Oral Answers to Questions
George Osborne Excerpts(13 years, 5 months ago)
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Mr William Bain (Glasgow North East) (Lab)
1. What estimate he has made of the potential effects on the level of demand and output in the manufacturing sector of the outcomes of the comprehensive spending review.
The Chancellor of the Exchequer (Mr George Osborne)
I am happy to report today that annual growth in manufacturing output is the fastest in 16 years, and the Chartered Institute of Purchasing and Supply reported the strongest manufacturing employment balance on record last month. This is a crucial contribution to rebalancing the British economy away from its dependence on debt. The Budget and the spending review will help to sustain that by cutting tax rates for manufacturers, investing in transport infrastructure and skilled apprenticeships, and providing the economic stability that our deficit reduction plan has delivered in an unstable world.
Mr Bain
I thank the Chancellor for that reply, and I wish him and his fellow Ministers on the Treasury Bench, and all right hon. and hon. Members, including you, Mr Speaker, a happy and peaceful Christmas. Does the Chancellor agree that the best Christmas present he can give manufacturers in my constituency and throughout the country is a proper White Paper on growth? He has often promised to publish one. When exactly will he be bringing it before this Chamber for debate?
Mr Osborne
We have a specific review of advanced manufacturing to see what more we can do to help it, and I intend the Budget on 23 March to focus very much on supporting economic growth and removing the barriers to the expansion of manufacturing businesses and others. We are looking both at specific sectors, such as advanced manufacturing and pharmaceuticals, and at cross-government issues, such as planning and employment law, so that we provide not only the economic stability that we have delivered in recent months, but the platform for economic growth.
Mr Andrew Tyrie (Chichester) (Con)
Further to that question and that reply, the Government’s efforts so far in that regard consist of “The path to strong, sustainable and balanced growth”. Frankly, it is an insubstantial document—well short of a strategy. The Chancellor has given us a firm lead on fiscal policy. Will he now commit to cutting through what appear to have been a large number of interdepartmental arguments about this, and give us a clear strategy for growth in his next Budget?
Mr Osborne
The first thing that I would say is that, of course, deficit reduction is an essential platform for economic growth. The fact that this Parliament, almost alone in Europe, is not having to discuss the sovereign debt crisis is in itself testament to the success that we have had. But we need now to turn around many Departments that have not really thought for years about this question: how do we stimulate private enterprise and private sector growth? We have inherited government machinery that is not equipped to deal with that. We are turning that around, and the Budget in March is the focus point that I expect all Departments to work towards.
Alan Johnson (Kingston upon Hull West and Hessle) (Lab)
Responsibility for our manufacturing sector rests, of course, with the Secretary of State for Business, Innovation and Skills, who had some interesting things to say this morning about the “Maoist” nature of this Government. [Interruption.] Does the Great Leader—or rather, the Chancellor—recognise himself in the Business Secretary’s description of “cack-handed” Tories? Strictly speaking, does the Chancellor believe that the reason we have waited so long for any sign of a strategy on jobs and growth is that he is out of step with his Cabinet colleague?
Mr Osborne
The Business Secretary is a powerful ally in the Government in promoting growth—and, frankly, he has forgotten more about economics than the shadow Chancellor ever knew. I refer the shadow Chancellor to the statement that he gave recently about his own party:
“On economic credibility, we are in a really worrying position.”
Alan Johnson
We see this morning record borrowing for November, unemployment higher than expected and inflation well above where it should be. According to the Office for Budget Responsibility, we are about to destroy £5 billion of economy activity through the increase in VAT on 4 January. The Institute for Fiscal Studies says that absolute poverty—not relative poverty—will rise for children and working age adults, with 900,000 more slipping below the breadline over the next three years. If the Chancellor has not got a plan B yet, is he hoping to get one for Christmas?
Mr Osborne
I am glad that the shadow Chancellor reminds the House of the terrible economic inheritance that we are struggling with—and overcoming. He talks about the public borrowing figures today, and I am glad that he has brought them up, because they are a reminder of the fact that we have a record budget deficit. He is—if he wants to do Christmas analogies—the incredible no-man: every time we have put forward any proposal for deficit reduction, he has said no. He is running out of time to come forward with sensible credible contributions to the economic debate about how we get Britain growing again, because at the moment the Christmas lights are on but there’s no one at home.
Michael Fallon (Sevenoaks) (Con)
Does my right hon. Friend not agree that the record borrowing figures announced today simply serve to underline the seriousness of the situation to which the spending review was addressed, as well as the importance of sticking to the fiscal plan that has been agreed and not deviating from it in the slightest?
Mr Osborne
My hon. Friend is absolutely right. This country has a record budget deficit; that is the situation we have inherited. We have made some in-year reductions, which have made it slightly less worse this year than it otherwise would have been, and then we have measures next year to try to bring the budget deficit down. Every one of those measures has been opposed by Opposition Front Benchers. They have put forward not a single plan, not a single proposal, to reduce the budget deficit, but our proposals have provided this country with economic stability, in a very unstable European continent.
Mr David Winnick (Walsall North) (Lab)
Following on from the remarks of my right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson), what does the Chancellor have to say about the Institute for Fiscal Studies report, which says that almost 1 million people will be below the breadline by 2014? That is an extra million people. Does the Chancellor not feel any shame about what will happen to so many of our constituents—certainly mine—as a result of the policies that he is pursuing? I would have thought that it was a matter over which the Business Secretary might wish to consider resigning.
Mr Osborne
As usual, the hon. Gentleman’s question is totally over the top. I would make this observation: we have inherited this economic situation—a record budget deficit—and we are taking the action to deal with it. We are also promoting social mobility by funding a pupil premium and giving new nursery entitlements to disadvantaged two-year-olds. Child poverty rose in the last years of the Labour Government. They set a child poverty target and entrenched it in law, knowing full well that they did not have the policies to meet that target in any way. We are putting in place the policies that will deliver greater social mobility and deal with entrenched poverty in our country.
Mike Weatherley (Hove) (Con)
3. What estimate he made of the effect on public finances of the introduction of a graduate tax.
Mr Tobias Ellwood (Bournemouth East) (Con)
14. What estimate he made of the effect on public finances of the introduction of a graduate tax.
The Chancellor of the Exchequer (Mr George Osborne)
A graduate tax would add billions of pounds to the budget deficit. That is just one reason why anyone in government, Labour, Conservative or Liberal Democrat, who has ever looked at the facts has concluded that a graduate tax is unworkable, unfair and unaffordable.
Mike Weatherley
A graduate tax would be less progressive and less fair than the proposals that the Government have brought forward. Does my right hon. Friend agree that if we scrapped our proposals and introduced a graduate tax, it would be a costly disaster for those entering higher education in the future?
Mr Osborne
I absolutely do agree with that. Interestingly, as I said in my opening reply, anyone who has ever looked at the issue in government, as we did over the summer and as the shadow Chancellor did when he was the Minister responsible for higher education, has concluded that it is unworkable. It destroys the independence of universities, and it is unfair, because some students would pay much more than the cost of their education, others would avoid it altogether by moving abroad, and millions of students on lower incomes than those specified by our proposals would be hit by a tax rise. It is also unaffordable, and as Lord Browne pointed out in the report that the previous Government commissioned, it would take until 2041 for the system to start paying for itself.
Mike Freer
Has the Chancellor, in developing our policy on a graduate tax, been able to bear in mind the policies of the Opposition?
Mr David Hanson (Delyn) (Lab)
Will the Chancellor confirm that in adopting his policy on tuition fees he has raised the Government borrowing requirement to £10.7 billion by 2015—a rise of £5.6 billion—in addition to cutting at least £800 million from the university budget and tripling fees, which will deter poorer students? Will he now for once confirm to the House that his choice on tuition fees is about ideology, not deficit reduction?
Mr Osborne
What we are doing is taking the report commissioned by the Labour Government and improving on it so that it is more progressive. [Interruption.] Yes, we are increasing borrowing to help students; that is part of what we are doing to fund our higher education institutions.
The truth is this, and the shadow Chancellor said it this month: it would
“be very difficult to make a graduate tax a workable proposition.”
That was the shadow Chancellor, who is now advocating as an official policy of the Labour party something that he says would be difficult to make a workable proposition. We have come forward with workable propositions on higher education, which the Opposition used to agree with when they were in government. They have now mistaken opportunism for opportunity.
Chris Williamson (Derby North) (Lab)
T1. If he will make a statement on his departmental responsibilities.
The Chancellor of the Exchequer (Mr George Osborne)
The core purpose of the Treasury is to ensure the stability of the economy, promote growth and employment, reform banking and ensure that Britain lives within her means.
Chris Williamson (Derby North) (Lab)
Is the Chancellor embarrassed that independent analysis by the House of Commons Library shows that the provisional local government settlement will result in the most deprived areas bearing far bigger cuts than more affluent parts of the country? The two councils in his constituency of Tatton will see their spending reduced by less than 2 and 3%, compared with more than 8% cuts in deprived constituencies. Will he therefore stop saying that his austerity measures are fair, and admit that we are not all in it together after all?
Mr Osborne
The Prime Minister explained from this Dispatch Box that the cuts in his constituency are considerably greater than the cuts in the Leader of the Opposition’s constituency. Our reforms give local government greater control over budgets, but let me make another observation. Local government is responsible for a quarter of all Government spending. Labour proposed £44 billion of expenditure cuts. If Opposition Members are saying that they would not include local government in those proposals, they are less credible than I thought they were.
Damian Hinds (East Hampshire) (Con)
T2. The anticipated provident societies and credit unions legislative reform order will bring great advantages to credit unions, including the ability to pay fixed interest on savings and to offer services to community groups, social enterprises and companies, but it has been rather a long time in coming. Will my hon. Friend update the House on the expected arrival date of that LRO?
Chris Bryant (Rhondda) (Lab)
T4. The Chancellor of the Exchequer seems to take a particular delight in playing the role of Baron Hardup. May I say to him, in the nicest, most Christmassy way possible, that all his austerity talk provokes real anxiety in many of my constituents, who worry about their winter fuel allowance, the VAT increases in January and the major losses in construction jobs in the new year? May I encourage him to play, just sometimes, Prince Charming instead?
Mr Osborne
At least I am not the pantomime dame. The measures we are taking are dealing with the economic inheritance that the previous Government, of whom the hon. Gentleman was a Minister, left this country. As we go into the new year, we are one of the few European economies not facing concerns about their sovereign debt issues, and we are providing a platform for economic growth next year. That is why people are looking at the UK and saying, “There is a country that is dealing with the problems.”
Andrew George (St Ives) (LD)
T3. Treasury Ministers rightly assert that the vulnerable should be protected and that those with broader shoulders should bear the greatest burden. With that in mind, will Ministers report on the effectiveness of the initiative announced in September to bear down on the estimated £42 billion of tax that the wealthy do not pay each year?
John Cryer (Leyton and Wanstead) (Lab)
T5. Will the Chancellor tell the House whether the Treasury has made any plans for the possible collapse of the euro?
Mr Osborne
We monitor the European situation closely. I do not think that a collapse of the euro is remotely on the cards, but obviously stability in the eurozone is in our interests. We want to see a comprehensive solution early in the new year to some of the fundamental issues on having a currency union while not having a fiscal or political union, and we know that eurozone member states are working on those. It is also up to individual member states to do what they can to put their own economic house in order, and we would urge them to do that as well.
Mr Robin Walker (Worcester) (Con)
T8. Does the Chancellor agree with the chief executive of a FTSE 250 engineering company, with whom I recently met, that the single most important decision by the coalition Government to date was to cut corporation taxes and thereby signal that Britain is open to business? What further plans does he have to reduce and simplify the burden of taxation on our businesses?
Mr Osborne
The reduction in corporation tax from 28% to 24% keeps the UK as an incredibly competitive place to do business and, over the next few years, will help to ensure that Britain gets its fair share of the growing global economic cake. The Office of Tax Simplification, which we have created, is specifically looking at the burden of tax on smaller businesses so that we can also bring benefits to them, although we have been able to avoid Labour’s increase in the small companies tax rate.
Mr Andrew Love (Edmonton) (Lab/Co-op)
T6. The recent Institute for Fiscal Studies report referred to by my hon. Friend the Member for Walsall North (Mr Winnick) shows clearly that both relative and absolute poverty will increase in every year up to 2014. Is not that the final nail in the coffin of the Government’s claim to be both progressive and fair in their policies?
Mr Osborne
The hon. Gentleman seems to forget that child poverty was rising under the last Labour Government and we have put forward policies to increase social mobility and tackle the causes as well as the symptoms of poverty.
Jeremy Lefroy (Stafford) (Con)
T9. As the Chancellor knows, I have written to the Treasury with details provided to me by a Staffordshire resident of an extraordinary tax avoidance scheme inherited from the last Government. I hope that it will not last long. In the spirit of Christmas, will the Chancellor invite his predecessors around for a dram so that they can explain why they found tax avoidance such a hard nut to crack?
Mr Chuka Umunna (Streatham) (Lab)
I would like to get some clarity on the taxation of the banking sector. The Business Secretary made it clear over the weekend that if the financial services sector did not exercise restraint in bonus payouts during the current round of bonuses, which goes on until April next year, the Government would consider imposing further taxes above and beyond existing taxation arrangements and the banking levy. Will the Chancellor, who adopted quite a different tone in New York, please confirm whether the Government are considering imposing extra taxation, over and above the existing arrangements and the banking levy, on the banks if they do not exercise restraint?
Mr Osborne
We said in the Budget that we were looking at the case for a financial activities tax, which is one of the two taxes that the International Monetary Fund—[Interruption.] The hon. Member for Wallasey (Ms Eagle) says it has nothing to do with bonuses. I suggest that she goes and considers what a financial activities tax is. The IMF has set out some of the principles behind it, but we have followed the principles behind the other IMF proposal, which is the bank levy. In the past couple of weeks, we have demonstrated that we are prepared to increase the rate of the bank levy to sustain the revenue.
Mr John Baron (Basildon and Billericay) (Con)
What progress is the Chancellor making on the Government’s review of the complex rules surrounding foreign earnings inherited from the Labour party, given that those rules are encouraging a number of companies to leave these shores? Those companies include WPP, Wolseley and United Business Media. That means a loss of revenue to the UK Exchequer.
Mr Osborne
That was another of the problems in the in-tray. We have announced reforms to the controlled foreign companies regime, on which we published a consultation paper a couple of weeks ago, and I expect to return to the matter in the Budget.
Jack Dromey (Birmingham, Erdington) (Lab)
The Chancellor has said that he will be tough but fair in his cuts to Britain’s public services. Is it fair that West Midlands police service, serving an area of high need, will be hit twice as hard as Surrey, and as a consequence lose 1,200 police officers, 270 of whom will be compulsorily retired by next April?
Mr Osborne
The police settlement is fair. Here is yet another example of the Labour party’s position. In the past hour, we have heard Opposition Members oppose all the welfare reforms, the local government reductions, and the reductions in the Ministry of Justice and Home Office budgets. Their position is completely non-credible.
Sajid Javid (Bromsgrove) (Con)
The Prime Minister of Luxembourg recently proposed that the EU should start issuing common EU bonds, jointly and severally guaranteed by all member states. Although the eurozone countries can do what they want on bond issuance, will the Chancellor reassure the House that Britain will play no role in an EU common bond?
Mr Osborne
I can indeed give my hon. Friend that assurance. This is an issue that the eurozone is publicly considering, as well as other potential routes forward for the eurozone. My efforts are concentrated on getting our gilt auctions away, and I can reassure him that, thanks to the measures we have taken, that is going well at the moment.
Mr Tom Watson (West Bromwich East) (Lab)
I see on my copy of the Liberal Democrat “Whip” for this week that all Lib Dem Ministers have been instructed to visit Oldham East and Saddleworth three times before 13 January. Will the Chief Secretary to the Treasury tell me on what days he intends to visit, and will he take the Business Secretary with him, so that they can outline their “Maoist revolution”?
Duncan Hames (Chippenham) (LD)
Many jobs today require a university degree, yet compared with the position on funding employees’ vocational training, there is no equivalent tax shield for employer contributions to higher education. Will the Chancellor explore changes to tax rules to encourage voluntary contributions from employers towards their graduate recruits’ higher education?
Mr Osborne
My hon. Friend raises a good point. That is something on which we are seeking official advice, and I will keep him informed of any progress that we make on it.
Mr Dennis Skinner (Bolsover) (Lab)
Now that the Chancellor has adopted a more belligerent tone in the last few minutes, will he open up and tell us what he really thinks about the WikiLeaks cable?
Mr Speaker
With relevance to Treasury matters, Chancellor—that is, if the right hon. Gentleman wishes to respond. He is not under an obligation.
Mr Osborne
I am not sure that there is anything that I can say to the hon. Gentleman, except that I wish him a happy Christmas and I hope that he approaches retirement soon.
Economic and Financial Affairs Council
George Osborne Excerpts(13 years, 5 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
The Economic and Financial Affairs Council was held in Brussels on 7 December 2010. The following items were discussed:
Administrative Co-operation Directive
Ministers agreed a Council directive on administrative co-operation in the field of taxation. The directive will improve exchange of information and bring the EU into line with OECD standards, as well as making an important contribution to tackling cross-border tax evasion and avoidance. The UK supports exchange of information where this does not impose disproportionate burdens on business or on tax authorities at a time of fiscal consolidation.
Financial assistance to Ireland
Following an extra Council meeting on 28 November, ECOFIN formally agreed a Council recommendation to Ireland with a view to bringing an end to the situation of an excessive Government deficit. It also agreed a Council decision to grant financial assistance to Ireland according to Council Regulation 407/2010 establishing a European financial stabilisation mechanism. The Government believe that financial assistance to Ireland is in Britain’s national interest, helping one of UK’s closest economic partners to manage its way through difficult conditions.
Economic governance
Ministers were updated on the progress made on the six Commission legislative proposals on economic governance. Working group discussions have now begun, which are looking at the proposals in detail. Agreement on the final legislation is expected in spring 2011.
Preparation for the European Council on 16 and 17 December 2010
a) Impact of pension reforms on implementation of the Stability and Growth Pact (SGP)
ECOFIN discussed a report to the European Council on the impact of pension reforms on implementation of the SGP. The Government believe that the SGP framework should seek to encourage pension reform and long-term sustainability. However, it is important to strike the right balance between encouraging fiscal discipline in the short-term and incentivising systemic reforms to pension systems to boost long-term sustainability. The presidency will submit the report to the European Council.
b) Bank levies
Ministers endorsed a report to the European Council on bank levies, focused on the issue of double taxation. The Government support national levies on banks to complement wider reforms aimed at reducing the probability and impact of banking failures. They believe that the issue of overlapping scope can be resolved through double taxation agreements. The UK and French Governments have agreed on a mechanism that will ensure that there is no double taxation of banking groups subject to both the UK and French bank levies. This demonstrates the Government’s commitment to ensuring a level playing field for all banks subject to the UK bank levy. The Government will continue discussions with other international partners where there are also potential cases of double charging.
Public service in the field of healthcare
Council endorsed conclusions on a joint Commission and Economic Policy Committee report on public services in the field of healthcare. The conclusions summarise the main findings of the report and the main challenges facing member states. The main findings include: the need to assess the performance of health systems and implement sound and needed reforms to achieve both a more efficient use of public resources and the provision of high quality healthcare; and the need to get more value for money if countries are to ensure universal access under conditions of severe constraints on public budgets. The conclusions also invite member states and the Commission to factor these findings into their analysis and proposals in the framework of the Europe 2020 strategy.
Crisis management
Ministers endorsed conclusions on a Commission communication on crisis management. The Government welcome the Commission’s work in this area to strengthen the European framework and ensure that all member states have common and credible tools and powers to resolve failing banks.
Code of conduct in business taxation
The Council adopted conclusions welcoming the work of the code of conduct group in producing its biannual report under the Belgian presidency. The report highlights potentially harmful tax competition with regards to business taxation. The Council has asked the group to continue its monitoring of business taxation, as well as to carry on the work under the work package agreed by the Council in December 2008. The Commission is also invited to continue discussions with Switzerland and Liechtenstein on the application of the principles and criteria of the code. The UK supports the ongoing work of the group, which is beneficial in highlighting those practices which are potentially damaging to fair EU tax competition.
Loans to Ireland Bill
George Osborne Excerpts(13 years, 6 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
I beg to move, That the Bill be now read a Second time.
Two weeks ago I told the House that it was my intention to ask for authority to make a bilateral loan to Ireland as part of the multinational assistance programme for that country. I said that I judged it to be in our national interest, given our country’s close economic, financial and political connections to the Irish Republic, to be ready to help, and I want to thank all parts of this House for agreeing with that judgment.
Let me directly address the question of why we are taking this legislation through today, and why we are seeking to do it rapidly. The reason is that this week we expect the International Monetary Fund board to meet and agree the assistance package, the eurozone to sign off on its contribution, and the Irish Parliament to accept the international help that is offered. Let me say this to hon. Members in reference to the previous debate. I actually have the authority to make, under common law, a loan to Ireland and to seek at a much later date retrospective authority from Parliament. I decided—[Interruption.] Let me say that I decided that that was a wholly inappropriate thing to do, and that I should come to Parliament to seek its authority before signing the loan agreement. The loan agreement may be signed at any moment.
Mr Peter Bone (Wellingborough) (Con)
I am grateful to the Chancellor for giving way, but has he not let the cat out of the bag? He has just said that there is no urgency, because he had the power to do this anyway. If that had been said in the previous debate, the result of the vote might been different.
Mr Osborne
From what I could tell from what my hon. Friend was saying in the previous debate, he thought it important to have parliamentary scrutiny. It is true that I could have issued the loan under the common-law powers available to me, and come back at a later point to seek parliamentary approval. I thought the House would prefer me to seek parliamentary approval first, before making the loan—but there we go; you can’t please everyone.
Mr Douglas Carswell (Clacton) (Con)
The Chancellor suggested that it is at his discretion that he has brought forward this Bill. Is it not the case that the 1932 convention requires him to do so—and does not that, rather than his discretion, explain why this legislation is before the House?
Mr Speaker
Order. We cannot have an intervention on an intervention. We will hear from the Chancellor.
Nadhim Zahawi
I thank my right hon. Friend for giving way. Setting aside the technicalities of why we are debating this measure and how long we shall do so, and getting down to the substantive issue of the loan, can the Chancellor share with the House what the fees and the interest to the UK Government will be over the period of the loan if the Irish Government draw down the whole of the loan?
Mr Osborne
The second intervention draws me back into the rest of my speech, but in response to my hon. Friend the Member for Clacton (Mr Carswell), I have common-law powers to issue the loan and sign the loan agreement. I then have to seek statutory authority, but that could be done retrospectively. I thought it more appropriate to seek parliamentary approval first, and that was a discretionary choice that I had.
I will answer my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi) directly a bit later in my remarks, when I get on to the terms of the loan that we are going to consider.
Mr Christopher Chope (Christchurch) (Con)
Will my right hon. Friend give way on that point?
Mr Osborne
I will give way to my hon. Friend, and then I really must make some progress.
Mr Chope
I am grateful to my right hon. Friend. If the point that he is making is such a good one—it may well be—why did he not include it in paragraph 14 of the explanatory notes, making a virtue of the fact that he was bringing this matter before the House now rather than seeking retrospective approval?
