I asked Her Majesty’s Revenue and Customs to look at the evidence, and especially to look at the self-assessment tax receipts that have come in since this January. I am publishing its report today. What it reveals is that the 50p tax rate has caused massive distortions.
HMRC finds that an astonishing £16 billion of income was deliberately shifted into the previous tax year, at a cost to the taxpayer of £1 billion—something that the previous Government’s figures made no allowance for whatsoever. Self-assessment receipts this year are below forecast by some £3.6 billion, while other tax receipts have held up. The increase from 40p to 50p raised just a third of the £3 billion that we were told it would raise.
Of course, the previous Government initially proposed a rate of 45p and then increased that to 50p. Let me tell the House what HMRC says about the difference between 50p and 45p. Its figures—
Mr Osborne
I am coming on to the OBR, don’t you worry.
The HMRC figures tell the story. The direct cost is only £100 million a year. Indeed, HMRC calculates that the loss of other tax revenues may even cancel that out. In other words, it raises at most a fraction of what we were told, and may raise nothing at all. So from April next year, the top rate of tax will be 45p. No Chancellor can justify a tax rate—[Interruption.]
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. We are nearly coming to the end, and I want the same respect to be given to the Leader of the Opposition.
Mr Osborne
No Chancellor can justify a tax rate that damages our economy and raises next to nothing—it is as simple as that. Thanks to the other new taxes on the rich that I have announced today, we will be getting five times more money each and every year from the wealthiest in our society. So the richest pay more—[Interruption.].
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Mr Flello, you are getting very excited at the back. I am sure that you want to calm down; it is not good for your health.
Mr Osborne
The richest pay more, the economy benefits and Britain is competitive again.
The shadow Chancellor and quite a few Labour Members have said that the HMRC report is not enough and that the Office for Budget Responsibility should pass judgment. It has, because these days the direct costing that the Treasury applies to every Budget measure is independently assessed and certified by the OBR. Unlike the previous Government, it also assesses the cash flow consequences of forestalling.
When it comes to the £100 million direct permanent costs of this measure, the OBR says this:
“we believe that this is a reasonable and central estimate”.
It also assesses as reasonable the estimate that the new taxes that I have introduced on the rich today directly raise five times that amount. That is half a billion pounds that we can now use to help people on lower and middle incomes keep more of their earnings.
In the spending review, we took the difficult decision to remove child benefit from families with a higher rate taxpayer. I said then that I simply could not justify asking those earning £15,000 or £30,000 a year to go on paying child benefit to those earning £80,000 or £100,000, and I stand by that principle. All sections of society must make a contribution to dealing with the deficit. Without this measure, we would not get the job done. But I said that I wanted to do this in a way that is fair and that does not involve setting up some new means-tested tax credit system for millions of families; and I said I would set out exactly how this measure would be implemented in this Budget.
We want to avoid a cliff edge that means that people lose all their child benefit when they earn just a pound more. So I can today confirm that, instead of withdrawing child benefit all at once when people earn more than the higher rate threshold, the benefit will only be withdrawn when someone in the household has an income of more than £50,000, and the withdrawal will be gradual—1% of child benefit for every extra £100 earned over £50,000, so there is no cliff edge and only those with an income of more than £60,000 lose all their child benefit.
This means that an extra 750,000 families will keep some or all of their child benefit, and 90% of all families will remain eligible for child benefit. We can afford to implement the child benefit policy in this way because instead of extending the full benefit of this Budget’s increase in the personal allowance to all higher rate taxpayers, as we did last year, we will pass on a quarter of the benefit to higher rate taxpayers and spend the rest on helping families with children towards the bottom of the higher rate band, as I have explained.
That brings me on to the personal allowance and the central goal of this Budget, which is to support working families. This coalition Government believe that the best way to support working people on the lowest incomes is to take them out of tax altogether, and the best way of getting money directly into the pockets of working families on middle incomes is to increase the amount of their earnings that they can keep before they pay tax.
That is why this Government have set themselves the goal of raising the personal tax-free allowance to £10,000, and we have promised real increases every year to reach that. In my last two Budgets, we made great strides forward. Last year, the personal allowance rose by £1,000; in two weeks’ time, it will go up by another £630 to £8,105. Together, these increases have taken over a million low-paid people out of tax altogether.
Today, I want to go much further and much faster. I am announcing the largest ever increase in the personal allowance—that is, the amount that people can earn tax free. From next April, that amount will increase by £1,100. Every working person on low or middle incomes will benefit. People will be able to earn up to £9,205 before they have to pay any tax. Millions of working people will be £220 better off every year; that is £170 better off after inflation. Because higher rate earners will also benefit, 24 million people earning less than £100,000 a year will gain from this measure. We are in touching distance of the goal of a £10,000 personal allowance that we all share.
I can tell the country that as a result of our Budgets, people working full time on the minimum wage will have seen their income tax bill cut in half. This coalition Government will have taken 2 million of the lowest paid people in our country out of tax altogether.
In the middle of this Parliament, in difficult economic times, this coalition Government have not settled for a do-nothing Budget. We have not ducked the difficult choices; we have taken them head on—a competitive top rate of tax; more revenues from those best able to pay; fewer reliefs; a tax cut for working people; support for families; and low-income earners taken out of tax altogether. Alongside it, we have one of the lowest rates of business tax in the world; a simpler tax code; and a country where its citizens know the taxes they are paying and what they are paying them for. We have achieved all this and kept to our deficit plan.
Let us be resolved. No people will strive as the British will strive. No country will adapt as the British will adapt. No country will value those who work as we will value those who work. Together, the British people will share in the effort and share the rewards. This country borrowed its way into trouble; now we are going to earn our way out. I commend the Budget to the House. [Interruption.]
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. [Interruption.] Order. [Interruption.] I think we have had enough. Thank you, Mr Baron; you may get a new job at this rate.
Under Standing Order No. 51, the first motion, entitled “Provisional Collection of Taxes”, must be decided without debate. I call on the Chancellor of the Exchequer to move it formally.
Amendment of the Law
George Osborne Excerpts(12 years, 8 months ago)
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Edward Miliband
What about the hapless accomplice, the Deputy Prime Minister? Only the Liberal Democrats could be dumb enough to think that a George Osborne Budget is a Robin Hood Budget. Calamity Clegg strikes again! A few months ago, the Deputy Prime Minister said of the 50p tax rate, with no ifs and no buts:
“I do not believe that the priority…is to give a tax cut to a tiny, tiny number of people who are much, much better off than anybody else.”
The party that once followed Lloyd George is now reduced to following George Osborne. The party that delivered the people’s Budget of 1909 is supporting the millionaire’s Budget of 2012. The Liberal Democrats should be ashamed. For all the talk and all the briefings, the Deputy Prime Minister has done what he has done on every big issue, from tuition fees to the betrayal on the NHS—he has rolled over and said, “Yes, Prime Minister.”
The truth is that for ordinary families, it is hurting, but it is not working. We know why that is. This Government have been cutting too far and too fast. What did the Chancellor say last August about America’s more balanced deficit reduction plan? He said:
“Those who spent the whole of the past year telling us to follow the American example…need to answer this simple question: why has the US economy grown more slowly than the UK economy”?—[Official Report, 11 August 2011; Vol. 531, c. 1108.]
The numbers are in. The Chancellor is plain wrong. The US economy grew by 1.7% last year—twice the rate of ours. The Government have run out of excuses. It is their mistakes and the failure of their plan that are damaging our future.
Today we have heard about more schemes from the Chancellor, but why should we believe him? Every scheme that he has put forward so far has failed. What was the big idea of his first Budget? The national insurance holiday. We did not hear much about the national insurance holiday today, and it is no wonder. He told us in his June 2010 Budget that it would help 400,000 firms. He has missed his target by 97%. The Chancellor’s plan has failed. What was the centrepiece of last year’s Budget? It is easy to forget now, but it was called the “Budget for growth”. This scheme is my favourite. It is called the business growth fund. Six regional offices have been opened and how many businesses are benefiting? Six. [Laughter.] It is true. One business for each office. The Chancellor’s plan has failed. We needed a plan for growth that would work. We needed a guarantee on youth jobs. We needed a British investment bank to help small business. On growth, jobs and how we pay our way in the world, this Chancellor has failed.
On the film tax relief proposal, it is great to support great British success stories such as “Downton Abbey”.
Edward Miliband
Indeed, and Wallace and Gromit. It is important to support “Downton Abbey”, the tale of a group of out-of-touch millionaires who act like they were born to rule, but turn out not to be very good at it. It sounds familiar, does it not? We all know that it is a costume drama; the Cabinet think it is a fly-on-the-wall documentary.
This Budget will be remembered for the Chancellor’s failure on growth and jobs, and for the top rate tax cut. That is not just a bad policy or a misjudgment. It destroys the claims that the Prime Minister made about who he was and what he believed. He said personally in the aims and values document that he sent to every Conservative party member:
“The right test for our policies is how they help the most disadvantaged in society, not the rich.”
The document was called “Built to Last”. That was his test. It is a test that this Budget fails spectacularly. This is the death knell of his project and of his compassionate conservatism. He and the Chancellor have shown their true colours. They promised change, but they have failed on growth, on jobs, on borrowing and on fairness. It is unfair, out of touch, and for the few, not the many—an unfair Budget built on economic failure; an unfair Budget from the same old Tories.
Oral Answers to Questions
George Osborne Excerpts(12 years, 8 months ago)
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Julian Sturdy (York Outer) (Con)
3. What steps he is taking to strengthen consumer protection in financial services.
The Chancellor of the Exchequer (Mr George Osborne)
In the Financial Services Bill, the Government are establishing a new financial conduct authority with additional powers to protect consumers and promote effective competition. On the day on which banks are writing to customers who were possibly mis-sold payment protection insurance, we are ensuring that banks will be open about any unarranged overdraft charges and interest payments on savings accounts.
Julian Sturdy
I thank the Chancellor for his response. As families and individuals try to get on top of their debts, will the Chancellor outline whether the Government believe that new legislation is required to ensure that credit markets act in a responsible rather than predatory manner towards customers?
Mr Osborne
We are introducing legislation through the Financial Services Bill. It creates the financial conduct authority, which will have additional powers and will, I think, be a powerful champion of consumers. Rather than wait for legislation, we are taking action with the industry’s agreement to introduce a seven-day ban on store card retail incentives so that people cannot take out a store card and immediately get a special offer with it in the shop; and we are stopping excessive card charges being hidden on statements.
Mr Andrew Love (Edmonton) (Lab/Co-op)
What is the Chancellor going to do about the exorbitant interest rates being charged to vulnerable consumers by pay day lenders, which are now so ubiquitous on our high streets up and down the country?
Mr Osborne
I agree with the hon. Gentleman that there are practices in that industry that we want to see stopped—and I would highlight two in particular. The first is the rolling over of loans, which we are working with the industry to stop; the second is the ongoing use of continuous authorities to take money out of bank accounts, which people might not be aware that they have granted to a pay day loan company or anyone else. We are dealing with those specific abuses and, as I say, we are creating a new powerful consumer champion in the financial conduct authority.
Mr Andrew Tyrie (Chichester) (Con)
The Financial Services Authority agreed to publish a review of its own conduct in the run-up to the failure of RBS only after considerable pressure from the Treasury Committee. It really should not be that difficult to get some answers out of a regulator.
Does the Chancellor agree that accountability to Parliament would be better served if the Financial Services Bill were amended to require the new regulator, the financial conduct authority, to respond to similar such reasonable requests from the Treasury Committee?
