Bank Bonuses

Debate between George Osborne and Alan Johnson

Tuesday 11th January 2011 Commons Chamber

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

(Urgent Question): To ask the Chancellor of the Exchequer to make a statement on bankers’ bonuses.

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

We inherited from the previous Government a failed system of banking regulation and a situation where billions of pounds had been provided to bail out bankers with nothing demanded in return. It was a something-for-nothing deal that rightly left the British people seething with anger, and the British people and this Government will not accept extravagant bonuses this year without a change in behaviour. So this is what we are doing.

First, we are replacing the disastrous tripartite system for regulating banks that was established in 1997. Instead, our plan is to put the Bank of England clearly in charge. Secondly, we have created the Independent Commission on Banking to review the structure of the banking sector and address the issue of banks that are too big to fail. The previous Government’s failure to address that issue brought this country’s economy to its knees. The commission will report this autumn. Thirdly, we have introduced a permanent levy on the banks, in the face of opposition from the previous Government. This new banking tax started coming into effect last week and, once fully operational, will raise £2.5 billion each and every year, or £8.8 billion over this Parliament. We are also looking at the International Monetary Fund’s proposed financial activities tax, and we will work with international partners to secure agreement. Fourthly, we have demanded that the banks sign up to the code of practice on taxation—[Hon. Members: “Ooh!”] Well, the previous Government created the code, but we discovered that only four of the 15 major banks had signed up to it when we came into office. All 15 have now signed up to the code of practice. We are also legislating in this year’s Finance Bill for tough anti-avoidance measures directed at some of the practices in the financial sector that no one had previously attempted to stop.

Specifically on remuneration and bonuses, on 1 January this year we introduced the most stringent code of practice of any financial centre in the world. For the first time, there will be a strict limit on the amount of bonus payable in up-front cash. Also for the first time, there will be a requirement that 50% of bonuses be paid in shares or other non-cash instruments, which bank employees will not be allowed to sell on for an appropriate period. Guaranteed bonuses will become the exception and not the rule, as was the case under the previous Government, and crucially, the new bonus code has been significantly extended. It will cover payments and bonuses at 2,500 firms, whereas the code that we inherited covered pay and bonuses at only 25 individual financial firms.

When it comes to the Royal Bank of Scotland, I am having to deal with the thoroughly inadequate contract negotiated by the previous Cabinet; the House might not be aware that it puts no constraints on RBS bonuses for this year. Indeed, the contract signed by the previous Government explicitly encourages RBS to pay bonuses at market rates. Despite this, we have made it clear to RBS that we will have a smaller bonus pool than last year and that it should be a back-marker in the industry, instead of the front-runner it once was.

In the coming weeks, all the banks will be announcing their pay and bonuses for this year. I confirm that we are in discussions with the banks to see if we can reach a new settlement, where the banks pay smaller bonuses than they would otherwise have done; are more transparent about those they do pay; make a greater contribution to local communities and regional economies; treat customers more fairly; and, above all, lend materially and verifiably more than they were planning to lend to the businesses of Britain, especially the small businesses, so that they can grow and create jobs this year.

This is what a new settlement with the banks should look like: they should lend to the British economy; contribute to the British Exchequer; provide jobs for British people; be responsible on pay and bonuses; and make sure that Britain is a world centre of a properly regulated and internationally competitive financial services industry. If the banks cannot commit to that, I have made it clear to them that nothing is off the table. I will keep Parliament informed of our discussions—and if the Opposition who created this banking mess have a better idea, let us hear it.

[Alan Johnson]

We are here to hold the Government to account. I have with me the coalition agreement, and I believe that I can still sense the scent of the rose garden upon it. This is what it says in paragraph 1:

“We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector”.

Where are those detailed proposals? When will we see them? Here is what the Chancellor said in his spending review statement in October:

“Fairness also means that, across the entire deficit reduction plan, those with the broadest shoulders will bear the greatest burden; those with the most should pay the most, and that includes our banks… Today we set out very clearly, for all to take note of, our objective in taxing the banking industry going forward… Our aim will be to extract the maximum sustainable tax revenues from financial services.”—[Official Report, 20 October 2010; Vol. 516, c. 951-956.]

But he has given the banks a tax cut from £3.5 billion to £1.2 billion and they will benefit more than any other sector from the cut in corporation tax. Cuts affecting children will contribute well over £5 billion and students will contribute £2.9 billion. Does the Chancellor think that children and students have the broadest shoulders? The man who said in opposition that no bonus should be higher than £2,000 will not even implement legislation forcing transparency about those receiving more than £1 million.

Where is the Deputy Prime Minister who, when not signing student pledges not to increase tuition fees or unveiling posters about VAT bombshells, was saying:

“Doesn't it make you angry that the banks have been allowed to ride roughshod over our economy, and are still handing out bonuses by the bucket load?”?

So in just seven months, the coalition goes from the scent of the rose garden to the stench of broken promises. The Chancellor who said, “We’re all in this together” bows to the rich and powerful while bearing down on everyone else. His sneering arrogance will not get him out of this one.

Oral Answers to Questions

Debate between George Osborne and Alan Johnson

Tuesday 21st December 2010 Commons Chamber

[Mr Osborne]

The first thing that I would say is that, of course, deficit reduction is an essential platform for economic growth. The fact that this Parliament, almost alone in Europe, is not having to discuss the sovereign debt crisis is in itself testament to the success that we have had. But we need now to turn around many Departments that have not really thought for years about this question: how do we stimulate private enterprise and private sector growth? We have inherited government machinery that is not equipped to deal with that. We are turning that around, and the Budget in March is the focus point that I expect all Departments to work towards.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

Responsibility for our manufacturing sector rests, of course, with the Secretary of State for Business, Innovation and Skills, who had some interesting things to say this morning about the “Maoist” nature of this Government. [Interruption.] Does the Great Leader—or rather, the Chancellor—recognise himself in the Business Secretary’s description of “cack-handed” Tories? Strictly speaking, does the Chancellor believe that the reason we have waited so long for any sign of a strategy on jobs and growth is that he is out of step with his Cabinet colleague?

[Mr Osborne]

The Business Secretary is a powerful ally in the Government in promoting growth—and, frankly, he has forgotten more about economics than the shadow Chancellor ever knew. I refer the shadow Chancellor to the statement that he gave recently about his own party:

“On economic credibility, we are in a really worrying position.”

