Office for Budget Responsibility

George Osborne Excerpts
Monday 14th June 2010

(14 years ago)

Commons Chamber
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George Osborne Portrait The Chancellor of the Exchequer (Mr George Osborne)
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With permission, Mr Speaker, I should like to make a statement on the Office for Budget Responsibility, which the Government created on coming into office.

This morning, for the first time in British history, we have opened up the Treasury books and allowed the publication of an independent and comprehensive assessment of the public finances. From now on, Governments will have to fix the budget to fit the figures, instead of fixing the figures to fit the budget. I should like to thank Sir Alan Budd, the members of the budget responsibility committee and all their staff for the impressive work that they have done in short order. A copy of their report has been placed in the Vote Office and in the Libraries.

There has been some interest in whether the OBR would publish all the relevant underlying assumptions and judgments driving the forecast. Today’s report does more than that: there are more than 70 pages of detailed material, much of which has never been published before. For the first time ever, the Government are publishing the assumptions that lie behind the estimates for average earnings, property prices, interest rates and financial sector profits, and, crucially, a five-year forecast for annually managed expenditure. That includes a forecast for the amount of debt interest that we as a country will pay over the coming years.

The creation of the OBR has already impressed the international community and been praised by the International Monetary Fund and the G20. We will now move to put the OBR on a statutory footing with legislation that was included in the Queen’s Speech. From now on, Members of Parliament sent to this House to scrutinise how the Government spend taxpayers’ money will have access to honest and independent figures.

Let me now turn to those figures and what the OBR has uncovered. First, there are the forecasts for growth in the economy. The OBR is forecasting that growth will reach 1.3% this year and 2.6% next year. In future years, the OBR’s forecast is for growth of around 2.8% in 2012 and 2013, and then 2.6% in 2014. Sadly for our country, the forecasts for growth are lower in every single year than the figures announced by the previous Chancellor at the time of the last Government’s Budget in March. He told us that growth would soar to 3.25% in 2011, and then to 3.5% in 2012. When those forecasts were given, neither the Bank of England nor 28 of the main 30 private institutions producing forecasts for the UK were offering such an optimistic central view of the economy; we can only speculate as to why such rosy forecasts for a trampoline recovery were produced only weeks ahead of a general election.

I turn to the OBR’s forecasts for the public finances. The latest outturn data show that public sector net borrowing for last year was £156 billion. The OBR is forecasting that it will be £155 billion this year. It is the highest budget deficit of any country in the European Union with the exception of Ireland. It is £10 billion less than the forecast given only a month before the end of the last fiscal year, but I can tell the House that, based on the OBR’s figures, that £10 billion advantage that we start with decreases to only £3 billion by the end of the Parliament.

The reason for that is that the cyclically adjusted current balance, commonly known as the structural deficit, is forecast to be higher in every single year than what this House was told in March. That is perhaps the most important figure in the report, because the structural deficit is the borrowing that remains even when growth in the economy returns. It is the structural deficit that is a key determinant of whether the public finances are sustainable. This year, the structural deficit is forecast to reach 5.2% of GDP—that is, £9 billion higher than we were told in March. Next year, the structural deficit will be £12 billion higher than we were told before the election.

The OBR’s forecast sees debt rising as a share of GDP throughout the Parliament—and the interest on that debt, which we as taxpayers have to pay, also grows every year. Let me be the first Chancellor in modern history to give Parliament those numbers for the coming years. The OBR forecast is that this is what Britain will have to pay for its debts: £42 billion of debt interest this year, rising to £46 billion next year, then £54 billion, then £60 billion and reaching £67 billion in debt interest payments by 2014-15. Over the course of this Parliament, more than a quarter of a trillion pounds will come from the pockets of taxpayers simply to service the debts left by the previous Government.

The figures produced by the OBR also give us a new insight into the spending plans that we inherited as a Government. They show that, given the OBR’s assumptions, the previous Government would have had to find £44 billion of spending cuts in departmental budgets to deliver their published plans. I can confirm that I have found no evidence at the Treasury for how even a single pound of that £44 billion was ever going to be achieved.

There are two other very important considerations that relate to these pre-Budget forecasts and understate the situation that we inherited. First, these are central forecasts with a fan chart around them to represent the great uncertainty that exists, rather than Treasury forecasts based on an arbitrary reduction in the trend level of output. As a result, they understate the increase in the structural deficit and the reduction in growth. Secondly, and crucially, these projections have been based on recent market interest rates, which are about a third of a percentage point lower in Britain than at the time of the general election. As is widely acknowledged, that in part reflects investors’ confidence that the new coalition Government will take action to deal with the deficit. As a result, as Sir Alan points out in his report:

“In present conditions the likely result is that these economic forecasts are biased upwards”.

That is absolutely crucial to understanding today’s figures, because if we followed the fiscal path set out by the previous Government, that would, again in Sir Alan’s words in the report,

“lead to higher interest rates and so lower economic activity”

than forecast today.

Let me conclude with this point. The independent report published today confirms that this coalition Government have inherited from their predecessor one of the largest budget deficits in the world, forecasts for growth lower than the country was told at the time of the election, a larger structural deficit than had been previously admitted, and a debt interest bill larger than the schools budget.

It is indeed worse than we thought. The public would not have known any of this if we had not set up the Office for Budget Responsibility. Next week, I will return to the House to explain what we will do about it. In the meantime, I commend this statement to the House.

Lord Darling of Roulanish Portrait Mr Alistair Darling (Edinburgh South West) (Lab)
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I thank the Chancellor for his statement. My thanks would be more heartfelt had I not received it just 25 minutes ago. There was a time when statements were supposed to be in the hands of the Opposition an hour before the statement was made, and then 45 minutes. I do accept, before the Chancellor says it, that in my time there were occasions when he did not get as much notice as he wanted. All I would say, in the nicest possible way and in the spirit of consensus, is that if we could try to get these statements in the Opposition’s hands rather earlier, that would be very helpful.

Turning to the substance of the Chancellor’s statement, I welcome the measured approach taken by Sir Alan Budd, and his colleagues in the Office for Budget Responsibility, in presenting his report this morning. Higher borrowing by the Government, as the OBR acknowledges today, continues to support the economy. Indeed, without it, there was a grave risk that a recession could have tipped into a depression; that is why the expenditure was necessary in this country and in other countries across the world. However, as I have said repeatedly, borrowing needs to come down as the economic recovery is established. Has not the OBR forecast that borrowing will be £30 billion lower than I anticipated in my Budget, and does not that flatly contradict the Prime Minister who said last week that

“the overall scale of the problem is even worse than we thought”?

Does not the report say that borrowing is lower not just this year, for which the OBR forecasts borrowing at £8 billion lower than I did, but in each and every one of the next five years? Borrowing is down by more than £30 billion in total. Can the Chancellor confirm whether he and the Prime Minister knew what the OBR’s borrowing forecasts were prior to the Prime Minister making his speech last Monday? If he did not, he was just plain wrong; if he did, he owes us an apology. At the election, the Chancellor and the Prime Minister said that they had no need to raise VAT. Now that borrowing is in fact lower than they thought, is that still their policy?

Turning to growth, the OBR has confirmed my forecast for this year, but it has set out a lower growth forecast for future years—just 2.6% next year. This change is driven partly by what Sir Alan has today labelled “recent events”, particularly events in Europe, where growth is sluggish at best. Is it not the case that what is happening in Europe, our largest export market, will impact on growth here in the UK? Does not that reinforce the need to put in place measures to secure growth here and in other countries in Europe? Does not the Chancellor agree that the impact of action taken across Europe to reduce deficits runs the risk of depressing demand and setting back the recovery unless accompanied by measures to stimulate growth? Does he not accept that growth is essential to cut borrowing? Japan provides an example of what happens if one gets this wrong—recovery is choked off, growth becomes stagnant, and debt rises.

It was because the private sector was weak as the global crisis hit that the public sector stepped in to support our economy. Sir Alan Budd and his colleagues understand that point, because Sir Alan says in his report, at paragraph 3.20:

“Private sector demand contracted sharply in the recession, while government spending contributed positively to GDP growth.”

So much for the claim that our spending was irresponsible and unnecessary. In the same paragraph, he goes on to say:

“For this year”—

2010—

“it is government consumption and inventory accumulation that make the largest contribution to growth.”

In other words, without it there would not have been growth this year. The risk of taking large sums out of the economy is that the recovery will be derailed. Is it not also the case that confidence is being affected by the scaremongering that we see from the Prime Minister and the Chancellor? The Chancellor will have noticed the survey of business confidence this morning showing a reduction in business confidence. That shows that what he is saying is, unfortunately, having a very real impact on the economy.

The Chancellor asked us to focus on the structural deficit. However, he will have read Sir Alan’s very clear statement, at paragraph 4.40 of the report, that

“forecasts of cyclically-adjusted aggregates are subject to particular uncertainty.”

In other words, there is a great deal of uncertainty about what the structural deficit is. But if the Chancellor does take the estimate of structural borrowing from today’s forecasts as the barometer of success, he needs to be clear with people what that means. Will he confirm that it is still his policy to remove the entire structural deficit over this Parliament? If so, will he confirm that, on the numbers published today, he would need to find £118 billion by 2014-15? That is £118 billion of spending cuts, tax rises or both, which will affect millions of people and businesses in this country.

Since the Budget, there has been slightly faster growth at the beginning of this year. There is lower borrowing as tax receipts have come in higher than previously thought. Far from providing political cover for the Conservatives and Liberal Democrats for cuts and tax rises next week, does not the report remind us that growth is still fragile, the recovery is not yet secured and growth is essential, not only to cut borrowing but to secure jobs and a lasting recovery?

George Osborne Portrait Mr Osborne
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The report reminds us of the complete mess that the economy was in when there was a change of Government.

Let me deal with the right hon. Gentleman’s points. First, I apologise that he received the statement only 25 minutes before it was delivered. I was following the normal practice that had been established in the Chancellor’s private office. Despite having been on the wrong end of that for three years, I note his complaints about the very first statement, and I will look into that.

Let me answer directly the right hon. Gentleman’s question, towards the end of his remarks, about the fiscal mandate. It will be set in the Budget. There is no credible fiscal mandate in place in Britain because we have inherited from the previous Government a commitment, which most of the rest of world does not believe is a serious and credible effort to reduce the deficit. The fiscal rules never amounted to very much either when the crisis came, but we will put in place new fiscal architecture.

The right hon. Gentleman talks about borrowing and economic growth. I remind him that the whole point about the structural deficit is that it is not the part of the deficit that reduces as growth returns. According to the OBR report, it is increasing above the estimates that were given in the March Budget. That is striking given that the out-turn for borrowing last year was, indeed, lower than the Chancellor forecast just three or four weeks, as far as I can tell, before he received the out-turn numbers. He gave a figure in the Budget and out-turn numbers were lower. It is therefore all the more striking that the structural deficit—the crucial part of the numbers: the black hole in the public finances—is higher by a significant amount than he forecast. Of course, we are all concerned about the situation in the eurozone, but 28 out of 30 independent bodies that look at the British economy did not believe that the figures that he gave in the March Budget were accurate. Indeed, we pointed that out at the time. [Hon. Members: “You haven’t answered a single question.”] I did not think that the right hon. Gentleman asked many questions; I have answered both of them.