Mr Osborne
Of course we will listen to any proposals put to us. Clauses 69 to 76 include a new requirement on both the new bodies we are creating—the prudential regulator and the financial conduct regulator—to make a report when a regulatory failure has occurred. That trigger will be set out in the legislation, so we are providing additional powers to require reports when things go so badly wrong, as they did a few years ago.
Mrs Jenny Chapman (Darlington) (Lab)
The financial service from which my constituents most need protection is high-cost lending. The Chancellor’s remarks so far go nowhere near far enough in protecting consumers. We need a range of caps and we need some properly enforced regulation of advertising. When is the Chancellor going to do something about this?
Mr Osborne
I completely understand the concern about excessive and very high interest charges, which have been a problem for many years. I think it is better to tackle the specific abuses. The Government are conducting a review of the cost of credit to consumers, but by tackling very specific abuses such as the roll-over of loans and the use of continuous authority, we think we are getting to the really hard cases and abuses that we want to see ended. I have to say—this was certainly the view of the previous Government, too—that although it could be worth looking at, simply introducing a cap might have the effect of pushing a lot of people into a completely unregulated black economy. I am not sure that any of us would want to see that.
John Thurso (Caithness, Sutherland and Easter Ross) (LD)
I remind the Chancellor of the excellent suggestions in the Treasury Committee’s report on the objectives of the successor body to the FSA, as they would certainly help consumers. Will he take the opportunity provided by the current legislation to give effect to those recommendations?
Mr Osborne
As I have set out before, we have listened carefully to the Treasury Committee and made all sorts of amendments to the Bill to take account of its recommendations, including changing the FCA’s remit to include competition. The Joint Committee chaired by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) also proposed similar recommendations. We have listened to Parliament; thanks to those suggestions, we have made changes that we think will improve the Bill; and the Bill is now before the House and soon to be debated.
Naomi Long (Belfast East) (Alliance)
5. What recent assessment he has made of the effect on tourism of differential rates of VAT in the hospitality industries in the Republic of Ireland and Northern Ireland.
Gavin Williamson (South Staffordshire) (Con)
11. What fiscal steps he is taking to encourage job creation in the private sector.
The Chancellor of the Exchequer (Mr George Osborne)
We are making businesses more competitive by cutting business taxes, helping work pay by increasing the personal allowance and introducing universal credit, and helping unemployed people into work through our Work programme and work experience.
Mark Pawsey
As someone who owned and ran a business, I welcome the reductions in corporation tax and the small profits rate already announced by my right hon. Friend, but a further area of taxation is business rates, where although the reliefs for small companies are very helpful, many businesses currently face a significant increase. Can anything further be done to help businesses in this respect?
Mr Osborne
I will not pre-empt any Budget announcements, but I will say that we have extended small business rate relief to 2013. We announced that in November, and it will help more than half a million small businesses, and we have also introduced a deferral scheme to help larger businesses with their cash flow, so we are doing other things as well as reducing corporation tax—a further reduction in corporation tax is planned for April, of course—and cutting the small companies tax rate, which was due to go up under the previous Labour Government.
Gavin Williamson
The recent changes in research and development tax credits will provide a major boost for hi-tech manufacturing businesses based in my constituency and near it, such as Moog and Goodrich. What more can my right hon. Friend do to help generate more high-skilled, well-paid jobs in the manufacturing sector?
Mr Osborne
I have been very encouraged to hear about the success of companies in my hon. Friend’s constituency, including the two that he mentioned. We will provide further details later this year on the R and D “above the line” tax credit, on which we have listened to representations from industry and Members of Parliament. In the vicinity of my hon. Friend’s constituency, we also have the enterprise zone i54, which will start up in April. More generally, this is a week when 20,000 new jobs have been announced by Tesco and we have heard the great news that Nissan will produce a new car in the UK. There are some encouraging developments in the British economy.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Is the Chancellor not aware that his measures are not working? In the last quarter for which we have figures, set against a 67,000 drop in public sector employment there was a welcome but very modest increase of only 5,000 jobs in the private sector. Why not do something bold and positive in the Budget, such as taking one of our proposals, rather than rejecting it out of pride, to expand the national insurance holiday to cover all small companies that take on new employees, rather than just the relatively small number of new small companies?
Mr Osborne
I have noticed in the Budget representations from Labour Members that they are always very good at suggesting things we can spend money on but never have any ideas about how to save money, despite leaving us with the largest budget deficit in our peacetime history. They are all over the place: one week it is a tax cut, the next it is a spending increase. The truth is that we need economic credibility. The budget deficit is coming down but it is still far too high. Of course, we will not have the unfunded giveaways that got this country into a mess under the previous Labour Government.
Chris Leslie (Nottingham East) (Lab/Co-op)
At the budget a year ago, the Chancellor published his “Plan for Growth” with the rhetorical flourish that it would create
“a Britain carried aloft by the march of the makers.”—[Official Report, 23 March 2011; Vol. 525, c. 966.]
A year later, we can see that he has achieved less than half of the downgraded growth forecast made at the time. We had a shrinking economy in the last quarter with—and this is true—only one private sector job created for every 13 public sector jobs lost. Looking back at the past year, where did his plan go wrong?
Mr Osborne
We have secured for this country economic credibility and stability in the most intense global storm, with the eurozone crisis and rising oil prices. Of course it is difficult, but where is the credible economic policy from the Labour party? It is completely absent. Is it not striking that we have not had a single Labour MP get up and talk about the good news from Nissan today? The car is called the Invitation, but the only invitation the hon. Gentleman is interested in is one to the lasagne parties held by the shadow Chancellor.
Andrew Griffiths (Burton) (Con)
14. Does the Chancellor agree that the national loan guarantee scheme has massive potential to help small and medium-sized enterprises grow? Does he also share my view, however, that we need a more enlightened approach from the banks in lending for growth, particularly to support start-ups, exporters and manufacturing?
Mr Osborne
We have introduced various tax changes, including our seed capital scheme, creating the most tax-advantaged start-up environment almost anywhere in the western world. Indeed, it is more attractive than that in the United States. On credit easing, I can confirm that subject to final EU state aid approval, which we expect to get in the next week, we will have the scheme up and running before the Budget.
Sammy Wilson (East Antrim) (DUP)
Is the Chancellor aware that while fiscal policies are being used to create jobs, HMRC, through its hard-line attitude towards many small businesses with cash-flow problems, is driving people out of jobs and firms to the wall? What can he do to avoid the continuation of the situation in Northern Ireland, where 55% of bankruptcies in the past four years have been initiated by HMRC?
Mr Osborne
I think the figure that the hon. Gentleman cites, across the whole UK—I shall come back to him with the specific figures for Northern Ireland—has been roughly the same for many years. Many bankruptcies are ultimately caused by the taxpayer because the tax bills are the last thing that a company cannot pay, and that has been true in good times and bad. We have continued with the time to pay scheme, which was introduced by the previous Government during the recession, and we are making every effort to help viable businesses with their cash flow and to help them pay their taxes, which benefits everyone, in a way that keeps them afloat.
Nadine Dorries (Mid Bedfordshire) (Con)
I am sure the Chancellor is aware that it is not just Nissan that we have heard good news about. Last week, Center Parcs announced that it had been able to secure £250 million-worth of investment to build a new Center Parcs in my constituency, creating 1,700 ongoing jobs and 1,500 jobs in construction. Does the Chancellor agree that tourism is an ideal way to attract inward investment into the UK and that it is an area we should be looking at to create jobs in the private sector?
Mr Osborne
The announcement was very welcome. I commend my hon. Friend for taking an enlightened attitude to development in her constituency, which is not always the case. When it comes to tourism, we have authorised a big increase in the advertising campaign that is currently going around the world to sell the UK in this very special year when we have the Olympics and the jubilee. We want a permanent increase in tourism as a result of those events.
Dan Jarvis (Barnsley Central) (Lab)
12. What assessment he has made of the performance of the Money Advice Service.
Damian Collins (Folkestone and Hythe) (Con)
T1. If he will make a statement on his departmental responsibilities.
The Chancellor of the Exchequer (Mr George Osborne)
The core purpose of the Treasury is to ensure the stability of the economy, promote growth and employment, reform banking and manage the public finances so that Britain, from now on, lives within her means.
Damian Collins
Will the Chancellor join me in welcoming today’s report from the east Kent enterprise zone that nearly 1,000 jobs have already been created on the former Pfizer site? What assessment has the Treasury made of the positive impact of tax credits for video game production and high-end TV production in the UK to mirror the success of the film tax credit, which has helped to secure Britain’s place as one of the world’s leading creative economies?
Mr Osborne
With two weeks to go to the Budget, I shall not comment specifically on tax policy, but the industry to which my hon. Friend refers has made its representations to the Treasury. It already benefits from the reduction in the small companies tax rate—or, indeed, the corporation tax rate in respect of larger firms—as well as the reforms to research and development tax credits and the introduction of the seed enterprise investment scheme, which will help start-up companies in the creative sector, as elsewhere.
Ed Balls (Morley and Outwood) (Lab/Co-op)
The Chancellor’s policy on child benefit seems to be that a two-earner family on £84,000 can keep all their child benefit, but a one-earner family on £43,000—whether that is a single parent, or where mum or dad stays at home to look after the kids—will lose all their child benefit, which is £2,500 if the family has three kids. What is fair about that? For the benefit of Labour Members, the Deputy Prime Minister, the Justice Secretary, the Prime Minister and Government Back Benchers, will the Chancellor tell the House what is today’s policy on child benefit?
Mr Osborne
What I would say to the right hon. Gentleman is that I think it is fair to ask those in the top 15% of the income distribution to make a contribution to the fiscal consolidation. I happen to think that that is fair. If we now have a Labour shadow Chancellor who thinks it is not fair to ask people in the top 15% of income distribution to make a contribution to cutting a 9% budget deficit, he has completely lost sight of his party’s values.
Ed Balls
So on the comparison of £43,000 and £84,000, we are none the wiser. Let me ask the Chancellor another question about family finances. A year ago, he promised to get the economy growing and introduce a fair fuel stabiliser, which would cut fuel duty when petrol prices were higher. One year on, he is now indicating that he is going to press ahead with fuel duty increases, even though rising oil prices mean that pump prices have today reached a record high. How can he press ahead when petrol prices are 4p higher than they were in last year’s Budget? What has happened to the stabiliser, or is it not the truth that he cannot do the right thing on child benefit, tax credits or fuel because his plans have failed? A year ago, he said in the Budget that he would put fuel into the tank of the British economy. The fact is that the economy has tanked—on the hard shoulder—and this Chancellor has run out of fuel.
Mr Osborne
There is an inconvenient truth, which is that the fuel duty rises that the right hon. Gentleman refers to are the ones put in place by the Labour Government, which he and any Labour Member who was in the previous Parliament voted for. That is the unbelievable opportunism of the Labour party today. One month it is VAT, another month it is child tax credits and now it is fuel. He is like a pinball machine, bouncing all over the place. He does not have a credible economic policy.
Today, the right hon. Gentleman may have been listening to his Labour leader on Radio 5 Live. This is what a caller from Wakefield—very close to the shadow Chancellor’s constituency—said:
“I voted Labour all my life…but we need to have a credible Opposition…You’re not going to be the Prime Minister of this country by any stretch of the imagination. I’d put my life on that.”
Another Labour voter said:
“It’s really bad what you’re doing.”
The truth is this: they need a credible economic policy to be a credible Opposition and a credible shadow Chancellor and they do not have it.