Mr Osborne
I said in an earlier statement to the House that I was seeking to do that, and I had hoped that hon. Members were paying attention to what I said at the time.
The legislation that we shall pass today will allow the UK to be ready in the new year to meet its commitments to one of our closest international partners. As has been noted, the legislation before the House is narrow in scope—it is explicitly a Loans to Ireland Bill—but it is still enabling legislation. It sits alongside the actual loan agreement, which sets out in detail what we will offer Ireland. To ensure that Members have as much information as possible available to them for today’s discussion, a summary of the key terms of the loan agreement, which was agreed with the Irish Government only this morning, has been available in the Vote Office for more than an hour now.
Mr Osborne
If my hon. Friend will allow me, I will make a bit of progress and then of course take some further interventions.
In my remarks today, I intend to address both the substance of the legislation and the loan agreement, but before that let me briefly say something about how we got here. Over the course of this year, it became increasingly clear that the situation in the Irish economy was unsustainable. Their sovereign debt markets had effectively closed and had little prospect of re-opening. Ireland’s market interest rates had risen to record levels, and Irish banks had become almost wholly reliant on central bank funding to maintain their operations, with no obvious prospect that that was going to change. This situation simply could not go on. We had been monitoring the situation for many months and had engaged in confidential discussions with our partners in the G7 and at ECOFIN about possible solutions.
Over the weekend of 20 November, Ireland’s Prime Minister made a formal request for international financial assistance. The UK, alongside the International Monetary Fund, the EU, the eurozone and some other member states—Sweden and Denmark—made an agreement in principle to take part in putting together an assistance package for Ireland. Since then, the various interested parties have been working round the clock with the Irish authorities to put together a package. Officials from the British Treasury have been in Dublin in recent days ensuring that our interests and concerns were represented, and I want to thank them for their hard work. At the end of November, Ireland agreed with the IMF and the EU a three-year financial assistance package worth €85 billion.
Mr Cash
The document to which my right hon. Friend just referred is “for information purposes only” and is clearly not intended to be construed as part and parcel of the Bill. So can he explain why in the document the “conditions precedent” to the arrangements interweave the so-called “bilateral loan” with the European financial stability mechanism, and why an attempt is then made to bypass that by referring to the “Governing law” as “English law”?
Mr Osborne
I am going to discuss some of the conditions attached to the loan. The particular condition that my hon. Friend refers to ensures that the UK is protected if other parties to this international agreement change their arrangement with Ireland in some way that materially affects our ability to be repaid. That condition gives us an ability at that point to step in.
Mr Osborne
I know that my hon. Friend is assiduous on these points, but I think that on this occasion he is not correct. This is simply a fall-back mechanism for us to say that if Ireland in some way renegotiates its loan from the eurozone, from the EU or from the IMF, it is a condition of our loan to Ireland that we can step in at that point and examine our situation. That protects the British taxpayer and has absolutely nothing to do with European law or anything else; it is simply there to make sure that other parties to this international agreement must have due regard to what they are doing, and how that might have an impact on the ability of the British taxpayer to be repaid.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Two things are happening in Ireland at the moment. The first is that austerity reigns and the economy is going down on a daily basis. The second is that a whiff of elections is in the air. The right hon. Gentleman talks of renegotiation, but is it not a fact that renegotiation of a new Government in Ireland is very much on the cards?
Mr Osborne
Obviously we are not going to prejudge the outcome of any Irish general election. Of course we—not just us, but the IMF and others—negotiate with the Government of the day. Although the principal Opposition parties in Ireland have concerns about the Irish budget and the like, I understand that they have accepted the principle of international assistance, and the IMF has been in direct contact, and has engaged in discussions with them. The international community, including the UK, is satisfied that we are in a position to make this offer to the Irish Government, which is why I am bringing the Bill to the House today.
As I was saying, Ireland agreed to seek IMF and other support worth €85 billion, and the money will be used as follows: €35 billion will be used to support Ireland’s banking sector, with €10 billion going towards immediate bank recapitalisation; and the remaining €50 billion will be used for sovereign debt support. In terms of contributions to the cost of the package, Ireland itself will provide €17.5 billion towards the total. The remaining €67.5 billion will be split, with one third coming from the IMF, one third from the European financial stability mechanism, and one third from the eurozone facility and bilateral loans from the UK, Sweden and Denmark. I have agreed that our contribution should amount to €3.8 billion, or £3.25 billion at today’s exchange rate.
This significant package will help Ireland to deal decisively with its problems. It will help it to recapitalise its banks and set up a contingency reserve for future problems. It will also help the Irish authorities to cover the shortfall in their budget, which was passed by the Irish Parliament earlier this month. Their budget will see a fiscal consolidation of €15 billion by 2014, of which €6 billion will be implemented next year, as part of their strategy leading to a target budget deficit of 3% of gross domestic product in four years’ time.
Of course people ask why we are extending the loan to Ireland. We are doing so because it is overwhelmingly in our national interest to have a strong Irish economy and a stable banking system. This is not just about the Irish economy and Irish jobs; it is about the British economy and British jobs. A loan does not add to our deficit, and any increase in borrowing is matched, of course, by the commitment of the Irish to repay with interest. The answer to the question asked by my hon. Friend the Member for Stratford-on-Avon earlier is that if Ireland takes out all the loan that is being made available to it and pays it back with the interest that has been forecast, it would pay us £440 million in fees and interest over this period.
Let us remember that Ireland is the fifth largest market for British exporters and accounts for 5% of our total exports abroad. An interesting way for the House to think about it is that every man, woman and child in Ireland spends an average of £3,600 per year on British goods—that is how connected our economies are. Indeed, as has often been pointed out, we export more to Ireland than to Brazil, Russia, India and China put together, although we are trying to increase our exports to those four very large emerging markets. For some of our industrial sectors, such as food and drink or clothing and footwear, Ireland is our top export market. Ireland is also the only country with which we share a land border, and in Northern Ireland our economies are particularly linked, with two-fifths of exports going to the Republic.
I wish to reassure Members representing Northern Ireland that I am very aware of their constituents’ worries and the difficulty they face as a result of the problems in Ireland. That is why my hon. Friend the Financial Secretary recently visited Belfast to discuss these issues directly. I am open to any discussions that Members from Northern Ireland wish to have with me or the Treasury about the economic situation and indeed the banking situation in Northern Ireland. Just as our two economies are linked, our businesses and banking sectors are also interconnected. More Irish companies are listed on London exchanges than companies from any other foreign country. The two main Irish-owned banks have an important presence in the UK, holding between them about £30 billion of customer deposits. In Northern Ireland, two of the four largest high street banks are Irish-owned, accounting for almost a quarter of personal accounts.
Mrs Anne Main (St Albans) (Con)
My right hon. Friend has stressed the importance of the export market and our strong links with Ireland. So why did he find it necessary for paragraph 6(h), under the heading “Events of default”, in the summary document to set out that
“the Borrower not being or ceasing to be a member of the European Union”
would constitute a default? I would hope that we would support Ireland if we chose to do so, and not bind it into necessarily having to stay in the European Union, given the length and operation of the loan.
Mr Osborne
It is merely an observation that the fact that Ireland is a member of the European Union is not why we are making this loan; it has nothing to do with that. It has to do with the fact that Ireland is deeply connected to us. Indeed, we have just made a loan agreement with Iceland, which of course is not a member of the European Union, in order to seek to recover moneys that were spent on savers in Icelandic banks here in the UK.
Mr John Redwood (Wokingham) (Con)
As this crisis was triggered by the withdrawal of European Central Bank support for Irish banks, will the Chancellor give us an assurance that we will not be involved in any further refinancing of ECB liabilities should it do the same to another country?
Mr Osborne
I had a very specific choice. I had the opportunity—of course, I would have had to seek the authority of the House—to introduce a general Bill to allow me to make bilateral loans to any number of countries. That legislation would have been very easy to draw up, and it would have been easy to ask the House for its support. I have explicitly restricted this to a Loans to Ireland Bill because of the specific connections between our two economies.
Stewart Hosie (Dundee East) (SNP)
May I confirm what the Chancellor has just said? The UK contribution to the entire package will be about 5% of the non-Irish contribution—about £3.5 billion—and that stands in comparison with some £12 billion of exports to Ireland, and, as he said, the Irish banks holding some quarter of the deposits in Northern Ireland. Is that the broad summary of where we are?
Mr Osborne
It is a reasonable summary. Of course we stand behind the International Monetary Fund as a shareholder of it, as are most countries in the world. I shall come on to the European financial stability mechanism, which I have already talked to the House about on a number of occasions. Like other contributors to the EU budget, we stand behind it. In a sense, the loan that we are proposing today is the direct British taxpayer contribution—or rather, the money that is borrowed on behalf of the British taxpayer. I shall come to the terms of the loan, but of course we expect to be repaid, and repaid with interest. We are doing this because we think it is absolutely in our national interest, for some of the reasons that have been set out.
Charlie Elphicke (Dover) (Con)
On that point, may I welcome the fact that the Bill is before the House today and that approval is being sought before the loan is made? Will my right hon. Friend explain how we came to be part of the European financial stability mechanism, what approval the House gave to it and what level of debates there were about it?
Mr Osborne
As I explained to the House previously—my predecessor, the right hon. Member for Edinburgh South West (Mr Darling) is here, and might at some point want to give his own version of events—my understanding is that in the period between the general election and the formation of the Government, an emergency ECOFIN meeting was held to address the Greek situation and to provide confidence that the European Union and the eurozone stood behind other member states that were potentially in difficulty.
My predecessor ensured that we stayed out of the eurozone facility—I have acknowledged that in the House —but acquiesced in the use of article 122 of the treaty, which allowed the European Union to disburse funds when a natural disaster, such as an extreme weather event, was affecting a member state, to create a mechanism that could stand behind countries that got into difficulties. The decision on the use of that mechanism is taken by qualified majority voting, so although we could vote against its use in this situation, I did not think that that would achieve anything. I am focused, in a way that I shall describe, on trying to extricate the UK from the EU-27 mechanisms that stand behind eurozone countries. If hon. Members will bear with me, I shall talk about that later, and if people want to intervene at that point, that would be more sensible.
Let me move on to the connections between our banking sectors. Our banking sector has a considerable exposure to Ireland, but I should stress that in the opinion of the Financial Services Authority, the UK banks are sufficiently well capitalised to more than manage the impact of the situation in Ireland. For a long time now the devaluation in Irish asset values has been accounted for and priced in.
One thing is clear. It is undoubtedly in Britain’s national interest to have a growing Irish economy and a stable Irish banking system. In the judgment of both the Irish Government and the international community that was not going to come about without the assistance package we debate today. I would now like to explain to Members the principles of the Bill, and then take them through the heads of terms of the loan agreement.
The Bill has two substantive clauses. Clause 1 sets out the parameters under which the Treasury may make payments under UK loans to Ireland. As I explained earlier, the total international assistance package, including our contribution, is denominated in euros. However, we are making a bilateral loan in sterling so that Ireland bears the exchange rate risk over the coming years. Subsection (3) of the clause includes a cap on the total size of our bilateral loan. It is written on the face of the Bill that
“the aggregate amount of payments made by the Treasury by way of Irish loans...must not exceed £3,250 million”.
In other words, the £3.25 billion we originally agreed will be the maximum total size of our bilateral loan to Ireland. A sunset clause is also, in effect, built into the legislation. The period over which the loans may be offered begins on 9 December 2010, when the Bill was published, and ends on 8 December 2015.
Mr Osborne
My hon. Friend is pre-empting my speech. I shall get on and explain exactly what those two subsections mean.
As I said, there is no expectation that we will have to make further loans to Ireland in the future. Subsection (4) is intended to prevent an increase in the size of the loan, unless an order is made by statutory instrument, but because the loan is denominated in sterling, a mechanism is needed to accommodate potential changes in the exchange rate in the period between the publication of the Bill and the signing of the loan agreement—that answers my hon. Friend’s point—which could happen in a matter of days. This is not about the exchange rate risk over the coming years—that risk is borne by Ireland—but merely a mechanism to deal with the fact that we are publishing the Bill before we sign the loan agreement, for the reasons that I set out earlier.
The Bill allows the Treasury, under subsections (5) to (7), to make an order once the Bill is in force to increase the limit, as long as that is done solely to take account of exchange rate fluctuations between now and 30 days after Royal Assent, without further Parliamentary procedure.
Mr Cash
I am sure that my right hon. Friend will understand my saying that it would have been so much simpler if what he has just said had been specified in the Bill, instead of a blanket wording referring to substituting a greater amount. We would have then known that that was only intended to allow a margin of error depending on currency fluctuations. Subsection (4) is absolutely clear that there is no restriction.
Mr Osborne
No, let me explain. There are two separate subsections. Subsection (4) allows the loan to be increased substantively, but only with the authority and vote of this Parliament. If I were ever to seek a larger loan to Ireland, I would have to come here and get the vote of the House of Commons. That is what subsection (4) is about. I am making it clear that I have no intention at the moment of doing that, but subsection (4) provides for it, and would prevent us from having to pass further primary legislation. The protection for Members of Parliament is the same—they can keep a check on the Executive—because I would be required to get that affirmative resolution.
Subsections (5) and (6) refer to something different, which is the gap between the passage of the Bill and the signing of the loan agreement. There might be small movements in the exchange rate. We have signed up to this package of a contribution in euros, but we are making a sterling loan. As I explained earlier, I had the opportunity to sign the loan agreement and come retrospectively to seek parliamentary approval, but I am trying to do it the other way around because it gives Members of Parliament a much greater degree of control. That is why these two subsections are required.
Mr Laurence Robertson (Tewkesbury) (Con)
I will be supporting my right hon. Friend in the Lobbies tonight, but I am slightly concerned about clause 1(4), which is rather open-ended about the amount that could be paid. Even though a change would have to be passed by the affirmative resolution, I think the Chancellor would confirm that would be agreed by only a very small number of Members and not the entire House.
Mr Osborne
My hon. Friend has a deep knowledge and experience of issues in Northern Ireland, and indeed the Republic, and I know that his Select Committee will be interested in what is happening with those economies. Let me reassure him that there would be a vote by all Members of the House if I, or any successor of mine—should there be one before 8 December 2015—ever sought to increase the loan. A vote in Parliament would be required, so the effect is exactly the same as asking Parliament to pass another piece of primary legislation. It would involve a vote of the House, which means the legislature exercising its control over and acting as a check on the Executive.
Mark Reckless (Rochester and Strood) (Con)
Will my right hon. Friend confirm that, notwithstanding previous assurances, this loan will not rank pari passu with the EU funds extended under the mechanism, but will be subordinated to them?
Mr Osborne
There is a convention that multilateral loans, such as those involving the mechanism and the IMF, rank senior in any loan agreement. Let me reassure my hon. Friend that I have examined this with great care and interest. The convention is pretty clear and long-established in international law that multilateral loans are senior. That means principally the loan from the IMF, but also the loan from the European mechanism, which we stand behind, so it is also in our interest that it is repaid. However, our loan will rank pari passu with the eurozone and the other bilateral loans. That has partly shaped our judgment about the interest rate we will charge and the point at which we will start to disburse our loan. I shall come back to that.
We expect full repayment to be made over the term of the loan. Clause 1(8) sets out that repayments of both the principal and the interest will go into the Consolidated Fund. We want the whole process to be as transparent as possible, so clause 2 creates a requirement for the Treasury to prepare and lay before Parliament every six months a report on any payments made by the Treasury by way of a loan to Ireland, any sums received by the Treasury by way of interest or repayment of such loans, and the amounts outstanding, in the period to which the report refers.
As I have said, I welcome the agreement across many parts of the House about the need to make this loan, which is in our national interest. I thank the Opposition in particular for their support, and to reciprocate their co-operation I thought we should look favourably on their amendments. I therefore propose to accept in principle the Opposition’s amendment 1, which would modify the Government’s reporting requirements in relation to the bilateral loans. We have today tabled a more appropriately worded version of the amendment which achieves exactly the effect that the Opposition intended. May I explain to my hon. Friend the Member for Wellingborough (Mr Bone) that this is why there is a manuscript amendment? I am trying not to tempt him, because I am sure that he could speak for even longer, but I want to explain this point because he has raised his concern about it. The manuscript amendment has been drafted by the Government’s parliamentary draftsmen in relation to an Opposition amendment that we propose to accept and it has exactly the effect that the Opposition sought.
Let me update the House on the terms of the bilateral loan that we have now agreed in principle with the Irish authorities. I apologise that this information was not made available much further in advance, but the terms were agreed only this morning with the Irish Government and I wanted all Members of the House to have this information available to them. The loan will be drawn in eight tranches, each with a 7.5-year term. The length of the loan is in line with the terms of both the European and IMF loans. The first tranche of our loan will be available to be disbursed in September 2011, which is later than for some of the other tranches that are being drawn down from partners such as the IMF and the European Union.
The interest rate charged on each tranche of the loan will be fixed specifically for that tranche. It will be set by adding a fixed margin of 2.29 percentage points to the appropriate market-determined interest rate—the sterling 7.5-year swap rate—at the time of disbursement. For example, at the present time, the estimated—I stress estimated—interest rate on the first tranche of the UK loan would be the sterling 7.5-year swap rate in September 2011, which on Monday stood at 3.65 percentage points, plus 2.29 percentage points. That would mean a hypothetical interest rate of 5.9% for the first tranche of the loan. The rate on our bilateral loan will be slightly higher than the estimated rate of 5.7% for the first tranche of the IMF and European mechanism funds, so we are charging a slightly higher rate of interest, but it is lower than the estimated 6.1% rate that the eurozone facility will charge on its first tranche of lending. That reflects the different costs of funding and is a measure of international confidence in the UK’s public finances.
Mr Philip Hollobone (Kettering) (Con)
Will my right hon. Friend inform the House how that rate of interest compares with the loan he mentioned earlier that the UK Government agreed with Iceland?
Mr Osborne
The interest rate to Iceland is substantially lower because, frankly, needs must: I am seeking to recover money from Iceland. I am dealing with a situation that I have inherited—obviously the Iceland loan relates to events that happened under the previous Government—and I need the support of the Icelandic Parliament. The rate of interest we are charging is slightly higher than the Dutch, who have also entered into an agreement with the Icelandic Government, are seeking. People might remember the circumstances at the relevant time—there was a pretty acrimonious dispute between Iceland and the previous UK Government—and we have sought to repair broken bridges. The terms of the loan that we have come to with Iceland mean that this country will get its money back. My judgment was that other terms might have meant our not getting our money back at all and that would not have been very sensible.
Mark Reckless
It is enormously welcome that this country is working with Iceland and Ireland to support them in these very difficult times. The Chancellor has mentioned the current 7.5-year swap rate; can he tell us how much higher it is than when he first announced our participation in this bail-out?
Mr Osborne
I do not think it has materially changed. I have been quite focused on trying to land it at the 5.9% rate, because that sits between the 6.1% and 5.7% rates of the other international parts of the package. That rate reflects some of the circumstances that relate to my hon. Friend’s earlier intervention.
The IMF will charge a floating rate, with a margin above its funding costs, in line with its pre-existing loan terms for an extended fund facility. The European loans, like ours, will charge a fixed rate on each tranche set using a margin above their own cost of funds. We will charge interest every six months and there will be a repayment of the principal at the end of the 7.5-year term of each tranche.
In common with the IMF, we will also charge a commitment fee for making the loan. We will charge half a percentage point on the total amounts that may be drawn on under the loan agreement for the forthcoming 12-month period. If the loan is drawn on, the fee will be waived and effectively replaced with the interest charged on the loan.
There are two conditions, which are set out in terms to which I draw the House’s particular attention. The first is that the IMF, as well as the EU, must be satisfied that Ireland is complying with the agreed restructuring plan. I think that that is a very important safeguard for British taxpayers. The second, crucial, condition is that there must be
“no amendments to the Restructuring Plan that would have a material adverse financial impact on the UK operations of Anglo Irish bank, Allied Irish Banks and Bank of Ireland”.
Given the scale of those banks’ operations in the UK, that second condition is significant, and it shows in a practical way why I believe it was right for us to provide the loan. It allows us to have a say in a restructuring plan that could otherwise have had a major impact on the UK and its banking system, and could potentially have cost the British taxpayer considerable sums of money without our voice even being heard. Making the loan has enabled us to set that condition, and to be part of the discussion about the restructuring plan and its impact on the UK subsidiaries of banks which have significant presences in Northern Ireland. I know that there is concern about the potential impact of the plan on jobs and the availability of credit in Northern Ireland, and, indeed, about its potential impact throughout the UK, given that Bank of Ireland owns the Post Office card account.
Nadhim Zahawi
What the Chancellor is saying is particularly pertinent, given that the Post Office cash machine in Portcullis House was provided by the Irish banks.
May I ask a quick question?
Nadhim Zahawi
Are we the only lender that is lending in a currency other than the euro?
Mr Osborne
Sweden and Denmark are at this moment finalising their loan agreement, and I do not think they have yet made that decision. As I have said, we decided to lend in sterling so that the exchange rate risk would be borne by the Irish rather than the British Government.
The official advice from the Treasury is that the loan agreement represents value for money for the British taxpayer. As I said earlier, it is also in line with the terms offered by both the IMF and the eurozone. I have laid before the House a summary of the key terms of the agreement, and a final written agreement will be forthcoming in the next few days—or, potentially, weeks—once the European and IMF assistance has also been agreed. I will, of course, keep the House informed.
One thing is clear: Ireland is a friend in need, and it is because our economy is currently in a stronger position than Ireland’s that we are able to offer it such reasonable and sensible terms for our bilateral loan.
Mr Mark Field (Cities of London and Westminster) (Con)
I understand all the Chancellor’s concerns about the close relationship between us and Ireland. He said it was important for this country to be at the table in terms of any restructuring. Does he understand the concerns of many of our constituents, who would say that a similar argument could be advanced if there were problems for, say, Santander in Spain, or for other European banks with significant interests in London? Will he make it very plain at this juncture that he considers this to be a case in its own right, rather than one to which we might have to return in the next six to nine months if further problems arose in the eurozone?
Mr Osborne
I have said that I regard this as a case in its own right—a very specific case. As I have explained, quite candidly, my officials offered me two options: a general, enabling piece of legislation allowing us to make bilateral loans to other countries, and the much more narrowly drafted Loans to Ireland Bill. I think that the clue is in the title.
Jim Shannon (Strangford) (DUP)
Over the past few days we have seen substantial growth in the economy of the UK mainland, but that growth has not been reflected in Northern Ireland, as some of its financial institutions—notably Ulster bank—have indicated. What assurance can the Chancellor give the Northern Ireland Assembly, the Minister of Finance and Northern Ireland Members in the House that, at every stage, full consideration will be given to how loans to the Republic of Ireland will affect the economy in Northern Ireland? At this stage, we feel apprehensive about what is being proposed.
Mr Osborne
I completely understand the hon. Gentleman’s apprehension, given the close connections between the economies of Northern Ireland and the Republic of Ireland. Let me make two points. First, as I said earlier, the loan has enabled us to be part of the international discussion about the restructuring of the Irish banks, some of which—as the hon. Gentleman knows even better than I do—are incredibly important operators in Northern Ireland. I appreciate that he will not have had a chance to study the loan agreement, as I have laid it before the House only within the last couple of hours, but one of the conditions is that there should be
“no amendments to the Restructuring Plan that would have a material adverse financial impact on the UK operations of Anglo Irish Bank, Allied Irish Banks and Bank of Ireland”.