The right hon. Gentleman makes a point about spending cuts and so on. He pencilled in £44 billion of spending cuts. Until a single member of the Opposition provides us with a clue as to how they would even have begun to achieve those £44 billion of cuts, they will not be taken seriously. The leadership contenders are busily taking their party leftwards into the margins of British politics. They are not addressing the central issue about their fiscal plans, which were not credible. Where would the spending cuts have come from? We are prepared to answer that question. Until they do, they are not contenders for being taken seriously in British politics.

Let me remind the right hon. Gentleman of what one of his Ministers, Paul Myners, said. This was the man whom he appointed—or at least agreed to have appointed—to the Treasury, and the man who sat with him in all those meetings over the years. He said:

“There is nothing progressive about a Government who consistently spend more than they can raise in taxation, and certainly nothing progressive that endows generations to come with the liabilities incurred by the current generation.”—[Official Report, House of Lords, 8 June 2010; Vol. 719, c. 625.]

That is the truth about the Labour party’s position.

The right hon. Gentleman says, “Apologise”. He is the person who should apologise. More to the point, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), wherever he is, should come here and apologise for the complete economic mess in which he left the country.

Margot James Portrait Margot James (Stourbridge) (Con)
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May I congratulate my right hon. Friend on this unprecedented increase in transparency and openness on economic forecasting? Is it not the case that the increase in the structural deficit as a percentage of gross domestic product means that a robust deficit reduction plan is needed now more than ever?

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George Osborne Portrait Mr Osborne
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My hon. Friend is absolutely right, and that is also the conclusion of the G20, the European Union and most international observers of the UK situation.

Michael Meacher Portrait Mr Michael Meacher (Oldham West and Royton) (Lab)
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If the Chancellor accepts Sir Alan Budd’s estimate that around three quarters of the current deficit—about £120 billion—is structural, and if he intends to eradicate that entirely during this Parliament through public spending cuts and tax increases, where does he expect the growth to come from to prevent unemployment from increasing to 3 million and staying there for the next five years?

George Osborne Portrait Mr Osborne
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The fiscal mandate will be set out in the Budget. I am disappointed that the right hon. Gentleman was not elected as Chair of the Public Accounts Committee, but perhaps from his current position he will begin to propose cuts—as I said, cuts were even pencilled in to the previous Government’s plans—before concerning himself with our proposals.

Julian Brazier Portrait Mr Julian Brazier (Canterbury) (Con)
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While sharing my right hon. Friend’s dismay at the inheritance he has acquired—the picture is even worse than it once appeared—may I urge him to accelerate the plans that the Conservatives set out at election time to encourage lending by the banks, especially to small businesses, because the money supply figures are at an almost unprecedented low, and there is a real danger that we could see a further downturn?

George Osborne Portrait Mr Osborne
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My hon. Friend is absolutely right to be concerned about the lending figures out there in the economy, and I hope to have more to say on that in the Budget.

Stewart Hosie Portrait Stewart Hosie (Dundee East) (SNP)
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I thank the Chancellor for his statement and the early advance sight of it. That is different from what happened under the previous Government, when such statements tended to come in very late indeed.

There is no doubt that the OBR forecasts show that the previous growth forecasts were too high and the deficit forecast, which is now £155 billion, was also too high. Will the Chancellor reflect that that is not simply a green light to tax and cut more, but that it demonstrates the imperative for sustained and sustainable above-trend growth, which is the real solution to tackling the structural deficit?

George Osborne Portrait Mr Osborne
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I thank the hon. Gentleman for thanking me for the early sight of the statement—we are trying to improve on things in the Chancellor’s office.

My point to the hon. Gentleman is that the threat to the United Kingdom at the moment is, in part, our very large budget deficit. Indeed, the Governor of the Bank of England identified it as the single greatest economic challenge that we face. Whether we are Scots or English, and wherever we live in the UK, we must deal with that deficit. I would welcome engagement with the Scottish Government in moving forward and identifying sensible savings, so that we can reduce the budget deficit and give our country and future generations a bright future.

John Pugh Portrait Dr John Pugh (Southport) (LD)
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May I welcome you to your role, Mr Deputy Speaker?

According to the House of Commons Library, the Treasury has, in the past 10 years, been at least as good at accurately forecasting growth as independent forecasters. The background work on the new projections has actually been done by a secretariat provided by the Treasury, and according to Sir Alan, the changes are

“within the normal range of uncertainty”.

Therefore, in all honesty, ought we to regard the new independent forecast as a simple downgrade of Treasury forecasts, and avoid unnecessary point scoring on what is a matter for the whole nation?

George Osborne Portrait Mr Osborne
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I am always against unnecessary point scoring. I say this to my hon. Friend: I think the new process is a big departure in how Budgets are put together. It is worth reflecting for a moment on what I did in this statement. I have read out what would normally be the first part of the Budget. Everyone now knows the forecasts and the assumptions behind them. He says that the forecasts were produced with the help of Treasury people, but Sir Alan Budd is an enormously respected independent person, and I do not think his independence can be questioned. We now have a set of accurate national accounts. Indeed, when the OBR is on a statutory footing, I want it to do more work on the true state of the national accounts, with regard to private finance initiative liabilities and the like. The big difference is that I must now fit the Budget to the figures, rather than fit the figures to the Budget.

Chris Leslie Portrait Chris Leslie (Nottingham East) (Lab/Co-op)
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I welcome you to the Chair, Mr Deputy Speaker.

Page 11 of the OBR forecast has an illuminating table about the contribution that various elements of spending—in this case, Government investment—make to GDP growth. For 2011, it shows a potential minus 19% effect in one year. Will the Chancellor confirm that his Budget and the spending review will not worsen that contribution to GDP, and will the OBR report on an analysis of the Budget and the spending review in terms of those components shortly after they take place?

George Osborne Portrait Mr Osborne
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I will set out measures in the Budget, and the hon. Gentleman will have to wait for that. He highlights the point that I was making—that the forecast is based on the plans inherited from the previous Government. It identifies huge spending cuts, but they never told us where those cuts would fall. I am sure that he wants a future in the Labour party, so perhaps he can take a lead over some of the leadership contenders and tell us what those cuts would be.

Thérèse Coffey Portrait Dr Thérèse Coffey (Suffolk Coastal) (Con)
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Will my right hon. Friend support the work of the OBR in assessing offsheet balance liabilities, including such things as PFI and unfunded public sector pension liabilities? I hope that he will recognise that it is important that we put all the debts that Labour has generated over the years on the balance sheet once and for all so we know how we can pay for them.

George Osborne Portrait Mr Osborne
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My hon. Friend is right. On page 58 of the report, Sir Alan and the fellow members of his committee set out some of the liabilities that need to be factored into longer-term fiscal forecasts, which include an ageing population, unfunded public service pension liabilities and the PFI contracts. They point out that some £43 billion of PFI contracts are off the national balance sheet.

Jack Dromey Portrait Jack Dromey (Birmingham, Erdington) (Lab)
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In the real world of the real economy, last Friday I met a dozen world-class machine tool manufacturers at their annual exhibition in Birmingham. They were unanimous in their view that the Government were right to borrow to invest in the economy to boost it and their order books. Are they wrong?

George Osborne Portrait Mr Osborne
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If they are similar to the machine tool manufacturers I have met in Birmingham in recent months, they are also very concerned about the size of the budget deficit and that, unless we get a grip on it, there will be an ever higher spiral of tax rises and interest rate increases that would do enormous damage to them and to the people whom they employ.

Baroness Morgan of Cotes Portrait Nicky Morgan (Loughborough) (Con)
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I note that the former Chief Secretary who left that infamous note for his successors is in his place. Surely the establishment of the OBR heralds a transparency and openness that we have not seen before, and will mean that such a note could never be left again.

George Osborne Portrait Mr Osborne
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It would probably have to be published, if it were—[Interruption.] Well, just the contents.

As I noted from the remarks of the shadow Chancellor, it is interesting that we have not actually heard from the Labour party about whether it supports an independent OBR. It opposed that when in government—

Lord Darling of Roulanish Portrait Mr Darling
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indicated dissent.

George Osborne Portrait Mr Osborne
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It was repeatedly opposed by Treasury Ministers when I proposed it. Indeed, one of the most vocal and eloquent opponents was the shadow Education Secretary—I know that the shadow Chancellor has not always got on with him—who put the arguments on why Labour was opposed. If the Labour party wants to change its mind, we are all ears.

Clive Efford Portrait Clive Efford (Eltham) (Lab)
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What has the OBR had to say about predictions of levels of unemployment and how they differ from those predicted in the March Budget?

George Osborne Portrait Mr Osborne
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For the first time, the OBR has published five-year projections of unemployment and employment. The projection for the coming year, for example, is that employment will fall and unemployment will rise—based, of course, on the pre-Budget measures.

Charlie Elphicke Portrait Charlie Elphicke (Dover) (Con)
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In Dover and Deal, people tell me time and again that they want more jobs, more money and more economic growth, so it is a real shock to come to the House and see the table in today’s report showing that economic growth has been revised downwards, by between 0.5% and 1%. How can that have happened in the three short months since the Budget? Were the Budget numbers fiddled? What has been going on?

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George Osborne Portrait Mr Osborne
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To be frank, my hon. Friend’s question is one that he needs to address to the shadow Chancellor when there is an opportunity.

Rachel Reeves Portrait Rachel Reeves (Leeds West) (Lab)
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I welcome the establishment of the Office for Budget Responsibility and the increased transparency that it brings. However, the point that today’s document makes most clearly is that the economic recovery is still fragile. The Chancellor makes interesting points about the structural deficit, but does he agree that the structural deficit depends also on the level of economic growth? What are he and his Government doing to lift the economic growth rate, when there is so little about, given that the future jobs fund, the regional development agencies, and support for industry and universities are all being scrapped?

George Osborne Portrait Mr Osborne
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We are providing support to the economy, first, by providing a transparent account that commands international confidence, and secondly, by committing to a clear plan to reduce the budget deficit and taking in-year measures that have commanded international confidence. That has led to a reduction in market interest rates for this country and given enormous support to the economy.

The final point that I would make to the hon. Lady is this. Let us not forget the situation that we inherited: the largest budget deficit in the developed world; rising unemployment; industry that had been brought to its knees; business investment that had collapsed. That is the situation that we are trying to recover from.

Jacob Rees-Mogg Portrait Jacob Rees-Mogg (North East Somerset) (Con)
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Will the Chancellor consider asking the Office for Budget Responsibility to think about tax cuts to help economic growth, thereby bringing our budgetary system into a better situation?

George Osborne Portrait Mr Osborne
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Sir Alan will give evidence to the Treasury Committee when it is formed, but one of the things that the Office for Budget Responsibility will do is cost Budget measures, including the impact of tax and spending changes. That will revolutionise how Budgets are put together, as well as how the House can scrutinise them, because hon. Members will be able to see that the costings are independently verified, rather than being ones that the Chancellor has signed off.

Fiona Mactaggart Portrait Fiona Mactaggart (Slough) (Lab)
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I, too, welcome the greater transparency that today’s report involves. It shows us that the recovery is genuinely fragile. When I spoke just last week to a company in my constituency in one of the sectors in which Britain leads the world—bio-pharmaceuticals—I was told that manufacturing investment had been moved to countries that were investing publicly in their companies, including from Britain, where it was not possible to secure such investments. How will the Chancellor’s Government ensure that such disinvestment, caused by a lack of public support, does not continue to create more unemployment and a weaker recovery for Britain?