[Alan Johnson]

We see this morning record borrowing for November, unemployment higher than expected and inflation well above where it should be. According to the Office for Budget Responsibility, we are about to destroy £5 billion of economy activity through the increase in VAT on 4 January. The Institute for Fiscal Studies says that absolute poverty—not relative poverty—will rise for children and working age adults, with 900,000 more slipping below the breadline over the next three years. If the Chancellor has not got a plan B yet, is he hoping to get one for Christmas?

[Mr Osborne]

I am glad that the shadow Chancellor reminds the House of the terrible economic inheritance that we are struggling with—and overcoming. He talks about the public borrowing figures today, and I am glad that he has brought them up, because they are a reminder of the fact that we have a record budget deficit. He is—if he wants to do Christmas analogies—the incredible no-man: every time we have put forward any proposal for deficit reduction, he has said no. He is running out of time to come forward with sensible credible contributions to the economic debate about how we get Britain growing again, because at the moment the Christmas lights are on but there’s no one at home.

Loans to Ireland Bill

Debate between George Osborne and Alan Johnson

Wednesday 15th December 2010 Commons Chamber

[Mr Osborne]

If the hon. Gentleman will allow me, I have already taken an intervention from him. Many Members want to speak, and I have spoken for an hour.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

Get on with it, George.

[Mr Osborne]

Well, I took a lot of interventions. I’m sorry about that, but there we go—there’s no gratitude in this place!

Let me conclude. The Government have taken action to put our own house in order. We were once seen as part of the problem; we are now part of the solution. It is in our national interest to help Ireland, and I commend this Bill to the House.

--- Later in debate ---

[Alan Johnson]

I always try to avoid sharing the hon. Gentleman’s pleasure. I shall come to the nature of the deal, because in debating the Bill we are discussing one element that constitutes a little more than half of the money that the UK taxpayer is putting into the deal.

The argument for treating Ireland as a special case is clear. I shall reiterate some of the points that the Chancellor made. Our two countries are intertwined in commerce, in trade, in banking, in culture and in sport. We share a language and a land border. Not only is Ireland one of our five largest export markets but, as the Chancellor said, one part of the United Kingdom—Northern Ireland—sends 40% of its exports across the border to the Republic. The situation in Ireland could cause significant damage to UK financial institutions and create instability in both sovereign and bank debt markets. The UK is Ireland’s largest creditor—we are talking about almost €112 billion—and I understand from a newspaper report last week that the Royal Bank of Scotland and Lloyds have Irish loan books worth 82% and 53% of net assets respectively.

In its report last month, the International Monetary Fund singled out Ireland to demonstrate what it called the “key underlying vulnerability” of UK banks’ exposure to foreign banks. The support programme assures the protection of senior bond holders in Irish banks from any losses, thus affording a greater level of protection to UK banks. For all of those reasons and many more, it is in this country’s interest to support this package.

I want to raise three concerns. The first, which was raised in a couple of interventions—including by the hon. Member for Stone (Mr Cash)—is the open-ended nature of the commitment. There is a distinct possibility of more money being required for Ireland after 2013, given the tendency of Irish banks to downplay the severity of their situation and the tough conditionality being applied alongside concerns about European growth. In those circumstances, should we not make it clear to our European partners that the EFSF must be used for any further financial support, rather than giving the impression that this is a well into which further buckets can be dipped?

That is particularly relevant to my second concern about the balance between the contributions made by the various mechanisms. The €440 billion EFSF—the facility— for eurozone countries only is being tapped for 4% of the total resources that eurozone countries have agreed to make available for Ireland. The smaller EFSM—the mechanism—of which we are part and to which we contribute, was not used at all for the Greek bail-out. The EFSM is offering 37.5% of its available resources for the Irish bail-out. Why was that formulation chosen and why is the total amount we are contributing double the amount that we would have had to pay if we were a eurozone country?

[Mr George Osborne]

I am not sure that the shadow Chancellor is correct in that assertion. First, our contribution has been calculated on the basis of what we would have paid if we had been part of the facility. That is how the £3.25 billion figure was broadly arrived at. Secondly, the mechanism currently in use was created after the bilateral agreement was put together for the Greek bail-out. It was never available to be used for the Greek bail-out, which took place as a series of bilateral loans across Europe. As I understand it, over the May weekend the facility was put in place to address the crisis and article 122 was drawn upon to create the mechanism, so it could not have been used for Greece at that point.

[Alan Johnson]

I am grateful to the Chancellor for that intervention. However, it does not explain why the £3.25 billion he has just mentioned is the bilateral loan. That is the equivalent of what we would have put into the Irish bail-out had we been members of the eurozone. However, we are also putting in £2.6 billion through the EFSM and £800 million through the IMF. With the bilateral loan added to the other donations of British taxpayers’ contributions that we are making through the mechanisms, we are putting in double the amount of money that other European Union countries are contributing.

--- Later in debate ---

[Alan Johnson]

Yes, but that is a matter for the eurozone. If the Chancellor is right in his prediction that perhaps this can ensure that we come out of the €60 billion mechanism, the facility and the other moneys, then fine, but as we are making a big contribution—more than we would have done had we paid the amount that a eurozone country would have paid to rescue Ireland—we must be in a position to influence this debate.

[Mr George Osborne]

I must correct this point. We are paying pretty much exactly what we would have paid if we had been a member of the euro; that is how the bilateral loan is being calculated. Germany is paying both through the facility and through the mechanism, and so are France and the other members of the euro. Other countries are paying twice. Ours is a bilateral loan like those of Sweden and Denmark, and they too have been calculated in a similar way.

[Alan Johnson]

I am grateful for that clarification; we will look at that very carefully. What the Chancellor is saying is that France and Germany, through their IMF contribution—[Interruption.] The Financial Secretary says no. The point I am trying to get at—perhaps the hon. Gentleman can clear this up when he replies to the debate—is that if the UK is putting in a bilateral loan that is equal to the amount that we would have paid as a eurozone member, and we are putting in money through the IMF as well as £2.6 billion through the mechanism, how does that relate to the money that France and Germany are contributing? As far as I am aware, they have no bilateral arrangements, so the money is going through the IMF, or through the stability facility which accounts for only 4% of the resources. That is a point that we need to hear about.

Autumn Forecast

Debate between George Osborne and Alan Johnson

Monday 29th November 2010 Commons Chamber

[Mr Osborne]

Our economy was unstable, our public finances were out of control and our country was on the international watch list to avoid. We took decisive action. Now, the independent Office for Budget Responsibility has confirmed that the British recovery is on track, our public finances are under control, 1 million jobs are set to be created and our economy is rebalancing. Today we are taking further measures to secure growth and create prosperity. We are doing so based on the foundation of stability that we have now secured. Britain is on the mend, and I commend this statement to the House.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

Let us move from bombast to reality. Here is what the OBR says:

“As we discussed in Chapters 3 and 4, past experience and common sense suggest that our central forecasts for both the economy and the public finances are almost certain to be wrong and that there are upside and downside risks to both.”

