ECOFIN

George Osborne Excerpts

Wednesday 1st February 2012 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council was held in Brussels on 24 January 2012. Ministers discussed the following items:

European Markets Infrastructure Regulation (EMIR)

Ministers agreed a Council position on outstanding issues relating to the authorisation of Central Counterparties (CCPs) on EMIR. This will facilitate trialogues with the European Parliament. The Government have been clear that the national competent authority (NCA) must retain a pre-eminent role with regard to the authorisation of CCPs. I secured agreement that the Council position retained this principle. The Council position means that in order to block authorisation, a significant majority of an authorisation college must vote against the NCA. Furthermore, the Government also secured safeguards that mean the NCA has the option to take the decision to binding mediation facilitated by the European Securities and Markets Authority (ESMA). Finally, in order to maintain the objectives of the process, I secured a clause stating that any vote against an NCA is explained in writing setting out which provisions of EMIR and/or EU law have not been met.

I also secured a clause in EMIR to prevent discrimination against any member state as a venue for clearing services in any currency. This is related to a wider concern for the UK in relation to the ECB’s location policy that states that non-euro area based CCPs, which includes UK-based CCPs, which clear a certain threshold of euro-denominated products should move to the euro area. The UK considers that this policy is contrary to fundamental principles of EU law and is challenging the location policy in the European Court of Justice. This challenge is ongoing.

Proposals from the Commission on Economic Governance

Ministers exchanged views on the two Commission proposals to strengthen economic governance in the euro area. The first proposal would require euro area member states to present their draft budgets at the same time each year and would give the Commission the right to assess them. The second proposal would strengthen economic and fiscal surveillance of euro area countries facing, or threatened with, serious financial instability. On the first proposal, some Ministers raised concerns about the administrative burden and timing of the reporting requirements. On the second proposal, several member states noted that the recommendation of a country to receive financial assistance should require a consensus vote, in line with decisions to grant financial assistance. The presidency asked the working group to consider these issues further.

Presentation of the Presidency work programme

The presidency presented Ministers with its programme for ECOFIN for the next six months, identifying important areas of work. First, the presidency emphasised the need to implement the six-pack and take forward the new two-pack proposals on economic governance. The second priority is to improve the stability of the European banking sector through progressing financial services dossiers. Thirdly, the presidency emphasised the importance of tax co-ordination. Finally, the presidency noted the need to co-ordinate the EU position in international forums. The Commission and Ministers supported the work programme and agreed to support the presidency.

The presidency work programme is available at: http://eu 2012.dk/en/Global/Soegeresultat?q=work+programme &size=10

European Semester (including Annual Growth Survey and EuroPlus Pact)

The presidency outlined the timetable for the European semester and the Commission set out its priorities. I intervened to emphasise that fiscal consolidation is a necessary but not sufficient condition for restoring growth. Structural reforms are also needed, and the Council should have substantial discussions on these issues. The EU should exploit its full potential as a single market and negotiate trade agreements with third parties, to stimulate growth within the EU and elsewhere. I stated that I would support an EU growth test, to ensure that the regulatory burden of proposals are fully considered, not only in ECOFIN but in other Councils. I also made it clear that the Council should not spend time discussing a financial transactions tax when it is clear that there is no unanimity on the issue. Other Ministers intervened in support.

Follow-up to the G20 Meeting of Finance Deputies (Mexico, 19-20 January 2012)

The presidency and the Commission gave a debrief of the G20 Finance Deputies’ Meeting. Deputies discussed the global economy and framework, strengthening financial regulation and IMF resources. G20 Finance Ministers and central bank governors will meet in Mexico on 25-26 February.

Implementation of Stability and Growth Pact

Ministers discussed the Commission’s assessments of Belgium, Cyprus, Malta, Poland and Hungary’s progress on correcting their excessive deficits. The Commission assessed that the first four member states had taken effective action and no further steps under the excessive deficit procedure (EDP) were necessary. The Commission proposed that Hungary had taken no effective action to bring the deficit below 3% of GDP in a sustainable manner. The Council voted in favour of the Commission’s proposal. As Hungary is not a member of the euro area it cannot face sanctions under EDP. However, failure to take effective action to correct their excessive deficit could lead to the suspension of Hungary’s cohesion fund commitments. The Government believe that sound public finances are essential for sustainable economic growth.

Revised Code of Conduct of the Stability and Growth Pact

Ministers endorsed the revised code of conduct. The code of conduct provides guidelines on: the implementation of the stability and growth pact and the content of stability and convergence programmes. The code of conduct has been updated in light of the new economic governance legislation. The Government supported the revised code of conduct. The Commission and the Economic and Financial Committee will review the code of conduct again later in the year.

Eurogroup plus meeting on 23 January

Ministers met prior to ECOFIN on 23 January, to discuss the European stability mechanism (ESM) treaty and the intergovernmental treaty on stability, co-ordination and governance. Ministers reached agreement on the treaty establishing the ESM and agreed that entry into force of the treaty would be brought forward to July 2012. I intervened in order to secure agreement that, in line with the spirit of the agreement reached at the December 2010 European Council, there should be no new commitments from the European financial stabilisation mechanism as soon as the ESM is established. Heads of states and Government discussed the new intergovernmental treaty further at the Informal European Council on 30 January. The Government believe that the inter- governmental treaty should not undermine the operation of the single market, or otherwise infringe on areas of policy which are for discussion by all member states in the EU context. The intergovernmental treaty should not cut across the provisions and procedures in the EU treaties, or seek to bypass the prescribed procedures for amending the EU treaties.

Eurogroup debrief

The Commission debriefed Ministers of the eurogroup meeting over breakfast. The Commission are due to release their latest forecasts, which will take into account the downside risks the Commission identified last autumn. Ministers agreed that further discussion on euro area issues were needed.

ECOFIN

George Osborne Excerpts

Monday 23rd January 2012 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council will be held in Brussels on 24 January 2012. The Chancellor will attend. The following items are on the agenda to be discussed (as of 20 January 2012):

European Markets Infrastructure Regulation (EMIR)

Ministers will have an exchange of views on the outstanding issues on EMIR. Trialogues have been ongoing since ECOFIN reached general agreement on 4 October. The outstanding issues relate to the process for authorisation of central counterparties (CCPs), and provisions relating to third countries. The Danish presidency is seeking a solution that retains the key principles of the Council position while integrating a number of the European Parliament’s concerns.

On the authorisation of CCPs, the Government believe that the National Competent Authority must have a pre-eminent role. Therefore, any agreement should maintain the principles established at the 4 October ECOFIN. On third country provisions, the objective should be the smooth functioning of the global derivatives market while providing ex ante legal certainty to market participants. It is important that jurisdictions recognise the global nature of the derivatives market and ensure that legislation enables the smooth functioning of this market in a safe manner.

Proposals from the Commission on Economic Governance

ECOFIN will hold a first exchange of views on two Commission proposals to strengthen economic governance. There are no direct policy implications for the UK as these proposals apply to the euro area only. The first proposal concerns strengthening surveillance of budgetary policies. It would require: euro area member states to present their draft budgets at the same time each year and give the Commission the right to assess them; closer monitoring and reporting requirements for euro area countries in excessive deficit procedure; and that euro area member states have in place independent fiscal councils and base their budgets on independent forecasts.

The second proposal concerns strengthening economic and fiscal surveillance of euro area countries facing, or threatened with, serious financial instability. It aims to ensure that the surveillance of member states under a financial assistance programme, or facing a serious threat of financial instability, is: robust, follows clear procedures and is embedded in EU law. Under the proposal, the Commission would be able to decide whether a member state experiencing severe financial instability should be subject to enhanced surveillance. The Council would be able to issue a recommendation to such member states to request financial assistance.

The UK welcomes these proposals, as they will play an important role in improving fiscal stability in the euro area, which is a good outcome for the UK. The Government are however keen to ensure that, despite applying only to the euro area, these proposals maintain the role of the Council and EFC.

Presentation of the Presidency work programme

The presidency will present Ministers with its work programme. It has four priorities:

A responsible Europe—making progress on financial regulation dossiers and multi-annual financial framework (MFF) negotiations;

A dynamic Europe—revitalising the single market and encouraging policies which stimulate EU growth;

A green Europe—advancing energy efficiency and climate change initiatives; and

A safe Europe—including combating terrorism and ensuring the EU speaks with one voice on international affairs.

The Government agree that making progress on financial regulation dossiers is important, and will want to see budgetary restraint in the MFF negotiations. The Government support efforts to stimulate EU growth and strengthen the single market.

European Semester (incl. Annual Growth Survey and Euro-Plus Pact)

Ministers will have an exchange of views on the second European semester. The Government believe that the European semester should identify and prioritise policy measures that promote jobs and growth. To achieve this, ECOFIN Ministers need to ensure that fiscal consolidation and tackling macro-economic imbalances is pursued alongside growth-enhancing structural reforms. The Government do not agree with the focus on taxation in the annual growth survey; it is important that member states retain the flexibility to shape their own tax policies to suit their economic circumstances.

Follow-up to the G20 Meeting of Finance Deputies (Mexico, 19-20 January 2012)

The presidency will give a debrief of the G20 Finance Deputies’ meeting. Items include: the global economy and framework; strengthening of the international financial architecture; financial regulation including financial inclusion; and energy and commodities. This agenda item will provide further clarity on the direction that Mexico would like to take.

Implementation of Stability and Growth Pact

Ministers will discuss the Commission’s assessments of Belgium, Cyprus, Malta, Poland and Hungary’s progress on correcting their excessive deficits. The Commission has assessed that the first four member states have taken effective action and no further steps under the Excessive Deficit Procedure (EDP) are necessary. For Hungary, the Commission proposes to move to the next stage of EDP and recommends that the Council decides that no effective action has been taken to bring the deficit below 3% of GDP in a sustainable manner. Subject to this decision, the Commission may then propose new recommendations, with a view to Hungary effectively addressing its excessive deficit. The Government believe that sound public finances are essential for sustainable economic growth.

Revised Code of Conduct of the Stability and Growth Pact

The presidency will ask Ministers to endorse a revised code of conduct. The code of conduct provides guidelines on: the implementation of the stability and growth pact and the content of stability and convergence programmes. The code of conduct has been updated in the light of the new economic governance legislation. The Government support the revised code of conduct.

Eurogroup-plus meeting on 23 January

Ministers will meet on 23 January, prior to ECOFIN. They will discuss the intergovernmental agreement and follow up to the December European Council. Ministers will also discuss the European stability mechanism. On growth and competitiveness, the Government are at the forefront of driving the EU growth agenda, and will continue to press for action. On the intergovernmental agreement, the Government will be engaging constructively in discussions. The UK will not be party to the new treaty.

ECOFIN

George Osborne Excerpts

Tuesday 20th December 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council was held in Brussels on 30 November 2011. The following items were discussed:

Breakfast: debrief from Eurogroup meeting of 29 November and discussion of the economic situation

Council heard that Eurogroup had agreed the sixth tranche of funding for Greece under its assistance package. It also received an update on the options for leveraging the European financial stability facility. Council then discussed bank capital and funding, following up on the European Council of 26 October, and agreed that capital requirements needed to be met without deleveraging, I made it clear that if required, funding schemes needed to be at national level. This was agreed. I also called for early discussion of progress on the capital requirements directive.

Follow-up to the G20 Summit of 3-4 November in Cannes

France provided a debrief of the summit. They confirmed that the major topic of discussion had been the euro area crisis and that the EU had been urged to agree a comprehensive approach to the crisis. They also noted that the summit had discussed ways of increasing IMF resources.

Annual Growth Survey (AGS)

The Commission presented its second annual growth survey and set out five key priorities: fiscal consolidation (while taking account of the need for growth and for differentiation between member states); restoring normal lending conditions, with particular attention to SMEs; completing the single market; reforms to modernise labour resources (in particular ensuring wages better reflect productivity, improving labour mobility, and addressing youth unemployment); and efficient public administration.

Second economic governance package

The Commission presented two legislative proposals and a discussion paper. The first of the legislative proposals relates to strengthening budgetary surveillance within the euro area, particularly for member states in excessive deficit. It would require euro area member states to submit their draft national budgets to the Council and the Commission by 15 October of the preceding year for assessment. The second proposal is a draft regulation on the surveillance of euro area member states experiencing severe financial disturbance. It set out a process of more comprehensive monitoring for member states receiving a programme of financial assistance from EU and IMF-backed funds. Such monitoring could also be applied to member states not receiving assistance but considered to be at risk.

The Commission discussion paper proposed three options for stability bonds: full substitution of national issuance by stability bonds with joint and several guarantees; partial substitution of national issuance with joint and several guarantees; or partial substitution of national issuance with several but not joint guarantees. The Commission noted that stability bonds would create a deepening of economic and monetary union and this would need to be accompanied by parallel measures to strengthen economic governance. Some options would also require treaty change. The Commission said that it would prepare further steps on euro area economic governance by the end of 2011.

There was no substantive debate, particularly not on stability bonds, but a number of member states expressed support for the general principle of further strengthening euro area economic governance.

Recommendation on a nomination to the executive board of the European Central Bank

This was added to the agenda as a result of discussion over breakfast. Council adopted a recommendation on the nomination of Benoît Coeuré of France, to replace Lorenzo Bini Smaghi of Italy, who has announced his resignation.

Economic and financial impact of EU legislation

Council discussed conclusions addressing the need for impact assessments of proposed EU legislation, and for all such legislation to take account of the need to ensure sustainable public finances and create jobs and growth. The UK intervened to support the conclusions. After much discussion conclusions were agreed with a number of amendments.

Court of Auditors’ 2010 Report on the EU Accounts

The President of the Court of Auditors presented its report. In the auditors’ view, the budget presents fairly the position and cash flow of the EU, although there remains scope for improvement. Control systems are only partially effective and overall there has been an increase in the level of errors. The Commission highlighted that the report showed progress had been made. The UK, the Netherlands and Sweden all expressed concern at the increased error rate. The presidency noted the report, which will be further considered by Council in February 2012, when Ministers will vote on discharge of the 2010 accounts.

EU Statistics

Council adopted conclusions welcoming the report of the European Statistical Governance Advisory Board and inviting the Commission to put forward proposals regarding the professional independence of national statistical authorities and EUROSTAT.

Code of Conduct (business taxation)

This item was withdrawn from the agenda by the presidency and is now expected to be considered by Council in January 2012.

Banking Commission Report

George Osborne Excerpts

Monday 19th December 2011 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

The Government are proposing the most far-reaching reforms of British banking in our modern history. Our objective is to make sure that what happened in Britain never happens again, that taxpayers are protected and that customers get a better service. Last year, the Business Secretary and I set up the Independent Commission on Banking to look at what has been called the British dilemma—that is, how Britain can be home to one of the world’s leading financial centres without exposing British taxpayers to the massive costs of those banks failing.

In the years leading up to the financial crisis, a failure of regulation contributed to the build-up of a debt-fuelled boom. Banks borrowed too much and took on risks they did not understand. When the bubble burst, these banks turned out to be too big to fail, and the last Government had to spend billions of pounds bailing them out. Of course, major financial institutions in other countries were bailed out by their taxpayers, but the British bail-outs were on a different scale. The Royal Bank of Scotland bail-out was the biggest in the world. The recent report of the Financial Services Authority on the failure of RBS attributed that to

“poor decisions made by the RBS management and Board”

against a backdrop of a regulatory regime that failed to stop them. The politicians responsible are named in the report.

This Government are determined to do better at protecting British taxpayers from the cost of failing banks, while at the same time acknowledging the importance of the financial sector to our country. Britain should remain home to one of the world’s leading financial centres and the home of global banks, but the strength of this industry is also a potential weakness to the economy if not properly regulated.

The sector supports nearly 1.4 million jobs—not just in the City of London but across the whole of the UK. The balance-sheet of our banking system is close to 500% of our gross domestic product, compared to 100% in the US and 300% in Germany and France. So while a European and international regulatory response to the crisis is important, we cannot rely on this response alone to make our banking system safe. We in this Parliament have to take action—and under this Government, we are.

We are putting the Bank of England back in charge of prudential regulation; we have created the Financial Policy Committee to look at risks across the financial system; and I welcome today’s report from the Joint Committee on the draft Financial Services Bill. I wanted proper pre-legislative scrutiny. That has happened, and we will respond in the new year so that we improve the legislation. We have also introduced a permanent bank levy on wholesale funding and we have introduced the toughest and most transparent pay regime of any major financial centre in the world. We also need to address the structure of our banks, however. That is why the coalition Government set up the Independent Commission on Banking. I again want to thank Sir John Vickers and the other members of the commission—Clare Spottiswoode, Martin Taylor, Bill Winters and Martin Wolf—for their impressive report.

The report made three main recommendations: first, that everyday high-street banking services should be separated from wholesale and investment banking activities, and that this be done via a ring fence; secondly, that banks be required to have bigger cushions to absorb losses without recourse to the taxpayer; and thirdly, that competition in the banking sector be strengthened by increasing the number of banks on the high street and the power of customers to switch accounts. When the final report was published in September, I made it clear that I welcomed these recommendations in principle and would return to the House by the end of the year. Today, I fulfil that commitment. Let me set out in detail how the Government plan to respond, and invite further views before we publish a White Paper next spring.

First, the Government will separate retail and investment banking through a ring fence. It is important to know that this ring fence will not prevent banks from failing, but it does mean that if banks get into trouble, those elements of the banking system that are vital for families, businesses and for the whole economy can continue without resort to the taxpayer, so the following will be in newly ring-fenced banks: the deposits of individuals and their overdrafts, and the deposits and overdrafts of small and medium-sized businesses. They will all be kept separate from riskier wholesale and investment banking, which will have to be outside the ring fence. Larger corporate deposits and lending and private banking can be either in the ring fence or outside. The ring-fenced bank will be legally and operationally independent; it will be able to finance itself independently and have its own board; and there will be limits on the amount it can lend to the rest of the group. The commission’s interim report proposed a de minimis exemption for small banks that were clearly not systemic, and we invite opinion on whether to proceed with that. Our objective is clear. We want to separate high-street banking from investment banking to protect the British economy, protect British taxpayers and make sure that nothing is too big to fail.

Secondly, we will make sure that banks have bigger cushions, so they are better able to withstand losses. The international Basel III requirement, which the UK was instrumental in negotiating, requires banks to hold minimum equity capital of 7%, and there is a top-up for systemically important banks. We will go further. Large ring-fenced retail banks will be required to hold equity capital of at least 10%, and there will also be a minimum requirement for the loss-absorbing capacity of big banks of at least 17%. This requirement will apply to the UK operations of British banks, and will also be applied to the non-UK operations of UK-headquartered banks unless they can demonstrate that they do not pose a threat to the UK taxpayer.

I can also confirm that the Government will introduce the principle of depositor preference: in other words, the principle that unsecured lenders to banks, who are better placed to monitor the risks that banks are taking on, should have to take losses ahead of ordinary depositors. We seek further views on the best way to implement this principle. This comes on top of the guaranteed protection offered by the Financial Services Compensation Scheme, which covers 100% of eligible deposits up to £85, 000.

Those proposals on loss absorbency will also strengthen the European single market. One of the greatest distortions to the single market in banking is the perceived implicit taxpayer guarantee for all European banks. Through these proposals, the UK is setting out a plan to remove that distortion for UK banks. The European Commission has indicated that it plans to consider what it can do to reconcile it at EU level. I welcome that, and the UK will engage actively in the debate.

This House and other member states have objected to the European Commission's proposals to impose maximum standards for bank capital. These proposals undermine efforts that we and others are making to improve financial stability and the single market, and bodies such as the International Monetary Fund believe that they also water down the international Basel III agreement, giving exemptions to globally active banks in certain European countries. Along with others, we will seek changes to ensure that the EU faithfully implements international agreements.

Thirdly, the Government will take action to increase competition in the banking sector. As a result of the disappearance of banks such as Bradford & Bingley and the last Government’s decision on the merger of Lloyds and HBOS, the banking sector is dominated by a handful of large banks. Last year, just four banks took 70% of the market share. We need new banks to enter the market and provide consumers and businesses with more choice. Last month the Government announced the sale of Northern Rock to Virgin Money, which creates a new competitor in our retail banking sector. In the coalition agreement we made it clear that we wished to foster diversity in financial services, including the promotion of mutuals. We welcome last week's announcement that Lloyds has identified the Co-op as preferred bidder for the divestment of more than 600 branches, which will create a strong challenger in the high street.

We will also make it easier for people to switch their current accounts. This recommendation from the Commission has received less attention from the media, but could be of huge benefit to millions of customers. The idea is that individuals and small businesses can switch to another bank within seven days, and all the direct debits and credits will be switched for them at no cost. The Government have secured the banking industry's agreement that it will implement these proposals by September 2013.

We will support the Treasury Committee's proposal to bring the Payments Council within the scope of regulation, and I can confirm that our financial services legislation next year will specify that one of the objectives of the Financial Conduct Authority is to promote effective competition in the interests of consumers. A new statutory competition remit will provide the FCA with a clear mandate for swifter, more effective action to address competition problems in financial services. Within months of the ICB report, legislation will be introduced to bring the change into force.

That brings me to timing. Some have questioned whether the Government will seek to delay implementation of these reforms—such questions come from people who never even contemplated reform when they were in office. In fact, the reverse is true. On the advice of Sir John Vickers and others, I will introduce separate legislation to implement the ring fence. The Government intend implementation to proceed in stages, with the final changes relating to loss absorbency fully completed by the beginning of 2019 in line with the Basel agreement, but I can confirm that primary and secondary legislation relating to the ring fence will be completed by the end of this Parliament in May 2015, and that banks will be expected to comply as soon as practically possible thereafter. The Government will work with the banks to develop a reasonable transition timetable.

Of course, there are both costs and benefits to these reforms. The Government estimate the total costs to UK banks to be between £3.5 billion and £8 billion, broadly in line with the commission’s estimate. Much of this reflects the cost to them of removing the subsidy that comes from any perceived implicit taxpayer guarantee, which is precisely what we intend. The cost to GDP is estimated by the Government at just £0.8 billion to £1.8 billion, slightly lower than the commission’s estimate. These are far outweighed by the benefits of the ICB’s recommendations. Even a relatively modest reduction in the likelihood or impact of future financial crises would yield an incremental economic benefit of £9.5 billion per year, such is the cost of financial crises to the economy. Since the wholesale arms of non-UK banks would be unaffected by these reforms and the principal recommendations relate to UK retail banking, the competitiveness of the City of London as a location for international banking will not be affected.

We are fixing the banking system to protect taxpayers in the future, but we also need to clear up the mistakes of the past. I have already mentioned Northern Rock and Lloyds, but the biggest call on the taxpayer was the bail-out of RBS. The Financial Services Authority’s recent report was a damning indictment of all that went wrong in this crisis, and those responsible are clearly identified in it. We need to deal with the mess they created. Despite promises from the previous Government that taxpayers would profit from the RBS bail-out, the Government’s shareholding is now worth around £27 billion less.

We are already reforming the regulatory structures that allowed these catastrophic failures to occur. Bonuses are a fraction of what they were four years ago. Early this year we placed a limit of £2,000 on cash bonuses for RBS and Lloyds. We have made it very clear that the bonus pool next year must be lower again, and more transparent. We are also clear that, at a time like this, the Financial Policy Committee’s advice should be followed: bank earnings should be used to build capital levels, not pay out large bonuses.

RBS itself has also made significant changes since 2008, including reducing the size of its investment bank by half, but I believe RBS needs to go further, and the management agree. We are the largest shareholders. Let me set out our view. RBS has already announced that it will further shift its business strategy towards its personal and SME customers and its corporate banking business which serves UK and international companies. We believe RBS’s future is as a major UK bank, with the majority of its business in the UK and in personal, SME and corporate banking. Investment banking will continue to support RBS’s corporate lending business, but it will make further significant reductions in the investment bank, scaling back riskier activities that are heavy users of capital or funding. RBS should emerge a stronger, safer bank able to maintain lending to businesses and customers, and which in time can be returned to full private sector ownership.

The British people are angry about what happened in our banks, and angry at the politicians who let it happen. This coalition Government see two parties working together to clear up the mess of the past and to create a banking system that protects taxpayers and serves customers better. Today we present the most far-reaching changes to banking in our modern history so that we can build an economy that works for everyone. I commend this statement to the House.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

Let me start by thanking the Chancellor of the Exchequer for advance notice of his intention to give a statement but, as with the autumn statement, it is deeply disappointing that the statement, and the 75-page document, arrived with us only eight minutes before the Chancellor entered the House of Commons. One has to ask: do the Chancellor and the Business Secretary have something to hide?

I have a number of questions for the Chancellor. We have not had time to read the report so I hope he will make an effort to answer our questions today, but let me thank him for agreeing, at least in part, to our recommendation back in September that he produce an implementation plan for the Vickers commission by the end of the year. It is vital that the Government now implement these important banking reforms without foot-dragging or back-sliding or watering them down.

So will the Chancellor now agree to our second request, also made in September, and ask the Vickers commission to come back in 12 months’ time and publish an independent report on the progress that has been made in implementing its report?

Labour Members are determined to play their part in implementing these proposals in, as far as is possible, a cross-party spirit—taxpayers, customers and businesses, angry at banking recklessness which forced a multi-billion pound bail-out, will expect nothing less. We have apologised for the part that the last Government played in this global regulatory failure. In that same cross-party spirit, perhaps the Chancellor would like to take this opportunity to apologise too: for the role his party played in opposition, and he played as shadow Chancellor, in complaining of “too much regulation”, and for the then Leader of the Opposition calling, as late as spring 2008, for “lower taxes” and “less regulation” for the City. We all made mistakes and perhaps this Chancellor, who opposed financial regulation legislation, who opposed the nationalisation of Northern Rock, RBS and Lloyds, and who opposed Bank of England independence, should show a little more humility as well. If he does, I will, in a cross-party spirit, commend him for that.

I join the Chancellor in commending the excellent work of the pre-legislative scrutiny Committee on the draft Bill and of the Treasury Committee. We will study those reports in detail, and we will approach the Bill and the Chancellor’s reforms to the machinery of financial regulation with an open mind. However, like those Committees, we are concerned that his reforms could make decision making both more complicated and less transparent in future. There is a serious and still unanswered question as to whether there is sufficient accountability to match the massive new powers that the Chancellor plans to delegate to the Bank of England. His so-called “simplification” actually increases the number of deputy governors of the Bank of England from two to three.

Our fear is that he is replacing the tripartite system with a de facto quartet system—the Treasury, the MPC, the FPC and the PRA—with the FCA on the outside. Given that complexity—I can explain the acronyms; they are all different autonomous agencies in the Bank of England—can the Chancellor tell the House why he has still not published the promised memorandum of understanding between the Treasury and the different Bank agencies? I hope it is obvious to the Chancellor that the memorandum of understanding must specify that in any crisis the Chancellor must always hear the direct advice of all three deputy governors—alongside that of the Governor—most importantly that of the deputy governor who is also the chief executive of the independent regulator responsible for ensuring the stability of the banking system. In my view, that is essential if this new, more complex quartet system of financial regulation is to work in an effective and transparent way.