George Osborne Portrait Mr Osborne
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First, let me thank the hon. Lady for welcoming the creation of the Office for Budget Responsibility—I should have thanked the hon. Member for Leeds West (Rachel Reeves) for that as well. The change is a genuinely revolutionary step forward in the making of Budgets that fits with a wider agenda of trying to bring more transparency to the way that the Government do their business. On the point about investment, the hon. Member for Slough (Fiona Mactaggart) is right to point out that there was a fairly dramatic fall in investment under the Government whom she supported, but I would say this: the sustainable answer to the problem is a strong private sector recovery, and that is what we all have to work towards.

George Freeman Portrait George Freeman (Mid Norfolk) (Con)
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Does my right hon. Friend agree that the real significance of today’s independent report is the revelation of the extent of the structural deficit, with debt interest alone forecast to rise to £67 billion, strangling growth and enterprise, and at the same time destroying new Labour’s core claim to be the party of economic competence?

George Osborne Portrait Mr Osborne
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My hon. Friend is right—[Interruption.] I see one of the leadership contenders barracking from the Opposition Benches. I do not know whether the right hon. Member for Doncaster North (Edward Miliband) wrote the speech for the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) in which he told the Labour party conference in 1996:

“Losing control of public spending doesn’t help the poor”.

That is one area in which I agree with the former Prime Minister.

Andrew Love Portrait Mr Andrew Love (Edmonton) (Lab/Co-op)
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Does the right hon. Gentleman accept that a major contributor to the reduction in the growth forecasts for next year is the increasingly gloomy situation developing in Europe? Is he at all concerned about the competitive austerity that is breaking out across Europe? Is he also concerned that, if he goes ahead with the programme that he is outlining, we might face a double-dip recession as a consequence?

George Osborne Portrait Mr Osborne
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I suspect that everyone in the House is concerned about the situation in the eurozone, but let us be clear what has brought that about. It is a result of market concern about the sustainability of public finances in eurozone countries such as Greece. Those countries are having to take action to reassure markets and therefore keep their interest rates lower. I think that interest rates in Greece rose to more than 10% higher than those of other eurozone countries at one point. That is what happens to countries that do not get a grip on their public finances, and I want to ensure that no question mark is ever put against the name of the United Kingdom.

Lord Harrington of Watford Portrait Richard Harrington (Watford) (Con)
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The complacency of the former Chancellor of the Exchequer about the small reduction in the expected budget deficit is rather like my saying that I am losing weight because I missed breakfast. We want clear, credible plans to deal with the budget deficit, and we need to know what they are as soon as possible.

George Osborne Portrait Mr Osborne
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I suggest to my hon. Friend that he turns up here next Tuesday.

Kelvin Hopkins Portrait Kelvin Hopkins (Luton North) (Lab)
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May I first welcome you to your new post, Mr Deputy Speaker? Will the Chancellor confirm that budgetary policy will remain the responsibility of the Government, who will be fully responsible to Parliament in this Chamber, and that it will not be dictated by the European Union or any of its institutions?

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George Osborne Portrait Mr Osborne
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Before I answer the hon. Gentleman, I, too, should welcome you to the Chair, Mr Deputy Speaker. [Hon. Members: “Hear, hear!”] My several visits to Chorley during the general election seem only to have helped you to return to this place. It is good to see you here in the Chair.

In answer to the hon. Member for Luton North (Kelvin Hopkins), of course I want the elected British Government and the elected House of Commons to have complete control over the tax and spending decisions that affect our country. One way of doing that is to ensure that we never give rise to market concerns about our ability as a country to live within our means. That is the way to retain national sovereignty. We have seen what happens when other countries lose that sovereignty to the markets.

The hon. Gentleman asked specifically about the European Union, and I shall make two observations about that. First, the Budget this year and in all future years will of course be presented first to the House of Commons before being presented to anyone else. Secondly, I know that he will be interested in this and, before those in my party who are interested in these subjects get hold of this fact, I should let the House know that, under the deal negotiated by the right hon. Member for Kirkcaldy and Cowdenbeath and the other former Prime Minister, Tony Blair, the British contributions to the EU budget are set to rise from £3 billion in 2008 to £10.3 billion in 2014.

Sajid Javid Portrait Sajid Javid (Bromsgrove) (Con)
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My constituents, like millions of people up and down the country, are very concerned about the direction of mortgage interest rates. Does my right hon. Friend agree that unprecedented transparency in our national finances of this kind will increase our credibility in the global financial markets and help to keep interest rates lower for longer?

George Osborne Portrait Mr Osborne
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My hon. Friend is absolutely right, and it is worth reminding ourselves that the OBR June 2010 pre-Budget report is based not only on the previous Government’s tax and spending measures and decisions, but partly on the lower interest rates earned by the current Government in the decisions and announcements we have made over the previous month or so. That is why Sir Alan says in his forward that

“the fiscal path assumed”

by the previous Government

“would lead to higher interest rates and so lower economic activity ”.

Ivan Lewis Portrait Mr Ivan Lewis (Bury South) (Lab)
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Are cuts this year a matter of a small-state ideology or in our economic interests?

George Osborne Portrait Mr Osborne
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They are, above all, in our economic interests because of the mess left to us by the previous Government.

Claire Perry Portrait Claire Perry (Devizes) (Con)
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Has my right hon. Friend had any conversations about these measures with other international financial managers like himself, and if so, what has been the response?

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George Osborne Portrait Mr Osborne
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I know that my hon. Friend takes a keen interest in these matters, so she will have seen the G20 communiqué signed in South Korea that says:

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions.”

That is, of course, precisely what the OBR does.

George Mudie Portrait Mr George Mudie (Leeds East) (Lab)
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Has the Chancellor seriously come to this House and told us he does not have any concerns or see any danger of high unemployment or damage to the economy in taking a short-term approach to clearing the structural deficit?

George Osborne Portrait Mr Osborne
- Hansard - -

We have demonstrated that the OBR, alongside some of the other things we have done, is a commitment to the long-term sustainability of the British public finances, and I remind the hon. Gentleman of the following words of the Governor of the Bank of England:

“The most important thing now is for the new Government to deal with the challenge of the fiscal deficit. It is the single most pressing problem facing the United Kingdom”.

Penny Mordaunt Portrait Penny Mordaunt (Portsmouth North) (Con)
- Hansard - - - Excerpts

One of the consequences of the previous Chancellor playing fantasy forecasts with this country’s growth projections is that the men and women of my constituency—and, I am sure, of elsewhere—feel they have been treated with contempt and as mere collateral damage of an election campaign. It is vital that we restore these people’s trust and confidence in Treasury reporting; it is, after all, they who are going to put this country back on its feet again. What will this Treasury team do to support that?

George Osborne Portrait Mr Osborne
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First, I will tell the Prime Minister what I am up to, because another thing that emerged over the weekend was that the former Chancellor of the Exchequer hid the numbers not only from the rest of the country, but from his own Prime Minister.

Chris Williamson Portrait Chris Williamson (Derby North) (Lab)
- Hansard - - - Excerpts

May I begin by congratulating you, Mr Deputy Speaker, on your elevation to your new role? Will the Chancellor explain why he is obsessed with pursuing economic policies that failed in the 1930s, failed in the 1980s and failed in the 1990s?

George Osborne Portrait Mr Osborne
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The most obvious set of failed economic policies is that pursued by the Labour party.

Lord Barwell Portrait Gavin Barwell (Croydon Central) (Con)
- Hansard - - - Excerpts

If I heard my right hon. Friend correctly, the policies of the previous Administration will lead to us spending an incredible £67 billion on debt interest alone by the end of this Parliament. In the interests of transparency, may I encourage him to put that number in context for the wider electorate, so that we know the amount per household in relation to the amounts we spend on our NHS and school system?

George Osborne Portrait Mr Osborne
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That is an excellent idea. I will ensure that that information is circulated not only to Government Members, but to Opposition Members as well.

Office for Budget Responsibility (Pre-Budget Forecast)

George Osborne Excerpts
Monday 14th June 2010

(14 years ago)

Written Statements
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George Osborne Portrait The Chancellor of the Exchequer (Mr George Osborne)
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The interim Office for Budget Responsibility has published its pre-Budget forecasts for the economy and the public finances.

Copies of the publication are available in the Vote Office and have been deposited in the Libraries of both Houses.

Oral Answers to Questions

George Osborne Excerpts
Tuesday 8th June 2010

(14 years ago)

Commons Chamber
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Tony Lloyd Portrait Tony Lloyd (Manchester Central) (Lab)
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1. What assessment he has made of the effect on economic growth of the programme of expenditure reductions announced on 24 May 2010.

George Osborne Portrait The Chancellor of the Exchequer (Mr George Osborne)
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The Treasury’s assessment is that the effect will be positive. The in-year reductions in spending are part of the Government’s efforts to bring down the budget deficit, the level of which threatens the recovery. This weekend the G20 stated:

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation. We welcome the recent announcements by some countries”—

including Britain—

“to reduce their deficits in 2010”.

Tony Lloyd Portrait Tony Lloyd
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I welcome the Chancellor to his place, but will he have the candour to admit that his strategy is very risky, because it risks putting this country back into a double-dip recession? In any case there will be losers, so will he say who they will be?

George Osborne Portrait Mr Osborne
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Let us be clear about who the losers would be if we did not deal with this record budget deficit. The whole country would lose out, because there would be higher interest rates, more businesses would go bust and international investor confidence would be lost. The hon. Gentleman needs to examine what is happening in the rest of the world, and realise that because Britain has the largest budget deficit of any advanced economy, we have to get on and deal with it.

Michael Fallon Portrait Michael Fallon (Sevenoaks) (Con)
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I welcome the Chancellor to his position. Will he give an absolute assurance that the coming Budget, and future Budgets, will always be presented first to Parliament, and that they will not have to be pre-notified to, or approved by, Brussels?

George Osborne Portrait Mr Osborne
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My hon. Friend has my absolute assurance that I would not sign up to that. Indeed, I have made that position clear to ECOFIN, and my hon. Friend the Financial Secretary to the Treasury, who is taking my place at today’s ECOFIN meeting, has also done so. It is absolutely certain that future Budgets will be presented first to the House of Commons.

Liam Byrne Portrait Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)
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I, too, welcome the Chancellor to his first Treasury questions. I know that he prefers the safety of the Treasury courtyard, but I am sure that the House will be on its best behaviour with him this afternoon. Since the 1970s, almost no country has cut its deficit significantly without increasing inequality. Will he make it a central goal of his deficit reduction plan to ensure that inequality does not rise?

George Osborne Portrait Mr Osborne
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I thank the right hon. Gentleman for his welcome. He is Labour’s “man of letters”, and it is good to see him still on the Front Bench. The point that I make to him is that Labour had 13 years in government, and inequality increased during its time in office. What we will do is deal with the very large budget deficit bequeathed to us by him and his colleagues in a way that is fair and reasonable, and protects people across the country.

Lord Tyrie Portrait Mr Andrew Tyrie (Chichester) (Con)
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It is clear that in the past few days a new system of public expenditure control has been put in place. What will the Chancellor do to ensure that Parliament is fully informed about the new system? Will he publish a full explanation of exactly how it works?

