Global Economy
George Osborne Excerpts(13 years, 2 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
People will be concerned about the turmoil in the world’s financial markets and what it means for economies here and across the globe. I want to update the House on what we are doing to protect Britain from the storm and to help lead a more effective international response to the fundamental causes of this instability.
As of this morning, after heavy losses yesterday, markets in Asia and Europe are a little calmer, although some are still down. Over the past month, the Dow Jones index has fallen by more than 14%, the French market by 23% and the Nikkei by 11%, and it is striking that the German market has fallen by 24%. Even Chinese equities have fallen by 20% since November. Bank shares in all countries have been hit particularly hard. Many sovereign bond markets have also been exceptionally volatile, with market rates for Italian and Spanish debts soaring before falling back in the past three days.
Sadly, Britain is not immune to these market movements. In the past month, the FTSE 100 has fallen by 16% and British bank shares have been hit hard. However, while our stock market has fallen like others, there has been one striking difference from many of our European neighbours: the market for our Government bonds has benefited from the global flight to safety. UK gilt yields have come down to about 2.5%—the lowest interest rates in more than 100 years. Earlier this week, the UK’s credit default swap spread, or the price of insuring against a sovereign default, was lower than Germany’s. That is a huge vote of confidence in the credibility of British Government debt and a major source of stability for the British economy at a time of exceptional instability. It is a reminder of the reckless folly of those who said that we were going too far, too fast. We can all now see that their approach would have been too little, too late, with disastrous consequences for Britain.
It is not hard to identify the recent events that have triggered the latest market falls. There have been weak economic data from the US, including revisions to GDP figures, and the historic downgrade of that country’s credit rating. The crisis of confidence in the ability of eurozone countries to pay their debts has spread, as many feared, from the periphery to major economies such as Italy and Spain. Those events did not come out of the blue and they all have the same root cause—debt. In particular, there is a massive overhang of debt from a decade-long boom, when economic growth was based on unsustainable household borrowing, unrealistic house prices, dangerously high banking leverage and a failure of Governments to put their public finances in order. Unfortunately, the UK was perhaps the most eager participant in that boom, with the most indebted households, the biggest housing bubble, the most over-leveraged banks and the largest budget deficit of them all.
History teaches us that recoveries from such debt-driven, balance-sheet recessions will always be choppy and difficult, and we warned that that would be the case. The whole world now realises that the huge overhang of debt means that the recovery will take longer and be harder than had been hoped. Markets are waking up to that fact. That is what makes this the most dangerous time for the global economy since 2008. We should be realistic about that and set our expectations accordingly. As the Governor of the Bank of England said yesterday and as the head of the Office for Budget Responsibility has noted, the British economy is expected to continue to grow this year. Some 500,000 new private sector jobs have been created in the past 12 months. That is the second highest rate of net job creation in the G7. However, instability across the world and in our main export markets means that, in common with many countries, the expectations for this year’s growth have fallen.
This is what our response must be. First, we must continue to put our own house in order. I spoke again to Mervyn King yesterday and I confirm that the assessment of the Bank, the Financial Services Authority and the Treasury is that British banks are sufficiently well capitalised and are holding enough liquidity to cope with the current market turbulence. We have in place well developed and well rehearsed contingency plans. We must also continue to implement the fiscal consolidation plans that have brought stability to our bond markets.
I believe that the events around the world completely vindicate the decision of this coalition Government from the day we took office to get ahead of the curve and deal with this country’s record deficit. While other countries wrestled with paralysed political systems, our coalition Government united behind the swift and decisive action of in-year cuts and the emergency Budget. While other countries struggled to command confidence in their fiscal forecasts, we created the internationally admired and respected independent Office for Budget Responsibility. Those bold steps have made Britain a safe haven in this sovereign debt storm. Our market interest rates have fallen while those of other countries have soared. The very same rating agency that downgraded the United States has taken Britain off the negative watch that we inherited and reaffirmed our triple A status. That market credibility is not some abstract concept; it saves jobs and keeps families in their homes. Families are benefiting from the lowest ever mortgage rates and companies are able to borrow and refinance at historically low rates thanks to the decisions that we have taken.
Let me make it clear not only to the House of Commons but to the whole world that ours is an absolutely unwavering commitment to fiscal responsibility and deficit reduction. Abandoning that commitment would plunge Britain into the financial whirlpool of a sovereign debt crisis and cost many thousands of jobs. We will not make that mistake.
Secondly, we need to continue to lead the international response in Europe and beyond. In the G7 statement agreed between Finance Ministers and central bank governors this week, we said that we would
“take all necessary measures to support financial stability and growth”.
In the eurozone, there is a growing acceptance of what the UK Government have been saying, first in private and now in public, for the last year—it too needs to get ahead of the curve. Individual countries must deal with their deficits, make their economies more competitive and strengthen their banking systems. Existing eurozone institutions need to do whatever is necessary to maintain stability. We welcome the interventions of the European Central Bank this week through its securities markets programme to do just that.
However, that can only ever be a bridge to a permanent solution. I have said many times before that the eurozone countries need to accept the remorseless logic of monetary union that leads from a single currency to greater fiscal integration. Many people made exactly that argument more than a decade ago as a reason for Britain staying out of the single currency, and thank God we did. Solutions such as eurobonds and other forms of guarantees now require serious consideration. That must be matched by much more effective economic governance in the eurozone to ensure fiscal responsibility is hard-wired into the system.
The break-up of the euro would be economically disastrous, including for Britain, so we should accept the need for greater fiscal integration in the eurozone, while ensuring we are not part of it and that our national interests are protected. That is the message the Prime Minister has communicated clearly in his calls with Chancellor Merkel, President Sarkozy and others this week. I have done likewise with individual Finance Ministers, in ECOFIN and in the G7 call at the weekend, and will do so again at the September ECOFIN and G7 meetings.
This is a global as well as a European crisis. At this autumn’s meetings of the IMF and the G20 we need far greater progress on global imbalances. We need an international framework that allows creditor countries such as China to increase demand and debtor countries to make the difficult adjustments necessary to repay them. Everyone knows what needs to be done, but progress so far has been frustratingly slow, with lengthy disagreements on technical definitions, let alone any concrete actions. The barriers are political not economic, so it is up to the world’s politicians to overcome them. There are no excuses left.
The UK, like the rest of the developed world, needs a new model of growth. Surely we have learned now that growth cannot come from yet more debt and more Government spending. Those who spent the whole of the past year telling us to follow the American example, with yet more fiscal stimulus, need to answer this simple question: why has the US economy grown more slowly than the UK economy so far this year? More spending now, paid for by more Government borrowing and higher debt, would lead directly to rising interest rates and falling international confidence, which would kill off the recovery, not support it.
Instead we must work hard to have a private sector that competes, invests and exports. In today’s world, that is the only route to high-quality jobs and lasting prosperity. In the developed countries, especially in Europe, that means making the difficult structural reforms needed to restore competitiveness and improve the underlying performance of our economies. The EU should cut red tape, not add to it. Internationally, we have the greatest stimulus of all on the table in the form of the Doha round—a renewed commitment to free trade across the world, which should be taken up now.
Here in Britain, the Plan for Growth that we announced in the Budget set out an ambitious path—23 measures have already been implemented and another 80 are being implemented now. On controversial issues, such as planning reform, we will overcome the opposition that stands in the way of prosperity. On tax, we have already cut our corporation tax by 2p, with three more cuts to come in the next three years. We will continue to pursue a radical agenda in welfare and education reform.
However, there is much more we can and must do if we are to create a new model of sustainable growth. All of us in the House must rise to that challenge in the months ahead and confront the vested interests—the forces of stagnation that stand in the way of growth.
In these turbulent times for world markets, we will continue to lead the international response. We will redouble our efforts to remove the obstacles to growth and stick to our plan, which has made Britain a safe haven in the global debt storm. I commend the statement to the House.
Ed Balls (Morley and Outwood) (Lab/Co-op)
The shocking and inexcusable events of recent days in our cities are today rightly the Government’s first and immediate priority. However, looking ahead, the global economic events of recent days are an equal and perhaps even graver threat to our stability and cohesion, putting small businesses, jobs and mortgages at risk throughout our country. It is therefore right that the Chancellor is today updating the House and the country on the parlous state of the global economy and, I am afraid to say, the parlous state of the British economy.
In the same spirit of bipartisan co-operation that we have just seen from the Prime Minister and the Leader of the Opposition, let me set out where Opposition Members agree with the Chancellor of the Exchequer as well as where we have grave concerns. First, the Chancellor is right: we made the right decision not to join the single currency in 2003. We agree with him that the crisis in the eurozone requires more decisive and radical action than we have seen so far. I welcome the fact that he is now, at last, involving himself in those discussions, and preparing contingency plans if British banks come under threat.
Tough fiscal decisions in Europe are vital, but is it not clear that the approach of European leaders so far—demanding ever more austerity from smaller countries—is not working because it does nothing to get those economies growing? Without that, countries find it harder and harder to convince the markets that they can repay their debts. Should not the Chancellor finally take a lead in brokering a plan in Europe for growth, alongside European-wide guarantees to reduce debt service costs, and stop the contagion?
I also agree with the Chancellor that months of political wrangling and uncertainty in the US about the pace of deficit reduction have depressed confidence and US growth. However, does the Chancellor agree with those wise heads who favour a balanced and sensible approach to deficit reduction, and fear that rapid US retrenchment could drive the world back into recession? Or does he agree with his friends—we know he has many in the Republican party and in the Tea party movement—who have urged deeper and faster cuts, and hailed the recent budget deal as delivering 98% of their demands? Is the Chancellor on the side of the Federal Reserve, former Treasury Secretaries and Nobel prize winners, or on that of, in the words of the Business Secretary, “right wing nutters”?
It is also right that G7 finance Ministers are finally discussing a co-ordinated response to a global crisis. However, listening to the Chancellor’s analysis, one would think that Britain was a bystander, watching public debt crises unfold in the eurozone and America that are best solved by individual countries taking their own actions to get debt down—on his analysis, the faster, the better. But the growth crisis is now global.
Does the Chancellor agree that the coming together of powerful negative forces in every continent, including in Britain—continued deleveraging by banks and the private sector, drastic tightening of consumer spending and fiscal retrenchment from Governments—now means that some commentators warn that the crisis could become as grave as that of the early 1930s, when Governments around the world ignored their collective responsibility to promote growth, ploughed on with austerity and retrenchment and ushered in a decade of depression, unemployment, protectionism and political instability? Here in Britain, families and businesses, deeply worried about their jobs and mortgages, will hear the Chancellor’s talk of safe havens and conclude that he is either deeply complacent or in complete denial about what is happening in our country.
Since the Chancellor’s economic policies have started to kick in, well before the latest bout of financial market instability, confidence has collapsed and our economy has flatlined for nine months, growing slower than that of the US and the eurozone. On the latest OBR figures, before growth forecasts—which the Chancellor today confirmed—were to be downgraded yet again, the borrowing forecast was £46 billion higher than the Chancellor planned.
We need a tough, medium-term plan to get our deficit down, but it is the Chancellor’s reckless—[Interruption.]
Ed Balls
The Chancellor’s reckless policies—too far, too fast—have ripped out the house’s foundation and left our economy deeply exposed to the brewing global hurricane. Yet, despite all the evidence and with our stock market falling 10% or more this week, the Chancellor still claims that his policies are working and that we are a safe haven. Despite the evidence of the past two years from credit default swaps and the fact that, in the past week, long-term interest rates have fallen in Britain and in the US, he still claims that falling UK long-term bond yields are a sign of enhanced credibility and not of stagnant growth in our economy. Does he not remember that the Japanese Ministry of Finance briefly took some comfort from low and falling bond yields in the early 1990s, at the beginning of a lost decade of no growth and stagnation? However many times he says that his plan is working, that does not make it true. However, many times he claims that he has restored confidence or delivered on deficit reduction, that does not make it true.
We know that the Chancellor has spent the past fortnight in Hollywood, but he cannot just write the script and watch it come to life. That is not how things work in the real world. If he will not take it from me, perhaps he should hear the words of Paul Krugman, the Nobel prize winner, who said:
“Britain’s experiment in austerity is going really, really badly. But the Chancellor of the Exchequer is finding solace in… fantasy… the wolf is at the door and Osborne thinks it’s the confidence fairy.”
The Chancellor finds the state of the British economy reassuring; we find it deeply worrying. He rejects our call for action now, including a temporary VAT cut, and vows to plough on regardless. We say that this approach is deeply incautious and reckless. The eurozone is in crisis. America is in political paralysis. The British economy is flatlining. Global markets are in turmoil. The world desperately needs strong and united leadership. Here in Britain, we need our Chancellor to get out of his complacent denial and get back to reality before it is too late.
Mr Osborne
I did meet Mickey Mouse in California, and he seems to be writing the Labour party’s economic policy at the moment.
Let me start with the areas where we agree. We agree that it is right for Britain not to join the euro—perhaps the shadow Chancellor will change the official policy of the Labour party in that respect. I would be very happy to offer him a briefing from the tripartite authorities on the contingency plans of the financial system. Obviously, they have to remain confidential, as he will understand, but I am very happy to give him that briefing.
On what the shadow Chancellor says about European countries being forced to reduce their deficits, I would ask him this question. Who is supposed to be lending those European countries the money that he talks about, in this imaginary world where they are not taking action to reduce their deficits? He voted against the decisions that we took to increase the resources of the IMF, and now he turns round and thinks that there is some magical body or some investors out there who are going to lend money to European countries that do not have credible deficit plans. It is completely for the fairies, as he puts it.
Let me talk about the US debate, which the right hon. Gentleman mentioned. He talked about deficit reduction in America and asked where I stand on the measured pace argument. Actually, I agree with the plan that President Obama set out at George Washington university. [Interruption.] Perhaps the Leader of the Opposition does not know what is going on in America at the moment, but actually, the President of the United States has set out a deficit reduction plan that is at the same pace and on the same scale as the one that we are pursuing in Britain. That is what the President has set out; it is his offer in the debate. Indeed, the composition of tax increases and spending reductions that he has put forward is the same as the spending consolidation that we announced last year, and is based on some of the ideas put forward by the bipartisan Bowles-Simpson commission, which we spoke to after the event. It said that it looked to the UK for inspiration for some of its ideas.
The shadow Chancellor says that there is a global economic crisis. He is right about that, and we agree, but it is caused by an enormous debt overhang. That is what all serious economists are saying at the moment. He is also right when he says that the Labour party needs a tough deficit reduction plan. I agree with him about that. Where is this tough deficit reduction plan? We have just spent two and a half hours listening to Labour MP after Labour MP getting up and complaining about spending cuts and the deficit reduction plan—they are all nodding their heads—but where is the tough deficit reduction plan that he promised? The shadow Chancellor is now almost alone in the world in making the argument that he makes. He talks about international leadership, but if he turned up at the G7, the IMF, the G20 or ECOFIN with his plans to borrow more and increase our deficit, he would be laughed out of that meeting. He is completely irrelevant to where the international debate has gone. I am afraid that he is living proof of why the public will never again trust the Labour party with their money.
Mr Andrew Tyrie (Chichester) (Con)
Does the Chancellor agree that the collapse in the credibility of the eurozone is a warning to any Government who flinch on dealing with the deficit? Is that not why he is quite right to stick to the commitments that he made a year ago to put the country on a course to greater stability? Does he not also agree, however, that the credibility of economic policy in the long run will depend on a fully developed strategy for improving the supply side of the economy? He talked a bit about that at the end of his statement. Will he say a bit more, and say whether he intends to publish a fully worked up improvement to the strategy for growth that he put forward at the time of the last Budget?
Mr Osborne
I completely agree with what the Chair of the Treasury Committee says about the credibility of the deficit reduction plan and how disastrous it would be in the current environment to weaken that plan. We would—within hours, I think—find ourselves sucked into the global debt whirlpool from which other countries are struggling to get out. I also agree with him that we need to do more to improve the supply side of our economy. That is hard work for Governments, and it means taking on difficult vested interests. We have seen the argument in the last few days about planning controls, where we are trying to make it easier to have economic development, and there are plenty of groups that pop up and oppose that. That is an example of some of the battles that we will have to have and win. I can confirm that we will be producing the second phase of our plan for growth at the time of the autumn forecast.
David Miliband (South Shields) (Lab)
I would be grateful if the Chancellor confirmed private sector estimates that I have seen that a 0.4% downgrade of the growth forecasts for the next four years means that it will be impossible for him to hit his fiscal target of turning the debt-to-GDP ratio down by the end of this Parliament.
Mr Osborne
The most recent independent analysis of the British economy was done by the IMF this month. It made an assessment using lower growth forecasts, and came to the conclusion that we will hit both our fiscal mandate and our target for reducing debt, which the IMF made clear in its article IV assessment. I cannot help but note that if the right hon. Gentleman had given the leader’s speech that he had written, the Labour party would be in a much more credible place than it is today.
Malcolm Bruce (Gordon) (LD)
As the wolves circle country after country, are this coalition Government not vindicated? They were absolutely right to come together with a robust strategy to bring our public finances into balance over the lifetime of this Parliament, while the Labour party lacks credibility. If there is one area where we can ensure that that is done in a fair and equal way that puts the lower and middle-income groups in the driving seat of recovery, it is the accelerated process of increasing the tax threshold, and reducing taxes on those people is the best way to do that.
Mr Osborne
The right hon. Gentleman is absolutely right that we are taking more than 1 million low-paid people out of tax altogether, implementing the policy that the Liberal Democrats put forward at the general election. I also agree that what he describes is a vindication not just of the economic decisions we took, but of the political decisions we took. Let us reflect on the fact that a year ago we had a hung Parliament—the first time since the 1970s—and we formed a coalition Government. That was a difficult decision for both political parties involved, but given the political weakness in some other countries, which is driving a lot of the market concern about those countries, the political strength of the Government in Britain is a tribute to both those political parties, which set aside their political differences and came together in the national interest.
Mr Geoffrey Robinson (Coventry North West) (Lab)
Will the Chancellor—who persists in this bewildering implausibility that his plan is working—please tell the House by how much this financial year he will fall short of his target for deficit reduction?
Mr Osborne
The important difference between the hon. Gentleman's time in the Treasury and my time in the Treasury now is that we have the independent Office for Budget Responsibility making those announcements. It is not the Chancellor who makes those announcements from the Dispatch Box, for the very simple reason that by the end of the last Government, those Treasury pronouncements were so discredited that they were believed by absolutely no one. One of the important early decisions that we took to restore credibility in British public finances was the creation of the independent OBR, which makes those announcements.
Tracey Crouch (Chatham and Aylesford) (Con)
Will the Chancellor tell the House whether the UK economy is growing faster than the US economy this year, and if so, why?
Mr Osborne
In the first two quarters of this year the UK has grown more strongly than the United States, but that is not a source of comfort for the world, because we need a strong US economy as well, and we want to help to bring about the international framework that will enable that to happen.
Mr Gordon Marsden (Blackpool South) (Lab)
Is it not revealing that it took to the end of page 5 of his speech for the Chancellor even stutteringly to mention the word “growth”? Will he now reflect on the fact that it is his reckless abolition of regional development agencies and his failure to put money into the local enterprise partnerships that were supposed to solve the problem that have left the English regions stagnant in growth over the past nine months?
Mr Osborne
Both the hon. Gentleman and I represent constituencies in the north-west of England, and the striking fact about the RDAs is that during their period of existence regional disparities grew. They did not work in the way that they were supposed to work. Because local enterprise partnerships involve businesses and are on much more practical boundaries, they will help to deliver that local growth. However, if he thinks that all the world’s problems are caused by the fact that we got rid of the RDAs, he is exaggerating his case.
Mr William Cash (Stone) (Con)
The Chancellor will know that our trade balance between 2002 and 2009-10 with the other 26 member states has gone up from minus £14 billion to minus £53 billion in one year? Does he not agree that even Edward Heath would have repudiated and vetoed a fiscal union with a hard-core Europe with such an incredible trade deficit against us? The coalition agreement, according to the latest answer I got from the Prime Minister, determines our relationship with the European Union. Does the Chancellor disagree with the Deputy Prime Minister, because we must have radical renegotiation of the treaties and the repatriation of powers so that we can achieve growth for all our businesses?
Mr Speaker
I enjoy listening to the hon. Gentleman’s words so much that it is in my interest, Parliament’s interest and the national interest that they should be suitably rationed.
Mr Osborne
My hon. Friend and I will have to agree to disagree on this issue. The remorseless logic of monetary union leads towards fiscal union, and that was one of the reasons that I opposed joining the single currency. However, it is now in our interests to allow that to happen more in the eurozone, because it is in our absolute national economic interest that the eurozone is more stable. It is clear that that means that they need to have more fiscal powers to reduce instability. That means, of course, that Britain must fight hard to ensure that its interests are represented and that we are not part of this fiscal integration. Important decisions, such as on financial services, must continue to be taken at the level of 27. He talks about treaty changes and so on, but the prospect of a major treaty change to bring about eurozone fiscal integration is not imminent, although I imagine that there will be a lively debate if and when it comes about.
Meg Munn (Sheffield, Heeley) (Lab/Co-op)
The number of people claiming jobseeker’s allowance in my constituency has gone up massively, with hard-working people with good work records unable to find jobs. Why will not the Chancellor look seriously at areas such as mine, do more and take some measures—such as reducing VAT—to put money into the hands of ordinary people?
Mr Osborne
We have announced an enterprise zone for Sheffield and we will have further announcements to make on enterprise zones in the coming weeks. The evidence of the past 10 years is that in important regions of our country—I have in mind the statistics for the west midlands, rather than for the hon. Lady’s constituency—private sector employment fell over the decade before the financial crash. That shows that that model of growth we pursued, based on the biggest housing boom of any country—with the possible exception of Ireland—the most over-leveraged banks and the highest budget deficit, ultimately led to ruin. We need a different model of growth in which we grow the private sector in areas such as Sheffield and get real, lasting jobs, rather than assuming that we can just use Government spending to create them.
Mr John Redwood (Wokingham) (Con)
As someone who believes that we need to get the deficit down and do more to assist growth to help that, will the Chancellor look at the dreadful losses at RBS and the big hit on capital values on its shares, and see what more can be done to manage that colossal pool of assets in the interests of economic growth and the taxpayer?
Mr Osborne
We of course continue to monitor the situation at RBS and all the British banks very closely. There is a concern in the financial markets about the capitalisation and liquidity provisions of banks in many countries. I have to say that those concerns have not been expressed at the moment about the UK. We passed the stress tests well and we have a strong liquidity provision in place for the banks, including RBS, and the markets can therefore have confidence in British banks.
Mr Michael Meacher (Oldham West and Royton) (Lab)
Is it not clear that the Chancellor’s whole strategy is failing, as it is now almost entirely dependent on achieving growth? As the economy has been flatlining for nine months, export markets are stymied, quantitative easing has already been tried with little or no effect and interest rates are already flat on the ground. Where exactly does he expect the growth to come from to get us out of prolonged stagnation?