The only question is on which side of wrong they actually fall.

This Government have committed our country to a rate of fiscal consolidation that has been attempted only twice in living memory, and on both occasions by countries that benefited from strong growth in a benign global environment. In the current economic crisis, no country other than Ireland has attempted to cut so deeply, so quickly. The Chancellor is always telling us that we have the highest fiscal deficit in the G20. That is not true: the US has a proportionally higher fiscal deficit than ours, and the Americans plan to reduce it by less than half over the next five years. Japan, which has roughly the same level of deficit, has learnt from its experience over the past 10 years and plans to cut by less than a quarter. The Chancellor has chosen to take an unprecedented gamble with people’s livelihoods and the country’s future, and he has done so on the basis of a fundamental deceit: that when he assumed office, the public finances were worse than expected. The OBR exposed that deceit last year, and it has confirmed it today, so will the Chancellor now tell all those Back Benchers behind him—all those Tories who claim to their constituents that things are worse than they expected, and of course those who tell them that they have never had it so good—that they will have to find a new excuse? Nothing in his statement today can hide the fact that it was the balanced approach of my right hon. Friend the Member for Edinburgh South West (Mr Darling)—[Hon. Members: “ Where is he?”] Snowed in, in Scotland, probably. It was the balanced approach of my right hon. Friend that saw growth return at the beginning of the year, saw the recovery gain momentum and led to nearly 1 million fewer people claiming out-of-work benefits than predicted. That was the previous Chancellor, not this one.

As expected, the OBR has produced a higher growth forecast for this year than at the time of the emergency Budget, but this is the result of an approach that this Government have rejected. The reckless gamble that coalition Members support is still to come; the Chancellor is in the casino, but he has not yet spun the wheel. The OBR’s judgment of the future matters more than its revised forecast for a year that is almost over.

Does the Chancellor accept that the OBR does not expect the fast momentum built up this year to be maintained? Indeed, it is explicit in saying that it expects a slow recovery. Next year, as spending cuts begin to take effect and the VAT hike dampens demand, the OBR is revising its growth forecast down from 2.6% before the emergency budget to 2.3% immediately afterwards and to 2.1% now—it is going south. Looking beyond next year, the forecast for growth over the first four years of the recovery is reduced to an average of 2.4%. This compares with a 3.1% average growth in the far from pain-free recoveries from the two Tory recessions in the 1980s and 1990s. That growth was largely driven by growth in the financial sector and in public services, neither of which will be in a position to help this time.

Lower growth means fewer jobs, and in this weak recovery the OBR, having changed its mind, is now forecasting something that the Chancellor could not bring himself to say—namely, that unemployment will rise next year. It no wonder that the Conservative-led Local Government Association pointed out last week that front-loading cuts in local authorities will lead to 140,000 job losses next year, which is much higher than originally expected. The Chartered Institute of Personnel and Development estimates that the increase in VAT on 4 January will cost 250,000 jobs, more than three times as many as our proposed increase in national insurance, which the Conservatives called a tax on jobs.

The Chancellor tells us that public sector jobs will be protected by his decision to cut welfare benefits, but this works both ways: can he tell the House what the additional hit to private sector jobs will be from those welfare changes? For families up and down this country, a jobless recovery will be no recovery at all. This Government have no interest in protecting jobs, no alternative measures if the gamble fails and, worst of all, no plan for jobs. Indeed, since just last week their growth plan has actually shrunk, from a White Paper that was supposed to contain proposals, to today’s promise to talk: there will now be a debate, a discussion.

The Government’s plans rely on a huge increase in exports and business investment. Let us hope they materialise. But it is a gamble to assume that cuts on the scale envisaged, with cyclically adjusted public borrowing reduced by 8% of gross domestic product in just five years, will automatically be compensated for by exports. Exports need markets, and there is nothing to suggest that the global economic climate will assist us in achieving the kind of boost to growth that we have not seen for 60 years.

The Chancellor talked about his plans for corporation tax. Everyone wants a tax system that supports business, but he has abolished investment allowances for manufacturing to pay for a cut in corporation tax that will give a further £1 billion to the banks. Can he tell us what sense there is in helping companies that make large profits for little investment, at the expense of businesses that will invest heavily in the UK? We were very pleased to hear his announcement on GlaxoSmithKline and the patent box. We were pleased because that was our proposal. It was me, as Secretary of State for Health, with the former Business Minister, Lord Dyson, who argued for that in Cabinet. That is why it was in last year’s pre-Budget report. It is an excellent proposal. It was a Labour proposal.

Here is an idea for the Star Chamber that the Government are going to form. Why not help UK advanced manufacturing in the civil nuclear supply chain by giving an £80 million loan to Sheffield Forgemasters? That is an idea that they can chew over for the next four months.

The Chancellor talked about developments relating to Ireland. As I said last week, we support the financial assistance offered to Ireland, but the lessons of Ireland cannot be ignored. As a Financial Times leader said last week,

“a slower pace of consolidation might have been its best bet at encouraging growth.”

That is a lesson for us as well.

The Chancellor’s analytical ability in respect of Ireland was demonstrated in his 2006 article, which has been widely quoted, but in 2008, just two years ago, confident that Ireland would not be affected by the financial crisis that was just emerging, he said that Ireland now had

“a ‘future fund’ of assets built to provide security against future shocks and liabilities. Their public finances are well placed. Their competitiveness has risen. Their institutions are stronger.”

Ireland had

“used the fat years to prepare for the lean years.”

The Chancellor was wrong about Ireland, and he is wrong about the United Kingdom. The autumn statement does nothing to alleviate the summer madness that led him to gamble so recklessly with our future.

[Mr Osborne]

I think the shadow Chancellor made the mistake of writing his response before he had seen the OBR’s forecast. He predicated all of it on there somehow being lower growth, when in fact growth is higher in every quarter and every year than was predicted in the June forecast. I assume that he also wrote his response before the European Commission produced its forecast today. I am sure that he has now seen it. He read out a list of countries, but the European Commission predicts that over the next two years we will grow more quickly than Germany, France, the United States of America, Japan, the eurozone and the EU average. If one is going to read out a list of countries, one might as well start with the most accurate and recent forecast for their economies.

