Banking Commission Report

Debate between George Osborne and Michael Fallon

Monday 19th December 2011 Commons Chamber

[Mr Osborne]

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

[Michael Fallon (Sevenoaks) (Con)]

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

[Mr Osborne]

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

Eurozone Crisis

Debate between George Osborne and Michael Fallon

Thursday 27th October 2011 Commons Chamber

[Mr Osborne]

The hon. Gentleman has consistently made that argument for at least as long as I have been a Member of the House of Commons, and longer still. He probably takes some comfort in the fact that events over the past decade have tended to reinforce the views that he has expressed, but I would say this: it is in Britain’s interest that we make the euro work. The disorderly break-up of the euro, or any break-up of the euro, would be an enormous economic blow for this country. Forty per cent. of our trade is with the eurozone.

If we set aside the arguments that we will have this autumn and next year about the domestic effects of the Government’s policies—the Government will argue that they promote growth, and the Opposition will argue that they undermine it—everyone in the House would accept that instability in the eurozone has had a chilling effect on the British economy and other economies. If that is what a bit of instability and market volatility can create, let us just imagine what the break-up of the eurozone will do to this economy.

[Michael Fallon (Sevenoaks) (Con)]

Will my right hon. Friend explain to the House what the consequences would have been for our membership of the IMF if those who had voted against the increase in our subscription had prevailed?

[Mr Osborne]

That would have been catastrophic. We would have been the only IMF shareholder not to have ratified the deal initiated at the London G20 summit, which would have completely isolated Britain. We might have had to leave the IMF, and we would certainly have lost our permanent seat on the board. We heard all the talk from the shadow Chief Secretary about ensuring that Britain is at the table—but she wants us to get up and leave the IMF table.

Eurozone

Debate between George Osborne and Michael Fallon

Monday 10th October 2011 Commons Chamber

[Mr Osborne]

I am not sure that the asset purchase facility was the enormous success that the hon. Gentleman implies. It probably did do a good job—again, I defer to the views of the Chancellor at the time, who would have seen the data closer up. The asset purchase facility helped to stop the collapse in the corporate bond market at the time, but it never led to the big increase in lending that the previous Government hoped it would. The Bank of England did not make use of the £50 billion facility that was made available. Although the facility remains, to date the Bank has made use of only around £1 billion. Instead of revisiting the theology, as it were, of who is responsible and the role of the Bank, my view has been that in order to maintain the proper division of responsibility between the Bank and the Government, who are accountable to Parliament, the Government should undertake credit easing operations with their own balance sheet, and that is what we are working on at the moment.

[Michael Fallon (Sevenoaks) (Con)]

What was the point of the European Banking Authority conducting two rounds of stress tests that excluded any serious test of banks’ exposure to sovereign debt? Surely it is in the interests of eurozone Governments to have such exposure made more transparent and to start facing up to how to tackle it?

[Mr Osborne]

My hon. Friend makes a very good point. We repeatedly argued that the stress tests should be tougher and more credible, but there were strong vested interests that did not want to see that happen and did not want to confront some of the problems in their own banking system. They are now having to confront those problems, however. The fact that Dexia passed the test, and that when it identified a capital shortfall it was in the low billions of euros across the entire European continent—given that tens of billions of euros were required to deal with the Irish problems that occurred around Christmas—demonstrates that those tests were not credible enough. To be fair, I do not think this is an EBA problem; it is more a problem with the membership of the EBA, but the association is now, with our support and encouragement, finally conducting what I think will be a much more credible set of assumptions for the European banking system.

Independent Banking Commission Report

Debate between George Osborne and Michael Fallon

Monday 12th September 2011 Commons Chamber

[Mr Osborne]

I will not repeat what I have said about the timetable. Suffice it to say that it is what John Vickers recommended, having really thought about it. This involves a combination of getting the detail right and ensuring that the changes do not unduly damage credit supply in the short term. That is why he has recommended a longer timetable. As he pointed out at his press conference this morning, once we propose such changes and start to legislate for them, some of them will start to happen anyway as banks try to get ahead of the curve—that is certainly what happened with Basel, although they were arguably too quick to get ahead of the curve in that instance—and that is what he anticipates happening when the changes are introduced.