Mr Osborne
As I have said, the British economy is growing and it is the assessment of the Bank of England and the Office for Budget Responsibility that it will continue to grow. The growth in the last six months has actually been stronger than in the United States, and half a million jobs have been created in the private sector in the last year—
Mr Osborne
In the past 12 months. So that is all good news. Where does the right hon. Member for Oldham West and Royton (Mr Meacher) expect the money to come from for additional Government borrowing? Who in the world would lend to a country that abandoned its deficit reduction plan at a time like this, especially a country such as Britain which, unfortunately, has the highest budget deficit in the G20?
Mr Charles Kennedy (Ross, Skye and Lochaber) (LD)
Given that we are all still hearing that the banks are not making sufficient funds available to small and medium private enterprises in our constituencies and that that is the fulcrum on which the Government’s strategy has been based to make up the deficit from the loss of jobs in the public sector as a result of the strategy being pursued, and that we now have a downward estimate for growth, what did the Business Secretary mean when he said that we would have to find more imaginative ways of getting the money through? What did he mean by that and does the Chancellor agree?
Mr Osborne
The challenge that we and many developed countries face is that banks are shrinking their balance sheets, because they got too big and they lent too much money. They are also hoarding capital because of the current market turbulence. What we are trying to do as a Government is to ensure that, in that process, lending to small and medium businesses is protected and indeed increased. We signed the Merlin agreement with the banks at the beginning of the year to see an increase of 15% in small business lending. The Bank of England will publish the figures tomorrow, so I cannot give them today, but the banks have already indicated that they are on track to meet that 15% increase in small business lending over this year and I am confident that the figures tomorrow will show that that is the case.
Stewart Hosie (Dundee East) (SNP)
The June 2010 Budget described the deficit reduction plan as adding £8 billion of tax rises a year from 2014-15 and £32 billion of cuts from 2014-15 every year on top of the £73 billion or so fiscal consolidation that Labour had in mind. It also forecast growth from this year of 2.3%, 2.8%, 2.9%, 2.7% and 2.7%. Those growth figures are now shredded. What will the Chancellor do? Will he increase taxes or cut public spending further, or did he mean by saying that we had to adjust our expectations accordingly that he would change his deficit reduction target?
Mr Osborne
We are not proposing for a second to change our deficit reduction target. The target is a structural budget deficit target and was deliberately set as such. The reason we set out those plans in the emergency Budget and went beyond the previous Government’s mantra of halving the budget deficit in four years—not that they had actually written in the proposals to do that—was because on the day we came into office our country’s credit rating was on a negative outlook for a downgrade. Our market interest rates were tracking Spain’s and everyone from the Governor of the Bank of England to the IMF and the CBI was saying that the previous Government’s budget deficit plan was not credible. If we had stuck with that plan and even filled in the blank spaces, we would now be part of the sovereign debt crisis whirlwind that is engulfing other countries.
Michael Fallon (Sevenoaks) (Con)
Before there is any further attempt to rewrite history, can the Chancellor confirm again that until last year’s emergency Budget and spending plan this country’s triple A rating was on negative outlook and was restored to stable only through the measures he took last year? Is not the real lesson of the United States that any country that goes off its fiscal deficit reduction plan can suffer a downgrade, with all the damage to jobs and prosperity that that entails?
Mr Osborne
My hon. Friend is absolutely right. In January last year the largest bond investor in the world said that UK gilts
“are resting on a bed of nitroglycerine.”
Today I could read out a whole string of comments from market participants saying that the UK has been a safe haven in this sovereign debt crisis because of the decisions that we took.
Standard & Poor’s, the rating agency that has just downgraded the United States, took the United Kingdom off “negative outlook” and reaffirmed our triple A credit rating. The practical consequence of that is much lower interest rates. If we pursued the policy proposed by the Opposition of more spending and more debt, the immediate response would be higher interest rates which would kill off any recovery. That is why such a policy is economic madness.
Alison McGovern (Wirral South) (Lab)
Given poor and worsening United Kingdom growth, at what point will the Chancellor advocate further quantitative easing? If he will not answer that question, will he tell us whether he believes that there is no chance that rapidly rising sterling will hurt our exports?
Mr Osborne
Both those matters are properly for the Bank of England. It is for the Governor to comment on the value of sterling, if he chooses to do so. As for quantitative easing, the arrangements agreed by the last Government, which I have retained, remain in place. If the Monetary Policy Committee makes a serious request, of course we will consider it seriously, but we have received no such request.
Sarah Newton (Truro and Falmouth) (Con)
Moneyfacts reported yesterday that the low cost of borrowing in the United Kingdom means that, on average, five-year fixed-term mortgages are now £1,400 cheaper than they were two years ago. That is very welcome news for my hard-working but squeezed constituents. Will the Chancellor confirm that he will continue his policies, which will deliver the low interest rates that are so important to families and businesses across the country?
Mr Osborne
Absolutely. I think that interest rates are often the missing part of the debate in the Chamber. It is simply economically impossible at the moment for the Opposition to have more spending, more debt, and low interest rates. Those things do not square in the current global economic environment. The automatic, immediate response from the market, and quite possibly from the Monetary Policy Committee, would be an increase in interest rates if the Opposition abandoned our fiscal plans. We would have higher interest rates that would kill off any recovery.
Mr Osborne
We abandoned the Bretton Woods arrangements in the early 1970s, so it has been a while since we have operated under those international arrangements. Let me, however, make a few observations, because the hon. Gentleman has made a serious point about the eurozone.
I think that it would be disastrous for Britain’s economy if the eurozone were to break up, and I think that it would also be disastrous for the economies of the eurozone themselves. It would lead immediately to a balance of payments crisis in many European countries. That is why it is in our interests for the eurozone to work. Some of us questioned whether it was right to go ahead with it 15 years ago—we certainly did not want Britain to be part of it—but it exists now, and, as I have said before, “I told you so” is not an economic policy for today.
I agree with the hon. Gentleman that we need better international arrangements to monitor and deal with global imbalances. For instance, there are currently huge creditor countries such as China, and big debtor countries such as the United Kingdom and the United States. I am afraid that progress on that at the G20 and the International Monetary Fund is painfully slow. At some of the meetings, it has not even been possible to agree on the definitions. I hope that, if there is a silver lining to the present black cloud of the financial market crisis, we will see at the autumn meetings of the various institutions much more progress towards the arrangements that I think everyone accepts should be in place.
Alun Cairns (Vale of Glamorgan) (Con)
I congratulate the Chancellor on the deficit reduction programme that has secured the United Kingdom’s triple A rating, but can he tell us what analysis he has made of the rising price of gold, and how much better off the UK economy would be if the last Government had not sold off our gold in the same way?
Mr Osborne
I expected that that question might arise, as it often does at Treasury events. As people will have seen, the price of gold has hit a record high of $1,800. It was $300 when the shadow Chancellor sold our gold stocks. As a result of that action, this country has lost £12 billion.
Sir Stuart Bell (Middlesbrough) (Lab)
The House will have noted that the Chancellor did not mention the fact that inflation is approaching 5%, the fact that that our borrowing is £46 billion higher than his figure, or the fact that consumer and business confidence is falling. He did mention his growth plan, but there is no growth. When will he accept the paradox that the sharper and deeper the cuts, the less growth there will be?
Mr Osborne
The question that I would ask the hon. Gentleman is this: who in the world does he expect to be lending money to countries with very high budget deficits if they do not have credible deficit reduction plans? What group of people would put their money on the line? That is precisely the problem that we have at the moment in the global financial markets.
The hon. Gentleman asked about inflation. Yesterday, at his press conference, the Governor of the Bank of England said that he expected it to hit 5% this year. Let me draw attention to another silver lining to the dark clouds. Commodity prices have fallen in the last few weeks, and the oil price has fallen somewhat from its high. One of the biggest challenges that all developed and, indeed, developing countries have faced in the last year or so has been the very big increase in the oil price.
Mr Brian Binley (Northampton South) (Con)
I welcome the Chancellor’s comments about the need to cut deficits. Let me also remind him that a healthier market is important to our export performance, and that growth requires buyers and sellers to have the confidence to transact. Will he therefore, while steering the economy, remember that the need to instil demand in the British economy is very important to households and businesses? May I ask him not to lose sight of that?
Mr Osborne
Of course I agree that we need demand. I think that demand comes partly from confidence, and that confidence comes from economic stability. If we think of the difference between the statement that I have been able to make today in the House of Commons and the emergency statements and emergency budget cuts that many Finance Ministers have had to announce in the last two weeks, we have, in a nutshell, the reason why we made the right decisions last year to get ahead of the curve, and why so many other countries are now trying to catch up.
Valerie Vaz (Walsall South) (Lab)
Can the Chancellor explain how relaxing planning controls will stimulate the economy when offices, houses and shops are already standing empty in my constituency?
Mr Osborne
Of course we need to fill vacant properties, but we also need to allow new development. I think that we all want to protect areas of outstanding natural beauty in our country, and I have a constituency in the green belt, but planning decisions in this country are so lengthy, so bureaucratic and so costly that almost every study of the British economy that has been commissioned in the last decade has identified planning as an obstacle to further economic development. I think that we need to simplify those planning controls so that we can—yes—protect the countryside, but also secure decisions in reasonable time that allow development to take place. That is why we have introduced the presumption of sustainable development into the planning system.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
What further help can the Chancellor give small businesses, 4.5 million of which employ fewer than five people? If a quarter of them employed an extra person, that would make a huge dent in the unemployment register.
Mr Osborne
Small businesses are, of course, the engine of job creation in our country. As I have said, 500,000 new jobs have been created in the private sector over the last year. That is the second highest rate of job creation in the G7. As for specific help for small businesses, we avoided the increase in small business taxation that the Labour party included in its last Budget.
Mr Osborne
The hon. Gentleman shakes his head. He obviously did not know that there was to be an increase in small business taxation. We have cut it.
We have also introduced support for the exports of small business. A central part of the strategy developed by Stephen Green as trade Minister is helping small businesses to export. I have already mentioned the Merlin lending agreements with banks, which are beginning to bring about an increase in lending to businesses that simply was not happening last year.
Chris Williamson (Derby North) (Lab)
In view of the flatlining economy, and given that inflation is set to hit 5%, the spectre of stagflation looms large. Can the Chancellor tell us why he is so wedded to crackpot Tea party economics when it is plainly failing the country?
Mr Osborne
It sounds like the shadow Chancellor wrote that question. Let me repeat what I said earlier: the proposal Barack Obama put forward in his speech at the George Washington university is for a deficit reduction in the United States of the same pace and scale as the one we are pursuing in Britain. That is because in America, too, they understand that they have to deal with their budget deficit.
Mrs Anne Main (St Albans) (Con)
Europe is making increasing demands on our pension pots and our benefit pots and, indeed, it recently made a demand on our VAT. Is it not time that we had a debate on how much we pay towards Europe? The Chancellor says it would be economically disastrous if it broke up, but there should be a debate. Some 75,000 people have signed a Daily Express petition asking for a debate on this, so surely there should be an autumn debate?
Mr Osborne
We do debate the European budget in this Parliament, and they are often quite lively debates. We are fighting hard for a real-terms freeze in the European budget not just for next year but for the coming new financial perspective from 2014, and we have enlisted a number of allies. There is now an understanding across Europe that, with very tough public expenditure decisions at home in every European country, we also need to get control of the European budget.
Stephen Timms (East Ham) (Lab)
The momentum for growth in the UK economy has clearly now run out, and I am glad that the Chancellor will make announcements on growth in the autumn. As he plans for them, will he take account of the International Monetary Fund’s view that if there is the prospect of a lengthy period of weak growth ahead, he should be willing to consider temporary tax cuts?
Mr Osborne
Of course we bear in mind advice from the IMF and others, but it makes it clear that that is not its central view at the moment. It asked itself a specific question, and it says this:
“The weakness in growth and rise in inflation raises the question whether it is time to adjust macroeconomic policies. The answer is no…Strong fiscal consolidation is underway and remains essential”.
That is what the IMF says in its article IV report into the United Kingdom published on 1 August this year.
Jeremy Lefroy (Stafford) (Con)
Recently, the UK has been the highest per capita exporter of services in the world, and that is vital for future growth. What action are the Government taking to ensure that we can continue to compete globally in services on a level playing field, and particularly in the European Union?
Mr Osborne
First, while not all the recent economic data have been encouraging, the services index for the United Kingdom in the last couple of weeks was the strongest in Europe, which gives us some cause for optimism in that sector. I agree that we want to maintain our competitiveness, and that we want to export more to Europe. I think Europe’s agenda should be much more about completing the single market and implementing measures such as the services directive, which has merely sat on the “Too Difficult to Handle” shelf for far too long. That is the agenda that we need to get the European Union focused on.
Nia Griffith (Llanelli) (Lab)
Last week I visited the Dividers Modernfold factory in my constituency. In common with many other construction products companies throughout the country, it is very worried about the prospects for immediate economic growth, particularly in the light of public procurement cuts. What precisely is the Chancellor going to do in the very near future to stimulate demand and growth, so we can create and safeguard jobs in the private sector? We do not want to be fobbed off with the sorts of answers he has just given to my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and the Chancellor’s party colleague, the hon. Member for Northampton South (Mr Binley).
Mr Osborne
In the spending review, we set higher capital budgets than those set out by my predecessor, the Chancellor of the Exchequer in the last Labour Government. Therefore, capital spending budgets are higher than they would have been under the plan the hon. Lady stood on in the last election.
On getting the construction sector moving, that is precisely why we are tackling issues, such as the planning delays, that have been so difficult, and why we made a number of tax changes in the Budget to help the construction sector. The construction index was also positive in the last couple of weeks. I just say to the hon. Lady that when we are running the highest budget deficit in the G20, it is not possible to abandon our fiscal consolidation plans and to seek someone out there in the world to borrow more money from. That would lead to markedly higher interest rates—we need only look at the interest rates in Spain and Italy at present—and we know that higher interest rates do particular damage to the construction sector.
Mr Tobias Ellwood (Bournemouth East) (Con)
I congratulate the Chancellor on sticking to his deficit reduction plan, which has allowed us to keep our triple A rating, unlike some other countries, including the United States and possibly now France. If France were to lose its triple A rating, what would be the implications for the EU stability fund and the ability for eurozone bail-outs to continue in the future?
Mr Osborne
My hon. Friend asks a good question, which is being asked in the markets at present. I have to say that one of the causes of the instability in the last couple of weeks has been loose comments by Finance Ministers on issues such as that which he raises, so I will “take the Fifth” and not comment.
Jeremy Corbyn (Islington North) (Lab)
Does the Chancellor of the Exchequer have any concerns about the unaccountable power of the credit rating agencies, who, seemingly at a whim, can cause disasters to be visited on small and vulnerable economies, increase interest rates, and lead to public spending cuts and devastation to many poor people’s lives? Does he not think it is time that these rating agencies are brought under some kind of accountable control?
Mr Osborne
It might surprise the hon. Gentleman to learn that I agree with at least part of what he says: we do have concerns about how the credit rating agencies have operated. That is why we have been part of the European discussions to get some European rules on credit rating agencies put in place, and I think they are appropriate. I disagree with the hon. Gentleman, however, on blaming all of what is happening on credit rating agencies. However imperfect they might be, credit rating agencies are trying to give market investors some idea of the credit worthiness of countries and companies. The truth is that they have not led to the spending cuts. The reason why we have had to undertake spending cuts is that this country is currently spending close to 50% of GDP on public expenditure, which is far higher than the historical average under Conservative and Labour Governments. That is why we are having to act. We are doing so because we have a record budget deficit—the highest in our peacetime history and the highest in the G20.
Mr Mark Spencer (Sherwood) (Con)
The Chancellor referred to Merlin and the agreement with the banks, but is he aware that these banks are double-counting their lending by forcing businesses to convert overdrafts into long-term loans? A business in my constituency wants to expand. It has full order books and wants to take on more staff, but it cannot do so because not only are the banks not being helpful, but they are actually being obstructive.
Mr Osborne
I would be very happy to look at that specific constituency case. Let me look into the details and get back to my hon. Friend with an answer, or meet him in person to discuss it.
Dame Anne Begg (Aberdeen South) (Lab)
The sluggish growth rate has led the Office for Budget Responsibility to now forecast even higher unemployment. More jobs are being lost in the economy than are being created. The Government’s own policies are adding to that, because they are putting new work obligations on to people who have been out of the work force for some time. While it is absolutely right that the Government help people to find jobs, not all of them will do so. It is very wrong that people who are doing all they can to find work and still have not done so will find they are facing the loss of their benefits. In light of the new growth figures, will the Chancellor speak to the Secretary of State for Work and Pensions, as the sanctions on these people should be lifted?
Mr Osborne
First, if I might correct the hon. Lady, the OBR is not forecasting rising unemployment over the Parliament; it is forecasting falling unemployment over the Parliament. I also remind her that half a million private sector jobs have been created over the last year. Let me deal directly with her point about social security. The welfare system is a poverty trap that is discouraging people from working. People on benefits face incredibly high marginal tax rates if they find work. That is why my right hon. Friend the Secretary of State for Work and Pensions is, with my full support, seeking major reform of the welfare system, so we incentivise people off benefits and into work. That is one of the most important reforms this Government are undertaking.
Duncan Hames (Chippenham) (LD)
Give our country’s debts, it is reassuring to learn that the price for Government borrowing has fallen to the lowest levels since the last Liberal Government. How much more expensive would Government borrowing be for taxpayers and public services if our interest rates had gone the same way as those in other parts of Europe?
Mr Osborne
It would of course have been ruinous, not just for individuals but for the Government. One of the largest items of Government spending I inherited, unfortunately, was debt interest. We are raising taxes in order to pay our international creditors and that interest is forecast to rise, sadly, over the Parliament, as we reduce the deficit. That is why it is so important to try to get debt falling by the end of the Parliament. Of course, any reduction in our gilts yields is good for the Government and saves us money, too.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
Can the Chancellor explain why his own Office for Budget Responsibility forecasts £46 billion of more borrowing?
Mr Osborne
The Office for Budget Responsibility makes its independent fiscal forecasts and, I think, one of the great policy developments of this Government has been the creation of that independent body, which will make its autumn forecasts in the usual way.
Laura Sandys (South Thanet) (Con)
The Chancellor rightly mentioned the issues about the Doha round and trade. Trade permeates every aspect of our Government’s growth agenda. Will the Chancellor comment on whether he believes that the G20 appreciates how crucial releasing trade and ensuring greater free trade is at this moment in the global economic cycle?
Mr Osborne
My hon. Friend is right to draw attention to the Doha round. The significance of this is that it is available for the countries of the world to seize—today, this month or next month—and implement. If one is looking around the world for something that could, in very short order, increase global demand, it is sitting there in the Doha trade round. I hope that we make progress at the G20. I suspect we will certainly be a leading advocate of making progress and we have some good allies, for example in China, but I have to say that there remain considerable obstacles, not least in the Democrat and Republican parties in the United States.
Steve McCabe (Birmingham, Selly Oak) (Lab)
If it is true that we are being used as a safe haven, why are we not seeing significant growth in the value of sterling?
Mr Osborne
As I say, I have a simple policy not to comment, as previous Chancellors have also decided to do, on the value of sterling. I do not propose to break that commitment today.
Matthew Hancock (West Suffolk) (Con)
In terms of the stimulus to the British economy, what does the Chancellor think would be the effect of increased borrowing, which would then have an impact on increased mortgage rates for millions of people up and down the country? What would be the aggregate impact, say, of a VAT cut?
Mr Osborne
My hon. Friend is right that there is a significant monetary stimulus in place through the very low market interest rates and of course the official rate. Both of those would go up, almost certainly in the case of the markets and probably in the case of the Monetary Policy Committee, although it is independent, and that is why all this talk of more fiscal stimulus is a debate that is happening only in the Labour party of the United Kingdom, alone in the world. It is very difficult to find an opposition anywhere in Europe arguing for less deficit reduction coming off the published plans of a Government. As I say, if the shadow Chancellor turned up at one of these meetings and put forward his proposal, he would be laughed out of the meeting.
Andrew Miller (Ellesmere Port and Neston) (Lab)
On a bipartisan basis, may I invite the Chancellor, as a fellow Cheshire MP, to join me in sending our best wishes to the two Cheshire officers injured last evening?
On the subject of the statement, 11% coming off the stock market and massive hits to the values of British companies will have a knock-on impact on many pensioners. What is the Chancellor going to do about it?
Mr Osborne
Of course, stock market falls affect pension investments and other equity investments. Our stock market has fallen—not as much as some, but it has nevertheless fallen—
Mr Osborne
It is because of the global lack of confidence in Governments’ abilities to deal with their deficits. We have not seen turbulence in our bond markets precisely because we have in place a credible deficit reduction plan. I note that I have been answering questions for more than an hour and it has almost been an hour since the shadow Chancellor said that the Labour party needed a credible deficit reduction plan, but has a single Labour MP got up and proposed any component of that reduction plan? No, they have not.
David Rutley (Macclesfield) (Con)
I welcome my right hon. Friend’s statement and the fact that over the past year we have seen the private sector create four times more jobs than have been lost in the public sector. Does he agree that this is a better approach to job creation than the overreliance on the public sector, which was all too prevalent over the past decade in regions such as the north-west under the previous Administration?
Mr Osborne
My hon. Friend is absolutely right. First, I should take the opportunity that I did not take in answer to the previous question—as my hon. Friend, too, is a Cheshire MP—of praising the work of the Cheshire police, who have shown outstanding bravery over the past few days. My thoughts go out, as the hon. Member for Ellesmere Port and Neston (Andrew Miller) said, to the injured officers.
My hon. Friend is absolutely right. Surely we have learned something from the past decade, which is that relying on an unsustainable housing boom, unsustainable Government spending and unsustainable bank lending is not a model of growth that this country can pursue again. We have to get off this country’s addiction to debt, not just in the Government but in banks and households. That is what we are doing and it is a difficult adjustment that many western economies are having to go through. Unfortunately for us, given that we were the most enthusiastic participants in the debt boom, that adjustment is particularly difficult here in the UK.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Does the Chancellor agree with the recommendations of the recent economic commission of the Conservative party in Wales that job creation levers should be devolved to the Welsh Government? Does he agree that there is no need for another lengthy commission to come to that sensible conclusion?
Mr Osborne
As the hon. Gentleman knows, we are in active discussion with all the parties in Wales and with the Welsh Assembly Government, discussing what further powers might be devolved to the Welsh Assembly, including fiscal powers that might have a role in economic development. I do not want to pre-empt that debate, but the fact that we have been prepared to engage in it shows that we are doing this in good faith.
Neil Carmichael (Stroud) (Con)
Given the credibility that the coalition Government have won through their deficit reduction programme, securing a triple A rating and having low interest rates, does the Chancellor think that it would be appropriate to send a message to encourage the same kind of decision making—swift and strong—across the eurozone?