In responding to the Vickers commission, Labour set out three tests that will guide our view of banking reform—let me deal with them in turn. First, to protect taxpayers, we, too, support the commission’s radical reforms on ring-fencing and regulatory standards. Rather than delay, could the Chancellor explain why he is not at least making a start with reforms in the current financial regulation Bill, which will come before the House next year? Can he clarify to the House whether it is his intention to implement, in full, the Vickers recommendation on depositor preference? On the requirement on the biggest UK global banks to have the ability to absorb losses equivalent to between 17% and 20% of risk-weighted assets, can he explain why he is deciding to water down the Vickers proposal by not applying this rule to their full global balance sheets? Is he sure that this will not leave the taxpayer exposed?

The Business Secretary told the BBC yesterday that the Vickers report was being implemented in full, but what we have here is not an implementation report; it is a consultation paper before a White Paper in the spring. Already we learn that the Chancellor is not implementing the Vickers recommendations in full. Will he tell the House whether he really intends full implementation, or have the Liberal Democrats been sold a pup yet again?

On the second test of securing international agreement, given the Prime Minister’s decision 10 days ago to walk away from the negotiating table without securing any protections at all for financial services in those discussions, will the Chancellor tell the House whether he is confident that he can do a better job? In particular, is he confident that he will be able to get the necessary EU-wide agreement, which means a qualified majority vote, to implement the Vickers capital requirement proposals?

On the third test of delivering a banking system that supports the wider long-term interests of the economy, may I ask the Chancellor about competition and the supply of credit? On competition, we argued back in September that any delay or backsliding on competition would leave consumers and small businesses to pick up an unfair share of what he has confirmed is a multi-billion pound bill for tougher capital and regulatory standards. Developments since September have not been encouraging.

On Northern Rock, will the Chancellor reassure the House that his rather hurried trade sale will deliver over the coming years—in two, three, four and five years—a new challenger bank that will compete in the small business and mortgage markets? Will he assure the House that that will be the outcome? Will he confirm that it is as a result of widespread concern that the taxpayer will not get value from his loss-making sale that the National Audit Office has launched an investigation into that decision?

On the sale of Lloyds branches to support a new challenger bank, will the Chancellor explain to the House—perhaps he could explain it to the Business Secretary, too—why he has decided not to implement in full Vickers’s proposals to increase the size of branch sales from Lloyds on divestiture? Why has he not taken the advice of the Vickers commission on competition? Is it not overwhelmingly clear, as we argued back in September, that rather than waiting until 2015 the Chancellor should now commit to a review in 2013—two years’ time—of the impact on competition of these proposals?

The fact is that none of these long-term reforms can address the two immediate threats to the supply of credit and the stability of our already fragile economy and banking system. First, here in Britain, with rising unemployment and a flatlining economy depressing confidence, thousands of small businesses are now struggling—as Members on both sides of the House know and as I heard for myself in Leigh on Saturday—to access the credit they need to survive and grow, with net bank lending to businesses not rising but falling. Alongside the long-term reforms, will the Chancellor tell the House why, rather than cutting taxes for the banks, he is not acting now to ensure that UK banks start to act now to increase their lending to small businesses?

Secondly, finally and most gravely of all, the failure of all our political leaders across Europe to solve the euro crisis and in particular to get the European Central Bank to start doing its job as lender of last resort is now the biggest threat to banks in Britain, businesses in Britain and jobs in Britain. Ten days ago, the Prime Minister walked away. Will the Chancellor reassure the House that he has not walked away, too? Are he and the British Treasury seriously engaged in trying to solve what is now the gravest threat to prosperity in our country in this generation? Is anyone in the rest of Europe listening to the Chancellor any more?

[Mr Osborne]

First, I apologise if the right hon. Gentleman did not get the statement far enough in advance for him to read it. I am merely following the procedures that he laid down when he was at the Treasury.

Let me deal specifically with the points he raises in detail. First, on the financial services Bill which we will introduce in Parliament early in the next year, I did not talk about it in the statement because we will have the Second Reading debate, I hope, shortly after we come back in January, but it is an important part of what we are doing. I mentioned it in passing. It is about changing the regulatory system to put the Bank of England in overall charge of monitoring levels of debt and systemic risk in our economy—a responsibility that I believe should never have been taken away from the Bank of England back in 1997—and at the same time giving it the powers that it needs to act as a prudential regulator, without which it would not be able to identify those systemic risks.

The reason why I have not produced the memorandum of understanding is that I was waiting for the Joint Committee—the pre-legislative Committee—that has been looking into the Bill. I thought it would be completely inappropriate to produce the MOU before it had reported so, as I explained to the Committee, I was going to wait until I had its report. The report is only being published today and I hope fairly shortly to be able to produce that MOU, having taken into account what both it and the Treasury Committee say.

The right hon. Gentleman says this is all rather complicated. There is a simple principle, which is that the Bank of England is in charge of monitoring risks in our financial system—

[Ed Balls]

This plan is dangerous.

[Mr Osborne]

Well, we have tried the right hon. Gentleman’s approach and look what happened: the entire banking system collapsed. So with the greatest respect, his advice on what is a dangerous approach to regulation we will take with a pinch of salt.

I turn to the right hon. Gentleman’s other points. On international agreement, obviously it is extremely important that we are able to do this under European law. There has been an argument about this. We have a great deal of support. Countries such as Spain and Sweden have written to the Commission to urge it to allow countries to have their own national regimes that sit on top of the minimum capital requirements, and we are encouraged by the very recent Commission quote which says that “Vickers can be implemented fully in the UK in a way that is compatible with EU law”, but we will continue to make our argument. It is encouraging that both the European Commission and the European Parliament have expressed their keen interest in the Vickers report and are doing their own work on that. It is good to see us leading the international debate on that.

The right hon. Gentleman mentions competition. On Northern Rock, we welcome the National Audit Office investigation. It would be very surprising if the NAO did not do a report into such a financial transaction. It has done reports into all the previous financial transactions by this Government and the previous Government. I think what it will demonstrate is that this was a loss-making bank and the independent advice that we received was that it would go on losing money. The people who should be to blame for losing taxpayers’ money are sitting directly opposite me.

On Lloyds and the Lloyds branches, we have spoken throughout this process to John Vickers. Obviously, he can speak for himself and give his view, but we have kept him closely informed of what we are proposing. I think it is consistent with the intention in the report to create a strong challenger out of the divestment of the Lloyds branches.

Let me turn to the timetable that the right hon. Gentleman mentions. As I say, we will be implementing some of the competition requirements in the Vickers report—for example, the new competition remit for the FCA. That will be part of the financial services Bill that we introduce in January. We considered carefully whether to try and put all the Vickers requirements—the creation of the ring-fenced banks—into the financial services Bill that we are introducing early next year.

We did not think that was sensible. That was also the view of John Vickers, who recommended a separate piece of legislation. That is precisely what we are going to do, but our commitment is clear. We will have all the primary and secondary legislation, which is where quite a lot of the detail will be, through by the end of this Parliament. That is exactly what we want to see.

Finally, the right hon. Gentleman has been going around complaining that we are not doing enough, we are in danger of watering down Vickers, and the like. This is from the people who have opposed structural reform to our banking system. When I was sitting on the Opposition Front Bench as the shadow Chancellor under both the previous Chancellor of the Exchequer, who is in his place, and also under the Chancellor of the Exchequer before, who then became the Prime Minister, they opposed structural reform. They did not want to separate the banks. No doubt they can answer for themselves, but for the former City Minister who was in post when RBS made its bid for ABN AMRO, for the City Minister who was in post when Northern Rock was offering those 125% mortgages, for the City Minister who was in post when HBOS was making all those commercial property loans, for the former City Minister to complain that we are not doing enough is ridiculous. This is the man who advised that Fred Goodwin should get a knighthood and who told his boss to go and open the Lehman Brothers headquarters. That is his record, and his mealy-mouthed apology reminds me of that film “Whoops Apocalypse”—I am sorry, I just brought down the entire British economy; can we all please move on now. That is what he has done. Frankly, he has not made a substantive or interesting contribution to this debate on bank reform. Perhaps in the next few months he will.

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

I am grateful to my right hon. Friend for his welcome for the Joint Committee report on the financial services Bill. Will he confirm that the legislation implementing recommendations on ring-fencing will be subject to pre-legislative scrutiny, but after that the banks will be required to implement ring-fencing without delay, whereas there is a strong case for allowing time for the requirements for higher capital adequacy to be built up to prevent intensifying the shortage of capital in the short term?

[Mr Osborne]

I will consider the case for pre-legislative scrutiny, and the House will consider it, closer to the time. Obviously there is a trade-off between getting the legislation through and having the pre-legislative scrutiny, but my right hon. Friend’s Committee has done a very good job. Not everyone here will have had a chance to read its report, but I have read its executive summary and I will read the full report tonight. It is an impressive piece of work and an advert for pre-legislative scrutiny. I repeat our commitment that we want all this legislation, primary and secondary, by the end of the Parliament.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I welcome the Vickers report and I am glad to hear that it is being implemented, but will the Chancellor be careful about overselling this? This would not have stopped the failure of Northern Rock or HBOS, and the idea that a future Government might decline to step in and rescue an investment bank if it failed is simply not credible. Look what happened to Lehmans when the Americans tried that. So these problems have not gone away. Will he accept that if his reforms of the Bank of England are to work, he has to look at the governance of the Bank, as the Treasury Committee recommended recently? The Bank made some bad mistakes in the past and we have to face up to that, just as we have faced up to the mistakes of the Financial Services Authority. Will he urgently accept the need for European Governments to shore up their banks, because there is very real risk, if we have a sovereign default in the next few weeks, that their banks will be affected because they are not adequately capitalised? If he is still on speaking terms with his opposite numbers, that is something that he should attend to very quickly.

[Mr Osborne]

I can assure the former Chancellor that we are still on speaking terms. Indeed, I had an hour and a half conference call just before I came into the Chamber, so I can promise him that a lot of speaking is still going on. The question he rightly asks is: where is the action? The eurozone has taken a number of important steps, but we still need to see a more credible firewall, which will enable it to stand behind its banks even more effectively.

On the right hon. Gentleman’s specific point about the Bank of England and whether this could have prevented what happened when he was Chancellor, of course institutions can get things wrong, and the Bank of England got things wrong in the run-up to the crisis, but it is sensible to try to have one body that is looking at both the prudential risks in individual firms and the overall systemic risks in the economy. The tripartite system clearly failed to do that. I do not think that before he became Chancellor it met in person at a principal level, or perhaps only once. The system did not work and many Committees of this House have pointed that out. For the Bank of England to have clear responsibility for monitoring risks is sensible. As to whether all this could have prevented what happened, I draw attention to two points. First, there are higher capital requirements in Vickers that would have better protected banks such as HBOS, and, secondly—the biggest challenge of all that he had to face—it is precisely the collapse of a large universal bank such as the Royal Bank of Scotland that Vickers is seeking to address. No one pretends that it is easy, but we believe, Vickers believes and many others believe, that the idea of ring-fencing the retail operations focused on the UK will give the Chancellor of the day greater opportunity to protect what really matters to the UK economy without having to resort to bailing out the entire institution.

[Mr Andrew Tyrie (Chichester) (Con)]

The House and the Chancellor will have heard the remarks made across the House about the need to strengthen the accountability of the Bank of England, which the Treasury Committee has already reported on, so I will not dwell on that. On the European angle, does he agree that the UK should be permitted to implement Vickers without awaiting the outcome of Commissioner Barnier’s latest announcement that he will review the merits of breaking up banks altogether, an idea explicitly rejected by Vickers, while at the same time not worrying about another of Mr Barnier’s curious and contradictory proposals, which is that a cap, as has just been mentioned, should be placed on the amount of capital UK regulators could demand of banks, which, if implemented, could prevent us from putting Vickers in place at all?

[Mr Osborne]

As I have said, I will return to the House early in the new year to address the issues that my hon. Friend’s Committee, other Members of the House and the pre-legislative Committee have raised about the accountability of the Bank of England and the accountability and responsibility of the Chancellor in a financial crisis. On his points about Europe, I understand that Commissioner Barnier, or the part of the European Commission that sits under him, is interested in the Vickers report and is looking at it, as is the European Parliament, which we welcome. On maximum harmonisation—in other words, not allowing individual countries with large banking systems to have their own regimes sitting on top of the EU minimum—that is something that other member states are concerned about. It was actually the Swedish Finance Minister who signed the letter that first raised concerns about that and got other Finance Ministers, myself included, to sign it, and the International Monetary Fund has also been very public in raising its concerns. We have not yet reached the point where the directive is about to be passed, but there is certainly a lively debate going on about it.

[Several hon. Members]

rose—

[Sir Stuart Bell (Middlesbrough) (Lab)]

Building on my right hon. Friend the shadow Chancellor’s statement on bank lending to the small and medium-sized enterprise sector, has the Chancellor made any study at all of the impact of what he calls bigger cushions—raising capital requirements from 7% to 9%—on bank lending to that sector? Can he offer the House a guarantee that he will consider that as part of his consultation leading to his White Paper in the spring?

[Mr Osborne]

It is precisely to avoid a procyclical impact that the backstop for capital requirements is 2019, so there is quite a long timetable, which is consistent with the Basel agreement, but the hon. Gentleman is of course right to point out—indeed, the shadow Chancellor made this point—that the current situation in the eurozone is causing a stress on bank funding around the world. It was good to hear the shadow Chancellor acknowledge at the end of his remarks that the biggest single threat to British businesses, as I think he put it, is the current eurozone crisis, which is an analysis we share.

[Several hon. Members]

rose—

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

Will the Chancellor take urgent action with RBS to create three new competitor banks from its assets and liabilities so that we can have real competition and more promotion of growth?

[Mr Osborne]

I have set out our view as the largest shareholder of RBS. We have to be careful of the shadow director rules and the like, but I was very clear in my statement that we expect and hope to see RBS shrink the size of its investment bank and focus on the UK and its UK customers. That is our proposal as an RBS shareholder. Of course, the question of how to dispose of our shares in RBS, which might arise in future, is one that we will address at the time.

[Malcolm Wicks (Croydon North) (Lab)]

Given the interesting speech recently made by the Prime Minister on the importance of Christian values, is there not a danger that the Chancellor and the Treasury as a whole are spending too long talking to the money changers and not enough time talking to more important elements of the British economy, such as manufacturers and small businesses? Does he feel that when Jesus overthrew the money tables he should have waited six years before acting?

[Mr Osborne]

I would not say that what we are undertaking is of biblical proportions, but we are acting now to deal with those problems. We are changing the system of regulation, which will be in place once the draft financial services Bill is passed next year; we are changing the competition remit, which will be in place by 2013; and we are committed to introducing all that legislation, including the secondary legislation, in this Parliament. We are undertaking those reforms, but in the years in the desert, which were the years under the Labour Government, none of those things was proposed at all.

[Stephen Williams (Bristol West) (LD)]

I congratulate my right hon. Friends the Chancellor and the Business Secretary on working together to provide a secure future for our banking sector and to put behind us the failures of the past. Uppermost in the public’s mind from the past will have been the £45 billion bail-out of the Royal Bank of Scotland, and, given that it is now under state ownership, could not the Chancellor consider its break-up to establish a challenger bank on the high street for lending specifically to small and medium-sized businesses in order to provide the finance for future growth and economic recovery?

[Mr Osborne]

I have already set out the Government’s view on the Royal Bank of Scotland, and the issue of what to do when we come to dispose of the shares will be one that we can all address at the time.

The document and the process have been a very good advertisement for the coalition Government. The Business Secretary and I have worked incredibly closely on the document, which is a joint one from us both, and people will not have read in the newspapers lots of stories about the “splits between us on the issue”—

[Ed Balls]

That was last week.

[Mr Osborne]

Getting a lecture on “splitism” from the shadow Chancellor, who has been the biggest source of division in the House over the 10 years that I have been in Parliament, adds to his lessons on how to regulate banks properly as something to treasure, but this document is a very good advertisement for the coalition Government and the work that we have done with the Business Secretary.

[Stewart Hosie (Dundee East) (SNP)]

I thank the Chancellor for the statement, and for much of what was in it on Lloyds divestment, competition, account switching, retail ring-fencing and the final 2019 implementation date. I hope that that implementation will do nothing to weaken small and medium-sized enterprise lending, but what in particular did he mean by “RBS will make further significant reductions in the investment bank”? Can he put a cash figure on that? How much deleveraging does he see taking place? What does he envisage being sold off? Will it be in the UK or overseas? We need certainty about RBS’s future, so can we have some detail today, and will he confirm that he does not intend to undermine the independence of the board, notwithstanding the fact that the Government are the major shareholder?

[Mr Osborne]

The hon. Gentleman asks me not to undermine the independence of the board and, then, to provide all sorts of detail on exactly what the board should now do, so let me say this. I know that the Royal Bank of Scotland is a very important employer in Scotland and a very important part of the Scottish economy. We want to see it focused on its UK businesses, on UK corporate and individual customers, and its investment bank should support that service. The Royal Bank of Scotland management have also come to that conclusion, and in the coming months they will set out further details on how they are going to do that work, but it is a significant change of direction for the bank.

[Adam Afriyie (Windsor) (Con)]

Given the shadow Chancellor’s involvement in the biggest banking crisis in the history of our country, and given his overt criticism of the current Chancellor, will my right hon. Friend tell me whether he has received from him any constructive submissions at all during this period?

[Mr Osborne]

I do not think that I have received a single submission on banking reform from the shadow Chancellor since he took up his job.

[Frank Dobson (Holborn and St Pancras) (Lab)]

Will the Chancellor of the Exchequer confirm that nothing he has announced today will for the next five years reduce in any way the risk to the British taxpayer in the event of a British bank losing out on sovereign debt in the European Union in a way that damages its retail operations?

[Mr Osborne]

There are things that we have done and are doing now to make our banking system safer. Banks are required to hold more capital—more cushion—to protect them against losses, whether from sovereign debt or anything else. We regularly take part in pan-European stress tests, and actually the British banks pass those tests when other European banks do not. I think that that is because the British banking system is well capitalised and liquid.

We are also introducing a new system of regulation, which, as I say, will be operational in 2013; once the legislation has passed through the House of Commons, the Bank of England will be in charge. Furthermore, we are introducing the Vickers requirements over the next three and half years, until the general election at the end of this Parliament—we are getting all that legislation through as well. We are doing a huge amount to make the British banking system safer now, but also safer in future.

[Mr William Cash (Stone) (Con)]

To protect the City of London, will the Chancellor follow the example of the Prime Minister when he used the veto the other day? When necessary, will the Chancellor here in Westminster override European legislation to protect the taxpayer, the City of London and the United Kingdom?

[Mr Osborne]

We need legislation that works effectively for British banks across Europe; British banks have subsidiaries in other European countries. Actually, a single market in financial services would be a very good thing—and it is a good thing for this country, although we need to see it deepen. We also need to make sure that countries with very large banking systems, such as our own, are able to take national decisions that protect our banking systems. I am confident that we can secure agreement to that.

[Mr Dennis Skinner (Bolsover) (Lab)]

Is there not a possibility that if the banks are split up, there will be more top bankers than there are now? What we need in Britain is small business growth and large business growth. The chances are that the most reviled group of people in the land—the top bankers—are going to multiply.

[Mr Osborne]

I do not think that it automatically follows that if we ring-fence the banks, we double the number of bankers. It is our intention, yes, to have a successful financial services industry, which is very important in Derbyshire, Cheshire, where my constituency is, the west midlands and Scotland, as well as in the City of London.

However, we do not want our entire economy to be in hock to the City of London; that is what we are seeking to avoid. We do not want to put all our bets on the City of London. That is what happened over the last 13 years, and it went disastrously wrong. The Government are determined to build up other sectors of the economy, including manufacturing and small businesses. The very fact that later today we are debating the Government’s apprenticeship programme shows our commitment as a Government to building up those other industries.

[Mr Edward Leigh (Gainsborough) (Con)]

After these reforms, will our banks be more or less regulated than their international competitors?

[Mr Osborne]

In certain respects, they will be more regulated compared with some other regimes. Obviously, the ring-fencing requirement that we are introducing is not present in every other financial centre. However, it is an appropriate course of action for the UK, given the size of our banking system relative to our GDP—it is 500% of our GDP; the United States banking system is only 100% of its GDP. As I said, there is now quite a lot of international interest in what we are doing, so we may find that other financial centres follow our lead.

[Ann McKechin (Glasgow North) (Lab)]

The Chancellor rightly attacked casino banking. Does he not agree that now is the time to restrict UK state-owned banks in respect of their operations in tax havens, which have been a source of much of that casino banking?

[Mr Osborne]

We have required all the major banks in Britain to sign up to the tax code that the previous Government introduced, although they got only two or three banks to sign up to it. We not only have the code, but we are making the banks sign up to it.

[Michael Fallon (Sevenoaks) (Con)]

Does the Chancellor agree with me that if the three politicians identified as culpable in the Royal Bank of Scotland report had been serving in local government, they would probably have been surcharged? Does he think it likely that, in the fullness of time, other European countries will follow us along the road of a retail-wholesale split?

[Mr Osborne]

Two of those three politicians are now busy earning quite a lot of money in the financial sector to deal with the fact that they might face a surcharge. Perhaps, with the efforts of my colleagues, we can make sure that the third politician soon follows them.

[Ed Balls]

You wish.

[Mr Osborne]

Actually, we are quite happy for the right hon. Gentleman to stay where he is, so I retract my previous comment.

In response to my hon. Friend the Member for Sevenoaks (Michael Fallon), we are confident that we will be able to do this within the regime of European Union law.

[Mr William Bain (Glasgow North East) (Lab)]

Has the Chancellor assessed the impact on levels of net lending to business of corporate deposits, estimated at £270 billion for RBS, Barclays and Lloyds, potentially lying outside the scope of the retail ring fence? Who will decide which corporate deposits sit outside the ring fence—the new Prudential Regulation Authority or the banks themselves?

[Mr Osborne]

A key part of the Vickers report was that the location of the ring fence would be flexible. Certain things would have to be in the ring fence, such as small and medium-sized business overdrafts and deposits and the overdrafts and deposits of individuals, and certain things definitely could not be in the ring fence, such as investment banking activity. However, corporate deposits could either be in the ring fence or not in the ring fence; that would be a decision for individual institutions, although of course they sit under the regulatory regime. That is what John Vickers recommended, having looked at this very carefully, and that is the plan that we are now implementing.

[Lorely Burt (Solihull) (LD)]

I welcome the coalition Government’s commitment to implementing the recommendations of the Vickers report. What difference, practically, will it make to people in Solihull and elsewhere in the country, and by when will they start to feel that difference?

[Mr Osborne]

The intention is to make sure that the taxpayers of Solihull are better protected against the failure of banks in future in a way that they were not in recent years when banks such as RBS failed. That is the overall intention of the report, but it has a very important component that does not get nearly the same media attention as the ring-fencing element that we have all been talking about—namely, the promotion of competition. The report has a specific recommendation whereby, from 2013, customers in Solihull will be able to switch their bank account within seven days, at no cost, and all their direct debits and credits will follow them to their new bank account. That is a very practical benefit to the people of Solihull and, indeed, the entire country.

[Mr Denis MacShane (Rotherham) (Lab)]

Given that the Government are not spending and banks are not lending, is the Chancellor at all worried that he and Sir John Vickers are generals fighting the last war? Surely, rather than keeping a lot of money in vaults, we want it out there fructifying in the economy creating jobs and new businesses.

[Mr Osborne]

At times it feels like the current war as well. I do not think that the effects of the financial crisis have disappeared from our economy. Through these proposals, we are taking steps better to protect British taxpayers in the future. There is a decent implementation period for some of the recommendations, such as the loss absorbency recommendations, precisely to take account of what is going on in funding markets. It would be pretty extraordinary if this country, after all that it went through in recent years, with the biggest bank bail-out in the entire world happening here, did not learn the lessons of what went wrong and try to protect people in future.

[Andrea Leadsom (South Northamptonshire) (Con)]

The Vickers proposals definitely make banks more robust and more resolvable, but does my right hon. Friend think that they will definitely be more competitive? Specifically, the stickiness of personal current accounts and SME accounts is a real problem. Will he consider the proposal for full account portability rather than this halfway house which just makes it faster to transfer one’s bank account?

[Mr Osborne]

There is a specific reference to full account portability in the report, as my hon. Friend will see when she reads it, and that is there partly because of the point that she made to me about it in the Treasury Committee. We will consider full account portability if the switching service that we introduce is not effective and does not deliver the expected consumer benefits.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

The House is not clear from an answer that the Chancellor gave to my right hon. Friend the Member for Morley and Outwood (Ed Balls) whether he supports the Vickers recommendation that in order to create an effective challenger bank, Lloyds needed to divest itself of a greater number of branches. Does he agree with that recommendation, and if so, when is he going to implement it?

[Mr Osborne]

We are confident that the sale proposed by Lloyds of 600 branches to the Co-op will create a sufficiently strong challenger bank because it is to an existing institution rather than a new institution. Obviously, that sale is subject to commercial negotiations and the deal is not yet done, but we think that it meets the conditions set out in the Vickers report. We have kept in close personal contact with John Vickers throughout this process.

[Mark Field (Cities of London and Westminster) (Con)]

The Chancellor has acknowledged that the Vickers recommendation would gold-plate the already onerous capital requirements on EU banks, as set out in the Basel III protocol. Does he recognise that if the figures were implemented in full, there would be the twin risk of diminishing the attractiveness of London as a global financial centre and further disincentivising corporate lending by UK banks, which is an essential part of the economic recovery and growth that we all support?

[Mr Osborne]

I do not think that it will discourage corporate lending, nor do I think that it will make the UK any less attractive as a location for the headquarters of global banks. We addressed that issue explicitly in our response. Because the principal proposals and additional national requirements are directed at UK retail banking, I do not think that it will change people’s view of the UK as an attractive place to locate their financial services, whether it be in the City of London or elsewhere.

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

I welcome the Chancellor’s conversion on bank regulation. I remind him that there are more bankers and former bankers behind him than there are behind me. [Interruption.] I mean on all the Benches behind me. Why can he not bring forward the 2019 timetable? That is what my constituents want to know.

[Mr Osborne]

The 2019 timetable was recommended by John Vickers in the report. People should be clear that that is the backstop. That is the final day when everything has to be implemented. In particular, if the additional capital requirements were implemented today, it might have an impact on the economy that we would not want to see. The ring-fencing legislation will be in place by the end of the Parliament and banks will be expected to comply with it as soon as is practically possible. The competition requirements will be in place by 2013. When it comes to jibes about who is working in the financial services, I seem to remember that a number of former Labour Prime Ministers are now quite lucratively paid in the financial services.