George Osborne Portrait Mr Osborne
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I think that we have the two candidates for the chairmanship of the Treasury Committee here today. [Interruption.] I do have a vote, but I am not going to exercise it on that matter. The point that I should make to my hon. Friend—I shall speak about this a bit more in our debate on the Queen’s Speech later—is that we are publishing today details of the framework that we will adopt in conducting the spending review. I will say more about that at the time of the Budget—and I will, of course, answer questions about it in detail before the Treasury Committee, whoever is in the chair. Parliament will also have a number of opportunities to discuss it, and when the spending review is finally produced in the autumn it will, of course, be presented to this House. I want all Members of this House, from all parts of it, to engage in the big national challenge of resolving how we get this country to live within its means.

John Robertson Portrait John Robertson (Glasgow North West) (Lab)
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2. If he will assess the merits of increasing the level of financial assistance to pensioners through the tax system.

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Chris Skidmore Portrait Chris Skidmore (Kingswood) (Con)
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14. What steps his Department is taking to reduce the level of the budget deficit.

George Osborne Portrait The Chancellor of the Exchequer (Mr George Osborne)
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In the past month, we have created an independent Office for Budget Responsibility to bring credibility to the Government’s forecasts, undertaken and completed in-year budget reductions of £6.2 billion and, today, laid before the House the process for the spending review that will take place this summer. In two weeks’ time, the Budget will set out a credible plan to accelerate the reduction of the budget deficit so that investors are reassured, interest rates can be kept lower for longer, and the recovery can be put on a stable footing.

Neil Carmichael Portrait Neil Carmichael
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I note those excellent plans. Will the Chancellor of the Exchequer tell the House how many conversations he has had with colleague Ministers of Finance, and how much support and encouragement he has had from them to deal with our deficit?

George Osborne Portrait Mr Osborne
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I attended the G20 in South Korea this weekend. The G20 communiqué calls on countries with significant fiscal challenges—we have the highest budget deficit in the G20, so that includes us—to accelerate the reduction in the structural deficit. It has also been part of the European Union discussions that I have taken part in, that countries with significant budget deficits need to get on and reduce them. I am afraid that the Labour party, as it continues to oppose what we are doing, finds itself outside the international mainstream.

Nadhim Zahawi Portrait Nadhim Zahawi
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Has my right hon. Friend the Chancellor read yesterday’s International Monetary Fund report, which warns that the current crisis management was no alternative to fundamental economic restructuring? Does he agree that the previous Government either naively or deliberately chose to mislead the nation?

George Osborne Portrait Mr Osborne
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My hon. Friend is absolutely right. I have, of course, seen the IMF report, and the lesson we learned is that you have to fix the roof when the sun is shining. That is what the previous Government completely failed to do. They had 13 years to fix the national finances, and now it is up to us to clear up the mess that they left behind.

Karen Lumley Portrait Karen Lumley
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Has the Chancellor received any apologies from the previous Government for the mismanagement of the economy over the past 13 years?

George Osborne Portrait Mr Osborne
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No, but we did receive a letter from the former Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), apologising for the fact that there was no money left. We will discuss this issue in the debate on the Queen’s Speech. I note that the Labour party has tabled a motion, which it is asking us all to vote for, noting

“the need for a clear plan to bring down the deficit”.

I look forward to hearing that clear plan in the shadow Chancellor’s speech.

Kwasi Kwarteng Portrait Mr Kwarteng
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Has the Chancellor received any more correspondence from the former Chief Secretary?

George Osborne Portrait Mr Osborne
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No, sadly I have not, but I discovered that he had a large bust of Oliver Cromwell sitting behind his desk, and that when the Irish peace negotiations were being conducted they had to be held in another room.

Chris Skidmore Portrait Chris Skidmore
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In my constituency, the number of people claiming jobseeker’s allowance has increased by 147% in the past five years. Does the Chancellor agree that unemployed people in Kingswood would be best served by decisive action to tackle Labour’s legacy of debt now?

George Osborne Portrait Mr Osborne
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I agree absolutely with my hon. Friend. Of course, we inherited rising unemployment from the previous Labour Government and it is a fact that all Labour Governments have left office with unemployment rising—[Hon. Members: “It’s falling.”] Opposition Members say that, but they are not looking at the unemployment figures, which show that unemployment is rising, that we have the highest youth unemployment in Europe, and that a record number of children are growing up in workless households. That is what we have inherited from the Government who had 13 years to sort out these problems. We will sort this out, and give people real life chances.

Natascha Engel Portrait Natascha Engel (North East Derbyshire) (Lab)
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I welcome the right hon. Gentleman to his new position. Has he calculated what his announcement of a £125 million reduction in the police grant means, in terms of fewer police officers and fewer special constables in Derbyshire?

George Osborne Portrait Mr Osborne
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All public services have to find efficiencies, and that is true of the police service, as it is of every other service. I have to say to the hon. Lady, and all Opposition Members, that if they are going to play a serious part in the discussion about how to reduce Britain’s record budget deficit, they need to come up with their own proposals instead of attacking every proposal put forward by the Government.

David Anderson Portrait Mr David Anderson (Blaydon) (Lab)
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When the most recent Chief Secretary to the Treasury, the right hon. Member for Yeovil (Mr Laws), made his debut two weeks ago—which became, of course, his swansong—my hon. Friend the Member for Manchester Central (Tony Lloyd) asked him whether he could give any idea how many jobs would be lost as a result of the deficit reduction package. His answer was that it is not right to pluck figures out of the air. Can we have some more concrete evidence from the Chancellor?

George Osborne Portrait Mr Osborne
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Our plan is to increase employment in this country by putting the public finances on a sound footing. It is about time the Labour party understood that it left behind the largest budget deficit in the EU and the G20. All over the world, people are looking at sovereign credit risks. This Government are determined to do something about the problem before people start looking at Britain.

Mark Durkan Portrait Mark Durkan (Foyle) (SDLP)
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The Chancellor could take the opportunity today to spell out to us how he and his coalition colleagues hope to popularise their cuts agenda. We seem to be being told that the public will be consulted on which spending should continue and which cuts might be made. How will that “axe factor” approach to government play out?

George Osborne Portrait Mr Osborne
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I congratulate the hon. Gentleman on the pun—but this is a very serious national challenge, which whoever won the election was going to have to face. The 11% budget deficit will not disappear. A very large part of it is structural, and so will not automatically reduce as growth returns to the economy. We want to make sure that all political parties, including his, and the brightest and best brains across Whitehall and the public sector, as well as voluntary groups, think-tanks, trade unions and members of the public, are all engaged in the debate and discussion about how, collectively, we deal with the problem. After all, it is our collective national debt.

Lord Darling of Roulanish Portrait Mr Alistair Darling (Edinburgh South West) (Lab)
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First, may I welcome the Chancellor and his team to the Front Bench? I hope that he will join me in sending our good wishes to my right hon. Friend the Member for East Ham (Mr Timms), who remains a member of the Opposition Treasury team and who I am glad to say was in very good heart when I saw him a couple of weeks ago. He is looking forward to returning to the House at an early opportunity.

Unemployment is high today, but it is half what it was in the 1980s. Repossessions in the past couple of years are half what they were in the 1990s. Our economy is growing and our borrowing is coming down. Does the Chancellor accept that all of that is because we, in common with other countries—yes, as part of an international consensus—were prepared to take action to save our economy as we went into recession? Every one of those measures was opposed by him when he was shadow Chancellor.

George Osborne Portrait Mr Osborne
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It sounds as if we are rerunning the general election campaign. First, may I pay tribute to the work that the right hon. Gentleman did over three years, I think it was, as Chancellor of the Exchequer? He did the job in very difficult times, with the best of motives. Although we did not always agree with each other, as he has just made clear, he was always very courteous to me. I also thank him for the fact that I inherit from him a far more functional and less chaotic Treasury than the one that he inherited from his predecessor.

I make the point to the shadow Chancellor that the situation that we inherited from his Government—I do not say that he is solely to blame for this—is an extremely critical one. We have a very large budget deficit at a time when, as I have said, countries around the world are having to look at sovereign credit risks. We are having to deal with that, and with rising unemployment and growing inequality in our country. Regional disparities are growing as well, and we have to deal with those problems.

The right hon. Gentleman talks about the international consensus. He surely must have noted how, in the month since the general election, the EU, G20, the IMF, the OECD, and of course our own Governor of the Bank of England, have all warned us about the consequences of not dealing early with our budget deficit, and not accelerating the reduction in the budget deficit that he proposed in his March Budget.

Lord Darling of Roulanish Portrait Mr Darling
- Hansard - - - Excerpts

I agree that there are many issues that need to be resolved, in this country and others. No doubt we will return to them when the debate on the Gracious Speech resumes.

I want to ask a specific question about the Office for Budget Responsibility that the Chancellor is about to set up. When that body makes its recommendations, will he undertake that it will publish all the underlying assumptions that lead to them? Will he ensure that its deliberations, rather like those of the Monetary Policy Committee, are open and available for all to see?

George Osborne Portrait Mr Osborne
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I should have joined the right hon. Gentleman in wishing the right hon. Member for East Ham (Mr Timms) a speedy recovery. I understand that he has now sworn in, which is fantastic for everyone here concerned. The fact that he was assaulted in his constituency surgery doing his job as a constituency MP makes the incident all the more chilling, and we all wish him very well.

Let me deal specifically with the right hon. Gentleman’s question. We have set up the Office for Budget Responsibility on a non-statutory basis because we need to pass legislation to make it statutory. The model that we have followed is the approach taken by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) when he set up the Monetary Policy Committee. Sir Alan Budd will be available to answer questions from the Treasury Committee on exactly the kind of points that the right hon. Gentleman raises—such as the underlying assumptions. It is ultimately up to him how he publishes his information, and I do not want to prejudge that, but the purpose of the exercise is for people to have confidence in official figures and growth forecasts, and confidence means transparency. I am sure that the spirit of what the right hon. Gentleman says will be taken on board by Sir Alan.

Lord Harrington of Watford Portrait Richard Harrington (Watford) (Con)
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4. If he will estimate Government expenditure on external consultants in (a) 1997 and (b) the last year for which figures are available.

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Mark Lazarowicz Portrait Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
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T1. If he will make a statement on his departmental responsibilities.

George Osborne Portrait The Chancellor of the Exchequer (Mr George Osborne)
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The core purpose of the Treasury is to ensure the stability of the economy, promote growth and employment, reform the banking system and manage the public finances so that Britain lives within her means.

Mark Lazarowicz Portrait Mark Lazarowicz
- Hansard - - - Excerpts

Whether the amount lost by tax avoidance or tax evasion is £100 billion or £40 billion a year, it is a lot of money which could go a long way to tackling the deficit. Will the Chancellor tell his ministerial colleagues sitting next to him to give a higher priority to tackling tax evasion and tax avoidance so as to make sure that those who are most able to pay the costs of the deficit do so, rather than those who are least able to pay?

George Osborne Portrait Mr Osborne
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Yes, we will.

Philip Hollobone Portrait Mr Philip Hollobone (Kettering) (Con)
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T6. At a time of low investment returns, which mean that many people in the private sector are struggling to fund a pension for their retirement, what steps will be taken to tackle the ballooning public sector pension bill?