As I have said, the shadow Chancellor’s response was not much of an analysis of what the OBR has said today. He skated over the fact that because of the welfare changes that we have introduced, we have been able to reduce the public sector headcount reduction that is required by any deficit reduction plan—including, presumably, the plan that he will one day propose. He should at least acknowledge that the welfare changes achieve that. He and the leader of his party have some important choices to make in the next few months as we vote on some of these measures. They must decide whether they will support welfare reform or would rather see a higher number of public sector job losses, but that will be a decision for them.

The shadow Chancellor said that he did not believe in the rebalancing of the economy, and that the assumptions for exports and investment that I had made were fanciful. They are, of course, the estimates made by this independent body, the appointment of whose members, as I have said, was ratified by the Treasury Committee. The shadow Chancellor accused me of having no alternative measures to present. I thought that that was a bit of a cheek, because as far as I can tell the Labour party has a blank sheet of paper as its new economic policy. He talked of the importance of protecting intellectual property and supporting the growth of patents, and then praised, I believe, James Dyson. The last time I checked, it was we, rather than the shadow Chancellor, who had consulted him, but so be it.

[Alan Johnson]

Lord Drayson.

[Mr Osborne]

Ah. Well, I am sure that Lord Drayson also had some interesting things to say. [Interruption.] I welcome, by the way—[Interruption.]

Financial Assistance (Ireland)

Debate between George Osborne and Alan Johnson

Monday 22nd November 2010 Commons Chamber

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

With permission, Mr Speaker, I should like to make a statement regarding financial assistance for Ireland.

I hope Members will understand that an announcement had to be made at the weekend, ahead of markets opening this morning. Last night, I spoke to the Chair of the Treasury Committee and the shadow Chancellor to keep them informed of the latest developments.

The United Kingdom, alongside the International Monetary Fund, the European Union, the eurozone and other member states, is participating in the international financial assistance package for Ireland announced last night. We are doing this because it is overwhelmingly in Britain’s national interest that we have a stable Irish economy and banking system.

The current Irish situation has become unsustainable. Its sovereign debt markets had effectively closed and had little prospect of reopening. While Britain’s market interest rates had fallen over the past six months, Ireland’s had risen to record levels, and Ireland’s banks had become completely reliant on central bank funding to maintain their operations. In the judgment of the Irish Government, as well as of the IMF and others, this situation could not go on.

Members will understand that it would not have been appropriate for us in recent weeks to have engaged in public speculation about whether Ireland should request assistance from the international community, but I can now report that we have been engaged in intensive private discussions with the G7, the IMF, the EU and the Irish Government on plans for the eventuality that Ireland would request support. At the G20 meeting in South Korea two weeks ago, I was one of the European Finance Ministers who issued a joint statement that provided a brief respite. At the ECOFIN meeting last Wednesday, my colleagues and I discussed the Irish situation with Finance Minister Brian Lenihan, with whom I have also kept in touch directly. Following meetings in Brussels, the Irish Government committed to engage in a short and focused consultation with the IMF and the EU. On Thursday a joint mission arrived in Dublin, and in the last few days I engaged with my counterparts in the G7, the euro area and the EU about the way forward.

Following intense work over the weekend between the Irish and international authorities, last night Ireland’s Prime Minister, Brian Cowen, made a formal request for assistance. This was followed by statements from the G7, the IMF, the Eurogroup and European Finance Ministers that they would

“provide the necessary financial resources for Ireland to implement its fiscal reform plans and stabilise its banking system.”

The statements made it clear that there were two components to the rescue package. The first puts beyond doubt Ireland’s ability to fund itself. The international assistance package will support an ambitious four-year fiscal strategy which the Irish government will set out later this week. This will see a fiscal consolidation of €15 billion by 2014, of which €6 billion will be implemented next year, as part of a strategy leading to a target budget deficit of 3% of GDP in four years’ time. The second part of the assistance package is a fund for potential future capital needs of the banking sector. This will support measures to promote deleveraging and ensure restructuring of Ireland’s banks, so that its banking system can perform its role in supporting the economy.

Let me turn to how the package will be financed. This is a joint programme, with funding from both the IMF and the EU. The amount of money involved will, in part, depend on the IMF’s analysis of what is needed, and Prime Minister Cowen has said that he expects it to be less than €100 billion. The international community is working on the rough assumption that the IMF will contribute about one third of the total. The total European package will provide the other two thirds. Based on the significant reform of the IMF agreed by G20 Finance Ministers last month, the IMF is well placed to play a leading role in this international effort. The UK, of course, is an important shareholder of the IMF and we will meet these multilateral obligations. I would like to reassure the House that the IMF is currently well resourced and able to meet the cost of the package for Ireland.

The European element of this package will primarily come from two sources of funding agreed in May before this Government came into office: the €60 billion European financial stabilisation mechanism; and the €440 billion European financial stability facility. The balance between the European mechanism and the eurozone facility will be determined in the coming days. The United Kingdom is not a member of the euro, and will not be a member of the euro while we are in government, and so we will not participate in the eurozone stability fund. To be fair to my predecessor, he kept us out of that fund, but he did agree to the UK’s involvement in the European mechanism two days before we took office. I made it clear at the time that I did not believe he should make that commitment. However, it operates according to qualified majority voting and so we cannot stop it being used, and to exercise that vote at this time would, I judge, be very disruptive. So the EU will lend money to Ireland on behalf of all 27 member states, and the UK must accept its share of this contingent liability, which would arise in the unlikely scenario that Ireland should default on its obligations to the EU.

On top of this, I have agreed that the UK should consider offering a bilateral loan to Ireland, as part of the IMF and European package. I judge this to be in Britain’s national interest. Let me explain why. We have strong economic relations with Ireland. Ireland accounts for 5% of Britain’s total exports—indeed, we export more to Ireland than to Brazil, Russia, India and China put together. Ireland is the only country with which we share a land border, and in Northern Ireland our economies are particularly linked, with two fifths of its exports going to the Republic.

Just as our two economies are connected, our two banking sectors are also interconnected. I should stress that the resilience of our own banks, which are now well capitalised, means that they are well placed to manage any impact from the situation in Ireland. But two of the four largest high street banks operating in Northern Ireland are Irish-owned, accounting for almost a quarter of personal accounts. The Irish banks have an important presence in the UK. What is more, two Irish banks are actual issuers of sterling notes in Northern Ireland. It is clearly in Britain’s interest that we have a growing Irish economy and a stable Irish banking system. By considering a bilateral loan, we are recognising these deep connections between our two countries and, crucially, it has helped us to be at the centre of the discussions that have shaped the conditions of an international assistance package that is of huge importance to our economy. Of course, this is a loan and we can expect to be repaid. In fact, Sweden has already deemed it to be in its national interest to consider a bilateral loan to Ireland.