[Steve Baker (Wycombe) (Con)]

Chapter 3 of the Government’s report, on loss absorbency, seems, perhaps reasonably, to take for granted the adequacy of accounting standards. I press the Chancellor in his forthcoming White Paper to consider seriously the pernicious effects of the international financial reporting standards, which were applied to banks by the previous Government.

[Mr Osborne]

There is a debate to be had about international accounting rules and their impact on the financial crisis, which I am happy to have with my hon. Friend in person. There are moves afoot to make the international bodies that set the standards more accountable by using the Financial Stability Board. He raises a good issue.

[Kevin Brennan (Cardiff West) (Lab)]

What assessment has the Chancellor made of the proposal in the ICB report to apply a blanket leverage ratio across all financial institutions, and in particular of the possible unintended consequences that that could have for building societies?

[Mr Osborne]

That is an issue that some building societies have raised with us. That is why we say in the report that we are attracted to a leverage ratio—indeed, it is now part of the international regulatory architecture—but that we will consult on exactly how to implement it so that it does not have a perverse impact on building societies, which have served customers well throughout this period.

[Richard Harrington (Watford) (Con)]

On behalf of my knees, Mr Speaker, I thank you. [Laughter.] I commend the Chancellor on his statement. Will he confirm that had these proposals been implemented before 2007, the RBS-ABN AMRO deal could not have taken place?

[Mr Osborne]

The RBS-ABN AMRO deal stands out as the moment of greatest folly in banking regulation, not just because—[Interruption.] The shadow Chancellor was the City Minister. He has incredible amnesia about his role, but thankfully we are here to remind him. It is extraordinary that the ABN AMRO deal was given the go-ahead after Northern Rock had failed. People do not appreciate the fact that it happened after that. We were highly critical of the Government’s regulatory system then, and we remain highly critical of the regulatory system that we inherited.

[Keith Vaz (Leicester East) (Lab)]

On 16 June 2010 the Chancellor told me that he would read the confidential parts of the Bingham report on the closure of the Bank of Credit and Commerce International and seek urgent advice from the Treasury about whether he should publish them. I do not know what the definition of “urgent” is in the Treasury, but 18 months seems like a very long time. I know that he has been busy, but has he read the report and will he now publish it?

[Mr Osborne]

The good news is that I have read the report. The bad news, from the right hon. Gentleman’s point of view, is that I do not propose to publish the appendices. Of course, my predecessors also took that decision. I have looked into the matter, and the view remains that publishing the appendices would not add substantially to people’s understanding of what went wrong, and that they would probably require extensive redacting, which would not only be expensive but still leave people with suspicions, even if those suspicions were unfounded. I have taken the same view that I believe the last three or four of my predecessors took.

[Several hon. Members]

rose—

[Jessica Lee (Erewash) (Con)]

Does my right hon. Friend agree that one key conclusion of the report is about customers’ ability to move their accounts more cheaply and easily? That will be well received by people in Erewash and elsewhere. Banks are there to provide a service, and that is the type of measure that will significantly increase competition and aid this country’s recovery.

[Mr Osborne]

My hon. Friend is right, and she speaks up well for her constituents, who want greater choice on the high street. They want to be able to switch their bank accounts easily, and there are significant proposals in the report to help them do that within seven days and without having to chase up all the direct debits and the like, which will be done for them at no charge. That will be a practical benefit of the Vickers report and the Government’s implementation of it.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

Will the Chancellor give the House a categorical assurance that he has now fully recovered from his dangerous flirtation with deregulation, and that he will be able to avoid any further advances from the right hon. Member for Wokingham (Mr Redwood)?

[Mr Osborne]

If the hon. Gentleman examines what the Government and I have done over the past 18 months, he will see that we want proper regulation that works, enabling consumers to make choices and market forces to operate where appropriate while protecting the British taxpayer, with the Government stepping in where necessary. The report that we commissioned from John Vickers sets out a very important point about the regulation of bank structure that the previous Government did not examine. It represents a significant advance by this Government.

[Duncan Hames (Chippenham) (LD)]

The public are impatient for reform and proper regulation of our banks, so I applaud the Chancellor’s dexterity in separating the timing of the loss absorbency requirements from that of the requirements for increased competition and the introduction of a ring fence on high street banking. Having decided to introduce that ring fence, what is preventing him from doing so before 2015?

[Mr Osborne]

We have made a clear commitment—Sir John Vickers set the back-stop at 2019, but we have said that we want the legislation to go through by 2015. My hon. Friend has to appreciate, and I am sure he does, that it is about passing not just the primary legislation but the secondary legislation through Parliament. That is a very complex matter, because we do not want the banks to find a way around secondary legislation and we do not want to come up with rules that turn out to be full of holes. It is detailed, technical work, but we are absolutely determined to do it and have given ourselves a clear timetable for delivering it.

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

How much money has the City of London donated to the Conservative party since the general election?

[Mr Osborne]

rose—

[Mr Speaker]

Order. In framing his response, the Chancellor of the Exchequer should be aware that if it is related in any way to banks, he is welcome to answer, but he is not obliged to do so. The question must relate to the specifics of the statement. It is up to the Chancellor.

--- Later in debate ---

[Mr Osborne]

indicated dissent.

[Mr Julian Brazier (Canterbury) (Con)]

I welcome my right hon. Friend’s excellent statement, and I also understand why progress on ring-fencing has to be slow. Will he confirm that the guarantee for eligible retail deposits does not necessarily extend to the banks themselves?

[Mr Osborne]

The financial compensation scheme is very clear. We cover 100% of eligible deposits, up to £85,000 in a subsidiary. It is important that people are aware of that, and I think the public are more aware of it than they were three or four years ago. We want the explicit taxpayer guarantee of people’s deposits; what we do not want is the implicit taxpayer guarantee of the banks that took those deposits.

[Jim Shannon (Strangford) (DUP)]

I welcome the Chancellor’s statement. Will he confirm that the legislation will apply to mutual societies? If so, would it have prevented the crisis in the Presbyterian Mutual Society in Northern Ireland?

[Mr Osborne]

One of the things we are considering is whether there should be a de minimis exemption from the regulations for smaller banks and building societies. Vickers proposed that in the interim report, but not in the final report, so this is an area where we are looking at the interim report, rather than the final report. However, we will consult, and the views of Members from Northern Ireland and others will be welcome in that process.

[Stephen McPartland (Stevenage) (Con)]

Does the Chancellor agree that there is no painless way of reforming the banks and that the banks have to accept a little pain now, so that the Government can protect taxpayers from future bail-outs?

[Mr Osborne]

The banks themselves—inasmuch as we are talking about shareholders who own them—will benefit from a safer banking system. Among the casualties of the banking crash were shareholders of the Royal Bank of Scotland, Northern Rock and the like. They lost money too and, as my hon. Friend well knows, they were not all immensely rich City people; rather, many were actually on quite low incomes. The shares were their main source of savings, so the shareholders also lost out. Owners of banks, including small shareholders, will benefit from a safer banking system.

[Mr David Nuttall (Bury North) (Con)]

Given that the UK’s four largest banks hold seven out of 10 personal current accounts and eight out of 10 of the current accounts of small and medium-sized businesses, will my right hon. Friend reassure me that the proposed new legislation and regulation will neither result in banks leaving the UK or being deterred from expanding, nor deter new banks from opening in the UK, thereby reducing competition and restricting choice for customers?

[Mr Osborne]

The reforms will make the UK an attractive location for international financial services, which will know that our system is better regulated, and for retail banking, because customers will have greater assurances that the banking system is safe and that they will not have to bail out the banks if they go wrong.

[Matthew Hancock (West Suffolk) (Con)]

I very much welcome the report, which, along with all the other measures, I hope will help to change the culture of finance. With that end in mind, will the Chancellor set out what he hopes we can achieve in terms of having a direct impact on individuals’ personal pay and compensation in the financial sector?

[Mr Osborne]

We expect the bonus pool to be lower than last year and very much lower than four or five years ago, when it was probably four times what it will be now, so bonuses have come down. We have a very transparent regime, which did not exist when we took office, with the pay of the eight highest-paid non-board executive members now having to be disclosed. Above all, however, people should pay attention to what the Financial Policy Committee has just advised, which is that banks should retain earnings to build up capital at a time such as this, not pay them out in bonuses. The Governor of the Bank of England, the Financial Services Authority and I have all made it clear that banks would do well to pay attention to that advice over the next couple of months.

[Jason McCartney (Colne Valley) (Con)]

Does the Chancellor agree that the high street banks have a key role to play in regenerating our towns and rural communities, by continuing to have a presence on the high street?

[Mr Osborne]

Yes, I do, and, to be fair, the banks themselves acknowledge that they withdrew from the high street too much. We want to get back to more of that face-to-face banking that served our country well for many decades. As I have said, the banks acknowledge that, and they have come together to create the business growth fund, which will invest in new start-up businesses. They have also issued a new code of conduct to enable them to get back to the high street banking that we remember from the past.

[Mr David Hamilton (Midlothian) (Lab)]

On the subject of the personal responsibility of directors, I should like to draw the House’s attention to Fannie Mae in America, some of whose directors are being charged and, if found guilty, could face prison. Is there anything in the Chancellor’s proposals that could put directors in this country in the same boat, in that they could be sent to prison if they were found guilty of doing something wrong?

[Mr Osborne]

There is nothing specifically about that in the Vickers report, but the Financial Services Authority has done an investigation into what happened at the Royal Bank of Scotland, and has made specific recommendations on the law regarding bank directors. It turns out that the laws were inadequate to help the authorities to investigate specific individuals at RBS and HBOS, so we are going to look at the recommendation, which came to us only recently, and see whether we can implement it, to ensure that individuals as well as institutions can be held responsible for their actions.

[David Mowat (Warrington South) (Con)]

There is no agreed definition of which bank functions may be included in the ring fence, and which may not. There is therefore a risk of fudge as the proposals are rolled out over the next few years. Will the Chancellor agree to ensure that that is defined in primary and secondary legislation, and not simply left to the regulators to argue over with the banks?

[Mr Osborne]

There will be clear definitions in the legislation. To be fair, what John Vickers recommended, and what we are proposing, is relatively straightforward. There are certain things that will have to be in the ring fence, such as the deposits of individuals and the overdrafts of small businesses. There are also certain things that cannot be in it, such as classic investment banking activities. There will then be a middle ground, which will essentially involve corporate lending, and that can either be in the ring fence or not. John Vickers thought that it would be wrong to prescribe that, because different banks have different models, so he has left the location of the ring fence flexible. However, the height of the fence will be high, and we are going to introduce it into legislation.

[Nicky Morgan (Loughborough) (Con)]

I welcome the emphasis in the Chancellor’s statement on more choice and competition, which will benefit businesses in my constituency and elsewhere. They often tell me that this is not just about bank lending, and that it is also about poor customer service and unexpected charges being imposed. Will my right hon. Friend confirm that this is just the start of a process, and that there will be continuous monitoring of the way in which banks treat their customers from now on?

[Mr Osborne]

There will be, and part of the new regime will involve a specific authority looking at competition and customer service. In that way, we shall avoid having one institution—namely, the FSA—trying to do both functions of a regulator, which are to look at the point-of-sale service that someone gets to ensure that they are being sold a product correctly, as well as ensuring that the bank itself is being properly managed and is not about to collapse. Separating those functions will be an essential part of our reforms.

[Charlie Elphicke (Dover) (Con)]

May I urge the Chancellor to consider a whole in-country depositor preference system, such as that in the United States, rather than the insurance-based system recommended in the Vickers review? This would, over time, discourage reliance on the wholesale short-term funding markets. It would also reduce the risk to the taxpayer of banks that are too big to fail.

[Mr Osborne]

I am happy to consider my hon. Friend’s views, but we are equally clear that the depositor preference proposals in the Vickers report are the ones that we support in principle; their implementation in practice will be addressed in the White Paper.

[Brandon Lewis (Great Yarmouth) (Con)]

Does my right hon. Friend agree that the ring-fencing outlined in the proposals will not only protect the taxpayer from casino banking but have the longer-term benefit of encouraging more competition by creating a fairer and more even playing field for small banks, which would be to the benefit of all?

[Mr Osborne]

We want to see more competition, which is why we proceeded with the sale of Northern Rock and why we are pleased to see Lloyds seeking to sell its branches to the Co-operative bank. It is also why we want to see other challenger banks out there. We are also considering a de minimis exemption for some of the smallest banks; we will report back on that when we publish the White Paper.

[Tony Baldry (Banbury) (Con)]

Small businesses in Banbury, Bicester and elsewhere will welcome the enhancement of competition in high-street banking and the fact that it will be easier for them to move accounts. Will my right hon. Friend explain, however, why it is going to take until September 2013 for these changes to be implemented? If the banks had the will, surely they could implement those changes much more speedily.

[Mr Osborne]

I believe this is quite a complex operation. We have looked at this, as has John Vickers—and he thought 2013 was the appropriate timetable. We are trying to create a seamless service through which people can indicate that they want to change their current account; that happens within seven days without any charges and all the direct debits and the like will follow people to the new bank. It is, as I say, quite complex to achieve and we want the service to be seamless for the customers, so I would rather spend a few months to get it right rather than try to rush its introduction.

[Glyn Davies (Montgomeryshire) (Con)]

Notwithstanding the benefit to individual taxpayers, the banking sector is unlikely to welcome the separation of its retail banking from its investment banking activities, so will my right hon. Friend assure us that he will stand his ground and ensure that our banks cannot look to the taxpayer to save them from the consequence of high-risk borrowing in future?

[Mr Osborne]

I can absolutely assure my hon. Friend that we will stand our ground. While I have been on my feet, I have received the news that John Vickers has welcomed our response. I absolutely commit to my hon. Friend, to John Vickers and to others that we will implement the proposals in the report to make sure that our banking system is safer, that taxpayers are better protected, that customers get a better service and that we do not repeat what went so badly wrong under the previous Government’s regulatory regime.

[Andrew Stephenson (Pendle) (Con)]

Given the dominance of the four largest banks in the UK, does my right hon. Friend agree that, in addition to new banks, credit unions such as the Pendle Community Credit Union or building societies such as the Marsden building society headquartered in Nelson in my constituency have a key role in improving competition on the high street?

[Mr Osborne]

I think credit unions and small building societies have a key role to play, whether it be in Pendle or other parts of the country. What we want is the greatest possible choice for customers. This report is an important step towards providing that competition and dealing with the large banks that have such a large proportion of the market. The competition part of the report is important and sits alongside the ring-fencing part—all designed to make our banking system safer and to serve customers better.

[Mr Philip Hollobone (Kettering) (Con)]

My Kettering constituents would like to see more competition between the high-street banks. At the moment the big four banks have about 77% of all personal current accounts and 85% of all small business accounts. Would the Chancellor like to see those market shares fall; and, if so, by how much?

[Mr Osborne]

I would like to see them fall, which is why we are keen to get challenger banks out there. It is why we proceeded, as I have said, with the sale of Northern Rock, and why we want the Lloyds divestment to take place. As for what the exact market share of those banks should be, I do not believe, perhaps unlike my hon. Friend, in the command economy in which the Chancellor of the Exchequer determines every share of the market for every business. I will not prescribe exactly how much market share a bank should have; there has to be an element of the free market .

[Mr Tobias Ellwood (Bournemouth East) (Con)]

I welcome these recommendations for regulation. It might come as a surprise or, indeed, a shock to Members to learn that I was refused my first mortgage application. That happened back in the days when mortgages to first-time buyers were capped at two thirds of the value of the property. Under the previous Government, however, first-time buyers could get 100% or 125% mortgages. Will the Chancellor confirm that those days of irresponsible lending are behind us?

[Mr Osborne]

We have not much mentioned today the report from the Financial Services Authority, which is about ensuring that people can afford the mortgages they seek. The changes are important, as they get the balance right between not pricing first-time buyers out of the market even more than they are now and ensuring at the same time that people are informed and can get a mortgage that they are able to afford.

The Economy

George Osborne Excerpts

Tuesday 6th December 2011 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

I beg to move,

That this House has considered the matter of the economy.

I am pleased that the House has been given this early opportunity to debate last week’s autumn statement and to discuss the economic challenges that our country and continent face. Being conscious that many people have asked to speak, I shall try to tailor my remarks appropriately.

Seven days ago I set out the Office for Budget Responsibility’s latest independent forecasts and the measures that we would take to reinforce our country’s fiscal credibility and keep our interest rates low, increase the supply of money and credit to ensure that those rates were passed on to businesses and home buyers, and lay the foundations for a more resilient, more competitive and more balanced economy.

That was one week ago, and in the seven days since events have provided further confirmation of why these measures are necessary: countries such as Ireland and Italy have announced further budget measures from VAT rises to pension age increases, reminding us of the value of getting ahead of the markets not following them, and the credit ratings of 15 eurozone countries have been put on negative watch, while here in Britain interest rates have stayed low despite the deterioration of the fiscal forecast, which has meant that last week we continued to borrow at below 2.5%. [Interruption.] I thought that the shadow Chancellor was about to intervene, but we shall have to wait.

Last week I answered questions from Members who wished to ask me about the detailed policy measures in the autumn statement, and I am happy to answer such questions again today, but I thought this might also be a good opportunity to address three broader issues: first, the crisis in the eurozone; secondly, how we believe that the UK banking system should respond to the ongoing crisis and the advice that we received on Thursday from the Bank of England’s Financial Policy Committee; and thirdly, given the eurozone debt crisis and the banking issues that we face, why the credibility of our fiscal policy must be constantly reinforced. Let me take each in turn.

On the eurozone, our overriding responsibility is to protect and advance the interests of the United Kingdom. Those interests are best served by the countries of the euro finding a path out of the crisis, while also ensuring that our economic interests in the single market are protected. There is no doubt that the crisis is having a chilling effect on the British economy and destroying jobs here. In the words of the Governor of the Bank of England last Thursday, it is, in his judgment, the primary cause of the downward revision of the British growth forecasts, as it was one of the primary causes of the OBR’s downward revision of its growth forecast. Of course, the OBR warned us that it had assumed an orderly resolution of the crisis over the next two years. This impact sadly comes as no surprise, when 40% of our exports are to the euro area and £1 in every £7 that Britain exports goes to Ireland, Portugal, Greece, Spain or Italy. Although we must plan for all contingencies—and we are—we should not lose sight of the truth that Britain has a fundamental national interest in the eurozone sorting out its problems, even though we are not in the euro and will not be while this Government are in office.

Action is required by the eurozone on three counts. First, as Germany has argued, and as I made clear in July, there needs to be much tighter fiscal discipline within member states and much tighter fiscal co-ordination within the euro. This is the remorseless logic of monetary union. Secondly, those reforms to economic governance should provide the confidence in the future discipline that the European Central Bank requires to take whatever action is necessary to protect financial confidence. We have been calling consistently for a big firewall, properly capitalised banks and lasting structural reform, and we now need that delivered. Thirdly, all this will succeed only if there is an improvement in the competitiveness of the whole of Europe, and also, crucially, in the competitiveness of the peripheral eurozone countries vis-à-vis countries such as Germany. That will involve difficult change, but it is encouraging to see some European Governments, such as Ireland and Italy, now starting to take the necessary steps on issues such as pensions and labour market reform.

Britain has a huge interest in all that happening and has put forward specific proposals to ensure that our entire continent is not priced out of the world economy. As an open, trading nation, we benefit from the single market. We would like it strengthened and deepened, but we will also insist that our interests in the single market are protected from any future developments, including our interest in financial services. That is the approach that Britain will take to the European Council later this week. We need better regulated financial services to protect our economy when things go wrong, which is one reason why we commissioned John Vickers’s report. We want a single market in Europe so that our banks, our insurance companies and our pension companies can sell their products abroad, but 70% of Europe’s financial services are based in London. We will ensure as we approach this European Council that the interests of the European Union 27 are protected and that Britain’s national interests are protected too. That is our obligation to the British people.

Let me turn from the eurozone crisis to what all this means for our banks. British banks are well capitalised and liquid. Not one of them was identified as a cause for concern in the recent exercise by the European Banking Authority. I remind people that retail deposits in British banks or the subsidiaries of foreign banks here in Britain are protected by our country’s Financial Services Compensation Scheme, which ensures that £85,000 per person per bank is protected. Individuals with deposits in a UK branch of a European bank are protected by their national schemes.

The eurozone crisis is tightening credit conditions across the world and across Europe. The Bank of England announced today the introduction of a new contingency liquidity facility—the extended collateral term repo—which it will make available if needed. In addition, to protect small businesses from the higher costs of credit, we are pursuing the credit easing policy that I set out last week. I have set a ceiling of £40 billion on those operations, and have committed to £20 billion of guarantees through the national loan guarantee scheme, and £1 billion through the business finance partnership. Although the means are different, the ends we seek are the same.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

Is not the Chancellor’s credit easing scheme an admission that his earlier deal—the Merlin deal—has completely and utterly failed?

[Mr Osborne]

The Merlin deal was for this year, and it was a commitment to increase gross lending to small businesses, which is what the banks have done. Of course, the previous Government, having tried net lending targets, then had gross lending targets with just two banks. The Merlin deal extended that to all the main high street banks. It was a one-year-only deal; the credit easing package that I have set out is, I think, what is required—not least in view of the tightening credit conditions across the continent of Europe and, indeed, across the world at the moment. The Government are using the credibility they have in the financial markets to borrow at low interest rates and passing those rates on to small businesses. As I said at Treasury questions, we are seeking state aid clearance and hope to have the national loan guarantee scheme operational by early next year.

At a time like this, we also have to be alert to risks across the financial system. One of the weaknesses of the tripartite regime is that no one felt they had a particular responsibility for monitoring the overall health of the financial system or felt they had the tools to do anything about it. We have created a Financial Policy Committee to do just that. We have established it on an interim basis to get it operating as soon as possible, instead of waiting for next year’s primary legislation. The FPC reported last week. Let me put it on the record that it is absolutely the job of the Governor of the Bank of England to be frank with the country about the challenges we face.

As the Financial Policy Committee warned very starkly:

“Sovereign and banking risks emanating from the euro area remain the most significant and immediate threat to UK financial stability.”

The committee encouraged banks to improve the resilience of their balance sheets in a way that does not exacerbate market fragility or reduce lending to the real economy. Given what it calls

“the current exceptionally threatening environment, the Committee recommends that, if bank earnings were insufficient to build capital levels further, banks should limit distributions and give serious consideration to raising external capital in the coming months.”

That is the point put to me by the Chairman of the Treasury Select Committee just an hour ago at Treasury questions. Limiting distribution includes restricting bonuses. Excessive pay in the financial sector is a concern at any time because of the perverse incentives it creates.

When it comes to linking pay to performance and being transparent, we are implementing the most comprehensive regime of any financial centre anywhere in the world. Today the Treasury launches a consultation that will extend transparency arrangements at large banks by requiring the eight highest-paid non-board executives to disclose their pay and bonus arrangements. This will cover an estimated 15 banks, including the largest UK banks and the UK banking operations of large foreign banks.

[Gordon Banks (Ochil and South Perthshire) (Lab)]

rose—

[Mr Osborne]

I will certainly give way; I hope the hon. Gentleman will welcome this change.

[Gordon Banks]

Will the Chancellor tell us how transparency will actually reduce the income of those to whom he refers?

[Mr Osborne]

Transparency should make it clear to the owners of these banks—the shareholders—what the pay and bonus levels and the remuneration levels are; it will then be for them to take action. I am aware of our responsibilities as a shareholder in some banks. As I mentioned at Treasury questions, an encouraging statement was made this morning by the Association of British Insurers, which represents the shareholders who own many of these banks, saying clearly that it does not accept current levels of pay in the financial sector and that it expects reform. As I said, we had a very clear warning from the Financial Policy Committee to the financial system that it should be limiting its distributions at a time like this.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

rose—

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

rose—

[Mr Osborne]

I give way first to the shadow Chancellor and then to the member of the Treasury Committee.

[Ed Balls]

Labour Members welcome the Chancellor’s conversion to transparency in financial affairs. He will know that, following the Walker review, a piece of legislation is on the statute book that requires the publication of the salaries of all employees paid more than £1 million. Given that the legislation is on the statute book but that this Government have chosen not to enact it, will he now enact it and therefore bring about full transparency for anyone in the City earning more than £1 million?

[Mr Osborne]

I think that, in the interests of transparency, the right hon. Gentleman should have told the House that he was the City Minister who, for several years, had the opportunity to introduce these changes. What about the opportunity that he had to do precisely the things that we are doing today? When it comes to transparency in pay, we have consulted David Walker and others, and we think that this is exactly the right approach. We will introduce the changes unilaterally in the United Kingdom, although it is a significant financial centre, and I think that they will set an example that the rest of the world will follow.

[Several hon. Members]

rose—

[Mr Osborne]

I will give way if one single Opposition Member concedes that Labour was in government for 13 years and presided over a banking system that collapsed.

[Mr David Hanson (Delyn) (Lab)]

rose—

[Mr Osborne]

And the right hon. Member for Delyn (Mr Hanson) was a Minister in that Government.

[Mr Hanson]

Will the Chancellor give us some idea of how many bank employees’ salaries of over £1 million will not be disclosed because of his failure to implement legislation enacted by the Labour Government?

[Mr Osborne]

Anyone listening to Opposition Members would believe that under the mythical Labour Government that apparently existed, all that information was disclosed. But was it disclosed? There was no disclosure whatsoever. I suggest to the shadow Chancellor—the former City Minister—and others that they back the unilateral measures that we are taking, which will make the financial centre here in London the most transparent in the world.

The advice of the Financial Policy Committee is clear. Banks should consider limiting bonuses this year and using profits to strengthen their balance sheets in the face of the eurozone debt storm. Let me make this plain: stronger banks, not larger bonuses, should be the priority this winter, and money that is earned should be used to build balance sheets and not to enhance payouts. That is the advice from the Bank of England, and that is the advice that the Government now expect to be followed.

[Helen Goodman (Bishop Auckland) (Lab)]

Will the Chancellor tell us what he, as a major shareholder in some of the largest banks in the country, will do about the bank bonuses on which he can have a direct impact?

[Mr Osborne]

We restricted cash payouts in the Royal Bank of Scotland in the last bonus round to less than £2,000. That is what we did when we had the opportunity. The hon. Lady was a Minister in the last Government. Perhaps in 30 years’ time we will discover that she was sending letters to the Treasury asking “What are we doing about transparency in pay in the City? Why do we not introduce a permanent bank levy?”, and saying “I am really worried about the regulation of Britain’s financial services.” We will just have to wait for 30 years to find out whether, when she held Executive office, she once raised the concerns that she now raises in opposition.

Both the slow repair of our banking system and the crisis in the eurozone were identified by the Office for Budget Responsibility as causes of weaker economic activity. They are also a reminder of why it is so essential for Britain to maintain its fiscal credibility as we deal with a budget deficit that is higher than almost any other in the world. A month ago I was told by the OBR, as part of the formal preparation for the autumn forecast, that weaker economic activity would give Britain a less than 50% chance of meeting the fiscal mandate and the debt target that I had set out unless we took further action.