That partly addresses the banking situation in Northern Ireland, and, as I have said, it gives us a seat at the table in discussions that affect the UK.
Secondly, as the Secretary of State for Northern Ireland said this morning during Northern Ireland questions, we want to engage with the Executive, with representatives of the Assembly and, indeed, with Members of Parliament about how we can enable the Northern Ireland economy to grow. A draft paper has been put to the Executive. I am very engaged in the process, as is my hon. Friend the Financial Secretary to the Treasury. I repeat the offer that I made earlier to hold a detailed discussion with Northern Ireland representatives, at any point, about some of the broader economic measures that we might be able to take in Northern Ireland to help its economy.
Mr Nigel Dodds (Belfast North) (DUP)
I am grateful to the Chancellor, whose comments have clearly provoked a big reaction.
Corporation tax is a big issue in Northern Ireland. It worries people there that the Irish Republic wishes to retain its 12.5% corporation tax rate. We in Northern Ireland are arguing for a cut in our rate, but the Secretary of State for Northern Ireland tells us that that will cost us some £310 million of our block grant. In a way, we will be subsidising the Irish Republic to keep its corporation tax low, and penalising Northern Ireland if it wants to reduce its corporation tax. The Chancellor must take that into account in the context of this package of measures.
Mr Osborne
As I said to the House on a previous occasion, I did not think it right—others may take a different view—for one sovereign nation to try to dictate the tax rates of another sovereign nation. I did not think that that was a precedent that we particularly wanted to set. I entirely understand the competitive pressure that the Irish corporation tax rate puts on Northern Ireland, but ultimately it must be for the Irish Parliament to determine its own tax rates. It is, of course, having to take some very difficult measures to preserve the corporation tax rate in the Republic.
I know that there is a discussion to be had about the corporation tax rate in Northern Ireland, and about other measures that might be taken there. A document has been submitted this week. I hear what the right hon. Gentleman says, but let us have that discussion with the Secretary of State for Northern Ireland and Northern Ireland Members.
Mr Geoffrey Robinson (Coventry North West) (Lab)
I have listened with interest to what the Chancellor has been saying. I appreciate the measured way in which he has presented his proposals and, indeed, the cross-party support for them, and I have no wish to disturb that support. However, will the Chancellor think again about two aspects of what he has said?
First, there is the question of the terms on which the loan will be repaid. Given that the deal is currently quite advantageous to the Irish in terms of interest rate security and, indeed, the standing of the loan, would it not be possible to negotiate the option for the UK to be repaid in sterling should there be an interesting movement in the sterling-euro exchange rate, which is quite likely?
Secondly, given that the right hon. Gentleman rather alarmingly says that this might not be the end of the matter, and that therefore he has left the way open, through just the affirmative procedure, for more substantial loans—I think I understand the situation correctly from what he says—to be made to Ireland, will he look at making such action subject to new legislation in the House, which would attract more attention and scrutiny from this body?
Mr Osborne
We are being repaid in sterling, so that answers the hon. Gentleman’s first point. I have already dealt with the second point on a number of occasions, but I shall just point out that the effect would be exactly the same. Whether I brought to the House legislation or used the affirmative procedure, I would have to get the support of Members, so materially the impact would be exactly the same: the House of Commons would be able to stop such action taking place. I should stress that I have absolutely no intention of doing so at the moment, and there is protection.
David T. C. Davies (Monmouth) (Con)
I do not pretend to be an economist, but does the Chancellor share my concern that, if the European Union forces Ireland to put up its corporation tax, that might hold greater danger for us, as Ireland could be in less of a position to pay us back the money? For that reason alone, we should resist any attempt by outside bodies to impose a tax regime on Ireland.
Mr Osborne
My hon. Friend makes a very good point. A sudden flight of international investment from Ireland is not in anybody’s interest. All countries seek to compete against each other for such inward investment, but, as I say, it would set a poor precedent for the UK if one nation state or a collection of nation states started dictating to another nation state what its tax rate should be.
Mr Osborne
My hon. Friend will be very focused on what I am about to say, so if he does not mind I shall make a little progress, and then I shall be happy to take an intervention.
Let me turn briefly to the arrangements for a permanent stability mechanism for eurozone economies. The European Council this week is expected to discuss the matter. Both the Prime Minister and I are very clear that when it comes to putting in place a permanent mechanism, the UK is not part of the eurozone and so will not be part of that mechanism. The president of the euro group has accepted that the UK will not be part of the permanent stability mechanism, and that the European financial stability mechanism, which the previous Government agreed in May and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.
We will seek to bring to an end the use of the mechanism established in May for the resolution of sovereign debt problems. It was established under article 122 of the Lisbon treaty and originally intended to provide support for member states following natural disasters. European Finance Ministers, including my predecessor, chose to apply that article in May to deal with the eurozone crisis at that time, but that temporary solution should not become a permanent way of doing things, and the time has now come for the eurozone to put in place its own mechanism for dealing with the imbalances in the eurozone. That needs to be part of a comprehensive solution whereby countries address their own problems more decisively, including in their banking systems. We in Britain have shown the way.
Joseph Johnson (Orpington) (Con)
The Chancellor speaks of a comprehensive solution. Does he recognise that we face not only a crisis of liquidity in Portugal, Greece and Ireland, which we are assisting bilaterally, but a crisis of solvency? The solvency crisis will require us to address not just Irish bank restructuring, but Ireland’s sovereign debt—it is impossible to distinguish the two, given that the Irish state has guaranteed all the Irish banking system’s liabilities—and the solvency of other peripheral eurozone economies. We are helping with financing, but we have not yet addressed the fundamental solvency of those peripheral countries.
Mr Osborne
My hon. Friend makes a very good point. There was a debate—it was pretty widely reported, so I am not betraying anything that was not read by everyone throughout the world—about whether to address the solvency issues, and whether there should be a contribution—or a haircut, to use the jargon—from senior debt holders in the banks or, indeed, sovereign debt holders. The international community’s view, with which we absolutely agree, is that such a contribution risked a very serious contagion that might spread through many different banking systems, not just those of the countries to which my hon. Friend refers. So the decision was taken not to require a private sector bail-in from senior debt holders in the banks or, indeed, sovereign debt holders.
As part of a comprehensive solution, the eurozone needs to come to a rapid conclusion about its mechanism, draw a distinction, as it has sought to, between existing debt and potential future-issued debt, create a credible mechanism and work out how a single currency zone that does not have a single fiscal policy or a political union will deal with its imbalances.
Mr Osborne
I see the speed with which my hon. Friend leaps to his feet at that point, but I shall take his intervention in a moment.
The eurozone needs to address that situation, and we need to ensure that it gets it right, because that is absolutely in our interests. Individual countries also need to address their problems. Portugal has a long-standing problem with its economic productivity, which the Portuguese Government are determined to address. The Irish banking system has caused enormous problems for the Irish Government, who are now addressing that. In a bipartisan debate, this is a slightly partisan point, but I think that the UK has demonstrated over the past six months that, by its own efforts, a country can earn market credibility, improve its credit rating and improve international confidence in its economy. We need the eurozone to sort out its mechanism, but individual countries in Europe also need to take decisive steps to deal with the particular problems that their economies face. Let me give way to my hon. Friend the Member for Stone (Mr Cash), and then I must conclude to allow others to speak.
Mr Cash
I have put a number of questions, as yet unanswered, to my right hon. Friend on that very issue, but I am glad that he has given, at any rate, a partial answer to one of them. The mechanism’s transfer from what appears to be an unlawful basis in article 122 of the Lisbon treaty to the new proposals under article 136 will involve only the eurozone and represent an important step in the right direction. Does my right hon. Friend not accept, however, that much could happen over the next two or three years, between now and 2013, while the mechanism in which my right hon. Friend’s predecessor engaged, and which I believe to be unlawful, continues? We could be locked into a Portuguese or a Spanish black hole. We do not know yet, but there is a danger.
Mr Osborne
First, I am dealing with the situation as I found it, and as I found it we were committed to that mechanism under qualified majority voting, but I am trying to extricate us from that. Secondly, the permanent arrangements might come into play sooner than 2013. That is a subject for discussion at the European Council, and, certainly as far as we are concerned, the sooner we get on with it, the better. I am doing everything I can to ensure that the UK is extricated from the commitment that was entered into, and we are making good progress.
Mr Osborne
If the hon. Gentleman will allow me, I have already taken an intervention from him. Many Members want to speak, and I have spoken for an hour.
Alan Johnson (Kingston upon Hull West and Hessle) (Lab)
Get on with it, George.
Mr Osborne
Well, I took a lot of interventions. I’m sorry about that, but there we go—there’s no gratitude in this place!
Let me conclude. The Government have taken action to put our own house in order. We were once seen as part of the problem; we are now part of the solution. It is in our national interest to help Ireland, and I commend this Bill to the House.
Alan Johnson
I always try to avoid sharing the hon. Gentleman’s pleasure. I shall come to the nature of the deal, because in debating the Bill we are discussing one element that constitutes a little more than half of the money that the UK taxpayer is putting into the deal.
The argument for treating Ireland as a special case is clear. I shall reiterate some of the points that the Chancellor made. Our two countries are intertwined in commerce, in trade, in banking, in culture and in sport. We share a language and a land border. Not only is Ireland one of our five largest export markets but, as the Chancellor said, one part of the United Kingdom—Northern Ireland—sends 40% of its exports across the border to the Republic. The situation in Ireland could cause significant damage to UK financial institutions and create instability in both sovereign and bank debt markets. The UK is Ireland’s largest creditor—we are talking about almost €112 billion—and I understand from a newspaper report last week that the Royal Bank of Scotland and Lloyds have Irish loan books worth 82% and 53% of net assets respectively.
In its report last month, the International Monetary Fund singled out Ireland to demonstrate what it called the “key underlying vulnerability” of UK banks’ exposure to foreign banks. The support programme assures the protection of senior bond holders in Irish banks from any losses, thus affording a greater level of protection to UK banks. For all of those reasons and many more, it is in this country’s interest to support this package.
I want to raise three concerns. The first, which was raised in a couple of interventions—including by the hon. Member for Stone (Mr Cash)—is the open-ended nature of the commitment. There is a distinct possibility of more money being required for Ireland after 2013, given the tendency of Irish banks to downplay the severity of their situation and the tough conditionality being applied alongside concerns about European growth. In those circumstances, should we not make it clear to our European partners that the EFSF must be used for any further financial support, rather than giving the impression that this is a well into which further buckets can be dipped?
That is particularly relevant to my second concern about the balance between the contributions made by the various mechanisms. The €440 billion EFSF—the facility— for eurozone countries only is being tapped for 4% of the total resources that eurozone countries have agreed to make available for Ireland. The smaller EFSM—the mechanism—of which we are part and to which we contribute, was not used at all for the Greek bail-out. The EFSM is offering 37.5% of its available resources for the Irish bail-out. Why was that formulation chosen and why is the total amount we are contributing double the amount that we would have had to pay if we were a eurozone country?
Mr George Osborne
I am not sure that the shadow Chancellor is correct in that assertion. First, our contribution has been calculated on the basis of what we would have paid if we had been part of the facility. That is how the £3.25 billion figure was broadly arrived at. Secondly, the mechanism currently in use was created after the bilateral agreement was put together for the Greek bail-out. It was never available to be used for the Greek bail-out, which took place as a series of bilateral loans across Europe. As I understand it, over the May weekend the facility was put in place to address the crisis and article 122 was drawn upon to create the mechanism, so it could not have been used for Greece at that point.
Alan Johnson
I am grateful to the Chancellor for that intervention. However, it does not explain why the £3.25 billion he has just mentioned is the bilateral loan. That is the equivalent of what we would have put into the Irish bail-out had we been members of the eurozone. However, we are also putting in £2.6 billion through the EFSM and £800 million through the IMF. With the bilateral loan added to the other donations of British taxpayers’ contributions that we are making through the mechanisms, we are putting in double the amount of money that other European Union countries are contributing.
Alan Johnson
Yes, but that is a matter for the eurozone. If the Chancellor is right in his prediction that perhaps this can ensure that we come out of the €60 billion mechanism, the facility and the other moneys, then fine, but as we are making a big contribution—more than we would have done had we paid the amount that a eurozone country would have paid to rescue Ireland—we must be in a position to influence this debate.
Mr George Osborne
I must correct this point. We are paying pretty much exactly what we would have paid if we had been a member of the euro; that is how the bilateral loan is being calculated. Germany is paying both through the facility and through the mechanism, and so are France and the other members of the euro. Other countries are paying twice. Ours is a bilateral loan like those of Sweden and Denmark, and they too have been calculated in a similar way.
Alan Johnson
I am grateful for that clarification; we will look at that very carefully. What the Chancellor is saying is that France and Germany, through their IMF contribution—[Interruption.] The Financial Secretary says no. The point I am trying to get at—perhaps the hon. Gentleman can clear this up when he replies to the debate—is that if the UK is putting in a bilateral loan that is equal to the amount that we would have paid as a eurozone member, and we are putting in money through the IMF as well as £2.6 billion through the mechanism, how does that relate to the money that France and Germany are contributing? As far as I am aware, they have no bilateral arrangements, so the money is going through the IMF, or through the stability facility which accounts for only 4% of the resources. That is a point that we need to hear about.
Financial Assistance for Ireland
George Osborne Excerpts(13 years, 6 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
I have today placed in the Libraries of both Houses and made available in the Vote Office copies of a summary of key terms for the credit facility for Ireland, agreed in principle with the Irish authorities, to inform debate of the Loans to Ireland Bill.
The full credit agreement is currently being negotiated between HM Treasury and Ireland and will be provided to the House in due course.
ECOFIN
George Osborne Excerpts(13 years, 6 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
The Economic and Financial Affairs Council was held in Brussels on 17 November 2010. The following items were discussed:
Directive and Regulation on VAT treatment of insurance and financial services
ECOFIN held an orientation debate on proposals to modernise the VAT exemption for financial services, reflecting market developments over the last 30 years. The Council agreed that discussions would continue at working group level, taking account of the views expressed by delegations.
Administrative Co-operation in the field of taxation
The presidency gave an update on negotiations on this directive, which aims to improve arrangements for exchange of information and bring the EU into line with OECD standards. The Council agreed that they would aim to reach political agreement on this issue at their December meeting.
Implementation of the 2009 budget
ECOFIN took note of the presentation by the Court of Auditors on its annual report on the management of the EU’s general budget. The Council called on all parties involved in the management of the EU budget to persist in their efforts to improve controls and to reduce margins of error in budgetary payments. The Government continued to press the case for value for money in the EU budget. The Council is expected to adopt the recommendation to discharge the budget at its meeting in February.
Follow-up to October European Council
The Council took note of the deliberations of the European Council. Ahead of the December ECOFIN, officials will prepare a report on the work of the economic taskforce. They will also take forward work on bank levies and on the how the impact of pension reforms should be accounted for in the implementation of the EU’s stability and growth pact.
Follow-up to the G20 Seoul Summit on 11-12 November
The Council discussed the follow-up to the G20 summit, including as regards the issues of macroeconomic imbalances and the reform of financial regulations.
Financing of measures against climate change
ECOFIN had a high-level discussion on the UN Secretary-General’s Advisory Group on Finance report, fast-start finance, and the green fund. The Council will further consider this issue at the December ECOFIN.
Pensions
The Council adopted conclusions on a report on pensions. The Government support this report, which emphasises the importance of fiscal sustainability and extending working lives.
EU statistics
The Council adopted conclusions on the annual report on EU statistics, which reviewed the progress made on statistical governance.
Other business
a) Baltic Sea Strategy
The Council took note of a presentation by the President of the European Investment Bank regarding the EIB’s contribution to the EU’s strategy for the Baltic sea region. The Government welcome the EIB’s work in the region, and support its intentions to extend the programme to the Danube region.
b) Representation of the Council at the G20 ministerial meetings
The Council discussed EU representation at G20 ministerial meetings. The Government do not see a need to change the existing arrangements, whereby the EU presidency represents the EU and the Commission is an observer.
c) Credit Rating Agencies
At the UK’s request, a statement was laid in the minutes of the Council outlining remaining concerns with an amending regulation for credit rating agencies. The Council took note of concerns expressed.
Meeting of the EU and EFTA Ministers of Finance and Economy
Ministers held a meeting with their European Free Trade Area counterparts. The meeting focused on the consolidation of Government budgets as well as on financial market regulation and supervision.
An extra Economic and Financial Affairs Council was held in Brussels on 28 November 2010.
Ministers unanimously agreed to grant financial assistance, in principle, in response to the Irish authorities’ request, in order to safeguard financial stability in the euro area and the EU as a whole.
Euro-area and EU financial support will be provided on the basis of a programme which has been negotiated with the Irish authorities by the Commission and the International Monetary Fund, in liaison with the European Central Bank.
The financial package of the programme will cover financing needs up to €85 billion, including €10 billion for immediate recapitalisation measures, €25 billion on a contingency basis for banking system supports, and €50 billion covering budget financing needs. Half of the banking support measures (€17½ billion) will be financed by an Irish contribution through the Treasury cash buffer and investments of the National Pension Reserve Fund. The remainder of the overall package should be shared equally (€ 22½ billion each) among:
the European Financial Stabilisation Mechanism (EFSM);
the European Financial Stability Facility (EFSF) together with bilateral loans from the UK, Denmark and Sweden; and
the IMF.
In principle, the UK’s bilateral loan is for £3¼ billion, and the rate of interest on the loan will be similar to the rates levied by the IMF and the euro area.
The main elements of policy conditionality will be enshrined in Council decisions to be formally adopted at the ECOFIN Council on 7 December.
The president of the Eurogroup made it clear that the UK will not be part of the permanent bail-out mechanism, and that the European financial stability mechanism, agreed under the previous Government in May, and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.
Fair Pay in the Public Sector
George Osborne Excerpts(13 years, 6 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
Will Hutton has today published the interim report of his review of Fair Pay in the Public Sector. The Government welcome the publication of this report and will give careful consideration to the findings so far. The Government look forward to the outcome of the final report in March and will respond in more detail once they are in receipt of this.
The report is available in the Vote Office and in the Printed Paper Office and it has been deposited in the Libraries of both Houses.
Periodic updates of the review’s work will be made available through the website located at: http://www.hm-treasury.gov.uk/indreview_willhutton_fairpay_tor.htm.
Autumn Forecast
George Osborne Excerpts(13 years, 6 months ago)
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The Chancellor of the Exchequer (Mr George Osborne)
I would like to make a statement regarding the Office for Budget Responsibility’s first autumn forecast. I will also, with your permission, Mr Speaker, inform the House about further measures that the Government are taking to support economic growth, including the new growth review launched today and a far-reaching programme of reforms to our corporate tax system. Following yesterday’s announcement by European Finance Ministers, I would like to take the first opportunity to update the House about the Irish situation and the UK’s involvement.
Copies of the OBR’s autumn forecast were made available in the Vote Office earlier today. We should take a moment to recognise the significance of this occasion and the practical demonstration of this Government’s commitment to transparency and independent forecasting. Today is the first time that Members of this House will engage in debate about an autumn forecast produced by the independent Office for Budget Responsibility, rather than conjured up by the Chancellor of the Exchequer, and available to read two hours before the statement. This is also the first forecast by the new independent chair of the OBR, Robert Chote, with the other members of the budget responsibility committee, Stephen Nickell and Graham Parker, whose appointments were approved by all Treasury Committee members from both sides of the House. As a result, I am sure the country can have full confidence in the independence of these forecasts.
The OBR report published today includes some 150 pages of information—an unprecedented level of detail and transparency, much of it of the kind available to previous Governments but never before published. I should like to thank the budget responsibility committee and the staff of the OBR for their hard work in putting together this autumn forecast. I hope that we now entrench this major improvement in the making of fiscal policy by passing the legislation currently before Parliament.
Although today’s figures are of course independent, they are still just forecasts, and we must treat them with a degree of caution, as one should treat any economic forecast. Indeed, the OBR is explicit about that, illustrating the uncertainty surrounding any economic forecasts with the use of fan charts rather than claiming the infallible certainty that my predecessors asserted when they provided their forecasts. The only thing that was infallible and certain was that those political forecasts were usually wrong.
With that caution in mind, let me turn to the forecast. After the deepest recession since the war, the greatest budget deficit in our peacetime history and the biggest banking crisis of our lifetime, recovery was always going to be more challenging than after previous recessions, but the message from the Office for Budget Responsibility is that Britain’s economic recovery is on track. The economy is growing, more jobs are being created and the deficit is falling. Its central forecast is for sustainable growth of over 2% in each of the next five years, and employment rising in each and every year. Indeed, employment and gross domestic product are higher in every quarter and every year than in the June forecast.
At a time when markets are gripped by fears about Government finances across Europe, today we see that the Government were absolutely right to take decisive action to take Britain out of the financial danger zone. Britain is on course both to grow the economy and balance the books, something that some people repeatedly said could not happen.
Let me take the House through the detail of the forecast. The forecasts for the economy are broadly in line with those produced for the June Budget, despite the more challenging international conditions. I should also like to point out that they are very similar to the European Commission forecasts for the UK, which also happened to be published today. Indeed, the European Commission today forecast that Britain would grow faster over the next two years than Germany, France, Japan, the United States of America and the average for the eurozone and the European Union.
The OBR forecasts real GDP growth of 1.8% this year, 2.1% next year, 2.6% in 2012, 2.9% in 2013, 2.8% in 2014 and 2.7% in 2015. Growth this year is now expected to be considerably higher than was forecast in June. In the OBR’s judgment, some of that improvement is likely to be permanent and some of it a temporary impact of stock-building. As a result, it forecasts that the rate of growth next year will be 0.2 percentage points below its forecast in June. It also predicts above-trend growth for the four years after that, but the level of GDP, or indeed the overall size of our economy, is forecast to be about half a percent higher next year than was forecast in June, and indeed higher throughout the whole forecast period.
Some have made predictions of a so-called double-dip recession, and although the OBR points out that
“growth has been volatile, as this is a common characteristic of post recession recoveries”,
its central view is that there will be no double-dip recession. Its forecast is growth next year of more than 2%, and it expects that in the slowest quarter of growth, the first quarter of next year, it will be 0.3%, rising back to 0.7% by the last quarter of next year. It also forecasts that consumer prices index inflation will fall from 3.2% in 2010 to 1.9% in 2012, once the short-term effects of the VAT rise and other temporary factors fall away.
Crucially, the OBR forecasts a gradual rebalancing of the economy as we move away from an economy built on debt to one in which we invest and export—again, something that some people said would not happen. It expects more demand to come from business investment, which is set to grow by over 8% for each of the next four years, as well as exports, which are expected to grow on average by over 6% per year. That new model of sustainable economic growth will rebalance the economy towards investment and exports and away from an unhealthy dependence on private debt and public deficit. It will bring to an end the unsustainable situation that saw families save less and less each year, so that they ended up, in the words of today’s report,
“effectively borrowing money to purchase increasingly expensive houses.”
The OBR also published today a full forecast for the labour market—something that, I should like to point out, previous Chancellors chose not to do. Employment is forecast to grow in every year of this Parliament. Total employment is expected to rise from 29 million to 30.1 million—that is over 1 million additional new jobs. Thanks to faster-than-expected growth in the economy, the OBR now expects the unemployment rate to be slightly lower this year at 7.9%, instead of 8.1%. Its forecast for the unemployment rate for next year is unchanged from the June Budget at 8%. For future years, the OBR predicts a gradual decrease in unemployment, with the rate falling every year. By the end of the Parliament, the OBR forecasts that it will fall to just above 6%, which is about 500,000 fewer unemployed people than at the beginning of this Parliament.