Anna Soubry (Broxtowe) (Con)
T2. Many Conservative Members have long believed that lower-paid workers should be moved out of paying income tax. Will the Chancellor confirm that next month’s increase in personal allowances will have a real benefit for hard-working families in Broxtowe, and can they be increased even more come the Budget, please?
Mr Osborne
The personal allowance is increasing from April. We inherited a personal allowance that was £6,475. It is going to be £8,105 in April. That will take 1.1 million people out of tax and deliver a tax cut to 23 million or so basic rate taxpayers. I say to my hon. Friend, to my colleagues in the Conservative party and to my colleagues in the Liberal Democrat party that this is a coalition policy. It was part of the coalition agreement. It was in the Liberal Democrat manifesto, but I am also proud that it is a Conservative Chancellor who is implementing it.
Toby Perkins (Chesterfield) (Lab)
T4. If the Chancellor had cut less than the Darling plan and at the same time was borrowing less, we would be calling him a genius. What word would he use to describe somebody who has achieved the opposite?
Mr Osborne
I did not really understand what the hon. Gentleman was saying. He seemed to suggest that we should be cutting less than the Darling plan, so the Opposition are now abandoning even the deficit reduction plan that they claimed to have when they were last in government. It just shows how all over the place they are.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)
T3. The oil and gas industry has opened its books to an unprecedented degree to show the costs of operating in the North sea, to help the Chancellor understand the need for investment and incentives. Will he recognise the need to respond positively in the Budget on decommissioning relief and on other incentives to maximise the job potential of the oil and gas that we have left in the North sea?
Mr Osborne
I am very aware of what an important industry that is for the UK and how important it is to extract what remains of the oil and gas in the North sea—of course there is still an enormous amount of oil and gas in the North sea—and to have an industry in Aberdeen and other places that continues long after the oil runs out. We are specifically engaging with the industry on decommissioning relief in order to give certainty to the industry about the years ahead, and on specific field allowances, which might aid new exploration.
Dan Jarvis (Barnsley Central) (Lab)
T8. Given that schoolchildren and students are the future bill payers of this country, can the Chancellor explain why, two years after the Conservatives blocked plans to include financial education in the national curriculum, no progress has been made in ensuring that our young people have the tools to make informed decisions about their finances?
Mr Sam Gyimah (East Surrey) (Con)
T5. The Opposition’s policy of more spending, more borrowing and more debt is not credible and will result in higher interest rates. Will the Chancellor tell the House what impact just a 1% rise in interest rates would have on businesses, mortgages and the cost of servicing the colossal national debt racked up by the previous Government?
Mr George Osborne
I gave these figures to the House before and will give them again because they remind us how irresponsible the Labour party’s policy is: a 1% rise in mortgage rates would add £10 billion to family mortgage bills; a 1% rise in interest rate loans would cost businesses £7 billion; and a 1% rise in interest rates would add £21 billion to debt interest payments. The policy that the Labour party claims to pursue, at least this week, would definitely put market rates up, which is what has happened to other countries without a credible fiscal policy, and taxpayers, families and businesses would pay for the mess they got us into.
Hugh Bayley (York Central) (Lab)
By how much will the national debt have grown by the next general election, compared with the situation the Government inherited following the last general election?
Mr Osborne
In two weeks’ time I will produce the latest Office for Budget Responsibility forecasts for the fiscal situation, so the hon. Gentleman will have to be patient and wait until then.
Jason McCartney (Colne Valley) (Con)
T6. With new businesses setting up and others expanding in my constituency, I very much welcome plans to promote equity investment in new business ventures through the seed enterprise investment scheme. What else is being done to support new business ventures across my constituency and the rest of our nation?
Paul Goggins (Wythenshawe and Sale East) (Lab)
Airports create jobs, yet next month’s increase in air passenger duty will apply equally to unused airports in regions with high unemployment and busy airports in the south-east. Will the Chancellor consider introducing a differential level of air passenger duty so that airports in regions with high unemployment can gain some benefit from it?
Mr George Osborne
We will of course listen to any representations. My constituency is also served by Manchester airport. Indeed, the second runway is in my constituency, so I am well aware of the representations from the airport, but I gently say to the right hon. Gentleman, with whom I get on well as a constituency neighbour, that the increase in air passenger duty was the policy of the previous Labour Government and was set out in their last Budget. The one thing we were able to do was to delay the increase last year to give passengers some relief. It is a little opportunistic for Labour Members to complain about a tax that they all voted for when in government.
Andrea Leadsom (South Northamptonshire) (Con)
Does my hon. Friend agree that it is unacceptable that four banks in the UK have 80% of the SME business and 80% of the personal current account business in this country and that it is essential we get more competition in the banking sector? During the passage of the Financial Services Bill, will he consider again the Treasury Committee’s recommendation for a specific primary competition objective for the Financial Conduct Authority?
Mrs Linda Riordan (Halifax) (Lab/Co-op)
Unemployment in Halifax has doubled since 2010, because of the Government’s failed economic policies. Will the Minister outline the urgent action that he is going to take to ensure that people get back to work in the town?
Mr George Osborne
Unemployment rose sharply at the end of the previous Labour Government, and youth unemployment has been rising since the middle of the previous decade, which is a tragedy for everyone affected by it and for the country. That is why we have the Work programme, why we are introducing the youth contract and why we have our work experience scheme, but a Labour MP is chairing the campaign to sabotage it and deny young people who are currently claiming unemployment benefit the chance of real work experience, so perhaps, first, the hon. Member for Halifax (Mrs Riordan) will have a word with the Labour MP who chairs the so-called right to work scheme.
Mr Christopher Chope (Christchurch) (Con)
The Chancellor referred to the top 15% of earners having to contribute to deficit reduction. Why is he proposing that, in that 15%, those who have children should make a bigger contribution than those without?
Mr Osborne
The reason we have put forward the policy is that those higher-rate taxpayers who do not have children are not in receipt of state benefits, so it is quite difficult to remove state benefits from them.
Geraint Davies (Swansea West) (Lab/Co-op)
The Chancellor and his Government are considering the complete removal of all subsidy to disabled manufacturing workers in Remploy. Does he accept that, as a minimum, the subsidy should be at the level of unemployment benefit and reflect the knock-on cost on health in order to avoid making a net loss by putting those people on the dole?
Mr Osborne
We are seeking to use the same amount of money in a better way, and it is a very sensitive issue, which hon. Members from all parts of the House are concerned to ensure we get right. We are working very closely with disability charities to come up with a future that is right for the people who have disabilities and want to work.
Eric Ollerenshaw (Lancaster and Fleetwood) (Con)
In 1997 the gross value added difference in the national economy between the north and London was some 70 points. By 2010 it had gone up to 86 points. What more can my right hon. Friend do, or what will he consider doing in the next Budget, to add to the Government’s drive to narrow the north-south divide, which increased under the previous Government?
Mr Osborne
My hon. Friend is absolutely right. The gap between the economic performance of the south of England and the north of England and, indeed, all parts of the UK increased under the Labour Government, so all those policies for regional development agencies, The Northern Way and all that led to an increase in disparity in our country, and manufacturing as a share of our national economy halved. We have introduced the regional growth fund, and we have enterprise zones and major transport schemes such as High Speed 2, to shrink the gap between the north and the south and to make sure that all parts of our economy benefit—[Interruption]—so that we have a better record than the one when the right hon. Member for Morley and Outwood (Ed Balls) was sitting in the Treasury.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
The Royal Bank of Scotland has today announced that it is cutting 300 jobs, mainly in Edinburgh, and transferring the work to India, where 250 jobs are to be created. Will the Chancellor intervene and tell RBS that the public did not put billions into it just to let it export jobs in that way?
Mr Osborne
As the hon. Gentleman well knows, the Government’s shareholding in the Royal Bank of Scotland is managed through United Kingdom Financial Investments Ltd, an institution created by my predecessor, another Member for Edinburgh, the right hon. Member for Edinburgh South West (Mr Darling), and we have no plans to change those arrangements.
Duncan Hames (Chippenham) (LD)
Last week was indeed a triumph for those in the Treasury tackling tax avoidance, but can the Chancellor tell us whether those tax receipts, which will have not been budgeted for, are going to be used to set against the deficit or to put money back in the pockets of ordinary working people?
Mr Osborne
I am afraid that my hon. Friend will have to wait for the Budget to see what we propose to do across the board, but last week we demonstrated that we are prepared to take decisive and swift action where we find unacceptable tax avoidance—by a bank in that case, which we felt was incompatible with the code of practice that we asked the banks to sign and which they have signed. I hope that he and his constituents take it as a signal of our seriousness about tackling tax avoidance and, indeed, tax evasion.
Nick Smith (Blaenau Gwent) (Lab)
Much work has been done to secure a private sector-led infrastructure project in Blaenau Gwent. The developers say that it could create sustainable jobs for over 10,000 people. Given that the Chancellor has already announced 100% capital allowances in six English enterprise zones, when will he be able to offer similar assistance to the Welsh enterprise zones?
Matthew Hancock (West Suffolk) (Con)
Thank you, Mr Speaker.
Does my right hon. Friend agree with the statement made this morning:
“The last Labour government didn’t regulate the banks properly. That’s what caused the financial crisis”—
not my words but those of the right hon. Member for Doncaster North (Edward Miliband)—or does he, like me, think that it was caused not just by a failure to regulate the banks but by the Labour Government spending more money than they had?
Mr George Osborne
Of course, it was a double failure: the catastrophic failure of Labour Ministers, including the then City Minister, the right hon. Member for Morley and Outwood (Ed Balls); and the failure to get a grip on public spending. We are having to clean up both messes at the moment.
Bill Presented
Planning Applications (Appeals by Town and Parish Councils)
Presentation and First Reading (Standing Order No. 57)
Martin Caton, supported by Philip Davies, Mr Elfyn Llwyd, Andrew George, Caroline Lucas, Bob Blackman, Paul Flynn, Kate Hoey, Robert Halfon, Steve McCabe, Kelvin Hopkins and Sir Bob Russell, presented a Bill to allow town and parish councils to appeal against the granting of planning permission in their area in certain circumstances; to make provisions for Wales; and for connected purposes.
Bill read the first time; to be read a Second time on Friday 27 April, and to be printed (Bill 314).
ECOFIN 21 February 2012
George Osborne Excerpts(12 years, 8 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
The Economic and Financial Affairs Council was held in Brussels on 21 February 2012. Ministers discussed the following items:
Proposals from the Commission on Economic Governance
Ministers agreed a general approach on the economic governance “two pack”. The legislation will allow the Commission increased oversight into the budgets of eurozone member states and also sets up a surveillance procedure for eurozone members subject to a macro-economic adjustment programme. The Government have been clear that the proposals should maintain a role for the Council where appropriate and the Eurogroup has agreed to inform the Council as a whole when a request for loan assistance has been made. The presidency will now commence the trialogue process with the European Parliament.
Presentation and First Exchange of Views on Macro-economic Imbalances—Alert Mechanism Report
The presidency introduced the Alert Mechanism Report as the first step in the new macro-economic imbalances procedure. The Commission clarified that the role of the report is to be a screening device to identify member states that might potentially be at risk of having, or developing imbalances. This item will be discussed in greater depth at the March meeting of the Economic and Financial Affairs Council.