Mr Osborne
I think we have got ahead of the curve. As I say, I am not one of those Finance Ministers who are having to come to their Parliaments and announce emergency budget cuts because they did not get ahead of the curve. It is important for the eurozone countries, and all countries, to have fiscal credibility. There are many good examples in the eurozone of countries that have done that and we are part of that pack.
Margaret Curran (Glasgow East) (Lab)
I draw the Chancellor’s attention to the unemployment rate in my constituency, where 24 people are chasing every vacancy. People in my constituency have learned lessons from previous years: we learned from Mrs Thatcher that mass unemployment is not a price worth paying. What does the Chancellor intend to do to tackle unemployment in my constituency, which seems likely to rise?
Mr Osborne
I would make the observation that only every Labour Government in history have left office with unemployment higher than when they came into office.
Nicky Morgan (Loughborough) (Con)
Is not the best way to help the hard-pressed families, taxpayers, jobseekers and pensioners mentioned by Members in all parts of the House—people who are not rioting, but getting on with the business of trying to make savings in their budgets and their family’s income—to ensure a stable economy, so that they can make sure that their living standards are maintained in the long term?
Mr Osborne
My hon. Friend is right. What we are able to provide in the Government debt market is the stability that is sadly lacking in other Government debt markets. All of us now need to rise to the challenge of removing the obstacles to growth; that will mean confronting some vested interests, pressure groups and, dare I say it, even, potentially, trade unions, but it is absolutely essential that this country wakes up to the competitive pressures of the modern world—the competitive pressures that countries such as China and Brazil present to us—and gets the private sector growing in a way that will create the sustainable jobs that were so lacking in the past 10 years.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
Last year, Government borrowing came in some £20 billion lower than was anticipated; this year, we learn that it will be some £46 billion higher than was forecast. Can the Chancellor give us an explanation?
Mr Osborne
As I have already explained, we have an independent Office for Budget Responsibility—[Interruption.] I am pretty tempted to say that the answer is that the previous Chancellor did not want to have to downgrade his borrowing forecast four weeks before the general election, so he kitchen-sinked the borrowing forecast a year before, to make sure that he was able to show a reduction just before the general election.
Jo Swinson (East Dunbartonshire) (LD)
I support the Government’s plans for cutting the deficit, leading to lower interest rates and increased international confidence in the UK economy, but the Chancellor is well aware that our economy is still fragile, so if tax revenues are higher than expected, or if there are receipts from asset sales, will the Chancellor reinvest that in capital infrastructure projects and skills development, to give a boost to our economy and create jobs, rather than being seduced by the voodoo economics of giving tax cuts to the rich?
Mr Osborne
There are quite a lot of American references in this debate. We have used the receipts of some of the asset sales that we have proposed—and indeed undertaken—to invest in new infrastructure, or in a particular industry. Of course, we have to do that on a case-by-case basis, but the spending review set out how we were going to use the proceeds of some of the asset sales for future investment.
Pamela Nash (Airdrie and Shotts) (Lab)
The Chancellor failed to mention in his statement that the Bank of England has now downgraded the growth forecast for this country five times since he took office. How does he reconcile that fact with his claim that Britain is a safe economic haven?
Mr Osborne
I reconcile it by quoting the Governor of the Bank of England, given that the hon. Lady mentions the Bank. [Interruption.] Labour appointed the Governor of the Bank of England; in fact, I suspect that the shadow Chancellor made the appointment. The Governor of the Bank of England said yesterday that
“the UK has done what it can”,
in terms of putting the major conditions in place to ensure a rebalancing and a recovery. He went on:
“We have a credible medium-term fiscal plan, which many countries do not”.
Andrew Jones (Harrogate and Knaresborough) (Con)
I welcome the Chancellor’s statement. If he accepted submissions to revert to a VAT cut through a debt-funded cut, would it have an impact on the UK’s triple A credit rating?
Mr Osborne
A multibillion-pound increase in our deficit would undermine market confidence in the UK, and would lead to an immediate increase in our market interest rates, probably within minutes. That would effectively mean higher mortgage and interest rates for businesses and families, and it would be one of the things that would choke off the recovery.
Alex Cunningham (Stockton North) (Lab)
I was pleased to visit TAG Energy Solutions in my constituency on Tuesday—a company that has just invested £20 million in a new rolling mill to make monopiles and transition pieces for the offshore wind industry. It is still to land its first order, and it is frustrated at the disadvantage that it has in comparison with Germany and other European countries, which buy at home. When will the Chancellor really do something to help British industry, ensure British wind farm developers buy British, help TAG create hundreds of jobs in Teesside, and get our economy moving again?
Mr Osborne
We are seeking to develop a domestic green energy industry; the company that the hon. Gentleman speaks of sounds like a good example of that. I hope that people buy British products, such as wind turbines, because they are the best in the world. To help that company make the best products in the world, we have to create a very competitive business environment, because the competition from the likes of Germany is so strong. Some of the decisions that have been taken on our energy policy have provided some stability, which allows investment in renewable energy technology.
Andrew Percy (Brigg and Goole) (Con)
The Humber is one of the regions that, over the past 10 years, lost private sector jobs, and instead relied on the public sector. Our way back is through manufacturing, so may I urge the Chancellor to look very closely at measures such as carbon floor pricing, and to look at clipping the wings of organisations such as Natural England, which are frustrating the planning process locally? Perhaps more parochially, will he look seriously at the submission from the Humber Bridge Board to buy the Humber bridge and cut tolls by next year?
Mr Osborne
I completely agree with my hon. Friend about the need to make progress on our planning reforms for the reasons that he gives. That means making some difficult decisions, and taking on some pressure groups, but I think that is absolutely right. Our planning reforms take into account the need to preserve our natural environment.
Believe it or not, I am very familiar with the subject of Humber bridge tolls because my hon. Friend the Member for Beverley and Holderness (Mr Stuart) is a tireless campaigner on them. The Treasury is conducting an economic study of the effects of the tolls, and that will report at some point in this Parliament.
Roberta Blackman-Woods (City of Durham) (Lab)
I congratulate the Chancellor on recognising, albeit somewhat belatedly, that there is a link between what happens in the global economy and what happens in the UK economy. In the light of that, what action does he intend to take to ensure that the problems with the US economy and the eurozone do not lead to further downward pressure on UK economic growth?
Mr Osborne
Unfortunately, I cannot make the UK invulnerable to events elsewhere in the world. Of course there is a global connection. I would draw this distinction between what I am saying and what the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), says. I am not saying that Britain has been blameless in the way it has handled its economy in the past decade or so. I am saying that we were the most enthusiastic participant in a global debt boom, and as a result we have one of the more difficult adjustments. That is, I am afraid, a statement of fact.
Roger Williams (Brecon and Radnorshire) (LD)
Recent reports have shown that the rural economy has the capacity to grow quickly if it has the right conditions. Will the Chancellor confirm in his autumn update on the plan for growth that those conditions will be met so that the rural economy can play its part in improving the national finances?
Mr Osborne
We recognise the specific needs of the rural economy. Meeting them is one of the specific work strands in the second phase of the growth review. I know something of the hon. Gentleman’s constituency. One of the absolute keys to rural economic development is getting the infrastructure right, especially rural broadband, which will open up all sorts of business opportunities in what would previously have been regarded as quite remote places. That is why we are right to be investing in rural broadband in Wales and across the UK.
Dr Alan Whitehead (Southampton, Test) (Lab)
Will the Chancellor take the opportunity today to repudiate the OBR’s linkage of low growth with a requirement of £46 billion additional borrowing over the next period? If he will not, what additional cuts is he planning in order to avoid that outcome?
Mr Osborne
The hon. Gentleman misunderstands two things. First, the OBR is independent. If it is going to work as a permanent institution, it will need the support of the official Opposition. I hope that that is forthcoming, not just in the letter but in the spirit. There should not be a constant demand for the Chancellor of the day to provide their own fiscal forecasts. Secondly, as I say, we have put in place a credible deficit reduction plan. We heard from the shadow Chancellor that Labour needed a credible deficit reduction plan as well. Not a single Labour Member, including him, has proposed a single pound of spending cuts. Until the Labour party gets that credible plan, it will not really be able to participate in a sensible debate.
George Freeman (Mid Norfolk) (Con)
Has my right hon. Friend seen the latest data which show not only that the private sector has created four times more jobs than the public sector has lost but that Britain is now second in the G20 league of net job creation? Does that not show that the deficit strategy is working, and that the shadow Chancellor is wholly out of touch and has not learned the golden rule that you cannot borrow your way out of a debt crisis?
Mr Osborne
The shadow Chancellor has a bit of a history on his golden rules, and they do not usually turn out to work, but my hon. Friend is right that we are seeing net job creation. We are not remotely complacent about that. We are working extremely hard at improving the competitiveness of British industry, making sure that it is able to export and invest. That is the model of growth that this country now has to pursue.
Katy Clark (North Ayrshire and Arran) (Lab)
As the Chancellor knows, growth figures over the past nine months have been 0.2% and in the preceding nine months they were 2.1%. Many of the suggestions from the Opposition are about growth and economic regeneration. If we continue to see growth figures of that nature, either flatlining or negative, will the Chancellor reconsider his position and look at policies that stimulate growth?
Mr Osborne
The only thing I have heard from the Opposition—who by the way presided over the deepest recession since the 1930s—is a complaint every time there is a proposal to cut public expenditure. We heard that earlier today. I have not heard about any growth policies—as the hon. Lady puts it—from the Labour party; I have just heard opportunistic opposition to everything the Government are doing to have a credible deficit reduction plan. The shadow Chancellor has set himself his own test; he says he will produce a credible medium-term fiscal deficit plan. Let’s hear it.
ECOFIN
George Osborne Excerpts(13 years, 3 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Mr George Osborne)
The Economic and Financial Affairs Council was held in Brussels on 12 July 2011. The following items were discussed:
Bank stress tests
The Council held an exchange of views on the European Banking Authority (EBA) stress tests. It adopted a statement and agreed a communication strategy on backstop measures to address potential vulnerabilities in member states’ banking systems. I emphasised the importance of credible backstops, and of implementing Basel III in full. On 15 July, the EBA published results in aggregate format, while national supervisory authorities published results on individual banking institutions. At the time of publication, Ministers planned to issue statements, based on a common template, on remedial and backstop measures.
Stability and Growth Pact
a. Closure of Finland’s excessive deficit procedure
The Council adopted a decision closing the excessive deficit procedure for Finland, given that its deficit for 2010 remained below 3% of GDP.
b. Implications of the economic situation for fiscal surveillance
The Council adopted conclusions which reinforced recommendations made in relation to the European semester and excessive deficit procedure. The Government welcome the conclusions, and their emphasis on ensuring that all member states fully implement budgetary strategies for timely meeting of fiscal targets. The Council will re-examine the situation after the summer, on the basis of an updated assessment prepared by the Commission.
Presentation of the Polish presidency work programme
The Council took note of the Polish presidency’s ECOFIN work programme for the second half of 2011.
Follow up to the G20 Deputies meeting in Paris on 8-9 July 2011
Finance Ministers took note of the meeting of G20 Deputies. It agreed that Ministers would prepare, at the informal ECOFIN in September, terms of reference for the meeting in Washington on 23 September of G20 Finance Ministers and central bank governors.
Follow-up to the June European Council on 24 June 2011
The presidency summarised discussion on economic policy issues at the European Council. On the economic governance legislative package, the presidency would continue to liaise with the European Parliament and come back to the Council for further discussion after the summer. With reference to the euro-plus pact, the European Council would consider progress on the commitments made by signatories in December. The UK is not a member of the euro-plus pact.
Savings Taxation Directive
The Commission gave a presentation on its recommendation for a Council decision authorising it to negotiate changes with Liechtenstein, Monaco, San Marino, Andorra and Switzerland on the taxation of savings income. The Council agreed that the mandate should be further examined at working group level, and progress reported back to ECOFIN as soon as possible. The UK is keen to progress this dossier, and welcomes further commitments at Council.
11th Facility for Euro-Mediterranean Investment and Partnership (FEMIP) ministerial meeting
Ministers held a joint lunch meeting with their counterparts from the EU’s Mediterranean partner countries to discussion implementation of FEMIP.
Sovereign Grant Bill (Allocation of Time)
George Osborne Excerpts(13 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Mr George Osborne)
I beg to move,
That the following provisions shall apply to the proceedings on the Sovereign Grant Bill:
Timetable
1.–(1) Notwithstanding the practice of the House as to the interval between the various stages of a Bill brought in upon a financial resolution, proceedings on Second Reading, in Committee, on Consideration and on Third Reading shall be completed at today’s sitting in accordance with the following provisions of this paragraph.
(2) Proceedings on Second Reading shall (so far as not previously concluded) be brought to a conclusion at 2.30 pm.
(3) Proceedings in Committee and on Consideration shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm.
(4) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at 6.00 pm.
Timing of proceedings and Questions to be put
2. When the Bill has been read a second time—
(a) it shall (notwithstanding Standing Order No. 63 (Committal of bills not subject to a programme order)) stand committed to a Committee of the whole House without any Question being put;
(b) the Speaker shall leave the Chair whether or not notice of an Instruction has been given.
3.–(1) On the conclusion of proceedings in Committee, the Chairman shall report the Bill to the House without putting any Question.
(2) If the Bill is reported with amendments, the House shall proceed to consider the Bill as amended without any Question being put.
4. For the purpose of bringing any proceedings to a conclusion in accordance with paragraph 1, the Speaker or Chairman shall forthwith put the following Questions (but no others)—
(a) any Question already proposed from the Chair;
(b) any Question necessary to bring to a decision a Question so proposed;
(c) the Question on any amendment moved or Motion made by a Minister of the Crown;
(d) any other Question necessary for the disposal of the business to be concluded.
5. On a Motion so made for a new Clause or a new Schedule, the Chairman or Speaker shall put only the Question that the Clause or Schedule be added to the Bill.
6. If two or more Questions would fall to be put under paragraph 4(c) on successive amendments moved or Motions made by a Minister of the Crown, the Chairman or Speaker shall instead put a single question in relation to those amendments or Motions.
7. If two or more Questions would fall to be put under paragraph 4(d) in relation to successive provisions of the Bill, the Chairman shall instead put a single Question in relation to those provisions.
Miscellaneous
8. Paragraph (1) of Standing Order No. 15 (Exempted business) shall apply so far as necessary for the purposes of this Order.
9.–(1) The proceedings on any Motion made by a Minister of the Crown for varying or supplementing the provisions of this Order shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.
(2) Paragraph (1) of Standing Order No. 15 (Exempted business) shall apply to those proceedings.
10. Standing Order No. 82 (Business Committee) shall not apply in relation to any proceedings to which this Order applies.
11.–(1) No Motion shall be made, except by a Minister of the Crown, to alter the order in which any proceedings on the Bill are taken or to re-commit the Bill.
(2) The Question on any such Motion shall be put forthwith.
12.–(1) No dilatory Motion shall be made in relation to proceedings to which this Order applies except by a Minister of the Crown.
(2) The Question on any such Motion shall be put forthwith.
13. The Speaker may not arrange for a debate to be held in accordance with Standing Order No. 24 (Emergency debates) at today’s sitting before the conclusion of any proceedings to which this Order applies.
14.–(1) Sub-paragraph (2) applies if the House is adjourned, or the sitting is suspended, before the conclusion of any proceedings to which this Order applies.
(2) No notice shall be required of a Motion made at the next sitting by a Minister of the Crown for varying or supplementing the provisions of this Order.
15. Proceedings to which this Order applies shall not be interrupted under any Standing Order relating to the sittings of the House.
16.–(1) Any private business which has been set down for consideration at 3.00 pm at today’s sitting shall, instead of being considered as provided by Standing Orders, be considered at the conclusion of the proceedings on the Bill today.
(2) Paragraph (1) of Standing Order No. 15 (Exempted business) shall apply to the private business for a period of three hours from the conclusion of the proceedings on the Bill or, if those proceedings are concluded before the moment of interruption, for a period equal to the time elapsing between 3.00 pm and the conclusion of those proceedings.
We are going to follow a rather unusual procedure here, I think, because we have run out of time for Second Reading. I looked to the Chair for guidance on how to handle that and I suggest that as we have some time for debate in the Committee of the Whole House this afternoon we should use the time on clause 1 stand part to have, in effect, a Second Reading debate. Since no amendments were tabled to that clause, either, that is fine. As I understand it through the usual channels, the official Opposition are happy with that. That will address the concerns of my hon. Friend the Member for Gainsborough (Mr Leigh) and we can have what feels to the House like a Second Reading debate albeit on clause 1 stand part.
Sovereign Grant Bill
George Osborne Excerpts(13 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Mr George Osborne)
I beg to move, That the clause stand part of the Bill.
I concede that we are engaged in a rather unusual procedure. To have what I hope will amount to a Second Reading debate, we will debate clause 1 stand part. Clause 1 will create a sovereign support grant and so, in effect, it lies at the heart of the Bill. I completely respect and understand what has just been said by hon. Members on both sides of the House. I would point out that we had something akin to a debate on Second Reading a couple of weeks ago, when we debated the principle for several hours. I freely concede that we did not have the Bill in front of us.
I was following the procedure established over many decades, and I worked with the Clerks and, indeed, through the usual channels to try to create something akin to a debate on Second Reading a couple of weeks ago. Our intention was to debate the Bill in Committee and on Report on the Floor of the House, because it is a constitutional Bill. In effect, the House of Commons will have two days on the Floor of the House to debate the legislation, but I am the first to accept that we have adopted a rather archaic procedure. I am glad that we used a bit of modern innovation to allow this debate to take place under clause 1 stand part.
Mr David Winnick (Walsall North) (Lab)
Obviously, I have listened to what the Chancellor said, but will he bear in mind that we did precisely the same thing last Thursday, on a subject that is not his responsibility? It is all the more irritating that on two successive Thursdays we have had this situation in the House.
Mr Osborne
I cannot speak on what happened last week, but I would just draw the hon. Gentleman’s attention to this distinction: two weeks ago, on the Floor of the House, we had something like a Second Reading debate about the principles of the Bill. In the comprehensive spending review statement last October, I set out how we proposed to proceed on the subject; that was quite well known. There is not a great deal of surprise about the idea in the Bill of a sovereign grant, linked to the revenues of the Crown Estate and so on. As I say, I accept that the procedure is rather unusual, but the effect is that the House had something akin to a Second Reading debate a couple of weeks ago, and we will use the debate on clause 1 to have something akin to a Second Reading today, too. I hope to address all the issues that people raised two weeks ago in my response on clause 1. Of course, we will have time later today to go through other parts of the Bill.
Paul Flynn (Newport West) (Lab)
A fortnight ago, the House was exceptionally thinly attended, even for a Thursday. Will the Chancellor tell the House when Back Benchers were informed that the Bill was coming before the House?
Mr Osborne
The problem that Parliament had was that under the procedures of the House, we had to receive a gracious message from Her Majesty the day before. I do not expect the hon. Gentleman to agree with the procedure, given his broader views on the monarchy, but we had to wait for that gracious message before making it publicly known that we would have a debate in the House. That is what happened. I spoke to the official Opposition, and the Prime Minister spoke to the Leader of the Opposition a week earlier, but I accept that the debate was not as fully attended as it might have been. However, we did spend a couple of hours discussing the matter a couple of weeks ago, and there were quite a number of speeches made, so even though the debate was not as fully attended as, for example, yesterday’s proceedings in Parliament, attendance was not that dissimilar to attendance today. Of course, there has been lots of notice of today’s debate.
Mr Osborne
I will give way, and then I should probably make some progress on clause 1 stand part.
Paul Flynn
I do not think it is fair to blame the monarch for the way in which the measures were rushed into the House. Normally, if there is a change to business, a business statement is made to the House as early as possible; I cannot remember one being made at all in this case. Most hon. Members had other pressing business on that day, and only those who were here in the morning had any idea that the measures were going ahead.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
Order. I have sympathy for the hon. Gentleman, but we have just decided on the process that we are following; we now have to stick with where we are.
Mr Osborne
All I would say is that I have followed the advice of the House authorities throughout. The procedure has been unusual. People have said that this is the most important change since 1760, but of course in the early 1970s the House made some significant changes, so we are partly following procedures laid down then.
Let me get on to the substance of the Bill. Everyone has now had a chance to read it. Amendments have been tabled by Opposition Back Benchers, Opposition Front Benchers, and Government Front Benchers, and I shall say something about that. We have basically accepted some of the amendments that the shadow Chancellor and his team tabled, and I will explain why later.
I will begin, as we should do on such occasions, by putting on the record the House’s gratitude for the service that the Queen has provided to our country over many decades. Indeed, her time on the throne recently exceeded that of George III and she now has Queen Victoria in her sights. The recent visit by the Duke and Duchess of Cambridge to Canada and California reminded us that other members of the royal family also make an enormous contribution. As I said a couple of weeks ago—it is a view shared by nearly everyone in the House—we want a system that provides the Queen with dignity and allows her and her family to do their official jobs, which in her case is Head of State, but to do so in a way that is accountable, transparent and delivers value for money for the taxpayer.
The current system of financial support has some very serious shortcomings. It is very inflexible, so money saved in one spending area such as travel cannot be spent in another area such as the maintenance of royal palaces. It is not very transparent, as the National Audit Office is not the auditor of royal finances; that is done by the permanent secretary to the Treasury. I pay tribute to my hon. Friend the Member for Gainsborough (Mr Leigh), the former Chair of the Public Accounts Committee, for the work it did in recent years to look at value for money studies on particular areas of royal financing, which has been quite opaque and which this Bill seeks to change. Critically, the current system has relied on a reserve of public money that was built up over the past 20 years and is now depleted. That was a crucial part of the royal household’s annual funding for the continuance of their official duties. That money has run out, so in other words the system is broken and we have to fix it.
Mr Kevan Jones (North Durham) (Lab)
Does the right hon. Gentleman agree that if we are to have true transparency in the costs of the royal household, we need to know about all expenditure, including, as I suggested a couple of weeks ago, the contribution made to the household by the Ministry of Defence in terms of staff? We learnt last week from The Mail on Sunday that Prince Charles has apparently objected to the full costs of the royal flight being put on the royal household, which effectively means that the MOD is subsidising the household. If we are to get the true costs, do we not need full transparency on everything paid to the royal household?
Mr Osborne
I will move on shortly to some of the issues that the hon. Gentleman raised two weeks ago on the use of accommodation on the royal estate, for example by the MOD, and say something on that and other areas of royal spending. The Bill establishes a distinction between the royal family’s public expenditure and their private finances. It is a long-established principle of the system that their private finances, for example from the Duchies of Lancaster and Cornwall, are their private money. There are checks and balances on that, such as the Chancellor of the Duchy of Lancaster having to be a member of the Government. We are saying that all the royal family’s public expenditure, which goes to their official duties and those parts of the royal estate that are not part of their private income or assets, should all now be auditable by the National Audit Office and that the Public Accounts Committee should be able to look at it. That is a fairly dramatic increase in the transparency before Parliament.