The trend in the claimant count is similar to that for the internationally recognised labour force survey measure of unemployment. However, the level is expected to be higher. The OBR explained that the revision is mainly due to a change in the way that flows from employment and support allowance on to jobseeker’s allowance will take place as a result of the new work capability assessment. In other words, more people are assumed to be flowing off ESA and on to JSA. That is a key part of our reforms to create a welfare system that encourages people to seek work and reduce costs to the taxpayer. In short, we will stop hiding people who can work in the incapacity statistics. Crucially, in each year, fewer people are expected to be on both of those out-of-work benefits combined than in the June forecasts.
I can also tell the House that following the spending review the OBR has recalculated its estimate of the reduction in the headcount in the public sector. In June, the OBR forecast a reduction in headcount of 490,000 over the next four years; in its latest forecast, that estimate has come down to 330,000—a reduction of 160,000. The bulk of that revision results from the action that we have taken to cut welfare bills rather than public services. Our difficult choices on child benefit, housing benefit and other benefits, each of which the Labour party opposed, mean that fewer posts will be lost across the public sector. Those headcount reductions that still need to take place will happen over four years, not overnight, and the OBR forecast is that private sector job creation will far outweigh the reduction in public sector employment. Its forecast states:
“A period of rising total employment alongside falling general government employment is in line with employment trends during the 1990s”
when total employment increased by 1.3 million over six years while general government employment fell by about 500,000.
The most important point is this: the lesson of what is happening all around us in Europe is that unless we deal decisively with this record budget deficit, many thousands more jobs will be put at risk in both the private and the public sectors.
Let me summarise the forecast for the public finances, which shows that Britain is decisively dealing with its debts. Borrowing this year is expected to be £1 billion less than was forecast in June. The OBR forecasts that public sector net borrowing will fall from £148.5 billion this year to just £18 billion in 2015-16. Government debt as a share of GDP is projected to peak just below 70% in 2013-14 and then to fall to 67% by 2015-16, so the debt ratio is now expected to peak at a lower point compared with the June forecast—just below 70% instead of just above it.
On the OBR’s central forecast, we will meet our fiscal mandate to eliminate the structural current budget deficit one year early, in 2014-15. The same is true for our target to get debt falling as a percentage of GDP. Indeed, to use the OBR’s own words,
“the Government has a slightly wider margin for error in meeting the mandate than appeared likely in June.”
For the first time, the OBR has also tested the resilience of the fiscal mandate against two alternative scenarios for the economy that critics have put forward, and in both cases the mandate is met.
It is clear that our decisive actions have proved to the world that Britain can live within her means. The Government have taken Britain out of the financial danger zone and set our economy on the path to recovery. That is the judgment not only of the OBR, but of the International Monetary Fund, the OECD, the European Commission, the Bank of England and all the major business organisations in this country. Already, our efforts are paying off. Today’s forecasts show that the cost of servicing the Government’s debt has come down. Compared to the June forecast, the OBR predicts that we will save £19 billion in interest payments between now and the end of the forecast period. That is £19 billion that will no longer be paid by British taxpayers to private bondholders and foreign Governments. It is £19 billion that would have been wasted, but will instead be saved.
This is an uncertain world, but the British recovery is on track. Employment is growing, 1 million more jobs are being created and the deficit is set to fall: the plan is working, so we will stick to the course. That is the only way to help confidence to flourish and growth to return, and I urge those who seriously suggest, when they see what is happening to our neighbours across Europe, that we should abandon the decisive plan we are following, and instead borrow and spend more, to think again. What they propose would be disastrous for the British economy, would put us back in the international firing line we have worked so hard to escape from and would mean higher deficits and jobs lost, and we should reject that path.
Stability is a necessary precondition for growth, but it is not enough. Our economy’s competitiveness has been in decline for more than a decade, undermining its ability to create jobs and grow, which is why we have already announced four annual reductions in corporation tax, axed the jobs tax, cut the small companies rate, expanded loan guarantees, simplified health and safety laws, invested in science and apprenticeships and promoted exports through major trade missions.
Let me set out some of the other things that my right hon. Friend the Secretary of State for Business, Innovation and Skills and I are announcing today to support growth and a rebalancing of our economy. In the Budget, I set out a plan to reduce the main rate of corporation tax to 24%—its lowest ever rate—demonstrating our commitment to tax competitiveness. I can now tell the House that today we are publishing the most significant programme of corporate tax reforms for a generation, for consultation with the business community. We propose to make the UK an even more attractive location for international business and investment by reforming the outdated and complex rules for controlled foreign companies. We have seen a steady stream of companies leaving the UK in recent years, and this Government, unlike the last one, are not content to sit by and watch our competitiveness leach away and our corporate tax base be undermined.
Another tax issue of crucial importance to our corporate sector is the tax treatment of income from intellectual property. For a long time, we have argued that we should increase the incentives to innovate and develop new products in this country, so to encourage high-tech businesses to invest in the UK and to create high-value jobs here, we can confirm that we will introduce from April 2013 a lower 10% corporate tax rate on profits from newly commercialised patents. We have been consulting the business community, and I can tell the House that as a result of this measure, GlaxoSmithKline will today announce a new £500 million investment programme in the UK, including new manufacturing in Hertfordshire; a £50 million venture capital fund to invest in health care research; a new facility at the university of Nottingham to develop green chemistry technology; and the building of GlaxoSmithKline’s next biopharmaceutical plant in this country, with sites in the north of England and Scotland under consideration. In total, it estimates that 1,000 new jobs will be created in the UK over the lifetime of these projects.
Today, we are also launching a cross-government growth review. This will be a determined, forensic examination of how every part of Government can do more to remove barriers to growth and support growth opportunities. Too often, the natural inclination of Government is in the opposite direction, creating new regulations, putting up new barriers, and making life more difficult for entrepreneurs and innovators. We are starting to turn the super-tanker around. Together with the Department for Business, Innovation and Skills, the Treasury will lead an intensive programme of work, involving all parts of Government, using evidence provided by the business community and reporting by next year’s Budget. We will identify reform priorities that can benefit the whole economy. Specific priority will be given to improvements to the planning system and employment law, more support for exporters and inward investment, and reforms to the competition regime. At the same time, we will begin a new sector-by-sector focus on removing barriers to growth and opening up new opportunities. Some of the resulting changes will be substantive on their own; others will help particular industries in specific ways. Some changes may be controversial if they confront vested interest, but brick by brick we will remove the barriers that are holding Britain back.
Finally, I would like to update the House on the international assistance package for Ireland. I attended the various European meetings in Brussels yesterday. We agreed a three-year package for Ireland worth €85 billion, which is
“warranted to safeguard financial stability in the euro area and the EU as a whole.”
Of that, €35 billion will be used to support Ireland’s banking sector, with €10 billion going towards immediate bank recapitalisation and €50 billion being used for sovereign debt support. Ireland will contribute €17.5 billion towards the total package, and the remaining €67.5 billion will be split, with one third coming from the IMF, one third from the European financial stability mechanism, and one third from bilateral loans and the eurozone facility. The terms of the IMF loans will be determined over the coming weeks. In principle, our bilateral loan is for £3.25 billion, and we will expect the loan to be denominated in sterling. The rate of interest on the loan will be similar to the rates levied by the IMF and the eurozone. The loan to Ireland is in Britain’s national interest. It will help one of our closest economic partners manage its way through difficult conditions.
I should also tell the House that the eurozone Finance Ministers met without me to discuss a permanent financial stability facility. I made it clear in the subsequent ECOFIN meeting that the UK will not be part of that. The president of the euro group made it clear that the UK will not be part of the permanent bail-out mechanism, and that the European financial stability mechanism, which was agreed under the previous Government in May and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.
When we came into office, Britain was in the financial danger zone. Our economy was unstable, our public finances out of control, our country—[Interruption.]
Mr Osborne
Our economy was unstable, our public finances were out of control and our country was on the international watch list to avoid. We took decisive action. Now, the independent Office for Budget Responsibility has confirmed that the British recovery is on track, our public finances are under control, 1 million jobs are set to be created and our economy is rebalancing. Today we are taking further measures to secure growth and create prosperity. We are doing so based on the foundation of stability that we have now secured. Britain is on the mend, and I commend this statement to the House.
Alan Johnson (Kingston upon Hull West and Hessle) (Lab)
Let us move from bombast to reality. Here is what the OBR says:
“As we discussed in Chapters 3 and 4, past experience and common sense suggest that our central forecasts for both the economy and the public finances are almost certain to be wrong and that there are upside and downside risks to both.”
The only question is on which side of wrong they actually fall.
This Government have committed our country to a rate of fiscal consolidation that has been attempted only twice in living memory, and on both occasions by countries that benefited from strong growth in a benign global environment. In the current economic crisis, no country other than Ireland has attempted to cut so deeply, so quickly. The Chancellor is always telling us that we have the highest fiscal deficit in the G20. That is not true: the US has a proportionally higher fiscal deficit than ours, and the Americans plan to reduce it by less than half over the next five years. Japan, which has roughly the same level of deficit, has learnt from its experience over the past 10 years and plans to cut by less than a quarter. The Chancellor has chosen to take an unprecedented gamble with people’s livelihoods and the country’s future, and he has done so on the basis of a fundamental deceit: that when he assumed office, the public finances were worse than expected. The OBR exposed that deceit last year, and it has confirmed it today, so will the Chancellor now tell all those Back Benchers behind him—all those Tories who claim to their constituents that things are worse than they expected, and of course those who tell them that they have never had it so good—that they will have to find a new excuse? Nothing in his statement today can hide the fact that it was the balanced approach of my right hon. Friend the Member for Edinburgh South West (Mr Darling)—[Hon. Members: “ Where is he?”] Snowed in, in Scotland, probably. It was the balanced approach of my right hon. Friend that saw growth return at the beginning of the year, saw the recovery gain momentum and led to nearly 1 million fewer people claiming out-of-work benefits than predicted. That was the previous Chancellor, not this one.
As expected, the OBR has produced a higher growth forecast for this year than at the time of the emergency Budget, but this is the result of an approach that this Government have rejected. The reckless gamble that coalition Members support is still to come; the Chancellor is in the casino, but he has not yet spun the wheel. The OBR’s judgment of the future matters more than its revised forecast for a year that is almost over.
Does the Chancellor accept that the OBR does not expect the fast momentum built up this year to be maintained? Indeed, it is explicit in saying that it expects a slow recovery. Next year, as spending cuts begin to take effect and the VAT hike dampens demand, the OBR is revising its growth forecast down from 2.6% before the emergency budget to 2.3% immediately afterwards and to 2.1% now—it is going south. Looking beyond next year, the forecast for growth over the first four years of the recovery is reduced to an average of 2.4%. This compares with a 3.1% average growth in the far from pain-free recoveries from the two Tory recessions in the 1980s and 1990s. That growth was largely driven by growth in the financial sector and in public services, neither of which will be in a position to help this time.
Lower growth means fewer jobs, and in this weak recovery the OBR, having changed its mind, is now forecasting something that the Chancellor could not bring himself to say—namely, that unemployment will rise next year. It no wonder that the Conservative-led Local Government Association pointed out last week that front-loading cuts in local authorities will lead to 140,000 job losses next year, which is much higher than originally expected. The Chartered Institute of Personnel and Development estimates that the increase in VAT on 4 January will cost 250,000 jobs, more than three times as many as our proposed increase in national insurance, which the Conservatives called a tax on jobs.
The Chancellor tells us that public sector jobs will be protected by his decision to cut welfare benefits, but this works both ways: can he tell the House what the additional hit to private sector jobs will be from those welfare changes? For families up and down this country, a jobless recovery will be no recovery at all. This Government have no interest in protecting jobs, no alternative measures if the gamble fails and, worst of all, no plan for jobs. Indeed, since just last week their growth plan has actually shrunk, from a White Paper that was supposed to contain proposals, to today’s promise to talk: there will now be a debate, a discussion.
The Government’s plans rely on a huge increase in exports and business investment. Let us hope they materialise. But it is a gamble to assume that cuts on the scale envisaged, with cyclically adjusted public borrowing reduced by 8% of gross domestic product in just five years, will automatically be compensated for by exports. Exports need markets, and there is nothing to suggest that the global economic climate will assist us in achieving the kind of boost to growth that we have not seen for 60 years.
The Chancellor talked about his plans for corporation tax. Everyone wants a tax system that supports business, but he has abolished investment allowances for manufacturing to pay for a cut in corporation tax that will give a further £1 billion to the banks. Can he tell us what sense there is in helping companies that make large profits for little investment, at the expense of businesses that will invest heavily in the UK? We were very pleased to hear his announcement on GlaxoSmithKline and the patent box. We were pleased because that was our proposal. It was me, as Secretary of State for Health, with the former Business Minister, Lord Dyson, who argued for that in Cabinet. That is why it was in last year’s pre-Budget report. It is an excellent proposal. It was a Labour proposal.
Here is an idea for the Star Chamber that the Government are going to form. Why not help UK advanced manufacturing in the civil nuclear supply chain by giving an £80 million loan to Sheffield Forgemasters? That is an idea that they can chew over for the next four months.
The Chancellor talked about developments relating to Ireland. As I said last week, we support the financial assistance offered to Ireland, but the lessons of Ireland cannot be ignored. As a Financial Times leader said last week,
“a slower pace of consolidation might have been its best bet at encouraging growth.”
That is a lesson for us as well.
The Chancellor’s analytical ability in respect of Ireland was demonstrated in his 2006 article, which has been widely quoted, but in 2008, just two years ago, confident that Ireland would not be affected by the financial crisis that was just emerging, he said that Ireland now had
“a ‘future fund’ of assets built to provide security against future shocks and liabilities. Their public finances are well placed. Their competitiveness has risen. Their institutions are stronger.”
Ireland had
“used the fat years to prepare for the lean years.”
The Chancellor was wrong about Ireland, and he is wrong about the United Kingdom. The autumn statement does nothing to alleviate the summer madness that led him to gamble so recklessly with our future.
Mr Osborne
I think the shadow Chancellor made the mistake of writing his response before he had seen the OBR’s forecast. He predicated all of it on there somehow being lower growth, when in fact growth is higher in every quarter and every year than was predicted in the June forecast. I assume that he also wrote his response before the European Commission produced its forecast today. I am sure that he has now seen it. He read out a list of countries, but the European Commission predicts that over the next two years we will grow more quickly than Germany, France, the United States of America, Japan, the eurozone and the EU average. If one is going to read out a list of countries, one might as well start with the most accurate and recent forecast for their economies.
As I have said, the shadow Chancellor’s response was not much of an analysis of what the OBR has said today. He skated over the fact that because of the welfare changes that we have introduced, we have been able to reduce the public sector headcount reduction that is required by any deficit reduction plan—including, presumably, the plan that he will one day propose. He should at least acknowledge that the welfare changes achieve that. He and the leader of his party have some important choices to make in the next few months as we vote on some of these measures. They must decide whether they will support welfare reform or would rather see a higher number of public sector job losses, but that will be a decision for them.
The shadow Chancellor said that he did not believe in the rebalancing of the economy, and that the assumptions for exports and investment that I had made were fanciful. They are, of course, the estimates made by this independent body, the appointment of whose members, as I have said, was ratified by the Treasury Committee. The shadow Chancellor accused me of having no alternative measures to present. I thought that that was a bit of a cheek, because as far as I can tell the Labour party has a blank sheet of paper as its new economic policy. He talked of the importance of protecting intellectual property and supporting the growth of patents, and then praised, I believe, James Dyson. The last time I checked, it was we, rather than the shadow Chancellor, who had consulted him, but so be it.
Mr Osborne
Ah. Well, I am sure that Lord Drayson also had some interesting things to say. [Interruption.] I welcome, by the way—[Interruption.]
Mr Speaker
Order. Members really must calm down. Only this morning I was talking to sixth-formers, one of whom observed that the noise in the Chamber was totally off-putting. The public loathe it, and so do I. Let us put an end to it.
Mr Osborne
I welcome the support that the Opposition have given to our decision to offer a bilateral loan to Ireland. We will have to put legislation before the House, and I will of course keep the shadow Chancellor informed of the details when they are negotiated along with the IMF, eurozone and other bilateral contributions. I should have mentioned that Sweden and Denmark have also provided bilateral loans.
I come back, however, to the point that this forecast shows 1 million new jobs being created over the next four or five years. It also shows growth of over 2% in each year; it shows the economy rebalancing; it shows Britain getting to grips with its debts. Yet all the shadow Chancellor could come up with was this: he said he had read a Financial Times editorial in the last week—and I note from his interview this morning that that is how he does his homework; he says he photocopies articles from the FT. Well, I went one better and actually got a copy of the FT, and he said this in his FT interview this morning:
“I am a great believer in the philosophy that if you’ve not got anything to say, keep your mouth shut”.
Very good.
Mr Andrew Tyrie (Chichester) (Con)
In June, the Red Book was forecasting that the savings ratio would remain broadly steady at about 6% for the next five years, which is quite near its long-run average for the previous 40 years. On page 67 of the most recent document however, the new forecast assumes a fall in the savings ratio to just over half that, and for the remainder of the Parliament, at only 3%. Is the Chancellor worried about that fall in the savings ratio, and will he consider measures to address it?
Mr Osborne
Yes, I have, of course, seen the forecast for the savings ratio and we will want to address it. It has the savings ratio returning to its average of before the recession, and I think all parties in this House, and certainly the Government, will want to find ways of encouraging saving more effectively than was the case in the past, and to address that particular problem.
Margaret Hodge (Barking) (Lab)
What is the forecast for the gap between the richest and the poorest in Britain by 2015? Do the Chancellor and the OBR expect it to grow?
Mr Osborne
I am not aware that the OBR makes that forecast, but obviously everything we are doing—whether increasing free nursery care provision for some of the poorest two-year-olds or introducing the pupil premium—is designed to encourage social mobility and to give those on lower incomes a chance to increase their incomes over this Parliament.
Mr John Redwood (Wokingham) (Con)
I thank the Chancellor for the guarantee of no bail-outs for other European countries. Does he think the European Central Bank will make available all liquidity needed by major banks in euroland, as it should do because it tells us they are all solvent?
Mr Osborne
Obviously, the ECB is independent so I will not speak for it. What I have said about the European financial stability mechanism is that we now have a verbal agreement—I will, of course, want to secure it over the coming weeks—that that mechanism will not form a permanent part of the bail-out mechanism that the eurozone wants to put in place from 2013, and we will not be part of that bail-out mechanism. Indeed, if it requires a treaty change, our consent to that change would, of course, be required.
Ian Paisley (North Antrim) (DUP)
I thank the Chancellor for his statement. What assurances has he received from Ireland to ensure the multibillion pound loan now given to it will not be allowed to be used to have a fire sale of assets that the Irish state now owns in Ulster and, indeed, across the whole of the United Kingdom? Can the Chancellor also tell us what progress he has made with the Northern Ireland Executive on a reduction in corporation tax so we can compete fairly with a nation that has a corporation tax rate of 12.5%?
Mr Osborne
The Irish bank restructuring package will now take several weeks—at least—to put in place, and we are, of course, very aware of the interconnectedness of the banking systems of Ireland and Northern Ireland, and, indeed, the whole UK. That is one of the reasons why we are making this bilateral contribution; it is one of the reasons why we are in the room discussing the conditions and the banking package. I am certainly conscious of the fact that some of the Irish banks have significant assets in the UK, and we have a very real interest in the future of that. That is why my hon. Friend the Financial Secretary came to Northern Ireland earlier this week, and I want to make sure that the Treasury, as well as the Secretary of State for Northern Ireland of course, remain in very close contact with the Northern Ireland Executive and Members from Northern Ireland.
Corporation tax has genuinely been a matter of debate in the European Union. I do not think that has been any secret; it has been in the newspapers. Some member states wanted to attach conditions to Ireland’s corporation tax rate, and I do not deny that that 12.5% rate is a real challenge for companies in Northern Ireland. That is why the Secretary of State for Northern Ireland is looking at that and at packages to help the competitiveness of companies in Northern Ireland. But I took a position, which was that it is not really for other member states to dictate the tax rates of sovereign nations, even when they are seeking international assistance. The rates of tax levied by the Irish Government should be a matter for the Irish Government and the Irish Parliament. If the shoe was on the other foot, we would not want to be accepting, in this country, decisions imposed on this Parliament about tax rates. This should be a matter for the elected Parliament of the country. I do not deny that that 12.5% rate is a challenge for Northern Ireland, but I did not feel it was right to use the position we found ourselves in to get Ireland to increase that corporate tax rate.
Dr John Pugh (Southport) (LD)
The Chancellor says he is intent on reforming our “outdated and complex rules for controlled foreign companies.” Can he assure me that this will not create new opportunities for tax avoidance?
Mr Osborne
Yes, I can assure the hon. Gentleman that that is certainly not the purpose of the measure and that tax avoidance is what we are going to seek to avoid. The measure is there to keep pace with the changes in corporate tax regimes that have been introduced in many other countries, not only Ireland, which we have just been talking about, but countries such as Belgium and the Netherlands, which have also made corporate tax changes that attract international companies to headquarter there, rather than in the UK. We have to keep pace with those changes, which is why we are taking the measures that we are.
Mr George Mudie (Leeds East) (Lab)
The Chancellor and the Business Secretary have apparently postponed the long-awaited growth White Paper. Officials say that this is because of the lack of serious content. Can the Chancellor tell us when we can expect this long-awaited document? In which financial year?
Mr Osborne
What we have published today is a series of documents, which the hon. Gentleman has perhaps not had a chance to see yet. Some of them are on corporate tax reform, on intellectual property and on how in time for the Budget—after all, a White Paper proposes measures that will then be legislated for—we will have measures that will address the competitiveness of British industry. Our measures will specifically look at things such as the competition regime, the approach we take to attracting inward investment, how we improve our employment law and specific sectors. If he wants to involve himself in that process, I will make sure he can be part of it.
Michael Fallon (Sevenoaks) (Con)
Given the forecasting record of the Chancellor’s predecessor but one, who was frequently in error but seldom in doubt, is not the strength of these forecasts that they were prepared by independent officials, who cannot be and were not overruled by politicians?
Mr Osborne
That is, of course, a very significant feature of what is happening today. It is completely unprecedented for a Chancellor to present an autumn forecast that has been produced independently by people who have been verified by the all-party Treasury Committee and who had their own separate press conference. In addition, Members have had a couple of hours to look at this document. If one thinks back, for example, to a year ago and the pre-Budget report, when the previous Chancellor produced the autumn forecast, one recalls that he rattled off the numbers. There was absolutely no opportunity for the shadow Chancellor to have examined those numbers or to have looked at the document, or for any other Member in the House to have done so. It was the Chancellor’s judgment, rather than an independent judgment. Our approach is a major improvement to fiscal policy making in this country. The legislation is before the House of Lords, and I hope that when it comes to the House of Commons it will have all-party support.
Mr Dennis Skinner (Bolsover) (Lab)
Why are the Irish banks worth saving yet Northern Rock was not?