I believe that at that moment the OBR proved not just its independence, but its worth. It forced the Government to confront the issues at hand, and to use the weeks available to us before the statement to come up with a credible response. We know that under the previous forecast regime, those weeks would have been used to fiddle the forecasts, to tweak assumptions about the output gap, and to pencil in over-optimistic numbers on tax receipts: in other words, to do all the things that my predecessor, in his memoirs, says were done during his dealings with No. 10 Downing street. It would have been a case of choosing economic figures to fit the Government’s policies, rather than choosing Government policies to respond to the economic figures.

I believe that the existence of the Office for Budget Responsibility, which was consistently opposed by the shadow Chancellor in every position that he held in the last Government, has given the whole of Parliament confidence in the integrity of the forecast.

[Stephen Timms (East Ham) (Lab)]

Did the Chancellor use those weeks to rethink his plan, because the OBR was telling him that the assumptions on which his plan was based were mistaken? We were told that employment would rise every year, but that has not happened, and it is not going to happen. We were told that the budget would be balanced in this Parliament, and that is not going to happen either. Surely the whole plan should have been rethought?

[Mr Osborne]

The OBR was also very clear in its analysis of why there had been weaker growth. Over the past seven days the shadow Chancellor and others have paraded around the TV studios citing the OBR’s numbers while refusing to accept the OBR’s analysis of what lies behind those numbers. The OBR is very clear; it gives three reasons for the deterioration in the economic forecasts. First, it attributes the primary reason for the weakness since its last forecast to the external inflation shock of the high oil price. Secondly, it attributes the current weakness in the economic position to the lack of confidence caused by the eurozone crisis. Thirdly, it says its assessment both of the boom before 2007 and the subsequent bust and of the impact of the repair of the financial system is greater than it had previously estimated. That is its independent analysis. The Opposition cannot agree that we should now have an independent body and accept the figures it produces, only then to reject the analysis on which those figures were arrived at.

[Sheila Gilmore (Edinburgh East) (Lab)]

The OBR does not say that the cause of reduced growth is that the recession was found to be deeper. It does say that the recession was found to be deeper but, crucially, it also says the recovery during 2009 was stronger than previously forecast and that the further decline in growth happened only in the latter part of 2010.

[Mr Osborne]

The OBR is very clear that the cause of its downgrade of the trend growth rate is the—[Interruption.] Is it any wonder that the economic credibility of the Labour party is falling week after week? The shadow Chancellor has backed it into the incredible position where only Communist parties in western Europe agree with it. The reason he has done that has nothing to do with the future political prospects of the Labour party. Rather, it has everything to do with his own personal record. He cannot be the Labour politician who admits that his party made mistakes in the run-up to the 2007 crisis, because he was the Labour Government’s chief economic adviser. That is the position the Opposition find themselves in, and Labour Members know it. They are all going around telling anyone who will listen that that is their problem. Until they face up to the reality of the economic situation confronting this country—a reality they helped to create—they will not be listened to by anyone in this country.

The choice we faced when we saw the OBR’s first-round forecast was not whether to fiddle the figures; instead, it was whether we should take action to respond to the changed economic circumstances. We could have done nothing, but given international events I thought that was not a risk worth taking. It may have seemed to be the easier option, but not when we considered the possible consequences for the credibility of our country in the credit markets and the risk of a rise in interest rates of the kind that so many of our neighbours have experienced. The other option was to take further action to ensure Britain was on course to meet the fiscal commitments we have made, and that was what we chose to do, with a package of measures designed to tighten policy in the medium term while using short-term savings in current spending to fund one-off capital investment in our country’s infrastructure.

As I explained last week, we have put the total managed expenditure totals for 2015-16 and 2016-17 on a declining path. We have made changes to the tax credit entitlements. We set pay increases in the public sector for the two years after the freeze at an average of 1%. We have recalibrated overseas aid spending so we hit 0.7% of national income in 2013. We have also increased the state pension age to 67, starting from 2026.

That money saved in the short term has been used to fund the youth contract, new nursery provision to two-year-olds, new free schools and school places, and a major programme of road and rail building, and to help with the costs of living by extending the small business rate relief, keeping rail fare increases low, and freezing petrol duty next month, but the permanent savings—

[Helen Goodman]

Will the Chancellor give way?

[Angela Smith]

Will the Chancellor give way?

[Mr Osborne]

I have given way to both hon. Members, and I know that many people want to speak in this debate.

The permanent savings we have made reaffirm Britain’s commitment to dealing with its debts. Who backs this commitment? The international organisations do. The OECD says that

“the ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields”.

The head of the IMF, whom the shadow Chancellor was talking about, said when she came to the UK that

“strong fiscal consolidation is essential to restore debt sustainability”,

and that the Government’s “policy stance remains appropriate”.

During Treasury questions, the shadow Chancellor was, I think, quoting The New York Times. What he did not quote was the Financial Times, where he actually worked. It said that

“the Government’s plans for fiscal consolidation have allowed Britain to regain the confidence of investors at a time when all too many countries have forfeited it”.

That is the kind of editorial he would have written when he was a leader writer there. The Economist says that the credibility the Government have achieved is “priceless”. The CBI has supported what we have done. The Institute of Directors said that we did the right thing. The Federation of Small Businesses, which the shadow Chancellor often quotes, and the British Chambers of Commerce have both welcomed the measures we announced for business.

[Lisa Nandy (Wigan) (Lab)]

We have heard a lot about what the Chancellor thinks about the Labour party. How many of the 100,000 additional children now growing up in poverty under his watch also support his plans, and what is he planning to do about that?

[Mr Osborne]

On the same measure that the hon. Lady uses, child poverty rose by 200,000 in the last Parliament. [Interruption.] She says, “We took those children out.” Child poverty in the last Parliament rose by 200,000 on the exact same measure that she is using. What we are doing is investing in nursery education provision for the poorest children, which never existed before, in a pupil premium, in free schools and in new school places—that is exactly what we are doing to tackle the causes of poverty as well as the symptoms.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

On the question of whom the nation blames, why does the Chancellor think that a recent ICM poll showed that people thought that the debt inherited from the Labour Government was the biggest single cause of the current slow-down?

[Mr Osborne]

The reason they think that is because it is true. This, again, is the absolutely hopeless position that Labour under the shadow Chancellor have put themselves in, but frankly, that is for them to work out. If I may declare an interest, we very much want him to stay in his post for the next three and a half years: he is the best recruiting sergeant we have.

The Governor of the Bank of England—appointed by the right hon. Gentleman, no doubt, when he was the chief economic adviser—said this last week:

“This is exactly the right macro-economic response to the position in which we find ourselves”.

And who is left opposing this credible action, this macro-economic response? The Labour party, which is now advancing this new theory that Britain’s low interest rates in this debt crisis are a sign of policy failure, not policy success. That was the argument we heard last week. The shadow Chancellor talked in his response to my statement of

“the illiterate fantasy that low long-term interest rates in Britain are a sign of enhanced credibility”—[Official Report, 29 November 2011; Vol. 536, c. 812.]

I pointed out that, on that basis, Italy’s rates of 7% were a policy triumph and Greece’s 30% rates were an economic miracle.

In the intervening week, I looked for evidence to support the argument that the shadow Chancellor has been advancing. I have not found it, but I did come across the very interesting “Ken Dixon lecture” to the department of economics at the university of York. It was given in 2004 by the chief economic adviser to the Treasury—Mr Edward Balls. He told a no doubt gripped audience of students about the importance of lower debt, of running surpluses in good times, of keeping deficits under control. He then cited the market interest rates that Britain was paying on its debt, versus neighbouring countries’, as the fruits of economic success. He boasted that the UK was borrowing money more cheaply than Germany and he hailed low interest rates as

“the simplest measure of monetary and fiscal policy credibility”.

Does he still believe that?

[Ed Balls]

Of course, but could the Chancellor explain why in a liquidity trap things would not operate in that way?

[Mr Osborne]

In the situation we face at the moment, where countries around the world, particularly those in the western world, face a challenge from the markets about their credibility, the countries with credibility have been able to keep their interest rates down and those without credibility have seen their interest rates rise. The right hon. Gentleman said that low “long-term interest rates” are

“the simplest measure of monetary and fiscal policy credibility”.

I want to know whether he still believes that to be the case—yes or no?

[Ed Balls]

This is the second time that the Chancellor has not understood the question today and has therefore not been able to answer it. Of course it is the case that in a normal operating economy that is how things are, but in a liquidity trap it is different, and that is where we are. That is why when American debt was downgraded in August, America’s long-term interest rates fell; they did not rise. Let me quote to him what the chief economist at Capital Economics said this August:

“Signs that the UK’s economic recovery has ground to a standstill have led markets to revise down their interest rate expectations”.

The National Institute of Economic and Social Research has said:

“The reason people are marking down gilt yields is because”—

they think that the UK—

“economy is weak”.

In a liquidity trap, long-term interest rates are a sign of the growth potential of the economy. It really worries me that the Chancellor does not understand the economics of this.

[Mr Osborne]

The right hon. Gentleman quoted the chief economist or head of the NIESR, but did not happen to declare to the House the interest that this person used to work for the shadow Chancellor. I do not agree with his analysis.

[Ed Balls]

Explain the economics.

[Mr Osborne]

I will explain the economics very simply: if people do not think you can pay your debts in the world, they charge you a lot more interest on those debts.

I have actually bothered to read the right hon. Gentleman’s article in The Times today, in which he says that Labour would take

“tough decisions on tax and public spending.”

Will he get up and give us, either now in an intervention or in his speech, just half a dozen examples of the tough decisions he is prepared to take?

This is the shadow Chancellor who has opposed the increase in the VAT that the previous Government were planning, who opposed the increase in North sea oil taxation and who opposed the increase in capital gains tax—Labour Members do not know that, but he did actually oppose that. He opposes capping housing benefit, which was actually in the Labour manifesto; the reform of employment and support allowance; the changes to tax credits; and reforming legal aid. The Labour party has campaigned against every single change to the Ministry of Defence budget. There is not one single budget in the entirety of Whitehall that the Labour party has proposed cutting.

That is from the shadow Chancellor who says that he would take “tough decisions” on tax and spending. His position is, “We would not take them now. We would take them in the medium term.” That is his argument, if I understand it correctly. In the past seven days, he has opposed our measures to restrain public sector pay after the pay freeze comes to an end; opposed the path for public spending that we have set out for 2015-16 and 2016-17, which is in the medium term; opposed the raising of the state pension age, which is what is being done in Australia, Germany and America—the country he keeps citing. No wonder his economic policy has absolutely no credibility whatsoever. And, of course, he opposes the Government’s active enterprise policy—lower and simpler corporate tax rates; the new enterprise zones; the housing market changes that will revive the right to buy; planning reforms; and the changes to employment law.

Let me discuss just one measure that was announced seven days ago: the seed enterprise investment scheme. A group of entrepreneurs, including those who used to support the Labour party, wrote to the paper and said that the scheme will

“help the next generation of British innovations to become the next generation of great British businesses.”

This country faces some of the most serious challenges in its modern history. We are picking up the pieces of the biggest boom which became the biggest bust, and now we face a sovereign debt crisis in the eurozone. Unlike the shadow Chancellor, we are not the quack doctor promising a miracle cure. The action we have taken will help to take Britain through this storm and lay the foundations of a far more sustainable and balanced prosperity in the future, and I commend the autumn statement to the House.

--- Later in debate ---

[Ed Balls]

Abandon the Darling plan? It is the Chancellor who is borrowing £37 billion more than under the Darling plan. That is because of what is happening to jobs, growth and the living standards of families in our country, with 9,500 families in Tamworth hit by the cut in child tax credit announced last week. I will not read the next figure out; I will spare the hon. Gentleman’s blushes.

As we heard in Treasury questions earlier, the IMF was right: growth is necessary for fiscal credibility. The IMF urged the Chancellor to change course if growth undershot current expectations. The Chancellor did not even know the figures at Treasury questions this afternoon, but in October the IMF advised him to change course and to delay the planned consolidation if growth undershot. At that time the IMF was forecasting 1.1% growth this year; it has come in at 0.9%. For next year it was forecasting 1.6% growth; it is now forecast to be 0.7%. If that is not growth clearly undershooting expectations, I do not know what is.

In May the OECD called for the Government to slow the pace of consolidation if the economy undershot. The Chancellor likes to quote the OECD in support of his policies, so let me tell him what its chief economist said only last week. He told the Chancellor to

“contemplate easing up on spending cuts”

if events turned out to be

“a lot bleaker than even the bleak outlook that we have.”

That is not exactly a ringing endorsement of the Chancellor’s plans.

[Mr George Osborne]

The right hon. Gentleman has just quoted the OECD’s chief economist. The same person said on 28 November that “plan A is working”. The OECD also said:

“The ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields, leaving room for automatic stabilisers to work fully”.

The person the shadow Chancellor is quoting in the House of Commons in defence of his policy has said that “plan A is working”. Will he now correct the record?

[Ed Balls]

Only this Chancellor, out of his depth and out of touch, could come to this House and claim that the forecasts he set out last week showed that plan A was working. How can it be working when we have record levels of unemployment? How can it be working when growth has flatlined? How can it be working when he is borrowing £158 billion more than he planned a year ago?

I have seen the transcript of the Sky interview that the Chancellor is quoting, and I understand the diplomacy of the OECD. However, the chief economist said that the Chancellor should

“contemplate easing up on spending cuts”

if events turned out to be

“a lot bleaker than even the bleak outlook that we have.”

How much bleaker do they have to get? How much bleaker for families? How much bleaker for jobs and young people? How much bleaker for borrowing?

We were told a year ago that the Chancellor would not change course because his plan was working. Now, even though it is clearly not working, the Government still will not change course. The Prime Minister says that we cannot borrow our way out of a crisis, but that is exactly what the Chancellor has been forced to do. He is borrowing billions more to pay for the high unemployment, stagnant growth and rising benefits bill that his plan has delivered. The Chancellor made the wrong choice a year ago. He is now making a second catastrophic choice in sticking to a failing plan, when what Britain needs is a plan that will work.

Any British Government would be borrowing at the moment. There is no doubt about that.

Autumn Statement

George Osborne Excerpts

Tuesday 29th November 2011 Commons Chamber

[The Chancellor of the Exchequer (Mr George Osborne)]

Let me start by placing squarely before the House of Commons and the British public the economic situation facing our country. Much of Europe now appears to be heading into a recession caused by a chronic lack of confidence in the ability of countries to deal with their debt. We will do whatever it takes to protect Britain from this debt storm while doing all we can—[Interruption.]—all we can to build the foundations of future growth.

Today we set out how we will do that by demonstrating that the country has the will to live within its means and keep interest rates low; by acting to stimulate the supply of money and credit to ensure that those low interest rates are passed on to families and businesses; by matching our determination on the deficit with an active enterprise policy for business and lasting investment in our infrastructure and education so that Britain can pay its way in the future; and at every opportunity by helping families with the cost of living.

The central forecast that we publish today from the independent Office for Budget Responsibility does not predict a recession here in Britain, but it has unsurprisingly revised down its short-term growth prospects for our country, for Europe and for the world. It expects gross domestic product in Britain to grow this year by 0.9% and by 0.7% next year. It then forecasts 2.1% growth in 2013; 2.7% in 2014; followed by 3% in 2015 and 3% again in 2016.

The OBR is clear that this central forecast assumes that

“the euro area finds a way through the current crisis and that policymakers eventually find a solution that delivers sovereign debt sustainability”.

If they do not, the OBR warns that there could be a “much worse outcome” for Britain. I believe that it is right. We hope that this can be averted, but if the rest of Europe heads into recession, it may prove hard to avoid one here in the UK.

We are now undertaking extensive contingency planning to deal with all potential outcomes of the euro crisis. Like the Bank of England and the OECD yesterday, the OBR cites the chilling effect of the current instability as one of the central reasons for the reduction in its growth forecast. I want to thank Robert Chote and his fellow committee members, Stephen Nickell and Graham Parker, and their team for the rigorous work that they have done. Their forecast today demonstrates beyond any doubt their independence, but—[Interruption.] This is an important point for the House. If we accept their numbers, we must also pay heed to their analysis. In addition to the eurozone crisis, the OBR gives two further reasons for the weaker forecasts. The first is what it calls the “external inflation shock”—the result, in its words, of

“unexpected rises in energy prices and global agricultural commodity prices”.

The OBR’s analysis—independent—is that this explains the slow-down in growth in Britain over the past 18 months. Secondly, the independent OBR—[Interruption.]

[Mr Speaker]

Order. The statement by the Chancellor must be heard, and he should not have to fight to be heard.

[Mr Osborne]

Secondly, the OBR today has shown new evidence that an even bigger component of the growth that preceded the financial crisis was an unsustainable boom, and that the bust was deeper and had an even greater impact on our economy than previously thought. The result of that analysis is that the OBR has significantly reduced its assumptions about spare capacity in our economy and the trend rate of growth. That increases the OBR’s estimate of the proportion of the deficit that is structural—in other words, the part of the deficit that does not disappear even when the economy recovers. Our debt challenge is therefore even greater than we thought, because the boom was even bigger and the bust even deeper, and the effects will last even longer. Britain has had the highest structural budget deficit of any major economy in the world and the highest deficit in the entire history of our country outside war—and the last Government left it to this Government to sort that mess out.

The OBR’s analysis feeds directly through to borrowing numbers that are falling, but not at the rate that had been forecast. In 2009-10, the last Government were borrowing £156 billion a year. During the first year of this Government, that fell to £137 billion. This year the OBR expects it to fall again, to £127 billion, then to £120 billion next year, followed by £100 billion in 2013-14, £79 billion in 2014-15, then £53 billion in 2015-16 and £24 billion a year by 2016-17. However, I can report that because of the lower market interest rates that we have secured for Britain, debt interest payments over the Parliament are forecast to be £22 billion less than predicted.

The House might also like to know, given the economic events described by the Office for Budget Responsibility, what would have happened to borrowing without the action that this Government have taken. The Treasury today estimates that borrowing by 2014-15 would have been running at well over—[Interruption.]

[Mr Speaker]

Order. I am sorry, I know that the Chancellor is proceeding, but his statement must be heard. There are strong passions on this subject. There will be plenty of time for people to come in on the back of the statement, but the statement must be heard with a degree of courtesy.

[Mr Osborne]

The Treasury today estimates that borrowing by 2014-15 would have been running at well over £100 billion a year more and that Britain would have borrowed an additional £100 billion in total over the period. If we had pursued that path, we would now be in the centre of the sovereign debt storm.

The crisis we see unfolding in Europe has not undermined the case for the difficult decisions we have taken; it has made that case stronger. We held our deficit-reduction Budget on our terms last year, not on the market’s terms this year, as so many others have been forced to. In that Budget we set out a tough fiscal mandate: that we would eliminate the current structural deficit over the five-year forecast horizon. We supplemented the mandate with a fixed debt target: that we would get national debt as a proportion of national income falling by 2015-16. To be cautious, I set plans to meet both those budget rules one year early. That headroom has now disappeared, but I am clear that our rules must be adhered to, and I am taking action to ensure that they are. As a result, the OBR’s central projection is that we will meet both the fiscal mandate and the debt target.

The current structural deficit is forecast to fall from 4.6% of GDP this year to become a current structural surplus of 0.5% in five years’ time, and the debt-to-GDP ratio, which is forecast to stand at 67% this year, is now set to peak at 78% in 2014-15 and to be falling by the end of the current Parliament. So borrowing is falling, and debt will come down. It is not happening as quickly as we wished, because of the damage done to our economy by the ongoing financial crisis, but we are set to meet our budget rules, and we are going to see Britain through the debt storm.

There is a suggestion from some in the House that if you spend more, you will borrow less. That is something-for-nothing economics, and the House should know the risks that we would be running. Last April, the absence of a credible deficit plan meant that our country’s credit rating was on negative outlook and our market interest rates were higher than Italy’s; 18 months later, we are the only major western country whose credit rating has improved. Italy’s interest rates are now 7.2%, and what are ours? They are less than 2.5%. Yesterday we were even borrowing money more cheaply than Germany. Those who would put all that at risk by deliberately adding to our deficit must explain this.

Just a 1% rise in our market interest rates would add £10 billion to mortgage bills every year: 1% would mean that the average family with a mortgage would have to pay £1,000 more; 1% would increase the cost of business loans by £7 billion; 1% would force taxpayers to find an extra £21 billion in debt interest payments, much of it going to our foreign creditors. In other words, 1% dwarfs any extra Government spending or tax cut funded by borrowing that people propose today—and that is the cost of just a 1% rise. Italy’s rates have gone up by almost 3% in the last year alone. We will not take this risk with the solvency of the British economy and the security of British families.

The current environment requires us to take further action on debt to ensure that Britain continues to live within its means. This is what we propose to do. First, there is no need to adjust the overall totals set out in the spending review. Taken all together, the measures that I will set out today require no extra borrowing and provide no extra savings across the whole spending review period. Secondly, I am announcing significant savings in current spending to make the fiscal position more sustainable in the medium and long term; but in the short term—over the next three years—we will use these savings to fund capital investments in infrastructure, regional growth and education, as well as help for young people to find work. Every pound spent in this way will be paid for by a pound saved permanently. That includes savings from further restraint on public sector pay.

For some work forces the two-year pay freeze will be coming to an end next spring, and for most it will be coming to an end during 2013. In the current circumstances, the country cannot afford the 2% rise assumed by some Government Departments thereafter, so instead we will set public sector pay awards at an average of 1% for each of the two years after the pay freeze ends. Many people are helped by pay progression—the annual increases in salary grades to which many are entitled even when pay is frozen. That is one of the reasons why public sector pay has risen at twice the rate of private sector pay over the last four years. While I accept that a 1% average rise is tough, it is also fair to those who work to pay the taxes that will fund it. I can also announce that we are asking the independent pay review bodies to consider how public sector pay can be made more responsive to local labour markets, and we will ask them to report back by July next year. This is a significant step towards the creation of a more balanced economy in the regions of our country which does not squeeze out the private sector. Mr Speaker—[Interruption.] Departmental budgets will be adjusted in line with the pay rises I have announced, with the exception of the NHS and school budgets, where the money saved will be retained in order to protect those budgets in real terms. This policy will save over £1 billion in current spending by 2014-15.

The deal we offer on public sector pensions is also fair to both taxpayers and public servants. The reforms are based on the independent report of John Hutton, a former Labour Pensions Secretary, and he says:

“It is hard to imagine a better deal”

than this. I would once again ask the unions why they are damaging our economy at a time like this and putting jobs at risk. I say call off the strikes tomorrow, come back to the table, complete the negotiations and let us agree generous pensions that are affordable to the taxpayer.

Let me turn to other areas of public spending, starting with overseas aid. This Government will stick by the commitments they have made to the poorest people in the world by increasing our international development budget—and the whole House should be proud of the help our country is providing to eradicate disease, save lives and educate children—but the spending plans of the Department for International Development meant that the UK was on course to exceed 0.7% of national income in 2013. That I do not think can be justified and so we are adjusting those plans so we do not overshoot the target.

Turning to welfare payments, the annual increase in the basic state pension is protected by the triple lock introduced by this Government. This guarantees a rise either in line with earnings, prices or 2.5%, whichever is greater. It means that the basic state pension will next April rise by £5.30 to £107.45—the largest ever cash rise in the basic state pension and a commitment of fairness to those who have worked hard all their lives. I wanted to make sure that poorer pensioners did not see a smaller rise in their income, so I can confirm today that we will also uprate the pension credit by £5.35 and pay for that with an increase in the threshold for the savings credit.

I also want to protect those who are not able to work because of their disabilities and those who, through no fault of their own, have lost jobs and are trying to find work, so I can confirm that we will uprate working-age benefits in line with September’s consumer prices index inflation number of 5.2%. That will be a significant boost to the incomes of the poorest, especially when inflation is forecast to be considerably less than that by next April. We will also uprate with prices the disability elements of tax credits, and increase the child element of the child tax credit by £135 in line with inflation too. But we will not uprate the other elements of the working tax credit this coming year; and given the size of the uprating this year, we will no longer go ahead with the additional £110 rise in the child element, over and above inflation, that was planned. By April 2012, the child tax credit will have increased by £390 since the coalition came into power. The best way to support low-income working people is to take them out of tax altogether, and our increases in the income tax personal allowance this year and next will do that for over 1 million people.

Let me turn to future public spending. Today, I am setting expenditure totals for the two years following the end of the spending review period: 2015-16 and 2016-17. Total managed expenditure will fall during that period by 0.9% a year in real terms—the same rate as set out for the existing period of the spending review, with a baseline that excludes the additional investments in infrastructure also announced today. These are large savings and we will set out in future how resources will be allocated between different areas of government.

I am also announcing a measure to control spending which is not for today or next year, or even for the next decade, but it directly addresses the long-term challenge Britain and so many other countries face with an ageing population. Our generation has been warned that the costs of providing decent state pensions are going to become more and more unaffordable unless we take further action.

Let us not leave it to our children to take emergency action to rescue the public finances; let us think ahead and take responsible, sensible steps now. Starting in 2026, we will increase the state pension age from 66 to 67, so that we can go on paying a decent pension to people who are living longer. Australia, America and Germany have all taken similar steps. This will not affect anyone within 14 years of receiving their state pension today. By saving a staggering £59 billion, it will mean a long-term future for the basic state pension.

We are showing a world that is sceptical that democratic western Governments can take tough decisions that Britain will pay its way in the world. That is the first thing that the Government can do in the current environment: keep our interest rates low and protect our country from the worst of the debt storm. But we need to make sure that those low interest rates are available to families and to businesses. It is monetary and credit policy that is, in a debt crisis, the principal and most powerful tool for stimulating demand.

Last month, the Bank of England’s Monetary Policy Committee decided to undertake further quantitative easing, and I have authorised an increase in the ceiling on its asset purchases to £275 billion. This will support demand across the economy, but we must do more to help those small businesses who cannot get access to credit at an affordable price.

We have already extended the last Government’s enterprise finance guarantee scheme, and we are today expanding it to include businesses with annual turnovers of up to £44 million and accrediting new lenders, such as Metro Bank. But this scheme is by itself not nearly ambitious enough and never will be within the constraints of state aid rules, so the Government are launching a major programme of credit easing to help small business. We have set a ceiling of £40 billion. At the same time, I have agreed with Mervyn King that we will reduce by £40 billion the asset purchase facility that the previous Government gave the Bank to buy business loans. Only a small proportion of the facility was ever used. I am publishing my exchange of letters with the Governor today.