Contribution to the European Council Meeting on 1-2 March 2012: European Semester (including EuroPlus pact)
Ministers agreed the conclusions on the European semester for the European Council. The presidency observed that these conclusions will end the first phase of the semester process and will provide important guidance to member states. The Government look forward to an in-depth discussion of structural reform and concrete commitments on growth at the European Council.
Preparation of G20 Meeting of Finance Ministers and Governors (Mexico, 25-26 February 2012)
Ministers endorsed the EU terms of reference. The Commission spoke of the need to increase IMF resources, and the importance of making a case for this at the G20.
Council Recommendation for the Discharge in Respect of the Implementation of the Budget for 2010
The presidency introduced this agenda item by acknowledging that there was an increase in the error rate and that efforts to improve financial management needed to be stepped up. It reiterated the Council’s previous call for the error rate to reduce year on year. While the majority of Ministers agreed to a text recommending the discharge of the budget, the UK joined with Sweden and the Netherlands to vote against the recommendations. The UK voted against the discharge because of the slippage on progress made in recent years. Along with the Netherlands and Sweden, the UK issued a joint statement calling for tougher action in future years.
Budget Guidelines for 2013
The presidency introduced the proposed budget guidelines for 2013. During the discussion, the UK and others intervened to make clear that, in the current economic circumstances, there was a clear case for a constrained budget in 2013, as in 2012. Some other member states, while respecting the need for budget consolidation, argued that this should not compromise EU programmes. The Commission also argued that a larger EU budget could contribute to growth. The presidency noted the debate and concluded that the Council had adopted the presidency text for the 2013 budget guidelines.
AOB
The presidency debriefed the Council on the trialogue process on the European Markets Infrastructure Regulation (EMIR). They have reached an agreement with the European Parliament and the regulation should now be adopted by June and published before the European Parliament’s summer recess. The presidency also updated the Council on the review of deposit guarantee schemes. They had not made progress with the European Parliament and the presidency will come back at a later date with suggestions on how to proceed. I intervened to congratulate the presidency and the Commission on reaching agreement on EMIR and made clear that it was important that progress on the Deposit Guarantee Schemes Directive was made on the basis of the Council’s general approach.
The French and German Ministers then presented their joint “Green Paper” on corporate tax convergence.
Eurogroup debrief
Ministers were debriefed over breakfast on the euro group meeting of 20 February where euro area Ministers had agreed a second programme of assistance and accompanying reforms for Greece. In the ensuing discussion there was recognition of the importance of supporting economic growth and the challenges that remain. I welcomed the outcome, but noted that this needed to be accompanied by a genuine and robust push for structural reform. On the wider economic situation the Commission previewed its interim growth forecasts (published on 23 February). Growth in the EU in the first half of 2012 was forecast to be subdued, with a modest return to growth in the second half. Ministers agreed to discuss the forthcoming election of a new president of the European Bank for Reconstruction and Development at March ECOFIN.
European Investment Bank (EIB)
Ministers were alerted to possible future EIB proposals for supporting growth in line with the January European Council statement.
ECOFIN
George Osborne Excerpts(12 years, 9 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
The Economic and Financial Affairs Council will be held in Brussels on 21 February 2012. The Chancellor will attend. The following items are on the agenda to be discussed (as of 20 February 2012):
Proposals from the Commission on Economic Governance
ECOFIN will aim to agree a general approach on the Commission’s two proposals to strengthen economic governance: the first to strengthen surveillance of budgetary policies in euro area member states; and the second to strengthen economic and fiscal surveillance of euro area countries facing, or threatened with, serious financial instability.
This follows on from an exchange of views at the 24 January ECOFIN which demonstrated broad support for the proposals. Two main issues remained unresolved: first, whether all euro area member states should submit their budgetary plans to the Commission and the euro group for monitoring purposes or only euro area member states in excessive deficit should do so; and secondly, whether the Council should be empowered to adopt a recommendation that a member state should seek financial assistance.
The UK supports the measures as they are designed to improve stability in the euro area. These proposals apply only to the euro area. However, the proposals should maintain a role for the Council and Economic and Financial Committee where appropriate
Presentation and First Exchange of Views on Macroeconomic Balances: Alert Mechanism Report
The Commission will present its Alert Mechanism report, the first stage in the new EU-level excessive imbalances procedure, and the Council will have a first exchange of views, with an intention of returning to a substantial discussion and possible adoption of Council conclusions at the ECOFIN meeting on the 13 March. The Government support the excessive imbalances procedure as a means of strengthening European economic governance, particularly in the euro area.
Following the publication of the Alert Mechanism report on 14 February, the Commission will now conduct in-depth reviews on 12 member states to examine whether they have an excessive imbalance. The 12 includes France, Sweden, Denmark and Finland as well as the UK. (The four countries receiving IMF assistance—Greece, Romania, Ireland and Portugal—are automatically excluded from this process). At the end of May the Commission will publish whether any of these imbalances are deemed excessive. Member states with excessive imbalances are obliged to submit corrective action plans; for euro area countries, submission of an inadequate corrective action plan or failure to comply with the plan will lead to escalating sanctions up to and including a fine of 0.1% of GDP.
The UK has already taken significant action to rebalance the economy, including at the Budget and at the autumn statement.
Contribution to the European Council meeting on 1-2 March 2012: European Semester (including Euro-Plus Pact)
ECOFIN will agree a set of Council conclusions on the Commission’s annual growth survey (AGS). The Government consider that the conclusions send a balanced message about the need for reforms at member state and EU-level, and that they broadly support the policy messages contained in the AGS. The Government look forward to an in-depth discussion of structural reform and concrete commitments on growth at the March European Council.
Preparation of G20 Meeting of Finance Ministers and Governors (Mexico, 25-26 February 2012)
Ministers will agree EU terms of reference for the G20 Finance Ministers’ and Governors’ meeting. This will be the first G20 Finance Ministers’ and Governors’ meeting of the Mexican presidency. The draft terms of reference focus on: the global economy and G20 framework; IMF resources, governance and surveillance; financial regulation/inclusion; and energy and commodities. The global economy and IMF resources are likely to dominate the discussion. The EU negotiating position for the G20 is broadly in line with UK objectives.
Council Recommendation for the Discharge in Respect of the Implementation of the Budget for 2010
As part of the annual discharge process, Ministers will conclude recommendations to the European Parliament on whether to discharge the Commission from its responsibility for implementing the 2010 EU budget, based on an annual report from the European Court of Auditors (ECA). Progress in reducing the error rate has halted and, for the 17th successive year, the ECA is unable to grant an unqualified positive opinion on the EU accounts. Therefore, the UK will stress the importance of year-on-year improvements to reach an unqualified audit opinion from the ECA and press for concrete actions by both the Commission and member states to improve EU financial management. The UK will issue a joint statement with other member states calling for tougher action in future years.
Budget guidelines for 2013
As part of the annual EU budget process. Ministers will discuss guidelines to the Commission on preparing the draft EU budget for 2013. Given the ongoing pressure on public resources, budget discipline at the EU-level remains crucial to support domestic efforts to tackle deficit and debt. Following the freezing of the 2012 EU budget in real terms, the UK will emphasise the need for strict and rigorous prioritisation in 2013 in order to curb budgetary growth, reduce waste and deliver a better-targeted EU budget next year. The UK will support the guidelines.
AOB
The presidency will provide a debrief from the trialogue on the European Markets Infrastructure Regulation (EMIR). At the trialogue meeting of 9 February the presidency reached an agreement with the European Parliament. Political negotiations are therefore concluded. The UK welcomes the agreement that has been reached on EMIR. This regulation will benefit the whole of the EU and is an important step on the path towards meeting our G20 commitments.
Also under the AOB agenda item France and Germany will present their Green Paper on corporate tax convergence.
ECOFIN Breakfast
Prior to the formal ECOFIN meeting Ministers, the president of the euro group will debrief Ministers on the euro group meeting of 20 February. Ministers will also exchange views on the economic situation. There will also be a debrief on the state of play with regards the banking package.
Financial Services Bill
George Osborne Excerpts(12 years, 9 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
I beg to move, That the Bill be now read a Second time.
It is a pleasure to move Second Reading of the Bill. It is the product of many years of thinking, policy work in opposition, extensive consultation in government and impressive pre-legislative scrutiny in Parliament. I want to thank at the start the Joint Committee on the draft Financial Services Bill, which has made it a better piece of legislation, the Treasury Committee for challenging us to develop clearer lines of accountability in the Bill and the Treasury’s own Bill team, who have worked so hard for the past 20 months to produce the Bill before us.
The genesis of the Bill is obvious—the biggest failure of economic management and banking regulation in our country’s history. Its purpose is clear as well—to dismantle the disastrous tripartite system created 14 years ago and replace it with a structure of financial oversight that supports successful, competitive financial services while protecting the British taxpayer from the risk that those services run.
Of course, the Bill is not the complete answer to what went so spectacularly wrong. It should be seen alongside the Basel reforms to capital and liquidity, the living wills and resolution regimes that have been developed and the reforms to the structure of banking proposed by the Vickers commission. It is not by itself a sufficient response to the mistakes of the past, but it is absolutely necessary.
Let us remember what happened. Over the last decade before the crash, Britain experienced the biggest increase in debt of any major economy in the world. The total of household, corporate, financial and public sector debt in the UK reached a staggering 500% of gross domestic product. Our banks became the most leveraged in the world, and whether it was Northern Rock’s 120% mortgages secured on wholesale funding, Halifax Bank of Scotland’s catastrophic commercial property deals or the Royal Bank of Scotland’s reckless decision to buy ABN AMRO after the markets had frozen, such things did not attract the intervention or, it seemed, the concern of Britain’s tripartite regulatory system.
That system had been established as a by-product of the decision by the new Labour Government to give the Bank of England independent control of monetary policy. Without warning to the Bank, or anyone else, that institution was stripped of its historic responsibility for regulating the banking system, which was given to a new Financial Services Authority. It was a fateful decision, and one that we now know very nearly prompted the resignation of the then Governor of the Bank, the late Eddie George.
The comment 14 years ago by the Conservatives’ then shadow Chancellor, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley), during the passage of the Bank of England Bill, which created the tripartite system, was remarkably prescient. If he does not remember it, I will remind him of what he told the House. He warned that
“with the removal of banking control to the Financial Services Authority…it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”—[Official Report, 11 November 1997; Vol. 300, c. 731.]
He was spot on. However, at the time he and the Opposition whom he led through the Division Lobby were lone voices.
Fourteen years later, the general consensus is clear. There were fundamental flaws in the tripartite system right from the start, which are today painfully apparent to the whole world. The first and most serious flaw was that no one in the tripartite system saw it as their job to monitor risks across the whole financial system. The Bank of England focused increasingly on its monetary policy responsibilities; the FSA looked at individual firms, but was more focused on tick-box regulation of individual products than on the prudential health of whole businesses, let alone the financial system; and the Treasury took the fatal decision to run down its financial services division, turning the whole area into an under-resourced backwater in the Department.
The tripartite committee did not meet once in an entire decade, so no one was looking at the whole system or at the staggering build-up of debt in the economy and leverage in the banking system. As Lord Turner said in his review of the regulatory response to the banking crisis:
“The failure to do this analysis and to take action on it was one of the crucial failures of the years running up to the financial crisis.”
Claire Perry (Devizes) (Con)
As my right hon. Friend is setting out what is essentially a political failure, will he enlighten the House on whether the report on one of the great victims of that failure—RBS—names any Members of Parliament as being specifically involved in the problem?