Mr Osborne
Let me just answer this point before giving way again.
Although I do not want to speak for the Comptroller and Auditor General or the PAC, I suspect that if they wanted to look at the funding arrangements between the MOD and the royal family, they would be able to do so under the provisions of this Bill.
Mr Jones
A couple of weeks ago I welcomed the increased transparency in the auditing process that the proposals bring forward, but if we are to determine the size of the sovereign grant—it is £30-odd million a year—surely a good starting point would be to find out what the actual cost of the royals doing their public duties is. I accept that some of the things the Ministry of Defence does are directly linked to the royals’ public duties and I do not suggest for one minute that the royal household should subsidise that, but surely to determine the size of the sovereign grant we need a better understanding of all costs coming from the public purse, whether from the Ministry of Defence or any other Government Department.
Mr Osborne
Let me give way to the hon. Member for Glasgow South West (Mr Davidson) and then I will answer both hon. Gentlemen’s points.
Mr Davidson
The Chancellor mentioned his view that income from the Duchy of Cornwall and the Duchy of Lancaster is private money of the royal family. Surely he recognises that in the previous Parliament the Public Accounts Committee established quite clearly that that is not the case—that this is not the private property of the monarch or her family but a trust established by the nation in order to fund the various members of the royal family. That is different from saying that it is the private property of the royal family themselves.
Mr Osborne
I should make it clear that it is an established principle that the income from that property, which is held in trust, is for the private purposes of the royal family.
In response to the hon. Member for North Durham (Mr Jones), I point out that there are of course some areas of royal financing—I will come on to say something about royal protection—where it is very difficult to be public about some of the sums of money involved. The Bill—I hope that we will soon get into the meat of it—is a mechanism for helping to continue the current level of spending. As I say, it is perfectly within the rights of the National Audit Office and the Public Accounts Committee, if they want to, to look at payments from the Ministry of Defence, but that has to be a matter for them.
Matthew Hancock (West Suffolk) (Con)
As the most senior member of the Public Accounts Committee in the Chamber—because I am the only one here—I think that I speak for everybody on that Committee when I say that we welcome the additional transparency and very much look forward to bringing the royal household before it to answer the questions that have rightly been raised across the Chamber.
Mr Osborne
I thank my hon. Friend. When the Chair of the PAC, the right hon. Member for Barking (Margaret Hodge), spoke in the debate two weeks ago, she was very generous in her tribute and made it pretty clear that the PAC would be getting to work on its job. I served on the PAC, as its most junior member, with the hon. Member for Glasgow South West, and I remember us making an interesting visit to Kensington palace to investigate royal finances. For some years, therefore, the PAC has been establishing a reputation for examining the books in this area.
Mr Osborne
I would like to make a little progress, if both hon. Gentlemen will allow me. Let me say a little more about the Bill, and then I will be happy to take questions.
Clause 1 proposes the creation a sovereign grant designed around three principles. First, it is sustainable, so that it provides reliable, long-term financing for the sovereign that is free from annual political argument but gives the House of Commons proper checks and controls. Secondly, it is flexible in dealing with the problem I described whereby money saved on travel cannot be spent on palace maintenance and vice versa. Thirdly, it is accountable, as I have been saying, because of the historic increase in parliamentary scrutiny of royal expenditure.
The Queen is one of the few Heads of State in the world who is genuinely completely above the party political fray. I want to take this opportunity to thank my opposite number, the shadow Chancellor, and his team for conducting themselves in a very proper way as the loyal Opposition in asking questions. We will come on to the questions that he has rightly asked. [Interruption.] I suggest that his Parliamentary Private Secretary, the hon. Member for Vale of Clwyd (Chris Ruane), banks this moment, because it might not come again in this Parliament. We have tried to be as open as possible. I know that members of the shadow Chancellor’s team met the Treasury officials on the Bill team yesterday. As I will explain, I propose to accept a couple of his amendments.
The shadow Chancellor asked four questions in the debate two weeks ago. I propose, for the rest of my remarks, to answer those four questions. It will be up to him and the House to decide whether they are adequate answers, but I thought that that was the best way to approach this matter. His first question was about the level of the sovereign grant, the second was about the mechanism for uprating it, the third was about the new arrangements for greater parliamentary scrutiny, and the fourth, which relates to some of the interventions we have just heard, was about the way in which the Government provide other forms of support to the royal family. I will take each question in turn.
Jacob Rees-Mogg (North East Somerset) (Con)
Will my right hon. Friend confirm that in the theoretical circumstance that a new monarch decided to keep the Crown Estate revenues, it would be open to such a monarch to do so?
Mr Osborne
I think that that is pretty unlikely and pretty theoretical, to be honest. Since 1760, it has been an established precedent that the monarch hands over the revenues of the Crown Estate to the Government of the day. There are many powers that we vest in our monarch. The Queen has wisely, like her predecessors, chosen not to use those powers. As I say, I think that that question is pretty theoretical.
Paul Flynn
In the debate two weeks ago, the Member who represents the middle ages, the hon. Member for North East Somerset (Jacob Rees-Mogg), suggested that the Queen paid income tax at a higher rate than any other citizen. Will the new arrangements be so transparent that we know the precise rate of tax the monarch pays and whether the monarch gets the expected windfall of revenue from wind and tidal generation in their 15%? If that revenue becomes excessive, will it be curtailed to a suitable level?
Mr Osborne
I will deal in my remarks with that specific point about what will happen if the revenues of the Crown Estate suddenly grow beyond people’s expectations, or even in line with the expectations of those who think that there will be a windfall from the marine estate.
Tristram Hunt (Stoke-on-Trent Central) (Lab)
The guidance to the Bill suggests:
“The Crown Estate is not the sovereign’s private property”.
However, we know that in 1760, as the guidance states, George III
“surrendered these revenues (but not ownership of the capital assets)”.
Where do we stand on the clarity of ownership?
Mr Osborne
It is understood that there are certain pieces of property, such as Buckingham palace, Windsor castle and the Crown Estate, that belong to the institution of the monarchy, and certain pieces of property and assets that are the private property and assets of the Windsor family. That is a well-established precedent and has been recognised by the House for many decades. Nothing in the Bill changes that.
Mr Davidson
I am very grateful. The Chancellor is undoubtedly correct that some pieces of property are tied in with the institution of the monarchy, such as Buckingham palace, but the coastline of Scotland and the undersea surface are not intimately connected with the monarchy and have never, as far as I am aware, been visited by the monarchy. In those circumstances, I am not clear why the two categories are being conflated. Surely it would be better, if the Chancellor wants a method that is tied to growth in the economy, if it were simply tied to, say, gross domestic product. If GDP went down the Queen and the monarchy would suffer the same as the rest of us, and if it went up, they would benefit in line with the rest of us. That would be better than tying the fund to a measure that I envisage will make it grow at a far greater rate than the economy as a whole.
Mr Osborne
First, I do not want to speak for the Queen, but I think she is quite familiar with the Scottish coastline.
Mr Osborne
Let us try to keep focused on the issue at hand.
Secondly, I completely accept that I could have brought other mechanisms before the House, but the Crown Estate is a large commercial property company that is run in a pretty conservative way. It is not a bad proxy for how the country and the economy are doing. That is why we are proposing this mechanism, but of course if people want to propose something else they are entitled to do so.
Mr Osborne
May I make some progress before taking a few further interventions?
I should just mention, although the change to the Duchy of Cornwall is in a later clause, that as I explained to the House a couple of weeks ago, all Dukes of Cornwall are heirs to the throne, but not all heirs to the throne are Dukes of Cornwall. As a result, there is potential for there to be an heir to the throne who was not the Duke of Cornwall, because the Duke of Cornwall can only be the eldest son of the monarch. The heir to the throne could be either a daughter, granddaughter or grandson of the monarch, and they would not have access to the duchy’s income. The Bill proposes a change to that, but does not propose to change the Act of Settlement.
Mr Osborne
I suspect that the Chairman of the Home Affairs Committee wants to intervene on that point.
Keith Vaz
I feel very guilty that the Chancellor has been speaking for so long and, because of all the interventions, is only on clause 1. I will not detain him for long, but I thank him for giving way. Will he update the House during the course of his speech, if he ever gets to complete it, on the negotiations that have been conducted by the Deputy Prime Minister with the Prime Ministers of 17 other Commonwealth countries, and let us know whether there has been any progress on the matter?
Mr Osborne
I think I will leave it to the Deputy Prime Minister to update the House on that. It is one of the many benefits that come from being Deputy Prime Minister that he gets to conduct these important negotiations. [Interruption.] They are extremely important negotiations. The right hon. Member for Leicester East (Keith Vaz) makes a good point in reminding the House that this question involves a lot of other countries. That explains why something that people assume would be quite simple to deal with in the House of Commons is not.
Let me talk about the actual numbers. How much is 15% of the Crown Estate profit, and how does it compare with what the royal family has spent in recent years on its official duties? In 2006, they spent £33 million; in 2007-08, they spent £35 million; and then £37 million and £34 million. The latest annual accounts, which were last week, showed that they spent £32 million. The amount varies a bit, because one-off capital projects are either undertaken or not in given years, but the average of the past five years is £34 million. It is interesting to note that it was £49 million 20 years ago, so the latest figure shows quite a dramatic reduction compared with what they used to spend. In real terms, the reduction is more than 50%.
Mr Kevan Jones
That is very interesting, but if we do not know which Government Departments are subsidising the royal household, how can we tell whether those efficiencies are real ones? I suspect that in some cases, Departments are cross-subsidising them. At the moment, the grant in aid for certain palaces comes from, for example, the Department for Culture, Media and Sport. I know that in 1999, Marlborough house was included as part of that. Will there be limitations on what other royal properties can be added so that the sovereign grant can be spent on them?
Mr Osborne
I will get back to the hon. Gentleman specifically on that point—I do not have specific information on Marlborough house with me at the moment—but on his broader point, for the first time, we will allow the National Audit Office to crawl over the arrangements that he describes.
I was going to go on to explain that some senior members of the Ministry of Defence and our military live in properties that are rented from the Crown Estate at below the market rate. The properties are within extremely secure zones, and it would not be possible to rent them to virtually anyone else. That arrangement suits the MOD, because it gets properties—not very many—at below the market rate, and equally, it suits the royal estates, in that they can rent out properties that they would not be able to rent out otherwise.
Let me talk about those sums. As I have pointed out, the average over the past five years is £34 million, which is much less than 20 years ago, when it was £49 million. In 2013-14—the first year in which the new sovereign grant mechanism will apply—the level will be determined by the profits in 2011-12, as I said earlier. We do not know precisely what those profits will be, because we are in the middle of the financial year, but the recently published Crown Estate annual report for last year showed profits of £231 million, and the Crown Estate confirms that that is pretty much what it is expecting in profits for 2011-12. The result of all that—this is the key point for the House—is that the sovereign grant in 2013-14 would be £34 million, which is in line with the average for the past five years. I would not say that that is a coincidence, because we have partly designed the mechanism to ensure that that has happened.
If projections for the Crown Estate are correct over the rest of this Parliament, we should see a real-terms cut of up to 9% in the funding for the official duties of the sovereign in that period.
Mr Davidson
The Chancellor will be aware, from discussions on the Scotland Bill, of a proposal for part of the Crown Estate to be devolved to the Scottish Parliament in Edinburgh, or handed to local authorities, community groups and so on. What would happen to the Crown Estate and the money going to the royalty if that proposal were passed?
Mr Osborne
That is not something that the Government are proposing today. If we were to propose it, we would of course address the impact of such a decision on the royal finances. I am assuming that even under such arrangements, the Queen would remain the Queen of Scots. I believe that most of us are happy with the current arrangements.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
Will the Chancellor give way?
Mr MacNeil
Will the money from the Crown Estate be paid directly to the royal family or will it go to a third party?
Mr Osborne
The money is not paid directly. It comes into the Exchequer, like other revenues, and is then paid out to the royal family. It is paid out of general public funds through estimates voted by Parliament. The only link is that we have a formula for how much we give the royal family. However, there is no direct transfer of money from the Crown Estate to the royal family.
Mr Osborne
If the hon. Gentleman will allow me, I will make some progress.
I hope that I have answered the shadow Chancellor’s first question about the level of funds. In the end, it is a matter of judgment whether £34 million or so is the right amount for the future. The newspapers’ reaction to my statement a couple of weeks ago was not much of a guide. The Independent headline read, “Queen guaranteed £35m ‘recession-proof’ income”, while The Daily Telegraph wrote, “Monarchy ‘shorn of its dignity’ to save money”. I think we probably got it about right somewhere in between the two.
That leads to the second and probably most important question that the shadow Chancellor asked: how can we ensure that the sovereign grant is neither too high nor too low, and what can we do about it if it is judged to be either? Basically, the Bill introduces a number of important safeguards. First, it provides for a reserve fund so that any unspent surplus from the sovereign grant that year will go into a reserve fund. Under the civil list, there has always been a reserve fund. Indeed, it reached £37 million early last decade. We propose that the reserve fund should be capped so that it does not go above about 50% of the annual grant. In other words, assuming that the grant is likely to be £34 million, the reserve fund would not be allowed to rise above £17 million. However, it is right that the royal household has a reserve to call upon for major capital works that it needs to undertake, although, as I said, we are introducing for the first time a cap on that reserve.
The Bill retains as the three royal trustees the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse. It is our responsibility to act in any given year to ensure that the reserve remains within that 50% cap. If it is going to be higher, we can act to reduce the cash going to the royal household through the grant to below 15% of Crown Estate profits. That is one check.
Mr Osborne
May I set out the checks and then invite questions—I mean interventions? I am not going to make the mistake of some right hon. Members in thinking that interventions are questions.
The second check concerns the in-year controls that the Treasury operates for all public expenditure. The permanent secretary to the Treasury remains the accounting officer for the disbursal of Treasury funds, and the Keeper of the Privy Purse will be the accounting officer for the royal spending we are talking about and can be summoned and asked to give account for that. The hon. Member for Bristol West (Stephen Williams) asked whether Buckingham palace will be able to open for longer this year than it did last year. I can confirm that that will be the case, as the palace is looking for additional sources of income.
The key check, however, for ensuring that the level of funds is appropriate and that the 15% amount is being paid will be the review of the 15% mechanism. The legislation requires that a review is carried out seven years after the Bill comes into effect and every seven years thereafter. The shadow Chancellor and his team have suggested some amendments. I have discussed them with him and I am now proposing, through Government manuscript amendments today, basically to accept his amendments. That means that the first review will be carried out four years after the grant comes into effect—he suggested three years, but having discussed it, I have decided on four years—and therefore that the first review will be carried out in 2016. That will be one year after the general election, which is a good and sensible moment for us to review royal finances.
I am also accepting the right hon. Gentleman’s amendment that proposes a five-yearly, instead of seven-yearly, review thereafter. In other words, in every Parliament, assuming that the fixed-term Parliament provisions are adhered to, the review will take place one year after the general election. There will be a review in every Parliament, assuming that they are five-year Parliaments.
Mr Kevan Jones
Will the Chancellor explain how the controls over the reserve will work? Who will take the decisions about how it is spent? It does not take a genius or a financial wizard to work out that, if we draw down the reserve, we can certainly keep up the annual income at 15%. Who will have a say over how the reserve is spent? Will the Government of the day have any control over how it is spent?
Mr Osborne
First, the reserve will be audited by the National Audit Office, as the Bill makes clear. Secondly, the trustees of the royal finances—the Keeper of the Privy Purse, who is the Queen’s appointment, but also the Chancellor and the Prime Minister of the day—have oversight of the reserve. That is similar to the current arrangement. The Chancellor of the Exchequer—who undertakes this work more than the Prime Minister—and the Treasury will ensure that the reserve is used for proper purposes. As I have said, the reserve is also accountable to the National Audit Office and the Comptroller and Auditor General.
Paul Flynn
I have listened carefully to what the Chancellor has said, but I am still baffled as to why a simple mechanism that could be easily understood has not been used, perhaps similar to the one used to change pensions every year. Instead, we are to have a complex system under which, if the Crown Estate does well, royalty will win, and if it does badly, the taxpayer will lose.
Mr Osborne
As I have said, we could have chosen another mechanism, but I thought that it was not unreasonable to take a large, conservatively run property company to determine expenditure by the royal household, given that a lot of its expenditure is on property maintenance and the like. I completely accept that not every Member of the House will agree with that, but the effect, which is surely the important thing, is that the amount of money going from the public purse to the royal family will be broadly the same. They were receiving about £34 million on average from the civil list, the palaces grant and the travel grant, plus the money put into the reserves by the taxpayer, and they will go on receiving £34 million. We can have a debate about the mechanism, but the effect will be pretty much to continue through this Parliament with the sums that they were getting during the last one. We are of course talking in cash terms, which will mean about a 9% real cut, coming on top of a more than 15% real cut over the past 20 years.
I know that we are still debating clause 1, but I hope that the Committee will acknowledge that, in accepting the shadow Chancellor’s amendments to clause 7, we have tried to show that we are open to argument and open to trying to work on a cross-party basis. We want to ensure that the Bill proceeds with the consent of those in all parts of the House of Commons.
I want briefly to deal with the shadow Chancellor’s third and fourth questions. He asked about the issue of accountability, and he has tabled amendments proposing annual value-for-money studies. I would much rather leave the discretion with the Comptroller and Auditor General and the Public Accounts Committee. If they want to undertake such studies, they may do so, but I propose to leave that discretion with them. I remind the Committee that we are undertaking a pretty historic transfer of accountability to Parliament here. Parliament has fought for many decades to get scrutiny of the official expenditure of the royal family, and that is now happening through the Bill. Of course, the Public Accounts Committee will be able to ask the Keeper of the Privy Purse, as the accounting officer, to come before it to give evidence.
Let me deal with the fourth question, which was about royal protection. I am afraid that I will not be able to answer the shadow Chancellor’s request here. I have looked into it and made quite a number of inquiries to probe whether it would be possible for me to give the Committee more information about how much is spent on royal security. I have to say that I have run into a metaphorical brick wall in Whitehall, probably for very good reason, which is that it would not be appropriate—this was a view taken by Home Secretaries over many years—to reveal how much was spent on royal security because that might present a security risk. Unfortunately, I am not able to accede to the shadow Chancellor’s request. Let me reassure the Committee, however, that in the process, I have taken a look at the protection arrangements and costs, and I certainly satisfied myself that they are reasonable, proportionate, in line with the current threat assessment and pretty cost-effective. I am fairly confident that the Queen and her family are adequately protected.
I hope that I have answered the various questions asked. My hon. Friend the Member for Gainsborough asked a question about Frogmore, particularly the mausoleum for Queen Victoria and Prince Albert. The royal household has confirmed that it expects to carry out conservation work on the mausoleum over the next five to eight years, so in a few years’ time, my hon. Friend will be able to visit a much restored and improved mausoleum at Frogmore.
Stephen Williams (Bristol West) (LD)
Given that the mausoleum is currently on the English Heritage buildings at risk register, will the Chancellor confirm whether what he announced means that it will shortly be removed from that register?
Mr Osborne
The honest answer is that I have absolutely no idea, but I will find out and let the hon. Gentleman know. I might even be able to find out during this debate.
Mr Jones
Has not the Chancellor just confirmed that we are giving the royal household freedom to spend the sovereign’s grant on additional properties? [Interruption.] It is an additional property if the facts are understood. At the moment, the properties covered by grant in aid are Buckingham palace, St James’s palace, Clarence house and Marlborough House Mews, the residency opposite Kensington palace, the Royal Mews royal paddock and Windsor castle and the buildings in the Great park. Are we thus going to see an extension? Who in the royal household makes the decision on that, or does the Chancellor have any say over which other properties not currently covered by the grant in aid from the Department for Culture, Media and Sport can be added in, increasing costs?
Mr Osborne
We do not propose to add anything in. Frogmore is part of the Windsor castle estate, or part of the Windsor Great park, which I am sure the hon. Gentleman knew before he made his intervention.
Let me sum up this rather lengthy clause 1 stand part debate. We do not want a cut-price monarchy; nor do we want an excessively lavish monarchy. What the country wants is a monarchy properly funded to do the job we ask of it. It does that job well. Long may that continue. I commend the clause to the Committee.
Ed Balls (Morley and Outwood) (Lab/Co-op)
I commend your patience and flexibility, Mr Hoyle, in allowing this clause stand part debate to include the status of mausoleums and the role of English Heritage, which somewhat stretches the clause. Having a Second Reading-type debate on clause stand part in this way is probably a revolutionary approach to parliamentary procedure. After the events of the last few days, that may not be surprising. However, I should reassure the hon. Member for North East Somerset (Jacob Rees-Mogg) that he need not feel destabilised by my use of the word “revolutionary” in this context.
A fortnight ago, during the debate on the financial motion relating to the Bill, the Opposition made it clear that
“the monarchy continues, and must continue, to play a vital role in the affairs of our nation in the new century, but that to play this role and to command public support, the royal household must… be financed in a proper, open and fair way”.
We expressed our intention to support the Chancellor’s proposals to reform the current 250-year-old arrangements and
“to strike a fair and workable balance between the legitimate needs of the household and the interests of the taxpayer.”
However, we also made clear that it was
“the responsibility of Her Majesty’s Opposition to scrutinise the actions of the Government to make sure that it is done in a fair and proper way”.
Those are the guiding principles that lie behind today’s debates on clause 1 and, more widely, our amendments.
In that debate a fortnight ago, I cautioned the Chancellor that
“At a time when many families and businesses are under real financial pressure”
there was more work to be done, and a need for more “detail and reassurance” on Second Reading—which we have not had—or in Committee
“to establish a consensus not only across the Dispatch Box but in the country as a whole in support of these reforms.”—[Official Report, 30 June 2011; Vol. 530, c. 1150.]
I also asked the Chancellor to provide more clarity and detail on the level of the sovereign grant and the wider costs of the royal household, the arrangements for regular parliamentary scrutiny, and the mechanisms for uprating the grant.
I thank the Chancellor for the detailed way in which he has sought to answer those questions in the debate so far, and for the serious consideration that he has given to our amendments. I am also grateful to him for giving Members more information than they were given two weeks ago. However, it is difficult to hold a debate such as this when time is so constricted, and I share the concern expressed about that by Members on both sides of the House. As I said to the Chancellor earlier, I think that he could have provided even more information to help Members to understand the debate.
Mr Leigh
All that I know—the Public Accounts Committee having had all those accounts over the past two decades—is that steps are constantly being taken to deliver a better-value-for-money monarchy. If that is not true, why has the cost gone down from £49 million to £34 million? I shall sit down now, because we are only on clause 1 stand part.
Mr Davidson
No, I want to proceed because we are short of time.
I am seeking clarification from the Chancellor, who, I remember, was on the Public Accounts Committee when he was a young whippersnapper—I have often wondered what happened to him since. Will the National Audit Office, the interventions of which I will welcome, also be able to look at all elements of royal involvement? In particular, can it look at the royal art collection, about which there were serious discussions and disputes in the past? That would seem to be covered by what he has said, but it is not immediately clear.