We are launching our national loan guarantee scheme. It will work on the simple principle that we use the hard-won low interest rates that the Government can borrow at to reduce the interest rates at which small businesses can borrow. We are using the credibility that we have earned in the international markets to help our domestic economy. New loans and overdrafts to businesses with a turnover of less than £50 million will be eligible for the scheme, so that it stays focused on smaller companies. We expect that it will lead to reductions of 1 percentage point in the rate of interest being charged to these companies, so a business facing a 7% interest rate to get a £5 million loan could instead see its rate reduced to 6% and its interest costs fall by up to £50,000.

We have developed with the Bank of England a mechanism to allocate funding to different banks based on how much they increase both net and gross lending to firms. There will be a clear audit trail to ensure the banks comply, for we will use the experience of the European Investment Bank’s loans for SMEs programme here in the UK to ensure that it works. We are getting state aid approval, so that the national loan guarantee scheme will be up and running in the next few months. Initially, £20 billion-worth of these guarantees will be available over the next two years. Alongside it, we are also launching a £1 billion business finance partnership. That is aimed at Britain’s mid-sized companies—a crucial part of our economy, neglected for too long and now identified by the CBI director general and others as a future source of growth. The Government will invest in funds that lend directly to these businesses, in partnership with other investors such as pension funds and insurance companies. It will give these mid-cap companies a new source of investment outside the traditional banks.

If the business finance partnership takes off, I stand ready to increase its size; and we will develop further partnerships ideas and ideas for new bond issuance to help Britain’s small and medium-sized companies. No Government have attempted anything as ambitious as this before. We will not get every detail perfect first time round, but we do not want to make the best the enemy of the good. With the strain on the financial system increasing, the important thing is to get credit flowing to Britain’s small businesses.

The Government can use the low interest rates that we have secured to help young families, too, who want to buy a home but cannot afford the very large deposits that banks are now demanding. We will use mortgage indemnities to help 100,000 such families to buy newly built homes. We will also help construction firms that cannot get bank finance with a £400 million fund that will kick-start projects that already have planning permission; and we are going to reinvigorate the right to buy. This was one of the greatest social policies of all time. It brought home ownership within the reach of millions of aspiring families. It was slowly and stealthily strangled by the last Government, as discounts were cut and cut again. We will bring it back to life. Families in social housing will be able to buy their own homes at a discount of up to 50%. We will use the receipts to build, for every home purchased, a new additional affordable home—so new homes for families who need them; new home ownership for families who aspire to it; and new jobs in the construction industry, so that we get Britain building. That is what our new right to buy will bring.

In the years leading up to the crash, our economy became dangerously over-dependent on the success of a poorly regulated City of London. Meanwhile, employment by businesses in a region such as the west midlands actually fell. By 2007, the previous Government were relying on finance for £1 in every £8 raised in taxation. That left Britain completely exposed when the banks failed, and I can confirm that, next month, we will publish our response to the report that we commissioned from John Vickers to protect taxpayers better.

It is this Government’s policy to ensure that we remain the home of global banks and that London is the world’s pre-eminent financial centre. That is why we will not agree to the introduction of an EU financial transaction tax. It is not a tax on bankers; it is a tax on people’s pensions. Instead, we have introduced a permanent bank levy to make sure that the banks pay their fair share. I have always said that we wished to raise £2.5 billion each and every year from this levy. To ensure we do that, I need to raise the rate of the levy to 0.088%. That will be effective from l January next year. We will also take action to stop some large firms using complex asset-backed pension funding arrangements to claim double the amount of tax relief that was intended. This will save the Exchequer almost £500 million pounds a year.

Financial services will always be a very important industry for the UK, but we have to help other parts of the private sector in other parts of the country to grow. That means uncongested roads and railways for businesses to move products that cannot be reduced to a screen on a City trading floor. It means providing secure power sources at reasonable prices. It means creating new superfast digital networks for companies across our country. These do not exist today. If we look at what countries such as China or Brazil are building, we see why we risk falling behind the rest of the world. So today we are publishing the national infrastructure plan. For the first time, we are identifying over 500 infrastructure projects that we want to see built over the next decade and beyond: roads, railways, airport capacity, power stations, waste facilities and broadband networks. We are mobilising the finance needed to deliver them, too.

The savings that I have announced in the current Budget have enabled me today to fund, pound for pound, £5 billion of additional public spending on infrastructure over the next three years. New spending by Network Rail, guaranteed by the Government, will bring £1 billion more. We are committing a further £5 billion to future projects in the next spending period, so that the planning can start now. This is public money. By exploring guarantees and letting city mayors borrow against future tax receipts, we are looking for new ways to deploy it. But we need to put to work the many billions of pounds that British people save in British pension funds and get those savings invested in British projects. You could call it British savings for British jobs, Mr Speaker.

The Government have negotiated an agreement with two groups of British pension funds to unlock an additional £20 billion of private investment in modern infrastructure. We can today give the go-ahead around the country to 35 new road and rail schemes that support economic development. In the north-west, we will electrify the trans-Pennine express between Manchester and Leeds, build the Manchester airport and Crewe link roads and work with Merseyside to turn the vision of the Atlantic gateway into reality. In Yorkshire and Humber, there will be new stations and new tram capacity, and we will halve the tolls on the Humber bridge. I want to pay tribute to my hon. Friends the Members for Beverley and Holderness (Mr Stuart) and for Brigg and Goole (Andrew Percy), and indeed other local MPs who have campaigned for years to make this happen. Under this Government it has.

In the north-east, we will bring forward investment on the Tyne and Wear Metro. In the midlands, the A45, the A43, the A453, the Kettering bypass, the Ml and M6 will all be improved. In the south-west, the Bristol link road and the A380 bypass will go ahead. For families across the south-west facing the highest water charges in Britain, the Government will cut the household bills of all South West Water customers by £50 a year. In the east of England, we are going to make immediate improvements to the Al4. In the south-east, we will build a new railway link between Oxford, Milton Keynes and Bedford that will create 12,000 new jobs. We are going to start working on a new crossing of the lower Thames, and we will explore all the options for maintaining the UK’s aviation hub status, with the exception of a third runway at Heathrow.

Here in London, we will work with the Mayor on options for other new river crossings, for example at Silvertown. We are going to support the extension of the Northern line to Battersea, which could bring 25,000 jobs to the area. Devolved Administrations in Scotland, Wales and Northern Ireland will get their Barnett share, and we are working with them to improve the links between our nations, such as the M4 in south Wales and the overnight rail service to north of the border.

This all amounts to a huge commitment to overhauling the physical infrastructure of our nation. We will match it by overhauling the digital infrastructure, too. The Government are funding plans to bring superfast broadband to 90% of homes and businesses across the country, and extend mobile phone coverage to 99% of families. This will help to create a living, economically vibrant countryside.

Our great cities are at the heart of our regional economies, and we will help bring world-leading, superfast broadband and wifi connections to 10 of them, including the capitals of all four nations. We will go ahead with the 22 enterprise zones already announced, plus two further zones in Humber and Lancashire confirmed today. I can also confirm that capital allowances of 100% will be available to encourage manufacturing and other industries into the zones in Liverpool, Sheffield, the Tees valley, Humber and the black country. Those allowances will also be available to the north-eastern enterprise zone, and we will consider extending to the port of Blyth to create new private sector jobs there, too. [Interruption.] This Government’s new regional growth fund for England has already allocated £1.4 billion to 169 projects around the country. For every one pound we are putting in, we are attracting six pounds of private sector money alongside it. I am today putting a further £1 billion over this Parliament into the regional growth fund for England, with support as well for the devolved Administrations. If we do not get the private sector to take a greater share of economic activity in the regions, our economy will become more and more unbalanced, as it did over the last 10 years.

Government should not assume that this will happen by itself. We must help businesses to grow and succeed, and we can do that at a national level too, with our commitment, for example, to British science. At a time of difficult choices, we made ours last year when we committed to protect the science budget. Today we are confirming almost half a billion pounds for scientific projects, from supercomputing and satellite technology to a world-beating animal health laboratory, and Government can encourage many more of our small firms to export overseas for the first time. We are doubling to 50,000 the number of SMEs we are helping, and extending support to British mid-caps, who sometimes lack the overseas ambition of their German equivalents.

We will make it easier for UK-based firms to compete for Government procurement contracts and make new applications out of government data. We will provide funds for smaller technology firms in Britain that find it difficult to turn their innovations into commercial success. We have listened to the ideas from business groups about encouraging innovation in larger companies, and we will introduce a new “above the line” research and development tax credit in 2013 that will increase its visibility and generosity.

We will give particular help to our energy-intensive industries. I have not shied away from supporting sensible steps to reduce this country’s dependency on volatile oil prices and reduce our carbon emissions. I am the Chancellor who funded the first ever Green investment bank and introduced the carbon price floor. Our green deal will help people to insulate their home and cut their heating bills. I am worried about the combined impact of the green policies adopted not just in Britain but by the European Union on some of our heavy, energy-intensive industries. We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers. All we will be doing is exporting valuable jobs from this country, so we will help them with the costs of the EU trading scheme and the carbon price floor, increase their climate change levy relief and reduce the impact of the electricity market reforms on those businesses, too.

This amounts to a £250 million package over the Parliament, and it will keep industry and jobs here in Britain. It is a reminder to us all that we should not price British businesses out of the world economy. If we burden them with endless social and environmental goals, however worthy in their own right, not only will we not achieve those goals, but the businesses will fail, jobs will be lost, and our country will be poorer.

Our planning reforms strike the right balance between protecting our countryside while permitting economic development that creates jobs, but we need to go further to remove the lengthy delays and high costs of the current system, with new time limits on applications and new responsibilities for statutory consultees. We will make sure that the gold-plating of EU rules on things such as habitats do not place ridiculous costs on British businesses. Planning laws need reform. So too—[Interruption.]

[Mr Speaker]

Order. The House needs to calm down. One hon. Member has probably shouted enough for one day.

[Mr Osborne]

Planning laws need reform, and so too do employment rules. We know many firms are afraid to hire new staff because of their fear about the costs involved if it does not work out. We are already doubling the period before an employee can bring an unfair dismissal claim and introducing fees for tribunals. Now we will call for evidence on further reforms to make it easier to hire people, including changing the TUPE regulations; reducing delay and uncertainty in the collective redundancy process; and introducing the idea of compensated no-fault dismissal for businesses with fewer than 10 employees.

We will cut the burden of health and safety rules on small firms, because we have regard for the health and safety of the British economy too. This Government have introduced flexible working practices and we are committed to fair rights for employees. But what about the right to get a job in the first place or the right to work all hours running a small business and not be sued out of existence by the costs of an employment tribunal? It is no good endlessly comparing ourselves with other European countries. The entire European continent is pricing itself out of the world economy. The same is true of taxes on business. If we tax firms out of existence, or out of the country, there will not be any tax revenues for anyone. We have set as our ambition the goal of giving this country the most competitive tax regime in the G20. Our corporate tax rate has already fallen from 28% to 26%, and I can confirm that it will fall again next April to 25%.

We are undertaking major simplification of the tax code for businesses and individuals, including, this autumn, consulting on ideas to merge the administration of income tax and national insurance. We are publishing next week rules on the taxation of foreign profits, so that multinationals stop leaving Britain, and instead start coming here, and we will end low-value consignment relief for goods from the Channel Islands, which has been used by large companies to undercut shops on our high streets. We have supported enterprise by increasing the generosity of the enterprise investment scheme. Today, we are extending this scheme specifically to help new start-up businesses to get the seed investment they need. Even at the best of times they can struggle to get finance, and in the current credit conditions that struggle too often ends in failure. From April 2012, anyone investing up to £100,000 in a qualifying new start-up business will be eligible for income tax relief of 50%, regardless of the rate at which they pay tax, and to get people investing in start-up Britain in 2012, for one year only, we will also waive any tax on capital gains invested through the new scheme. We can afford this with a freeze on the general capital gains tax threshold for next year.

I also want to help existing small businesses which find the current economic conditions tough. Business rates are a disproportionately large part of their fixed costs. In the Budget, I provided a holiday on business rates for small firms until October next year. I am today extending that rate relief holiday until April 2013. Over half a million small firms, including one third of all shops, will have reduced rate bills or no rate bills for the whole of this year and for the whole of the next financial year too. To help all businesses, including larger ones, with next year’s rise in business rates, I will allow them to defer 60% of the increase in their bills to the two following years.

I also want to help any business seeking to employ a young person who is out of work. The OBR forecasts that unemployment will rise from 8.1% this year to 8.7% next year, before falling to 6.2% by the end of the forecast. Youth unemployment has been rising for seven years and is now unacceptably high. It is little comfort that this problem is affecting all western nations today. The problem is, of course, primarily a lack of jobs—[Interruption.] But it is made worse by a lack of skills. Too many children are leaving school after 11 years of compulsory education without the basics that they need for the world of work.

Our new youth contract addresses both problems with the offer of private sector work experience for every young person unemployed for three months. After five months, there will be weekly signing on. After nine months, we will help pay for a job or an apprenticeship in a private business. Some 200,000 people will be helped in this way but, as the Deputy Prime Minister has said, this is a contract. Young people who do not engage with this offer will be considered for mandatory work activity, and those who drop out without good reason will lose their benefits.

If we are to tackle the economic performance of this country and tackle Britain’s decades-long problems with productivity, we have to transform our school system too, so that children leave school prepared for the world of work. My right hon. Friend the Secretary of State for Education is doing more to make that happen than anyone who ever had his job before him. The previous Government took six years to create 200 academies. He has created 1,200 academies in just 18 months. Supporting his education reform is a central plank of my economic policy, so today, with the savings that we have made, I am providing an extra £1.2 billion—as part of the additional investment in infrastructure—to spend on our schools.

Half of that will go to help local authorities with the greatest basic need for school places. The other £600 million will go to support my right hon. Friend’s reforms and will fund 100 additional free schools. These schools will include new maths free schools for 16 to 18-year-olds. This will give our most talented young mathematicians the chance to flourish. Like the new university technical colleges, these maths free schools are exactly what Britain needs to match our competitors and produce more of the engineering and science graduates so important for our long-term economic success.

To ensure that children born into the poorest families have a real chance to become one of those graduates, we will take further steps to improve early education. Last year, it was this coalition Government who not only expanded free nursery education for all three and four-year-olds, but gave children from the poorest fifth of families a new right to 15 hours of free nursery care a week at the age of two. I can tell the House today that we can double the number of children who will receive this free nursery care: 40% of two-year-olds—260,000 children—from the most disadvantaged families will get this support in their early years.

On education and early years learning, this is how we change the life chances of our least well-off and genuinely lift children out of poverty and that is how we build an economy ready to compete in the world. It will take time. The damage that we have to repair is great. People know how difficult things are and how little money there is, but where we can help with the rising cost of living, we will. I have already offered councils the resources for another year’s freeze in the council tax. That will help millions of families, but I want to do more.

Commuters often travel long distances to go to work and bring an income home. Train fares are expensive and they are set to go up well above inflation to pay for the much needed investment in the new rail and new trains that we need, but RPI plus 3% is too much. The Government will fund a reduction in the increase to RPI plus 1%. This will apply across national rail regulated fares, across the London tube and on London buses. It will help the millions of people who use our trains.

Millions more use their cars to go to work, and pick up the children from school. It is not a luxury for most people; it is a necessity. In the Budget I cut fuel duty by 1p. The plan was for fuel duty to be 3p higher in January and 5p higher by August next year. That would be tough for working families at a time like this, so despite all the constraints that are upon us, we are able to cancel the fuel duty increase planned for January, and fuel duty from August will be only 3p higher than it is now. Taxes on petrol will be a full 10p lower than they would have been without our action in the Budget and this autumn. Families will save £144 on filling up the average family car by the end of next year. At this tough time, we are helping where we can.

All that we are doing today—sticking to our deficit plan to keep interest rates as low as possible, increasing the supply of credit to pass those low rates on to families and businesses, rebalancing our economy with an active enterprise policy and new infrastructure, and providing help with the cost of living on fuel duty and rail fares—all that takes Britain in the right direction. It cannot transform our economic situation overnight.

People in this country understand the problems that Britain faces. They can watch the news any night of the week and see for themselves the crisis in the eurozone and the scale of the debt burden that we carry. People know that promises of quick fixes and more spending that this country cannot afford at times like this are like the promises of a quack doctor selling a miracle cure. We do not offer that today.

What we offer is a Government who have a plan to deal with our nation’s debts to keep rates low; a Government determined to support businesses and support jobs; a Government committed to take Britain safely through the storm. Leadership for tough times—that is what we offer. I commend this statement to the House.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

Let me start by thanking the Chancellor—[Interruption.]

--- Later in debate ---

[Ed Balls]

Thank you, Mr Speaker. They do not like it, but this is the truth. The Government set up the OBR, so maybe they should listen to its forecasts.

This summer the head of the IMF warned the Chancellor that

“growth is necessary for fiscal credibility”,

but he said that a change in his plans would lead to a loss of credibility, even though he has been forced to confirm today that his growth and borrowing targets are wildly off track. Last month the IMF advised the Government that

“If (economic) activity were to undershoot current expectations and risk a period of stagnation or contraction, countries that face historically low yields (for example, Germany and the UK) should also consider delaying some of their planned consolidation.”

With the world darkening and with today’s news that here in Britain we are set to see stagnant growth not just this year, but next, is it not time the Chancellor listened to the IMF? How much worse does it have to get? How many more young people have to lose their jobs, how many more businesses have to go bankrupt, and how many more times does he have to come here to downgrade his growth forecast and upgrade his borrowing forecasts? How many more billions in borrowing do we need to pay for failure before he finally sees sense?

These would be difficult times for any Chancellor, but our fear is that once again in his statement today the Chancellor is making a catastrophic error of judgment. He is refusing to learn the lessons of history or economics; he is refusing to switch to a more balanced plan; he got it wrong 18 months ago, and he is getting it wrong again today. Repeating the mistakes he made last year will only make things worse. Is it not now time to listen to the IMF, to cut taxes and to have a slower pace of spending reduction? Is it not time for him to change course before it is too late?

What do we have instead? We have a cobbled together package of growth measures, which the Chancellor must know, and the OBR forecast confirms, do not address the fundamental problem—that his rapid, reckless and deflationary plan is choking off recovery and pushing up borrowing. We have been here before. This is the third emergency growth package in a year, so the last thing our economy needs is yet another fantasy growth package.

Hon. Members do not have to take my word for it. Let us look at the OBR’s own forecast. Does the OBR think that the Chancellor’s plans are going to boost growth? No, it has revised growth down next year, from 2.5% to 0.7%; and for the following year it has revised growth down from 2.9% to 2.1%. Does the OBR think that the Chancellor’s plans are going to increase employment and cut unemployment? Let me tell the House two things from the OBR forecast which the Chancellor chose not to tell the House. Unemployment is not only higher next year than this year, but higher the year after than this year; and employment is expected to fall by 100,000 next year.

We were promised a game-changer of a statement and a growth plan that would secure recovery. Instead, we have a plan for growth which leads to lower growth and higher unemployment. It is not a game-changer; it is just more of the same.

Let me turn to the measures that the Chancellor has announced. He has announced a new youth jobs fund, but why did he abolish the future jobs fund in the first place? The Government abolished it in their first month in office; their new plan will not be up and running until the middle of next year.

The Chancellor claims to have increased the bank levy, so why is he cutting taxes on banks this year compared with last year—down from £3.5 billion last year to £2.5 billion this year? Why will he not repeat the bank bonus tax and do something proper about youth jobs?

The Chancellor has announced a sensible halt to January’s fuel duty rise, but will he confirm that, as a result of last January’s VAT rise, motorists are paying 3p a litre more on petrol? He has belatedly announced a plan on Labour’s enterprise finance guarantee, relabelled as credit easing, but why did he wait so long, and why did he put his faith in Project Merlin, which has patently failed and, as the Bank of England confirms today, seen net bank lending to small businesses fall over the past year? As for his equally belated decision to set up a new infrastructure fund, this is from the same Chancellor who abolished the Building Schools for the Future programme at a cost of tens of thousands of construction jobs.

How much of this new investment has been pre-announced? How much will happen this year and next year? How much of it is pre-announced funding from the next spending review after the next general election? Will the Chancellor confirm that the new off-budget infrastructure fund will be subject to a National Audit Office value-for-money test to ensure that projects are not more expensive to the taxpayer than direct Government borrowing?

The Chancellor has also announced a rebate for energy intensive industries to correct the chaos caused by his botched carbon floor price. He has reinstated just 10% of his planned £4 billion cut in housing, but even in the past few minutes, as we have studied the small print, and despite all the bluster of the new measures, we have found that because this Chancellor is so determined not to break from his failing plan, he is once again giving with one hand and taking with the other.

How are these new growth measures being paid for? By hitting families and savers. How much will the Chancellor’s cut in tax credits cost a working family on average incomes? With inflation so much higher, is he still meeting the Prime Minister’s pledge to deliver real-terms rises in NHS spending in this Parliament?

As a result, and taking into account pre-announced measures in the Chancellor’s Budget and spending review, are the Government still hitting women harder than men? Are they still increasing child poverty and not reducing it? Given that he has already cut child care support by more than £1.5 billion, is he helping women who want to go out to work, or is he making it harder?

If we are all in this together, why with this Government is it always families, women and children who pay the price? It is clear: the Chancellor’s plan is not working. The OBR knows it, the markets know it, the IMF knows it, we know it and so, increasingly, do the Chancellor’s coalition colleagues. His arch rival, the Mayor of London, certainly knows it.

We all know why the Chancellor cannot change course. We know why he cannot accept the IMF’s advice. We all know why—even as the euro crisis deepens and he is borrowing £158 billion more than he planned—this oh-so political Chancellor will not budge because to change course now would be to admit that he has got the key economic judgments of this Parliament absolutely, catastrophically wrong.

If, after just 18 months, the Chancellor’s plan is leading to falling growth, rising unemployment and £158 billion more in borrowing, the country needs either a new Chancellor or a new plan—a balanced and credible plan on jobs, growth and the deficit. We need real tax cuts, real investment, a real plan for jobs, growth and deficit reduction: Labour’s five-point plan for jobs, growth and deficit reduction.

Protecting our economy, businesses, jobs and family finances is more important than trying to protect a failed economic plan. For his sake, for his party’s sake, and in the national interest, the Chancellor needs to change course, and he needs to do so now.

[Mr Osborne]

As far as I can tell, the shadow Chancellor complains that we are borrowing too much—and then proposes that we borrow even more. It is completely unconvincing and a reminder to Government Members why we are so pleased that he is in the job that he is doing, for he is a constant reminder of everything that went wrong with Labour’s economic policy—a permanent advertisement for why we should never trust Labour with our money again.

Let me answer the right hon. Gentleman’s specific questions. He welcomes the fact that we have open and honest figures from the OBR. When did we never get them when he was at the Treasury? He complains about the bank levy. He was the City Minister, so why did he not introduce a bank levy? It will raise £2.5 billion a year. In the Labour policy document on the bonus tax that he proposes, his party costs its measure at £2 billion a year. That is less—a tax cut for banks, if can I put it like that.

The right hon. Gentleman complains about off balance-sheet borrowing. That is from Mr PFI. He says that we should have kept the future jobs fund, but 50% of all people who left that scheme were unemployed within 12 weeks, which is in part why we have an unemployment problem.

Yes we are committed to real increases in the health budget, and yes the OBR confirms that we will meet our fiscal mandate and our debt target—[Interruption.] In the terms set out by me in the emergency Budget.

The right hon. Gentleman told the House this extraordinary thing—that the OBR forecasts that growth in the UK will be less than in the euro area. That, I am afraid, is simply not true. I am not going to use unparliamentary language, but it is in the OBR document in black and white: 2012, 2013, 2014, 2015—every single year, growth unfortunately is slow in the eurozone and slower than in the UK. That is one of the problems we are facing.

Let me respond to the three arguments that the right hon. Gentleman advanced in his reply. First, he said that we should try to borrow our way out of a debt crisis; he talked about extra borrowing. His plans—the plans of the previous Government—would have led to an additional £100 billion on top of borrowing over the course of the Parliament. Let us look at the facts. There is not a single credible political party in the entirety of Europe that is proposing more spending at the moment, apart from—and it is not credible—the Labour party. This is what Tony Blair said this morning on the radio—[Interruption.] Go on—have a go at booing him! Tony Blair said on the radio this morning:

“frankly whatever government is in power it is going to be pursuing a pretty tough programme at the moment”.

Blair or Balls—I think the British public made their mind up on Labour politicians long ago.

The second astonishing argument that the right hon. Gentleman deployed was to say that low interest rates in Britain were a sign of failure. Presumably that means that he wants interest rates to be higher in Britain. Presumably the fact that Italian interest rates are over 7% is a sign of success. Presumably the fact that Greek interest rates are 30% is an economic miracle. His policy for higher interest rates would put families’ mortgage bills up, increase debt interest charges for taxpayers, increase the cost of loans for small businesses, and put people out of work. Now people know—you vote Labour, you get higher interest rates.

The third and final argument that the right hon. Gentleman advanced is that the events happening in Europe will have almost no impact on anyone in Britain or on the British economy. [Hon. Members: “That’s not what he said.”] He mentioned it once in passing. That flies in the face of what the Bank of England says and what the OECD said yesterday. He quoted the IMF. The IMF supports our deficit reduction plan. It explicitly asked itself the question, “Should Britain change course?”, and said no. He quoted the independent OBR’s numbers, but he refuses to accept its analysis. Anyone who turns on the television and listens to the news knows that his argument is completely absurd, so we have to ask ourselves why he advances it. Why does he alone advance the argument that Britain is not affected by what has been going on in the world—by the external oil shocks, by the size of the financial crisis, by the eurozone crisis? There is a very simple reason: because if he admits that we are in a debt crisis, then he has to admit that we borrowed too much when he was in office, that the crash here was deeper than anywhere else, and that the effects were longer lasting. It would be an admission of his personal failure.

The right hon. Gentleman was the City Minister who let the City explode. He is the author of the golden rules that failed. He does not have the excuse of the Leader of the Opposition that he was only photocopying orders: he gave the orders; the orders came from him. Labour’s economic credibility will never recover while he remains the shadow Chancellor.

[Mr Andrew Tyrie (Chichester) (Con)]

The whole country, I think, will welcome the supply-side measures announced today, which are an essential counterpart to the deficit reduction plan. Britain’s recovery depends on thousands of small businesses in our constituencies that need the confidence and the cash to invest and grow. That is why the credit easing package that has been announced today is so welcome. Does my right hon. Friend agree, though, that the recovery can be secured in the long term only when we have banks that are operating normally —when we have a return to more normal lending conditions? Does not that reinforce the need for him to work extremely closely with the regulators and the banks to achieve this?

[Mr Osborne]

I agree with the Chair of the Treasury Committee that the impact of the financial crisis and the deleveraging in the British financial system and other financial systems are having a huge impact not just on our recovery but on recoveries around the world. I completely agree that we need to try to clear the impaired balance sheets of the banking system. We need to try to get new lenders on to the high street. That is why we took the decision we took on Northern Rock—to get Virgin Money out there on the high street. I will have more to say on the banking system next month when I respond to the Vickers report and to the very good report from the Treasury Committee.