Mr Osborne
What the Irish banks are getting, in many cases, is a capital injection. As in the UK, the banks have been very poorly regulated. We are improving our regulation system. If the hon. Gentleman does not think we should be supporting the Irish banking system, the impact of his proposals on his constituents in Derbyshire would be very severe.
Dan Byles (North Warwickshire) (Con)
The shadow Chancellor says that he is concerned about what he calls slow growth in coming years. Does the Chancellor agree that steady, sustainable and private sector-led growth is exactly what the UK needs after the bubble that was inflated and then burst by the previous Government?
Mr Osborne
My hon. Friend makes an extremely good point. What is happening here is a rebalancing of the economy. I hear the shadow Chancellor muttering away about what he calls slow growth, but according to the European Commission forecasts today our growth is more rapid than that of Germany, France, the United States of America or Japan, as well as than the EU average and the eurozone average. I am not sure what his proposals are to increase that growth rate but if he has some, now is the time to produce them.
Mr Dave Watts (St Helens North) (Lab)
Is it not the case that most of the public sector cuts will take place in the north and that any jobs that are created—there are not likely to be many—will be in the south? Is not the policy unbalanced?
Mr Osborne
In the last decade, under the Government of which the hon. Gentleman was a member, for every 10 jobs created in the south-east only one was created in the midlands and the north. That is the situation that we have inherited and the economic model that we have to change. It is precisely because we want to see exports and investment increase that we are aiming for a more geographically balanced model of economic growth. Announcements such as the one we have made today on the investments by Glaxo will help that, as will the first-time-ever tax cut for new employees that is specifically directed at regions outside the south-east.
Mr John Baron (Basildon and Billericay) (Con)
I suggest that my right hon. Friend never tire of reminding the Opposition that this recession, unlike all previous post-war recessions, is a recession built on debt and that one cannot borrow one’s way out of debt.
Mr Osborne
I assure my hon. Friend that I will not tire of reminding the Opposition of that. Of course, if they come forward with a new economic policy we can examine it, but at the moment there is not a new economic policy to examine, so there we have it.
Mr Chuka Umunna (Streatham) (Lab)
The Chancellor has said that he sees private sector growth being driven by business investment and by exports. In its report today, the OBR has revised down its forecast for business investment in four of the years between 2010 and 2015. Of course, we have seen the dramatic uncertainties in the eurozone, which is our main export market. If exports and business investment do not turn out to be what he expects, where does he see private sector growth coming from?
Mr Osborne
One of the primary tasks of the OBR is to assess whether we will hit the fiscal mandate. The very fact that the fiscal forecasts are not a matter of controversy in the House today shows what we have done to get the British public finances under control. The OBR assessed specifically the scenario that the hon. Gentleman volunteers and said that the fiscal mandate will be met under those conditions. In fact, rather perversely, that helps the fiscal forecasts because of the tax base being more focused towards consumption.
Mr Charles Walker (Broxbourne) (Con)
When the books are balanced, will the Chancellor seriously consider reducing the overall burden of taxation? Thanks to the efforts of the previous Government, it is far too high.
Mr Osborne
Of course, I am a believer in trying to reduce the tax burden and trying to reduce taxes. However, I have always believed that the best way to achieve that is from stable public finances, otherwise one cuts taxes one year and has to put them up the next. So I am a fiscal conservative with a small c as well as a tax-cutting Conservative with a big C.
Mr Andrew Love (Edmonton) (Lab/Co-op)
In reference to the answer to my hon. Friend the Member for Streatham (Mr Umunna), the Chancellor, through the OBR, is suggesting that there will be 8% growth in business investment yet there is scant sign of it at present Net trade, it has been suggested, will increase by 6% in each of the next four years yet, according to the Governor of the Bank of England, there are doubts about whether the euro area or the United States will deliver the sort of export growth that is being suggested. Is not the Chancellor just a little worried about the optimism in the estimates and is he concerned about whether they will be delivered over the next four years?
Mr Osborne
The hon. Gentleman says that I made the forecasts, but they are independent forecasts by Mr Robert Chote, whom I do not think anyone would claim is in anyone’s pocket. He is totally independent. The hon. Gentleman is on the Treasury Committee, which interviewed Mr Chote for the job and passed him. These are Mr Chote’s, Mr Nickell’s and Mr Parker’s estimates and they have made a central forecast. He says that there is scant evidence, but that is not what the Office for Budget Responsibility believes. It is independent and it has forecast that business investment is set to grow by more than 8% for each of the next four years and that exports are set to grow by an average of more than 6% a year.
Andrea Leadsom (South Northamptonshire) (Con)
Is my right hon. Friend concerned that in the Greece bail-out and now in the Ireland bail-out taxpayers will end up supporting professional bond and equity holders in banks?
Mr Osborne
This has been one of the most difficult issues that the international community and, of course, the Irish people have had to wrestle with. For reasons of financial and economic stability, it was decided that it was not possible and would not be sensible to ask the senior debt holders in the Irish banks to take a haircut. That is exactly what did happen in late 2008, in some of the US bank rescues, with pretty disastrous effects, so that is why that decision was taken. Subordinate debt holders in the Irish banks will suffer losses and I think that is appropriate.
Sheila Gilmore (Edinburgh East) (Lab)
Given that the nearest year for prediction in the OBR report suggests that growth will fall in relation to previous predictions—it was 2.6%, then 2.3% and is now 2.1%—what confidence can we have that predictions further out than now will be any more reliable? Is it not likely that growth will not rise as much as predicted?
Mr Osborne
I said right at the beginning of my remarks that these are economic forecasts and that we should treat them with the caution with which one should treat all economic forecasts. At least we explicitly acknowledge that and the forecasts are independently produced. What we have here is a central forecast; previously, Chancellors just gave a number and asserted that that was the forecast come hell or high water. That is not what the OBR is doing today. However, one can take confidence that its growth forecast for next year is in line with those of most independent commentators and forecasters. It happens to be very close to the numbers that the European Commission produced today, which were not available to the OBR or the British Government until today. We can have confidence that it is part of a group of people who look to the UK and see it growing sustainably over coming years and jobs being created.
Mr Edward Leigh (Gainsborough) (Con)
All the talk is of cuts, but with spending still rising despite these so-called cuts and with debt as a proportion of GDP rising to a staggering 70%, will my right hon. Friend remind the House that, to coin a phrase, there is no alternative to further massive efficiency savings, particularly in ring-fenced Departments such as Health where there has been a catastrophic decline in productivity in the last 10 years?
Mr Osborne
I certainly agree with my hon. Friend that an essential part of this programme for public expenditure is getting greater productivity in the public services. As the former Chair of the Public Accounts Committee, he has much to offer. The Treasury is engaging with him on this, I hope, and will engage further with him in the coming months. He is absolutely right that, in a period when there is less money available, if we do not have reform, we will have deterioration in the service. That is why we have got to have reforms and why Parliament is being asked to support those reforms in the next few months.
Barry Gardiner (Brent North) (Lab)
The OBR’s central forecast is for a “relatively sluggish medium-term outlook”, which it says
“reflects…the impact of the Government’s fiscal consolidation.”
Can the Chancellor confirm that it follows from this that if the Government’s fiscal consolidation had been less severe, the medium-term outlook would be less sluggish? In other words, he has cut too far and too fast, just as Ireland has.
Mr Osborne
The short answer is no. We inherited a situation of very deep recession, a major banking crisis and a record fiscal deficit. I thought—although one is never sure—it was common ground across the parties that at least we had to do something to address the fiscal deficit, not that we have heard specific measures from the Opposition for doing that. In the summer, the OBR produced a comparison of the growth forecasts under the previous Government’s plans and under the plans of the current Government, which showed that over a period of time we were putting forward a much more sustainable path for growth that would lead to higher growth in the future. It also avoids the downside risk—the tail risk—of a major fiscal event, which would be a major loss of confidence in the UK. It is pretty remarkable that here we are today debating the numbers, and that is fine, but we are not having to worry about the UK’s creditworthiness, unlike some other countries in the European Union, even though we inherited the largest budget deficit in the EU. We have taken measures to take ourselves out of that firing line, and now we have sustainable growth and jobs are being created.
Matthew Hancock (West Suffolk) (Con)
Will the Chancellor give us his assessment of what would happen if we ignored the advice of the IMF, the OECD and the EU, and moved from the path of putting our own house in order?
Mr Osborne
It is not a bad test of the policy offered to the Government from the Opposition to consider what would happen if we actually did it tomorrow. If the shadow Chancellor stood up tomorrow, or if I adopted his plan, and announced that the UK was backing off its fiscal consolidation plan and that it would take much longer, where do we actually think the UK would be within about 30 minutes of that statement?
Kate Green (Stretford and Urmston) (Lab)
I am naturally pleased that the number of job losses in the public sector has been revised downwards, but I am very concerned that it seems that the £18 billion of welfare cuts, which will affect the poorest, will be picking up the price tag. Was that the Chancellor’s explicit decision and policy, and if so does he think it was fair?
Mr Osborne
I do of course think the spending review was fair, but as I said at the time—[Interruption.] If the Opposition would actually produce a spending review, perhaps we could compare the two—but they do not want to do that.
The point I was making to the hon. Lady is that I said at the time of the Budget and the spending review that I was making a conscious decision to seek further welfare reform to try to reduce the rapidly escalating costs of the welfare state. That was a challenge that anyone doing my job would face, and I said that if we were able to find further welfare reforms, we would be able to reduce the cuts in Departments, and that is exactly what we were able to do.
Jesse Norman (Hereford and South Herefordshire) (Con)
May I congratulate the Office for Budgetary Responsibility on a thoroughly transparent, comprehensive and technically excellent report? It marks a first in this country. Can the Chancellor give us an assessment of any remaining threats he sees to financial stability from the eurozone countries?
Mr Osborne
There is of course concern about the high deficits, particularly in the eurozone. Let us hope that the action taken yesterday to stabilise Ireland, and also the clarification that eurozone Ministers offered about the future permanent bail-out mechanism and the involvement of private sector creditors in that, will help to achieve stability. That is certainly what the intention was yesterday.
Ann Coffey (Stockport) (Lab)
Stockport council will tonight announce proposals for cuts, with the likely loss of 400 jobs. That will have a devastating impact on my constituents who are affected, but it will also lead to loss of confidence by those with jobs that they will have jobs in the future, which might lead to reluctance on their part to spend money in the economy. Is the Chancellor concerned that such lack of confidence will affect new jobs and future growth?
Mr Osborne
Of course, I have enormous sympathy with anyone who faces a job loss, but we are creating the economic conditions where they will be able to find a new job, I hope. There is support from the welfare system. We expect more than 1 million new jobs to be created over the coming years. I make this observation to the hon. Lady, who was Parliamentary Private Secretary to the previous Chancellor: if the Labour Government had been re-elected in May, they would be cutting billions and billions of pounds from public spending, this year, next year and in the years ahead. That was in the March Budget plans, even if they are not the plans that the shadow Chancellor is sticking to. If the hon. Lady is able to find a way of cutting many, many billions of pounds—£40-odd billion—from public spending without in any way affecting the local government settlement, she should please let me know.
Mr Marcus Jones (Nuneaton) (Con)
I welcome my right hon. Friend’s statement and his will to reform business regulation. In the course of that reform, will the onerous and costly reporting to Government culture to which businesses must adhere be fully scrutinised?
Mr Osborne
The short answer to my hon. Friend is yes. One of the specific aspects that we want to look at is how Government should be helping businesses grow, rather than standing in the way of that. That includes procurement for Government. The Government spend too much of their money on the largest companies in the country and not enough on some of the smaller companies. That is one of the things that we seek to improve.
Barbara Keeley (Worsley and Eccles South) (Lab)
On public sector jobs, the Chancellor says that headcount reduction will happen over four years, but as he knows, some local authorities are facing budget reductions of 20 or 30% next year alone, due to front loading and loss of specific grant. Will he consider rephasing the cuts to local government so that we do not see 140,000 local government job losses next year?
Mr Osborne
I said at the time that it was a challenging settlement. I have removed some of the ring-fencing—indeed, almost all the ring-fencing—to allow local authorities the maximum flexibility to deal with that, but unfortunately I inherited a situation where the country was borrowing £1 in every £4 that it was spending. At a time when people are looking at European countries, we can see what happens to European countries that have high budget deficits and no credible plan to deal with them, so I have had to take those decisions. As I say, if the Labour party wants to put forward a plan to remove the structural deficit without affecting the local government settlement, let us hear it.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
I warmly welcome the announcement that you made of the investment by GSK into our British economy today on the back of the 10% tax rate for patents and innovation. Can you tell us more about the competitiveness measures that you are taking to help this country on its way out of the mess left behind by the Opposition?
Mr Osborne
We are looking at two specific things. One is the controlled foreign companies regime. This is what we believe will help encourage large multinationals to choose the UK as a place to put their headquarters, rather than in Holland or Belgium, for example, where some companies have chosen to go. In a world in which companies can increasingly choose where to locate and countries are being aggressive in trying to attract their location, these tax measures will make us one of the most competitive places in the world for a company to locate its headquarters. On the patent box and the lower corporation tax rate for intellectual property, of course the GSK announcement is just one of many, I hope, from companies that depend on intellectual property and patents to power their business. Again, that will make us very competitive versus other countries.
Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)
The OBR confirmed today that we will borrow £1 billion less. Last week, we decided to make a £7 billion loan to the Republic of Ireland, yet apparently we could not afford to make an £80 million loan to Sheffield Forgemasters. Is that not proof, if any were required, that the Chancellor has deliberately talked down the British economy and, more importantly, that these policies are damaging the British economy?
Mr Osborne
I think that is one that was prepared earlier. UK growth is forecast to be higher than that of Germany, France, many other European countries or the United States of America. It is also the case that the OBR is forecasting the creation of a million jobs. When it comes to the sovereign loan to Ireland, that is of a totally different nature from industrial support. It will be set out in the terms that I bring before the House of Commons. It is £3.25 billion, rather than the number that the hon. Gentleman gave.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
My right hon. Friend has today reinforced the need for exports to help our recovery. What can he personally do to help reverse the situation whereby we export more to southern Ireland than we do to all the BRIC countries—Brazil, Russia, India and China—put together?
Mr Osborne
Since the Government were created there has been an absolute focus in foreign policy and trade policy on trying to increase our exports to those BRIC countries. The Prime Minister led major trade missions to India and China, the Business Secretary was very recently in Russia and I think that a trip is being proposed for Brazil, so we are seeking to expand our exports to the BRIC countries and, indeed, to some other important emerging economies such as Indonesia, Turkey and so on. We do not want to export less to southern Ireland or to anyone else in the advanced world; we just want to increase our exports to emerging economies.
Geraint Davies (Swansea West) (Lab/Co-op)
We know that the deficit is the price that has been paid to avoid a depression—a price that the Chancellor would not have paid. To reduce the deficit, will he consider using three methods: first and foremost, a proper jobs and growth strategy; secondly, fair and progressive taxation; and, thirdly, savings over a greater period, instead of simply casting half a million public sector workers on to the dole, triggering the unemployment of another 1 million private sector workers and ending up with the unfair, unnecessary and failed policies of the Conservative past?
Mr Osborne
That was a complete load of nonsense. The independent forecast shows that we are projected to create 1 million jobs, and that the economy will grow more quickly over the next couple of years than the economies of most of our European competitors. Frankly, we inherited from the previous Government an absolutely catastrophic situation in which people called into question Britain’s ability to pay its way in the world. That was the situation we inherited, but I think we have done many things in the past six months to ensure that the British economy is now on the mend.
Claire Perry (Devizes) (Con)
I am sure the whole House will welcome chart 1.1 on page 8, which shows that there is almost no probability of a double-dip recession. Does the Chancellor agree with that forecast?
Mr Osborne
It is of course an independent forecast, and although the Chancellor does—and will under legislation—have the right to disagree with it, I have not exercised that right today.
Chris Williamson (Derby North) (Lab)
What words of comfort can the Chancellor offer the construction industry and the thousands of unemployed building workers who are still reeling from his Government’s decision to scrap the Building Schools for the Future programme and end housing targets? Does he not accept that a private sector-led recovery will be impossible without a vibrant construction industry? What will he do to support the industry?
Mr Osborne
We certainly want to support the construction industry. It is one of the specific sectors that we are looking at, as the growth review that we publish today sets out. If I can just correct the hon. Gentleman, however, I must say that the capital investment programmes of this Government are actually higher than the capital investment programmes set out in the March Budget. If he is not aware of what the Labour party fought the election on, so be it.
Mel Stride (Central Devon) (Con)
I welcome my right hon. Friend’s statement and, in particular, today’s OBR forecast, which sees projected public sector job losses drop from 490,000 to 330,000. Based on the previous 490,000 figure, PricewaterhouseCoopers projected that half a million jobs would be lost in the private sector. Will my right hon. Friend comment on the likely reduced impact on private sector unemployment as a result of today’s lower projected job losses in the public sector?
Mr Osborne
The OBR also makes a projection for private sector employment and takes into account all the potential impacts on that, and it finds that a net 1.1 million jobs will be created over the period: there will be 30 million people in employment at the end of this Parliament, compared with 29 million today.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
In bringing forward their national insurance proposals the Government accept that their fiscal consolidation programme will have a disproportionate affect on those areas of the state that are more reliant on public expenditure. What other countervailing measures is the right hon. Gentleman considering?
Mr Osborne
We have created the regional growth fund to look specifically at areas that need support and investment. We have been able to announce some significant transport investment in other parts of our country. The national insurance tax reduction, which the hon. Gentleman mentions, refers explicitly and only to job creation outside the south-east and east, and I have deliberately taken that decision to try to create a more geographically balanced economy than the one I found when I took this job.
Mr Tobias Ellwood (Bournemouth East) (Con)
It is clear from the response that we have heard today that the Labour party is still in denial about the huge deficit that it created. I congratulate my right hon. Friend on coming up with a workable, viable and transparent plan that can take us out of this mess.
I take my right hon. Friend back to the permanent fiscal stability facility, which will not come online until 2013. What will happen if another eurozone country requires a bail-out? Will Britain’s involvement be kept to a minimum?
Mr Osborne
I thank my hon. Friend for his initial comments. I say this about any future action that we may or may not have to take. On the bilateral loan, I said last week that there were some very specific— I stress the words “very specific”—circumstances that would lead us to support Ireland because of the interconnectedness of our economies. I also said that the European financial stability mechanism, the EU fund, was something that the previous Government had signed up to, and that the UK could not block its use because it operated under qualified majority voting. I had to deal with that situation, but by finding now what I think is a way forward that means that the mechanism disappears in 2013, we have taken a bad situation and made it a lot better.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
Has Ireland’s fiscal consolidation been successful?
Mr Osborne
The point that I would make—[Interruption.] Ireland has had to take some incredibly difficult decisions to deal with its fiscal deficit. Its Government have announced, with the support of all the major parties in Ireland, with the exception of Sinn Fein, that they are going to have to take further austerity measures next year and over the next three or four years. If they did not take those measures, the country’s situation would be even more difficult.
Frankly, we should have some respect for the incredibly difficult situation in which Ireland finds itself. We should take some comfort that, because of the measures that we have taken on our public finances, we in this House are able to help the country and that we are not in the firing line in the way that we would have been if the Labour party had won the election.
David Rutley (Macclesfield) (Con)
Despite the excessive nay-saying from the Labour party, is the Chancellor aware of a recent report from Barclays bank that outlined that the majority of businesses in the north-west—our region—are looking to expand in the year ahead? Will he tell the House what steps he is taking to support small and medium-sized enterprises, which, in the years ahead, will be the growth engine for job creation?
Mr Osborne
We avoided the increase in the small companies rate that the previous Government wanted to introduce even in a recovery. We have been able to avoid the damaging part of the jobs tax. Of course, my hon. Friend is absolutely right. The forecast in this report and the forecast from many other people is for jobs to be created in the private sector across the country, including in the north-west—a part of the country that both of us represent in the House. Frankly, one can see again today that the Labour party wants to talk down the economy, does not believe independent forecasts and talks down the regions. It is no wonder that people rejected it at the election.
Bill Esterson (Sefton Central) (Lab)
Was the Chancellor talking a “complete load of nonsense”, as he put it earlier, when he said:
“Look and learn from across the Irish Sea…What has caused this Irish miracle, and how can we in Britain emulate it?”
Does he recognise that a private sector recovery has not happened in Ireland? Why should following the same policies be any different here?
Mr Osborne
If the hon. Gentleman cannot tell the difference between the economic situations in which Britain and Ireland find themselves today perhaps he should not turn up to these events.
I just make this observation. This is an independent report, produced by Robert Chote. [Interruption.] I have had a lot of chuntering from Opposition Front Benchers about the independence of the Office for Budget Responsibility. We set it up on an independent basis and we have given all members of the Treasury Committee the right to approve or reject the members of the budget responsibility committee. We will see whether Opposition Members, including Front Benchers, support this legislation when it comes before Parliament. At the moment, it does not sound as if they will support it, but perhaps they will change their minds.
Mr David Nuttall (Bury North) (Con)
Is my right hon. Friend as concerned as I am that over-prescriptive regulation such as that proposed by the Financial Services Authority’s retail distribution review may result in a loss of jobs?
Mr Osborne
I know that a number of concerns have been raised about the FSA’s review of that area. Obviously, it is an independent regulator, but I have made sure that those concerns have been drawn to its attention.
Karl Turner (Kingston upon Hull East) (Lab)
Does this apparent good news mean that the Government can now spare the blushes of the disgraced Deputy Prime Minister and of Government Members by scrapping plans to hike university tuition fees, or is this really about pure ideology—rich kids can afford to go to university and poor kids cannot?
Mr Osborne
I will tell the hon. Gentleman what this issue is about: the hypocrisy of the Labour party. Labour Members set up Lord Browne’s report, and the shadow Chancellor was in the Cabinet that agreed to that. Lord Browne has reported, and now they are all walking away from it—it is absolutely pathetic.
Mr Rob Wilson (Reading East) (Con)
Compared with June, the OBR predicts, in table 4.21 on page 118, that we will save £19 billion in interest payments. Contrary to what the shadow Chancellor said, are not the choices made by my right hon. Friend the right ones to ensure that we have this £19 billion to spend on schools and hospitals rather than putting it in the pockets of foreign Governments and private bondholders?
Mr Osborne
My hon. Friend is absolutely right. This is one of those issues that is perhaps less commented on, but very relevant. We are reducing the debt interest payments that we inherited from Labour, and the debt interest bill—the money that we have to pay out to private bondholders and foreign Governments to borrow—is coming down from the number that we inherited. That is £19 billion that would otherwise, if we followed the Labour party’s plans, be being paid to foreign Governments and private bondholders. That is how Labour Members want taxpayers’ money spent; we have other plans for it.
Mark Reckless (Rochester and Strood) (Con)
Instead of lending to Ireland to repay the European Central Bank and bolster bank capital relative to large impaired assets, might it not make more sense to help Ireland to de-leverage by buying some of those written-down assets directly, particularly where they are in the UK and are not well managed by the National Asset Management Agency?
Mr Osborne
The support for Ireland had to be a co-ordinated international effort with the IMF and other European member states, and we have taken our part in that. I do not think that coming up with our own unilateral package would have been particularly easy when, as I said, the IMF was organising this international effort. I have already said in reply to an earlier question that of course we will want to look at the impact of the banking reorganisation in Ireland on some of the assets that are managed in the UK, and I will keep the House informed about that.