Mr Osborne
Well, the report names Tony Blair, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) and the shadow Chancellor. One of the interesting things is that the shadow Chancellor was, of course, instrumental, as I understand it, in creating the tripartite committee. We will hear in his response a detailed defence of the decisions he took.
Ed Balls (Morley and Outwood) (Lab/Co-op)
Will the Chancellor share with the House the contents of the conversation I had with him in Downing street in December following the publication of that report and following my conversation with the chair of the FSA?
Mr Osborne
It sounds like the right hon. Gentleman cannot remember it himself. No doubt he will use the time allotted to him to tell us about the role he played both as the adviser at the Treasury during the years when the system was created and as City Minister when the ABN AMRO deal was signed off, and about his role in the Cabinet when it decided on its response to those things.
Ed Balls
When I asked the chair of FSA, he said he could have inserted into the footnotes of that 400-page report any number of quotes from the Chancellor, who was at the time in opposition. Will he remind the House of any of his quotes from that period on the dangers of excessive regulation that could have been included in the FSA report?
Mr Osborne
First, the FSA report on RBS is worth reading and stands by itself. The chairman of the FSA chose to put the right hon. Gentleman’s name in it, which clearly irks him. Secondly, in opposition, we not only voted against the creation of the tripartite committee but consistently warned about growing debt in the economy—not just me, but my predecessors as shadow Chancellor. We will see tonight whether the Opposition vote against our proposed arrangements. We made those warnings; we are now proposing reforms to ensure that those sorts of things do not happen again.
Ed Balls
Perhaps the Chancellor should remind the House that the shadow Chancellor at the time also voted against Bank of England independence. In November 2006, the then shadow Financial Secretary, who is now Financial Secretary, said:
“Effective light-touch, risk-based and principles-based regulation is in the interests of the sector globally.”—[Official Report, 28 November 2006; Vol. 453, c. 995.]
Could that quote have been included in the FSA report?
Mr Osborne
I think the key word is “effective”, which is clearly what was lacking. If the right hon. Gentleman wants me to read out the legion of quotes that we have from him as City Minister, how about this one? He said:
“I believe that we are right to avoid prescriptive, heavy-handed regulation in Britain. Indeed, I believe that while it is Bank of England independence that is regularly cited as the Government’s most significant financial reform, the establishment of the FSA has been as important for Britain”,
and that
“It is important the FSA continues to deliver a light-touch and risk-based regulatory approach.”
We have ended up having a ding-dong across the Dispatch Box, but if he is against what we propose to do to change the system he created, will he vote against the Bill tonight?
Ed Balls
The Chancellor also said in June 2006 that this
“regulation has been burdensome, complex and makes cross-border market penetration more difficult.”
In June 2005, he said that
“we need to build our capacity to deliver world-beating goods and services, whether it is complex financial derivatives pioneered in the City of London”.
Are those quotes that could have been included in the FSA report? There are many more.
Mr Osborne
This series of interventions is a little bit self-obsessed, and it reminds everyone of the right hon. Gentleman’s central role—
Mr Osborne
Well, that is a bit like the John Cleese sketch—the right hon. Gentleman started it by creating the biggest banking crisis in this country’s history. We are trying to clear it up. That is what this Bill is about. In all those interventions, we heard not one word about whether he will support what we are doing to clear up the mess he created.
Mr Edward Leigh (Gainsborough) (Con)
Does not the ding-dong of the last four or five minutes illustrate the dangers of political interference in regulation? Once we get back to the subject of the Bank of England, and given that the top 1% of taxpayers provide 28% of total taxes, can we have regulation in the future less by populism on bonuses, salaries and the rest, and more by the raising of the right eyebrow of the Governor of the Bank of England?
Mr Osborne
The key issue in our regulatory system that we are seeking to restore is judgment by the regulator, and I will explain how the Bill will enable us to do that. I agree with my hon. Friend that the financial services are an incredibly important industry for this country. They employ more people than any other industry in Britain and, crucially, its proper regulation is not only good for the economy, but essential to prevent taxpayers from being exposed to what they have been exposed to in recent years.
Sir Peter Tapsell (Louth and Horncastle) (Con)
As we are in the mood for recollection, and I am one of those who strongly opposed the tripartite system of supervision when it was introduced, may I say that I very much welcome the Bill? However, the whole strategic object of what we should be doing now is to ensure that we get rid of the shibboleth of the bank that is too big to fail. I doubt whether this admirable Bill, even combined with the Vickers report, will go anywhere near to restoring Glass-Steagall. We will not get rid of banks that are too big to fail until we get back to Glass-Steagall.
Mr Osborne
My right hon. Friend has been entirely consistent in the views he has expressed, and he was right all along about the weaknesses of the tripartite system. On the explicit issue of whether to introduce the actual physical separation of retail and investment banking—in other words, to introduce Glass-Steagall- like legislation in Britain—I asked John Vickers, who everyone accepts was an independent and extremely expert person for the job, to look specifically at this issue with his commissioners. Some of them were probably inclined at the start to believe that physical separation was the right way to go, but when they examined the issues—and they took an enormous amount of evidence—they believed that the same objective of protecting retail customers from the collapse of an investment bank, and giving the authorities of the day greater powers to protect retail customers as they resolved problems in a retail bank, could be achieved through the ring-fencing proposal that the Vickers commission put forward. That would also maintain some of the benefits of one part of the bank being able to support another part in trouble.
The commission explicitly considered the Glass-Steagall issue, but decided that ring-fencing was a better approach. We will introduce legislation that I hope and intend will have pre-legislative scrutiny in the House during the coming Session. I hope that that will be an opportunity for Parliament to examine the issue that my right hon. Friend rightly raised. As a country, we must decide once and for all how to proceed with the structure of our banking industry.
Charlie Elphicke
I hesitate to take the Chancellor back to the FSA report on the failure of RBS, which says that political pressures to be light-touch were partly to blame for the bank’s collapse. What exactly were those political pressures, in his understanding, and what lessons can be drawn from them?
Mr Osborne
My hon. Friend is tempting me back into the fertile territory of the shadow Chancellor’s role in the banking crash, but not least because I do not want to provoke a reaction, I think that I should probably move on to the flaws of the system that the right hon. Gentleman helped to create as Treasury adviser.
Andrew Bridgen (North West Leicestershire) (Con)
To take the Chancellor back to my experiences in 1997, I was in business, and my bankers at the time were at the Royal Bank of Scotland. Shortly after the general election in which the Labour Government were elected, I had a meeting with my bankers. I expressed my disappointment at the election result, but they were extremely upbeat. I asked them why, and they said, “Labour Governments are never any good at regulating the financial services industry. We’re going to make a lot of money in the banking industry.” Were not those words prophetic?
Mr Osborne
For a while, they did make an awful lot of money. Unfortunately, they then lost an awful lot of money, which is one reason why we are here talking about the legislation.
Before any Minister comes to the House of Commons to ask for an existing regulatory regime to be replaced, it is incumbent on him or her to explain why it is felt to be necessary, so let me explain. Another flaw of the current system is that when the crisis hit in 2007 and 2008, no one knew who was actually in charge. The Treasury Committee of the last Parliament, led by John McFall, said in its report:
“The biggest failings of the Tripartite’s handling of Northern Rock were that it was not clear who was in charge, and, because the Tripartite took a minimalist view of their respective responsibilities, necessary actions fell between three stools.”
The House of Lords Committee, which also did some excellent work on the matter during the last Parliament, said that
“the tripartite authorities in the United Kingdom…failed to maintain financial stability and were found wanting in dealing with the crisis, in part because the roles of the three parties were not well enough defined and it was not clear who was in charge”.
In other words, a whole system of financial regulation had been created by the previous Government, yet no one knew who was in charge.
That led to the third fatal flaw that became apparent. The Government of the day, accountable to Parliament and the public for the use of taxpayers’ money, simply did not have the powers to do what they felt necessary when the crisis hit. My predecessor as Chancellor said in his recent memoir:
“The whole system depended on the chairman of the FSA, the Governor of the Bank and the Chancellor seeing things in exactly the same way. The problem was that in September 2007, we simply did not see things in the same way.”
That, of course, led to the confusion in the autumn of 2007. As he said,
“I could not in practice order the Bank to do what I wanted”,
even when taxpayers’ money was at stake.
On top of all those flaws in the tripartite system, it is not as though customers were being better protected from the mis-selling scandals that have beset the industry for the past 30 years. The payment protection insurance saga happened on its watch. In 2001 alone, firms were forced to pay more than £1 billion-worth of redress to consumers who were mis-sold products.
Those are the flaws of the tripartite system—flaws that cost this country in output more than 10% of our entire gross domestic product, flaws that have led to hundreds of thousands of people losing their jobs, flaws that wiped out the savings of millions of small shareholders, and flaws that saddled an entire country with more than £1 trillion of debt. The British people need to be confident that mistakes have been acknowledged and that lessons have been learned. The legislation that we have put before the House today shows that they have been learned.
Ed Balls
Without wanting to disrupt too much the Chancellor’s political narrative, I ask him to remind the House of the regulatory structure and of who was in charge of regulation during the scandals involving the Bank of Credit and Commerce International, Barings, Equitable Life and Johnson Matthey. Were those scandals all the result of the tripartite structure, or might some of them have preceded it, at a time when the Bank of England had the lead on banking and financial regulation?
Mr Osborne
I would make this important point to the right hon. Gentleman: of course those were failures of regulation, and of course the Bank of England was in charge of banking regulation when they happened, but they were failures of regulation in individual firms—detailed work was done afterwards to find out what went wrong and to try to put it right—not failures across the system. The collapse of Barings did not bring down the whole system, whereas the run on Northern Rock created shockwaves around the world. The decision in 1997 to remove the Bank of England’s macro-prudential role was a fatal mistake.
Mr Osborne
The right hon. Gentleman calls it rubbish, but let me say this: he was instrumental in a way that no one else in the Labour party was in designing the system that I am proposing to dismantle. He is well within his rights to get up and say, “I defend the system that I created. I think that it is the best way of regulating financial services, and what you have come up with is wrong”, but if he believes that, he should have the courage to vote against the Bill tonight. If that is his view, he should get up and say, “I’m going to vote against your approach because I don’t think it’s the right one”, but I do not think that he has the courage to do so, because he is trying to escape his past, rather than defend it.
Ed Balls
I will set out our position in my speech, but the idea that by making the Bank of England independent and adding a second deputy governor with responsibility for macro-prudential financial stability on both the Monetary Policy Committee and the FSA board, the Bank’s role in macro-prudential stability is diminished or removed is plain wrong. The Chancellor should not be allowed to state things that are outwith the facts.
Mr Osborne
The right hon. Gentleman is perfectly entitled to that view, but it is not shared by the Select Committees that have considered the matter, including during the previous Parliament; it is not a view shared in the work by the FSA on what went wrong and the failure to conduct macro-prudential analysis; and it is not a view shared by almost everyone who has looked at the failures of the British regulatory system during the period in question. He is perfectly entitled to his view—I am not surprised that he holds it, given that he was responsible for creating the system—but if it is his view, he should have the courage to vote against our proposals to dismantle it.
Claire Perry
Nor was the view of the right hon. Member for Morley and Outwood (Ed Balls) that of the Governor of the Bank of England, who said:
“All we can do at present…is to write our Financial Stability Report and give speeches.”
The Bank was completely emasculated by the right hon. Gentleman's reforms.
Mr Osborne
My hon. Friend reminds me that in the Mansion House speech in 2009, I think, the Governor, appointed by the previous Government, said that the Bank was being asked to do things that it had not been given the powers and tools to do. It was a striking speech—I cannot remember whether the right hon. Gentleman was there—but the difference between the views expressed by the Chancellor and the Bank Governor in the space of one evening was striking.