Is the Crown Estate the right body to take into account when determining the monarch’s income? Those of us on the Public Accounts Committee who examined the Duchy of Cornwall’s accounts were absolutely clear that the Duke of Cornwall was manipulating the money involved, by playing a major role in determining the amounts of expenditure and income, thereby determining how much money came, or was available, to him as an individual.
Quite clearly, the Crown Estate could be leant on by the monarchy to make decisions on expenditure and income in the short term to affect the amount of grant that the royal family receive. The grant would then be on, as it were, a golden ratchet—a bit like EU expenditure, it would always go up, and never down. There is clearly scope for abuse in those circumstances. Will the Chancellor clarify those points?
Will the Chancellor also take into account the fact that there is due to be a windfall from wind and wave power? Will he assure the Committee that all of that will be taken into account when the review takes place in due course?
Mr George Osborne
I shall deal briefly—because time is short—with the points raised. I should say first, however, that I am grateful to the Committee and the Opposition Front-Bench team for the general support they have given to clause 1 and indeed the whole Bill.
My hon. Friend the Member for Gainsborough (Mr Leigh) raised the key question: how do we create a mechanism that preserves the dignity of the monarchy while ensuring that the House is accountable for the expenditure of public money? As I said in my opening remarks, there is the question of whether the money provided is enough or too much. I said that we do not want a cut-price monarch or a lavish monarchy. As a general guide, I have looked at how much the monarchy has spent over the past five years. On average, £34 million of public money has been given per year through various forms of grant and money drawn from a reserve built up using public money. I have said that that is not a bad guide for the future and that 15% of Crown Estate revenue will provide that amount over the rest of the Parliament. In 2016, we will review whether that is the right amount.
Mr Cash
The Chancellor referred just now to something that I found difficult to accept. He distinguished between a cut-price monarchy and a lavish monarchy. Given Her Majesty’s incredibly distinguished performance over the past nearly 60 years, to which my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) referred, does he appreciate that this is not about being lavish, but about effectiveness and dignity?
Mr Osborne
I agree that it is all about effectiveness and dignity, and I think that the Bill strikes the right balance between those who say that the monarchy is spending too much and those who say that it is not getting enough money for its official duties. The Bill has been discussed with the royal household, and it is content with it, which is why the whole process began with a Gracious message.
I want to clear up a misunderstanding. There will be a real-terms increase in the annual sums that Parliament provides, but that is because the royal household has been relying on a reserve of public money that has built up over time. That reserve has come to an end, and as I said a couple of weeks ago, the previous Chancellor of the Exchequer, perfectly reasonably when confronted with this issue before the general election, said, “I think we’ll wait until after the general election and let whoever are the Government then deal with it.” We are here because we have been relying on a reserve of public money that has run out. However, with the mechanism we are putting in place there will be a real-terms reduction of up to 9%—on our estimates—in public support for the royal household.
The shadow Chancellor and others, including the hon. Member for Glasgow South West (Mr Davidson), asked what would happen if there was a windfall from, for example, the offshore marine estate. At the moment, that constitutes a very small part of the revenues of the Crown Estate—about 1%, as I understand it. It is perfectly possible that, in the latter part of the decade or in the next decade, there will be a big increase, but, because I have accepted the spirit of the Opposition amendment, we will now have a review in 2016 and will be in a much better place to assess whether there will be such a windfall. However, I think that it is highly unlikely. No one is predicting a massive windfall in the next three or four years leading up to that review.
The reserve provides a check. The expenditure of the royal household is audited by the National Audit Office and if the money is not being spent for purposes for which it is provided by Parliament, it will come out in the audit. If there is an excess—in other words, if the sovereign grant is more than it needs—it goes into a reserve. That is a long-established principle. There is now a check on that reserve so that it cannot rise above 50% or thereabouts of the money from the sovereign grant, which was not the case before the Bill was presented to the House. The trustees—the Prime Minister, the Chancellor and the Keeper of the Privy Purse—have to provide an annual report to the Treasury, and through the Treasury to Parliament, on that reserve.
A couple of specific points were made about Marlborough house. The hon. Member for North Durham (Mr Jones) raised this point a couple of times. Marlborough house will remain the Government’s responsibility and is currently used by the Commonwealth Secretariat, as I am sure he knows. It will be up to the royal household to decide what premises it needs. It would, for example, be able to rent premises if it needed to, but I do not think that that is relevant to the support that we are providing.
The hon. Member for Bristol West (Stephen Williams), who is no longer in his place, asked about the mausoleum. It will stay on the English Heritage buildings at risk register until it is repaired in five to eight years’ time. My hon. Friend the Member for Gainsborough asked about the governance of the Duchies of Lancaster and Cornwall. I did not think it appropriate to open up that issue in this Bill, which is more narrowly focused on the official support that Parliament provides to Her Majesty.
I hope that I have now answered all the questions that have been raised, and that clause 1 can now proceed to stand part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Accounts of the Royal Household
John McDonnell (Hayes and Harlington) (Lab)
I rise to speak to amendment 1, page 2, line 31, at end add—
“(4A) The statement must be accompanied by information showing the numbers of directly or indirectly employed hourly-paid staff of the Royal Household working in or in connection with the Royal Palaces in London who in the financial year in question were paid at or below £8.30 an hour.”.
I shall be as brief as possible, given the time constraints. The amendment is straightforward. Clause 2 proposes that the royal household’s accounts are to be reported. I am asking that a statement be included in that report to show the number of employees who are directly or indirectly employed by the royal household and who are being paid at or below £8.30 an hour. The reason that I have arrived at the figure of £8.30 is that that is the London living wage, as set by the Mayor of London, who has described it as the wage level designed to provide a
“minimum acceptable quality of life”
for people working in the capital.
The London living wage was started by a group of religious organisations, churches and trade unions 10 years ago, as part of a campaign by London Citizens. They came together to try to tackle poverty, and recognised that the national minimum wage did not allow people to avoid living in poverty in the capital city. They have campaigned over the past decade to press employers to pay the London living wage. They have targeted cleaners, in particular, who are living in poverty. They campaigned and they won. First, they won in a number of banks at Canary Wharf, then they came to Parliament and ensured that we paid our cleaners the London living wage. The campaign continued right through the capital, and more than 200 major companies have now signed up to the London living wage campaign. The Prime Minister himself described it as
“an idea whose time had come”.
The Leader of the Opposition appeared with him on a platform before the general election with members of London Citizens to sign up to the London living wage. Every mayoral candidate has supported it. Why? They did so because all of us want to see people living out of poverty. Yet in the royal household, which is only a mile and a half away from here, the workers who are employed by contracting companies including KGB—
Kerry McCarthy (Bristol East) (Lab)
I wish to speak briefly to amendment 8. This would introduce a check on potential future rises in income from the Crown Estate. At a time when Departments and the public generally are having to take very difficult decisions to make their limited budgets cover the essentials, we should at least apply careful analysis to what sort of income the 15% figure would bring in for the royal household over future years. I would appreciate any information Ministers have on forecasts for the sovereign grant over the coming years, particularly regarding this spending review period.
We are very short of time, but I shall press on with the issue of meeting the royal household’s needs. When I met the Economic Secretary yesterday—I was pleased to have the opportunity to discuss these issues with her and the Bill team—we had a discussion about the fact that the civil list has not adequately reflected the needs of the royal family in the past. At one point, it was being paid too much money and amassed significant reserves; then, it was not paid enough to meet its needs and had to draw down on the reserves. I appreciate that the current formula may not be appropriate, but a formula fixed to income on the basis of something like the Crown Estate is not necessarily any more likely to meet royal spending needs.
In 2010-11, the Crown Estate profits were £230.9 million. If the new mechanism were already in use, that would mean a grant in two years’ time of £34.7 million. Instead, the 2012-13 grant has been set at £31 million in recognition that 15% would not be appropriate or proportionate. This is why we are asking the Government to consider a more flexible mechanism in future.
When the Chancellor spoke in the preliminary debate the other week, he said that the grant to the royal family should reflect generally how well the economy is doing. The particular concern we have—it has been touched on already—is that the Crown Estate includes investment in offshore wind, particularly the new wind-power projects that are coming on board. I think the chief executive of the Carbon Capture and Storage Association said that the carbon capture and storage industry is likely to be very big in the future, probably measured in trillions of dollars. We think that could have an impact on the accounts, too.
We were grateful for the Chancellor’s assurances during the debate on the funding resolution that we will not allow revenues from offshore wind to lead to a disproportionate rise in revenues for the royal household. I would be grateful for any further information about what safeguards could be put in place.
Amendment 8 would help. It would limit disproportionate increases to the royal household. I welcome the fact that the Government have tabled manuscript amendments in response to our amendments which would provide an earlier review period. As the Bill was originally drafted, the first review of the new arrangement would not have taken place for seven years and there would then have been a review every seven years after that. We thought that the first review should take place within three years and that subsequent reviews should take place every five years. We have listened to what the Government had to say about three years being unfortunate in that it would coincide with the next general election. We are happy to accept the Government manuscript amendments that the first review should be four years and subsequent reviews every five years. We do think, however, that there should be another mechanism to address the fact that no cap is in force. There is a cap on the reserves, but there is no cap on the potential increases that the 15% figure, linked to the income of the Crown Estate, could generate.
I shall skim over much of what else I was going to say, but we think it important to have some upward cap. I shall be interested to hear what the Minister or the Chancellor have to say in response.
Mr George Osborne
As was acknowledged by the shadow Chancellor, we have taken on board what I consider to be the most significant amendments in tabling our own manuscript amendments. There will now be a review in 2016, and there will be a review every five years after that. If the House accepts our amendments we shall be able to prevent some windfall from offshore renewable energy from not being taken into account before it comes about. We will have a chance to do that in 2016, and that is partly because we have accepted the Opposition’s amendments.
I have already dealt to some extent with the point raised by the shadow Chancellor, and by amendment 8, about whether some other mechanism is needed. A fair number of checks are already in place. If the grant turns out to be more than the royal household needs—and the assessment of need will be checked by the National Audit Office—it will go into a reserve. If the reserve hits 50% of the grant, the trustees will step in and reduce the amount of money coming in. They will turn down the taps. That is a sensible mechanism, and it means that we will not be having an annual debate in the House about royal finances, entertaining though the last few hours have been.
The hon. Member for Bristol East (Kerry McCarthy) specifically asked why the figure for 2012-13 was £31 million. In a sense, that question lies at the heart of the issue. I accept that this is a complicated concept. The royal family have been relying on grants from Parliament—either the civil list or the royal travel or royal palaces grant—and supplementing them with a reserve which has been built up, with the use of public money, in the last decade or two. In 2012-13 the royal family will get the £31 million, but they will also expect to draw on the last of the reserve that was built up in the 1990s and 2000s. They will, in effect, receive more than £1 million from public money—money raised through taxation—because they will be using the last of that reserve.
Ed Balls
When I said that there would be a 3.2% real-terms rise from next year until the end of the Parliament, I did not mean a rise in the grant; I meant a rise in total expenditure. Total expenditure in 2012-13 will be £33 million and will rise to £35.5 million, which, in 2010-11 prices, is a rise from £31.3 million to £31.9 million. Although the Chancellor has made an important historic point about the reserves, the 3.2% real-terms is not driven by the reserves: it is merely an overall rise in total expenditure. I do not think that the Chancellor was entirely right on that point.
Mr Osborne
The point I was making was that, although there are lumpy movements in individual years—in 2010-11, for various reasons, some capital works were delayed and will be undertaken next year—the average of £34 million, which was £37 million two years ago, amounts in effect to a cash freeze and a real-terms reduction.
Mr Osborne
Over the Parliament. But the point is that it strikes the right balance between too much and too little.
I think that the checks are adequate, and for that reason, although I have accepted a couple of the Opposition’s amendments, I do not wish to accept amendment 8.
Manuscript amendment A agreed to.
Manuscript amendment made: B, page 6, line 8, leave out paragraph (b) and insert—
‘(b) every period of 5 years beginning at the end of another review period.’—(Mr George Osborne.)
Amendment proposed: 8, page 6, line 8, at end add—
‘(6) The Trustees shall also review the percentage for the time being specified in Step 1 of section 6(1) as soon as practicable if, over the financial year immediately preceding the base year, the income account net surplus of the Crown Estate increased by more than the trend rate of GDP growth.
(7) In subsection (6), “the trend rate of GDP growth” means the estimate of the trend rate of GDP growth most recently published by the Office for Budget Responsibility which is applicable to that year.
(8) Subsections (2) to (4) shall also apply to a review carried out under subsection (6).’.—(Ed Balls.)
Question put, That the amendment be made.
Mr George Osborne
I beg to move, That the Bill be now read the Third time.
I shall be brief. I want to thank the House for the two days of debate and for the scrutiny and entertainment that has been provided. We have discussed chocolate biscuits, Tupperware, secret treaties and what the hon. Member for Bolsover (Mr Skinner) said in 1971, the year in which I was born. I particularly want to thank various participants, such as the hon. Member for Newport West (Paul Flynn), the hon. Member for Glasgow South West (Mr Davidson), who is not in his place, and my hon. Friends the Members for Gainsborough (Mr Leigh) and for North East Somerset (Jacob Rees-Mogg). They all showed a passionate interest in this subject and knew what they were talking about. They argued from different points of view but helped to enlighten the debate.
Of course, it is not just Ministers and the Chancellor who do the work on such proposed legislation. An official team at the Treasury have been working on it for more than a year and I want to thank them for their hard work. I thank the royal household for its engagement as well as Alan Reid, the Keeper of the Privy Purse, with whom I have been liaising throughout. We have got the balance right between providing the funds to allow the monarch and her family to do their official duties with dignity and the kind of support we would expect for our Head of State while at the same time providing checks and balances on how that money is spent and allowing Parliament to scrutinise those resources for the first time. I suspect that such scrutiny would have been unthinkable decades ago.
Many people have referred to the fact that in 1760 the arrangement was put in place whereby the revenues from the Crown Estate were handed over for the lifetime of the monarch in return for a parliamentary grant. I do not know whether the arrangements in the Bill will last for 250 years—that is probably a bit ambitious—but I hope they last for many years and decades to come. That might mean that the House will miss the entertaining debates we have had over two days, but it will also ensure that our monarchy is properly funded, that it is above the annual political fray and that it can get on with doing what it does so well: representing our country and being our Head of State.
ECOFIN (12 July 2011)
George Osborne Excerpts(13 years, 4 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Mr George Osborne)
The Economic and Financial Affairs Council will be held in Brussels on 12 July 2011. The following items are on the agenda:
Savings Taxation Directive
The savings directive forms part of the EU’s “good governance in taxation” agenda, which complements G20 efforts to improve international tax co-operation and reflects latest OECD standards on tax transparency. Depending on the progress of negotiations, the Council may hold a further discussion on amendments to the directive, which seek automatic exchange of tax information with the aim of combating cross-border tax fraud. The UK fully supports the aims of the amending directive, and hopes that the EU can move towards an agreement.
Presentation of the Polish Presidency work programme
The Polish presidency will present its ECOFIN work programme for the second half of 2011.
Follow up to the G20 Deputies meeting in Paris on 8-9 July 2011
Ministers will hold an exchange of views on the main outcomes of the G20 deputies’ meeting, which is scheduled to discuss the following issues of interest to ECOFIN: the global economy and framework for strong, sustainable and balanced growth, reform of the international monetary system, financial regulation and commodities.
Follow-up to the June European Council on 24 June 2011
Council will discuss the outcomes of the European Council, where leaders concluded the first European semester, and welcomed the near completion of the implementation of the comprehensive package of measures it agreed last March to stimulate growth and to strengthen economic governance. The Government achieved their priorities: assurances that the European financial stability mechanism (the EFSM) would not be used for Greece; language that actions taken as a result of the European Banking Authority’s stress tests would be consistent with international standards; and strong language on world trade, Doha, deregulation and the single market.
Bank stress tests
This discussion follows on from the June ECOFIN dinner, and Ministers will hold an exchange of views on the European Banking Authority stress tests, which are due to be published in the first half of July. The focus is likely to be on communicating the results, and how to link the results to the backstops measures put in place by member states to address potential vulnerabilities in their banking systems. The Government believe that it is important to increase confidence in the European banking system through the implementation of coherent and transparent measures to address any vulnerabilities. It is also important to demonstrate the EU’s commitment to medium-term reforms, as agreed internationally, by implementing Basel III in full.
11th Facility for Euro-Mediterranean Investment and Partnership (FEMIP) Ministerial meeting
FEMIP brings together the whole range of services provided by the European Investment Bank to assist the economic development and the integration of the Mediterranean partner countries (Algeria, Egypt, Gaza/West Bank, Israel, Jordan, Lebanon, Morocco, Syria and Tunisia). Ministers will discuss FEMIP’s three-year operational plan (2011-13) and approve its annual report 2010; trust fund activity report 2005-2010 and the way forward; conclusions and follow-up of the 2011 FEMIP conference on the potential of public/private partnerships; and topics for its conferences in 2012.
Civil List
George Osborne Excerpts(13 years, 4 months ago)
Ministerial CorrectionsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr George Osborne
Let me now turn to some of the detail, recognising that in a fortnight’s time or so people will have had a chance to study the legislation and we will have a longer debate on Second Reading. First, we need a funding mechanism that prevents the sovereign coming to Parliament each year for resources, and that provides funding broadly in line with the growth of the economy. There is such a mechanism at hand, through the historical connection with the Crown Estate, so I propose that from 2013-14 the royal household receives 15% of the profits made by the Crown Estate in the two years prior. That is an average.
[Official Report, 30 June 2011, Vol. 530, c. 1146.]
Letter of correction from Mr George Osborne:
An error has been identified in the opening statement given on 30 June 2011. The correct answer should have been:
Mr George Osborne
Let me now turn to some of the detail, recognising that in a fortnight's time or so people will have had a chance to study the legislation and we will have a longer debate on Second Reading. First, we need a funding mechanism that prevents the sovereign coming to Parliament each year for resources, and that provides funding broadly in line with the growth of the economy. There is such a mechanism at hand, through the historical connection with the Crown Estate, so I propose that from 2013-14 the royal household receives the equivalent of 15% of the profits made by the Crown Estate in the year two years earlier.
Civil List
George Osborne Excerpts(13 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Mr George Osborne)
I beg to move,
That—
(1) new provision be made for, or in connection with, the financial support of the Sovereign and of the heir to the throne;
(2) any sums payable in respect of provision so made should be payable out of money provided by Parliament;
(3) provision be made enabling the continuation, in the reigns of Her Majesty’s successors, of the payment of the hereditary revenues of the Crown as directed under section 1 of the Civil List Act 1952;
(4) provision be made about allowances and pensions under the Civil List Acts of 1837 and 1952;
(5) any sums payable in respect of such allowances and pensions by virtue of any provision so made should be charged on the Consolidated Fund;
(6) it is expedient to amend the law relating to the financial support of members of the Royal Household.
The Queen’s Gracious Message yesterday invited Parliament to consider the provision of support to Her Majesty, her successors and other members of the royal household. That reflects a simple fact: the current civil list arrangements are no longer sustainable. They are inflexible, less than transparent and, critically, rely on a reserve of public funds that has steadily been run down and is about to become depleted.
As I explained to Parliament last October, we have been working with the royal household to design a new funding arrangement. It will take the form of a new sovereign grant that balances the public interest in our Queen being properly funded to carry out her official duties with the legitimate interest of the taxpayer in proper accountability and value for money. If we approve the motion, the Bill to establish the sovereign grant will be published later today and the House will have an opportunity for a longer and more detailed debate in two weeks’ time, or thereabouts, on Second Reading.
We must start our discussion today by recognising the Queen’s long service and immense contribution to public life in our country. I was firmly put in my place on taking office when I was reminded that I was the 19th Chancellor of the Exchequer to serve under Her Majesty. In the 59th year since her accession to the throne and the 86th year of her life, Her Majesty still took part in 440 public engagements. Her visit to Northumberland last week reminds us of the work that she and other members of her family carry out week in, week out to celebrate the achievements of communities across Britain. The royal family also conduct official business on behalf of the Government, leading 2,700 engagements and 150 official overseas visits last year. More than 41,000 people were invited to events at one of the palaces.
The monarchy is also a powerful magnet for international tourism, worth, according to one recent estimate, some £500 million to Britain. There is little doubt that our monarchy is a source of great national pride and constitutional strength that is widely admired around the world. As has been recognised for centuries, however, the official duties of the monarch cost money. That is why in the 18th century an historic arrangement was reached between the Government and the monarch. Until then, the monarchy was indistinguishable from the state and both were funded from the income the mediaeval Crown collected from its estates, as well as duties, fines and other charges.
In 1760, George III agreed to surrender for his lifetime the full income of the Crown Estate to the Government in return for a civil list. That arrangement has been in place ever since and a clear demarcation has long been established between the private income of the royal family for their private expenditure and the publicly funded income, derived from the civil list, for the royal family’s public duties.
At the beginning of each reign, Parliament passes a new Civil List Act setting out a fixed annual amount for the whole of that reign. That was done in 1952, when Her Majesty was proclaimed Queen. By 1972, high inflation had so eroded the value of the civil list that the system had to change and this House agreed to set fixed annual amounts for 10 years at a time, but this system, too, had its weaknesses. As inflation was hard to forecast accurately over a 10-year-period, the civil list ended up being too generous at the beginning of the period and too meagre at the end. We are living with those weaknesses still.
In 1990, the annual civil list amount was set at £7.9 million. Additional support was provided to the monarch in the form of two grants in aid, one for travel and one for maintenance of the royal palaces, but inflation in the 1990s was falling faster than forecast and much of the funding was not spent. Instead, it went into a reserve, which by 2001 had grown to more than £37 million. At the beginning of the last decade, it was decided that rather than set a new civil list, the royal household should run down that reserve to fund its official duties.
That means that over the past three years, the royal household has on average spent about £35 million a year. Let me set out how the spending breaks down for 2009-10, the most recent year for which there is out-turn data. There was £7.9 million from the civil list, £6.5 million from the reserve—that was, of course, public money that had been provided earlier—£3.9 million for travel, £400,000 for communications, and £15.4 million for royal palace maintenance. It should be made clear that over recent decades the royal household has done a huge amount to cut costs and improve the effectiveness of its spending. Indeed, total spending has come down from £45.8 million in 1991 to an expected £35 million in 2010-11. That is a real-terms cut of more than 50% in 20 years. No other Government Department can claim to have achieved anything like that.
Those efficiencies have continued in recent years. For example, visitor income to the palaces has almost doubled, commercial lettings at Hampton Court and Kensington palace are up 30% and a two-year pay and recruitment freeze on the royal household has been imposed. I want to take this opportunity to thank the current Keeper of the Privy Purse, Sir Alan Reid, and his predecessors for doing such a good job.