Jessica Lee (Erewash) (Con)
I welcome my right hon. Friend’s statement, particularly on the investment of GlaxoSmithKline in a new facility at the university of Nottingham near Erewash. Does he agree that ring-fencing the science budget, bolstered by his coming to this House today and presenting figures of growth and stability for the UK economy, sends out a clear message to the rest of the world that the UK, particularly the east midlands, is an excellent place in which to invest and build?
Mr Osborne
I completely agree with my hon. Friend, who has been a powerful champion of the east midlands and of her constituency in the few months since her election. I know that she will welcome the announcement by Glaxo, which is because of the decisions that we have taken. Of course, the support for job creation in the east midlands and across the country would not be there if we had a fundamentally unstable economy of the kind that this Government inherited in May.
Justin Tomlinson (North Swindon) (Con)
What measures are being taken to maintain the low interest rates that are essential to mortgage holders in my constituency?
Mr Osborne
The Bank of England Monetary Policy Committee sets interests rates, and does so independently. The purpose, in part, of the measures that we have taken to reduce the deficit is to give the Monetary Policy Committee the maximum possible flexibility and freedom in setting the appropriate monetary policy to stimulate demand in the economy. I believe that that has enabled it to keep interest rates low, which helps to stimulate the economy.
Charlie Elphicke (Dover) (Con)
Will the Chancellor confirm that the corporation tax reforms that were announced today will make the UK more attractive as a holding company jurisdiction and help to make the UK a pre-eminent corporate headquarters centre, as much as a financial centre?
Mr Osborne
My hon. Friend is absolutely right that the reforms will help to do that. They will help the UK to be an attractive place for international companies to locate, invest and create jobs. The changes to the patent regime will help a number of sectors, such as pharmaceuticals. I mentioned GlaxoSmithKline, but of course Pfizer is a big employer near Dover, and I hope that it, too, will benefit from the announcements that we have made.
Chris Ruane
I was right here at the back, Mr Speaker.
In my constituency, 46% of the workers are in the public sector. In one Edinburgh seat, the figure is 66%. Those are huge numbers of public sector workers and many of them will be laid off. What additional help can the Chancellor give to constituencies that contain large numbers of public sector workers?
Mr Osborne
First, we are seeking to reduce the impact of the fiscal consolidation that would have taken place under either the Conservative or the Labour party in office. We are doing so in a way that, as the OBR has today shown, has a reduced impact on public sector headcount loss. Secondly, we are putting in place a comprehensive Work programme to help people who are without work to find work. Thirdly, today’s forecast is that more than 1 million new jobs will be created over this Parliament. That will help all constituencies, including the hon. Gentleman’s.
Financial Assistance (Ireland)
George Osborne Excerpts(13 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chancellor of the Exchequer (Mr George Osborne)
With permission, Mr Speaker, I should like to make a statement regarding financial assistance for Ireland.
I hope Members will understand that an announcement had to be made at the weekend, ahead of markets opening this morning. Last night, I spoke to the Chair of the Treasury Committee and the shadow Chancellor to keep them informed of the latest developments.
The United Kingdom, alongside the International Monetary Fund, the European Union, the eurozone and other member states, is participating in the international financial assistance package for Ireland announced last night. We are doing this because it is overwhelmingly in Britain’s national interest that we have a stable Irish economy and banking system.
The current Irish situation has become unsustainable. Its sovereign debt markets had effectively closed and had little prospect of reopening. While Britain’s market interest rates had fallen over the past six months, Ireland’s had risen to record levels, and Ireland’s banks had become completely reliant on central bank funding to maintain their operations. In the judgment of the Irish Government, as well as of the IMF and others, this situation could not go on.
Members will understand that it would not have been appropriate for us in recent weeks to have engaged in public speculation about whether Ireland should request assistance from the international community, but I can now report that we have been engaged in intensive private discussions with the G7, the IMF, the EU and the Irish Government on plans for the eventuality that Ireland would request support. At the G20 meeting in South Korea two weeks ago, I was one of the European Finance Ministers who issued a joint statement that provided a brief respite. At the ECOFIN meeting last Wednesday, my colleagues and I discussed the Irish situation with Finance Minister Brian Lenihan, with whom I have also kept in touch directly. Following meetings in Brussels, the Irish Government committed to engage in a short and focused consultation with the IMF and the EU. On Thursday a joint mission arrived in Dublin, and in the last few days I engaged with my counterparts in the G7, the euro area and the EU about the way forward.
Following intense work over the weekend between the Irish and international authorities, last night Ireland’s Prime Minister, Brian Cowen, made a formal request for assistance. This was followed by statements from the G7, the IMF, the Eurogroup and European Finance Ministers that they would
“provide the necessary financial resources for Ireland to implement its fiscal reform plans and stabilise its banking system.”
The statements made it clear that there were two components to the rescue package. The first puts beyond doubt Ireland’s ability to fund itself. The international assistance package will support an ambitious four-year fiscal strategy which the Irish government will set out later this week. This will see a fiscal consolidation of €15 billion by 2014, of which €6 billion will be implemented next year, as part of a strategy leading to a target budget deficit of 3% of GDP in four years’ time. The second part of the assistance package is a fund for potential future capital needs of the banking sector. This will support measures to promote deleveraging and ensure restructuring of Ireland’s banks, so that its banking system can perform its role in supporting the economy.
Let me turn to how the package will be financed. This is a joint programme, with funding from both the IMF and the EU. The amount of money involved will, in part, depend on the IMF’s analysis of what is needed, and Prime Minister Cowen has said that he expects it to be less than €100 billion. The international community is working on the rough assumption that the IMF will contribute about one third of the total. The total European package will provide the other two thirds. Based on the significant reform of the IMF agreed by G20 Finance Ministers last month, the IMF is well placed to play a leading role in this international effort. The UK, of course, is an important shareholder of the IMF and we will meet these multilateral obligations. I would like to reassure the House that the IMF is currently well resourced and able to meet the cost of the package for Ireland.
The European element of this package will primarily come from two sources of funding agreed in May before this Government came into office: the €60 billion European financial stabilisation mechanism; and the €440 billion European financial stability facility. The balance between the European mechanism and the eurozone facility will be determined in the coming days. The United Kingdom is not a member of the euro, and will not be a member of the euro while we are in government, and so we will not participate in the eurozone stability fund. To be fair to my predecessor, he kept us out of that fund, but he did agree to the UK’s involvement in the European mechanism two days before we took office. I made it clear at the time that I did not believe he should make that commitment. However, it operates according to qualified majority voting and so we cannot stop it being used, and to exercise that vote at this time would, I judge, be very disruptive. So the EU will lend money to Ireland on behalf of all 27 member states, and the UK must accept its share of this contingent liability, which would arise in the unlikely scenario that Ireland should default on its obligations to the EU.
On top of this, I have agreed that the UK should consider offering a bilateral loan to Ireland, as part of the IMF and European package. I judge this to be in Britain’s national interest. Let me explain why. We have strong economic relations with Ireland. Ireland accounts for 5% of Britain’s total exports—indeed, we export more to Ireland than to Brazil, Russia, India and China put together. Ireland is the only country with which we share a land border, and in Northern Ireland our economies are particularly linked, with two fifths of its exports going to the Republic.
Just as our two economies are connected, our two banking sectors are also interconnected. I should stress that the resilience of our own banks, which are now well capitalised, means that they are well placed to manage any impact from the situation in Ireland. But two of the four largest high street banks operating in Northern Ireland are Irish-owned, accounting for almost a quarter of personal accounts. The Irish banks have an important presence in the UK. What is more, two Irish banks are actual issuers of sterling notes in Northern Ireland. It is clearly in Britain’s interest that we have a growing Irish economy and a stable Irish banking system. By considering a bilateral loan, we are recognising these deep connections between our two countries and, crucially, it has helped us to be at the centre of the discussions that have shaped the conditions of an international assistance package that is of huge importance to our economy. Of course, this is a loan and we can expect to be repaid. In fact, Sweden has already deemed it to be in its national interest to consider a bilateral loan to Ireland.
Now that the Irish Government have requested assistance, a lot of the detailed work of putting together the package can take place. I understand that Members are keen to hear the specifics, such as the rate of interest on the loans, the repayment periods and the contribution from each of the various elements of the package. I shall keep the House informed.
Later this week, the Secretary of State for Northern Ireland and my hon. Friend the Financial Secretary to the Treasury will be in Northern Ireland to discuss the situation there. I will ensure there is a specific discussion in the House if there is a bilateral loan, and we will need to take primary powers.
Finally, let me say something about the future of the various European support funds, which are being discussed later this year. Both the Prime Minister and I are very clear that when it comes to putting in place a permanent eurozone bail-out mechanism, the UK will not be part of that.
This is a situation of great difficulty for Ireland and it is a tragedy when it did so much to improve its competitiveness with low taxes and flexible labour markets, but the truth is that it had a hugely leveraged banking sector that was badly regulated—a pattern that we have had to deal with in our own country. In addition, because Ireland is a member of the euro, exchange rate flexibility and independent monetary policy were not tools available to it when the crisis took hold. The arguments against Britain joining the euro are well rehearsed, not least by me, but although “I told you so” might be correct, it does not amount to an economic policy.
When the coalition Government came into office, Britain was in the financial danger zone. We have taken action to put our house in order. We were once seen as part of the problem, but we are now part of the solution. Ireland is a friend in need and it is in our national interests that we should be prepared to help at this difficult time. I commend the statement to the House.
Alan Johnson (Kingston upon Hull West and Hessle) (Lab)
I thank the Chancellor for advance notice of his statement and for keeping me informed about developments over the weekend.
The Opposition agree with the Chancellor’s basic argument that Ireland is a friend in need and that Britain should not simply ignore the plight of one of our biggest trading partners because it is in the eurozone and we are not. So we are in principle content to support a role for the UK in assisting Ireland to secure economic stability.
The Chancellor talked about the resilience of our banks, and the question that many people will be asking today is why he thought it was wrong for the previous Government to support British banks but right for his Government to support Ireland’s banks. On the crucial question of ensuring that Britain’s contribution is fair and balanced, will he first explain how our relative share of the burden will be calculated and what his definition of “fair” will be?
Secondly, will the Chancellor give his expectation of the proportion of UK support that will go through each European route—the European financial stability facility, the stabilisation mechanism and the bilateral arrangements—and the rationale for that distribution? He said that he disagreed with the agreement that my right hon. Friend the Member for Edinburgh South West (Mr Darling) made in May to enter the European stabilisation mechanism, yet the Chancellor is seeking to provide bilateral support. Why does he need to provide bilateral support when the other routes are available? Will he also tell the House how, when and where each element will appear in Government accounts?
Thirdly, what interest rate is to be charged on our loans, what form will it take and when does the Chancellor expect to receive full repayment? I understand the issues he mentioned about not being able to tell us now, but if he cannot give us any indication, when and how will that information be reported to the House?
Fourthly, what conditions will the Chancellor seek to apply, and is he preparing this proposal unilaterally or in conjunction with our European partners? Will there be any attempt to interfere with Ireland’s right to set its own tax rates? Will the Chancellor tell us to what degree he believes the difficulties are a consequence of Ireland’s adoption of the euro? What does he think this will mean for the future of the single currency? When his right hon. Friend the Foreign Secretary was asked if he thought the euro would survive, he shrugged his shoulders and said, “Who knows?” That strikes me as being at the least undiplomatic and at most unworthy of the great office he holds. It could even be said to be making “I told you so” into an economic policy. How would the Chancellor answer the question about whether the euro will survive?
Finally, it is clear that Ireland’s efforts to cut its deficit so deeply and quickly have failed to lead to growth in the economy. The private sector has not taken up the slack caused by the huge cuts to public services, so will the Chancellor agree that growth is crucial to Ireland, Europe and, indeed, to the UK’s full recovery and tell us what steps he is taking to encourage growth as part of this package? In 2006, he said that we should “Look and learn from across the Irish Sea”. In a eulogy of the deregulation of the financial services sector, he asked:
“What has caused this Irish miracle, and how can we in Britain emulate it?”
Now he needs to assure us that he has learned other lessons from across the Irish sea. The last time he made a statement from that Dispatch Box, he said that Britain was on “the brink of bankruptcy”, but that was clearly not the case. Now he is proposing to make a substantial contribution to a country that really is on the brink. One lesson from Ireland should be salutary: exaggerated rhetoric affects confidence and loss of confidence can lead to economic disaster.
Mr Osborne
I certainly agree with that last statement. First, I welcome the support in principle that the Opposition have given to this decision and I well understand that the shadow Chancellor, like everyone else in the House, will want to see the specific terms and conditions. The IMF-EU team hope to conclude those in the next couple of weeks and then, of course, I will bring those details to the House.
On burden sharing between the different European channels, we will make no contribution through the stability facility—the eurozone facility. In relation to the mechanism—money lent off the back of the EU—if Ireland were, in an extraordinary situation, to default on that then we, as one of the 27 members of the European Union, would have a contingent liability. That is how the mechanism operates. On the terms of the bilateral loan, we have not yet set a figure on that, but it will be in the billions, not the tens of billions. On that, too, I will come to the House when I have a specific figure. As I have said, we will be required to take primary powers to make that bilateral loan and I would hope to have Members’ support in doing that.
The shadow Chancellor mentioned the mechanism. In the period between the general election and the creation of this Government, to be fair, as I said in the statement, the former Chancellor of the Exchequer made it clear that he did not want the UK to be part of the eurozone facility, but he did agree to the use of the mechanism. It is based on article 122, the original intention of which was to provide support to eurozone members in dealing with natural disasters. At that time, I said that I did not think that we should be committing to that, but that debate was had in May. The mechanism exists and, frankly, for the UK to say now that we will vote against its use would, as I have said, be very disruptive.
The question of the accounts is for the Office for National Statistics and the Office for Budget Responsibility. My understanding is that the loan will of course add to borrowing but that we will get an asset in return—an Irish commitment to pay back the loan—and that it will not add to the deficit.
On the conditions attached to the loan, I would expect them to be part of the international package agreed with the IMF and European Union contributions, so I would not expect radically different conditions for the UK.
I think it is well known that corporation tax has been the subject of discussion in some European Union capitals, but not here—we believe that countries should be free to set their own tax rates. The Irish Government have to make some very difficult decisions about their fiscal package over the next four years, and how that package is composed should be a decision for them—provided, of course, that the international community is satisfied that it is credible, and I am absolutely sure that we will be satisfied.
Finally, the right hon. Gentleman asked two questions, one about the future of the euro and so on. As I have said, we made lots of arguments about not joining the euro 10 years ago and I do not—[Interruption.] I cannot remember what the Opposition’s official policy is, but it probably does not bear consideration. I would just make the point that I am dealing with the situation as I find it today. We can debate the merits of the euro at another time; I have to deal with the Irish situation.
On the deficit and Ireland’s decisions, I have to say that in all the discussions I have been involved in during recent weeks, not a single person around the international tables has suggested that Ireland should be doing less to address its fiscal situation. I would have thought that the current economic environment in the world would surely remind everyone of the risks run by countries with very high budget deficits and no credible plan to deal with them. Unfortunately, we inherited a higher budget deficit than Ireland’s, so I hope that the right hon. Gentleman and the Leader of the Opposition, in this big rethink they are having, will re-evaluate their opposition to a fiscal plan that has taken Britain out of the financial danger zone, which means that we are not one of the countries speculated about at the moment. I hear today that the Leader of the Opposition says that their economic policy is a blank sheet of paper. Quite frankly, I do not think that it would be much use taking that into an international negotiation.
Mr Andrew Tyrie (Chichester) (Con)
I think that the public were shocked to discover that the UK was going to be bailing out a eurozone member, not just through the IMF or bilateral loans, but through the European stabilisation mechanism—that is, through the EU budget. Will the Chancellor reassure the House that he will seek to block British participation in any replenishment of the €60 billion mechanism?
Mr Osborne
Let me first say that it is our intention not to be part of the permanent eurozone bail-out mechanism, which of course is the subject of discussion, not least at the December Council. It would be our intention that that mechanism should return to what it was designed for in article 122, which is dealing with natural disasters. There has been a balance of payments support mechanism in the European Union for many years to deal with the accession of the central and eastern European countries. Both that mechanism and that balance of payments support drew from the same €60 billion, and we would certainly not be in favour of somehow replenishing it to make good the amount of money that, potentially, will be committed to Ireland.
Mr Alistair Darling (Edinburgh South West) (Lab)
I agree with the Chancellor that it is in our country’s interests to do everything we can to help Ireland through its present difficulties. Although he and I agree that I was right to keep us out of the eurozone support fund, some money coming from Europe is partly subscribed by us and also the IMF—but does that not demonstrate that it is in our interests? The fact that he is also willing to make bilateral loans available to Ireland demonstrates that it is our interests to sort out the problems in Ireland. Although he does not have the details, can he tell us how much of that money from us and from other sources will be used to restructure and recapitalise the Irish banks, which is absolutely necessary in Ireland and also, I suspect, in a number of other countries in Europe?
Mr Osborne
I very much welcome what the right hon. Gentleman has said, and of course I agree that it is in our national interests, and indeed the interests of other European Union member states, that we bring some stability to Ireland. He is right, as his question implies, to focus on the banking system. The situation in Ireland is different from the situation that Greece found itself in earlier this year, with which he had to deal when he was Chancellor.
On the question of the breakdown between the amount of money going to the banking system and the amount going to fund the sovereign, I am afraid that I cannot give the right hon. Gentleman the exact figures, because they are still being negotiated, but I would say that most of the money will be used to take the sovereign out of the market for a period, and a substantial minority of the amount will be required for a fund to help the Irish banking system.
Mr John Redwood (Wokingham) (Con)
Given that the very large loan to Greece on 2 May did not stop the rolling euro crisis despite the promises from many of the participants at the time, will the Chancellor assure the House that Britain does not stand ready to lend more money to other eurozone members in the event that the Irish loan package does not mark the end of the crisis either?
Mr Osborne
I was very clear that the bilateral loan was given because of the very specific economic relationship between the UK and Ireland, the interconnectedness of our banking systems, the fact that we share a land border, and the importance of the Irish banks in Northern Ireland. Those specific reasons led me to believe that it was right to provide a bilateral loan in these circumstances.
Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)
I wonder whether the Chancellor would help me with a conundrum that the people of Sheffield will no doubt be mulling over tonight. Why, in raising the money for the bilateral loan for the Irish Republic, would it not be possible to help another friend in need by adding a simple £100 million to the loan and helping Sheffield Forgemasters, which after all will repay the loan, just as the Irish will?
Mr Osborne
What I am proposing is a bilateral loan to another sovereign nation as part of an international package. Of course, I am doing it to provide stability for the entire UK economy, including the economy of Sheffield. I believe the steps that we have taken in the past six months to move this country, with the highest budget deficit in the G20, out of the financial danger zone provides the platform for economic growth, as it does for the rest of the UK.
Sir Alan Beith (Berwick-upon-Tweed) (LD)
Does the Chancellor realise that our constituents were very angry indeed at having to bail out mismanaged British banks, and will be even angrier at having to bail out even more irresponsibly managed Irish banks? Will he not have to give a clearer picture of some of the consequences for the British economy if such action is not taken?
Mr Osborne
I make two observations. The first is that this is a loan to a sovereign nation state and, barring a really extraordinary turn of events, we would expect Ireland to pay us back. So we are making a loan to another sovereign nation that we fully expect to be paid back. The long history of international packages shows that the IMF and others get their money back in almost all circumstances. This is a loan that we can afford to make and which we will get back. Secondly, there is a broader observation about banking systems in Ireland, the UK and elsewhere. They became vastly over-leveraged and vastly over-borrowed and they were very badly regulated. The assurance that I can give my constituents and those of the right hon. Gentleman is that we are sorting out the regulation of the UK banks. We hope that the Irish Government are now dealing with the situation of the Irish banks. They were interconnected with the UK and made a lot of loans in the UK, and it is in the interests of us all that we sort out the Irish banks as well.
Mr Jeffrey M. Donaldson (Lagan Valley) (DUP)
I recognise the reasons why the Chancellor has had to provide the loan to the Irish Republic, and he has recognised the potential impact of that on the Northern Ireland economy and on business in Northern Ireland. Will he support the Northern Ireland Executive in reducing the level of corporation tax there to the same level as exists at present in the Irish Republic?
Mr Osborne
I thank the right hon. Gentleman for the support that he has given to the action that we have decided to take today. He will know that my right hon. Friend the Northern Ireland Secretary is pursuing with vigour the subject of Northern Ireland’s economic environment and business environment, the corporation tax rate and so on, and we are coming forward with plans to stimulate the Northern Ireland economy. Specifically, the Northern Ireland Secretary and my hon. Friend the Financial Secretary to the Treasury will be in Northern Ireland later this week to talk principally about what is going on this week, but I am sure they can have discussions about broader issues as well.
Chris Heaton-Harris (Daventry) (Con)
As much as I am uncomfortable with the fact that we are bailing out a eurozone country, I have to concur that it is overwhelmingly in our national interest to do so. After 13 years on the sidelines, it is nice to see us playing a central part in negotiations that affect eurozone countries and the IMF. Can my right hon. Friend reassure the House that the UK will commit resources to Ireland only if we are confident that Ireland is able to grow its way out of trouble and pay our money back?
Mr Osborne
I thank my hon. Friend for his support, and the answer to his question is yes.
Mr Ian Davidson (Glasgow South West) (Lab/Co-op)
Will the Chancellor be a little more clear about whether he is ruling out providing financial support in future to Greece, Portugal, Spain, Italy or any other country in the eurozone? Yes or no?
Mr Osborne
It would not be particularly responsible of me to speculate on any other country at this time. Let me put it as clearly as I can: there are very specific connections between the UK and Ireland, which we do not have with other countries, and I think that is why it is completely appropriate that we make a bilateral loan in this case.
Michael Fallon (Sevenoaks) (Con)
Does the Chancellor agree that, when we end up having to lend very large sums of money to other countries, the Government should always be able to do so at their discretion, in a way that is accountable to this House and not at the mercy of being outvoted by other European countries?
Mr Osborne
My hon. Friend makes a very good point. As I say, a bilateral loan will be debated in this House and require the Government to take primary powers, so it is within the control of all Members, and we are accountable to the taxpayers of Britain for that. I have explained the situation, so I will not go over it again, but we are part of the European mechanism, which involves a qualified majority vote, and even if we had exercised a no vote we would have been completely outvoted. That is why I want to see that the UK is not part of the permanent bail-out mechanism, which will be discussed at the December Council.
Mr George Mudie (Leeds East) (Lab)
We are contributing to the IMF deal and to the stability mechanism deal. Is the £7 billion additional to that, or is it broken up between those two with a topping-up sum?
Mr Osborne
I am not going to give a specific figure today, because it simply has not been agreed as part of the overall package with the Irish. In these situations, it is perfectly normal for the sovereign Government, in this case the Irish, to invite the IMF and the EU in and to ask for their help, and for that to be negotiated over the following week or two. Of course, we will be part of that, but as I say, I expect the UK’s support to be in the billions, not the tens of billions.
Mr David Ruffley (Bury St Edmunds) (Con)
If it requires a treaty change to create a new permanent bail-out mechanism, will the UK Government be prepared to use their veto?