I will now go through the details of the Bill and see whether it commands all-party support. I shall go through what we are doing to address the flaws that I have identified in the existing system. First, we are going to establish a new macro-prudential authority in the Bank of England to monitor overall risk and levels of debt in the financial system. Secondly, we are making the Bank of England the single point of accountability for financial stability, ensuring that there is a decisive answer to the question, “Who is in charge?” Thirdly, the Bill ensures that in a crisis, when taxpayers’ money is at stake, the power to act sits with the Chancellor of the day, accountable to Parliament. Fourthly, the legislation creates a strong conduct regulator that is able to give its undivided attention to promoting competition and protecting consumers. Let me take each in turn, and in some detail.
First, the responsibility to monitor risks across the system falls to the new Financial Policy Committee in the Bank of England, established by clause 3 and entrusted with responsibility for the stability of the whole system. Its job will be to identify bubbles as they develop, spot dangerous interconnections, warn about poorly understood financial instruments and take action to stop excessive levels of debt building up before it is too late.
Jonathan Evans (Cardiff North) (Con)
My right hon. Friend will be aware that the risks in the banking sector have been shown by the recent crisis to be rather different from those in the insurance sector, for instance. He will also know that the Joint Committee on the Bill recommended that a member of the Financial Policy Committee should be someone with insurance experience, but that does not appear in the Bill. Perhaps he could explain why not.
Mr Osborne
We do not want to prescribe in the Bill the qualifications of the external members of the Financial Policy Committee. That would be a mistake. However, I would obviously want to ensure that the external members—I will say something about this shortly—have broad and current experience of the financial system. There is an issue, as I will set out, about how this House—and, indeed, the political system—approaches conflicts of interest. In other words, we have to make a trade-off between appointing as external members to such bodies people who actually know what is going on in financial services and, at the same time, wanting to direct conflicts of interest, being careful not to rule out anyone simply because they work in financial services. The Select Committee on the Treasury and the Joint Committee that looked at the Bill have made an important recommendation for us all: to be careful about creating a system in which no one who has current experience of financial services sits on the bodies that regulate individual firms or, more importantly, system-wide risks, and that includes insurance.
Charlie Elphicke
With the tripartite system, of which I believe the shadow Chancellor was the architect, a tick-box culture of regulation grew—a one-size-fits-all approach, and that sort of thing. Will the Chancellor tell the House a bit about how we will get rid of that tick-box culture and move towards a culture of more individual and tailored regulation?
Mr Osborne
The key thing is to empower the regulators both to exercise judgment and then to be able to do something about it. One reason for locating both the macro-prudential role and, when it comes to individual firms, the micro-prudential role in the central bank is the culture in central banks—not just in the Bank of England, but in central banks generally—of exercising judgment and acting on it. I very much want to encourage that. My hon. Friend is right: there was no shortage of regulation, in that sense, in 2006-07. RBS complied with every bit of regulation in its decision to try to take over ABN AMRO; it is just that no one felt empowered to say, “Is this the right thing, for this firm and for the financial system, at a point when the financial markets have already frozen up?”
Rather than wait for this Bill to pass through Parliament, we have gone ahead and created the Financial Policy Committee on an interim and non-statutory basis. It is already meeting regularly to assess risks across the financial system, such as the need for banks to provide for adequate capital before determining the distribution of profits, as well as drawing attention to specific products, such as exchange-traded funds, whose excessive use may be a cause for concern. It has already produced two impressive financial stability reports.
Kerry McCarthy (Bristol East) (Lab)
At the time of the collapse of Barings, I was working at Abbey National Treasury, which was involved in a joint venture trading derivatives with Barings. I was one of those brought in to clear up the mess, for which—I hasten to add—I was not responsible.
It was clear from what happened at Barings that there was a huge gulf between what the traders understood about their trading activities and what the management understood, and an even bigger gulf between the management and the regulators at the Bank of England. The Chancellor has said that the new committee will look at exotic and complex financial instruments, but how can he guarantee that its members will really understand what is happening on the trading floor?
Mr Osborne
That is the task that we are giving them. They must ensure that they have the necessary expertise and resources. The interim committee is looking across the piece—I will deal later with the role of regulating individual firms—but it is interesting that its two financial stability reports highlighted a specific financial instrument, the exchange-traded fund, and expressed concern about its rapid growth. I am not aware that the regulatory system that existed in 2006-07 spotted, for example, the rapid increase in the use of collateralised debt obligations. It did not warn about specific instruments and the growth in their use. The financial stability reports of the committee that we have already set up demonstrate an attention to particular complex market instruments and their potential systemic risks.
Ed Balls
Will the Chancellor explain why, if the key is locating regulation in the central bank, those pressures before 2007 were not spotted by the US Federal Reserve, which was the central banker and the regulator? He is giving a very UK-specific analysis. What about all the other examples of central banks failing to spot these growing problems?
Mr Osborne
There are examples of central banks, such as the Canadian and Spanish central banks, which were much more aggressive in counter-cyclical regulation, and which felt empowered to make the decisions. In the United States—I am sure that the right hon. Gentleman has had conversations about this with the United States Treasury Secretary and the Federal Reserve chairman—things have been taken to the opposite extreme. There is a plethora of regulators—too many different regulators. The single biggest problem in the United States probably occurred in the insurance industry, in the American International Group. There was an insurance regulator based in one particular state and it was not something for which the Federal Reserve had a responsibility. Ben Bernanke has talked about the role of central banks, and I shall say something about his view later.
I think it right for us to create a Financial Policy Committee that is on a statutory footing. I have talked about the importance of its having external independent members who are able to provide market expertise and challenge received opinion, but I believe—and this may be something that we can tease out in Committee—that we should think about how we can get the balance right, and avoid conflicts of interest while also bringing in people with real expertise.
What makes the Financial Policy Committee that the Bill will establish such a radical departure in terms of policy making is that we are not only asking it to assess the risks throughout the financial system, but proposing to give it powerful tools with which to do something about those risks. The Monetary Policy Committee assesses the risks of inflation and whether it will overshoot or undershoot the target, and then alters interest rates as appropriate. The Financial Policy Committee will be given macro-prudential tools with which to hit the financial stability objectives set out in the Bill, and to reduce and remove systemic risks to the stability and resilience of the UK financial system.
Sir Peter Tapsell
The shadow Chancellor raised the question of both Barings and BCCI, and it underlines the nature of the regulatory problem. The Barings failure was largely a failure of the Singapore regulatory authority. I was closely involved with Singapore as an adviser to the monetary authority at the time. The Government in Singapore were horrified by the fact that a British rogue trader had not been spotted, but it was the responsibility of Singapore to find him.
As for BCCI, which I also knew well in my stockbroking days, its regulator was in Luxembourg, which was the reason why the Bank of England did not spot the problem until too late. That problem will continue. There are considerable limits to what any regulator can ever achieve. In worldwide banking, there will always be people overseas who are up to mischief, and no regulator based in London can ever conceivably know what they are all up to.
Mr Osborne
My right hon. Friend makes a very good point about the international nature of this business. We must try to design a regulatory system that protects the British taxpayer from rogue traders and illegal activity in individual firms that might create broader systemic risks. We must also be alert to broader risks building up in the system—for example, when trying to moderate the impact of a credit boom. This is not just a question of dealing with individual risks and individual firms; it is also a question of dealing with risks across the financial system.
My right hon. Friend is completely right to draw our attention to the need for regulators to work together better internationally. The least well-developed piece of the financial regulatory system, post-crash—the one lesson that has not yet been taken far enough—involves the way in which we can better protect the world from large international businesses that live internationally but die nationally, such as Lehman Brothers. Co-ordinating resolution regimes across the different jurisdictions will be the work of international bodies such as the G20 and the Financial Stability Board in the year ahead.
Stephen Gilbert (St Austell and Newquay) (LD)
My right hon. Friend has talked about the macro-prudential powers that the Bank of England will have, beyond its monetary policy powers, to step in and help to cool down the economy. Those powers will include setting the ratio for the multiples of earnings that can be borrowed to secure a mortgage, which could have serious consequences across the country. However, those regimes have not yet been published or discussed. Can he give me an assurance that, when those macro-prudential powers are published, the House will have a debate on them?
Mr Osborne
Yes, I can give that assurance. This is an important point that I want to flag up so that the House understands what we are collectively embarking on. We are seeking to give the Financial Policy Committee the tools to help to dampen down a credit boom or to help in a credit crunch. As my hon. Friend has said, it will be able to alter the maximum loan-to-value ratios in mortgage lending in order to curb an unsustainable rise in house prices. It will also be able to do the reverse, should we face unwanted house price deflation. It will also, potentially, be able to alter capital requirements for banks, in a counter-cyclical way. I should say that these are just possibilities; they are potential tools that the committee might want to use.
One key feature is that the measures will be independently applied, so there will be no political pressure to, say, keep a housing boom stoked up as an election approaches. Another key feature is that the Financial Policy Committee should act symmetrically—that is the intention of Parliament. Its job will be to act not just to moderate a credit boom but to try to alleviate a credit bust. The precise tools that we give the FPC have yet to be determined, as my hon. Friend has just said. We have sought the advice of the interim organisation that we have created, and it will come to us with proposals for the kind of tools that the permanent body will need. We will then seek the approval of both houses of Parliament through the affirmative resolution procedure—which will of course involve a debate—before we pass those tools over.
I freely accept that we are in largely uncharted policy- making territory, here or anywhere in the world. Many other jurisdictions are considering such measures, but we are ahead of most of them. Surely the experiment of making no attempt to moderate the credit cycle—letting the bubbles grow and burst, then cleaning up afterwards—has been an unmitigated disaster, and we would be failing if we did not look for an alternative approach.
Mr George Mudie (Leeds East) (Lab)
One suggestion from the Treasury Select Committee was that the Chancellor should not send the proposals to a statutory instrument Committee. That would involve a 90-minute discussion and the proposals would not be amendable. He should instead allow the matters to be debated seriously on the Floor of the House. I wonder why he would think it attractive and helpful to send them upstairs where they cannot be amended; that would suggest a foregone conclusion by the governing party that they would be accepted.
Mr Osborne
I would certainly be happy to have a debate about that on the Floor of the House. It is a decision for my colleagues, the usual channels and so forth, but in my opinion the important tools given to this body will have a real impact on our constituents. It will affect the kind of house they are able to afford on their income—the bread and butter of people’s daily lives—and it is important for us all to understand that as we create instruments of policy.
We are seeking to address another flaw in the system by making the Bank of England the single point of accountability when it comes to the prudential regulation of banks, large and complex investment firms, building societies and, as my hon. Friend the Member for Cardiff North (Jonathan Evans) reminded us, significant insurance companies. A new prudential regulation authority will be established within the Bank to perform that major new function.
As the shadow Chancellor pointed out, the Federal Reserve in the US already has responsibility for the prudential regulation of major banks, but not of other financial firms. Let me cite what Ben Bernanke said in what I believe was testimony before Congress:
“The Federal Reserve’s role in banking supervision complements its other responsibilities, especially its role in managing financial crises...During the current crisis, supervisory expertise and information have repeatedly proved invaluable in helping us to address potential systemic risks involving specific financial institutions and markets and to effectively fulfil our role as lender of last resort...The Fed’s prudential supervision benefits, in turn, from the expertise we develop in carrying out other parts of our mission—for example, the knowledge of financial and economic conditions we gather in the formulation of monetary policy.”