Despite such impressive efficiencies, however, there are problems with the current system. It is very inflexible. For example, money saved in travel cannot be used to undertake an urgent repair of a property. It is opaque, as the National Audit Office’s access to official spending is limited and, although it has carried out value-for-money studies, it has no audit function. Critically for today’s discussion, it was clear by April 2010 that the royal household’s reserve, which had provided a key component of its annual income, was running out.
The previous Government took the decision, which I completely understand, to leave it to the incoming Government to fix that situation. This is how we propose to do it. We will introduce a new sovereign grant that provides appropriate resources for the Queen to do her job with dignity but balances that with fairness and accountability for the taxpayer. It is designed around three principles. First, it provides the monarchy with sustainable long-term financing free from annual political interference, by which I mean the budget can be set for the long term and automatically uprated without an annual political argument. Secondly, it provides flexibility, so that the royal household can manage its funds efficiently to deliver best value for taxpayers. The third principle is that, alongside more sustainable finances with greater flexibility, we will ensure greater accountability and transparency and establish proper checks and balances to prevent the sums provided from becoming too excessive. Those are the three principles underpinning our approach.
[Official Report, 5 July 2011, Vol. 530, c. 13-14MC.]Let me now turn to some of the detail, recognising that in a fortnight’s time or so people will have had a chance to study the legislation and we will have a longer debate on Second Reading. First, we need a funding mechanism that prevents the sovereign from coming to Parliament each year for resources, and that provides funding broadly in line with the growth of the economy. There is such a mechanism at hand, through the historical connection with the Crown Estate, so I propose that from 2013-14 the royal household receives 15% of the profits made by the Crown Estate in the two years prior. That is an average.
As the House will know, the Crown Estate is a large commercial property portfolio comprising £6.7 billion of assets, and 15% of the profits is estimated to provide a sovereign grant worth about £34 million in 2013-14—in other words, broadly in line with the latest data on grant and reserve spending for 2009-10, which was £34 million.
Each year, as the economy grows, the revenues of the Crown Estate will grow, and the monarch will eventually receive 15% of those revenues using that formula. There will be a cash floor to protect the monarch from cash cuts, but basically the monarch will do as well as the economy is doing. We will see how the Crown Estate performs, but the current estimate is that the 15% formula will mean that by 2014-15, the last full year of this Parliament, the monarch will receive about £35million. In cash terms, that is broadly in line with what it has spent in recent years; in real terms, it is about a 9% cut over the Parliament.
We are also preparing a further important improvement to the current system. Historically, extending funding arrangements to new monarchs required primary legislation within six months of their accession. That arcane process made it difficult for the royal household to plan for the future, and for each new monarch to achieve a smooth transition at the beginning of their reign when so much else needed to be done. So I propose that the new legislation should be a permanent arrangement that outlives the sovereign. It will require only an Order in Council, rather than a whole new piece of legislation, to extend the sovereign grant to a new monarch, and I hope that Members agree that this is a sensible arrangement.
We will also use the Bill to remove an historical anomaly about the Duchy of Cornwall. The revenues of the duchy are used to fund the Prince of Wales in his official duties, but they are available to him only because he is the Duke of Cornwall, and only the eldest son of the monarch can be the Duke of Cornwall. So if the heir to the throne is female or, indeed, a second son or a grandson, they cannot be the Duke of Cornwall, which means that they would not get the revenues of the duchy.
We propose to correct that anomaly by making it clear that in future Duchy of Cornwall revenues will in effect go to the heir, whether or not they are the Duke of Cornwall. There will also be a provision in the Bill to deal with the situation in which the heir is not yet an adult.
We will also bring to an end another anomaly by which certain members of the royal family receive statutory payments from the Exchequer only for the money to be reimbursed to the Exchequer by the Queen. Yesterday, I received a letter from the Keeper of the Privy Purse on this matter, copies of which will be made available in the Library after my speech. The new sovereign grant will replace all statutory payments and annuities to other members of the royal family, with the exception of the Duke of Edinburgh.
The second principle behind our proposals is flexibility. As I have said, under current arrangements, the Queen receives three different blocks of money: a travel grant from the Department for Transport; a royal palaces and communications grant from the Department for Culture, Media and Sport; and the civil list from the Treasury. That is very inflexible. It means that the royal household cannot set its own priorities and flexibly manage its resources in the course of each year, as any modern organisation would want to do.
I propose abolishing the three separate blocks and merging them into a single grant from the Treasury. As has been the case for many decades, any underspent public money will go into a reserve. This is a sensible arrangement that will allow the royal household to provide for contingencies and to invest in one-off capital projects.
Unlike previous years, however, we are going to have a maximum target on that reserve, so that it never rises above about 50% of the annual grant. This means, for example, that if the annual grant is £34 million, the reserve will be limited to £17 million, which is very much lower than the £37 million that was accumulated in the reserve 10 years ago.
The third principle of our approach is an incredibly important one: accountability to Parliament for the spending of public money, and value for money for the taxpayer. I think that we get excellent value for money from our monarchy. It amounts to 51p per year per person in the United Kingdom, but it is right and proper that Parliament should exercise oversight.
For many years, the National Audit Office and the Public Accounts Committee have been allowed to conduct value-for-money studies in some areas of royal business, such as travel or palace maintenance, but not to conduct full audits as they do with other Departments. The Bill proposes to change that. From now on, the NAO will have full access and become the statutory auditor of all the royal household’s official business and of the sovereign reserve. It will also be able to audit the assets used by the royal household in carrying out its official business. The National Audit Office will not become the financial auditor of the Queen’s private business, including the Duchies of Lancaster and Cornwall, which remain private funds.
To ensure accountability to Parliament, the sovereign grant accounts will be laid before the House. The Public Accounts Committee will also be able to conduct hearings on the royal finances, with the royal household itself providing evidence at such hearings. That is a big and historic extension of parliamentary scrutiny, and I should like to thank Her Majesty for opening up the books.
We also propose checks and balances on the size of the sovereign grant and the reserve. As I said, the sovereign grant will be set at 15% of Crown Estate revenues, and that percentage will be reviewed every seven years to determine whether it remains appropriate. The review will be conducted by the three current royal trustees, the Prime Minister, the Chancellor of the Exchequer and the Keeper of the Privy Purse, and every seven years we will come to Parliament with the proposed review and a recommendation on what it should be.
There cannot be an increase without agreement from Parliament through the affirmative procedure. The royal trustees will also act to make sure that the reserve remains within its 50% cap by reducing the annual grant as required, and of course the Treasury has a responsibility each year for ensuring that the sovereign grant is spent on the official duties that it is supplied to be spent on.
Those arrangements also deal with the potential situation, which some people predict, of an increase in Crown Estate profits from offshore wind activity. Currently, those revenues are running at about £2.5 million per year, but some forecast that they could increase substantially in the 2020s. The 15% formula will be reviewed before that may come about, and we will not allow revenues from offshore wind to lead to a disproportionate rise in revenues to the royal household. We will shortly also set out proposals, unconnected to this legislation, to make sure coastal communities can benefit from the development of the Crown Estate’s marine activities.
Today, we recognise the value of the monarchy and we put its finances on a sustainable long-term footing. I have put forward the principles behind our proposed new sovereign grant, and we will debate those in detail next month. Our aim is to ensure that the sovereign can carry out her official duties effectively and with dignity, while ensuring accountability to Parliament and value for money to the taxpayer. I hope that our proposals receive all-party support, and I commend the motion to the House.
Ed Balls
The hon. Gentleman raises an important question. It is good that Parliament has an opportunity to scrutinise the proposals in the coming weeks or months. We are in an unusual situation. This debate is not a statement, so it is inappropriate for me to ask questions of the Chancellor today and expect him to respond. The debate is also on a Bill that we have not yet seen, which is obviously awkward. I am in a stronger position to ask detailed questions than everybody else, because I knew some of the content of the proposals in advance, but I do not know all the detail.
Today we are setting out questions and issues on which the Government might want to provide more detail between now and the debate on Second Reading. We will certainly expect more detail and debate then. I am sure that in reaching that deal over past months, the Chancellor and members of the royal household scrutinised the kind of issue that the hon. Gentleman raises. However, we need to find out the detail of that scrutiny, what analysis was looked at before that agreement was reached, and the impact of the proposals on a number of things. I mentioned security and the uprating formula, and the hon. Gentleman asks the very important question of whether the measures will enhance the Crown Estate or deter it from seeking to make new investments. I do not know the answer to that, but it is a good issue for debate.
Mr George Osborne
The right hon. Gentleman is right: this is not a statement. It is a rather archaic procedure, but if it is any consolation, it is a lot less archaic than it was in the early 1970s—through discussions with the Chair, we managed to reduce some of that procedure. I am unable to respond to the points that he makes, but I shall use this intervention to say that I thank him for the support in principle that he has given to the measure. He has asked some good questions, to which I hope to respond on Second Reading, and other hon. Members will raise other issues. I was not able to publish the Bill until this resolution has been passed by the House. I appreciate the right hon. Gentleman’s approach. The debate on Second Reading will be an opportunity for hon. Members to go into the detail of the Bill after they have studied it.
Ed Balls
I was in no way criticising the approach that has been taken. I was simply noting the rather odd situation that we are in: I am able to say some things that, potentially, nobody else fully understands because they have not had the briefing from the Chancellor that I had, but I totally understand the Chancellor’s position.
ECOFIN 20 June 2011
George Osborne Excerpts(13 years, 4 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
The Economic and Financial Affairs Council was held in Luxembourg on 20 June 2011. The following items were discussed:
Legislative proposals on economic governance
The Council updated its general approach, with a view to concluding negotiations with the European Parliament in advance of the European Council on 23-24 June. The UK is content with the updated text: on the issue of economic dialogue involving the European Parliament, I ensured explicit text that member state attendance at public debates and hearings would be voluntary. In addition, the UK’s partial opt-out from the fiscal frameworks directive remains protected.
Proposal for a Decision of the European Parliament and the Council granting an EU guarantee to the European Investment Bank (EIB) against losses under loans and guarantees for projects outside the EU
The Council endorsed the outcome of the trialogue discussions (Council, European Parliament and Commission) on the EIB’s external lending mandate. This political agreement will, with the EP, be formally adopted later in the year. During the Council discussion, I emphasised the importance of Iceland repaying the money it owes to British and Dutch taxpayers. The following Council statement was then agreed to accompany the mandate:
“The Council takes note of the issuance of the reasoned opinion of the EFTA Surveillance Authority (ESA) which states that Iceland has failed to comply with obligations resulting from the Deposit Guarantee Directive and the EEA Agreement. The Council underlines the importance of this reasoned opinion and encourages Iceland to take all steps necessary to swiftly fulfil all its EEA obligations”.
Regulation on over-the-counter derivatives, central counterparties and trade repositories (EMIR)
Finance Ministers held a policy debate, which focused on two issues:
The authorisation and supervision of central counterparties, in particular the role played by the European Securities and Markets Authority;
The scope of the regulation, That is, whether it should apply to all types of derivatives.
I emphasised that further work would be needed to achieve a regulation consistent with G20 commitments, single market principles and the agreement on the establishment of the European supervisory authorities last year. The Hungarian presidency will pass on a progress report to the Polish presidency, who will aim to agree a general approach following further work by the Council.
Proposal for a Regulation of the European Parliament and the Council establishing technical requirements for credit transfers and direct debits in euros
The Council briefly discussed the draft regulation. Some member states raised concerns, and the Commission agreed to work on a transitional process in order to address these. The Polish presidency will start negotiations with the European Parliament shortly. The UK supports the proposed regulation, which will facilitate the creation of a single market for electronic payments in euros.
European Semester
The Council approved the macro-economic component of the European semester country-specific recommendations. The Government expressed concerns about a lack of time for parliamentary scrutiny and abstained from the vote accordingly. The recommendations will be endorsed by the European Council on 24 June as Council recommendations, and formally adopted by the ECOFIN Council on 12 July,
European Banking Authority stress testing
Over dinner, Finance Ministers discussed backstop support schemes in the banking sector, with a view to the publication in early July of the results of the 2011 stress tests. The Government support the implementation of coherent and transparent measures to address any vulnerabilities in the EU’s banking system,
European Stability Mechanism (ESM)
In an inter-governmental meeting preceding ECOFIN, Finance Ministers discussed the draft treaty establishing the ESM which will be presented to the European Council for endorsement. In particular, it was agreed that the ESM would not assert preferred creditor status in the case of countries currently in receipt of assistance, should those member states access ESM funding post-2013. I also secured the removal of any language with respect to collective action clauses that might impact on the ability of euro area member states to issue debt under English law.
The Government’s opposition to the use of the European financial stabilisation mechanism for any second package of financial assistance for Greece has been made clear.
The Economy
George Osborne Excerpts(13 years, 4 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
I beg to move an amendment, to leave out from “House” to the end of the Question and add:
“welcomes the fact that in the last year a record 520,000 new private sector jobs were created, with the second highest rate of net job creation in the G7, exports grew by 13 per cent. and manufacturing activity was 4.2 per cent. higher and the latest labour market data showed the largest fall in unemployment for more than a decade; notes that the Government inherited a budget deficit forecast to be the largest in the G20; further notes that the previous administration and now Opposition has no credible plan to deal with the deficit and that the Shadow Chancellor’s recent proposal for a temporary cut in VAT has been widely criticised for lacking credibility and would put the stability of the economy at risk; notes that the Government has introduced a permanent bank levy that raises more revenue than the previous administration’s one-off bonus tax and that the Government has set out a credible plan that has been endorsed by the IMF, OECD, European Commission and the CBI, that has led to greater stability, lower market interest rates and an affirmation of the UK’s credit rating that had been put at risk by the previous administration; and notes that this stability provides a platform for rebalancing the economy and the Government’s Plan for Growth that includes reducing business taxes, investing in apprenticeships, creating a new Green Investment Bank, reforming the planning system, reducing the burden of regulation and reforming the welfare system to make work pay.”
I very much welcome this debate, and it was certainly worth attending for that priceless phrase, “I do my politics on the record”. That is right up there with, “There will be no whitewash at the White House”, “I did not have sexual relations with that woman” and “No more boom and bust”. Really, we must put that phrase away, because we will need it in the weeks ahead.
It is good that we are discussing the economy, and the shadow Chancellor made a speech about what has happened to the economy over the past year—the subject of this debate—but he completely failed to mention that exports are 13% up, manufacturing is 4% up, investment is 6% up and, most importantly, the 520,000 net new jobs in the private sector. Remember the question a year ago, “Where will the jobs come from over the next year?” Well, we have had 500,000 answers from businesses around this country—indeed, the second highest job creation rate in the G7—but that is not a fact that we are likely to hear from the Opposition, because they are determined to talk this economy down. That is the truth.
Kevin Brennan (Cardiff West) (Lab)
What estimate is the Chancellor using for the time lag between his fiscal actions and their effect on growth?
Mr Osborne
The decisions that we took in the first few weeks on coming to office provided stability for the economy. That can be seen in the fall in market interest rates and the affirmation of our credit rating. Those things happened within weeks. Of course, some of the structural reforms that we are taking will take longer to come into effect, but that is why our package includes immediate action to bring stability; medium-term action to bring down tax rates, which is happening now; and of course the long-term reforms that I will talk about. That is the point that I should like to make to the hon. Gentleman and others.
I said a year ago, not recently, that the recovery would be choppy. How could it be anything other than choppy, when we are recovering from the greatest recession since the 1930s, the biggest banking crisis in our history, landed with the biggest budget deficit in peacetime? That is the inheritance that the Government has had, and yes, there have been other factors—international headwinds, such as the oil price—[Hon. Members: “Oh.”] Well, there has been a 60% rise in the oil price, which has apparently passed the Opposition by. In the words of the International Monetary Fund, despite all this,
“the repair of the UK economy is underway”,
and the truth is that the Opposition simply do not want to hear it. They broke it, and they cannot bear to see anyone else fixing it.
Nadhim Zahawi
I can inform the Chancellor that, in the west midlands, unemployment has fallen by 28,000 this quarter. At the height of the previous Government’s economic drive, employment in the west midlands still shrank.
Mr Osborne
My hon. Friend makes two good points. First, there was a very welcome recent reduction in unemployment—the biggest fall for a decade. Secondly, he draws attention to one of the most staggering facts about the past decade: private sector employment in the west midlands fell in the decade leading up to the financial crisis. That shows how unbalanced the British economy became under the last Labour Government.
Toby Perkins
If the Chancellor feels that the economy was so unbalanced, can he explain why he was still saying in 2008 that he would follow Labour’s spending plans?
Mr Osborne
We fought the 2005 election and, sadly, lost it, saying that Labour’s plans were unaffordable. In 2008, we made it clear that we were coming off Labour’s spending plans. [Hon. Members: “You didn’t.”] We did. I happened to be there—I am not sure that the hon. Gentleman was. We came off Labour’s spending plans in 2008, and thank God we did, because we earned a mandate to make the necessary changes to put the economy back on track.
Mr Osborne
I will take a couple of interventions in a short while, but let me make the point that, since the shadow Chancellor took office, two things have happened. The first thing is that the measured economic credibility of the Opposition has steadily fallen, and the other thing is that the reported divisions in the Labour party have steadily increased. If anyone wants to know why its economic credibility is falling and why the divisions are increasing in the Opposition, the speech that we have heard told it all: not one word of apology, not one passage of serious reflection about why it all went wrong. The shadow Chancellor started talking about the fact that the Prime Minister was the special adviser in the early 1990s. He himself was the special adviser for the past decade in the Treasury—not a mention of the fact that he was the chief economic adviser when the advice was so catastrophic, not one mention of the fact that he was the City Minister when the City exploded. That is the record of the right hon. Gentleman.
The amnesia reached new heights in the right hon. Gentleman’s speech last week to the London School of Economics. Consider this recent quotation from the speech that he gave—this is from the man at the centre of British economic policy making for last decade:
“when I am asked in interviews what I would be doing differently to cut the deficit, the first thing I say is that I wouldn’t be starting from here.”
I can assure him that none of us would like to be starting from here, but the main reason why we are is sitting right opposite me.
Alec Shelbrooke (Elmet and Rothwell) (Con)
Does my right hon. Friend agree that it says everything that we need to know about the Opposition’s economic policy when the shadow Chancellor’s immediate reaction to the IMF report was, “They don’t know what they’re talking about”?
Mr Osborne
It went beyond that—my hon. Friend makes a good point—not only did the shadow Chancellor attack the IMF, but he also attacked in the speech that I have just mentioned the IMF’s acting managing director. So he laid into the Governor of the Bank of England a couple of months ago, and he is now laying into the IMF’s acting managing director. Anyone who disagrees with the shadow Chancellor, which means most of the world, has become his political opponent.
Ian Austin
I want to apologise to the Chancellor for something that I said yesterday. On who said what in 2008, I said yesterday that the Chancellor had praised the previous Government’s spending plans in 2008, despite now condemning what he refers as a decade of over-investment. I was wrong, and I want to apologise. In July 2008, it was in fact the Prime Minister who praised Labour’s then spending plans. He said:
“we are sticking to Labour’s spending totals.”
It was in 2007 that the Chancellor said that a Conservative Government would match our spending plans.
Mr Osborne
The hon. Gentleman should get better handouts if he is one of the shadow Chancellor’s close advisers. [Hon. Members: “Answer the question.”] I have answered the question. At the 2005 general election, we fought against Labour’s spending plans. In 2008, the year that he mentions, we came off Labour’s spending plans. Thank God that we did, because it has given us the mandate and the power to put the public finances back on track.
The extraordinary thing about the shadow Chancellor is that he takes credit for the things that went right. On Bank of England independence, he has completely written out of the script the then Prime Minister and Chancellor. He now takes sole credit for keeping Britain out of the euro, although, as far as I am aware—I am happy to take an intervention—the Labour party’s official policy is still that we join the euro in principle. Is that right? I do not know whether the policy has changed. [Interruption.] We have heard quite a lot from the Labour party in the past couple of hours about being on top of the detail. Surely, the shadow Chancellor knows what his party’s policy is on the euro. [Hon. Members: “He doesn’t.”] Oh, dear. Let me give him a clue. When I became Chancellor, I had to close down the euro preparations unit in the Treasury.
Of course, the shadow Chancellor takes credit, but he is nowhere to be seen when the discussion turns to the fiddled fiscal rules, the failed tripartite regulation, the doubling of the debt, the bank collapses and the destruction of our pensions—none of those things has anything to do with him at all. Now, he is at it again. This is what a member of the shadow Cabinet said a couple of weeks ago:
“he increasingly thinks his party is heading for the buffers and doesn’t want to be in the cab when the collision comes.”
His boss was called Macavity, and it turns out that Macavity has a kitten—son of Macavity. There is a reason for all this: because he cannot construct a credible story about the past that does not cast himself as a villain, he lunges forward in opposition from one incredible uncosted policy to another.
Mr Osborne
I will take interventions, but let me make this point.
Since this is an Opposition day, let us examine the latest idea of a £51 billion—£13 billion a year—unfunded commitment on tax. This means that the shadow Chancellor has presumably abandoned the Darling plan for this year, because the commitment was not funded in that plan, and that members of the Opposition Front-Bench team were not only too embarrassed to mention it at Treasury questions yesterday but, as we now know, they were not consulted. The shadow Cabinet was not consulted.
I will give way on this point. On television at lunchtime, the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), was asked eight times whether he supported the policy of the shadow Chancellor and he did not give an answer. Perhaps the shadow Chancellor will tell us whether the last Labour Chancellor of the Exchequer supports his plan—yes or no.
Ed Balls
The previous Chancellor was the last man to cut VAT temporarily to get the economy moving. What is the right hon. Gentleman talking about? Let me ask him a very precise question. He says the cost of this temporary VAT cut, which I said should be in place until the recovery is secured, would be more than £50 billion. Exactly how does he get that figure, and how many years does that mean we will have to wait before the recovery is secured, following his reckless deficit reduction plan?
Mr Osborne
The figure is calculated like this: if we implemented it, we would be in a fiscal crisis. That would delay the recovery by at least four years. That is how I come to £51 billion.
Barry Gardiner
The right hon. Gentleman will recall that a year ago the predictions in terms of unemployment did not reflect the 510,000 new jobs which he boasted at the Dispatch Box today about having created in the economy. He will also remember that the OBR predicted 2.6% growth, which has not happened. How does he account for the fact that, despite the 500,000 extra jobs in the economy, growth has flatlined and the 2.6% growth predicted has not been achieved?
Mr Osborne
The hon. Gentleman draws attention to the 520,000 net private sector jobs that are being created. It is also the case, as we saw yesterday, that the tax receipts have not only held up, but are ahead of forecast. The IMF said that an interesting question arises when that is put alongside the GDP figures. These forecasts are independent. That is one of the fundamental changes that we made. The Office for Budget Responsibility is independent. It is also a central forecast, rather than a cautious forecast, as used to be the case. That was another important change we made. We shall see as the economic data come in. We should welcome the public finance data last week and we should certainly welcome the unemployment data.