[Margaret Hodge (Barking) (Lab)]

I welcome the announcement of more investment in infrastructure, but the more I hear about the proposal, the more it sounds like PFI by any other name. Pension funds will invest in public projects only if it is a good deal for them. As with PFI, any sweetener that the Chancellor offers to the private sector will be at the expense of the taxpayer, both in the short term today and for future generations, so what precisely is he offering and proposing to attract pension fund investment, and how is he going to ensure that his scheme represents value for money for the taxpayer?

[Mr Osborne]

Let me explain to the right hon. Lady that what we are seeking to do is to get the pension funds investing in British infrastructure. We are not proposing to provide, in this respect, guarantees for these projects. There are some guarantees set out for specific Government infrastructure projects such as the Thames tidal waste tunnel. What I am talking about with the pension funds is not guaranteed projects like PFI; it is simply about trying to get private sector money invested in British infrastructure. [Interruption.] Let me explain, briefly.

We have Canadian and Australian pension funds investing in Britain, but not British pension funds investing on a sufficient scale. We are going to try to bring them together, through a private sector agreement, into vehicles where they can co-operate and then invest in infrastructure. This is not about the Government underwriting those investments; it is about trying to get the industry together to make private sector investments. There is a memorandum of understanding which sets out how this is done.

[Andrea Leadsom (South Northamptonshire) (Con)]

I welcome the Chancellor’s statement. It is a great shame that the shadow Chancellor appears to be living in a parallel universe to that of Government Members. Does my right hon. Friend agree that in view of his desire to set up a better and a stronger economy for the future, it would be a good idea to look again at the prospect of account portability in the banking system to create a truly free consumer choice for the future in terms of personal current accounts and small business lending?

[Mr Osborne]

I agree with my hon. Friend that that is a very important part of making sure that customers get the best possible deal. It was the part of the Vickers report that got the least coverage because of the interest in things like ring-fencing. We are determined to introduce changes that allow people to switch their current accounts very easily, and we hope to have them in place before the end of the Parliament.

[David Miliband (South Shields) (Lab)]

The Chancellor has recognised that 260,000 young people have been unemployed for more than 12 months—that is over 100,000 more than 18 months ago. He has rejected the argument for a job guarantee and instead embraced wage subsidies, which he says will help about 53,000 young people. For the sake of those young people, will he look at the similar scheme announced by his right hon. and learned Friend the current Secretary of State for Justice, in 1995? That scheme promised 130,000 jobs, but only 2,300 applications came forward. Will the Chancellor look at that experience to make sure that we do not have a repetition of the very low take-up of wage subsidy schemes?

[Mr Osborne]

We have worked with the business groups and businesses to make sure that the youth contract is going to be effective. I respect the fact that the right hon. Gentleman told us some days ago that the problem of youth unemployment was not invented by this Government. I respect his honesty in saying that. This is a problem that all western countries are facing at the moment. Frankly, in Britain youth unemployment has been going up for the past seven years. A subsidised job in the private sector is part of the answer. The work experience places are already working well, and we are adding to those. Of course, there is some conditionality in all this, so we are introducing, for example, weekly signing on after five months.

[Stephen Williams (Bristol West) (LD)]

I welcome what the Chancellor has said about protecting our economy from the external pressures that we face and rebalancing and strengthening it for the future. Will he confirm that despite these difficult circumstances, this Government are acting to raise the income tax threshold so that the poorest in society do not pay income tax, are fully increasing out-of-work benefits by 5.2%, and are increasing the state pension by £5.30? Does not that demonstrate that this coalition Government are determined to protect the poorest in society despite the very difficult circumstances in which we operate?

[Mr Osborne]

My hon. Friend is right. We are uprating out-of-work benefits and the basic state pension. The coalition Government are committed to the triple lock. People can see the benefit of that today. He is also right that we are committed to real increases in the personal income tax allowance. We have already had two of those. The coalition agreement is absolutely clear on that. I also support it as a tool of economic policy. We want to lift more people out of tax altogether.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

What is the right hon. Gentleman’s precise estimate of the overall growth, if any, that will arise from today’s package, given that there is no net increase in demand? Is not his core £5 billion infrastructure package—just 0.7% of current expenditure—merely tinkering at the edges and completely incapable of pulling Britain out of its deepening slump?

--- Later in debate ---

[Mr Osborne]

As I said in my statement, I believe, particularly in a debt crisis, that monetary policy is the most powerful tool for supporting demand. The Bank of England has undertaken the quantitative easing programme, which the previous Government thought was the right policy as they authorised the Monetary Policy Committee’s request. We can also do a lot to try to improve the credit conditions for small businesses, which do a huge amount to employ people in our country. That is why we have taken action on credit easing. The right hon. Gentleman has to balance the cost that a 1% rise in interest rates would have for mortgage bills, debt interest bills, family business loans and the like, which I set out, with the need for the additional billions of pounds of borrowing that he is proposing on top of the borrowing that we are already doing and what that might do to the credibility of this country in international markets.

[Brandon Lewis (Great Yarmouth) (Con)]

Does my right hon. Friend agree that the welcome opportunity for private pension funds to invest in infrastructure will also give a good return for those pension funds by unlocking the growth that can come from such infrastructure, particularly in rural areas such as East Anglia?

[Mr Osborne]

My hon. Friend is absolutely right. That is why we have made a particular commitment to two roads in East Anglia: the A11 and the A14. The A14 is a real challenge, as he knows, because it is a vital artery for the entire national economy. We are announcing particular commitments today to improve the A14. We want to work with local councils and local communities to make even greater lasting improvements to the A14 in the future.

[Helen Goodman (Bishop Auckland) (Lab)]

The Chancellor ended his statement by talking about quack doctors. Of course, in the book “George’s Marvellous Medicine”, George makes a potion to shrink his grandmother. Does the Chancellor of the Exchequer not understand that he will not grow the British economy by cutting tax credits, because that will make it uneconomic for many women to go out to work?

[Mr Osborne]

As I said, we are not cutting tax credits, but uprating the child tax credit. The hon. Lady should have listened to what I had to say.

[Claire Perry (Devizes) (Con)]

I am confused and am hoping that the Chancellor can help me to sort something out. On page 82 of its document, the OBR states that it has cut its forecast for European growth to 0.5%. On another page, it states that it has cut the British forecast to 0.7%. Under the shadow Chancellor’s quack-onomics theory, interest rates should therefore be higher in Britain than in the eurozone, but they are not. Can the Chancellor explain why?

[Mr Osborne]

Because we have earned credibility for this country. That is what this Government have done. That has not been an easy thing to do, but it has brought our borrowing costs down while other countries’ borrowing costs have gone up. When this Government came to office, the interest rates in Italy were lower than the interest rates in Britain. They have gone up in Italy and come down in Britain. Of course, we now have the new Labour party policy, which is that it wants to see higher interest rates. I am not sure that the Labour Back Benchers have fully realised what a completely stupid policy that really is.

[Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC)]

With regard to the capital infrastructure investment, will the Chancellor confirm that the whole figure of £30 billion will be spent proportionately in Wales and the other devolved nations, and that in the case of Wales that will amount to £1.5 billion?

[Mr Osborne]

We absolutely will apply the Barnett formula to the infrastructure spending. I can confirm that. We specifically want to work with the devolved Administration on the M4 corridor in south Wales and, if possible, to do a deal on the future of the Severn bridge and its tolls. We are holding open the opportunity for discussion on that matter.

[Andrew Percy (Brigg and Goole) (Con)]

I thank the Chancellor for his announcement about the Humber bridge and commend the work of the Transport Secretary. Does he agree that that proposal will benefit low-paid workers, especially in the Humber, who have suffered even in the times of growth, when the number of private sector jobs in the Humber decreased?

[Mr Osborne]

I pay tribute again to my hon. Friend and the other MPs in the area, including my hon. Friend the Member for Beverley and Holderness (Mr Stuart) who first raised this issue with me some years ago.

[Karl Turner (Kingston upon Hull East) (Lab)]

What about me, George?

[Mr Osborne]

Absolutely, I happily pay tribute to all the MPs of north Lincolnshire and Humberside who have campaigned for the reduction of the tolls. This was an injustice. The bridge was built many years ago and the debt was paid off, but the tolls were still very high. I am glad that we have been able to help. Along with our enterprise zones in Humberside and our commitment to the renewable energy industry in the area, this will really help the economy.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

The Chancellor’s statement reminded me of the Budgets not of the last Chancellor of the Exchequer but of the one before that, because it included so much, and almost the kitchen sink. To change the mood in the country, most of which is now deeply in recession—certainly Yorkshire and the Humber are—were we not expecting some imaginative, bold policies today to end youth unemployment?

[Mr Osborne]

I suggest to the hon. Gentleman that a fairly stark difference between me and the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) is that I am trying to make the books add up, whereas he did not. We have all been paying the price for that ever since.

[Mr John Baron (Basildon and Billericay) (Con)]

I know that the Chancellor will ignore the pleas of the Labour party, given that it more than doubled the national debt when it was in power, but will he revisit the massive net increases in our contribution to the EU that will come through over the next seven years? They will amount to something like £20 billion, which would fund a 5p to 6p cut in small business corporation tax.

[Mr Osborne]

We have negotiated the first real freeze in the EU budget. Important negotiations are coming on the future financial perspective. I am absolutely clear, as are some other member states, that the EU has to live within its means as well.

[Caroline Lucas (Brighton, Pavilion) (Green)]

Will the Chancellor explain why he is taking £250 million from hard-pressed families and giving it to some of the country’s biggest polluters, especially as green economies employ far more people than energy intensive industries?

[Mr Osborne]

As I said, we have introduced and funded the green investment bank, and we are supporting the green deal. The hon. Lady did not mention that there are £200 million of incentives to make the green deal work so that people can insulate their homes, their bills can come down and we can reduce our carbon emissions. I do not see how we would save the climate of our country and the world by pricing ourselves out of steel making, operating chemical factories, aluminium smelting and so on. If anything, it is likely that those industries would continue in other countries and be more polluting because those countries do not have the same regimes. I think that it supports our effort to reduce carbon emissions around the world that we keep those industries in Britain.

[Mr David Evennett (Bexleyheath and Crayford) (Con)]

I welcome my right hon. Friend’s statement and in particular the announcements on rail fares and the fuel duty. Does he agree that those policies and others that he has expressed today show that the Government are helping hard-working people with the cost of living wherever they can?

[Mr Osborne]

I absolutely agree with my hon. Friend. We have been able to take action on fuel duty so that taxes on petrol will be 10p lower than they would otherwise have been. We have taken action to reduce the increase in rail fares. I also stress that we have helped small businesses that employ people by extending the business rate freeze.

[Mr Dennis Skinner (Bolsover) (Lab)]

If we are all in it together, why has the Chancellor announced further restrictions on pay for working people and their families, while the bankers who caused the recession are taking home salaries of up to £4.5 million? Is it because the people on that side on millionaire’s row are looking after their friends in the banking system, while kicking the workers in the teeth?

[Mr Osborne]

I think the hon. Gentleman will find that it is half of the last Labour Cabinet who are working in the City at the moment.

If the hon. Gentleman is so passionate about this issue, why did he not press the Government he supported for 13 years to introduce a bank levy? On public sector pay, the shadow Chancellor was completely silent about whether the Labour party supported 1% average increases after the freeze ends. No doubt we will find out more about that later this afternoon.

[Margot James (Stourbridge) (Con)]

The Black Country chamber of commerce reports that 400 new businesses started in our region this year, 170 with help from the Government. I particularly welcome the national loan guarantee scheme. Does my right hon. Friend anticipate that that scheme might support business start-ups?

[Mr Osborne]

I think it will help new businesses borrow, but of course we have also announced today the seed enterprise investment scheme, a new scheme that will specifically help start-up businesses. It will give 50% income tax relief to anyone who invests up to £100,000 in a new company. Also, for one year only, we are allowing people to put capital tax-free gains of up to £100,000 into the scheme. It is all about trying to get investment into new companies such as the ones in the black country that my hon. Friend talks about.

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

On 20 October, the Secretary of State for Energy and Climate Change said in the House that there would be no Treasury backsliding on the £1 billion available for carbon capture and storage investment from the Government. Yesterday morning the Chancellor’s deputy, the Chief Secretary, suggested that part of his £5 billion investment would be funded by taking money from that £1 billion. Can the Chancellor confirm whether that is the case, and what implications that will have for potential CCS projects that are working to a timetable of being on a commercial basis before the end of this Parliament?

[Mr Osborne]

We absolutely want to support carbon capture and storage technology in this country. I confirm that we are still committed to a £1 billion investment, which is a very significant investment in a technology, but it cannot be on an unrealistic time scale. [Interruption.] Well, the previous Government—indeed, the Energy Secretary in the previous Government, who of course is the Leader of the Opposition at the moment—made all sorts of promises about getting carbon capture and storage demonstrations up and running, and that did not happen. We are operating on a more realistic time frame, but we are committed to a £1 billion investment in that technology.

[Lorely Burt (Solihull) (LD)]

There is so much to welcome in this statement, and I especially welcome the £1 billion increase in the regional growth fund and the infrastructure changes to the A45. Will the Chancellor set the record straight and say that our youth jobs fund is nothing like Labour’s future jobs fund, under which only 2% of the jobs in the west midlands were in private companies, and that our scheme will create real jobs for young people?

[Mr Osborne]

Not only was the future jobs fund primarily aimed at the Government employing people in the public sector, which of course was unsustainable with the very large deficit that Labour was running, but actually it did not work on its own terms, because 50% of the people who used the fund were unemployed within 12 weeks. The youth contract that the Deputy Prime Minister has worked on, which he presented last week, will make a real difference.

[Stewart Hosie (Dundee East) (SNP)]

There were two key announcements today. One was the national loan guarantee scheme and the £20 billion of credit easing, and the second was the investment in infrastructure of perhaps £30 billion. When does the Chancellor expect the business finance backed by the scheme to start flowing, and how much infrastructure spend does he expect this year and next, when it will have the biggest effect?

[Mr Osborne]

We are undertaking an ambitious programme of credit easing, and I hope to get it running in the next couple of months. We have to clear the state aid hurdles, and we are working flat out to do that, but I am confident that because we are partly following the European Investment Bank’s scheme in the UK, a lot of the work has already been done. The precise numbers on infrastructure in the next two years are set out in the book.

[George Freeman (Mid Norfolk) (Con)]

I warmly welcome the statement on behalf of families and businesses in my constituency, particularly the billions for infrastructure, the strong support for science and innovation and the very imaginative scheme for unlocking credit easing for small companies. Does that not show that this Government are laying the foundations for sustainable economic growth, while the Labour party has nothing to offer but more debt, more tax and higher interest rates?

[Mr Osborne]

I completely agree with my hon. Friend. What was really striking in the shadow Chancellor’s response was that the heart of his argument was, “We’re borrowing too much, so let’s borrow more.” I do not think that is a very convincing argument. The only reason why he advances it is that he, almost alone in the Labour party, cannot admit that the last Government borrowed too much.

[Joan Walley (Stoke-on-Trent North) (Lab)]

Can the Chancellor confirm that it is “rest in peace” for the “greenest Government ever”? As far as Stoke-on-Trent is concerned, can he tell the House why there is nothing in the autumn statement about why the Prime Minister came to Stoke-on-Trent and promised us a local enterprise zone? There have been two extra ones announced today, and still nothing for Stoke-on-Trent.

[Mr Osborne]

I completely understand why the hon. Lady is fighting hard for her constituency and her city. In the end, the proposal put forward by Stoke for an enterprise zone was not as compelling as the other enterprise zone proposals that were put forward at the same time. That was independently assessed by the civil servants. I am very happy to sit down with her, and indeed other Members from Staffordshire, to work with them on what we can do to make the proposal a success. I am very much open to considering whether we can get the enterprise zone bid into a state where it is successful and we can go ahead with it.

[Harriett Baldwin (West Worcestershire) (Con)]

There were many measures in the statement that will help businesses with their cash flow, which is truly to be welcomed, for example extending the small business rate relief and credit easing. Will the Chancellor clarify that where business rates go up in line with RPI next year, there will be the ability to defer 60% for two years interest-free?

[Mr Osborne]

We are helping businesses with their cash flow, but it is not a subsidy to those businesses, more a cash-flow measure.

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

The Chancellor has announced a number of supply-side measures designed to help small businesses. However, that is only one part of the equation. One of the main obstacles now for small businesses applying for loans or investment is the squeeze on personal incomes in their market. Can he explain to me how removing current expenditure and squeezing incomes further at this time, albeit for some very worthy projects in two or three years’ time, will benefit unemployment and alleviate the feeling of deep insecurity that there is in my area at this moment?

[Mr Osborne]

I would argue that we are not squeezing incomes. We have frozen fuel duty in January and taken measures to uprate non-working benefits in line with CPI, which is a very big increase, and pensioners are getting the largest ever increase in the basic state pension. However, we cannot afford the additional £110 on top of the uprating that we promised on the child tax credit.

[Mr Marcus Jones (Nuneaton) (Con)]

Does my right hon. Friend agree that measures such as extending the above-the-line research and development tax credits and the creation of enterprise zones such as the one at MIRA on the edge of my constituency will be extremely important in bringing new manufacturing jobs to the west midlands?

[Mr Osborne]

My hon. Friend is a powerful champion for Nuneaton, and I am glad that the enterprise zone is going to help his town. He specifically raised with me the issue of whether we could introduce an above-the-line R and D tax credit. I listened to his arguments and those of business organisations, and I am delighted that we are able to go ahead with that. We will set out the precise details of the rate and so on in the Budget.

[Fiona Mactaggart (Slough) (Lab)]

In view of the fact that the published Treasury tables suggest that the poorest fifth of the population have lost more from the Chancellor’s statement than anyone else apart from the richest fifth, will he tell the House what impact his announcements will have on child poverty?

[Mr Osborne]

The Treasury is very clear that in the precise way in which child poverty is measured against the baseline, it has gone up. We have been honest about that in the document. However, there is also an inflationary increase in the child tax credit and other benefits, so the picture is more mixed and better for tackling child poverty. I would also make the broader argument that investing in early years education and schools, and so transforming people’s life chances, will do more to lift people out of poverty. That is surely a lesson that we have learned over recent years.

[Richard Harrington (Watford) (Con)]

I commend the Chancellor on his statement, particularly the parts about young people and small businesses, which will be gratefully received in my constituency. I am sure that he shares my concern about the shadow Chancellor’s seeming lack of interest in interest rates and the amount of national debt. With that in mind, will my right hon. Friend confirm that a top priority of the Government is to reduce the £130 million per day that taxpayers in my constituency—and all taxpayers—pay to get the interest on the debt down?

[Mr Osborne]

Despite the deterioration in the borrowing forecast, the debt interest payments that we are making are £24 billion less than forecast. That is the burden of the debt, and it would be billions more if the shadow Chancellor ever got his hands on the British economy again.

[Sir Stuart Bell (Middlesbrough) (Lab)]

I welcome the Chancellor’s statement on the 100% capital allowances for the enterprise zones in the Tees valley. I refer him to his statement that he will target £20 billion from pension funds for infrastructure investment. May I draw his attention to the fact that the industry has something like £80 billion in its kitty? I invite him to go back and raise more money for more investment in the same project.

[Mr Osborne]

I would certainly like to see even more money coming from British pension funds, but £20 billion is an ambitious target. It is a shame that we have not been able to mobilise private sector resources from the pension funds in the past decade in the way that we should. The Government are making a determined effort to change that, and I hope that the memorandum of understanding that we signed with two groups of pension funds will lead to more infrastructure investment in the Tees valley and elsewhere.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

I commend my right hon. Friend for his statement and for doing so much for hard-pressed families and working people. Today, Italy had to borrow billions of pounds at almost 8% interest. The UK borrows at German rates because of the confidence in our economic policy. The strikes planned for tomorrow will damage confidence in the British economy. Will the Chancellor condemn the strikes and urge the Opposition to come out and condemn them?

[Mr Osborne]

My hon. Friend is absolutely right. Let us look at the Italian bond auction this morning—that is the sort of interest rate we might have to pay if Britain’s ability to pay its way in the world lost credibility. Was it not surprising that the shadow Chancellor did not mention the fact that there are strikes tomorrow? It is because he is a wholly owned subsidiary of the Unite union.

[Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)]

The giving with one hand and taking away with the other for child care is, frankly, playing with children’s lives and is disgraceful. By how much will the Chancellor increase the early intervention grant to pay for the child care pledge that he announced today? How much capital funding will he provide to local authorities so that they can expand and build nurseries? From what children’s pot will he rob that money?

[Mr Osborne]

We have introduced, for the first time, an entitlement for disadvantaged two-year-olds to get 15 hours of free nursery care. Such a policy was never introduced in the 13 years of a Labour Government. We have increased the figure to 40% of all children of that age and the cost is just shy of £500 million by the end of the period.

[Jessica Lee (Erewash) (Con)]

Erewash is at the heart of the manufacturing base in the east midlands. I therefore welcome the commitment to improving the infrastructure in the UK. To maximise that opportunity, reopening the train station at Ilkeston would really help us in Erewash, assisting businesses and commuters. Would my right hon. Friend or a colleague from the Treasury kindly meet me to discuss how the project can form part of the Government’s plans?

[Mr Osborne]

The Transport Secretary sitting next to me has just genuinely volunteered to meet my hon. Friend. We will look at improvements to Ilkeston train station. I did not set it all out in detail today, but there is scope for further smaller investments in rail stations and pinch points on our road network—we have set aside considerable sums of money for that. I will ensure that my hon. Friend meets the Transport Secretary soon to put her case.

[Mr Nigel Dodds (Belfast North) (DUP)]

On credit easing, how will the Chancellor’s announcement today apply in Northern Ireland? He knows that some 60% of bank lending to business in Northern Ireland is done by non-UK clearing banks, so I would be grateful if he elaborated on how he thinks it will apply in Northern Ireland. Will he work with the Finance Minister there to find a way through the current credit crunch for business?

[Mr Osborne]

First, I am happy and keen to work with the devolved Administration in Belfast on how the scheme will apply in Northern Ireland, given the specific issues that Northern Ireland faces with the involvement of the southern Irish banks. It is certainly a UK-wide scheme and we are particularly aware of the acute problems that the financial crisis south of the border have caused in Northern Ireland.

[Mr Mark Spencer (Sherwood) (Con)]

Today, we have seen a clear difference between a Chancellor who wants to manage and invest in our economy and an Opposition who spent and taxed their way through boom into bust. Will my right hon. Friend assure the House, for the sake of every home owner and small and medium-sized business with a mortgage, overdraft or long-term loan, that he will follow a fiscal policy that delivers low interest rates for the long-term future?

[Mr Osborne]

I absolutely will. We have had a startling admission by the shadow Chancellor that he wants interest rates to be higher in Britain at the moment. That would be a terrible thing for our economy, but I will give him this: his policies would certainly lead to higher interest rates in Britain.

[Gemma Doyle (West Dunbartonshire) (Lab/Co-op)]

The Chancellor is wrong to deny that the Government’s policies are making long-term youth unemployment worse. It is up by more than 80% since the start of this year. Would he now like to apologise for scrapping the future jobs fund?

[Mr Osborne]

As I said, the future jobs fund meant that 50% of people who went on it were unemployed within 12 weeks. The right hon. Member for South Shields (David Miliband) was very honest in saying that this Government did not create the problem of youth unemployment. Frankly, if we had more honesty from the shadow Chancellor, he would have a bit more economic credibility. I cannot help noticing that the British public think that the right hon. Member for South Shields would do a better job as shadow Chancellor than the man opposite jabbering at me.

[Simon Kirby (Brighton, Kemptown) (Con)]

With the UK 10-year market interest rates at record lows, does the Chancellor agree that the rest of the world seems to support his plan, not the Labour party’s?

[Mr Osborne]

The short answer to that is yes.

[Jack Dromey (Birmingham, Erdington) (Lab)]

Last year, the Chancellor cut £4 billion from housing investment. Does he accept responsibility for the catastrophic 99% collapse in affordable house building in the past six months, which is 187% in the west midlands? Does he agree that today he is restoring but 10% of what he cut, when the need for building homes and jobs has never been greater?

[Mr Osborne]

The Government’s capital spending plans are higher than those that the Labour party put forward in March 2010, which the Dromey family enthusiastically endorsed and tried to persuade the country to vote for. It is striking that, with the hon. Gentleman’s background, he has not mentioned the strikes, which will do huge damage to our economy and jobs. Why do not he and his colleagues condemn them and make sure that our country is working?

[Jane Ellison (Battersea) (Con)]

I warmly welcome the Chancellor’s announcements on infrastructure. In particular, there is a hugely warm welcome for the announcement of Government backing for the Northern line extension to Battersea, which is key to unlocking many new jobs and homes in the Nine Elms/Vauxhall/Battersea development area. Does he agree that it is also important for the existing communities in that area, many of which are among the most disadvantaged in my constituency? It is good news for them, too.

[Mr Osborne]

I had the opportunity yesterday, with my hon. Friend and the Mayor of London, to visit one of the development sites between Nine Elms and Battersea. It is fantastic to see that project going ahead and I hope that the support and commitment we are giving to help with the borrowing required to fund the Northern line extension will help to create 25,000 jobs in that area of London.

[Barry Gardiner (Brent North) (Lab)]

The £5 billion programme of capital infrastructure is to be welcomed. What is not to be welcomed is that it will be paid for out of the pay packets of individuals in both the private and public sectors. Last year the Chancellor said that he believed that the British public were able to spend their money better than the British Government. When did he stop believing that?

[Mr Osborne]

Perhaps I can explain to the hon. Gentleman that taxes come from people working in the public and private sectors. Money spent on infrastructure is well spent. For every £1 spent on infrastructure we have made savings in current spending, so we are not adding to borrowing in order to fund it. It will help to create jobs and support the economy.

[Nicky Morgan (Loughborough) (Con)]

Did my right hon. Friend hear Opposition Members laughing when he initially mentioned help with the cost of living? Does he agree that that is backed up by the shadow Chancellor’s refusal to recognise that low interest rates have kept many families in their homes over the past couple of years, including the very women and children that he says he cares about?

[Mr Osborne]

My hon. Friend is right. Low interest rates are helping to keep people in their homes, mortgage payments down and businesses going. If hon. Members want to know what the alternative would be, they should look across the Channel to European countries in the middle of the debt storm, with interest rates going up. We can see that is a path that we must avoid, but we will only do so if we do not follow the policies advocated by that lot opposite.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Will the Chancellor now take the opportunity to admit at the Dispatch Box that £158 billion is the deterioration in the forecast that has just been announced? How long will it now take to balance the books, and is not the statement today an admission that this country will have more severe austerity going forward?