George Osborne Portrait Mr Osborne
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The Government will establish an independent commission to look at public sector pension provision. We will make an announcement on that in due course.

Graham Allen Portrait Mr Graham Allen (Nottingham North) (Lab)
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T3. Has the Chancellor yet had a chance to have a one-to-one with the Secretary of State for Work and Pensions to discuss the thing that would most affect the structural nature of the deficit: early intervention with our babies, children and young people to ensure that we do not accumulate massive costs of failure that need to be met much later? If he has not done that, will he undertake to do so, please?

George Osborne Portrait Mr Osborne
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I have had several conversations with my right hon. Friend the Secretary of State for Work and Pensions on this issue and on the broader issues of welfare reform. I broadly agree with the point that the hon. Gentleman makes—he made it forcefully in the last Parliament—that support for children in the early years can yield real results later on. We will bear that in mind as we conduct our spending review.

Tom Brake Portrait Tom Brake (Carshalton and Wallington) (LD)
- Hansard - - - Excerpts

T2. While the Chancellor is reviewing the projects agreed by the previous Government since 1 January, may I commend to him the Better Healthcare Closer to Home programme and the plans that it has for St Helier hospital? May it draw it to his attention that the plans were very enthusiastically endorsed by the new Secretary of State for Health when he visited my constituency just a couple of days before the general election?

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Alun Michael Portrait Alun Michael (Cardiff South and Penarth) (Lab/Co-op)
- Hansard - - - Excerpts

T8. The Chancellor will be aware of the public and cross-party support given to the proposal to turn British Waterways into a sort of national trust for the waterways of the UK. That was given official endorsement in the last Budget. Can the Chancellor confirm his intention to pursue this proposal, and perhaps give an idea of the time scale within which it might be brought about?

George Osborne Portrait Mr Osborne
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If the right hon. Gentleman will allow me, I will look into the details of the proposal to which he refers and write to him.

Peter Bone Portrait Mr Peter Bone (Wellingborough) (Con)
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T7. In 2008-09, our contribution to the EU was £2.5 billion. This year it will be £6.4 billion. Why does every budget have to be cut except the EU’s, which can increase by 150%? Is it not a case not of ring-fencing, but of gold-plating?

George Osborne Portrait Mr Osborne
- Hansard - -

I am sure that my hon. Friend will be glad to know that in my first ECOFIN I proposed to the Council that we freeze the EU budget, and there was support from other countries around the table. [Interruption.] If the hon. Member for Rhondda (Chris Bryant) is supporting an increase in the EU budget, he should tell the House.

Lord Austin of Dudley Portrait Ian Austin (Dudley North) (Lab)
- Hansard - - - Excerpts

I welcome the Chancellor and his team to their new posts. As part of the consultation on cuts that is being announced today, would he be prepared to visit Dudley, so that we can discuss the importance of maintaining investment in education and training as our No.1 priority, so that we can bring to the area the new industries and jobs on which our future prosperity will depend? While he is there, I can take him to Priory road, and he can see the devastating impact that his decision to cut spending on housing is having on that community.

George Osborne Portrait Mr Osborne
- Hansard - -

I am always very happy to visit Dudley. I have done so many times in the last three or four months—which was half successful.

We have found additional money to support social housing. We discovered that the housing commitments made by the Labour Government just before the general election were completely unfunded. We have found money to fund additional social housing, which during the past 13 years the previous Government almost completely failed to do.

Bob Russell Portrait Bob Russell (Colchester) (LD)
- Hansard - - - Excerpts

T9. Further to excellent question of the hon. Member for Bristol East (Kerry McCarthy), can the Minister who was briefed to answer the excellent Question 25, in my name, now give a more substantive answer? What will the Government do to support credit unions such as the excellent one in Colchester?

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George Osborne Portrait Mr Osborne
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We will be making an announcement on the civil list in due course, but if the hon. Gentleman is looking for cost savings, perhaps early retirement is something that he could consider. [Interruption.]

James Clappison Portrait Mr James Clappison (Hertsmere) (Con)
- Hansard - - - Excerpts

Does not part of the contribution to the EU budget result from the surrender of the UK rebate in 2005 by the previous Government, which will cost taxpayers in this country up to £9 billion over six years and was given in return for nothing? Should we not add that to the Chief Secretary’s list of waste by the previous Government?

George Osborne Portrait Mr Osborne
- Hansard - -

My hon. Friend is absolutely right. The former Prime Minister Tony Blair gave away the UK’s budget rebate in return for absolutely nothing. We were promised at the time that it would give us leverage over CAP reform, which never arrived, and I am afraid that that is just one of the many decisions that the previous Government got wrong.

Angus Brendan MacNeil Portrait Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
- Hansard - - - Excerpts

Growth throughout the UK economy has often been geographically uneven. Has the Chancellor considered what help a rural fuel derogation might bring to the highlands and, in particular, the islands of Scotland; and can I volunteer my own constituency, Na h-Eileanan an Iar, for any pilot project?

Robert Halfon Portrait Robert Halfon (Harlow) (Con)
- Hansard - - - Excerpts

Under the previous Government, unemployment in Harlow was the highest in west Essex. Do the Government agree that a low-tax, low-debt economy is the best way to bring jobs back to Harlow?

George Osborne Portrait Mr Osborne
- Hansard - -

May I say how particularly pleased I am to see my hon. Friend in the House? His victory was one that I found particularly satisfying on election night.

My hon. Friend is absolutely right that the ambition of a low-debt, low-tax economy is one to which people who care about the long-term economic future of this country should aspire. The key challenge, of course, is getting there, and that means dealing with the 11% budget deficit.

Geraint Davies Portrait Geraint Davies (Swansea West) (Lab/Co-op)
- Hansard - - - Excerpts

The right hon. Gentleman will know that the budget deficit at the time of the Budget was £22 billion less than was predicted four months earlier in the pre-Budget report, showing that the major engine for reducing the deficit is economic growth. Will he give an undertaking that the cuts that he intends to make will not cut the capacity for economic growth in Britain, thereby increasing the deficit?

George Osborne Portrait Mr Osborne
- Hansard - -

May I congratulate the hon. Gentleman on his return to the House, as we both served on the Public Accounts Committee when I first arrived in the House? I make this point: he makes an original observation that somehow the British budget deficit is low, when, actually, of course, it is an 11% budget deficit and we are borrowing £156 billion—[Interruption.]

George Osborne Portrait Mr Osborne
- Hansard - -

Oh, go and take the pension, please. [Interruption.]

John Bercow Portrait Mr Speaker
- Hansard - - - Excerpts

Order. Can I just remind right hon. and hon. Members of the basic principle of “Erskine May”: good temper and moderation in parliamentary exchanges at all times?

George Osborne Portrait Mr Osborne
- Hansard - -

Mr Speaker, you are absolutely right.

I make this point to the hon. Member for Swansea West (Geraint Davies). The serious observation that he makes about investment in productive economic assets is one that is reflected in the document that the Treasury produced this afternoon.

Roger Williams Portrait Roger Williams (Brecon and Radnorshire) (LD)
- Hansard - - - Excerpts

A Select Committee in the other place found that reform of the Barnett formula could lead to a reduction in the budget deficit. In terms of the imperative of achieving that, will not the Treasury team look once again at that Select Committee report?

Fiona Mactaggart Portrait Fiona Mactaggart (Slough) (Lab)
- Hansard - - - Excerpts

Will unemployment and inequality increase or decrease in the coming year?

George Osborne Portrait Mr Osborne
- Hansard - -

The ambition, of course, is to try to get unemployment falling, but it is rising at the moment. That is the situation that we inherited—as is inequality, which we inherited too.

Matt Hancock Portrait Matthew Hancock (West Suffolk) (Con)
- Hansard - - - Excerpts

Is the Chancellor aware of the recent Institute for Fiscal Studies report which showed that, going into the recession, the budget deficit in the UK was already one of the highest in the developed world?

George Osborne Portrait Mr Osborne
- Hansard - -

I am absolutely aware of that report, because my hon. Friend drew it to my attention about three months ago, for which I thank him.

Huw Irranca-Davies Portrait Huw Irranca-Davies (Ogmore) (Lab)
- Hansard - - - Excerpts

Everybody is assuming that the budget cuts are based on the Canadian model, which itself was based on 3% growth and not least on strong growth in the American economy. I want to ask the Chancellor something in all seriousness. If there is not equivalent strong growth globally and within the eurozone, will that not mean that we get all the pain and none of the gain?

George Osborne Portrait Mr Osborne
- Hansard - -

There does seem to be collective amnesia on the Labour Benches. They were in government for 13 years, they ran up the largest budget deficit in the European Union and they handed over office to us after an election in the middle of a eurozone crisis. The threat to the British economy is what will happen if we do not deal with this budget deficit. Let me say to the hon. Gentleman and all Labour Members that until they have their own proposals to deal with the problem that they have bequeathed the new Government, they are not going to be taken seriously.

Alec Shelbrooke Portrait Alec Shelbrooke (Elmet and Rothwell) (Con)
- Hansard - - - Excerpts

I ask my right hon. Friend the Chancellor to outline to the House exactly what not tackling the deficit would mean for my constituents in Elmet and Rothwell and for their mortgages.

George Osborne Portrait Mr Osborne
- Hansard - -

Unfortunately, my hon. Friend would have to tell his constituents that interest rates would start to rise and international investor confidence would be lost. Today, one of the credit rating agencies has published a report that makes the observation that the UK’s deficit reduction plan is particularly weak. That is the situation that we have inherited, and we are going to put it right.

Chris Leslie Portrait Chris Leslie (Nottingham East) (Lab/Co-op)
- Hansard - - - Excerpts

Will the Chief Secretary to the Treasury rule out the means-testing of child benefit?

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Gordon Birtwistle Portrait Gordon Birtwistle (Burnley) (LD)
- Hansard - - - Excerpts

Does my right hon. Friend intend to continue using the very expensive PFI funding for future capital investment in the NHS? The most expensive to date has been in Wythenshawe hospital, where the NHS will pay back 16 times the original capital value. More prudent borrowing in the past would have delivered the investment without adding to the deficit.

George Osborne Portrait Mr Osborne
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The hon. Gentleman makes a very good observation about the hidden costs of PFI liabilities. After the Office for Budget Responsibility creates an independent set of national economic forecasts, it will go on to look at PFI liabilities. The deficit and national debt that we have been talking about are, of course, only half the story; there is the hidden iceberg of the PFI liabilities that the Labour party ran up over 13 years as well.

Economic Affairs and Work and Pensions

George Osborne Excerpts
Tuesday 8th June 2010

(14 years ago)

Commons Chamber
Read Full debate Read Hansard Text Read Debate Ministerial Extracts
George Osborne Portrait The Chancellor of the Exchequer (Mr George Osborne)
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I enjoyed what sounded very much to me like a valedictory speech by the shadow Chancellor, going through all the decisions he took and explaining to the House why they were all right. Of course, I paid tribute to him in Treasury questions for the work he did during that period, which was clearly a very stressful one, but it was pretty extraordinary that he did not once accept that he had made a single mistake during those three years—that for all his good manners, he did not once apologise for the fact that he has bequeathed to the incoming Government the worst inheritance that any British Government have faced since the second world war.

David Tredinnick Portrait David Tredinnick (Bosworth) (Con)
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Will my right hon. Friend give way?