I raise this matter because at the heart of the new arrangements we are seeking to establish an understanding that today’s financial markets are so interconnected that the failure of a single firm can bring down the whole system, and risks across the system can bring down many single firms. These feedback loops are what proved so devastating in the crisis.
Some critics of the legislation now accept the need for a macro-prudential Financial Policy Committee, but still doubt whether we should give the Bank responsibility for the micro-prudential regulation of individual firms, too. I would argue that because the interconnections are so great, the FPC could not do its job without knowing what is going on in firms, and a prudential regulator could not do its job without knowing about risks across the system. The best way to combine the insights is to put them both under the aegis of the same institution—the central bank.
I understand that the shadow Chancellor is concerned that our Bill does not create additional lines of communication between the deputy governors of the Bank and the Chancellor, bypassing the Governor, so he might like to explain what he meant. I considered the idea, but rejected it. I think we need to force the Bank of England itself to reconcile its internal differences rather than create additional lines of accountability between the Chancellor and a deputy governor. Perhaps the right hon. Gentleman—[Interruption.] He says, “Dear me”, so perhaps he will explain why he wants to institutionalise a regime in which the No. 2 constantly undermines the No. 1.
The Joint Committee and the Treasury Select Committee have raised what I regard as a far more relevant concern—the accountability of the Bank of England, given its important new responsibilities. We have listened carefully to the recommendations from both Committees and while I do not propose to abolish the court of the Bank of England, I do propose to give it important new powers to hold the executive Bank to account. The Governor and the court of the Bank of England have agreed that a new oversight committee, consisting of the non-executive members of the court, should be created. This group of external independent people will ensure that the Bank discharges its financial oversight responsibilities correctly; it will be able to commission both internal and external reports on the Bank’s policy makers’ handling of particular events and particular periods of policy making. Those reports will be published, with market-sensitive information protected, if necessary.
The Governor is of course, as is the case today, a key figure in the arrangements. It is important that he or she is not only independent of the Government of the day, but seen to be so. The recent experience of reappointing Governors after their first five-year term has expired has not been a very happy one. It has created unnecessary uncertainty and called into question political confidence in the Governor. Although I would hope that this Government would handle the whole thing better than their predecessors did, it makes sense simply to eliminate the possibility of discord entirely, so schedule 2 provides that the next Governor of the Bank of England and his or her successors will serve a single eight-year non-renewable term. That is a sensible reform.
The third flaw in the current arrangements was the fact that the Chancellor of the day felt he did not have the necessary powers to act in the interests of taxpayers. This is another area where the work of the Joint Committee and the Select Committee have proved invaluable. The Bill makes it clear that the day-to-day responsibility for financial stability lies with the Bank of England. We do not want the Treasury second-guessing that work. Beyond setting the parameters for the regulatory system, the Chancellor should become involved only if there is a material risk to public funds. The responsibility in this regard is made clear in the Bill, and in the memorandum of understanding that we have drawn up with the Bank. The Bill makes it clear that the Governor has a responsibility to inform the Treasury immediately as soon as there is a material risk of circumstances arising in which public funds might reasonably be expected to be used.
The Bill is also rightly clear that the use of public funds is entirely a decision for the Chancellor, as he or she is the person accountable to Parliament, and through Parliament to the public. My predecessor is, again, revealing about the limitations of the current arrangements in his book:
“My frustration was that I could not in practice order the Bank to do what I wanted. Only the Bank of England can put the necessary funds into the banking system…I asked Treasury officials if there was a way of forcing the Governor’s hand. The fact that we had given the Bank independence had a downside as well as an upside.”
Of course my predecessor had, as any Chancellor does, the general power of direction over the Bank that the Bank of England Act 1946 provides, but that general power of direction has never been used, so it is a nuclear option that might blow up anyone who tries to use it. That was the conclusion that my predecessor reluctantly came to.
That is unsatisfactory. The Bank must, of course, be protected from politicians who want to use its balance sheet against the wishes of the Governor simply because those politicians want to avoid using the Government’s balance sheet, but the Bank should not be able to use that as an excuse to withhold its services as an agent from a Government prepared to use its own Government balance sheet. Otherwise, in many situations that becomes, in effect, a veto on an elected Government’s fiscal decision making.
The Bill and the memorandum of understanding give the Chancellor of the day not only the right to be informed when there is a material risk to public funds, but the right to ask the Bank to analyse different options that might be available to deal with the risk, and in the newly added clause 57 the Bill gives the Chancellor a defined power of direction to require the Bank to provide liquidity to a particular firm or to put a particular firm into resolution or to provide liquidity to the general system, provided that the Chancellor does so using the Government’s own balance sheet, and makes that clear.
Ed Balls
Can the Chancellor envisage a situation in which the Governor of the Bank of England may judge not to inform the Chancellor that there is both a material threat to stability and the need for the use of public funds—and if a Governor were to make such a judgment not to inform the Chancellor, would that be his personal judgment?
Mr Osborne
First, the Bank Governor will have a statutory obligation to inform the Chancellor, so they would be failing in their statutory obligations—
Ed Balls
This is important, so I will ask the question again. Can the Chancellor envisage a situation in which the Governor of the Bank of England would choose not to inform the Chancellor because in the Governor’s view there was not a material threat to financial stability, and therefore no need for the use of public funds? And if the Governor chose not to come to the Chancellor in such a situation, would that be the Governor’s own personal judgment—for example, if the deputy governor for financial stability or the head of the Prudential Regulation Authority took a different view?
Mr Osborne
The legislation makes it clear that that is the Bank’s responsibility. Of course, the Governor is chair of the key committees—the Financial Policy Committee and the Prudential Regulation Authority—that would make these judgments, but we have to require the Bank to resolve its internal differences. Obviously the Bank has its own procedures to deal with any dispute, which it will develop, but we have deliberately created boards and committees that have independent members and external oversight. Of course there are three deputy governors, but ultimately—perhaps that is just going to be a point of disagreement between me and the right hon. Gentleman—I do not think it is right to create different lines of accountability from the Bank of England to the Chancellor of the day. The Chancellor has to deal with the Bank, and with the person of the Governor. However much legislation we write and however many clauses we put in place, those who do my job and that of the Governor also have a very important responsibility to get on with each other and to try to make that arrangement work.
Ed Balls
The problem is that in the legislation, in the memorandum of understanding and in the Chancellor’s own answers there is a gap, a hole and an ambiguity. In his speech he referred to the judgment of the Governor, then he talks about the judgment of the Bank and then he says that the Bank must resolve whether the Governor’s view is the same as that of the rest of the Bank. I repeat my question: can the right hon. Gentleman envisage being concerned by a situation in which the Governor chooses not to come to him asking for funds because the Governor believes that there is not a systemic risk, even if it is coming to the Chancellor’s attention that other senior statutory office holders in the Bank have a different view? Can the right hon. Gentleman envisage such a situation, when the Governor chooses, for example —as he said, this is a judgment for the Governor—that the moral hazard overrides the systemic potential threat?
Mr Osborne
As I say, it is the responsibility of the Bank to inform the Government: that is what the legislation and the memorandum of understanding make clear. The Bank, of course, has its own procedures for coming to a view within the Bank. Creating a system where a deputy governor could bypass the Governor and go directly to the Chancellor would be a recipe for division at the Bank. We have to force the Bank to come to a collective view and then deal with the Government of the day.
Ed Balls
This goes absolutely to the heart of the issue. The reality is that if we have a tripartite or quartet system in which the statutory regulator is not the same as the Governor, the head of the PRA or the head of the Financial Services Authority can have a different view and say that in their judgment the threat to the company and to the system is so great that it justifies action, even if the Governor judges that the moral hazard risks from intervention override that threat, and that therefore there should not be a request for public funds. In the current system, the Chancellor would hear from the head of the FSA—from Adair Turner—whereas under the new system and the memorandum of understanding he will not hear, other than from the person of the Governor. My question to the Chancellor is: does he worry about that and about the potential instability and misinformation to him that could come as a result of the memorandum of understanding that he has drafted?
Mr Osborne
The first point I make to the right hon. Gentleman is that the Bank Governor does not come to the Government when he thinks public funds should be used; he does so when—this is set out in the legislation— there is a material risk that public funds may be required. Of course the decision to use public funds would be one for the Chancellor of the day.
The second point that I make is that the problem with the tripartite committee was one set out in my predecessor’s book: in autumn 2007 there were three different views and there was no way of reconciling them—and there was no clarity about who had power and responsibility. What we are talking about here, and what I am explaining, is a new power of direction. Of course any Chancellor would think very carefully before using it, but this power makes it absolutely clear that once there is a material risk to public funds, the Chancellor of the Exchequer has not only a power, as the current person doing the Chancellor’s job has, to authorise the use of public funds—that is what my predecessor did in respect of the Royal Bank of Scotland—but a power of direction to provide liquidity to an individual firm and liquidity to the system. Those were not powers that my predecessor had. Of course, as I will come on to discuss, there are certain constraints and things that have to be done to inform people before they are used, but these are new powers that we are giving so that the Chancellor of the day does have powers, provided that he or she is prepared to use the Government’s own balance sheet.
Ed Balls
The whole point—this is so important, and goes to the heart of one of the debates in the Committee—is that in the historical examples given by the Chancellor, when the then Chancellor wanted to act and others in the regulatory system did not, the Governor of the Bank of England was one of those who did not. In the situation that the Chancellor has now set up—article 20 of the memorandum of understanding states this clearly—there will be a personal relationship between the Chancellor and the Governor. This ‘twin-peaks’ system is a personalised conversation, in that the Chancellor hears the Bank’s view from only one individual. I ask him again: would he be worried if he did not hear a view in such circumstances? Is this really a matter for the Governor’s judgment, as the MOU says, or should the statutory office holders—the head of the Prudential Regulation Authority, the Financial Services Authority and the deputy governor from the Financial Policy Committee—have not only a view but a right for that view to be heard by the Chancellor and then by Parliament? That is my question.
Mr Osborne
We can explore this at greater length in Committee, but I say to the right hon. Gentleman now that we are trying to avoid a situation in which different people in the Bank think they have a direct line to the Chancellor. We are trying to require the Bank to resolve its internal differences, and we are creating various committees, balancing the membership between external and internal members, but we absolutely see a central role for the Governor of the Bank—and I do not make any apologies for that.
I was not in the room when some of these conversations happened in recent years, but as far as I can see, and as has been reported since, it is clear that personal relations between the Bank Governor and some of the very senior members of the Government completely broke down. That is not a situation we want to see in the future, and I think that the person who does my job and the person who does the job of the Governor of the Bank of England have an obligation to get on with each other and maintain the personal relationship; that is a very important part of both our jobs. No amount of legislation or MOU—[Interruption.] The right hon. Member for Morley and Outwood (Ed Balls) says that it is not about getting on with each other. Frankly, it is about working at this very important relationship at the top of our financial system, and not getting into a situation in which those involved are not able to pick up the phone and talk to each other. Yes, of course we are institutionalising the arrangement, creating memorandums of understanding and so on, but I do not want to detract from the fact that there is also a personal responsibility for the Chancellor of the day and for the Bank of England Governor to ensure that they can work together in the national interest.