Now that the Irish Government have requested assistance, a lot of the detailed work of putting together the package can take place. I understand that Members are keen to hear the specifics, such as the rate of interest on the loans, the repayment periods and the contribution from each of the various elements of the package. I shall keep the House informed.

Later this week, the Secretary of State for Northern Ireland and my hon. Friend the Financial Secretary to the Treasury will be in Northern Ireland to discuss the situation there. I will ensure there is a specific discussion in the House if there is a bilateral loan, and we will need to take primary powers.

Finally, let me say something about the future of the various European support funds, which are being discussed later this year. Both the Prime Minister and I are very clear that when it comes to putting in place a permanent eurozone bail-out mechanism, the UK will not be part of that.

This is a situation of great difficulty for Ireland and it is a tragedy when it did so much to improve its competitiveness with low taxes and flexible labour markets, but the truth is that it had a hugely leveraged banking sector that was badly regulated—a pattern that we have had to deal with in our own country. In addition, because Ireland is a member of the euro, exchange rate flexibility and independent monetary policy were not tools available to it when the crisis took hold. The arguments against Britain joining the euro are well rehearsed, not least by me, but although “I told you so” might be correct, it does not amount to an economic policy.

When the coalition Government came into office, Britain was in the financial danger zone. We have taken action to put our house in order. We were once seen as part of the problem, but we are now part of the solution. Ireland is a friend in need and it is in our national interests that we should be prepared to help at this difficult time. I commend the statement to the House.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

I thank the Chancellor for advance notice of his statement and for keeping me informed about developments over the weekend.

The Opposition agree with the Chancellor’s basic argument that Ireland is a friend in need and that Britain should not simply ignore the plight of one of our biggest trading partners because it is in the eurozone and we are not. So we are in principle content to support a role for the UK in assisting Ireland to secure economic stability.

The Chancellor talked about the resilience of our banks, and the question that many people will be asking today is why he thought it was wrong for the previous Government to support British banks but right for his Government to support Ireland’s banks. On the crucial question of ensuring that Britain’s contribution is fair and balanced, will he first explain how our relative share of the burden will be calculated and what his definition of “fair” will be?

Secondly, will the Chancellor give his expectation of the proportion of UK support that will go through each European route—the European financial stability facility, the stabilisation mechanism and the bilateral arrangements—and the rationale for that distribution? He said that he disagreed with the agreement that my right hon. Friend the Member for Edinburgh South West (Mr Darling) made in May to enter the European stabilisation mechanism, yet the Chancellor is seeking to provide bilateral support. Why does he need to provide bilateral support when the other routes are available? Will he also tell the House how, when and where each element will appear in Government accounts?

Thirdly, what interest rate is to be charged on our loans, what form will it take and when does the Chancellor expect to receive full repayment? I understand the issues he mentioned about not being able to tell us now, but if he cannot give us any indication, when and how will that information be reported to the House?

Fourthly, what conditions will the Chancellor seek to apply, and is he preparing this proposal unilaterally or in conjunction with our European partners? Will there be any attempt to interfere with Ireland’s right to set its own tax rates? Will the Chancellor tell us to what degree he believes the difficulties are a consequence of Ireland’s adoption of the euro? What does he think this will mean for the future of the single currency? When his right hon. Friend the Foreign Secretary was asked if he thought the euro would survive, he shrugged his shoulders and said, “Who knows?” That strikes me as being at the least undiplomatic and at most unworthy of the great office he holds. It could even be said to be making “I told you so” into an economic policy. How would the Chancellor answer the question about whether the euro will survive?

Finally, it is clear that Ireland’s efforts to cut its deficit so deeply and quickly have failed to lead to growth in the economy. The private sector has not taken up the slack caused by the huge cuts to public services, so will the Chancellor agree that growth is crucial to Ireland, Europe and, indeed, to the UK’s full recovery and tell us what steps he is taking to encourage growth as part of this package? In 2006, he said that we should “Look and learn from across the Irish Sea”. In a eulogy of the deregulation of the financial services sector, he asked:

“What has caused this Irish miracle, and how can we in Britain emulate it?”

Now he needs to assure us that he has learned other lessons from across the Irish sea. The last time he made a statement from that Dispatch Box, he said that Britain was on “the brink of bankruptcy”, but that was clearly not the case. Now he is proposing to make a substantial contribution to a country that really is on the brink. One lesson from Ireland should be salutary: exaggerated rhetoric affects confidence and loss of confidence can lead to economic disaster.

[Mr Osborne]

I certainly agree with that last statement. First, I welcome the support in principle that the Opposition have given to this decision and I well understand that the shadow Chancellor, like everyone else in the House, will want to see the specific terms and conditions. The IMF-EU team hope to conclude those in the next couple of weeks and then, of course, I will bring those details to the House.

On burden sharing between the different European channels, we will make no contribution through the stability facility—the eurozone facility. In relation to the mechanism—money lent off the back of the EU—if Ireland were, in an extraordinary situation, to default on that then we, as one of the 27 members of the European Union, would have a contingent liability. That is how the mechanism operates. On the terms of the bilateral loan, we have not yet set a figure on that, but it will be in the billions, not the tens of billions. On that, too, I will come to the House when I have a specific figure. As I have said, we will be required to take primary powers to make that bilateral loan and I would hope to have Members’ support in doing that.

The shadow Chancellor mentioned the mechanism. In the period between the general election and the creation of this Government, to be fair, as I said in the statement, the former Chancellor of the Exchequer made it clear that he did not want the UK to be part of the eurozone facility, but he did agree to the use of the mechanism. It is based on article 122, the original intention of which was to provide support to eurozone members in dealing with natural disasters. At that time, I said that I did not think that we should be committing to that, but that debate was had in May. The mechanism exists and, frankly, for the UK to say now that we will vote against its use would, as I have said, be very disruptive.

The question of the accounts is for the Office for National Statistics and the Office for Budget Responsibility. My understanding is that the loan will of course add to borrowing but that we will get an asset in return—an Irish commitment to pay back the loan—and that it will not add to the deficit.

On the conditions attached to the loan, I would expect them to be part of the international package agreed with the IMF and European Union contributions, so I would not expect radically different conditions for the UK.

I think it is well known that corporation tax has been the subject of discussion in some European Union capitals, but not here—we believe that countries should be free to set their own tax rates. The Irish Government have to make some very difficult decisions about their fiscal package over the next four years, and how that package is composed should be a decision for them—provided, of course, that the international community is satisfied that it is credible, and I am absolutely sure that we will be satisfied.