George Osborne Portrait Mr Osborne
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If my hon. Friend will allow me, I would like to make some progress first.

I guess that the shadow Chancellor is entitled not to apologise. I would only say this to the people who are standing for the leadership of the Labour party. As far as I can tell from their contest at the moment, they seem to think that they just did not speak enough about immigration and Europe in the campaign. Let me tell him: I have done that campaign and I did not get the medal. Perhaps the leadership contenders will at some point turn their attention to the very serious economic problems that this country faces, and tell us what they would do—what they would cut. The amendment that we are being asked to vote for tonight—tabled by the Leader of the Opposition and the shadow Chancellor—states that we need

“a clear plan to bring down the deficit”.

I agree with that; I would happily vote with the shadow Chancellor if he could perhaps tell me exactly what his clear plan to bring down the deficit is because, as far as I could tell, he opposed every single decision that we have taken to try to reduce the deficit.

Ivan Lewis Portrait Mr Ivan Lewis (Bury South) (Lab)
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In The Sunday Times, the Prime Minister said that the cuts would be unprecedented in their severity and would change Britain. In The Observer, the Deputy Prime Minister said that the cuts would not at all be as serious as in the 1980s and ’90s, and would be progressive in nature. Can the Chancellor tell us—which is it?

George Osborne Portrait Mr Osborne
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It was the shadow Chancellor who said—and we were reminded of this—that the cuts would be deeper than anything that Margaret Thatcher had undertaken, and that was the proposal from the Labour party when it was in government. It is unfortunately an economic fact that the budget deficit that this country faces is higher than at any point in our peacetime history, and whoever forms the Government of this country has to deal with that budget deficit and cannot ignore it. Indeed, there is a rather striking fact about the Labour Government’s proposals, which they left in their Budget book—the shadow Chancellor has a copy in front of him. There are £50 billion of cuts built into the Labour Budget produced in March, and not one single pound of those cuts has yet been identified by the Labour party.

David Tredinnick Portrait David Tredinnick
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Many congratulations to my right hon. Friend on taking up his position. Was not one of the greatest weaknesses of the last Government, which the former Chancellor avoided mentioning, the fact that the number of people in non-taxpaying employment rocketed up and the number of those working in productive jobs that produce taxes drifted down?

George Osborne Portrait Mr Osborne
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My hon. Friend is right. There was a profound imbalance in the economy. We heard the shadow Chancellor saying, “What are the Government going to do about the unbalanced economy?” He seems to forget that he has been running the economy for the last three years. His Government have actually been in charge for the last 13 years. If there is an unbalanced economy, the people responsible are sitting on the Opposition Benches.

None Portrait Several hon. Members
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George Osborne Portrait Mr Osborne
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I want to make progress, as I know that a lot of people want to make their maiden speeches; I was talked out of my maiden speech on the day I wanted to give it by over-long Front-Bench speeches. However, I want to give way to the hon. Member for Dudley North (Ian Austin), because I want to know where his Friend the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) is.

Lord Austin of Dudley Portrait Ian Austin (Dudley North) (Lab)
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This morning, we all read the Prime Minister’s comments telling us that the cuts would affect every family in the land, and that no one would be exempt from the deep pain that those cuts would cause. Given that we are all in this together, can the Chancellor tell me which public services he and his family rely on, and which they will miss the most?

George Osborne Portrait Mr Osborne
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If that is the quality of the intervention by the Labour party as the country faces a very serious economic challenge, it confirms my view that, at the moment, it is not a serious player on the national political stage.

None Portrait Several hon. Members
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George Osborne Portrait Mr Osborne
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I want to make a little progress because a lot of Members on both sides of the House want to make their maiden speeches. I will give way in a little while, perhaps, to Members who stood up.

Of course, the economic situation is the backdrop to the Queen’s Speech. Our country is borrowing £156 billion a year. Our national debt has doubled and is set to double again. Those Opposition Members who think that this is some abstract problem should pay heed to the warning noises from the European continent. Countries that cannot live within their means face high interest rates, greater economic shocks and larger debt interest bills.

Let us consider this one fact, raised by my hon. Friend the Member for Suffolk Coastal (Dr Coffey), which the previous Chancellor refused to publish. The only reason she can deploy that fact in the Chamber is that this Government published it. It is that, on the spending plans that we inherited from the previous Government, British taxpayers are going to pay £70 billion a year in debt interest by the end of this Parliament. That is higher than the education budget, it is higher than the defence budget, and it is far higher than the policing budget. That figure was kept secret from the British people, but we will publish it because people need to know where their money is going.

Barry Sheerman Portrait Mr Sheerman
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A lot of brickbats will be thrown across the Chamber today. Surely all hon. Members, on both sides of the House, as people who care about the long-term future of our economy, agree that cuts are necessary, but is it sensible to cut widely and deeply before private investment has recovered?

George Osborne Portrait Mr Osborne
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At least the hon. Gentleman acknowledges—it is the first time, either in this debate or in Treasury questions, that we have heard this from those on the Opposition Benches—that cuts have to come. [Hon. Members: “The shadow Chancellor said that.”] I am sorry, but we have just listened to a speech by the shadow Chancellor in which he explained why we should not be trying to accelerate the reduction in our structural deficit, despite the advice of the Governor of the Bank of England, the European Commission, the OECD, the G20, virtually every international investor in the UK economy and virtually every business organisation that represents businesses in this economy. The hon. Gentleman acknowledges at least that there have to be cuts. The offer that I make to him—he may take this up; I am not sure that his colleagues will—is to engage in a proper conversation in the Chamber over the next three or four months about the decisions that will obviously have an important impact on the way the Government function over many years to come.

George Osborne Portrait Mr Osborne
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I will give way on one more occasion and then make some progress.

Huw Irranca-Davies Portrait Huw Irranca-Davies
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I want to extend to the right hon. Gentleman the courtesy of asking the question that I asked previously, because he did not do me or my constituents the courtesy of answering it. If his judgment is wrong and the cuts are either too soon or too deep so that there is not sufficient economic growth to deal with the cuts that will be imposed, will that not mean that my constituents will suffer all the pain of the cuts and have none of the gain of the growth?

George Osborne Portrait Mr Osborne
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If the hon. Gentleman is not prepared to trust my judgment, let me read out what the Governor of the Bank of England has said:

“The most important thing now is for the new government to deal with the challenge of the fiscal deficit. It is the single most pressing problem facing the United Kingdom; it will take a full parliament to deal with, and it is very important that measures are taken straight away to demonstrate the seriousness and the credibility of the commitment to dealing with that deficit.”

That is the judgment of the Bank of England Governor—appointed, by the way, by the shadow Chancellor—and the judgment that we have taken in order to protect the prosperity and the livelihoods of the people whom the hon. Gentleman represents, and the people represented by everyone else in the House of Commons.

None Portrait Several hon. Members
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George Osborne Portrait Mr Osborne
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I will make a little progress, and will give way later on in my speech, if Members will allow.

Of course, the backdrop is that our economy has become deeply unbalanced. There is deep imbalance between different parts of the country: the wealth gap between regions widened over the past 13 years. There is imbalance between different sections of society: the gap between the rich and the poor widened in our country over the past 13 years. There is imbalance between different parts of our economy: the public sector boomed to take almost half our national income, while the private sector struggled with the deepest recession that we had seen since the war. This Queen’s Speech, with its landmark reforms of welfare and education, begins the task of righting those wrongs. Later in this debate, we will hear from my right hon. Friend the Secretary of State for Work and Pensions, who has done more than anyone to highlight the trap of low aspiration, poor education and welfare dependency that our fellow citizens do not deserve and our country cannot afford any more.

David Winnick Portrait Mr David Winnick (Walsall North) (Lab)
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However dismissive the Chancellor may be, those of us who have been here since 1979 and who saw what the last Tory Government did saw only too clearly that the burden of the cuts that were made then fell on those least able to bear it, and the rich and prosperous did very well indeed. That is why we are so sensitive about the people whom we represent, and why we are so suspicious of what the Chancellor is saying, no matter what sort of qualifications he makes. I am afraid that it is our people—the people who sent us here to sit on the Labour Benches—who will suffer the worst of the burdens.

George Osborne Portrait Mr Osborne
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The similarity is this: in 1979, a new Conservative Government also had to deal with a terrible economic inheritance from the Labour party. If the hon. Gentleman is so affronted by what Margaret Thatcher did during her premiership, perhaps he could explain why, every time there is a new Labour Prime Minister, virtually the first person they invite round for tea is Margaret Thatcher.

None Portrait Several hon. Members
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George Osborne Portrait Mr Osborne
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I will make a little progress.

The Queen’s Speech contains five Treasury-sponsored Bills, and I should say something about each of them. There is the national insurance contributions Bill to stop the jobs tax that Labour would have imposed. Like every post-war Labour Government, the previous Government left office with unemployment rising, and their answer was to increase the cost of employing low-paid people. I have not yet heard from the shadow Chancellor, or anyone else, whether that is still the official Opposition’s policy. Our reforms to national insurance will not just stop the most damaging part of the jobs tax but will, by raising employer thresholds, reduce the cost of employing people on lower incomes. The Budget will also contain further measures to stimulate private sector employment and to proclaim to the world that Britain is open for business.

There is the financial services regulation Bill to fix the previous Government’s system of banking regulation. To respond to the question asked by the shadow Chancellor, next week I will set out in more detail the content of that Bill and how we propose to take the matter forward. I find it somewhat baffling to be told by him that he is unsure who is in charge of banking regulation at the moment. That was the question posed by the Treasury Committee in the last Parliament—a question about the system of regulation that his predecessor as Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath, created in 1997. That system meant that no one was in charge of looking at the growing levels of debt and the systemic risks building up in our banking system.

I believe that it is still the Opposition’s policy to oppose our decision to introduce a bank levy; they claim that they want every country in the world to have agreed to such a levy before Britain goes ahead with it. Our decision is to proceed with it, because the banks should pay some contribution to clearing up the mess that they helped to create.

We are working urgently on a problem that the shadow Chancellor correctly raised, but to which, of course, he found little solution when he was Chancellor: the problem of getting credit to small and medium-sized businesses that still face a credit crunch out there in the country.

I welcome the shadow Chancellor’s support for the terrorist asset freezing Bill, which, of course, has bipartisan support. Then there is the Bill that should have been introduced by the previous Government years ago—the Equitable Life payments scheme Bill to help those who lost everything and were given nothing by the Labour Government.

Chris Bryant Portrait Chris Bryant (Rhondda) (Lab)
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I warmly welcome the fact that the Chancellor has introduced that Bill, which is an important piece of legislation, and I hope that compensation arrives for those who lost an awful lot of money. However, may I urge him to learn one thing from the miners compensation scheme, which ended up putting an awful lot of money into lawyers’ pockets—unscrupulous lawyers in many cases? Will he make sure that it is a simple, transparent scheme that does not require us to pour taxpayers’ money into lawyers’ pockets?

George Osborne Portrait Mr Osborne
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The hon. Gentleman makes a good point. What happened with the miners compensation scheme was a tragedy, and we will certainly seek to learn the lessons of what went wrong. He is more than welcome to correspond with us—I am going to volunteer, if he wants, a meeting with one of my colleagues to discuss the issue—because we are determined to introduce the legislation and help those people who lost everything. We hope that that will command support on both sides of the House.