Mr Osborne
We have made it clear that we would accept a treaty change—of the kind that, for example, Germany is talking about—only if it created a eurozone bail-out mechanism that we were not part of, and of course a treaty change requires unanimity.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Will the Chancellor confirm that the UK is Ireland’s largest creditor, being owed about £100 billion or 7% of our GDP? It is understandable that we would want to be in there and protecting our investment. During his speech, he mentioned that we were at the centre of discussions to shape the conditions of the agreement, but does he intend those conditions to include a further retrenchment of the Irish economy, or, like Opposition Members, will he go for growth in order to help the Irish economy get back on its feet?
Mr Osborne
The plans to deal with Ireland’s budget deficit are a very important part of the Irish Government’s approach, but they are also part of the international package. The further fiscal tightening was specifically referred to in the statement issued by Finance Ministers yesterday. That will mean that Ireland has a budget deficit of less than 3% by 2014. If we had not taken the action that this Government have taken to accelerate the proposals we inherited, we would have been the only European country in that year with a budget deficit of more than 3%.
Mr Douglas Carswell (Clacton) (Con)
We might be outside the euro as a currency union, but does the small print of the Lisbon treaty not in effect make us, as we are discovering, members of the euro as a debt union? Notwithstanding protocol 15, article 122 of the Lisbon treaty means that we pay. Will not that mean enormous non-discretionary liabilities as and when other eurozone countries seek similar bail-outs?
Mr Osborne
As I said in reply to earlier questions, we entered into certain commitments about the mechanism that I did not support at the time; I have made that clear. I was an opponent of the Lisbon treaty, as were many hon. Members. However, I have to deal with the world as I find it today, and that is a world in which Ireland’s economic situation is unsustainable. One of the reasons for choosing to offer a bilateral loan is precisely so that this Parliament, including my hon. Friend, can have a view and a vote on it, and we can account for that to our constituents.
Ms Margaret Ritchie (South Down) (SDLP)
I thank the Chancellor for his statement and the proposed assistance. Will the Treasury carry out an in-depth study of the economic impact of Ireland’s assistance settlement on the regions of the UK, particularly the devolved regions? Will the Treasury be prepared to intervene where any region may be affected negatively, such as Northern Ireland, where there is a connection in the banking sector and where two of the banks are Irish-owned?
Mr Osborne
We are taking this action precisely because, in part, we recognise the specific economic connections between Northern Ireland and southern Ireland. I would be very happy for the Treasury to work with the Northern Ireland Executive on looking at the potential economic impact of what is happening in Ireland. Obviously, the intention is to bring some stability to the Irish economy, and then some growth, which would be in the interests of not only the people of the Republic but the citizens of the United Kingdom.
Claire Perry (Devizes) (Con)
I understand that the Chancellor cannot yet set out the amounts that will be delivered under various mechanisms, but can he at least reassure the House that any bilateral financing will rank at least pari passu with money delivered through the IMF and through the EU mechanisms?
Mr Osborne
We would certainly expect it to be treated with the same seniority as any other European assistance.
Kate Hoey (Vauxhall) (Lab)
What kind of conditions is the Chancellor likely to impose on the bilateral loan to Ireland? Will he take into account the feelings of people in Northern Ireland who, if they live on the border, see corporation tax at 12% just down the street, but at 28% in Northern Ireland, and will be asking why they are paying more to help a country when there is such a disparity in corporation tax?
Mr Osborne
As I said earlier, the conditions attached to our loan will be similar to those attached to the overall international assistance package; of course, we are part of the discussions when it comes to shaping that package. I would make two specific points. First, we have set very high store by sorting out the banking problem. In other words, using this financial assistance to sort out the banking problem has been the primary thing that I have been calling for in the private discussions we have had leading up to this point.
Secondly, on the rate of corporation tax, I would make this observation to the hon. Lady, and I hope that she has some sympathy with me. Ireland should be in charge of its own tax rates. How the terms of the financial assistance are met has to be a decision ultimately for the Irish Government and the Irish Parliament. It is the thin end of the wedge if we allow other countries and other international organisations to start determining what corporate tax rates should or should not be. It is in everyone’s interests that Ireland grows, and it would not be particularly in our interests if the Irish undertook measures that might, for example, lead to an immediate flight of international business.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
I recognise that my right hon. Friend is dealing with some very serious and potentially disastrous economic circumstances, but when I say, “I told you so,” it is not just about staying out of the euro; I am saying, “I told you we shouldn’t have ratified the Maastricht treaty.” [Laughter.] They are guilty over on the Opposition Benches, too. Will my right hon. Friend be a little clearer? Is he saying that unless we are fully extricated from any potential liability for other eurozone members through the European Union, there will be no treaty change?
Mr Osborne
I am not proposing to take Britain out of the Maastricht treaty, despite my hon. Friend’s request. I know that will come as a bit of a disappointment. I would like the balance of payments mechanism to remain—it has existed for many years—but of course the situation in the eurozone is not a balance of payments issue. That mechanism is for countries, particularly accession countries, to draw upon. I would like the mechanism set up under article 122 to be used for what it was designed to be used for, which was natural disasters and the like, and I would like the permanent bail-out mechanism for the eurozone not to include the United Kingdom.
Rachel Reeves (Leeds West) (Lab)
Although it is imperative that we support Ireland through the crisis, does the Chancellor accept that events in Ireland demonstrate that the global economic recovery is extremely fragile, and that to premise our own recovery on £80 billion of cuts and export-led growth looks increasingly optimistic at best and dangerously naive at worst?
Mr Osborne
If the hon. Lady looks around the western economies, she will see that countries with large budget deficits—we have the largest—are moving to take further steps to show how they are reducing them. I cannot see around the international scene a single group of people other than the Opposition who actually believe that the UK should be loosening the fiscal position from what we have set out. That really is completely incredible and carries absolutely no conviction in any other part of the world. As part of the Labour party’s re-evaluation of its entire economic policy, I suggest that it start with that.
Glyn Davies (Montgomeryshire) (Con)
I would like to ask a question from a Welsh perspective. We all understand the impact of a strong economy in Ireland on Northern Ireland, but does the Chancellor recognise that a strong Irish economy is also particularly important to Wales?
Mr Osborne
Yes, I do. Ireland’s links are not just with Northern Ireland, they are also with Wales, Scotland and England. The Irish banks were of course engaged in lending into the UK economy, UK banks have engaged in lending into the Irish economy, and many companies export to each other’s countries. We are deeply interconnected, which is why I have proposed this set of measures.
Mr Ben Bradshaw (Exeter) (Lab)
Does the right hon. Gentleman not have the tiniest smidgen of regret about what he used to say about the Irish economic model?
Mr Osborne
I seem to remember plenty of Labour Ministers standing at the Dispatch Box praising what Ireland was doing to make itself competitive, to reduce its corporate tax rates and to create a flexible labour market. That is the tragedy—it did so much in that direction to make itself competitive, but it did not properly regulate its banking system. We in the UK know the price of that.
Mr Edward Leigh (Gainsborough) (Con)
On reflection, does the Chancellor believe that our Irish friends might have been better off remaining faithful to sterling rather than eloping with the more flighty euro, and does a warm welcome await our friends if and when they return?
Mr Osborne
I am a believer in national sovereignty, so I do not propose to tell other countries what they should do with their currencies. I would just make this observation, since this has been a debate I have heard in recent years: Ireland has all its sovereign debt denominated in euros.
Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)
Ultimately, the bail-out will work only if Ireland can retain its competitiveness. Traditional International Monetary Fund packages always include reducing public spending, increasing tax rates and devaluing the currency. The third element, which is essential for Ireland’s recovery, is missing. What makes the Chancellor believe the bail-out will work under those conditions?
Mr Osborne
If it is not possible to devalue the currency, there is a more difficult route, which is to try to enforce competitiveness through, for example, wage cuts, and that, of course, is part of the Irish package. It does make things more difficult, but, as I say, those of us who argued against Britain joining the euro made all these arguments at the time. That makes for a very good discussion, but at a very theoretical level given the very practical immediate challenges we face in Ireland.
Mr Peter Bone (Wellingborough) (Con)
The euro could collapse—nobody can doubt that point. During the Chancellor’s wide-ranging private talks with the Irish Government, was there any discussion of a contingency plan under which Ireland would come out of the euro and become part of the sterling area?
Mr Ronnie Campbell (Blyth Valley) (Lab)
Are there not lessons for us in the United Kingdom to learn, given that the Irish cut very deeply not so long ago? Does the Chancellor not think that we should have a credible growth programme along with what the Government have already done? How will the Chancellor solve the problem when he does not know the causes?
Mr Osborne
An absolute precondition of growth, as we can see in Ireland, is stability, and there is no stability if people put a question mark over a country’s ability to fund itself. One reason why the international assistance package is being put in place is to take the sovereign out of the debt markets for the next couple of years. Quite frankly, the decisions we took in May, in June and last month were absolutely necessary to restore international confidence in Britain’s ability to deal with its deficit and to restore some sanity to its public finances. I find it slightly bizarre, having now had this argument for about a year with Labour Members, that they continue to pursue the belief that we could stick with a set of fiscal plans that no one regarded as credible.
Joseph Johnson (Orpington) (Con)
Could the Chancellor say whether he thinks Ireland’s move to tap international financial assistance will reduce or increase the risk of contagion for other euro area sovereigns and their banking systems? What assessment has he made of the risk posed by countries such as Portugal, Italy and Spain to the UK?
Mr Osborne
I hope my hon. Friend will allow me not to engage in speculation about any other country at the moment. The package today shows the willingness of the international community, the IMF and so on to help countries that get themselves into trouble, whether they are in Europe or anywhere else in the world.
Alex Cunningham (Stockton North) (Lab)
Earlier today, I met politics students from Bede sixth form college in my constituency, who asked how it can be right to bail out the Irish economy, but wrong for our previous Government to have done likewise when our banks posed the same threat to our economy. Has the Chancellor an answer to the students and the House?
Mr Osborne
I would say to those students, and, indeed, to the hon. Gentleman, who represents them, that their prospects of getting a job later in their lives depend on a stable UK economy that is growing and a stable Irish economy that is not having contagion effects on the UK or anywhere else. That is why we are taking action domestically to put our own house in order. Even his students, I am sure, would recognise that, in the end, we cannot live beyond our means and we cannot sustain an economy on debt alone. I am also sure that if his students asked themselves what connections they had to Ireland, they would find quite a lot of connections in their family, in the businesses that they know about and the like. Our two economies are interconnected.
Nadhim Zahawi (Stratford-on-Avon) (Con)
People at home will be listening to this statement, or they will read it tomorrow, and wonder whether we can borrow a few more billion and spend a few more billion. Does the Chancellor agree that market concerns over sovereign debt remain, and that the priority for the coalition Government must be to keep the UK out of the financial danger zone?
Mr Osborne
The sovereign debt concerns are very heightened at the moment—that is a statement of the obvious—and a Chancellor of the Exchequer who represents the country with the largest budget deficit in the G20, and the largest budget deficit in the EU until Ireland started to overtake us, must make moving Britain out of the financial danger zone their immediate priority, which is what this Government have done.
Toby Perkins (Chesterfield) (Lab)
Does the Chancellor agree that the real lesson that comes out of Ireland—he rightly identified similarities with our economy—is that the impact of the global banking crisis added to a drastic programme of public sector cuts does not mean growth? That is dangerous to the economy.
Mr Osborne
Quite frankly, that assessment is not shared by the International Monetary Fund or other EU member states. It is not the assessment of anyone who looks at the Irish situation except for the hon. Gentleman.
Mr David Nuttall (Bury North) (Con)
Bearing in mind that the Treasury will itself have to borrow the billions of pounds that it proposes to lend to the Irish Government, will the Chancellor reassure the House that the interest rate it charges the Irish Government will be substantially higher than the rate we must pay?
Mr Osborne
The terms and conditions of the loan are still to be decided, and as I said, they will be brought to the House of Commons. However, to make a general observation, we are seeking not to make a buck, but to help our friend.
Albert Owen (Ynys Môn) (Lab)
The Chancellor is right to say that it is in the British national interest to help Ireland. Irish economists say that one problem on top of the instability of the banks is that the economy is suffering because too much money has been taken out of it. Will the Chancellor act in the British interest and reconsider the speed at which austerity measures are introduced in the UK, because that could hamper our economy?
Mr Osborne
At the moment, there is heightened concern around the world about European countries with high budget deficits. One such country is the UK, but there is no heightened concern about us because of the measures that we have taken. If we followed what the hon. Gentleman and Labour Front Benchers propose, and if I were to say at the Dispatch Box tomorrow, “You know what. We are abandoning our fiscal plans set out in the Budget and the spending review, and instead engaging in a loosening of those plans,” I can only imagine what the international reaction would be.
Charlie Elphicke (Dover) (Con)
Being there for a friend in need overseas and unbankrupting ourselves at home are right and proper. However, how could it ever be right or proper for a Government voted out of office to engage in major financial commitments for the UK while squatting in Downing street?
Mr Osborne
I think my hon. Friend is referring to the period between the general election and the creation of this Government. I have given the House my account of that. I thanked the former Chancellor for keeping us out of the eurozone facility, but I did not agree with his decision to commit us to the mechanism, and I communicated that to him. However, I also made it clear at the time there can only be one Chancellor of the Exchequer operating for the UK, even in the unusual situation between the general election and the formation of this Government. He will account for his decisions and I will account for mine.
Chris Williamson (Derby North) (Lab)
I know that a week is a long time in politics, but can I take the Chancellor back to when he was the shadow Chancellor? He wrote an article for The Times in which he said:
“Ireland stands as a shining example of the art of the possible in long-term economic policymaking…They have much to teach us, if only we are willing to learn.”
Does the Chancellor stand by or repudiate that article?
Mark Reckless (Rochester and Strood) (Con)
Is not the fundamental problem that Ireland has the wrong interest rate and the wrong exchange rate, and that Irish politicians made a fundamental mistake by joining the euro? Does the Chancellor agree that we must stand and support Ireland, and that should Ireland seek a return to sterling, it must have a seat on the Monetary Policy Committee?
Mr Osborne
The first time I met my hon. Friend was when we were both at university together, and he gave a speech about exchange rates and the European exchange rate mechanism. He was absolutely right in his prediction of what would happen shortly thereafter, so it is good to hear him talk about exchange rates here in the House of Commons. I would make this observation: decisions on people’s currencies must, as I am sure he would agree, be decisions for the nation state involved. I have made the observation—just because there has been some interesting speculation about this—that much of Ireland’s sovereign debt is denominated in euros, which would remain whatever its currency was.
Mr William Bain (Glasgow North East) (Lab)
What assessment have the Chancellor and his counterparts in the eurozone made of the capacity of the European financial stability fund to withstand further calls on finance from Italy, Spain or Portugal? If the assessment is that the fund is not big enough, would he be prepared to see it increased?
Mr Osborne
As I say, I do not think that it is sensible for me to speculate about any other country in Europe or anywhere else in the world in the current environment. I would make two observations. One is that the IMF is well resourced and is now on the road to reform, so that it properly reflects the balance of economic power in the world. It is therefore well placed to deal with whatever situation emerges, in whatever part of the world. As for the eurozone stability facility, that has to be a decision for members of the eurozone. They contribute to the facility, and they have set aside a considerable sum of money—€440 billion.
Matthew Hancock (West Suffolk) (Con)
Is not the lesson from what is happening in Ireland clear: that countries need to get their own houses in order? Would it not be utter folly for us to take as the lesson that we should divert from the path of getting our house in order here in the UK?
Mr Osborne
I agree with my hon. Friend. I make the point again that if we followed the prescription advanced by the Opposition—they suggest that tomorrow I should get up and announce a brand-new Budget, and engage in fiscal loosening at a time when we have the largest budget deficit in the G20 and at a time of heightened concern about sovereign debt—that would be a completely irresponsible path to take.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
For the last six months the Government have wasted no opportunity to tell us that Britain’s situation is very similar to Ireland’s. Now they cannot tell us fast enough that we are in a very different situation from Ireland, because we have our own currency and control of our monetary policy. Has the Chancellor not spent the last six months talking down the British economy for naked political advantage?
Mr Osborne
The reason we are in a different situation is not just because we have a different currency; it is because we have a Government who have put our public finances in order.
Christopher Pincher (Tamworth) (Con)
We are in a very different situation from Ireland. In the past several months, our long-term interest rates have fallen materially, whereas those of Ireland and other parts of the eurozone have not. Will my right hon. Friend remind those on the Opposition Benches—and particularly on the Opposition Front Bench—why that is so?
Mr Osborne
That is absolutely the case. Back in May, the largest bond investor in the world said that sterling was sitting on a “bed of nitroglycerine”. That was the kind of sentiment out there in the markets. We have taken—[Interruption.] The speculators? The Labour party literally believes that it can defy the bond market. That is what Labour Members are reduced to—that is where their policy review is leading them. I have to say that it is not a credible economic policy for this country.
Chris Evans (Islwyn) (Lab/Co-op)
The Chancellor seems confident that the bail-out package will work. What will happen if it does not? Will there be more loans, and can we expect public sector cuts to pay for them?
Mr Osborne
Of course, an absolute precondition of the package being negotiated is that not just the UK but the IMF and others believe that it will work. An enormous amount of effort is going into putting together a package that will deal not just with the sovereign debt situation, but—the former Chancellor alluded to this—with the Irish banking situation. That is a key part of the package.
Richard Harrington (Watford) (Con)
Does my right hon. Friend agree that a main cause of the problems in Ireland is the pursuit of those very policies that Labour Members would have us carry out here—borrow, borrow, borrow and spend, spend, spend?
Mr Osborne
Ireland had over-leveraged banks, and they were poorly regulated. We are all picking up the pieces of something similar in the UK.
John Woodcock (Barrow and Furness) (Lab/Co-op)
Given the stark consequences of Ireland’s failure to grow, will the Chancellor assure the House that he has not downgraded his commitment to a White Paper on growth in Britain?
Mr Osborne
I am absolutely committed to setting out our growth policies—[Interruption.] Perhaps I could make the observation that I did not think that today, given the other things that are going on, would be a particularly good day for the House to discuss an economic paper from the Government. I thought it better to take the time to explain what is happening in Ireland and what we are doing to assist it.
Mr Dominic Raab (Esher and Walton) (Con)
The Chancellor has set out the national interest in supporting a close trading partner and avoiding the systemic risks posed by an Irish default. How can we mitigate a third risk—the moral hazard of the taxpayer picking up the tab for yet another banking bail-out?
Mr Osborne
Of course, the support that we are providing with the bilateral loan is to the Irish Government—to the sovereign—and we have every expectation that that will be repaid.
John Cryer (Leyton and Wanstead) (Lab)
Will the Chancellor now answer the question that the hon. Member for Harwich and North Essex (Mr Jenkin) asked? Does he believe, as I do, that when British Ministers signed up to Maastricht and the growth and stability pact, they made a mistake?
Mr Osborne
To be honest, the real mistake was that countries did not pursue the policies recommended in the growth and stability pact, which was to keep control of their public finances. Year after year during the past decade, the UK was regularly warned that its deficit was growing and that it was not doing enough to deal with it. If we had listened—not necessarily to the European Commission, but to all the other people in the world who were pointing that out—we would have been in a bit better shape than we were when this Government came to office.
Dr Andrew Murrison (South West Wiltshire) (Con)
Does my right hon. Friend agree that one of the few redeeming features of the Labour party when in government was that it failed to take us into the eurozone? Does he understand, as I do, that the Labour party’s policy remains that we should work towards the eurozone? As the Leader of the Opposition is changing his policies, what advice can he offer?
Mr Osborne
Let me speak for Government policy. We will not join the euro. I believe that the Opposition’s official policy is to join the euro, but perhaps that will be discussed by their policy groups over the next two years.
David Rutley (Macclesfield) (Con)
The Chancellor is right to support Ireland, one of our important trading partners, at this critical time. Will he tell the House what steps he is taking to widen and deepen our trading relationships with fast-growing major markets such as China, India and Brazil? The Labour party missed a huge opportunity when it was in government.
Mr Osborne
The fact that we export more to Ireland than to Brazil, Russia, India or China is a statement of the interconnectedness of the Irish and UK economies, but also an indictment of our exports to the fast-emerging BRIC countries, which is precisely why, since taking office, the Prime Minister has led major trade delegations to India and China, and why we want to ensure that companies in Macclesfield and throughout the country can export more to those fast-emerging new markets.
Alec Shelbrooke (Elmet and Rothwell) (Con)
The Chancellor has been asked whether he has a smidgen of regret about his comments on the Irish economy, but does he not find it more incredible that the Opposition still believe that we should join the euro after the devastation that it brought to a thriving Irish economy?
Mr Osborne
As I have said, it is for the Opposition to speak to their own policy. As I understand it, they are still committed in principle to joining the euro—
Mr Osborne
Maybe not on the Benches where the hon. Gentleman sits, but it is those on the Opposition Front Bench that I am talking about.
Ben Gummer (Ipswich) (Con)
The Chancellor will be aware of the significant property assets owned by Ireland’s National Asset Management Agency and the Irish Allied Bank across the United Kingdom. Uncertainty in Ireland has prevented development on those sites and is stopping development in some of the most deprived areas in our country, which need regeneration. In providing funds to the Irish Government, what pressure can my right hon. Friend bring to bear on the Irish to divest themselves of those assets so that others can provide investment where they cannot?
Mr Osborne
My hon. Friend makes a very good observation about a particular aspect of the Irish banking situation and its impact on those property investments in the UK. We have discussed this with the Irish, and I will get back to him on whether there have been specific developments in the last few days, but I have not raised the matter as part of the discussion on the international assistance that we are providing. We are trying to put the whole Irish banking system and the Irish state, which stands behind those banks and, indeed, behind NAMA, on to a much more stable footing.
Jeremy Lefroy (Stafford) (Con)
I thank the Chancellor for his welcome statement. Given that we have sovereignty over these matters, in what currency is the bilateral loan likely to be denominated?
Mr Osborne
We will set out the terms and conditions and the exchange rate of the bilateral loan when we agree them over the next couple of weeks, and I will bring that information to the House of Commons.
David Morris (Morecambe and Lunesdale) (Con)
I congratulate the Chancellor on doing the right thing in this instance—[Interruption.] He did the right thing. Also, as a result of the fact that we have managed the economy better over the past six months, we are in a position to lend to Ireland. The Conservatives’ insistence on not joining the euro in the first place has saved us from an even bigger bail-out package than we are having to contemplate now.
Mr Osborne
As my hon. Friend says, we are now part of the solution rather than being part of the problem.
Mr Rob Wilson (Reading East) (Con)
May I offer the Chancellor my support in the difficult task that he has ahead? Will he spell out for the House what he believes the consequences of leaving the euro would be for Ireland?
Mr Osborne
As I have said, that has to be a matter for Ireland. It has not been raised by them in any discussion, publicly or privately, and I do not think that I should speculate about it.
Oral Answers to Questions
George Osborne Excerpts(13 years, 7 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Michael Ellis (Northampton North) (Con)
1. What recent assessment he has made of the effectiveness of the Office of Tax Simplification.
The Chancellor of the Exchequer (Mr George Osborne)
May I add my congratulations to the couple and say that we wish them every happiness? I am not sure that they will be particularly interested in this answer, but I hope that the House will be.
The Office of Tax Simplification was created by the coalition Government in July to reduce the complexity of a tax code that has doubled in size over the past decade. Last week, the office produced a comprehensive list of the 1,042 reliefs that now exist in the tax system. By the time of next year’s Budget, we will have received its advice on which reliefs can be simplified or abolished to be consistent with the Government’s wider objectives.