Mr Geoffrey Robinson (Coventry North West) (Lab)
I hate to intrude on this Socratic dialogue between the Chancellor and my right hon. Friend the Member for Morley and Outwood (Ed Balls), but can the Chancellor not see that in these critical decisions there will be differences? I do not draw a direct comparison with the military, where the Chief of the Defence Staff has a right of appeal or a direct line of communication with the Prime Minister, but in these critical decisions it is not enough for a hard-headed, narrow-minded or too-forceful Government to insist on a point of view. A release valve is needed to reach a balanced judgment, and the No. 2s in all the crucial areas should have the right to come straight to the Chancellor. Good foresight and good judgment are involved in that.
Mr Osborne
The other point that I would make—the Financial Secretary to the Treasury is reminding me of it—is that the Treasury sits on all those committees as a non-voting member. It is in on all the discussions, with a Treasury official sitting in on and understanding the debate.
Mr Osborne
I give way to my hon. Friend the Member for West Suffolk (Matthew Hancock), who has worked in the Bank of England.
Matthew Hancock (West Suffolk) (Con)
Does the Opposition’s proposal not seem to be an attempt to re-create a tripartite structure in which there is more than a relationship between one and one other? We have problems with the concept of “too big to fail”, and the example of Barings has been cited. That bank did not bring the rest of the system down: the directors ended up losing their jobs and the person responsible went to prison. Will the Chancellor consider the scale of that failure, compared with what happened in 2008 when the whole system collapsed?
Mr Osborne
My hon. Friend is absolutely right. There was a failure of regulation with Barings, but the collapse of Barings did not bring down the financial system, either in the City of London or more broadly.
Mark Field (Cities of London and Westminster) (Con)
My right hon. Friend is absolutely right about this. Surely the issue is the clarity of the relationship between the Governor and the Chancellor of the Exchequer in relation to the confusion in the tripartite system. That would not prevent, and should not prevent, any Governor worth his salt from at least making it clear that there were other views within the Bank, albeit that it was his judgment in the advice to the Chancellor. That gets away from some of the confusion about whether we are looking to sweep away an integral part of the tripartite system.
Mr Osborne
My hon. Friend makes an extremely good point. This is all about the Governor’s responsibility to do his or her job in managing the Bank, and about the Bank coming to a collective view. The job of the Chancellor of the day is to manage the relationship with the Governor. For all the virtues of the tripartite system that the shadow Chancellor seems to be extolling, I understand that those at the principal level in the tripartite system did not meet for 10 years; perhaps he can correct me, as he was there.
Ed Balls
The tripartite standing committee met every month at the deputy level, from its inception until the crisis. The responsibility for triggering a full meeting of principals was in the hands of the Governor and the head of the FSA. Throughout that entire period either the systemic regulator, the Bank, or the individual firms regulator, the FSA, could have triggered a meeting, but did not. There were two people who could have triggered that, but in the Chancellor’s world there will be only one trigger. That is my concern.
Mr Osborne
The right hon. Gentleman keeps saying there were two people, but there were three principals in the tripartite committee. It was chaired by the Chancellor of the day—the Chancellor whom he advised—but as I understand it, that Chancellor never convened the tripartite regime at the principal level. [Interruption.] I can tell the shadow Chancellor that under the tripartite regime now—that is still the current arrangement—there are meetings on at least a monthly basis with myself, the Governor of the Bank, the chairman of the FSA and so on. In the tripartite system that the shadow Chancellor saw at first hand, the principals, including the Chancellor of the day, never in 10 years—we are not talking about 10 weeks or 10 months—convened a meeting of the principals. The fact that he says that it was entirely the job of the Governor of the Bank of England or the chairman of the FSA to call a meeting, when the chair was the Chancellor, who could have called a meeting at any time he wanted, is very revealing about what went wrong.
Mark Durkan (Foyle) (SDLP)
Is the power to direct, to which the Chancellor has referred, contingent on the Governor of the Bank of England formally advising the Chancellor of a material risk, or could the Chancellor exercise that power to direct on the basis of his own concerns, which may have been conveyed to him from the industry, Parliament or any other intelligence? The Bank might be loth to advise the Chancellor formally in that way if doing so would trigger the power to direct, because it might want to avoid that, and the wider concerns that it might raise. Once the Bank has had the “Shall we tell the Chancellor?” discussion, what should the Treasury representative do during that discussion and after it?
Mr Osborne
As I have said, when the Bill is passed, the statutory responsibility will be on the Bank of England to inform the Government if there is a material risk that public funds might be used. We are trying to get away from a system in which it is the Treasury’s responsibility to try to regulate the financial system on a day-to-day basis in peacetime. We are giving the responsibility and clear accountability to the Bank of England so that it will trigger the arrangement by informing us of a material risk. As is set out in the legislation, twice-yearly meetings between the Chancellor and the Governor to discuss these things are required, although there could also be further meetings. Once the Bank has informed the Treasury of a material risk, which it will have a statutory responsibility to do, there will be a power of direction. I should just say, for the sake of completeness, that if we wish to keep the details of the use of this power confidential, I or my successors would have to inform, on a confidential basis, the Chairs of the Treasury Committee and the Public Accounts Committee, so that representatives of Parliament were informed.
The fourth and final flaw in the system that we are trying to address is that customers and consumers too often get a raw deal from the regulation of financial services. The disappearance from the high street of names such as HBOS and Bradford & Bingley has inevitably reduced competition in an industry that was becoming more and more consolidated even before the crash. The existing regulator’s dual prudential and consumer remit means that it cannot give consumer interests its undivided attention. In response to the Vickers commission and the Joint Committee, the new authority will have an explicit responsibility to promote competition. We have listened to the Joint Committee and announced that we will also bring the regulation of consumer credit into the authority’s remit so that, for the first time, the regulation of all retail financial services will be under one roof, and things like payday loans will be subject to tougher regulation.
Stella Creasy (Walthamstow) (Lab/Co-op)
The banks that have gone from my high street have been replaced by high-cost credit companies that offer exorbitant rates of interest. I know that the Financial Conduct Authority will have powers over competition. Does the Chancellor accept the argument, made by many Opposition Members, that price inevitably reflects competition, so it is absolutely right that the FCA should look to regulate the price of those products and finally tackle the legal loan sharks?
Mr Osborne
The Department for Business, Innovation and Skills has commissioned a review of the cost of credit, but I think that the Bill takes a significant step on that, partly because of the Joint Committee’s recommendations, because the regulation of all retail financial services will now come under the remit of the FCA. It will have the power to ban specific products, to name and shame particular firms and to publish details of misleading promotions, so there will be considerable new powers that were not previously available. On the hon. Lady’s specific concern about the price of credit, that is something the Government are looking at. Of course we are also looking at the recommendations of the FSA’s recent report on RBS—I do not wish to reopen that issue—in relation to legislation on the sanctions available for bank directors who fail in their role.
The Bill is an important piece of legislation. I believe that it replaces the confused and dysfunctional system that presided over the biggest banking crisis in our modern history. It creates clear lines of accountability by putting the Bank of England in charge of monitoring and dealing with debt levels in our economy. However, no amount of new clauses, powers or institutions can substitute for something for which Parliament cannot legislate: judgment. There were thousands of pages of financial regulation in existence in 2007, but that did not stop the queues forming outside Northern Rock or prevent RBS from making its final, fatal, bid for ABN AMRO. I hope that we have learned that financial stability depends not simply on a checklist of regulation, but on individuals within our regulators feeling empowered to trust their judgment, and our giving them the power to act on it. By putting our central bank in charge of monitoring overall levels of risk and the soundness of individual firms, we are trusting in its judgment. By giving the elected Government of the day the power of direction in a crisis, we are trusting in their judgment, and that of Parliament, to which they are accountable.
Britain has paid a higher price than most for what went so badly wrong in our banking system. The errors of the economic policy that led to such a boom have cost every taxpayer dear. Today we show that we are learning the lessons and passing on to our successors a better system than the one we inherited. I commend the Bill to the House.
Ed Balls
I made it very clear that I was not defending any particular regulatory structure. I do not think the crisis was caused by institutional structures in particular, because other countries with different structures had a crisis as well. We will seek to support the Government in reforming and strengthening the system of financial regulation, including through the addition of the FPC and the new powers of the PRA and FCA. However, all those individual agencies are being given statutory authority in the Bill.
The Bill cannot be setting out a binary or twin-peak system, because there will be the Treasury and the Governor of the Bank of England, then underneath him there will be a deputy governor who is also the head of the PRA, another who is also on the Financial Stability Committee, the head of the FSA—also a statutory office holder—and another deputy governor on the Monetary Policy Committee. The Bill is designed to bring in not a twin-peak system but a quartet system, which will be more complex than a tripartite one.
There may be very good arguments for having a quartet system and for splitting the FSA into the PRA and the FCA, and I support the FPC, but the system will be more complex, not simpler. The Chancellor is trying to fudge the matter by giving the impression in the memorandum of understanding that it will be not a quartet system but a twin-peak system, because things will be sorted out between him and the Governor.
That is not an ad hominem point. Other Chancellors and Ministers from Governments through the ages have known very well that there is an inevitable conflict in financial regulation between the regulator, examining systemic risks from individual firms, and the guardians of the system, who worry about potential systemic risks on the one hand and moral hazard on the other. The Chancellor’s role is as the guardian of the public purse and wider financial stability, so there are different points of view.
My advice to the Chancellor is that to try to subsume all those points of view into a separate institution away from him, without transparency and with multiple and overlapping roles for different statutory office holders, but then say, “I’m only going to deal with the Governor,” is ahistorical, deeply foolish and flawed. If the Chancellor changes and clarifies the Bill, we will be pleased, but at the moment it is a terrible fudge.
Mr George Osborne
I hear the right hon. Gentleman’s criticism of our proposals, but what is his response to what my predecessor says? He has written:
“The whole system depended on the chairman of the FSA, the Governor of the Bank and the Chancellor seeing things in exactly the same way. The problem was that, in September 2007, we simply did not see things in the same way.”
My predecessor, who went through the banking crisis, says that he was dealing with a system in which differences of opinion were not accommodated. The system could not adapt to them, and there was no power of override. What is the shadow Chancellor’s response to my predecessor’s criticism?
Ed Balls
My response to the current Chancellor, who has not yet dealt with such a crisis, is “Welcome to the real world.” In reality, there will be times, as there have been, when the regulator, and potentially the deputy governor for systemic stability, will say, “We are really worried about the potential read-across from this particular large institution to the financial system more widely.” However, the Governor will say that for reasons of moral hazard and the desire not to set false precedent, he does not believe funds should be provided.
As the Chancellor has said, it is really hard when there is a disagreement between the regulator and the prudential systemic overseer or the Governor. The Chancellor has elected to take the power to make the decision in those circumstances. I agree with that strengthening of his powers, but—
Ed Balls
The Chancellor does not listen. He wants to play this game so much that he does not hear. I agree with the increase in his powers. He is right to take them, but he cannot use them unless the Governor comes to him and says, “I fear a crisis may be building,” having made a judgment about moral hazard outwith the views of the heads of the PRA, the FCA and the FPC.
In the structure set out in the Bill, the statutory office holders will be formally kept out of the room under the Chancellor’s own memorandum of understanding, which is foolish. I understand why it has happened—it will be easier to negotiate. In all the years when previous Chancellors wanted clarity, it was hard to negotiate. However, negotiating the wrong clarity in a way that keeps information away from the Chancellor is not stabilising and in the public interest but destabilising, opaque and against the public interest. The Chancellor should take some advice from people who have seen that not working and ensure that he hears the views of the people to whom he is giving statutory responsibility in the Bill. That is my very strong advice, and I hope he will listen to it.