[Mr Osborne]

I said that the borrowing forecast had deteriorated, and—unlike the Labour party—I set up an independent body to ensure that those figures are independently verified and not fiddled, as they were by the shadow Chancellor when he was in office. I can confirm that borrowing would be £100 billion higher if we had pursued the spending policies set out by the Labour party.

[James Morris (Halesowen and Rowley Regis) (Con)]

May I welcome the Chancellor’s statement today, especially in its support for small business? I recently visited a company in my constituency, Somers Forge, which is growing and providing young people with training and support. Does he agree that that is precisely the sort of business that will benefit from some of the measures that he has announced today?

[Mr Osborne]

Absolutely. We are doing a huge amount to support small businesses through our rate policy, the national loan guarantee scheme that we have announced and the support that we have given to companies that innovate and want to bring those innovations to market. We are doing all those things to help the small businesses of this country so that they can create jobs and grow.

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

The announcement of new investment in transport infrastructure is very welcome. Can the Chancellor confirm that that investment will not be funded by reducing or delaying existing projects, and what will his announcement mean for the future of the northern hub and investment in rail across the north?

[Mr Osborne]

I can give that confirmation. This is additional money that has come from savings in current spending. Specifically on the northern hub, the first part of that is the electrification of the Manchester to Leeds trans-Pennine express, but that will also benefit train travel times from Liverpool across the Pennines. We have also made other improvements like the Ordsall chord, which will help. We want to go further on the northern hub and the Department for Transport will produce proposals on that early next year.

[Mark Lancaster (Milton Keynes North) (Con)]

Mr Speaker, you, I and many other hon. Members have campaigned long and hard for east-west rail and today’s announcement is tremendous news for Milton Keynes. As the Transport Secretary is in her place, can my right hon. Friend the Chancellor confirm the possibility that we will have east-west rail and, at the junction between east-west and High Speed 2, could there perhaps be a Buckinghamshire Parkway station so that residents of Buckinghamshire could enjoy the benefits of High Speed 2 as well as the pain?

[Mr Osborne]

I do not think that a decision has been taken on stations, but I agree with my hon. Friend that we need to bring home to the people of Buckinghamshire the benefits of high-speed rail.

[Mr Speaker]

Hmm, yes.

[Naomi Long (Belfast East) (Alliance)]

The Chancellor stressed the importance economically both of regional connectivity and infrastructure. Can he confirm whether the Northern Ireland Barnett consequentials of the infrastructure changes will be ring-fenced? Further, can he offer any good news on air passenger duty for those who rely entirely on regional flights for that connectivity?

[Mr Osborne]

It will be up to the devolved Administration to choose how to spend the money that is allocated to them, but of course as it is one-off money—being capital spending—they will need to think carefully about how they spend it. On aviation, the Department for Transport will set out an aviation strategy, but it is confirmed in today’s document that we were able to take the decision that saved the long-haul flight from Belfast to north America.

[David Rutley (Macclesfield) (Con)]

I welcome the Chancellor’s statement and the announcement today that the Manchester airport A6 link road will be brought forward. That will be a real boost for Manchester and north-east Cheshire. Does my right hon. Friend agree that capital investment is the right way to strengthen our regions, rather than relying on the increases in public sector spending that we saw from the last Government?

--- Later in debate ---

[Mr Osborne]

My hon. Friend is absolutely right. As my constituency is affected by that road link, I very much welcome it, although I stress that the decision was not taken by me for that reason. He will know, and local people will remember, that that road scheme was cancelled in the first week of the Labour Government in 1997, and I am glad that we have now been able to take steps to help south Manchester and north Cheshire grow.

[Geraint Davies (Swansea West) (Lab/Co-op)]

The Chancellor has already announced 500,000 job cuts in the public sector alongside pay freezes, both of which have deflated demand, reduced growth and helped to increase the deficit by £158 billion. He is now imposing a 3% income tax on all public servants dressed up as a pension contribution for a lower pension after working longer. Will he accept that that will mean a 3% reduction in the spending power of all public servants, which will be deflationary and which, as well as being unfair, unwise and discriminatory, will provoke an unnecessary strike tomorrow?

[Mr Osborne]

We are basing our pension reforms on the report from Lord Hutton. He particularly focused on the benefit, but he said that there was a case for the increase in contributions. He also said recently that it was frankly difficult to imagine a better deal. That was the former Labour Pensions Secretary. What I do not understand is what exactly the Labour party’s policy is on this. It is absolutely silent. Are you in favour of increased contributions? [Interruption.] If you are not in favour of the increased contributions, where in your so-called five-point plan are you spending the money to stop those contribution increases? It is completely economically illiterate—[Interruption.] The hon. Member for Dudley North (Ian Austin) talks about negotiations. Why do he and his party not condemn the strike, urge the unions to sit round the table and negotiate with us to get a deal, especially as the former Labour Pensions Secretary, John Hutton—a man I know the hon. Gentleman really admires—says that it would be difficult to get a better deal?

[Mr Speaker]

Order. I may or may not be economically illiterate, but I gently, tentatively and courteously point out to the Chancellor that I do not have a five-point plan.

[Robert Halfon (Harlow) (Con)]

I thank the Chancellor for listening to millions of hard-pressed motorists and the Fair Fuel UK campaign and for not raising fuel duty next year. Is he aware that that will save 37,000 Harlow motorists more than £1 million next year? Will he listen to Essex man once again and set up a commission to look at the long-term problems of petrol and diesel price rises and see whether anything more can be done?

[Mr Osborne]

I should pay particular tribute to my hon. Friend, who has led a dogged campaign on behalf of the people of Harlow and of the whole country to get some relief from the increases in petrol taxes that were planned by the last Labour Government. I am delighted that we have been able to help. I always listen to Essex man, who is represented in the form of my hon. Friend.

[Mrs Mary Glindon (North Tyneside) (Lab)]

Will the Chancellor acknowledge that public sector workers are themselves taxpayers who make a massive contribution to the good of the country, and will he stop treating them like leeches on the public purse?

[Mr Osborne]

Of course people who work in the public sector pay taxes and make an enormous contribution to the British economy, but the hon. Lady should recognise that public sector pay restraint and pension reform at a time such as this is one of the ways in which we can reduce the impact of the very large deficit that her Government ran up on the public sector work force.

[Charlie Elphicke (Dover) (Con)]

I give a wholehearted welcome to the announcement concerning the lower Thames crossing, which will make a big difference to Kent, as will the massive help for small business finance. May I make a plea to the Chancellor to look further at small business equity finance? In particular, will he consider whether there is scope for expanding, or possibly floating, the business growth fund?

[Mr Osborne]

I am very happy to look at ideas to enhance the business growth fund, which is principally operated by the banks, under which they have committed to invest in the equity of small companies. We have already announced the seed enterprise investment scheme, which will help angel investments in companies. I am glad that my hon. Friend supports the commitment that we made to the new crossing at the lower Thames.

[Mark Durkan (Foyle) (SDLP)]

The Chancellor has proclaimed support for business and jobs in the present climate. He also puts at a premium innovation, productivity and exports. Do his plans therefore extend to assisting firms in the sterling zone—I am talking particularly about the areas of medical devices, life sciences and sustainable technologies—that are finding the flow and scale of orders from eurozone countries compromised and the reliability of payments damaged because of austerity measures in those countries?

[Mr Osborne]

I am not sure that I agree with the hon. Gentleman that austerity measures are to blame, but I certainly agree that that is a real problem. Of course one of the consequences of the ongoing eurozone crisis has been an increase in bank funding costs across the European continent. The further disruption to the financial system is having an impact on exports to the eurozone, which is one of the reasons that this crisis is having a chilling effect on the British economy. Later today, I will be going to another meeting of European Finance Ministers in Brussels to try to get a better resolution of the problems.

[Mary Macleod (Brentford and Isleworth) (Con)]

In my constituency in the London borough of Hounslow, we have a real and immediate shortage of school places. I therefore welcome the Chancellor’s announcement today of the £600 million investment in school places. Will he confirm that that will mean an extra 40,000 places for school children and will he say when that money will become available?

[Mr Osborne]

We are addressing the problem of basic need, which was ignored by the previous Government. I know in places such as my hon. Friend’s constituency, the problem is acute. Let me write to her about the specific impact on her constituency and how many additional places the investment will create in the surrounding area.

[John McDonnell (Hayes and Harlington) (Lab)]

In my constituency, religious and community organisations are now providing food parcels to poor families. At the same time, we are seeing executive pay and remuneration soar. There was nothing in the Budget statement that addressed executive pay or remuneration. Are the Government going to bring forward some controls to tackle that obscene inequality?

[Mr Osborne]

I know that the previous Government were

“intensely relaxed about people getting filthy rich”.

We are introducing transparency in pay. We are bringing regulations before the House to force banks to disclose the incomes of their eight highest paid employees. We are also consulting on high pay more generally. We have introduced the bank levy, which the previous Government failed to introduce in 13 years and which the shadow Chancellor could have introduced when he was City Minister, but never did.

[Anne Marie Morris (Newton Abbot) (Con)]

I congratulate the Chancellor on his support for micro-businesses, which, as he well knows, I extensively champion. The extension to small business relief is great and the new seed enterprise investment scheme is fantastic. Can we hope to have more focus on the very important tiny companies that are too often overshadowed by the big brother SMEs? They are the area for new jobs and for growth in the economy.

[Mr Osborne]

My hon. Friend is indeed a powerful champion of micro-businesses. She has spoken to me about them on a number of occasions in the past year. We have set out a number of measures that will help such businesses, including the rate relief holiday, the seed investment scheme and the support for innovation. We are consulting and having a call for evidence specifically on compensated no-fault dismissal for firms of fewer than 10 employees.

[Lilian Greenwood (Nottingham South) (Lab)]

Why are hard-working families on tax credits, low-paid public sector workers and the thousands of young people in my city with no job paying the price of the Chancellor’s economic failure while he lets bankers keep their bonuses?

[Mr Osborne]

It was the Labour Government who let the City explode. They allowed that to happen when the shadow Chancellor was the City Minister. They had 13 years to regulate the City and I suspect that on not one occasion did the hon. Lady write to either Tony Blair or the last Prime Minister calling for that regulation. The Labour party presided over the biggest financial crisis in our country’s history. We are properly regulating the banks and introducing ring-fencing. We have brought in a permanent bank tax and transparency in bankers’ pay. None of those things existed in the 13 years of Labour Government.

[Jeremy Lefroy (Stafford) (Con)]

I welcome the Chancellor’s statement which includes measures that will really help Staffordshire such as the M6 managed motorways scheme and the announcement on energy-intensive industries. How much does my right hon. Friend expect to make from the anti-tax avoidance measures that he has taken and that the previous Government did not?

[Mr Osborne]

I am glad that my hon. Friend welcomes the support that we have given to businesses and families in Staffordshire. I am also glad that he welcomes the M6 managed motorways scheme. We have taken specific measures to deal with both tax avoidance and unfair tax treatment. For example, the measures that I have announced to deal with double tax relief and asset-backed pension contributions will raise £450 million and the measures to deal with low-value consignment relief, which was strangling music shops on our high street, will raise £100 million. We have taken action, which the previous Government failed to take, to ensure that everyone pays their fair share.

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I look forward to meeting the Chancellor over the Prime Minister’s broken promise to award an enterprise zone to north Staffordshire.

Regarding lending to small business, can the Chancellor confirm that under his loan guarantee scheme, the credit risk will remain with the banks? If so, how will it work in practice given that the banks have been averse to lending and expanding their balance sheets? Furthermore, what safeguards will there be to ensure that they do not largely fatten interest margins and their profits under his scheme?

[Mr Osborne]

Of course I am happy for the hon. Gentleman to be part of those discussions on enterprise zones. Many areas of the country put in bids for enterprise zones. We were able to give the go-ahead to only the 22 that we announced previously and the two now for Humber and Lancashire, which I have confirmed today. There is also the expansion of the north-eastern one to the Port of Blyth, which is warmly welcomed on the Opposition Benches. I am happy to meet the hon. Gentleman to discuss the problem. On the national loan guarantee scheme, he is right to say that we have to get the audit trail right. We are looking very closely and seeking to model a lot of what we are doing on the European Investment Bank’s scheme, which already delivers lower rates to small businesses in Britain. It is a small scheme but the procedures are already in place. I can confirm that the credit risk of the small business loan sits with the banks.

[Andrew Bridgen (North West Leicestershire) (Con)]

Does the Chancellor agree that the Government must continue to oppose the calls from the Labour party to adopt its plan B? When in government, it took our country to the brink of bankruptcy, and adopting its plan B would risk pushing it over the edge. The B in Labour’s plan B stands for bankruptcy.

[Mr Osborne]

It is indeed a plan B for bankruptcy. It is striking that no mainstream or centre-left party in Europe, other than the Labour party, currently advocates more spending. I can reach only one conclusion: the Labour party does so only because the man that it has chosen to be its shadow Chancellor is the man more identified than almost anyone else apart from the previous Prime Minister with the financial and economic mess that this country got into.

[Chris Williamson (Derby North) (Lab)]

The Chancellor claims to support the manufacturing industry and told the House at the conclusion of this year’s Budget speech that he wanted to be

“carried aloft by the march of the makers” —[Official Report, 23 March 2011; Vol. 525, c. 966.]

in order to create jobs and support families. Will he explain, therefore, why he thinks it a good idea that the Government are undermining and potentially destroying the British train-building industry by building trains for the Thameslink line in Germany rather than at the Bombardier factory in Derby?

[Mr Osborne]

The hon. Gentleman should be straight with the House. That was a contract signed by the previous Labour Government—[Hon. Members: “No it wasn’t.”] It was a procurement process initiated by the previous Labour Government that left no other option for the British Government than the contract signed. That was the contract that we were forced to deal with under the rules of the previous Labour Government. In the autumn statement document, we set out changes to procurement rules to ensure that these sorts of things do not happen again. I can also confirm that we have committed to building 130 carriages on Southern Rail, and I very much hope that they can be built in Britain.

[Sarah Newton (Truro and Falmouth) (Con)]

From his statement, it is clear that my right hon. Friend has listened carefully to businesses in the port of Falmouth, where we want to strike the right balance between protecting our environment and developing a sustainable regional economy and new jobs. Will he detail what measures he has put in place to overcome the obstacles in our way?

[Mr Osborne]

I remember visiting the Falmouth estuary with my hon. Friend and talking to the local harbour master, the port authority and others about the ridiculous situation whereby we cannot dredge the Falmouth estuary and expand the port. The specific reference in my speech to the EU habitats directive was in part a reference to what was happening in Falmouth. As Members will know, I am working extremely hard to overcome these problems so that we can get the estuary dredged, as it has always been dredged, create jobs in Falmouth and address the ridiculous imbalance in our society whereby, in order to protect seaweed at the bottom of the Falmouth estuary, we cannot dredge it and create hundreds of jobs in Falmouth.

[Derek Twigg (Halton) (Lab)]

In view of the decision that the Chancellor has announced regarding the reduction in tolls on the Humber bridge, may I ask him—he, too, is a Cheshire MP—whether he will consider what can be done to reduce the proposed level of tolls on the Mersey gateway? More specifically, will he consider the condition limiting how much of the toll revenue Halton council can use to give discounts to local residents? As he knows, they can travel across the current bridge for free, but when the new bridge is built, both bridges will be tolled.

--- Later in debate ---

[Mr Osborne]

I very much want the second Mersey crossing to get the go-ahead, and the Government have committed the support, including financial support, to the specific plan. It has to be tolled to be paid for, however, as I am sure people understand, but I would draw a distinction with the Humber bridge: the debt on the Humber bridge was paid for many years ago and so the tolls were unreasonable. However, when providing new infrastructure, we have to find a way of funding it. It has to come either from general taxation—we are providing tax support—or out of the tolls. However, I shall consider the hon. Gentleman's specific point about the arrangements with Halton council, speak to my right hon. Friend the Transport Secretary and get back to him.

[Iain Stewart (Milton Keynes South) (Con)]

Just three weeks ago, I set up an all-party group to campaign for the reopening of the east-west rail link. May I thank the Chancellor for agreeing to our requests, and will he confirm that the project has a benefit-cost ratio of more than 6:1 and is in line to generate up to 12,000 high-quality jobs along the route?

[Mr Osborne]

This is evidence of what a powerful campaigner my hon. Friend is on behalf of his constituents and Milton Keynes, and I am delighted that we can develop these plans, which have the potential to create many, many thousands of jobs. It would be good to reopen a railway line in Britain.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I am concerned that the Chancellor might be missing a trick. Hundreds of millions of pounds of European regional development funding are waiting to be drawn down by the UK, including £100 million for the north-east alone. Is the Government’s failure to take steps to secure match funding—for example, through the regional growth fund—a deliberate policy or simply an oversight?

[Mr Osborne]

We are keen to make use of European funds where available, but there are issues of affordability with match funding. I can assure the hon. Lady, however, that if she contacts me with specific examples of European funding that she wants us to draw on, I will see whether it can be done.

[David Mowat (Warrington South) (Con)]

The Chancellor will be aware that in the last year of the previous Government, the discrepancy in gross value added between London and the English regions reached 100%—the worst for two decades—so can he confirm that it remains at the forefront of his policy to fix this appalling situation?

[Mr Osborne]

Yes, absolutely. We must get the private sector in our regions growing. It is striking that, through all the years of the Labour Government—with the regional developments and their like—the disparity between the English regions actually grew. That is what happened under their regional policy. That was because they did not focus enough on getting the private sector growing. The Government can do that by supporting things such as the regional growth fund and through investment in transport infrastructure. I know that my hon. Friend has made a powerful case for improvements to Warrington town centre and traffic flow in the borough.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

The Government have today announced plans that take three times as much from families as from banks. Given that, as we now see, half of all households cannot make ends meet at the end of the month, does the Chancellor think that, under his plans, more or fewer people will be forced to borrow from legal and illegal loan sharks?

[Mr Osborne]

That is a pretty ludicrous question. We have tried to help families through the freeze in fuel duty in January and with rail fares, and we are uprating working and non-working-age benefits in the way that I set out. We were unable to pay the additional £110 on the child tax credit child element, as I explained. That is because of the substantial increase that the uprating will provide.

[Mr Julian Brazier (Canterbury) (Con)]

I congratulate my right hon. Friend on focusing firmly on monetary policy. May I urge him to consider the box-ticking farce that is the lending policy of most banks and to focus his excellent credit-easing policy on those sectors, such as suppliers to the construction industry, that are particularly disadvantaged by it?

[Mr Osborne]

I want to ensure, in the way that I set out, that the national loan guarantee scheme is available to companies with a turnover of less than £50 million. As I mentioned in my statement, the business finance partnership, which has not had as much attention as the national loan guarantee scheme, is a £1 billion fund—it can be more if it succeeds—specifically targeted at mid-cap companies to provide non-bank financing for those companies alongside, for example, pension and insurance funds.

[Mr David Anderson (Blaydon) (Lab)]

At a time when inflation is 5% and when the average nurse in this country has had a two-year pay freeze, faces two years of a 1% pay limit, a 3% theft on her pension and frozen or capped increments, does the Chancellor agree that over this Parliament the average nurse’s living standards will fall by 10%, and that, if the plans for regional pay go through, people in the regions might be even worse off?

[Mr Osborne]

First, we have committed to real increases in the health budget, and the official—

[Mr Anderson]

Talk about pay!

[Mr Osborne]

Well, the pay comes out of the health budget, and the official policy of the Labour party is not to increase health spending in real terms. [Interruption.] This is rubbish: that is the stated position of the shadow Health Secretary; that is what he says. On pay, I want to hear from the shadow Chancellor at some point this evening whether he supports a 1% average pay rise in the next few years, because then we will know whether the complaints that the hon. Gentleman has just made have any force.

[Michael Ellis (Northampton North) (Con)]

I warmly welcome the Chancellor’s statement. Can he confirm that, despite the quack economics cited by those on the Opposition Front Bench, the chief economist of the OECD has said not only that we are on course, but that plan A is the right plan for this country?

--- Later in debate ---

[Mr Osborne]

My hon. Friend is right. The OECD was absolutely explicit in saying yesterday that we were right to be dealing with our debts, and if one looks, the forecasts for the UK were tough, but they were worse for many eurozone countries, which I am afraid is just an indication of the difficult world that we are in.

[Richard Burden (Birmingham, Northfield) (Lab)]

The Chancellor will be aware of the widespread calls from manufacturing businesses to increase the range and extent of capital allowances. Did I hear him correctly that his proposal to increase them to 100% is restricted to some enterprise zones and is not available to others? If that is the case, how will he ensure that this will lead to an increase in investment, rather than displacement investment? In a place such as the west midlands, which already has some of the poorest areas in the entire country, how would a public sector worker reach any conclusion from today’s announcement other than that he or she is being asked to work harder, for longer and for less, for doing the same job as somebody in the south-west or south-east?

[Mr Osborne]

First, we are today asking the independent pay bodies—which I think everyone in this House supports—to look at more local pay. That is the start of this process. Secondly, we increased capital allowances for short-life assets in the previous Budget. On the enterprise zones and the 100% relief that I have announced, there were specific proposals from the enterprise zones that I mentioned to attract new manufacturing and business into the zones. We are conscious that we want to avoid displacement activities, so we have given those capital allowances not to all enterprise zones, but to the enterprise zones that we think have the most compelling plans to create new businesses, and I hope that the hon. Gentleman would welcome that.

[Joseph Johnson (Orpington) (Con)]

Hard-working commuters and others in Orpington who depend on Southeastern trains have for years been hit by a fare increase regime of RPI plus 3%. May I therefore welcome my right hon. Friend’s decision to cap rail increases at RPI plus 1%, which will provide hard-working families with much needed support in these difficult times?

[Mr Osborne]

I welcome my hon. Friend’s support. I hope that this measure will help people living in Orpington who commute into London to work and that it will really enable us to help local people at this difficult time with their costs of living.

[Mr Ronnie Campbell (Blyth Valley) (Lab)]

I welcome the Chancellor’s statement on the port of Blyth, which is something for which I have been fighting for a long time—I asked the Business Secretary about that only last week, so this is good, quick thinking. However, is the Chancellor aware that south-east Northumberland, where Blyth and the estuary are, has the highest unemployment in the north-east and perhaps the country? Will he consider making the estuary and all the land around it into an enterprise zone, bringing the jobs to where the unemployment blackspots are?

[Mr Osborne]

I think I had better capture the moment when I get a compliment from the hon. Gentleman. We have acted quickly on a specific proposal that was made for the port of Blyth. We are going to consult on it and get the detail right. I am happy to consider the proposal that he makes. It has to be affordable, of course, and it has to work in terms of encouraging enterprise and new business, but we are absolutely committed to the north-eastern zone and to the port of Blyth being a successful part of it.

[Angie Bray (Ealing Central and Acton) (Con)]

I congratulate the Chancellor on a statement that is absolutely right for these tough times and, particularly for Londoners, on his investment in infrastructure projects. Will he consider, in discussion with the Transport Secretary, bringing forward the Crossrail infrastructure project to parts of London? That would be good not only for parts of London, but especially for my constituents. We have a station—Ealing Broadway station—that has been urgently in need of an upgrade for many years now.

[Mr Osborne]

I can give my hon. Friend an assurance that we are certainly not going to delay on Crossrail, which is currently being built—we can see that at the moment around London. We have looked at this, but with such a complicated project, I do not think that it is possible to advance it faster than it is going at the moment, because it is going as fast as it can.

[Hugh Bayley (York Central) (Lab)]

I welcome the Chancellor’s plan B. It is a small start, but at least it shows that his previous plan A—reduction of public infrastructure investment—was a mistake. Can he tell me what steps the Government will take to ensure that the construction companies that pick up contracts under his infrastructure investment scheme will take on apprentices, and also say how many jobs in the construction industry he thinks will be created by this £30 billion of investment?

[Mr Osborne]

I explained that, pound for pound and in each year, we were paying for infrastructure spending with savings in current spending or underspend, so the position is absolutely consistent with the plan that I set out before. On jobs, I have not put a figure on the total number of jobs created by all this infrastructure—I do not want to over-promise and under-deliver. It will create jobs, but we do not have a figure. We are dramatically expanding the number of apprenticeships. I want to ensure that they are in the construction sector, and I would certainly hope that large firms taking part in Government infrastructure investment projects—and, indeed, firms in our small business scheme—are also taking on apprentices.

[Penny Mordaunt (Portsmouth North) (Con)]

May I welcome the Chancellor’s vote of confidence in the space sector today? I hope that Portsmouth, via Astrium, might benefit directly from that investment, but wherever the money goes, can he confirm that this Government will be—if he will forgive the expression—a “launch customer” and that our procurement will support those companies in massively increasing their exports?

[Mr Osborne]

We are giving specific support to new satellite manufacturing, which is a real success story in Britain—it is one of those untold stories. I know that the sector is particularly successful in the area that my hon. Friend represents. From memory—I will certainly correct the record if I have got this wrong—we are providing £25 million to support the development of new satellites, as a result bringing, we think, an additional £150 million of private sector investment into the small satellites sector, which I think is also taking place in the area that she represents. That is a good example of the Government trying to encourage the private sector and get jobs across the country.

[Simon Danczuk (Rochdale) (Lab)]

The retail sector is finding it extremely difficult and is being hammered in the current economic climate, yet it is a sector that usually provides lots of jobs for young people. Did the Chancellor not consider a scheme to help underwrite credit insurance, in particular to help independent retailers?

[Mr Osborne]

If the hon. Gentleman has specific proposals on credit insurance, I will be very happy to look at them. When it comes to credit easing more broadly, I have set a £40 billion envelope, although I have committed only £21 billion today, as it covers the two schemes that were ready to go: the national loan guarantee scheme and the business finance partnership. We are looking at partnership schemes and other things that might work within the envelope, and of course we are vigilant about conditions in the broader economy—including issues such as trade finance—that might be affected by the eurozone crisis.

[Gavin Williamson (South Staffordshire) (Con)]

I am sure that the Chancellor is aware that Jaguar Land Rover is currently constructing an engine plant in an enterprise zone in my constituency of South Staffordshire. Does he agree that measures on enterprise zones, R and D tax credits and infrastructure development will help the continued manufacturing revival?

[Mr Osborne]

Yes, I of course agree with my hon. Friend. Again, another success story at the moment is the car industry. I am absolutely delighted by Jaguar Land Rover’s announcement, which is a real vote of confidence in the UK—the company could have constructed that engine plant elsewhere in the world. The announcements that I have made on R and D above-the-line tax credits will also help larger companies do their R and D in Britain.

[Jim Shannon (Strangford) (DUP)]

One of the biggest problems of modern society is youth unemployment. The Chancellor said that companies would be given national insurance discounts and other incentives to recruit and train young people. What other help will they be offered for that purpose?

[Mr Osborne]

We are helping companies to train young people through our apprenticeship programme, and I am happy to be engaged in active discussion with the devolved Administration in Northern Ireland about how that help can best be delivered there.