Michael Ellis
I congratulate my right hon. Friend on establishing the Office of Tax Simplification. He will be aware that the tax system in this country is labyrinthine in its complexity, and small businesses in my constituency of Northampton North have been adversely affected by it. Can my right hon. Friend assure me that the new Office of Tax Simplification will sort out this complexity sooner rather than later?
Mr Osborne
I can give my hon. Friend that assurance. A few months ago, he and I visited some small businesses in his constituency, many of which were suffering under the burden of a tax code that has grown from 4,900-odd pages in 1997 to 11,500 pages today. The Office of Tax Simplification is specifically looking at the taxation of small businesses as well as at the issue of tax reliefs. The small business report will be coming out later next year, but we will get an interim report in time for the Budget.
Alan Johnson (Kingston upon Hull West and Hessle) (Lab)
I add the congratulations of this side of the House to Prince William and Catherine Middleton on their engagement. If they need a photographer, I understand that there is one available now. There has been a nice juxtaposition of announcements this morning. Does the Chancellor think that he is aiding tax simplification by raising VAT to a nice round 20%, and does he agree with his Cabinet colleague, the Business Secretary, who once described an increase in VAT as
“a tax on the poor to absolve the sins of the rich.” ?
Mr Osborne
I have to say to the shadow Chancellor that his position on VAT is completely incoherent. It is well known that my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), was planning a VAT increase, had pressed the Prime Minister at the time for a VAT increase, and—he is in the Chamber so perhaps he can confirm this—when asked about it on “The Andrew Marr Show” after the election, said that of course he would have gone ahead with one.
Alan Johnson
That was not the question. The fact that one looks at every available tax before reaching a conclusion is nothing new. The conclusion we reached is that VAT should not be increased and that national insurance should be. The Liberal Democrats have been very fair in the way that they have betrayed the electorate. They have broken promises across the age divide—children, students and pensioners—so there is no age discrimination there. The Conservatives specifically said that they would not increase VAT. During the election campaign, we said that if they did not increase national insurance, they would increase VAT. The Prime Minister denied that and said that they had no plans to increase VAT. He said that VAT was
“very regressive, it hits the poorest the hardest”.
I can promise Members that it does. We are now in the unique situation in which we face a tax rise that our Prime Minister has promised will affect “the poorest the hardest”. At the time, the Conservatives said that an increase in national insurance would be “a tax on jobs”. The Chartered Institute of Personnel and Development said that it would lead to 75,000 jobs being lost while an increase in VAT would cost 250,000 jobs.
Mr Osborne
This is what the former Chancellor said on “The Andrew Marr Show”. Andrew Marr said:
“We now read from Peter Mandelson’s book”—
remember, he was in the Cabinet with the shadow Chancellor—
“that you were quite keen on the idea of VAT going up.”
Alistair Darling replied, “Well yeah, obviously”.
We have taken the decisions necessary to restore some fiscal credibility to this country. We have a leaked memo from the shadow Chancellor’s office. It states:
“Fiscal discipline is if anything more essential in opposition than it is in government.”
That is from the shadow Chancellor’s office, but the truth is that he cannot tell us where a penny of his £44 billion spending cuts would come from. He had two tax policies until the weekend—on graduates and 50p—and announced that he did not agree with them. Frankly, until he gets his act together and comes forward with a credible economic policy, he will not be heard.
Nigel Adams (Selby and Ainsty) (Con)
2. What fiscal measures he has introduced to provide assistance for pensioners since his appointment.
The Chancellor of the Exchequer (Mr George Osborne)
With your permission, Mr Speaker, if I dare ask for it, I should like to answer this question with questions 6 and 7.
Mrs Helen Grant (Maidstone and The Weald) (Con)
6. What fiscal measures he has introduced to provide assistance for pensioners since his appointment.
Nick de Bois (Enfield North) (Con)
7. What fiscal measures he has introduced to provide assistance for pensioners since his appointment.
Mr Osborne
Even in these constrained times, the coalition Government have been able to find additional assistance for pensioners. We have re-linked the basic state pension to earnings and provided a triple guarantee that the basic state pension will be raised by the higher of earnings, prices or 2.5% from next April. We have also protected other key pensioner benefits and made the previous Government’s temporary pre-election increase in cold weather payments permanent, because this Government treat pensioners with the dignity and respect that they deserve.
Nigel Adams
I am grateful to the Chancellor for that reply. Many pensioners and those approaching pension age in my constituency of Selby and Ainsty will welcome his words, but will he tell me what will be the impact in future years of the link to earnings in respect of the basic state pension?
Mr Osborne
First, next year, the pension will be linked to the retail prices index number for September—4.6%. That will be a welcome support for pensioners from April. However, I should make the broader point that of course, re-linking pensions and guaranteeing through our commitment that they will go up either in line with earnings or prices, or by 2.5%, is a really substantial boost for pensioners. That reflects the fact that many pensioners have worked hard and saved hard all their lives. I am glad that that was one of the first policy announcements of this coalition Government.
Mr Osborne
The spending review set out a £470 million package of support for the voluntary sector, including an endowment fund and a transition fund. In addition, the big society bank, which will be funded by dormant bank accounts, will provide a new source of finance for the sector. The Government completely understand the incredible role that such organisations play in supporting elderly people in our community, and we want to help them to do so.
Nick de Bois
Many pensioners in my constituency have made representations to me because they are fed up with having to buy annuities at 75. What plans does the Chancellor have to change the flexibility of that policy?
Mr Osborne
We will remove the requirement to purchase an annuity by the age of 75. Draft legislation will be published in December, and we want the new rules in place by 2011, although we have also introduced transitional arrangements to help those who have reached the age of 75 since I made the announcement in the Budget. We think that people who have been responsible enough to save through their working lives are responsible enough to handle their savings in retirement.
Kate Green (Stretford and Urmston) (Lab)
Will the Chancellor commit to working closely with the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb) to introduce the universal, flat-rate, minimum pension for all citizens as quickly as possible?
Mr Osborne
Yes, absolutely. The Treasury is working with the Department for Work and Pensions on potential pension reform that could simplify pensions and provide a boost to pensioners for many years to come.
Tony Lloyd (Manchester Central) (Lab)
Pensioners, including many of those on low incomes, spend a disproportionate amount of their income on fuel. The Chancellor made the point about the winter fuel allowance, which was very welcome, but will he make it clear to the gas and electricity suppliers that, when they raise fuel costs above anything justified by wholesale prices, as they always do, the Government will take action, hopefully by threatening them with fiscal measures, including taxing them?
Mr Osborne
I agree with part of what the hon. Gentleman said. It is important that the utility companies—the gas companies—are as quick to pass on to their customers the cuts in the wholesale price of gas as they seem to be in passing on increases. We are looking at the whole electricity market—because, of course, many pensioners receive their heating through electricity—and considering what we can do to better insulate people from price fluctuations that can cause havoc to family budgets.
Bill Esterson (Sefton Central) (Lab)
3. How many child trust funds have been set up in respect of looked-after children since such funds were introduced.
Mr Brian Binley (Northampton South) (Con)
10. What recent steps he has taken to increase levels of bank lending to small and medium-sized businesses.
The Chancellor of the Exchequer (Mr George Osborne)
The Government have increased and extended the enterprise finance guarantee to support lending to small businesses. We have increased our share of the enterprise capital fund to enable extra investment in start up for small businesses, and we have encouraged the new business growth fund set up by the banks. But more needs to be done to ensure that the banks are lending to small and medium-sized businesses. It is a complex issue with no single answer, but it is crucial to our recovery, and my hon. Friend has my assurance that this is a key priority.
Mr Binley
I thank the Chancellor for that answer. Lionverge, a Northampton company employing 80 people, had an overdraft with Barclays of £70,000, backed by security of £130,000. A new manager was recently appointed, and in August he wrote to the company doubling the security, and cutting the overdraft by £20,000 with further cuts of £10,000 a month to end the facility. The company had not defaulted, no warning was given, and no other options were offered. What can the Chancellor do to stop such unacceptable bank practices that undermine the Government’s growth strategy?
Mr Osborne
I recently met the leading chief executives of our largest banks, and they have come forward with proposals to improve the way they treat their customers, and to increase their lending to small businesses. We welcome the fund that they have set up. As I said, there is still more to do. The issue is complex, and one complexity has been the uncertainty of international regulation and how much capital and liquidity banks need. At the G20 that took place recently in South Korea, there was at last agreement on the new international rules, and a very lengthy transition period to them. I hope that British banks will take heed of that, and as a result, be able to increase their lending to small businesses.
Chris Leslie (Nottingham East) (Lab/Co-op)
Why is the Chancellor so afraid to make the banks play their full part in picking up the mess that they created? He has refused to do anything about the excessive bonuses, and we read in the paper that he is about to U-turn on the publication of remuneration. We also read that he is climbing down on the bank levy and, in his answer to the hon. Member for Northampton South (Mr Binley), he is now suggesting that it is too complex to make the banks lend to small businesses. The Government are not afraid to hit children and families with cutbacks, but if we are all in this together, why is the Chancellor letting the banks off the hook?
Mr Osborne
One does wonder where the hon. Gentleman has been for the past couple of years. We are picking up the pieces of the biggest banking crash of our lifetimes, caused by the poor regulation of the previous Government. Since coming to office, we have announced major changes in regulation, putting the Bank of England in charge—which we still do not know whether the Opposition support—and a permanent bank levy, which was opposed by every single Labour Member during the general election. We are determined to sort out the problems left to us by the previous Government.
John Thurso (Caithness, Sutherland and Easter Ross) (LD)
The enterprise finance guarantee scheme was specifically designed to help small businesses to get bank finance. It has not worked, and many companies feel that it has not assisted them. What is my right hon. Friend doing to ensure that the scheme plays a full part in helping companies to get finance?
Mr Osborne
The first thing that I would say to my hon. Friend is that, of all the schemes that we inherited, this was the one that we thought had the most chance of improvement and was worth investing in. The other schemes had almost no take-up, but this one did. We were able to provide some additional money for it in the Budget, in the form of £200 million to support additional lending. We are also introducing changes to the way the schemes work, so that there will be a limit of 20 business days that all major lenders taking part in the enterprise finance guarantee scheme will have to comply with, so that people are not left on the hook waiting for an answer.
Stephen Mosley (City of Chester) (Con)
11. What steps he has taken to encourage saving since the June 2010 Budget; and if he will make a statement.
Mrs Mary Glindon (North Tyneside) (Lab)
T1. If he will make a statement on his departmental responsibilities.
The Chancellor of the Exchequer (Mr George Osborne)
The purpose of the Treasury is to ensure economic stability, restore sanity to the public finances, ensure employment growth, make sure our banking system is properly regulated and get this country back on its feet.
Mrs Glindon
During the past five years, North Tyneside council has made year-on-year transformation savings without affecting front-line posts, but I fear that because of the comprehensive spending review, front-line jobs will now be lost. What message, other than fictitiously blaming the previous Labour Government for what has been a global recession, does the Chancellor have for North Tyneside?
Mr Osborne
First, the Government have given all councils, including North Tyneside, greater freedom about how to spend their resources by removing a lot of ring-fencing. Secondly, of course, as I said in the spending statement, this was a difficult local government settlement—I completely accept that. But even the Labour party was signed up to £44 billion of spending cuts. If Labour Members are telling us that those would not have included local government, that is not really credible. We have had to take difficult decisions and we should be supported for that.
Claire Perry (Devizes) (Con)
T2. The Chancellor is heading to an ECOFIN meeting tomorrow and I hope he will continue to press our colleagues in the European Union for some restoration of fiscal sanity in their economic policies. The flag that will be fluttering so merrily over the proceedings will be the blue and yellow one—those are colours that we rather enjoy. Does he agree that unless we see some return to fiscal sanity and some abandonment of the policy of fiscal recklessness, perhaps the colour of the flag should be changed from blue and yellow to brown?
Mr Osborne
Of course we are urging fiscal restraint on the European Union. I should pay tribute to my colleague, the Economic Secretary, who has been out to Brussels twice in the past few days to argue vigorously for restraint in the European Union budget with considerable success. One of the problems we are dealing with is that the previous Government gave up half the rebate and that is one of the reasons why the budget is increasing.
Diana Johnson (Kingston upon Hull North) (Lab)
T5. The unemployment rate in my constituency was 10.7% in September. After the announcement in the comprehensive spending review of the slashing of jobs, services and skills, what does the Chancellor think will be the unemployment rate in my constituency in 12 months’ time?
Mr Osborne
The whole point is that we have given these forecasts to an independent body, rather than just relying on the forecasts given by the Chancellor of the Exchequer at this Dispatch Box, so that people can believe in their independence and credibility. The Office for Budget Responsibility will produce its autumn forecast on 29 November. But of course the OBR figure that all Labour Members seem to use is the one for the public sector head count, but they seem to forget that this same body made a forecast of an increase in net employment, which sadly they never use.
Mr Aidan Burley (Cannock Chase) (Con)
T6. More than 20% of my constituents in Cannock Chase are employed by manufacturing centred small businesses. Will the Chancellor assure them that the small business tax review will simplify and reduce taxes for small businesses rather than complicate and increase them?
Mr Osborne
Yes, I can give that assurance. I also note that the actions that the Government have taken have kept the small companies rate down, avoiding the rise in the rate that we inherited.
Miss Anne Begg (Aberdeen South) (Lab)
The comprehensive spending review contained a proposal to cut the mobility element of the disability living allowance for those in residential care. Why did the Government make that decision—because it was fair or to reduce the fiscal deficit?
Mr Osborne
In the spending review we took a number of difficult decisions, including decisions on welfare. We sought to identify the savings that we thought were most justified. As far as I understand it—although I am happy to be corrected—the DLA changes have been supported by the Opposition.
Mark Menzies (Fylde) (Con)
T7. Fiscal discipline is, if anything, more essential in opposition than in government. Will the Chancellor tell us whether he has received any support or advice from the Opposition on how to achieve that fiscal discipline?
Mr Osborne
I am told that they have plans to cut £44 billion from public expenditure, but they have not told me what those plans are.
Hywel Williams (Arfon) (PC)
What is the economic case for HMRC’s sacking professional tax collectors and hiring novice private sector debt collectors to collect liabilities of tax below £10,000?
Mr John Redwood (Wokingham) (Con)
Given that the Irish Government have said that they neither want nor need a bail-out, will the Chancellor support them at ECOFIN and put off those people in the EU who seem to want to make a crisis out of a problem?
Mr Osborne
There is an enormous amount of speculation about Ireland at the moment to which I do not propose to add. The Irish Government have said clearly that they have not sought assistance and that they are taking difficult steps to deal with their fiscal situation. They will make further announcements about their Budget situation in the next few weeks. I make the general observation that what is going on at the moment highlights the fact that concerns about sovereign debt issues have not disappeared and we should be grateful that, thanks to the actions of this Government, we have moved Britain out of the financial danger zone.
Mr Russell Brown (Dumfries and Galloway) (Lab)
What does the Chancellor say to fixed-income pensioner households in my constituency and his who will be faced with the additional VAT burden in just over 50 days?
Mr Osborne
I would say to them what I would say to everyone in this country: that we inherited the largest fiscal—[Interruption.] Well, I do not know how many times Opposition Members have to hear this but it is the truth. They left us the largest Budget deficit in the G20 and the European Union at a time of heightened sovereign debt concern. They can either be part of the debate that the rest of world is taking part in on how to deal with the deficits or they can completely ignore that debate and become irrelevant.
Alec Shelbrooke (Elmet and Rothwell) (Con)
Does the Chancellor agree that he should ignore the advice of the Opposition on all matters fiscal relating to the European Union, because it is still their policy to join the euro and because their MEPs voted to double our contribution this year?
Mr Osborne
As you will remind me, Mr Speaker, I cannot speak for the policy of the Opposition or say whether they have changed their official position which is to support joining the euro, but I make it clear to my hon. Friends and others that we certainly will not join the euro while this Chancellor and this Prime Minister are in place.
John Cryer (Leyton and Wanstead) (Lab)
It was this Chancellor who agreed a 2.9% increase in contributions to the EU and to cede certain powers to Brussels—that is in the papers he signed—so has he not joined that glorious list of British politicians who go to Brussels, lose their wallets and their trousers and then come back and tell us what a great deal they have got?
Mr Osborne
I think that the hon. Gentleman is thinking of Tony Blair rather than of this Government. We voted against the increase in the European budget, but we were outvoted because it was a qualified majority vote. We are dealing with the fact that the previous Government gave up half the budget rebate, which is why British contributions are going up, and we are very clear that, although we want fiscal rectitude across Europe, we do not propose to hand over substantive new powers to the European Union.
Stephen Williams (Bristol West) (LD)
There is much support around the country and in the House for the broad principles of the Robin Hood tax campaign. The coalition Government have made a good start with the permanent bank levy. Will the Chancellor confirm that he expects the Independent Commission on Banking to consider the taxation of bankers’ bonuses and bank profits so that the banks pay their fair share in this country?
Mr Osborne
The commission that we have set up is looking principally at the structure of the banking sector, which is another very important issue. We have said that we want the banks to make a contribution, which is why we introduced the permanent banking levy; we did not agree with the previous Government that that should not happen. We followed the best practice set out by the International Monetary Fund, which outlined two taxes that could be pursued—one was a bank levy and the other was a financial activities tax, which we also said that we would consider in the Budget. On the broader point of the Robin Hood tax, or the financial transactions tax, which is sometimes discussed at ECOFIN, I think that everyone accepts that it would have to be introduced internationally or else it would be almost impossible to collect any revenue.
Penny Mordaunt (Portsmouth North) (Con)
Can the Chancellor confirm that, unlike the shadow Chancellor, he is not an instinctive cutter?
Mr Osborne
I did see that rather remarkable comment from the shadow Chancellor over the weekend. We are doing what we are doing because we have to—because of the size of the Budget deficit.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
The Federation of Small Businesses North East and the insolvency trade body R3 have wound up one in 10 businesses that were unprepared for the 2.5% increase in VAT next year. Kingston university also recently showed that small businesses in the north-east intend to shed staff. Is not VAT the real jobs tax?
Mr Osborne
As I say, we are doing that because we need to deal with the Budget deficit. I thought it was the policy of the hon. Gentleman’s party that a greater share of the consolidation should be borne by tax rises; I thought that that was now the official policy. It is also clear that the previous Government were planning a VAT rise. Businesses have had plenty of notice of the increase that is coming in in January, and I am sure they will be able to cope in the same way as they coped with the VAT rise at the beginning of this January.
Bob Blackman (Harrow East) (Con)
All of us are all too aware of the record deficit and debt that we inherited from the Opposition. Will my right hon. Friend agree to publish a regular scorecard showing how that deficit and the debt are reducing, so that taxpayers and the public sector can see the benefit of the Government’s policies?
Mr Osborne
We have created the independent Office for Budget Responsibility so that the fiscal forecasts for the United Kingdom are no longer produced by the Chancellor of the Exchequer and sometimes influenced by the political judgments of the Chancellor of the Exchequer, but instead are done independently.
Toby Perkins (Chesterfield) (Lab)
On child benefit, can the Chief Secretary explain why he believes that families earning £45,000 have broader shoulders than those earning £80,000?
Jo Swinson (East Dunbartonshire) (LD)
As my right hon. Friend says, it is right that in reducing the deficit, those with the broadest shoulders should bear the greatest burden, but do the Government understand the genuine anger that the public feel when it seems as though wealthy individuals and large companies can get away without paying their tax bills? What reassurance can the Minister give my constituents that the richest in society will pay their fair share?
Mr Osborne
We have taken a number of decisions to make sure that the burden is fairly shared. We have introduced the bank levy, and we are taking child benefit away from higher rate taxpayers, although that is clearly opposed by Labour. We are also seeking to conclude a number of deals with countries that have a reputation for attracting tax avoidance and tax evasion, such as the deal that we are negotiating with Switzerland. That will ensure that there are further revenues coming into the Exchequer from those who can afford it.
ECOFIN (17 November 2010)
George Osborne Excerpts(13 years, 7 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 17 November 2010. The following items are on the agenda:
Directive and Regulation on VAT treatment of insurance and financial services
ECOFIN will hold an initial discussion on proposals to modernise the VAT exemption for financial services, reflecting market developments over the last 30 years. In addition to a proposal to amend the VAT directive, the European Commission has proposed a detailed regulation that would ensure the law is applied consistently across the EU.
The Government are keen to promote economic growth and competitiveness through modernisation of the legislation, increasing certainty and reducing compliance costs for business, and ensuring fairness of treatment, while at the same time protecting UK revenues and limiting opportunities for avoidance.
The Government will continue to seek harmonised VAT exemption for financial derivatives and for investment management aimed at retail investors, as well as equal treatment for outsourcing across the whole sector. The Government will also reject any proposals to remove Government choice in respect of the option to tax.
Implementation of the 2009 budget
The Court of Auditors will present its annual report. The UK continues to press the case for value for money and greater accountability in the EU budget.
Follow-up to October European Council
ECOFIN will take note of the deliberations of the European Council, especially as regards the taskforce report on economic governance and levies and taxes on financial institutions.
The European Council endorsed the taskforce report which explicitly excludes the UK from any sanctions flowing from economic governance reforms. With regards to levies and taxes on financial institutions, the Government strongly support national levies on banks and other tax measures where appropriate to complement wider reforms aimed at reducing the probability and impact of banking failures.
Follow-up to the G20 Seoul Summit on 11-12 November
Ministers will hold an exchange of views on the main outcomes of the G20 summit, which is scheduled to discuss the following issues of interest to ECOFIN: the global economy and imbalances, the framework for growth, reform of the International Monetary Fund, financial regulation, and trade.
Financing of measures against climate change
ECOFIN will adopt conclusions on financing of measures against climate change. The Government support the conclusions, which will build credible action on the ground and strengthen the EU position at the UNFCCC climate negotiations in Cancun in December.
Pensions
The Council will adopt conclusions on a report on pensions. The Government welcome this report: it emphasises the importance of fiscal sustainability and extending working lives; and that the focus of EU activity in this area should be on exchanging country experiences and collecting comparable data and information.
EU statistics
The Council will adopt conclusions on the annual report on EU statistics, which reviews the progress made on statistical governance. It welcomes the support given by Eurostat to provide assistance to Greece in the area of statistics; the efforts of the Greek authorities to correct deficiencies in this area; the recommendations of the Van Rompuy taskforce to strengthen EU statistics; and progress made in the revision of the European system of accounts. The Government are content with the conclusions as drafted.
Baltic Sea area
The European Investment Bank will give a presentation on its contribution to the European strategy for the Baltic sea area, followed by an exchange of views by Council. The Government welcome the work of the EIB in the Baltic sea region, which aims to make the region environmentally sustainable, prosperous, accessible, attractive, safe and secure.
Representation of the Council at the G20 ministerial meetings
Ministers will discuss the presidency proposal that the EU should be represented by the Commission in the G20 finance ministerial meetings. The Government do not see a need to change the existing arrangements, whereby the EU presidency represents the EU and the Commission is an observer.
Meeting of the EU and EFTA Ministers of Finance and Economy
Ministers will meet their European free trade area counterparts and discuss topical issues of mutual interest, including financial regulation and intelligent fiscal consolidation.