I give way to my constituency neighbour.
Graham Evans (Weaver Vale) (Con)
I am grateful to the Chancellor. Does he agree that manufacturing is the key to the long-term prosperity of our country, and that under Labour the number of people employed in manufacturing halved?
Mr Osborne
Indeed. The share of manufacturing as a proportion of our economy halved as well. That is how unbalanced the British economy became. Financial services boomed—we all know that; manufacturing halved as a share of our economy. One of the things that we are seeking to do is rebalance our economy.
Mr Osborne
Let me make a little progress and then take some more interventions.
We are all being asked to vote tonight on the proposition put forward by the shadow Chancellor. We are all being asked to support his motion calling for a big unfunded tax cut. This is what the Financial Times commented when it heard about that. It said that the shadow Chancellor’s argument “increasingly sounds irrelevant”
and that it is
“favoured by those who are unwilling to face up to the true problems facing Britain’s economy today.”
The Economist said that the shadow Chancellor’s speech was
“steeped in cynical electoral politics, thinly disguised as an economics lecture.”
Well, there is always The Guardian, isn’t there? Not on this occasion. The Guardian said that the shadow Chancellor’s economic policy was the “wrong prescription”
and went on to say:
“The big job for Labour . . . is not to dream up a couple of policies but to work out a cogent position on the deficit”
and that there is
“No sign of that yet.”
No sign of a cogent position on the deficit—that was not a comment from the Government, the right-wing press or the IMF, but from The Guardian. That shows just how alone the shadow Chancellor is.
Mr Osborne
Let me make this point, then I will take interventions.
The position is worse even than that. Hon. Members might remember reading a couple of weeks ago about those leaked documents about project Volvo, the secret plan drawn up by the shadow Chancellor to rebrand his party. The president of Volvo Cars rushed out a statement saying:
“If only the Labour Party had been like today’s Volvos—dynamic, agile and innovative—perhaps the UK economy would have been in a better place than it finds itself today.”
Kevin Brennan
While the Chancellor is on that subject, can he give a simple answer to a question—yes or no? Did he have advance knowledge that The Daily Telegraph had obtained the shadow Chancellor’s private papers, or any advance knowledge of the stories that it planned to write—as he raised the issue, yes or no?
Mr Osborne
This is a debate about the economy. We all enjoyed reading those papers in The Daily Telegraph.
To get the better economy that we all want to see requires the three things that this Government have provided—
Alec Shelbrooke
Is it not also telling that after the Opposition have spent a year banging on about the American model and what the Americans were doing, we heard nothing today about the fact that President Obama had to introduce austerity measures because his massive input of billions into the economy did nothing except raise unemployment and increase the deficit?
Mr Osborne
The interesting thing is that in the United States the debate in the Congress has turned to discussions about the US budget deficit. The proposal from President Obama in his speech at George Washington university bears some striking similarities to the British Government’s plan, and is similar in pace, scale and composition between tax and spending measures. It shows that this is the discussion that the world is having, but it is not a discussion of which the shadow Chancellor is a part.
Ed Balls
To follow up the question from my hon. Friend the Member for Cardiff West (Kevin Brennan), and because this is a serious matter, I would like to give the Chancellor a second opportunity to answer. I answered his questions and questions from the Government Back Benches on my conversations with the Leader of the Opposition. Did the Chancellor have any advance knowledge or sight of papers taken from me which went to The Daily Telegraph without my knowledge? I would like him to answer the question.
Mr Osborne
We all read those papers in The Daily Telegraph. They revealed that the shadow Chancellor knew before the then Chancellor of the Exchequer came to the House of Commons that the 10p tax rate that Labour Members all voted for would hit the poorest in our country.
Mr Osborne
The hon. Gentleman may not have voted for it, but the rest of his colleagues did. That is the absolutely astonishing revelation from those papers.
Kelvin Hopkins
I hope the Chancellor will not describe me as a henchman. Writing yesterday, Lord Skidelsky said that taking £112 billion out of the economy in the next four years will be a massive fiscal contraction, and he described it as
“the royal road to stagnation, not recovery.”
What does the right hon. Gentleman have to say to Lord Skidelsky?
Mr Osborne
Of course there are economists, including Lord Skidelsky, who have made their views clear, but there are just as many—indeed, more—economists on the other side of the argument. The economic institutions that govern our world—the IMF, the OECD, and the European Commission, which does not govern our world, but produced a recent report on the British economy—all made the same point. We can set ourselves completely against world opinion, as the shadow Chancellor has done, because he cannot admit that the country had huge problems coming up to the financial crisis. He cannot do that or he would put himself centre stage. That is what this is all about, but the world has moved on and the Labour party has not yet moved on with it.
Mr Redwood
The Red Book says that current public spending will rise 3.8% this year in cash terms and it is running a little higher than that at present. Given that there is to be a public sector pay freeze, is it the intention that there should be a real increase in public spending this year? Does that not put the debate into some kind of context?
Mr Osborne
My right hon. Friend draws attention to the fact that although we have had to take very difficult decisions—everybody understands and sees that—we are not facing the sort of catastrophic scenario painted by the Opposition. The shadow Chancellor talked about Greece perhaps having to default and leave the euro, and as it is not in primary balance and it has a big budget deficit, that would lead to even more draconian cuts. The truth is that if we had not put in place a credible, measured, staggered plan to reduce the budget deficit, we would have been forced by the international markets into making much deeper cuts.
Mr Osborne
I have taken several interventions, and I will take some more after I have made a little progress.
The Government have put in place three measures: first, a credible plan to deal with the deficit; secondly, a plan for growth that supports the private sector and rebalances our economy; and thirdly—astonishingly, the shadow Chancellor did not mention this—a plan for the banking sector, to ensure that we deal with the problems we currently face while also preventing a repeat of the banking crisis in future.
Let me address each of those in turn. In terms of the budget deficit, our understanding is based on the following points. Britain has a large structural deficit; it emerged before the recession began; it will not go away automatically as the economy recovers; and it puts our whole economy at risk. We only have to look at what is happening in other parts of Europe to see that that is the case. Almost all the independent observers of the British economy agree with those points, including the crucial fact that we had a structural deficit before the crisis struck. The OECD and the International Monetary Fund estimate that before the crisis Britain had the largest structural deficit of all the G7 countries.
Tony Blair states in his memoirs that
“from 2005 onwards Labour was insufficiently vigorous in limiting or eliminating the potential structural deficit.”
[Interruption.] The shadow Chancellor says, “Rubbish.” I thought that he conducted his politics on the record, and I am not sure that Tony Blair would have agreed with that; the last time he checked, he was the Prime Minister and First Lord of the Treasury in 2005.
My predecessor as Chancellor, the right hon. Member for Edinburgh South West, says that by 2007
“we had reached the limits of what I thought we should be spending.”
What is the shadow Chancellor’s view? It is this:
“I don’t think we had a structural deficit at all”.
No one agrees with him on that; he is in complete denial.
Andrew Selous (South West Bedfordshire) (Con)
At that point in 2007, what did the then Government do? They increased spending by £90 billion, far above the level of inflation, and going against the advice we now know they got from the Treasury. Was that not seriously negligent?
Mr Osborne
The entire economic record of the previous Government was negligent, which is why no one is going to trust Labour with the economy again.
Lilian Greenwood (Nottingham South) (Lab)
I hear what the Chancellor says, but just before the collapse of Northern Rock in 2007 did he not write in The Times that his party would match Labour’s spending totals? Why is he now pretending that did not happen?
Mr Osborne
I have already been asked that question three times, and I have answered it, explaining that—[Interruption.] Well, I will repeat it. We fought the general election in 2005 arguing that Labour was borrowing too much. We came off Labour’s spending plans in 2008, in the approach to the last general election, and thank God we did, because it gave us the mandate to take the difficult decisions we have had to take.
Mr Osborne
Let me just make the following point before taking another intervention. The majority of Labour Members voted for the right hon. Member for South Shields (David Miliband) to be their leader. He did not get the job however, but this is what he would have said in the acceptance speech he never delivered, and it goes to the heart of the challenge we face:
“Step one is to recognise what is obvious: that we did not abolish the business cycle. We should never have claimed it. You can’t in a market economy. And public spending plans cannot depend on it. Nor can you write your own fiscal rules and then be the judge and jury for how they are calculated and when they are met.”
That is absolutely right, and it is why last May we created the Office for Budget Responsibility, a step that the shadow Chancellor opposed in Parliament when he was a Treasury Minister, although I hope his party now accepts it. That is also why a year ago we introduced the budget plan to get the deficit down and have a credible programme for recovery—and which is why we are having this debate today.
Mr William Cash (Stone) (Con)
The Chancellor’s analysis of what went wrong under the Labour Government is completely right. However, does he agree that our current strategy must be about growth as well as reducing the deficit through making cuts? I know he understands that and would like to achieve growth, but we cannot achieve it, either in our own economy or in Europe, if 4% of our GDP is taken up with the costs of over-regulation, as has recently been suggested. The bottom line is that we have to deregulate, but we cannot deregulate European legislation without overriding it, and negotiation is not working.
Mr Osborne
My hon. Friend is absolutely right that a crucial element of our strategy must be to undertake structural reform of the British economy in order to reduce regulation and the burdens on business and make our economy more competitive. We would have to do that in any case, even without the recovery from recession we are having to undertake, but the truth is that it has been made more difficult by the accumulation of all the red tape over the past few years. It is remarkable that when we propose important changes—although not changes that go as far as we would like—to employment tribunal law, Labour opposes them. Those are basic changes that would enable more people to be hired and to be in work, but they are opposed by the Opposition. [Interruption.] We can tell by Opposition Members’ reactions that they simply do not understand what it takes to create jobs in the private sector.
Charlie Elphicke
The Opposition not only want to hold back the growth agenda; they also have a series of unfunded spending commitments and go in for gimmicks and bandwagon chasing. They will not be a responsible Opposition, or electable at the next general election, if they carry on in this way.
Mr Osborne
My hon. Friend is absolutely right. In the last week alone, not only has the shadow Chancellor made a huge unfunded tax promise, but Labour voted against the welfare Bill, with its billions of pounds of savings. It is perfectly right for an Opposition to say, “I don’t agree with that, and I’ve got an argument with you on this,” but Labour’s voting against the entire welfare Bill was a catastrophic error of judgment, and we will remind it of its failure to reform the welfare system from now until the end of this Parliament. The Labour leader recently said that his party had become known as the friend of the welfare scroungers and the bankers. He was absolutely right about that.
The shadow Chancellor’s central argument was that the reason why we are undertaking this deficit reduction plan is because it is all part of some great partisan ideological plot. I therefore have a question for the shadow Treasury team: presumably therefore, the Bank of England is part of this plot? Is that the case?
Mr Osborne
So it is a Tory plot, is it, and the Bank of England is part of it? What about the IMF; is it part of this Tory plot? The right hon. Gentleman probably thinks the CBI is part of it.
What about PIMCO, the world’s largest bond fund: is it part of the Tory plot? It is based in Los Angeles, so it must represent the international branch of the Tory plot. It said this:
“We think the UK is implementing what is probably the best combination of fiscal and monetary policies”
in the western world. These groups—the serious commentators—have all come to the same conclusion as the coalition Government: that we need a credible deficit reduction plan to get our market interest rates right—to make sure that, even though we inherited a budget deficit higher than Portugal’s, our market interest rates are similar to those of Germany.
Kate Green (Stretford and Urmston) (Lab)
Who is paying the price for this approach to reducing the deficit? The Institute for Fiscal Studies recently pointed out that the inflation rate being experienced by the poorest families is 60% higher than that being experienced by the highest-earning families.
Mr Osborne
The truth is that the whole country has paid the price for the disastrous economic policies of the previous Government. There is no easy way to reduce the largest deficit in our history, but the Opposition oppose every single measure we introduce. That is incredible and it is precisely why they have been rumbled—rumbled by the serious economic press and by everyone else.
Mr Aidan Burley (Cannock Chase) (Con)
Is the truth not that the Opposition’s two policies—cutting VAT and halving the structural deficit over this Parliament, rather than eliminating it—mean just one thing: more borrowing? Does more borrowing not just mean one thing: us paying more interest? Is it not morally disgusting that when we came into government a year ago we were spending £120 million a day just to service the interest on their debt, which they now want to increase?
Mr Osborne
My hon. Friend is right. The debt interest payments would have increased to £180 million a day if we had not pursued our current policies. That became one of the largest Budget items under the Labour Government. Deficit reduction has avoided the interest payments that we would have had under Labour.
Mark Durkan (Foyle) (SDLP)
The Chancellor will be aware that Ireland is locked into a serious deficit reduction plan. He may also be aware that next week, as part of its budget for jobs, a targeted VAT cut to 9% will kick in for the tourism sector and last for 18 months. It follows similar cuts made by France and Germany to 7% and 5.5% respectively. Does he rule out targeted VAT cuts to support jobs and growth in particular sectors at the same time as deficit reduction, because that is what other countries are doing?
Mr Osborne
We put forward in the Budget targeted cuts for business. We are cutting corporation tax by 2% this year and a further 3% in coming years. We have put in place more generous research and development tax credits to help businesses. We have cut the small companies tax rate—
Mr Osborne
The right hon. Gentleman says that they supported it, but the plans I inherited from Labour’s March 2010 Budget, which presumably he voted for, were to increase the small companies tax rate. We reversed that and cut taxes. We are also taking more than 1 million low-paid people out of tax and trying to get the unemployed back into work.
I was in Northern Ireland on Friday, meeting the political leaders and visiting a very successful manufacturing business in Ballymena, and the point I make to the hon. Member for Foyle (Mark Durkan) is that we are consulting on the future of corporation tax rates there, reflecting the fact that it shares a land border with the Republic of Ireland, which has a much lower rate of corporation tax.
Mr Osborne
I have just taken an intervention from that side.
The first requirement to fix the mess is a plan to deal with the deficit. The second requirement is the plan for growth. While the shadow Chancellor was letting the debt build up, the underlying competitiveness of our economy declined and the UK fell from fourth place to 12th in the international rankings. More than 1 million jobs were lost in manufacturing. Regional inequality, which we heard about during Prime Minister’s questions, worsened during Labour’s 13 years in government as the gap between the regions increased. As I pointed out earlier, private sector employment in the west midlands fell. Those imbalances have become deeply entrenched and cannot be fixed overnight, but we are undertaking the long-term structural reforms necessary to make that happen.
Angela Smith (Penistone and Stocksbridge) (Lab)
It is emerging that there has been a 17% increase in home repossessions. How can the Chancellor justify his plan to the families affected and say that it is working?
Mr Osborne
We have extended the mortgage interest relief scheme—I inherited a plan for it, too, to end—and of course are trying to avoid repossessions, but there was a large number of repossessions under the Labour Government, and that is because—[Interruption.] I certainly inherited a huge economic mess from the Labour party. The truth is that one of the problems we are having to deal is the enormous housing boom, which was bigger than that experienced in any other major western economy, including the United States of America. We are putting in place those structural reforms, cutting corporation tax, creating more apprenticeships than the country has ever seen, lifting the low paid out of tax, reforming our planning system, reducing the burden of regulation, accelerating education reform, introducing the green investment bank and passing the landmark welfare legislation.
Mr Osborne
I will make some progress.
All those policies involved difficult decisions, but they have been opposed by the Labour party. There is one live example that I want to raise: public sector pension reform. The Government want to reform our public sector pensions system to ensure fairness for public sector workers and taxpayers. We asked Lord Hutton, Labour’s former Work and Pensions Secretary, to propose a solution. He produced an interim report and a final report. It is comprehensive, excellent and fair and the coalition Government back it. As everyone knows, we are in negotiations with the public sector trade unions on how it should be implemented. Sadly, a minority of union leaders seem more interested in strike action than in trying to reach a fair deal. At least their position is clear. What is the view of the Labour party? Complete silence. Will someone intervene and answer that?
Kevin Brennan
The Chancellor is not asking the questions; I am intervening. Where is the Chief Secretary to the Treasury? Why is he going out in the middle of negotiations and breaching the good faith of those he is negotiating with? That is the question we need an answer to.
Mr Osborne
We are engaged in those negotiations, which the Chief Secretary and the Minister for the Cabinet Office are leading for our side. I have asked a very simple question: does the Labour party back public sector pension reform as set out by John Hutton? [Interruption.] That says it all.
Mr Osborne
Will he answer my question? No? I am not taking an intervention. [Interruption.] The question we have here was put by John Hutton himself—
Nadhim Zahawi
On a point of order, Madam Deputy Speaker. Should not the hon. Member for Rhondda retract the disparaging remark he has just made about the Chancellor?
Madam Deputy Speaker (Dawn Primarolo)
Nothing has been said that is unparliamentary, but some of the behaviour in the Chamber could be a little better than it is currently. That is not a point of order for me, but a matter for each Member of the House.
Mr Osborne
John Hutton said that he would like the leader of the Labour party
“to endorse the report I produced, yes, because I think it does strike the only fair balance”.
Mr Osborne
It is his report, Labour’s former Work and Pensions Secretary, and I want to know whether the Labour party backs it. [Interruption.] Unbelievable. Will the shadow Chancellor shake his head or nod?
Ed Balls
I set out our position on these matters very clearly on Sunday. We agree that we need pensions reform and are studying the detail of the Hutton report, as everyone is. We thought that the increase in contributions before it was published was a complete abuse of the report and that the way the Government are rushing to increase the age of retirement is deeply unfair, especially to women in their 50s. The whole handling of this by the Chancellor and the Chief Secretary to the Treasury has been totally and deeply shambolic.
Mr Osborne
Let me take that answer and dissect it. First, the shadow Chancellor deliberately confuses the state pension age with public sector pension because he does not want to answer the question. Secondly, he says that he is studying the Hutton report, but how long does it take him to read it, because it has been out for three months and an interim report was produced last year. Unbelievable.
I will end my speech shortly, because Mr Speaker requested that we ensure that many Members get into the debate. The third thing that is required, which was totally unmentioned by the shadow Chancellor, is a plan to reform the banking system and financial services. That is a central part of any British Government’s economic policy, but we heard not a word on it from him. We know why, of course. It is the same reason that we discussed on the deficit: he was the man who designed the regulatory system that failed. He was the man in the Treasury who designed the tripartite system of regulation; it was his idea, and it failed.
This is what the former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), said—and he does not say this kind of thing very often:
“We set up the FSA believing the problem would come from the failure of an individual institution. That was the big mistake. We didn’t understand just how entangled things were. I have to accept my responsibility.”
When the former Labour Prime Minister accepts responsibility, is it not time that the man who was advising him accepted his responsibility, too, and admitted that the tripartite system failed and needs to be replaced?
Ed Balls
The tripartite system was put in place following the repeated failure of self-regulation and of the regulation of the Bank of England in the period before 1997. I have said on the record loud and clear that we did not regulate the banks in a tough enough way, but throughout that period the current Chancellor personally attacked me for being too tough with regulation and for going too far. The idea is to replace a tripartite system with a quartet system that is even more complicated and byzantine, and we will look at that in detail in the coming months, but the Chancellor is playing a very dangerous game.
Mr Osborne
The right hon. Gentleman did not apologise for the tripartite system; he defended it. That is what he just did.
Now, the shadow Chancellor has just—I think for the first time—set himself against the regulatory changes that we propose. He says that he wants to study them, but I set them out at the Mansion House not this year, but last year, so he has had more than one year to study them.
Mr Osborne
And he says that he is really worried about them.
So, there we have it: the shadow Chancellor is against putting the Bank of England back in charge of prudential regulation; against the financial policy committee; and against the financial conduct authority, which is going to be tougher on behalf of consumers. The independent banking commission, which includes experts from throughout the banking field, has been working on the issue and come forward with an interim report. We have backed the principles of that report, but what does the shadow Chancellor have to say? Absolutely nothing—absolutely nothing about the plan that he would put in place. That is the truth.
Nadhim Zahawi
That goes to the heart of this debate—the credibility that the shadow Chancellor talks about. The public are deaf to the Opposition’s arguments because of their political opportunism and the cynical way in which they are dealing with the most important issue facing our nation.
Mr Osborne
My hon. Friend is absolutely right, and I am glad that I gave way to him so that he could make that important point.
Mr Osborne
I think that the hon. Lady is the Parliamentary Private Secretary to the former Prime Minister, and given that he will never be here to speak for himself, she must speak for him.
Alison McGovern
I thank the Chancellor for giving way, and I am proud to be the PPS to my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown).
The Chancellor was so busy yesterday calling me “new” that he did not answer my question, and he did not listen to the shadow Chancellor just then or answer his question, either. Will he explain how his increased complication of the regulatory system will prevent further bank failure?
Mr Osborne
Of course, I welcome the hon. Lady to her—[Interruption.] I will answer the question that she puts. I have merely observed in the past that being the Parliamentary Private Secretary to someone who never comes to Parliament is not a very onerous job, but that is good, because she can think up important questions to ask me.
Our judgment, with which the hon. Lady is entitled to disagree, is this: what was missing from the tripartite system was an ability to assess systemic risks throughout the economy. No one was looking at overall debt or leverage levels—[Interruption.] The shadow Chancellor says, “Rubbish”. When the Royal Bank of Scotland wanted to buy ABN AMRO after the credit markets had closed and after the run on Northern Rock, the regulatory system allowed RBS to do so. That is what went wrong, and if the right hon. Gentleman wants to go on defending the system that led to the biggest banking crisis in our entire history he can be my guest.
Ed Balls
When we reformed the Bank of England in 1997, we introduced a second deputy governor for financial stability. It was the job of the deputy governor in the Bank of England to monitor those things, and what has the Chancellor now done? He has added a third deputy governor, so there are now going to be three, and that is a more complex system. He is making a political case, but I do not know whether he even understands the financial and economic case.
Mr Osborne
What I understand is that the system the right hon. Gentleman put in place to ensure financial stability completely failed, and the scales have fallen—
Mr Osborne
Let me conclude now.
The scales have fallen from the eyes of Labour MPs. They realise that they have a shadow Chancellor who has to spend the next four years defending his record, and they are completely silent as they realise that they are going to be talking about the past, not the future.
Mr Osborne
I am not giving way. Let me conclude my speech.
That is because the shadow Chancellor is a man—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Can we be a little calmer? Mr Bryant, I know you are very excited, but I am sure that people will give way.
Mr Osborne
The shadow Chancellor is a man with a past, but no ideas for the future. The Leader of the Opposition may be uncomfortable having him in the shadow Cabinet, but we are not, because he is going to be a living reminder that people can never trust Labour with the economy again. Meanwhile, the rest of us have got to get on and clear up the mess he left behind.
Oral Answers to Questions
George Osborne Excerpts(13 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mrs Linda Riordan (Halifax) (Lab/Co-op)
6. What assessment he has made of potential trends in the level of debt as a proportion of gross domestic product to 2014-15.
The Chancellor of the Exchequer (Mr George Osborne)
This Government inherited plans that had Government debt rising as a share of GDP in 2014-15. Thanks to the credible plan that we have put in place, debt is now forecast to be falling in that year.