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

I thank my right hon. Friend for his statement and welcome his announcement of a national infrastructure plan, particularly in the context of south Essex. There is no doubt that investment in vital infrastructure is a key driver of growth. Will he agree to work with Members in areas that will benefit from the investment, to ensure that we obtain the best return on it both locally and nationally?

[Mr Osborne]

I certainly give that commitment, and I hope that south Essex will benefit from the commitment that we have already given today to work on a third crossing over the lower Thames. There are a number of possible locations for it, but it will definitely help economic activity both north and south of the Thames.

[Julie Hilling (Bolton West) (Lab)]

Before the general election, growth was increasing, the deficit was being reduced and unemployment was falling. Since the election, growth is down, borrowing is up and unemployment is going through the sky, and ordinary people are feeling the pain. Can the Chancellor truthfully tell us that his plan is working?

[Mr Osborne]

I had probably forgotten that we had inherited a golden economic legacy from the Labour party. What I remember is that we inherited a country that did not have a credible plan to deal with the deficit, which the credit rating agencies had put on negative outlook, and which the CBI, the OECD and all the other international organisations said lacked a credible plan.

Of course, as the OBR has made clear in its independent report, we are dealing with the consequences of the catastrophic failure of the last Labour Government to regulate financial services better, not least during the period when the shadow Chancellor was City Minister. That caused one of the deepest crashes of our country’s history. [Interruption.] We no longer hear the phrase “No more boom and bust” from the shadow Chancellor. He invented that phrase, and he gave us the largest boom and the biggest bust in our entire history.

[Mr Rob Wilson (Reading East) (Con)]

I congratulate the Chancellor on his statement, and in particular on the new tax breaks for private investors in start-up companies. As I have not seen the details yet, can the Chancellor briefly elaborate on how the system will work for smaller investors?

[Mr Osborne]

The seed enterprise investment scheme will provide 50% tax relief for all who invest in a qualifying start-up, even if they do not pay the 50% rate of income tax. The investment can be up to £100,000, although of course it can be much less. The companies involved can receive a maximum of £150,000. Those who have a capital gain can invest up to £100,000 of it in the scheme, and the amount will be tax-free for the next financial year. The scheme is aimed at small as well as slightly larger investors, and is designed to help start-up companies to obtain the finance they need.

[Toby Perkins (Chesterfield) (Lab)]

The last Chancellor to see interest rates go through the roof was not a Labour Chancellor, but the one who was advised by this Chancellor’s right hon. Friend the Prime Minister. If the Chancellor seriously thinks that the current level of interest rates is a sign of his success, will he consider any increase in interest rates to be a sign of failure?

[Mr Osborne]

We are doing all we can to keep our country safe in a debt storm. We need only look at the Italian bond auction today to see the market rates that Italy is paying. We are currently, in a debt crisis, borrowing money more cheaply than Germany. That represents a vote of confidence in the deficit plan of the United Kingdom.

[Mark Pawsey (Rugby) (Con)]

I thank the Chancellor for listening to the representations of energy-intensive industries, and I welcome the measures that he has announced. They will be examined closely by companies such as CEMEX, which is in my constituency. Can he give us an estimate of the number of UK jobs that will be saved as a result of his measures, both directly and in the supply chain?

[Mr Osborne]

We have not made an exact estimate of the number of jobs that will be saved, but I am certain that these measures will help to keep such industries in the United Kingdom. It is important that we do not price our industry out of the world market. That would do nothing to reduce our carbon emissions, but it would damage our economy. We have worked with the energy-intensive industries and the business organisations to develop our package, and I think that it achieves the right balance between ensuring that those industries remain competitive and meeting our international environmental obligations.

[Sheila Gilmore (Edinburgh East) (Lab)]

The Government have made a virtue of wanting to make work pay. How does it make work pay first to reduce child care tax credit, and then not to upgrade working tax credit in the same way as out-of-work benefit?

[Mr Osborne]

We are uprating the child care element of child tax credit, along with other elements of child tax credit, in line with September CPI inflation, so it is not true to say that we are not uprating child tax credit. We had to make a difficult decision on working tax credit, but we think that one of the best ways of supporting low-income working people is to take them out of the tax system altogether.

[Richard Graham (Gloucester) (Con)]

Last week I met members of the committee of the Federation of Small Businesses in my constituency to hear about their principal difficulties, one of which was gaining access to affordable finance. Today I believe that both they and manufacturers in Gloucester will be especially pleased to hear about the Chancellor’s creation of a national loan guarantee scheme to provide more and affordable finance. As he said, that will be the best key to increasing growth and the number of apprenticeships and reducing unemployment in our city and elsewhere. When does he expect the scheme to be open for business?

[Mr Osborne]

We hope to get it up and running in the next couple of months. We must clear the state aid hurdles—I am afraid that that is a fact of life—but we have been making good progress, and we hope that following the European Investment Bank scheme that already exists will make the process relatively simple. We are open to other credit-easing programmes such as partnership schemes, which some people have suggested, and we want to work with the Federation of Small Businesses and others to ensure that small businesses receive their money in the form of reduced rates for those who participate in the scheme.

I said explicitly in my statement that we would not make the best the enemy of the good. We must get the scheme up and running as quickly as possible in order to help companies in Gloucester and elsewhere that have found it difficult to gain access to finance over the last three or four years.

[Jessica Morden (Newport East) (Lab)]

The Chancellor referred earlier to the Severn bridge tolls. Can he be more specific about what he can do to help, in view of the assistance that he has given to the Humber bridge?

[Mr Osborne]

The issue of the Severn bridge tolls is different. There will come a point later in the decade when the question arises of what we do with the toll income and how it is allocated between England and Wales. I want to establish, in discussion with the Welsh Government in Cardiff, whether we can arrange to use the money from the tolls to support the M4 corridor in south Wales.

[Rehman Chishti (Gillingham and Rainham) (Con)]

I welcome the Chancellor’s statement, and, in particular, the help given to commuters in my constituency who will save £67 on their season tickets to London. Will he confirm that the shadow Chancellor’s illegal fuel tax policy contravenes annex III of the EU directive on VAT?

[Mr Osborne]

It does. It is an illegal policy, which is a novel thing for an Opposition to advance. As I have said, fuel duty and taxes would be 10p higher if we had not acted in the Budget or in the autumn. [Interruption.] I still have not heard whether the shadow Chancellor supports what we have done on fuel duty. He will probably say yes, but he will not say how he would fund it. As, unfortunately, he did not discover at the Treasury, we must make the sums add up in order to keep the country’s books balanced and ensure that we stay out of a debt storm.

[Heidi Alexander (Lewisham East) (Lab)]

In the first nine months of this year, on the Chancellor’s watch, long-term youth unemployment in my constituency increased by 192%. I ask the Chancellor this: how can it be right that young people in my constituency are paying the price for the Government’s abject failure to get the economy moving?

[Mr Osborne]

Unfortunately, the young people the hon. Lady refers to are paying the price for the biggest boom and bust in our country’s economic history, which the Government she supported presided over. What this coalition Government are doing is introducing a youth contract to help those people in Lewisham and elsewhere. It will provide work experience after three months for the unemployed, it will require weekly signing on after five months, and it will provide subsidised jobs in the private sector, encouraging businesses to get people into work and offer apprenticeships. In return, it will ask those young people actively to look for work, and there are sanctions if they do not do so. That is what we are offering the young people of Lewisham, who were so badly betrayed by a Labour Government.

[Mr Philip Hollobone (Kettering) (Con)]

I thank the Chancellor for his £110 million vote of confidence in Kettering with the approval of two major road schemes: the widening of the A14 Kettering bypass, and the go-ahead for the A43 Corby link road, which is also known as the Geddington bypass. When does he anticipate the diggers will move in and construction can start?

[Mr Osborne]

If I may, I will write to my hon. Friend with a specific answer on when the diggers will start on the widening of the A14 Kettering bypass and on the Corby link road, but these are commitments for this spending review so it is in the next few years and not at some future date. I know how important both those roads are for the local economy and for local people, and I am really pleased that, thanks in part to the campaign and the support of the local Member of Parliament, we have been able to give them the go-ahead.

[Mr Speaker]

We look forward to hearing about the dates for the diggers, as I am sure do the people of Kettering.

[Jonathan Ashworth (Leicester South) (Lab)]

May I push the Chancellor a little further on borrowing, because so far in the exchanges he has not quite brought himself to admit that he is going to be borrowing £158 billion more than he planned to borrow a year ago? Will he confirm that that is the case—yes or no?

[Mr Osborne]

I set out the borrowing figures to Parliament and what the hon. Gentleman should admit is that the plan he is pursuing would add to the borrowing. We cannot borrow our way out of a debt crisis, and as long as the Labour party goes on advocating that approach, I suspect that its credibility will fall and fall.

[Mr Peter Bone (Wellingborough) (Con)]

I am slightly concerned about whether the health of the shadow Chancellor is in order, as he has spent the past hour muttering to himself. However, may I ask the Chancellor whether he thinks that new Government policy should be announced to Parliament first?

[Mr Osborne]

I am always keen that Parliament is kept fully informed.

[Martin Vickers (Cleethorpes) (Con)]

On behalf of my constituents, I thank the Chancellor for the many initiatives that he has introduced for northern Lincolnshire and Humberside. Of course I cannot let the moment pass without a particular word of thanks for what he has done on the Humber bridge tolls, as it will be a great boost to the local economy. The national infrastructure plan rightly says that we have to wait until the new planning framework is in position before we can speed up the planning process. A number of major investments are pending in my constituency. Can he assure me that the full weight of the Government will be behind them to speed them along?

[Mr Osborne]

My hon. Friend absolutely has my assurance. If he wants to contact me with specific proposals that will create jobs in Cleethorpes and elsewhere in Lincolnshire, would he please let me know and I will do what I can to advance them, within the rules and the planning laws. As he knows, I am trying to reform those laws to make it easier to get the go-ahead for development that is sustainable and in tune with our broader environmental objectives. I want to make the planning system more rapid, and I should put on the record that the campaign that he has fought with other Members to get those Humber bridge tolls reduced shows that Cleethorpes has a powerful champion in my hon. Friend.

[Julian Sturdy (York Outer) (Con)]

As a Yorkshire MP, I strongly welcome the Government’s decision to electrify the trans-Pennine rail link between Leeds and Manchester and the huge boost that that will bring to our northern economy. As a York MP, too, may I ask the Chancellor whether the Treasury has examined the strong economic case for linking Leeds to York?

[Mr Osborne]

I do not have the specific details in front of me, but I will certainly engage with my hon. Friend on that proposal, and I hope that we can advance it.

[Neil Carmichael (Stroud) (Con)]

There are many substantial measures to welcome in this package, but I wish to focus on the national loan guarantee scheme, because it will help many small businesses in my constituency, particularly those in the manufacturing and engineering sector. Does the Chancellor agree that what we should be hoping for from banks is more sophistication when they allocate money to small businesses and more analysis of what the prospects of small businesses actually are?

[Mr Osborne]

Yes, I think that we all want to see a move to a banking system that is more responsive to local businesses and local people and that is not just based on a computer model that allocates credit and the computer says no. We want to return to having local bank managers empowered to make decisions, and a number of banks are doing this. One of the notable successes at the moment is Handelsbanken, which is out there lending money to small businesses and taking more of this local approach.

[Alun Cairns (Vale of Glamorgan) (Con)]

The Chancellor’s statements of support in favour of energy-intensive industries will be welcomed in south Wales, the midlands and the north, which are areas that have seen a particular decline in manufacturing over the past decade. The statements will be particularly welcomed by Dow Corning, a chemical manufacturing company in Barry in my constituency. How will they work in practice in order to support these companies in reducing their energy bills?

[Mr Osborne]

We are going to provide specific compensation for electricity-intensive businesses affected by the EU trading system and by the carbon price floor. We are also going to increase the climate change levy relief and work to make sure that those businesses are not adversely impacted by the electricity market reforms. We have a suite of measures, but the overall intention is clear: we want to help businesses such as the one in my hon. Friend’s constituency. I should say that I was first alerted to what we can do by a visit before the election to the steel works in Port Talbot, where I was very struck with the argument made there that the business could simply be moved to Holland if we did not act. We have been able to come forward with help that I think is going to support industries in south Wales.

[Stephen Hammond (Wimbledon) (Con)]

I warmly welcome my right hon. Friend’s statement, the many measures in it and, in particular, the reaffirmation of his commitment to ensuring that we overcome Labour’s debt storm. Many hard-working families in my constituency who aspire to buy their own homes will be pleased with today’s measures to ease the housing market. Will he confirm how many people nationally he expects the mortgage indemnity scheme to help, when it might start and how many jobs it is likely to create?

[Mr Osborne]

From memory, I think it is going to help 100,000 people, and that is a real boost. With the other housing measures we are taking, including the support for stalled sites—the £400 million package we are providing—we hope that that is going to create several hundred thousand jobs in the construction industry over the period going forward. The 50% right-to-buy discount we are introducing revives one of the most effective social policies of the past few decades—one that the Labour leader recently had to admit had worked and that the Labour party was wrong to oppose. A crucial additional element is that we are going to use the money to build social housing, which is why I think it is a policy appropriate to the modern age.

[Bob Blackman (Harrow East) (Con)]

One of the key inflationary pressures on the cost of housing is the level of housing benefit available, which was scandalously allowed to rise out of all proportion under the previous Government. Will my right hon. Friend confirm that there will be no slackening of controls over housing benefit, so that housing costs can be controlled?

[Mr Osborne]

I can absolutely assure my hon. Friend that we are going ahead with the cap on housing benefit, which is an important part of controlling costs. It is not fair that working people pay taxes to fund the rent for people who live in houses that those working people could never afford out of their salaries. It is quite right to introduce a cap to try to control those costs. Of all the benefits provided under the previous Government, this was one that really went through the roof, so to speak. Dealing with it and controlling it is a very important policy and it is a tragedy that the Labour party opposes the measure and no doubt wants to get rid of it at the next election.

[Graham Evans (Weaver Vale) (Con)]

Mrs Evans informs me that my three children will be on an unforeseen holiday tomorrow and I wondered whether my right hon. Friend would join me in urging the unions to call off tomorrow’s irresponsible strike. Does he agree with the shadow Chancellor’s “huge sympathy” for those going on strike tomorrow?

[Mr Osborne]

We should not be having a strike tomorrow. Negotiations are ongoing and we want those negotiations to conclude. I urge the unions, even at this late hour, to call off the strike and stop doing something that will damage the British economy and potentially cost jobs. Let us get around the table and try to get a deal, because I think that what is on offer is not only generous to the public sector and people who rely on public sector pensions but is also fair to the taxpayer. As Lord Hutton, the former Labour Pensions Secretary, has said,

“it is hard to imagine a better deal”.

I urge the trade union movement to take the deal.

[Mr Speaker]

I am grateful to the Chancellor and to colleagues, whose succinctness has enabled 96 Back-Bench Members to question the Chancellor in 97 minutes of exclusively Back-Bench time. That shows what can be done.

ECOFIN

George Osborne Excerpts

Tuesday 29th November 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council will be held in Brussels on 30 November 2011. The following items are on the agenda:

Annual Growth Survey

The Commission will present the Annual Growth Survey (published 23 November) for information. The Government support the document's strong positive messages on both fiscal consolidation and the need for ambitious structural reforms. However, the Government recall that member states and the EU have a shared responsibility for implementing structural reforms in support of growth. The Government also consider that tax policy is a matter for individual member states to decide, and does not consider that tax co-ordination in the EU is a priority for stimulating growth.

Second economic governance package

The Commission is expected to present three elements of a new package: a proposal for a regulation on enhanced surveillance of euro area member states that are either experiencing severe financial disturbance or requesting financial assistance; a further proposal for a regulation for enhanced budgetary co-ordination and surveillance of euro area member states, especially those that are already the subject of action under the excessive deficit procedure set out in the treaty; and a green paper setting out three options for the issuance of “stability” bonds in the euro area, which is intended to launch a public consultation on this subject. The Government are considering the proposals and options.

Economic and financial impact of EU legislation

The Council will discuss draft conclusions on the presidency’s proposal that ECOFIN should assess the impact of new EU legislation on growth and jobs. The Government support this objective.

Annual Report of the Court of Auditors on the 2010 EU Budget

The European Court of Auditors will present its report. It will be examined early in 2012, in advance of an ECOFIN vote on a recommendation for the European Parliament to grant discharge of the EU’s accounts for 2010. The Government consider that the failure to achieve a positive statement of assurance on the majority of payments from the EU budget year after year is unacceptable, and undermines confidence in the implementation of EU expenditure.

EU Statistics

Ministers will discuss draft conclusions on proposals to strengthen statistical governance. The Government support the general principles underlying these proposals; however, they will seek to work with other member states to ensure that national specificities are properly taken into account as the legislation passes through Council.

Council will also seek agreement on nominations to the European Statistical Governance Advisory Board.

Code of Conduct (business taxation)

ECOFIN will adopt conclusions on the work of the code of conduct group over the last six months. The code of conduct is an EU-level political agreement between member states to work co-operatively to identify and eliminate harmful business tax measures in the EU and prevent the introduction of new ones. The code group’s report is a standing ECOFIN agenda item at the end of each presidency.

Economic situation, including banking package

Ministers will discuss the economic situation. In particular, they will focus on the appropriateness of an EU-level co-ordinated approach to bank funding guarantees, as agreed at the European Council on 26 October. The European Commission currently sets a range of minimum criteria and guarantee fees under the state aid framework and the Commission is expected to present options for further co-ordination of bank funding guarantees provided by national Governments.

The Government believe decisive action is needed to bring stability to the markets and provide the basis for long-term debt sustainability. The Government support the principle of co-ordinated bank funding guarantee schemes, conditional on maintaining national control over the provision of these guarantees. However, the Government would not support any proposals that expose the UK to the liabilities of banks elsewhere in the EU.

Nomination procedure for the EIB President

Ministers will discuss the nomination procedure for the EIB president. Philippe Maystadt, the current EIB president, was appointed in January 2000. It is permissible for him to be re-appointed when his current term ends in December 2011. Other candidates are standing.

Northern Rock plc

George Osborne Excerpts

Monday 21st November 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

On 15 June 2011 I announced that I had put Northern Rock plc up for sale.

The bidding process has now finished and on 17 November 2011 I announced the sale of Northern Rock plc to Virgin Money. The Financial Secretary is also updating the House on the sale of Northern Rock plc today.

The deal was reached following an open, transparent and competitive bidding process. It is expected to complete on 1 January 2012, pending European Commission merger clearance and Financial Services Authority approval.

This statement provides full details of the consideration HM Treasury will receive for the sale:

Cash: HM Treasury will receive cash of £747 million on completion and around an expected further £50 million cash in the second quarter of 2012 relating to the net asset value of Northern Rock plc upon completion.

Tier 1 Capital Notes: Virgin Money will issue to HM Treasury on completion Tier 1 Capital Notes with a par value of £150 million and an annual coupon of 10.5%. The terms of these notes have been designed to be compliant with current GENPRU requirements and the expected requirements of forthcoming CRD4 regulations which will implement Basel III guidelines into European law. Accordingly they include features such as principal loss absorption and discretionary interest coupons. Virgin Money has indicated that it intends that these notes would be exchanged, or purchased by the acquirer, upon an Initial Public Offering or sale, without reducing the amount and quality of the firm’s capital resources, which would allow HM Treasury to exit its investment.

Additional cash consideration: HM Treasury will receive additional cash consideration payable upon Virgin Money delivering a future profitable Initial Public Offering or sale in the next five years. The maximum payment would be £80 million if this occurred in 2012; £70 million in 2013; and £50 million in 2014 to 2016 inclusive.

ECOFIN (8 November 2011)

George Osborne Excerpts

Tuesday 15th November 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

The Economic and Financial Affairs Council was held in Brussels on 8 November 2011. The following items were discussed:

Financial Transaction Taxes (FTTs)

The Commission presented its proposal on FTTs. Under the proposal, the tax would apply where at least one of the parties to the transaction was established in a member state. The tax rate would be 0.1% of the value of equity and bond transactions, and 0.01% on derivative contracts on the notional value of the transaction. I made it clear that the Government do not support the Commission’s proposal. As stated in the Commission’s own assessment, it would reduce growth and cut jobs. Other member states, including Bulgaria, the Czech Republic, Italy, Luxembourg, Latvia, the Netherlands, Romania and Sweden also voiced concerns with the current proposal. I asked the presidency and the Commission to work on a timetable to resolve this issue quickly, as it was clear that the Council would not be able to reach unanimous agreement on this proposal. The presidency noted the request for a fast resolution, and suggested the working group meeting on 5 December should consider options and alternatives to put to Ministers for further consideration.

Energy Taxation Directive (ETD)

The presidency decided to remove the orientation debate on the ETD from the agenda. This directive would require member states to tax energy products by taking into account both CO₂ emissions and energy content. Discussion will continue with officials at working group level.

Follow up to the October European Council. 23 October and Informal meeting of EU Head of State or Government on 26 October

Ministers discussed the banking package that was announced on the 26 October by EU Heads of State and Government. The discussion focused on all three aspects of the banking package: access to term funding for banks; bank recapitalisation; and state aid guidelines. I made it clear that the Government would support co-ordinated national guarantee schemes, where appropriate, to support banks accessing term funding. However, the Government could not support a scheme which placed euro area bank liabilities on the UK. I underlined the importance of the bank recapitalisation aspect of the package. This should be undertaken while mitigating the risk of deleveraging. I also emphasised that the state aid rules should continue to apply fully. As a next step, the Council asked the Economic and Financial Committee to explore the options for addressing the issues related to access to term funding.

Follow up to the G20 summit 3-4 November in Cannes

Ministers discussed the outcomes from the G20 leaders’ summit held in Cannes on 3-4 November. The outcomes from the summit include: an action plan for growth and jobs; building a more stable and resilient international monetary system; reforming the financial sector; promoting more efficient commodity markets; strengthening the international trading system; and addressing climate change and development challenges. The G20 agreed that additional resources for the IMF could be mobilised in a timely manner; Finance Ministers will work on deploying a range of options by their next meeting.

Financial assistance to Greece—disbursement of next instalment

The presidency removed this item from the agenda. Euro area countries and the IMF made it clear that they would not disburse the next instalment of the Greek financial assistance programme until there was greater certainty about the new Greek Government. Once the new Government have endorsed the measures to put Greek debt on a sustainable footing, as agreed at the informal meeting of EU Heads of State and Government on the 26 October, the sixth tranche can be disbursed.

Economic governance—surveillance of macroeconomic imbalances: design of the “scoreboard”

The Council agreed conclusions on the scoreboard for assessing macroeconomic imbalances. Ministers agreed that current account surpluses would not lead to sanctions. Ministers also agreed the scoreboard for the excessive imbalances procedure. The Government support these measures as they will help to restore and maintain macroeconomic stability in the EU. The six-pack on economic governance, including the scoreboard, will be implemented in mid-December.

Preparation of the 17th Conference of Parties (COP-17) of the United Nations Framework Convention on Climate Change (UNFCCC) in Durban. South Africa

ECOFIN agreed conclusions on climate change in preparation for the UN conference in Durban, 28 November to 9 December. The conclusions endorse a report on finance provided by the EU and its member states as part of their “fast start” commitments. These commitments will aid climate mitigation and adaptation measures in developing countries.

Annual Meeting of EU and European Free Trade Association (EFTA) Economy and Finance Ministers

This meeting took place before the formal ECOFIN, and discussed improving regulation to secure financial stability. The Commission outlined the comprehensive response that was set out at the informal meeting of EU Heads of State and Government on 26 October. The President of the European Central Bank, made it clear that the Basel III rules on capital requirements for banks should be minimum, not maximum requirements. There is a risk that banks might deleverage as a consequence of the current economic environment and uncertainty about capital requirement rules. Following this, there was a roundtable discussion with Finance Ministers from Liechtenstein, Iceland, Norway and Switzerland. EFTA countries shared their views on the recent financial crisis and economic developments in euro area countries, and the impacts of these on their own economies.

Follow up to the Eurogroup meeting, 7 November

Ministers discussed political and economic developments in the euro area, as a follow-up to the Eurogroup meeting. I underlined that the deterioration in the euro area was having a huge impact on the UK and other non-euro area countries. As such, all 27 countries have a strong interest in the situation being resolved. I made it clear that the euro area needed to give more detail on how they would implement the package agreed at the informal meeting of EU Heads of State and Government on the 26 October.

Private Finance Initiative

George Osborne Excerpts

Tuesday 15th November 2011 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

Today, I am announcing the Government’s intention to reform the private finance initiative (PFI).

The Government are committed to continuing sustainable investment in the assets we need to deliver public services, including our schools, hospitals and roads. However, we need to ensure that this investment is cost-effective, and that the taxpayer is getting maximum value for money. The Government share some of the commonly identified concerns that PFI contracts can be too costly, inflexible and opaque.

Reforming the PFI model will be the next in a series of steps that this Government have already taken to improve the cost-effectiveness and transparency of PFI.

We abolished PFI credits at the spending review 2010 to create a level playing field for all forms of public procurement. We also introduced new assurance and approval arrangements in April this year, to strengthen the scrutiny given in the approval process of all projects, including those using private finance.

In July, to improve transparency, the Government published, for the first time, the unaudited Whole of Government accounts which included an assessment of the PFI liabilities, and we announced a plan to deliver £1.5 billion of savings from the existing stock of PFI contracts in England.

The Government will expect a new delivery model to draw on private sector innovation but at a lower cost to the taxpayer, offering better value for our investment in public services. The Government’s approach to reform will be guided by the following principles, to create a model that:

is less expensive, and that uses private sector innovation to deliver services more cost-effectively;

can access a wider range of financing sources, including encouraging a stronger role to be played by pension fund investment;

strikes a better balance between risk and reward to the private sector;

has greater flexibility to accommodate changing public service needs over time;

maintains the incentive on the private sector to deliver capital projects to time and to budget and to take performance risk on the delivery of services;

delivers an accelerated and cheaper procurement process; and

gives greater financial transparency at all levels of the project so that the public sector is confident that it is getting what it paid for, and that the taxpayer is sure it is getting a fair deal now and over the longer term.

In order to bring about that change I am announcing the Government’s intention to conduct a broad-based engagement process with interested parties, led by the Treasury, to bring forward proposals for a new approach in using the private sector in the delivery of public assets. In considering what the future model should be it will be important to learn from the past and make full use of the wealth of experience that exists across the public and private sectors, and internationally. Where PFI has been successful—in getting projects delivered to time and to budget, and creating the correct disciplines and incentives on the private sector to effectively manage risk—we will look to retain these benefits.

The Government will be launching a call for evidence on 1 December that aims to capture the learning and lessons of the past 20 years of PFI. We will look to use those lessons to help inform the development of a new model that addresses the concerns of PFI. We invite those across the private and public sector that have strong ideas on how the future model should work to come forward with proposals and contribute to the development of a new delivery model.