[Michael Fallon (Sevenoaks) (Con)]

Given the report’s emphasis not only on the size of the British banking sector but on the lack of competition within it, will the Chancellor assure the House that he will follow through on the recommendations to encourage new and challenger banks to provide the finance that our small businesses desperately need?

[Mr Osborne]

I can absolutely give my hon. Friend that assurance. The report addresses the issue of Lloyds, which is required to sell branches under European Union state aid requirements. John Vickers thinks that the key test for the Government’s handling of the Lloyds issue will be whether we have created an effective challenger bank. He thinks that any such new bank should have about 6% of the personal current account market, which is more than the state aid proposals would lead to, and that it should be properly funded. I take those recommendations very seriously.

Global Economy

Debate between George Osborne and Michael Fallon

Thursday 11th August 2011 Commons Chamber

[Mr Osborne]

We are not proposing for a second to change our deficit reduction target. The target is a structural budget deficit target and was deliberately set as such. The reason we set out those plans in the emergency Budget and went beyond the previous Government’s mantra of halving the budget deficit in four years—not that they had actually written in the proposals to do that—was because on the day we came into office our country’s credit rating was on a negative outlook for a downgrade. Our market interest rates were tracking Spain’s and everyone from the Governor of the Bank of England to the IMF and the CBI was saying that the previous Government’s budget deficit plan was not credible. If we had stuck with that plan and even filled in the blank spaces, we would now be part of the sovereign debt crisis whirlwind that is engulfing other countries.

[Michael Fallon (Sevenoaks) (Con)]

Before there is any further attempt to rewrite history, can the Chancellor confirm again that until last year’s emergency Budget and spending plan this country’s triple A rating was on negative outlook and was restored to stable only through the measures he took last year? Is not the real lesson of the United States that any country that goes off its fiscal deficit reduction plan can suffer a downgrade, with all the damage to jobs and prosperity that that entails?

[Mr Osborne]

My hon. Friend is absolutely right. In January last year the largest bond investor in the world said that UK gilts

“are resting on a bed of nitroglycerine.”

Today I could read out a whole string of comments from market participants saying that the UK has been a safe haven in this sovereign debt crisis because of the decisions that we took.

Standard & Poor’s, the rating agency that has just downgraded the United States, took the United Kingdom off “negative outlook” and reaffirmed our triple A credit rating. The practical consequence of that is much lower interest rates. If we pursued the policy proposed by the Opposition of more spending and more debt, the immediate response would be higher interest rates which would kill off any recovery. That is why such a policy is economic madness.

Oral Answers to Questions

Debate between George Osborne and Michael Fallon

Tuesday 21st June 2011 Commons Chamber

[Mr Osborne]

There is this myth on the Opposition Benches that we inherited a golden economic legacy. It is not a myth believed in by the International Monetary Fund, the OECD or the CBI, nor is it a view shared by Tony Blair or the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), both of whom have identified—since the general election, of course—the fact that Labour was running into spending problems in 2007 and that the structural deficit was starting to build before the global economic crisis that the hon. Lady mentioned.

[Michael Fallon (Sevenoaks) (Con)]

How much greater would our public sector debt be if we adopted the completely unfunded and opportunistic proposal for a £13 billion VAT cut from the very people who racked up all the debt in the first place?

[Mr Osborne]

My hon. Friend draws attention to the completely ludicrous policy put forward by the shadow Chancellor last week—it was mentioned just on that Thursday, and has not been repeated by any Labour politician since—for a £13 billion unfunded tax change, or £51 billion over the Parliament. The policy is totally incredible, and was rejected by every serious economic commentator on the day. It just shows how far those on the shadow Front Bench have to go to make good for the mistakes that they made in office.