Finally, we will introduce a Bill to give the independent Office for Budget Responsibility statutory authority and to bring transparency and honesty to our nation’s finances. I cannot work out whether the shadow Chancellor now supports that proposal, which he opposed in government, but it is a revolutionary step in budget making, removing forever the historic power that Chancellors have had to make the official forecasts. It is based, however, on a very simple idea—perhaps completely alien to the thinking of the previous Government—that in future, we fit the Budget to fit the figures, instead of fixing the figures to fit the Budget.

With the help of Sir Alan Budd, we have established the Office for Budget Responsibility on a non-statutory basis. Today I am publishing in a written ministerial statement the terms of reference that I have agreed with Sir Alan. With his consent, I can confirm in the House for the first time that the office will produce its independent assessment of the growth forecast and other forecasts next week, on Monday 14 June. The Budget will be presented just over a week later, well within 50 days of the election, as we promised.

Geraint Davies Portrait Geraint Davies
- Hansard - - - Excerpts

On the figures, the Chancellor will remember that in February last year the unemployment rate was 2.5 million. Independent forecasters and economists were predicting that unemployment would now be between 3.5 million and 4 million. Does he accept that we do not have those levels of unemployment because of the fiscal stimulus from the previous Government? Furthermore, he will know that the cost of an extra 1 million unemployed is £6 billion, which would wipe out the savings that have just been announced. Will he therefore be extremely careful not to make cuts that will undermine the economic capacity for growth in future?

George Osborne Portrait Mr Osborne
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Unemployment is rising. We have the highest youth unemployment in Europe. We have the highest proportion of children growing up in workless households of any country on the European continent—that is not a record of which I would be particularly proud if I were a Labour MP. We are going to introduce a comprehensive work programme, and reform welfare to create genuine incentives to make work pay. One of the issues that came up time and again in the general election—for me at least, and perhaps for other Members—was the frustration felt by working people on low incomes who go out to work every single day and find that their next-door neighbour has been sitting on out-of-work benefits for years. That is going to be part of the reform that we introduce in our welfare Bill.

I was discussing the Budget, which needs to address the immediate debt situation that the country faces. However, it will also begin the long-term task of moving an economy based on debt—too much consumer debt, too much banking debt, too much Government debt—to an economy in which we save, invest and export in future. If anyone needs to be reminded why the immediate debt situation we have inherited is so serious, I suggest that they read the report on the UK produced by one of the world’s three credit-rating agencies today, which warns of

“a rise in public debt... faster than any other AAA rated sovereign”

country, and points to

“the largest cyclically-adjusted budget deficit in Europe”.

The rating agency says that the previous Government’s plans to reduce the deficit are “distinctly weak” and lack “credibility”. It says that we are the only European economy set to run a budget deficit above 3% in five years’ time. That is all at a time when, as it points out, the fiscal crisis in Greece and other eurozone countries has caused a major shift in investors’ attitude to sovereign risk.

Andrew Love Portrait Mr Andrew Love (Edmonton) (Lab/Co-op)
- Hansard - - - Excerpts

I thank the right hon. Gentleman for giving way. He spoke earlier about judgment. Is he not concerned about the outbreak of competitive austerity across Europe? Does he not think that that may well lead to European economies all bumping along the bottom because we cannot get international trade up and running again to sort out the difficulties of our economy?

--- Later in debate ---
George Osborne Portrait Mr Osborne
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But the reason why European economies, particularly those in southern Europe and in the eurozone, are having to take the measures that they are taking is that there are concerns about sovereign credit worthiness. Of course they must deal with their situation, but, in the month that I have done the job, I am very aware when I sit down at ECOFIN or at the G20 that I represent the country with the largest budget deficit at either of those gatherings. That is the situation that we inherited—[Interruption.] For two years we had to listen to all the lectures about how the European Union, the G20 and the OECD disagreed with what we are saying. Now they agree with what we are saying. The G20 communiqué signed in South Korea stated:

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation”.

That is the situation bequeathed by the previous Government to Britain.

Ivan Lewis Portrait Mr Ivan Lewis
- Hansard - - - Excerpts

I thank the Chancellor for giving way. I have some simple questions. Were we right to save Northern Rock? Were we right to recapitalise the banks? Were we right to go for fiscal stimulus? Can the Chancellor be frank with the House about the decisions that my right hon. Friend the shadow Chancellor made?

George Osborne Portrait Mr Osborne
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Talk about refighting the last war. We spent the entire general election talking about those decisions. The answer is that the British people agreed with us and not with the shadow Chancellor.

None Portrait Several hon. Members
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George Osborne Portrait Mr Osborne
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Let me make some progress.

It is striking that the Opposition do not have a single positive idea to propose about how we sort out our nation’s economic problems. They are still talking about decisions taken a year previously or in 2008. I am happy to debate them; I debated them on television with the shadow Chancellor during the general election; I debated them in the House on many occasions, but what I am now interested in is sorting out the country’s economic problems and getting Britain working again.

None Portrait Several hon. Members
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George Osborne Portrait Mr Osborne
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I have given way a great deal, and there are Members on both sides of the House who want to make their maiden speeches.

Let me say this to Labour Members: their response in this debate and in Treasury questions is pretty striking. The credibility of our country is put at risk by their borrowing decisions, and they do nothing. Higher debts threaten higher interest rates, and they do nothing. Every single measure that we have taken they oppose. They sign up to every pressure group complaint. They agree with every trade union protest in order to gobble up votes in their leadership contest. They now find themselves in the ridiculous position whereby the reductions in spending for this year are applauded by the G20 but opposed by the shadow Chancellor who used to attend it, and our clear commitment to accelerate the reduction in the deficit is supported by the US Treasury Secretary but opposed by the shadow Chief Secretary. Let them lurch off leftwards into the comfort zone of opposition, while the rest of us work together in the national interest to fix the problems that they left behind. Let me explain how we propose to do that.

Alongside other measures to support the recovery, the Budget on 22 June will set out the overall mandate for bringing the deficit under control, against which the Office for Budget Responsibility will judge the Government’s fiscal policy in future. It will set the overall envelope for spending, but it will not allocate spending between Departments. That is what the spending review will do this autumn.

Today I am placing in the Library of both Houses the document that explains how the review will work. The shadow Chancellor complained that he received the document only as he was coming into the Chamber. That was about an hour before I used to receive any document from him in the debates in this place.

Given the scale of the spending reductions required, the review needs to be quite different from any that this country has seen in recent years. For the past 13 years, spending reviews have not exactly been collegiate affairs—more of a one-way process. The Treasury told Departments what they were getting and precisely what they would do with the money—no room for innovation, no acknowledgement that some of the best ideas for doing things differently might come from the front line and not from the centre. The result of this top-down, centre-knows-best approach was falling public sector productivity and that large budget deficit—less for more. We cannot afford to continue in that direction.

As has been said in the Chamber today, we need to look at Canada and its experiences in the 1990s, when it too faced a massive budget deficit. It brought together the best people from inside and outside government to carry out a fundamental reassessment of the role of the state. They asked probing questions about every part of Government spending. They engaged the public in the choices that had to be made, and they took the whole country with them. That is what we will seek to do. We are committed to carrying out Britain’s unavoidable deficit reduction plan in a way that strengthens and unites the country.

The spending review will be guided by the principles of freedom, fairness and responsibility. It will deliver on the Government’s commitment that health spending will increase in real terms in each year of this Parliament, and we will honour the promise that we as a British people made to the developing world on overseas aid. It will limit as far as possible the impact of reductions in spending on the most vulnerable in society and on those regions heavily dependent on the public sector. It will protect as far as is possible the spending that generates high economic returns so that we build the economy of the future while cleaning up the mess of the past.

Lord Dodds of Duncairn Portrait Mr Nigel Dodds (Belfast North) (DUP)
- Hansard - - - Excerpts

The Chancellor mentions those areas heavily dependent on the public sector and the impact on different regions of the United Kingdom. I welcome that commitment, but in order for it to be real, as opposed to simply rhetoric—he talks about the Finance Ministers quadrilateral meetings discussing the spending review—will there be a robust resolution mechanism, so that it is not just the Treasury that decides what happens with regard to the devolved Administrations, which, after all, have their own independent administrations, budgets and economic settlements?

George Osborne Portrait Mr Osborne
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The devolved Administrations have to be part of the wider spending review. With the best will in the world, we cannot let the three devolved Administrations simply determine what they will spend, particularly when most of them do not have significant tax-raising powers, but I give the hon. Gentleman the commitment that we will engage in an open and frank way and that we will listen to the concerns from Northern Ireland. I am well aware that one of the big challenges in Northern Ireland is how we can stimulate the private sector in Ulster, and we want to work with him on that. As I am sure he knows, the Secretary of State for Northern Ireland has some ideas in that area. We will engage not just with the Administration in Northern Ireland but with the Scottish Government and the Welsh Assembly and its Administration. For us, this is genuinely about trying to bind as many people as possible into a collective discussion which I hope other Opposition parties will be part of, even if the main Opposition party does not want to be.

Let me explain to the House how the review will work. First, we will build on the in-year savings that we have already made in order to drive for efficiency and value for money. We are creating a new efficiency and reform group at the heart of Government, which brings together a variety of bodies that are separate across Departments in order to try to bring to one place expertise on renegotiating contracts, maximising collective buying power and the like. We will ask for administrative spending in central Whitehall and quangos to be reduced by at least a third. Each Secretary of State will appoint a Minister with specific responsibilities in their Department over the next three months for driving that value-for-money agenda across their Department, and we will place a new obligation on public servants to manage taxpayers’ money more wisely by strengthening the role of the departmental finance director.

Lord Watson of Wyre Forest Portrait Mr Tom Watson (West Bromwich East) (Lab)
- Hansard - - - Excerpts

I strongly support the Chancellor in his drive to have more transparent budgeting, in particular the obligation on Departments to announce every item of expenditure over £25,000. Will he be legislating to make that a statutory obligation? Will he explain the slight incongruity between the obligation on local government to publish items of expenditure over £500 and civil servants getting away with a little bit more at £25,000? Does he think that merits him reducing that bar?

George Osborne Portrait Mr Osborne
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We chose £25,000 because, quite frankly, the US model suggested that that was an appropriate sum. I am very willing to consider moving to a lower level of disclosure in central Government, once we get the system up and running and working, but I did not want to make the sum so small that it stopped the thing working in the first place. Local councils have much smaller budgets, of course, relative to central Government, and that is why we chose a lower threshold. However, the £25,000 threshold is perhaps just the first step. The big IT challenge is to make the system work, but in the United States they have done so, and they call it “Googling your tax dollars”. Barack Obama, when he was a senator, helped to sponsor the Bill that introduced it, and we are absolutely committed to introducing such a measure here in the United Kingdom.

Secondly, the spending review will challenge Departments, local government and others to consider fundamental changes to the way they provide public services. As part of that process, every part of government and every spending programme will have to answer a series of probing questions. Is the activity essential to meet Government priorities? Do the Government need to fund that activity? Does the activity provide substantial economic value? Can the activity be targeted on those most in need? How can the activity be provided at a lower cost? How can the activity be provided more effectively? Can the activity be provided by a non-state provider or by citizens, wholly or in partnership? Can non-state providers be paid to carry out the activity according to the results that they achieve? And can local bodies, as opposed to central Government, provide the activity? The answers to those questions will inform a fundamental reassessment of the way in which government works.