Finally, the right hon. Gentleman asked two questions, one about the future of the euro and so on. As I have said, we made lots of arguments about not joining the euro 10 years ago and I do not—[Interruption.] I cannot remember what the Opposition’s official policy is, but it probably does not bear consideration. I would just make the point that I am dealing with the situation as I find it today. We can debate the merits of the euro at another time; I have to deal with the Irish situation.

On the deficit and Ireland’s decisions, I have to say that in all the discussions I have been involved in during recent weeks, not a single person around the international tables has suggested that Ireland should be doing less to address its fiscal situation. I would have thought that the current economic environment in the world would surely remind everyone of the risks run by countries with very high budget deficits and no credible plan to deal with them. Unfortunately, we inherited a higher budget deficit than Ireland’s, so I hope that the right hon. Gentleman and the Leader of the Opposition, in this big rethink they are having, will re-evaluate their opposition to a fiscal plan that has taken Britain out of the financial danger zone, which means that we are not one of the countries speculated about at the moment. I hear today that the Leader of the Opposition says that their economic policy is a blank sheet of paper. Quite frankly, I do not think that it would be much use taking that into an international negotiation.

Oral Answers to Questions

Debate between George Osborne and Alan Johnson

Tuesday 16th November 2010 Commons Chamber

[Mr Osborne]

I can give my hon. Friend that assurance. A few months ago, he and I visited some small businesses in his constituency, many of which were suffering under the burden of a tax code that has grown from 4,900-odd pages in 1997 to 11,500 pages today. The Office of Tax Simplification is specifically looking at the taxation of small businesses as well as at the issue of tax reliefs. The small business report will be coming out later next year, but we will get an interim report in time for the Budget.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

I add the congratulations of this side of the House to Prince William and Catherine Middleton on their engagement. If they need a photographer, I understand that there is one available now. There has been a nice juxtaposition of announcements this morning. Does the Chancellor think that he is aiding tax simplification by raising VAT to a nice round 20%, and does he agree with his Cabinet colleague, the Business Secretary, who once described an increase in VAT as

“a tax on the poor to absolve the sins of the rich.” ?

[Mr Osborne]

I have to say to the shadow Chancellor that his position on VAT is completely incoherent. It is well known that my predecessor, the right hon. Member for Edinburgh South West (Mr Darling), was planning a VAT increase, had pressed the Prime Minister at the time for a VAT increase, and—he is in the Chamber so perhaps he can confirm this—when asked about it on “The Andrew Marr Show” after the election, said that of course he would have gone ahead with one.

[Alan Johnson]

That was not the question. The fact that one looks at every available tax before reaching a conclusion is nothing new. The conclusion we reached is that VAT should not be increased and that national insurance should be. The Liberal Democrats have been very fair in the way that they have betrayed the electorate. They have broken promises across the age divide—children, students and pensioners—so there is no age discrimination there. The Conservatives specifically said that they would not increase VAT. During the election campaign, we said that if they did not increase national insurance, they would increase VAT. The Prime Minister denied that and said that they had no plans to increase VAT. He said that VAT was

“very regressive, it hits the poorest the hardest”.

I can promise Members that it does. We are now in the unique situation in which we face a tax rise that our Prime Minister has promised will affect “the poorest the hardest”. At the time, the Conservatives said that an increase in national insurance would be “a tax on jobs”. The Chartered Institute of Personnel and Development said that it would lead to 75,000 jobs being lost while an increase in VAT would cost 250,000 jobs.

Comprehensive Spending Review

Debate between George Osborne and Alan Johnson

Wednesday 20th October 2010 Commons Chamber

[Alan Johnson]

Today is the day that abstract figures and spreadsheets turn into people’s futures, people’s jobs, people’s pensions, people’s services and their prospects for the future, and the day when the statistics that were nestling comfortably in the lap of the Chief Secretary yesterday actually become the uncomfortable truth for many people and families throughout this country.

We hear the chant on every occasion, but Government Members are deficit deceivers. They have peddled a whole series of myths to the British public. The most incredible myth of all is that the biggest global economic crisis since the great depression is the fault of the previous Government—[Interruption.] You see? The strings are pulled and away they go.

The Chancellor said that the Government have brought Britain back from the brink of bankruptcy. Perhaps he will confirm three facts. Fact No. 1: when the global crisis hit, the UK had the second-lowest debt of any G7 country. Fact No. 2: the previous Government inherited a debt interest level of 10p in every £1 of tax received, and even after a world recession, we bequeathed a figure that was 15% lower. Fact No. 3: the interest rates that the UK pays on its debt have been falling since the beginning of the year. Perhaps the Chancellor, in the interests of accuracy, can confirm those statistics.

When the last comprehensive spending review took place in 2007, the Chancellor was the shadow Chancellor. Was he calling for reduced public spending? Read the Hansard. Was he calling for regulation of the banking industry? I have two things to say about 2007. I have read his contribution to the debate. First, instead of arguing for reduced public spending, he argued that we were spending too little. He complained that we were slowing the growth in health and education expenditure. Indeed, the Conservative party supported every penny of our spending plans until well after the collapse of Lehman Brothers in America, which set off the disastrous chain reaction that caused the global recession.

In 2007, far from calling for regulation of the banks, the Conservatives were calling for deregulation of the banks. The right hon. Member for Wokingham (Mr Redwood) produced a report on behalf of the then Leader of the Opposition who had called for greater regulation of the banking industry. We need to get the facts right.

The Chancellor described his emergency Budget in June as being unavoidable and fair. We know that it was unfair, because the IFS produced the statistics with devastating and forensic accuracy a few hours later, and we also know that it was avoidable. The deficit has to be paid down—[Hon. Members: “Ah!”] Here they go again. The Chief Whip’s spreadsheet tells them when to stand up and what to say. Where is he? He does not need to move to have influence on his Back Benchers. So we do need to bring the deficit down.

Today’s reckless gamble with people’s livelihoods runs the risk of stifling the fragile recovery. The ridiculous analogy with credit card debts insults the intelligence of the British public. If countries around the world had not run up debts—that is what the fiscal deficit is, by the way—to sustain their economies, people would have lost not their credit cards, but lost their jobs, lost their houses and lost their savings. The Liberal Democrats know that, and they argued that when seeking the support of the electorate. The Deputy Prime Minister argued that, and then he discovered Greece. In the period between the ballot box closing and his ministerial car door opening, the Deputy Prime Minister discovered a different approach.