Oral Answers to Questions

Debate between George Osborne and Michael Fallon

Tuesday 21st December 2010 Commons Chamber

[Michael Fallon (Sevenoaks) (Con)]

Does my right hon. Friend not agree that the record borrowing figures announced today simply serve to underline the seriousness of the situation to which the spending review was addressed, as well as the importance of sticking to the fiscal plan that has been agreed and not deviating from it in the slightest?

[Mr Osborne]

My hon. Friend is absolutely right. This country has a record budget deficit; that is the situation we have inherited. We have made some in-year reductions, which have made it slightly less worse this year than it otherwise would have been, and then we have measures next year to try to bring the budget deficit down. Every one of those measures has been opposed by Opposition Front Benchers. They have put forward not a single plan, not a single proposal, to reduce the budget deficit, but our proposals have provided this country with economic stability, in a very unstable European continent.

Autumn Forecast

Debate between George Osborne and Michael Fallon

Monday 29th November 2010 Commons Chamber

[Mr Osborne]

What we have published today is a series of documents, which the hon. Gentleman has perhaps not had a chance to see yet. Some of them are on corporate tax reform, on intellectual property and on how in time for the Budget—after all, a White Paper proposes measures that will then be legislated for—we will have measures that will address the competitiveness of British industry. Our measures will specifically look at things such as the competition regime, the approach we take to attracting inward investment, how we improve our employment law and specific sectors. If he wants to involve himself in that process, I will make sure he can be part of it.

[Michael Fallon (Sevenoaks) (Con)]

Given the forecasting record of the Chancellor’s predecessor but one, who was frequently in error but seldom in doubt, is not the strength of these forecasts that they were prepared by independent officials, who cannot be and were not overruled by politicians?

[Mr Osborne]

That is, of course, a very significant feature of what is happening today. It is completely unprecedented for a Chancellor to present an autumn forecast that has been produced independently by people who have been verified by the all-party Treasury Committee and who had their own separate press conference. In addition, Members have had a couple of hours to look at this document. If one thinks back, for example, to a year ago and the pre-Budget report, when the previous Chancellor produced the autumn forecast, one recalls that he rattled off the numbers. There was absolutely no opportunity for the shadow Chancellor to have examined those numbers or to have looked at the document, or for any other Member in the House to have done so. It was the Chancellor’s judgment, rather than an independent judgment. Our approach is a major improvement to fiscal policy making in this country. The legislation is before the House of Lords, and I hope that when it comes to the House of Commons it will have all-party support.

Financial Assistance (Ireland)

Debate between George Osborne and Michael Fallon

Monday 22nd November 2010 Commons Chamber

[Mr Osborne]

It would not be particularly responsible of me to speculate on any other country at this time. Let me put it as clearly as I can: there are very specific connections between the UK and Ireland, which we do not have with other countries, and I think that is why it is completely appropriate that we make a bilateral loan in this case.

[Michael Fallon (Sevenoaks) (Con)]

Does the Chancellor agree that, when we end up having to lend very large sums of money to other countries, the Government should always be able to do so at their discretion, in a way that is accountable to this House and not at the mercy of being outvoted by other European countries?

[Mr Osborne]

My hon. Friend makes a very good point. As I say, a bilateral loan will be debated in this House and require the Government to take primary powers, so it is within the control of all Members, and we are accountable to the taxpayers of Britain for that. I have explained the situation, so I will not go over it again, but we are part of the European mechanism, which involves a qualified majority vote, and even if we had exercised a no vote we would have been completely outvoted. That is why I want to see that the UK is not part of the permanent bail-out mechanism, which will be discussed at the December Council.

Oral Answers to Questions

Debate between George Osborne and Michael Fallon

Tuesday 8th June 2010 Commons Chamber

[Mr Osborne]

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 (Sevenoaks) (Con)]

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?