John Pugh Portrait Dr John Pugh (Southport) (LD)
- Hansard - - - Excerpts

Where will the Public Accounts Committee and, indeed, other Select Committees play a part in the process? How will they play their part?

George Osborne Portrait Mr Osborne
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The Public Accounts Committee will, I hope, be very involved in the process, and I want to involve the expertise not only of its current membership, but of my hon. Friend the Member for Gainsborough (Mr Leigh), who chaired the Committee with such distinction during the previous Parliament. I served on the Public Accounts Committee when I first entered the House, and it is perhaps our most effective parliamentary tool for dealing with some of the big issues of public expenditure and value for money. One has only to read its reports on, for example, the big Ministry of Defence procurement contracts over recent years to realise that it has identified a very serious problem and, with the National Audit Office, brings a considerable expertise to solving those problems.

Chris Leslie Portrait Chris Leslie (Nottingham East) (Lab/Co-op)
- Hansard - - - Excerpts

Will the right hon. Gentleman give way?

George Osborne Portrait Mr Osborne
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I shall give way, but then I must bring my speech to a close.

Chris Leslie Portrait Chris Leslie
- Hansard - - - Excerpts

At Treasury questions some time ago, I was concerned about items of expenditure that might have met the tests that the Chancellor has set out in the spending review. On some of those tests, will the Chancellor now go where the Chief Secretary to the Treasury could not and say whether he has any plans to means-test child benefit? Many people are quite worried about that.

George Osborne Portrait Mr Osborne
- Hansard - -

I welcome the hon. Gentleman back to the House, but I shall not be drawn down the path whereby new, eager and young—or no longer so young—Members jump up with every cherished item of Government expenditure and pose such questions. The hon. Gentleman will have to wait for the spending review and Budget for a discussion of the whole Government programme, but he should not assume anything from that answer.

The next thing that we will do is bring together, from within the Government and outside, the best people in their fields. We want the best civil servants helping us in that collective effort, not defending their Whitehall Departments. We want the inspirational head teachers, the chief inspectors in the police service and the nurses with new ideas to have their opportunity to put their ideas to us. The remit will be to innovate, to challenge entrenched ways of doing things and to identify the best ideas from throughout the world; and, in order to ensure that the resulting reform programme is achieved, we will establish robust mechanisms to ensure accountability to the public.

Thirdly, the spending review will cover the large, cross-cutting areas of Government spending. We will set out our plans to reform the welfare system and restrain the cost of public sector pay and pensions, and for capital spending we will undertake a fundamental review of spending plans to identify the areas of spending that will achieve the greatest economic returns. Opposition Members should know that we have inherited a capital budget that is set to halve.

Douglas Carswell Portrait Mr Douglas Carswell (Clacton) (Con)
- Hansard - - - Excerpts

My right hon. Friend has been quoted talking about having a Star Chamber to oversee public spending. For years, have we not had an elite clique of Treasury officials doing precisely that? Somehow, no Executive quite manage to rein in the executive as planned. Why not in addition try a radical solution and give the newly liberated Select Committees powers to curb departmental spending? As well as fixing our finances, that might give Parliament some purpose.

George Osborne Portrait Mr Osborne
- Hansard - -

I am probably going to regret this, but I am quite attracted to the idea that my hon. Friend has proposed, not just in the Chamber today but to me privately; I think he has also written about it. The key thing that he proposes is that Select Committees should be able to recommend reductions, rather than increases, in Government Department budgets. I would certainly welcome that if we were ever to proceed in that direction.

I honestly mean it when I say to my hon. Friend that I am attracted to his idea. I will come back to him and see whether we can take it forward. Obviously, it would be the collective decision of the Government, rather than mine alone. My hon. Friend is right to say that we are trying to get away from it simply being the Treasury that conducts the spending review, imposing its decisions on everyone else.

I believe that when Tony Blair was Prime Minister, he and the right hon. Member for Kirkcaldy and Cowdenbeath would simply agree a total. Every Secretary of State would then receive the number in an envelope, before it was announced to the press about 20 minutes later. We are going to have a more collegiate approach and we are genuinely seeking to engage as many people as possible—the brightest civil servants across all the Government Departments and the best people from the devolved Administrations, pressure groups, independent think-tanks and front-line public services. There will be a Cabinet committee to chair and oversee the process and its membership will be restricted to those Cabinet Ministers with very small budgets of their own. Other Cabinet Ministers will be eligible to be members of the committee once they have settled their departmental allocations. That will create an incentive structure within the Cabinet.

Finally, over the summer we are going to conduct a wide public engagement exercise so that the whole country has a chance to get involved. We have already begun to implement the most radical transparency agenda that the country has ever seen. The hon. Member for West Bromwich East (Mr Watson) and I were talking earlier about the £25,000 disclosure limit for central Government expenditure. The previous Chancellor refused my freedom of information request to publish the Treasury’s combined online information system, or COINS, database of public spending. But the current Chancellor of the Exchequer has accepted that request and the raw data in the COINS database are now available online.

George Osborne Portrait Mr Osborne
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I will give way on this point, if the hon. Gentleman likes, but just let me say this. We have published the database as quickly as we have been able to. By August, we will be able to publish a more user-friendly version of the data; the current version is quite difficult to operate. We need a couple of months to get the computer software to enable people to search the database.

Adrian Bailey Portrait Mr Bailey
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In his list of those who would be consulted on the budget cuts, the Chancellor omitted to mention manufacturing industry. Will he undertake to talk to representatives of manufacturing industry about his proposals on investment allowances, as portrayed in the run-up to the general election?

George Osborne Portrait Mr Osborne
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My team and I are in regular discussions with manufacturing industry, representatives of which were vocal supporters of our proposals during the general election to avoid the jobs tax.

Let me conclude by saying that all parts of government and society—and all parts of this Parliament, if they want to take the opportunity—will have a chance to make their voices heard. This is the great national challenge of our generation. After years of waste, debt and irresponsibility, we have to get Britain to live within its means. It is time to rethink how the Government spend our money. We did not choose the terrible economic situation that we inherited; the Labour party chose that for us. But we can work to put it right—deal with our debts, set our country on a brighter economic course and show that we are all in this together. I commend the Gracious Speech to the House.

None Portrait Several hon. Members
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Office for Budget Responsibility

George Osborne Excerpts
Tuesday 8th June 2010

(14 years ago)

Written Statements
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George Osborne Portrait The Chancellor of the Exchequer (Mr George Osborne)
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Sir Alan Budd and I have agreed the terms of reference for the interim Office for Budget Responsibility.

Copies of the document are available in the Vote Office and have been deposited in the Libraries of both Houses.

ECOFIN

George Osborne Excerpts
Thursday 3rd June 2010

(14 years ago)

Written Statements
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George Osborne Portrait The Chancellor of the Exchequer (Mr George Osborne)
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The Economic and Financial Affairs Council was held in Brussels on 18 May 2010. The following items were discussed:

Ministerial dialogue with EU candidate countries

Ministers held their annual economic policy dialogue with the Finance Ministers and Central Bank representatives of the EU candidate countries: Croatia, the former Yugoslav Republic of Macedonia and Turkey. The Government support the conclusions agreed, which acknowledge the progress achieved by candidate countries in stabilising and transforming their economies.

Follow up to the 9 May extraordinary ECOFIN

ECOFIN held an extraordinary meeting on 9 May to address financial stability in Europe. Ministers from the previous Administration agreed a comprehensive package of measures including a European financial stabilisation mechanism of up to €500 billion with parallel support from the IMF. Ministers also expressed a strong commitment to ensuring fiscal sustainability and enhanced economic growth in all member states, and agreed that plans for fiscal consolidation and structural reforms would be accelerated, where warranted. They underlined the need to make rapid progress on financial market regulation and supervision, particularly in derivative markets and on the role of credit rating agencies.

As a follow up to the extraordinary meeting, Ministers took note of additional consolidation measures outlined by Spain and Portugal in their 2010 and 2011 budgets. The Commission will evaluate these measures in June within the framework of the excessive deficit procedure.

Alternative Investment Fund Managers (AIFM) Directive

ECOFIN reached a political agreement on the AIFM directive to establish a framework for monitoring the risks posed by alternative investment funds while allowing fund managers to market their funds throughout the EU single market. In a statement in the minutes of the Council, the Council notes the concerns expressed by some member states on certain aspects of the presidency’s proposed general approach, in particular as regards to the third-country provisions. It invites the presidency to start negotiations with the European Parliament on the basis of this general approach, taking into account the concerns expressed by member states.

Draft 2011 budget

The Commission presented its draft 2011 budget, including a total of €142.6 billion in commitment appropriations (+0.8% compared with 2010) and €130.1 billion in payment appropriations (+5.8% compared with 2010). For many member states, the EU has agreed that national budgets should be cut to meet consolidation targets and bring deficits under control. The Government believe that the proposed increases in the EU budget must therefore be reduced and a freeze in spending should be considered before the UK can give its agreement.

Economic policy guidelines

ECOFIN debated a draft recommendation on broad guidelines for the economic policies of the whole EU and for member states, aimed at implementing the Europe 2020 strategy for jobs and growth. The draft recommendation, together with a draft decision on guidelines for the employment policies of the member states, forms integrated guidelines setting a framework for structural reforms to be carried out by the member states. These will return to ECOFIN in June for agreement before being endorsed by the European Council on 17 June.

Enhanced economic co-ordination

Ministers held an exchange of views following a presentation by the Commission on enhanced economic policy co-ordination in the euro area and the EU as a whole. This formed the basis for further discussions at an EU task force chaired by President Van Rompuy on 21 May, where representatives from the 27 member states discussed the measures needed for an improved crisis resolution framework and better budgetary discipline in the EU.

The Government agree that one of the key lessons of the crisis is that ex ante surveillance of economies needs to be improved at both the domestic and European level. As a single market, co-operation and co-ordination must be maintained among all member states. The Government will be an active participant in this debate but have made it clear that when it comes to national budgets, the first port of call is not the Commission but national Parliaments.

Fiscal frameworks

ECOFIN adopted conclusions on fiscal frameworks promoting the strengthening of national fiscal frameworks by sharing best practice, regular assessments, peer review and credible fiscal bodies at the national level. The Government support the conclusions, which are fully in line with the announcements made on domestic fiscal reform, including the creation of the Office for Budget Responsibility.

Financial stability and crisis management

The Council adopted conclusions on EU crisis prevention, management and resolution in the banking sector. The UK supports the conclusions, which outline a number of short to medium-term priorities for developing common national tools for use in a cross-border financial crisis. ECOFIN will continue to discuss these principles in advance of legislative proposals in 2011.

Preparation for the G20 Finance Ministers

The Council discussed the 4-5 June meeting of G20 Finance Ministers and Central Bank Governors in South Korea. It endorsed terms of reference setting out the EU position for the meeting.

Commission financial services work programme

Commissioner Barnier presented the work programme for financial services legislation over the coming months.

Lunch

Ministers held a joint lunch with the Finance Ministers of the EU’s Mediterranean partner countries to discuss implementation of the Euro-Mediterranean Investment and Partnership Facility (FEMIP), and agreed joint conclusions endorsing ongoing close co-operation between the EU and its Mediterranean partners to facilitate economic growth and stability.