Like us, the Liberal Democrats—every single one of them—were elected to this House on a platform that said, in the context of reducing the deficit, that speed kills. The Chancellor repeats a long list of those who support his swift cuts; he mentions it all the time. Curiously, he failed to mention the other countries in the United Kingdom—Scotland, Wales and Northern Ireland—which do not support these measures. Perhaps that is why he calls himself a one-nation Tory. Here is another supportive quotation that he missed out, and he can take this down and use it in future briefings:

“The measures we have taken have been commended by international bodies such as the European Central Bank, the European Commission, the IMF and the OECD. They have also won the approval of the international markets.”

That was the Irish Minister of Finance last December, when he told the Irish Parliament that his austerity plan meant that they had turned the corner. Four months later, they slid back into recession.

The concerns of those watching this announcement today went beyond the misrepresentation of figures and the clever Punch and Judy stuff in which we all engage—including myself at times. They will be interested in whether they will stay in work, whether they will stay in their homes and whether they will stay safe on the streets. We are told that the expected job losses from this spending review—and the Chancellor confirmed it—will be some 490,000. PricewaterhouseCoopers reported last week that 1 million jobs were at stake because the impact on the private sector is just as severe. Is it not the case that at the same time as the Government are throwing people out of work, they are reducing the support to help people return to the workplace?

I applaud the ideas and the efforts of the Secretary of State for Work and Pensions to do what we were seeking to do and make work pay—[Interruption.] He often gives credit to what we did when we were in government. The fact is, however, that today’s proposals will make it harder for people to return to work because of the changes to working tax credit; because of the changes to support for working parents; and because of the huge increase in fares for those who have to travel to get the jobs. The Secretary of State has had his job made harder by today’s announcement.

On housing, the Chancellor has announced the retreat of central Government from any role in building new affordable homes. Can he tell the House how many jobs will be lost in the construction sector as a result of his decision to all but end capital funding for house building? Crime has fallen dramatically in the last 13 years. I heard what the Chancellor said about the report from Her Majesty’s inspectorate of constabulary, but the Home Office is not a protected Department. As it deals with counter-terrorism and policing, the public will be worried that they will lose more police on the streets.

Spending has to be reduced—[Interruption.] Yes, spending has to be reduced, but the front-line services on which people rely must be protected. We support moves to ring-fence the health budget—[Hon. Members: “Ah!”] The point about the health service is not that its budgets will be protected, it is the taking of £2 billion to £3 billion out of those budgets to pay for a top-down structural reorganisation that the Conservatives told the public in their manifesto would not happen. This is the top-down reorganisation to end all top-down reorganisations, and we are already seeing the loss of jobs in the NHS as a result.

On education, the Chancellor mentioned that the pupil premium would be funded. There are stories already about teachers and teaching assistants losing their jobs as a result of today’s announcement. We will have to look at the statistics carefully, including the small print, before we can see what is happening on education. The Chancellor said that they will keep a version of education maintenance allowance. That is good, because it has been the biggest single contributor to lifting the number of children from poorer homes who stay in education—and it was introduced by the Labour Government. He told us that it will be introduced in some form, but he did not say how. Nor did he say what effect the removal of ring fences will have on Sure Start, which is crucially important to ensuring that we have a more progressive society.

On the NHS, we believe that the real-terms increase will be more than swallowed by the cost of the reorganisation. It would be good if the Chancellor could confirm that the baseline for the NHS will exactly reflect its actual budget this year. It seems to us from the statistics that there may be some smoke and mirrors.

Without growth, the job of getting the deficit down becomes impossible. A rising dole queue means a bigger welfare bill and less tax coming in—a cost of at least half a billion pounds for every 100,000 people thrown out of work by the Government’s approach. To get the deficit down, the starting point must be jobs, jobs, jobs. That remains the core of the difference between us and the Government. We were told that the Ministry of Justice will see 14,000 jobs cut. Does the Chancellor agree with the Department’s assessment that the vast majority of those—11,000—will be from the front line? Can he confirm that £230 million of taxpayers’ funds have been earmarked for redundancy costs in that Department alone? What is the total scale of redundancies expected across the public sector? What will the total redundancy bill be? Thanks to the Chief Secretary’s gaffe yesterday, we know that the Treasury has provided the Chancellor with estimates: he should share them with the House. Can the Chancellor confirm that the poorest will still bear a greater burden than the richest, with the middle squeezed even further, and that women will shoulder three quarters of the cuts? Does he still claim that these measures are progressive and fair?

There is an alternative approach. The Chancellor finished by suggesting that their cuts were the same as ours—[Hon. Members: “Less.”] Less than ours? That is even more utter and complete nonsense, for two reasons. First, the Conservatives calculated the 20% figure by some very dodgy formulae that stretched the limit of credibility for the protected Departments. Secondly, the Chancellor has not caught up with the fact that we have listed a series of measures with which we agree—for instance, the increase in capital gains tax and the changes to welfare. The Chancellor has not caught up with the statements that we have made about the welfare bill. We will look at the further measures that the Chancellor has announced today, but if we take the statements that we have made into account, we came into this debate with departmental cuts half the level of those that the Government are proposing.

This spending review is not about economic necessity; it is about political choices. The Chancellor argues that Labour would have done nothing about the deficit; he goes on to say that his cuts are no worse than ours. He cannot have it both ways. He cannot be right in both arguments, although he does manage to be wrong on both counts. The difference between us is that the Government are removing almost twice as much from Department budgets, while we were looking for a much more gradual, much slower reduction, which would not stifle the very low levels of growth in our economy. It is our firm belief that the rush to cut the deficit endangers the recovery and reduces the prospects for employment in the short term and for prosperity in the longer term. We believe that we can and should sustain a more gradual reduction, securing growth. I do not believe that the Chancellor or the Prime Minister sufficiently understands the worries and concerns of families up and down this country. Those worries will have multiplied considerably as a result of the Chancellor’s statement today.

[Mr Osborne]

He’s a nice guy, but he’s in the wrong job. The truth is this: frankly, either member of the Balls family would have done a lot better than that, and they might even have asked me a question or two, but let me try to respond to what he said.

The right hon. Gentleman keeps talking about a plan B, but he has not even got a plan A. There was a complete denial of the fact that this country has the largest budget deficit in the G20. He made no acknowledgement of the fact that the credit rating agencies were looking at this country when he was in the Cabinet and no acknowledgement of the fact that our market interest rates were the same as Spain rather than others. Frankly, he spent half his statement defending the economic policy of the last Labour Prime Minister—who perhaps could have turned up to hear it—but that is totally irrelevant to the questions put before the House today and the proposals that we have set out.