Emily Thornberry
Would the Chancellor of the Exchequer like to take this opportunity to explain why the Office for Budget Responsibility now says that the Government will need to borrow £46 billion more than was estimated a few months ago? Would he also like to take this opportunity to accept that, by cutting too far and too fast, we will fall into a vicious circle that will make it more difficult to pay off the deficit in the long term?
Mr Osborne
The public finance figures are out today, and they show that the British economy and the British Government are on track to reduce the budget deficit, as we forecast in the Budget. On a day like this, in a week like this, for the Opposition to suggest that we should abandon our credible deficit reduction plan shows how out of touch they are with what is going on in the world today.
Mrs Riordan
Will the Chancellor confirm that national debt as a proportion of GDP was 36.5% in 2007-08, before the global crisis, which was significantly lower than the 42.5% that we inherited from the previous Government, and lower than in America, France, Germany and Japan?
Mr Osborne
There is this myth on the Opposition Benches that we inherited a golden economic legacy. It is not a myth believed in by the International Monetary Fund, the OECD or the CBI, nor is it a view shared by Tony Blair or the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), both of whom have identified—since the general election, of course—the fact that Labour was running into spending problems in 2007 and that the structural deficit was starting to build before the global economic crisis that the hon. Lady mentioned.
Michael Fallon (Sevenoaks) (Con)
How much greater would our public sector debt be if we adopted the completely unfunded and opportunistic proposal for a £13 billion VAT cut from the very people who racked up all the debt in the first place?
Mr Osborne
My hon. Friend draws attention to the completely ludicrous policy put forward by the shadow Chancellor last week—it was mentioned just on that Thursday, and has not been repeated by any Labour politician since—for a £13 billion unfunded tax change, or £51 billion over the Parliament. The policy is totally incredible, and was rejected by every serious economic commentator on the day. It just shows how far those on the shadow Front Bench have to go to make good for the mistakes that they made in office.
Mr John Redwood (Wokingham) (Con)
Given the large amount of state bank debt still on the balance sheet, will my right hon. Friend consider a scheme to make an early transfer of shares in the state-owned banks to taxpayers for free, on condition that, as and when people sell, they send money back to the Treasury to represent the Treasury cost of those shares?
Mr Osborne
I am always happy to discuss the ideas of my right hon. Friend or other Members on how we dispose of those bank shares. The House will know that we announced last week that we are putting Northern Rock up for sale—the good bank in Northern Rock, of course; the state will hold on to the bad bank for many years to come. We want to exit from our shareholdings in RBS and Lloyds in due course, but we do not judge now to be the right time.
Ed Balls (Morley and Outwood) (Lab/Co-op)
I am very much looking forward to our debate on the economy tomorrow, on the anniversary of the Government’s first Budget. I do hope that the Chancellor is looking forward to the debate too, but today let me ask him about another matter of great importance to our economy, our national debt and our wider national interest. Three months ago the Chancellor told the House that the cost of the intervention in Libya, which the Opposition support, would be
“in the order of tens of millions of pounds, not hundreds of millions.”—[Official Report, 22 March 2011; Vol. 525, c. 850.]
That was followed the next day by headlines—which would have been read by the Gaddafi regime—saying that the Chancellor and the Government thought that the campaign would be over in a month. Does the Chancellor now accept that that was a mistake? Will he tell the House how much has been spent so far? Will he also give the House his latest estimate of what the full cost of the campaign is likely to be and what its impact on the national debt will be?
Mr Speaker
Order. All with specific reference to the level of debt as a proportion of GDP.
Mr Osborne
I see that the shadow Chancellor is following his former master’s habit of straying from the direct area of his brief, but there we go. Let me deal directly with Libya. What I told the House at the time was that the cost estimated at the time by the Ministry of Defence was in the tens of millions of pounds, and the Ministry of Defence is planning to provide an update to the House on the full costs, I think within the next week.
Ed Balls
This is a Treasury matter. It is about Treasury spending from the reserve, and it has a direct bearing on the national debt as well as on our national interests. It seems rather odd that, at the outset of the campaign, the Chancellor was happy to give a detailed answer, yet he now says that he cannot do so. Does he not know, or is he not prepared to do so? Just a few weeks ago, the White House provided the US Congress with a 34-page document giving details of the costs up to 3 June and the likely costs up to September. Will the Chancellor now agree to provide this House with similar information on the cost of Britain’s involvement in Libya, and to make a full Treasury statement to the House?
Mr Osborne
If the right hon. Gentleman had been listening, he would have heard me say that the Ministry of Defence was going to provide an update on the costs within the next week. I know that, when he was in the Treasury, everything was a Treasury matter, but in this Government we let the Ministry of Defence talk about defence operations, just as we let the Department for Education talk about schools and the Department of Health talk about the NHS. The Ministry of Defence will provide an update on the costs within the next week. The costs come from the special reserve, as the right hon. Gentleman well knows, and I can tell him that they are very much lower than those of the ongoing operations in Afghanistan.
Huw Irranca-Davies (Ogmore) (Lab)
2. What assessment he has made of the likelihood that the growth outturn will meet or exceed the forecast for 2011 made by the Office for Budget Responsibility in June 2010.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
13. What assessment he has made of the likelihood that the growth outturn will meet or exceed the forecast for 2011 made by the Office for Budget Responsibility in June 2010.
The Chancellor of the Exchequer (Mr George Osborne)
The Office for Budget Responsibility’s latest economic forecasts were published in March. The whole purpose of creating the OBR was to have forecasts that were independent of the Chancellor, so for me to give a running forecast would completely undermine the institution. To strengthen its independence, I am today announcing the appointment of Lord Burns and Kate Barker as the new non-executive members of the OBR. They were posts that the Treasury Select Committee recommended that we create. I am also announcing today the new appointment of Michael Cohrs as a non-executive director of the Court of the Bank of England, along with the re-appointment of Sir Roger Carr, Lady Susan Rice and Harrison Young—
Mr Osborne
Well, the hon. Gentleman will like this bit, then. Recognising that we are all going to have to work a little longer, I am announcing the extension of Brendan Barber’s term by a further year.
Huw Irranca-Davies
A year ago at the Dispatch Box, the Chancellor said that, in his judgment, we would have sustained economic growth, even in the face of the cuts agenda that he is pursuing. Does he now believe that the 1.7% economic growth that the OBR has forecast will be met, or will we face a fourth period of downgrading its growth forecasts?
Mr Osborne
The OBR is a new institution that I think we all agreed should be established and put on a statutory footing. It is independent, and it makes independent forecasts. If the Chancellor of the day started giving a running commentary on those forecasts or making his own forecasts, that would completely undermine the OBR. The institution was introduced in order to give more credible independent information to Parliament. It is interesting that, in the acceptance speech that the former Foreign Secretary would have given if he had become the Labour leader, one of his central points was that Labour should embrace the OBR as an idea that it should have had while in office and that it should support in opposition.
Debbie Abrahams
Over the past six months, we have seen the economy flatlining, whereas in the previous six months we saw growth of 1.8%. Can the Chancellor explain to the House exactly what has changed?
Mr Osborne
I think the hon. Gentleman will find that the Government changed a year ago. I would say to the hon. Lady that the economy is now growing, and that in the past year more than 500,000 private sector jobs net have been created, which the Opposition should welcome. Exports are up 13%, investment is up 5.8% and manufacturing is up 4.2%—[Interruption.] Well, we remember when that lot were in a couple of years ago and the economy was tanking. Now it is growing and, as the public finance figures show today, we are getting the budget deficit down, dealing with our borrowing problem and restoring stability to the British economy. That is why the plans that we have put in place have been welcomed by so many independent organisations.
Mr Andrew Tyrie (Chichester) (Con)
The Office for Budget Responsibility is scoring the value of most asset sales other than banks at zero in the forecast, on the grounds that it cannot estimate their value. Will the Chancellor provide every assistance possible to the OBR, so that an estimate can be incorporated in its assessment of long-run sustainability, which it is due to publish in three weeks? Is that not an early issue for the newly appointed non-executives to take up?
Mr Osborne
I am certainly aware that the Treasury Committee and the Office for Budget Responsibility are in discussions over privatisation receipts and other asset sales, but I do not think that it would be right for me to intrude in that discussion. I can give my hon. Friend the commitment that we will certainly provide the OBR with any information it asks for.
Sajid Javid (Bromsgrove) (Con)
Has the Chancellor considered what would happen to our growth rate if we followed the advice of the shadow Chancellor, which is opportunistically to oppose every spending cut and every tax increase proposed by the Government?
Mr Speaker
Order. There is no requirement or need for the Chancellor to comment on Opposition policy. I would have thought that we had grasped that point by now.
Kerry McCarthy (Bristol East) (Lab)
In reaction to this year’s Budget, the Institute for Fiscal Studies said that, if the Chancellor is to meet his borrowing targets, he will be
“now even more dependent on a bounce back in the rate of economic growth from 2013”.
Borrowing has already been £1.5 billion higher in the first two months of this financial year than it was in the same period last year, as the Chancellor’s tax rises and spending cuts kick in. If growth outturns fail to meet the forecasts, will the Government change their plans on borrowing?
Mr Osborne
When the director of the IFS was asked this month:
“Have things changed so much in the past 12 months that you would expect the Government to change course now?”
he replied, “No”. In fact, the advice of the IMF is also that now would be the wrong time to adjust macro-economic policies, while the Governor of the Bank of England at Mansion house said that we should not adjust the macro-economic mix. The truth is that the Labour Opposition, who got us into this mess, have absolutely no answers for getting us out of it. Is it not striking that the shadow Chancellor gave a speech last week with his big new economic policy, and not a single Labour MP has mentioned it yet?
Mr David Amess (Southend West) (Con)
3. What recent representations he has received from the IMF on UK economic policy.
The Chancellor of the Exchequer (Mr George Osborne)
The IMF completed its article IV assessment of the UK economy this month. Its recommendation could not have been clearer. When asked whether it was time to adjust macro-economic policies, its answer was no.
Mr Amess
I am delighted that the IMF has confirmed that the Chancellor is pursuing the right strategy to clear up the mess left by the last rotten Labour Government. Will he explain why the yield on UK Government bonds is only 0.25% higher than in Germany, whereas in Portugal it is 8.5% higher?
Mr Osborne
The simple reason is that we have a credible deficit reduction plan. Even though we inherited a deficit higher than Portugal’s, our interest rates are closer to those of Germany. Indeed, the spread over Bunds—the difference between German and UK interest rates—has come down substantially over the last year, even though that gap has gone up in France, Spain and other European countries. The real monetary stimulus being provided to the economy by those low interest rates is anchored in the credible deficit reduction plan.
Mr Geoffrey Robinson (Coventry North West) (Lab)
May I take up the point made by the Chancellor about the outstanding speech made by my right hon. Friend the shadow Chancellor? Why does the Chancellor have this touching, childlike faith in the views of the IMF when it got things dead wrong on the exchange rate mechanism, which it unfortunately imposed on this country the previous time it had the misfortune to have a Tory Government?
Mr Osborne
It is normal for Finance Ministers to pay some attention to what the IMF says, but there we go. The last time we had a Labour Government, we had to turn to the IMF for help; I am trying to avoid that.
George Freeman (Mid Norfolk) (Con)
Is my right hon. Friend aware of the recent comments of the director general of the CBI? He said:
“Acting swiftly and decisively on the deficit has…laid a firm foundation for…growth.”
Who does my right hon. Friend think is more plausible: the director general of the CBI or the lone voice opposite?
Mr Osborne
I think the CBI’s view reflects those of almost the entire business community in Britain and almost all international commentators on the United Kingdom economy. When the CBI was asked explicitly what it thought of the Labour party’s plans, its chief economic adviser said:
“The economy would be weaker because of the impact of a loss of confidence in the markets.”
Mr David Hanson (Delyn) (Lab)
Since the Government came to power, the growth forecast for this year has been downgraded by 1%. The IMF has also said that the speed of Government cuts poses a risk of higher inflation, lower growth and rising unemployment. Does the Chancellor agree with the IMF, which he is keen to support, that if
“a prolonged period of weak growth”
—which we have at present—
is in prospect, “temporary tax cuts” should be considered?
Mr Osborne
First, the right hon. Gentleman has misquoted the IMF. Perhaps he will give the House the full quotation. The IMF did not say “at present”, which the right hon. Gentleman slipped into the quotation. [Interruption.] Perhaps he will take the opportunity to correct the record later. Secondly, the IMF said:
“Strong fiscal consolidation is underway and remains essential”.
The managing director of the IMF could not have been stronger in his endorsement through article IV.
I note that three Opposition Front Benchers have asked questions, and that not one has mentioned the new policy of the shadow Chancellor.
Angela Smith (Penistone and Stocksbridge) (Lab)
4. What recent assessment he has made of the effect on the economy of trends in the rate of inflation.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
T1. If he will make a statement on his departmental responsibilities.
The Chancellor of the Exchequer (Mr George Osborne)
As set out before, the core purpose of the Treasury is to ensure the stability of the economy, promote growth and jobs, reform banking and clear up the mess in the public finances that we inherited.
Mr Osborne
I blame the Labour Government. During the election campaign, the Labour Home Secretary said publicly on television that police numbers would have to be cut if Labour was re-elected.
Stephen Barclay (North East Cambridgeshire) (Con)
T3. What assessment has my right hon. Friend made of the cost to the public finances of an emergency cut in VAT and the disastrous impact that would have on debt interest?
Mr Osborne
The estimate is £51 billion over this Parliament, which I guess is just another nail in the coffin of the shadow Chancellor’s economic credibility.
Mr Denis MacShane (Rotherham) (Lab)
T2. Has the Chancellor by chance seen the interesting analysis by the House of Commons Library showing that the measures in his Budget will affect women three times as adversely as they will affect men? Is he a misogynist?
Mr Aidan Burley (Cannock Chase) (Con)
T4. Dr Adrian Steele, the managing director of Mercian Labels in Cannock, has just been named as one of the midlands’ most promising entrepreneurs. His company supplies labels and barcodes to the medical industry and employs 32 people. Does the Chancellor agree that it is small business entrepreneurs such as Dr Steele who will grow our economy back to strength, and will he continue to support manufacturers, who were shamefully neglected by the Labour party?
Mr George Osborne
My hon. Friend is right. Manufacturing halved as a share of our economy under the Labour Government and financial services grew dramatically over that period. Since the last election, manufacturing output is up 4.2% and the private sector has created more than 500,000 new jobs net, which is all good news. The example he brings to the Chamber is just one of many companies that are investing and employing people, and despite a choppy recovery we should celebrate that.
Alison McGovern (Wirral South) (Lab)
T7. On 14 February the Governor of the Bank of England told the Chancellor that his VAT rise had caused inflation. On 16 May the Governor again told him that his VAT rise had caused inflation. Will he tell me how he is measuring the impact of his VAT rise on the rest of our economy and whether it was a rise too far, too fast?
Mr Osborne
The Governor of the Bank of England had his opportunity at the Mansion House to comment on the macro-economic policies pursued by the Government, and he said that
“to change the broad policy mix would make little sense.”
That is the judgment of the Governor of the Bank of England, and the hon. Lady may now find herself, like the shadow Chancellor, against the IMF, against the IFS, against the Governor of the Bank of England and against the CBI. It leaves the right hon. Gentleman completely alone, and it leaves the Labour party’s economic policy absolutely isolated in the world. Now, she is a new Member, and I know that she has been saddled with being the former Prime Minister’s private secretary, but she can break away from the nonsense being spouted by Opposition Members.
Oliver Colvile (Plymouth, Sutton and Devonport) (Con)
T5. Does my right hon. Friend agree that the shortest suicide note in history consists of just five letters—plan B?
Mr Osborne
My hon. Friend is right, and, in the case of the Opposition, their plan is plan B for bankruptcy.
Mr Russell Brown (Dumfries and Galloway) (Lab)
T9. About 20,000 UK citizens, including some of my constituents, have lost their savings by investing in the fund management company, Arch Cru. Will the Chancellor step in and investigate the role of the Financial Services Authority in the failure of that company?
Andrew Jones (Harrogate and Knaresborough) (Con)
T6. Has the Chancellor had cause to regret a decision, made by one of his predecessors, to sell the UK gold reserves a decade ago at the bottom of the market, a decision that has cost this country just under £10 billion?
Mr George Osborne
My hon. Friend is right: it is a decision of great regret. The gold was sold at £2.3 billion, and it would now be worth £12 billion, which as he says is a £10 billion loss. The Labour party, on the advice of the shadow Chancellor, managed to sell gold at its record low price. Indeed, gold traders now call it the Brown bottom. That is how they know the number, and it is yet another disastrous decision after which we are having to clean up.
Caroline Lucas (Brighton, Pavilion) (Green)
The Chancellor will be aware of the recent Office for National Statistics finding that the regressive nature of VAT means that the UK tax system is doing almost nothing to prevent income inequality. In that context, will he pay particular attention to a Fawcett Society report, to be launched tomorrow, which shows that his fiscal policies, such as increasing VAT, cause particular harm to lone parents, 92% of whom are women?
Mr Robin Walker (Worcester) (Con)
T8. Which does the Chancellor think is better for low-paid workers in Worcester: the Government taking 1 million of the lowest paid out of tax altogether; or the previous Government’s move to double their tax by scrapping the 10p tax rate?
Mr George Osborne
As my hon. Friend points out, we have taken more than 1 million low-paid people out of income tax. We are committed to further such moves through this Parliament, and that is in stark contrast to the 10p tax raid in the previous Parliament. Of course, we now discover that, before the decision was made, the shadow Chancellor knew all about its impact on the poorest fifth in our society.
Mr George Mudie (Leeds East) (Lab)
The Chancellor thought it proper in his Mansion House speech to give the bankers of the City first go on his views about the ring-fencing of banks. Apart from that being discourteous to the banking commission, which he set up, does he not think it discourteous to this House that he is prepared to give bankers that information but not to come and explain it to the House and take questions?
Mr Osborne
First, the announcement was made with the consent of the Independent Commission on Banking. Secondly, it is established that the Chancellor is able to give the Mansion House speech each year. I seem to remember that the last-but-one Chancellor announced the renewal of the nuclear deterrent at the Mansion House without coming to the House of Commons to do so. If the hon. Gentleman will allow me to say something about banking reform at the Mansion House in the years to come, I will therefore be grateful.
Stephen Williams (Bristol West) (LD)
The spending review said that employee contributions to public sector pensions would need to increase in order to make the funds sustainable for the future. Does my right hon. Friend agree that that rate should not be applied uniformly in order to protect the lowest-paid public sector workers and encourage them to stay within public sector pension schemes?
Mr John Redwood (Wokingham) (Con)
Given the lack of growth in money and credit, is there anything else that the Government can do to promote the growth in the economy that is so crucial to their plans?
Mr George Osborne
As my right hon. Friend will know, the supply-side reforms that were set out in the growth review, including the reduction in corporate tax rates, are key. At the same time, as banks’ balance sheets inevitably contract after the credit crunch and after the dramatic increase in the size of balance sheets over recent years, we need to ensure that we try to protect small and medium-sized businesses from the effects of that. That is why we concluded the Merlin deal with the banks.
Jon Ashworth (Leicester South) (Lab)
The Minister will be aware that the claimant count has continued to rise in the past three months and that unemployment in many inner-city constituencies such as mine remains stubbornly high. Why will he not consider taxing the banks sufficiently to fund an inner-city youth jobs programme to help the young people on the estates in my constituency?
Mr Osborne
We have introduced a permanent bank levy that applies each and every year. There was a bank bonus tax for one year of the 13 years of the Labour Government; other than that, there were no charges on the banks. The former Chancellor of the Exchequer—my immediate predecessor—said that we could not repeat that because the bankers would find a way round it. We therefore looked to the advice of international bodies such as the IMF, and we introduced a bank levy that will raise more each and every year, net, than the Labour Government raised from the banks in any one year. That shows that we are asking the banks to make a decent contribution to the economy.
Mr Chuka Umunna (Streatham) (Lab)
Several figures have been cited about the number of jobs created over the past 12 months. What percentage of those jobs were created before the spending review and are arguably attributable to the last Government, and what percentage have been created since?
Mr Osborne
I am happy to provide the hon. Gentleman with an exact breakdown based around the date of the spending review. What is clear, however, is that we said that we wanted the private sector to lead the recovery and that that was absolutely essential. That is the view of virtually every credible economist and business organisation in the country. He should be celebrating the fact that over 500,000 net new jobs have been created by the private sector in the past year.
Duncan Hames (Chippenham) (LD)
Last week, I met development campaigners from Bradford-on-Avon at the “Tea time for change” rally. They welcome the Chancellor’s support for transparency in companies operating in developing countries. Will he press for effective legislation internationally, and for country-by-country, project-by-project financial reporting for companies in the resource extractive industries?
Mr Osborne
My hon. Friend raises a good point, which commands the support of MPs from all parts of the House. We want to see greater transparency in the extractive industries. I raised the matter at the G20 meeting in Paris earlier this year. We want measures to be introduced at a European level and shortly after that at a G20 level to ensure that they have the maximum possible impact around the world.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Diolch yn fawr, Mr Speaker. The Governments of Northern Ireland and Scotland will soon have greater financial autonomy. What requests has the Chancellor received from the new Welsh Assembly Government for similar job-creating levers?
Mr Osborne
The hon. Gentleman knows that we made a clear commitment that if the outcome of the referendum in Wales was a yes, we would set up a Calman-like process that would come to an agreed set of proposals—I hope they will be agreed across many parties, as was the case with Calman in Scotland—on greater financial responsibility for the Welsh Assembly. We are engaging in that process now. One reason why Calman has worked well—I know that we will come on to discuss the Scotland Bill later—is that at least three parties in the House of Commons, Labour, the Liberal Democrats and the Conservatives, were able to agree on a set of proposals. I hope that we can achieve similar agreement in Wales.
Stephen Metcalfe (South Basildon and East Thurrock) (Con)
I am sure my right hon. Friend is aware that if every small and medium-sized enterprise in the UK employed one additional person, we would have an employment surplus. What plans does he have directly to incentivise SMEs to take on additional staff?
Mr Osborne
First, we offer a national insurance tax break for new employees in new companies. We have cut the small companies tax rate, which was due to go up when I came to office. We are also cutting the headline rate of corporation tax by 2% this year and then by a further 3%, making it a 5% reduction over the course of the Parliament.
Ian Austin (Dudley North) (Lab)
Is the Chancellor who now complains about a decade of over-investment by the previous Government related to the George Osborne who wrote an article in The Times in 2008 not just praising that Government’s spending plans, but promising to stick to them?
Mr Osborne
I think the hon. Gentleman has his years wrong, for a start. We fought the 2005 general election warning that Labour was spending too much and we fought the 2010 general election giving that warning. The British people listened to us, and realised that people like him had been supporting a Government who had brought our country to the brink of bankruptcy.