The right hon. Gentleman kept saying, “We want to reduce the deficit.” As far as I could tell, he did not agree with a single measure that I set out. He did not propose a single saving. He is a deficit denier, and the truth is this. We have been told for a whole year that we would get Labour’s deficit reduction plan. Before the election, let us remember, we were told in the debates, “Don’t worry, it’ll come after the election.” During the leadership contest, we were told that it would come after the leadership contest. After the leadership contest, we were told that it would come before the spending review, and then this morning, a member of the shadow Cabinet said on the radio, “We are not going to do an alternative to the spending review.” I then got this message in the Chamber that said that at eight minutes past 1 this afternoon, when the shadow Chancellor was actually in the Chamber, he sent an e-mail to members of the public saying:

“I’m going to be honest with you, being in opposition does mean”

we have to set out “a clear alternative”, and he then said, “Please share your thoughts with us.” Labour Members were in government until six months ago. They sat round the Cabinet table as the deficit increased. Six months later, they have not put forward a single idea for reducing the budget deficit. It is absolutely pathetic.

Despite the fact that the right hon. Gentleman says that he is relatively new to the subject, he dismisses, with a sweep of the hand, the verdict of the IMF, the OECD, the CBI, the chambers of commerce, the European Commission and everyone else who has looked at the British economy. I do not know whether he saw the letter from 35 leading employers in this country, but they included people such as the leaders of Asda and Microsoft—I know that the business community of this country is totally irrelevant to Labour now—and the person who founded the Carphone Warehouse, who I think used to be a supporter of the Labour party. All those people wrote to the national newspapers saying:

“Addressing the debt problem in a decisive way will improve business and consumer confidence.”

If the right hon. Gentleman wants to ignore all those people, what about Tony Blair? There is total silence on the Labour Benches for the man who won Labour three general elections. I think that the right hon. Gentleman was in the Cabinet when Tony Blair was Prime Minister, and he has said:

“The danger now is this: if governments don’t tackle deficits, the bill is footed by taxpayers, who fear that big deficits now mean big taxes in the future, the prospect of which reduces confidence, investment and purchasing power. This then increases the risk of prolonged slump”.

The right hon. Gentleman used to be a Blairite—[Interruption.] Well, at least the right hon. Member for Morley and Outwood (Ed Balls) has been fighting Tony Blair all his career and says he is wrong, but the shadow Chancellor used to be a supporter.

The right hon. Gentleman has dismissed all the leading businesses of Britain, all the international organisations and Tony Blair, but let me answer a couple of his specific questions—[Interruption.] Well, to be fair, in the space of about 10 minutes he asked three, so I will answer them. First, he asked about police numbers. Of course this is a challenge for the Home Office, but we believe that with the advice from the inspectorate of constabulary and Tom Winsor’s report, there will be no reduction in the availability and visibility of policing. However, the right hon. Gentleman was asked during the election—[Interruption.] He was the Home Secretary. [Interruption.] The new Leader of the Opposition asks—[Interruption.] This is what the man who was Home Secretary before the election said in the election, when he was asked a question on the “Daily Politics” show:

“Can you guarantee if you form...the next government that police numbers won’t fall?

Johnson: No”.

So what is the basis on which he makes his argument?

The right hon. Gentleman talks about the national health service, and he said that he agreed with our decision to ring-fence it. Presumably this is the same shadow Chancellor who said recently, “There is no logic, sense or rationality to this policy.” He has done a complete U-turn.

The right hon. Gentleman says that he rejects the minus 20% definition of the Labour cuts. At the same time, he began his statement by praising the Institute for Fiscal Studies, but that number comes from the IFS. He suggests that I have not paid attention to the announcements that he has been making this week. Well, it is true that I have been quite busy, but I have paid attention to what he has said. I understand that not many people got a chance to question him about his policies, but he said that taxes needed to be increased. However, when he was asked which taxes, he said that he was open-minded about it. That is a polite way of saying he hasn’t got a clue.

The right hon. Gentleman was once the great force of modernisation in the Labour party, and he has now ended up reading out the policies dreamed up by the new Leader of the Opposition. He said in that press conference earlier this week that being in opposition was not about “pretending to be in government.” Now we know how right he was.

Oral Answers to Questions

Debate between George Osborne and Alan Johnson

Tuesday 12th October 2010 Commons Chamber

[Mr Osborne]

It is good to see my hon. Friend. I make the observation that the situation is, unfortunately, yet another legacy of the previous Government. [Interruption.] Well, Labour Members obviously do not know the history: Tony Blair gave away our Budget rebate in return for the French reforming the common agricultural policy. So far as I have noticed, that deal has not held, and our contributions are rapidly rising. We have made strong arguments at the European level for similar budget restraints in the EU to those that member states are having to impose domestically. Of course, that will be our negotiating stance as we go into the new budget review period.

[Alan Johnson (Kingston upon Hull West and Hessle) (Lab)]

Will the timing of the spending cuts that are to be announced next week be exactly as laid out in June’s emergency Budget, and will the Chancellor confirm that the aim continues to be that the deficit will be eliminated by 2015?

[Mr Osborne]

First, I should welcome the right hon. Gentleman to his new role on behalf of all Government Members. I did the job for five years, and I hope that he does it for even longer than I did. The answer to his question is yes.

[Alan Johnson]

Well, the reason I ask is that there was some speculation at the weekend, when the Energy Secretary suggested, in a rather unfortunate yachting analogy, that he would not be “lashed to the mast” with a particular set of spending numbers. That is important, because from my vast experience in this job I am absolutely clear about this: the Chancellor says that the deficit was wrong and that his emergency Budget measures were unavoidable, but I believe that it is the other way round. The deficit was unavoidable if we were to avoid financial meltdown, and his Budget proposals were entirely wrong—wrong because they would, according to the Institute for Fiscal Studies, have two and a half times the adverse effect on the poorest as on the richest in our society, and wrong because he is seeking to cut public spending before there is any momentum for private sector spending in our economy.

[Mr Osborne]

Quite frankly, being in opposition involves choices, just as being in government does. The right hon. Gentleman talks about the Budget; there is a simple choice before the House today, which is whether we proceed with a graduate tax. Lord Browne’s report says that such a tax would add £3 billion to the deficit and would not produce savings until 2041. That is a real choice on the deficit before us today. The right hon. Gentleman is the shadow Chancellor and opposes a graduate tax; is he going to assert his authority over Opposition tax policy?